Category: Economics
*The Princeton Companion to Applied Mathematics*
I have not yet had time to peruse my copy, but it appears to be a definitive achievement of sorts, 994 double column pages. The topics include the Navier-Stokes equations, communications networks, the Black-Scholes equations, finite differences, foams, the flight of a golf ball, and the mathematics of sea ice. The book’s home page is here. The lead editor is Nicholas J. Higham.
India (China) fact of the day
In nominal terms — the most appropriate measure when judging an economy’s global impact — India’s output is one-fifth that of China’s. India makes up a mere 2.5 per cent of global GDP against a hefty 13.5 per cent for China. If China grew at 5 per cent annually, it would add an Indian-sized economy to its already hefty output in less than four years. Saying India can match this is like saying a mouse can pull a tractor.
Auction markets in everything
Elephants, giraffes, lemurs, and even a cockroach at the Oakland Zoo have been exploring their creative sides to produce colorful paintings that will be auctioned for charity.
The painting sessions were conducted by zoo keepers who used only positive-reinforcement, including plenty of treats, as they worked with the animals, zoo spokeswoman Nicky Mora said.
Elephants were helped to hold paintbrushes in their trunks and giraffes in their mouths and produced their artwork one stroke at a time. Goats, lemurs, and meerkats had their hooves, paws or claws dabbed with nontoxic, water-based paint and ran over a blank sheet of poster board while chasing a treat.
Thirty-two of the works will be auctioned on eBay starting Thursday.
Andy, a Madagascar hissing cockroach, scurried around a canvas and the result was a piece in purple, green and yellow tones.
Maggie, a Nigerian dwarf goat, had her hooves dipped in blue, green and yellow paint and the keeper coaxed her with snacks to walk on a canvas.
I recall once reading that de Kooning was quite impressed by the paintings of an elephant. There is more here.
Neil Irwin on the rise of Stanford economics
But the recent recruiting success of Stanford shows something broader about how the economics profession is changing. The specialties of the new recruits vary, but they are all examples of how the momentum in economics has shifted away from theoretical modeling and toward “empirical microeconomics,” the analysis of how things work in the real world, often arranging complex experiments or exploiting large sets of data. That kind of work requires lots of research assistants, work across disciplines including fields like sociology and computer science, and the use of advanced computational techniques unavailable a generation ago.
That trend is evident across leading economics departments — the traditional powerhouses have plenty of scholars doing work in the same vein, including work by Esther Duflo at M.I.T. on how to test ways to fight global poverty and by Roland G. Fryer Jr. at Harvard on the roots of racial inequality. But the scholars who have newly signed on with Stanford described a university particularly well suited to research in that vein, with a combination of lab space, strong budgets for research support and proximity to engineering talent.
The article is interesting throughout.
Gun Drop Boxes???
Reporters often call me for insight into various issues or just a quotable comment. Yesterday, however, I had a hard time believing the policy the reporter wanted to talk about was real.
Tacoma, Washington wants to install boxes around the city so people can drop off their guns, no questions asked. But, but, but…seriously?
After the reporter assured me this was real I offered the following:
George Mason University economics professor Alex Tabarrok said [gun buyback] programs have been proven ineffective, and he predicted the same result for a drop box scheme. Anyone in the port city who wants to get rid of a gun discreetly, Tabarrok said, has an easy option: toss it in Puget Sound.
Not really something you need a PhD for but when you are tossed a softball you may as well hit it.
There is something to be said for simply reducing the hassle of disposing a gun for those who don’t want to sell but as a crime control measure this is a bust. Regardless of your views on guns not much will change if you don’t do something nationally about the big boxes where people can buy guns (otherwise known as stores).
Model this
Where in that market do you want to be? Who is there? For how long will things stay like this?
I thank Christopher Balding for a related pointer.
The altruistic logic of Chinese air pollution?
Kai Xue writes:
But I say in plain honesty that terrible air pollution while taken as mandarin indifference to public demands is to the contrary a manifestation of commitment to a mass middle class by the Chinese political system.
Policy deliberately trades off public health for blue collar jobs. Around Beijing are industries including steel mills and cement plants that are major polluters. About 1 in 10 tonnes of the world’s steel output is smelted in Hebei, the province surrounding Beijing. With so much local heavy industry, cleaning the air would start with plant closures that cause concentrated unemployment.
Whether this bargain of clean air for economic growth is a good deal is a fair question but whether it is virtuous public policy depends on the extent decision-makers are subject to or instead insulated from the consequences of self-produced actions.
Beijing is the seat of power in a centralized state. About one third of the thousands who hold junior ministerial rank or higher and many of the very rich reside here.
Regardless of stature, for every Beijing inhabitant air pollution is the most serious public concern.
That is from an Atlantic article by James Fallows.
Larry Summers is starting to blog on his blog
Does China hitting the wall reflect a deeper reality about emerging economy growth?
It’s easy enough to say the Chinese economy is slowing down and that is creating problems for some other countries around the world. Never settle for such a comfortable understanding! Might there be deeper ways to think about the problem?
I am not endorsing any of the following speculative hypotheses, rather they are attempts to imbed the Chinese slowdown into what is possibly a broader framework. Here are a few possibilities:
1. We’ve been realizing that autocratic government isn’t as effective as we had thought.
2. We’ve been realizing that virtually all of the world’s emerging economies will be hit by “premature deindustrialization,” China included. China will produce more manufactured goods, but because of automation this will never build a fully-sized middle class in China. And historically service sector jobs have never had the same kind of oomph at lifting a nation over various development hurdles. The same limitations may apply to a variety of other countries.
3. Perhaps developing nations have reached “peak stuff”? That may mean the Chinese manufacturing model, along with the manufacturing models of other nations, will prove less potent than we had thought.
4. Maybe we’ve been learning that a demographic slowdown is harder to reverse, and is more costly for long-run growth, than we had thought.
5. The geopolitical stability of the South China Sea is not as robust as it seemed three or four years ago.
What else?
In each case the relevant realization may be popping China, and some other emerging economies, out of better multiple equilibria and into inferior multiple equilibria (“is Greece a Balkans nation or a European nation?”).
Again, I am not dismissing the highly relevant China-specific factors of excess capacity, high municipal debt, real estate bubble, and so on. I am simply wondering what other broader trends may be operating here beneath the surface.
Trading down and the business cycle
From the new NBER paper by Nir Jaimovich, Sergio Rebelo, and Arlene Wong:
We document two facts. First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks.
In other words, we should subsidize relatively expensive goods as a downturn approaches…and tax thrift shops at a higher rate…?
Why am I not seeing anyone back out the implied growth rate from these numbers?
The 13.8% decline in imports was significantly worse than consensus expectations for an 8.2% decline, and will only add to concerns over declining Chinese demand.
Under what required assumptions would this translate into a growth rate of say four percent? Backward-looking? Forward-looking? Or is this just a slow structural shift as the Chinese economy gradually moves into services? Inquiring minds wish to know.
The full report is here.
What Henny Sender says about China
“It is neither the sell-off in Chinese stocks nor weakness in the currency that matters most,” notes George Saravelos, a currency strategist in London with Deutsche Bank. “It is what is happening to China’s FX reserves and what this means for global liquidity. The People’s Bank of China’s actions are equivalent to an unwind of QE or, in other words, Quantitative Tightening.”
The FT story is here. Another way to put it is that a weaker Chinese currency will mean stronger currencies elsewhere and thus net deflationary pressure.
Damned if they do, damned if they don’t
The Syrian-Lebanese have a long history in Haiti, and in fact they account for most of Haiti’s very wealthiest families. They are also sometimes resented by the other Haitians for their extreme commercial success. Here is one illustrative but not fully objective account from Wikipedia:
Since the early twentieth century there was a Syrian community in Haiti. This consisted of roughly 500 people, mainly engaged in trade and many of them were Syrian Americans. The entire business community of Syrians, however, tended to sell their products to the United States. Over time, the importance of these merchant foreigners grew, reaching positions in the political order of the country. It is of enormous importance to the country, that surpassing most of the Haitians in government (one that was formed by the social elite of Haiti, against a poor majority), caused major uprisings against the Syrians and the idea widespread among Haitians was that they should be deported. Therefore, the Syrian American club sent a letter to the U.S. State Department of Washington D.C., explaining the reasons why the island was purchased for trade with the U.S. and asked for help and advice from the U.S. Federal Government. At that time the Syrians had also addressed the majority of imports of goods to Haiti, both in the field of provisions as in beverages. Syrian traders also were, at present, the only foreign traders willing to work under native conditions than other groups of traders that were rejected. So, they sold wholesale. However, these traders were occupied all trades with the country, which made them gain rejection of a significant part of the population. Thus, the Haitian government launched a new political program that limited the Syrian trade in the country.
Of course Haiti could take in more “Syrian-Lebanese” too, but this would be unpopular in some circles because…the previously Syrian-Lebanese have been…too successful.
*Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe*
The new Greg Ip book is coming out soon, I just bought my copy…
The Costs of Occupational Licensing
On Labor Day let’s all read the excellent White House report on occupational licensing:
…the current licensing regime in the United States also creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job. There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing. In some cases, alternative forms of occupational regulation, such as State certification, may offer a better balance between consumer protections and flexibility for workers.