Category: Economics

The TPP debate is alive and well

by  Tyler Cowen in

Here is Ezra on TPP:

5. Here’s how the White House sees it: there will either be a trade deal with America at the core of it that forces countries like Vietnam and Malaysia to live up to labor and environmental standards the Obama administration finds acceptable, or there will be a trade deal with China at the core of it that forces countries like Vietnam and Malaysia to live up to labor and environmental standards China finds acceptable. Which would you prefer?

6. There’s also a bigger foreign policy objective here. TPP is central to the Obama administration’s long-heralded “pivot to Asia.”…

Do read the whole thing, to not pursue some version of TPP is basically to turn our backs on much of Asia.  Or think of TPP as an attempt to cartelize ASEAN nations and others in the region against Chinese one-by-one bilateral bargaining, most of all on geopolitical issues, not just labor and environmental standards.

Matt Yglesias comments, he says beware of economists (i.e., me) bearing foreign policy arguments.  And here are Autor, Dorn, and Hanson on TPP, as Dani Rodrik pointed on on Twitter they offer a relatively mercantilist argument in favor of the agreement.

Did economic incentives destroy lower-income families?

by  Tyler Cowen in

That tale doesn’t seem to fit the data.  DarwinCatholic reports:

There follows more hand-waving about how things are tough for those at the lower end of the economy. And they are. But here’s the problem. They always have been. The effect that we’re looking to explain is a massive decrease in marriage rates and increase in out-of-wedlock childbearing. If we’re going to explain that as driven by a bad economy, we’d expect to see the incomes of those people getting worse, right? But they haven’t.

There has been a near stagnation for the lowest quintile, but not general income declines.  And if I understand the author correctly those figures do not include government benefits, and it is widely admitted that the “war on poverty” has brought some successful results.  Or try this:

Since 1960 the out-of-wedlock birth rate for African Americans has increased by about 3.5x while the rate for Whites has increased by 10x. If you look at median incomes by race via the Census, you’ll see that inflation adjusted median income for African American men has gone up by 82% from 1960 to 2001, while for white men it’s only gone up by 35% (for women those numbers are 272% and 135% respectively.) This does have a certain inverse relation to what we see on out-of-wedlock births, in that white out of wedlock births have increased more, but again we have the problem that incomes have in fact gone up, while marriage and the family have clearly gone down.

Maybe “cultural factors” do play a role and it is not all about wages and the economics.  In passing, here is your “Jordan fact of the day”:

The US shows up low on the list, while right at the top with 94% percent of children living with two parents is that well known northern European social democracy… Jordan.

The post is excellent and interesting throughout.  For the pointer I thank Will.  In the meantime, score one for David Brooks.

United States facts of the day

by  Tyler Cowen in

Joe Uva, chairman of Hispanic enterprises and content at NBCUniversal, a big media company, is fond of telling fellow executives that with a combined purchasing power of $1.1 trillion, if Hispanic-Americans were a country they would rank 16th in the world.

That is from The Economist, via Rami Kiwan.  I would amend this by noting I am not aware of any very exact calculation of the purchasing power of Hispanic-Americans, so there is perhaps a bit of a caveat emptor here, still as a ballpark estimate this seems reasonable.  There is this too:

A giant reason to be optimistic about the rise of Hispanics is that they are making America much younger. The median age of whites is 42; of blacks 32; and of Hispanics 28. Among American-born Hispanics, the median age is a stunning 18.

The article is interesting more generally.

Markets in everything, hunting mutant animals edition

by  Tyler Cowen in

More than 99.9 percent of all wild gnus, also called wildebeest, from the Afrikaans for “wild beast,” have dark coats. But this three-year-old golden bull and his many offspring are not an accident. They have been bred specially for their unusual coloring, which is coveted by big game hunters.

These flaxen creatures are the latest craze in South Africa’s $1 billion ultra-high-end big-game hunting industry. Well-heeled marksmen pay nearly $50,000 to take a shot at a golden gnu — more than 100 times what they pay to shoot a common gnu. Breeders are also engineering white lions with pale blue eyes, black impalas, white kudus, and coffee-colored springboks, all of which are exceedingly rare in the wild.

“We breed them because they’re different,” says Barry York, who owns a 2,500-acre ranch about 135 miles east of Johannesburg. There, he expertly mates big game for optimal — read: unusual — results. “There’ll always be a premium paid for highly-adapted, unique, rare animals.”

…No one disputes that there’s money to be made in rare big game. Africa Hunt Lodge, a U.S.-based tour operator, advertises “hunt packages” to international clients traveling to South Africa that include killing a golden gnu for $49,500, a black impala for $45,000, and a white lion for $30,000.

There is more here, and for the pointer I thank Kaushal Desai.

How much of a drag on growth is a strong U.S. dollar? How good is a weak euro?

by  Tyler Cowen in

Scott Sumner says much of what I would, namely don’t reason from a price change.  I would make a related point, but in reverse, about the now-weaker euro.  Yes, it does in the short run help the eurozone exporters and thus the eurozone economies.  But it also makes imports more expensive, all the more in the longer run as the exchange rate pass-through effect on domestic import prices holds more fully.  Even in the short run, it makes the citizenry less wealthy as measured in other currency units of account, at least assuming that people and institutions in the eurozone are holding a disproportionate share of euros, a plausible assumption.

All in all, the weaker euro is likely to prove a net benefit to the eurozone, all the more so if monetary policy can drum up some expansionary domestic benefits above and beyond the exchange rate effect.  Still, if you deliberately engineer a depreciation of your currency out of weakness and desperation, the long-run benefits usually don’t match up to that immediate feeling of short-run juice.

To where should you vote with your feet?

by  Tyler Cowen in

Mark Brown asks me:

If voting with your feet was your preferred method, what would be the best country to immigrate to from the United States for: A) Progressives B) Social Conservatives C) Libertarians

As a follow up, a common expression in the US among adults as I was growing up was “its a free country”. That expressed both disdain of the expressed course of action and a willingness to let the fool do what he wanted. Tom Sawyer and Huck Finn are literary representatives of that, what should I call it, frontier freedom? Are there countries that even if the official line is restrictive, the feeling of liberty might be much greater? Am I nuts to feel that in many ways the US is less free than it was a couple of generations ago?

For Progressives I’ll pick Denmark.  They have high taxes and ultimately they are not too friendly toward immigration, instead preferring to keep their social policy comprehensive and expensive.  Sweden may not quite manage the same, although they are still a fairly high pick on this list.  Another direction to look would be Australia, where government spending is most likely to actually be redistributive.

For Social Conservatives, I say Singapore.  They are tough on drugs and the citizens are expected to work and required to save.  Parents are treated with respect, at least relative to the West, and when it comes to births at the very least they are trying hard with subsidies and ads on buses.  An underrated pick here would be France, by the way.

For Libertarians, I say the United States.  For all of the statist intervention in this country, it remains the place where markets are capable of exercising the most power for the better.  And it is no accident that such a huge chunk of the world’s libertarians are also Americans, or at least heavily American-influenced.  Singapore is in the running for this designation, with its government at eighteen percent of gdp, but so many things there are planned so comprehensively and the attitude of the country is more technocratic than free market per se.  Hong Kong is no longer such a free economy, having come under increasing Chinese influence not to mention law-enforced cartelization, and that is on top of their government-supplied housing stock and single payer health care system.

As for the last part of this question, the relatively peaceful parts of Mexico, in my view, very often feel freer than the United States.  But I am never sure how much that is worth.

Indonesian markets in everything

by  Tyler Cowen in

When a listing for a house in Yogyakarta, Indonesia, appeared on a real estate website with the headline “RUMAH DIJUAL: Beli Rumah Bisa Ajak Pemiliknya Menikah” (HOUSE FOR SALE: Buy the house and you may marry the owner”) many people assumed it was a joke.

But the house’s current owner says the above ad, which is featured on property website rumahdijual.com, is completely serious.

Below the listing price of the house (Rp 999 million or about US$76,500), the ad reads: “Offer of the century!!! Buy the house and you may marry the owner (terms & conditions apply). Only for serious buyers and without negotiation.”

The link is here, the pointer is from Dan.

The rent is too damn high!, Hong Kong dead people’s edition

by  Tyler Cowen in

From Amie Tsang:

Sage International, the Hong Kong-listed funeral services group that is Ms Ma’s employer, has struggled for so long to find spaces that it has started encouraging its clients to use an alternative way to commemorate their loved ones — turning their ashes into gemstones.

She says a few hundred customers each year choose this glittering way to commemorate the deceased. She has even used the service herself. “This is my father,” she says, pointing at the stone in her earring.

Why Paul Krugman is wrong to oppose the Trans-Pacific Partnership

by  Tyler Cowen in

I agree with much of the economics in his post, though I would frame the points with a different kind of rhetoric.  But I think Krugman is nonetheless wrong to oppose TPP.  You will notice the word “China” does not appear in his argument.  He closes with a question: “Why, exactly, should the Obama administration spend any political capital – alienating labor, disillusioning progressive activists – over such a deal?”  The answer is simple: either this deal happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well.

Addendum: Brad DeLong comments.

Open market operations for negative nominal yield bonds

by  Tyler Cowen in

There are lots of those such securities these days, so what happens when a central bank buys up some with monetary reserves?  An email from Scott Sumner prompted me to address this question more directly than my mere mention from yesterday.  I see a few scenarios, none of which satisfy me:

1. Buying the securities lowers long rates further and depresses the value of the currency, which is broadly stimulatory.  Arguably this would follow from a Keynesian model.

2. Currency determines the price level, not bonds, as in Fama (1980).  Alternatively, old-style monetarists might believe that something like M2 determines the price level.  Either way, we can expect the OMO to raise the price level and perhaps depress the exchange rate as well.

3. Portfolio theory means that the lower rate (indeed negative rate) instruments must have higher liquidity premia.  Buying up higher liquidity instruments with lower liquidity instruments (i.e., currency) ought to be contractionary.  Don’t be fooled by Fama and the monetarists, in a world of credit it is all about liquidity in the broad sense and that in this scenario is going down.

My intuitions are closest to number three, but I am not trying to claim that is being verified empirically.  And oh, there is also #4:

4. If nominal rates are negative, all the action is in the risk premium.  And the effect of this asset swap on the risk premium is????

I would gladly link to the first person to write a serious short paper on all of this.

Who was Corrado Gini?

by  Tyler Cowen in

Corrado Gini, he of the Gini index, was a numbers man, at a time when statistics had become a modern science. In 1925, four years after Gini wrote “Measurement of Inequality of Incomes,” he signed the “Manifesto of Fascist Intellectuals” (he was the only statistician to do so) and was soon running the Presidential Commission for the Study of Constitutional Reforms. As Jean-Guy Prévost reported in “A Total Science: Statistics in Liberal and Fascist Italy” (2009), Gini’s work was so closely tied to the Fascist state that, in 1944, after the regime fell, he was tried for being an apologist for Fascism. In the shadow of his trial, he joined the Movimento Unionista Italiano, a political party whose objective was to annex Italy to the United States. “This would solve all of Italy’s problems,” the movement’s founder, Santi Paladino, told a reporter for Time. (“Paladino has never visited the U.S., though his wife Francesca lived 24 years in The Bronx,” the magazine noted.) But, for Gini, the movement’s purpose was to provide him with some anti-Fascist credentials.

There is more here at the Jill Lepore review of the new Robert Putnam book (and other books), via the excellent Kevin Lewis.  And please no, I am not trying to suggest that an interest in inequality numbers is fascist in orientation, I simply find such historical tidbits fascinating.  Here are further sources on Corrado Gini, not surprisingly he was into eugenics too.

Why is the Greek government so popular with left-wingers?

by  Tyler Cowen in

Even though the Greek electorate has elected left-wing leaders, the “the Greek government” hasn’t actually changed all that much.  It is still dysfunctional, corrupt, and very protective of special interests in nationally harmful ways.  Yet I find that if I criticize the Greek government on Twitter I receive many angry, self-righteous comebacks, often but not always from Greeks and usually with a left-wing slant.

One reason the Greek government is so popular with “the Left” has to do, I think, with theories of social change.  I often read or hear it suggested that, if only the truth is spoken in forthright, galvanizing terms, beneficial social change will follow.  This was a common meme in Krugman’s columns for instance over the years.  The claim was that Obama needed to be more like FDR and mobilize a coalition around a commonly articulated series of truths.  I don’t think it was ever promised this would succeed right away, due to Republican intransigience, but it has been portrayed as a good long-run investment in political change through the education of the citizenry.

The new Greek government of course has done this and more.  They have rather flamboyantly staked out extreme positions, insulted their opponents, and warned of the doom that will follow if renegotiations were to run along the lines of EU law rather than the New Old Keynesian economics.  They told their citizenry how much they were standing up for them, and how much this was a moral clash of progressive good vs. austerity evil, with the values of democracy and national sovereignty (supposedly) on the side of good.

The thing is, it’s turned out to be a total catastrophe.  As I had suggested early on, there is, in the ruling Greek coalition, no Plan B.  Germany and especially Spain just held tight on the negotiations and the Greek government more or less had to fold, not even wanting to vote on the negotiated plan.  That plan then failed to receive European approval, nor has Greece drummed up much general support from the other peripheral countries, and now no one knows what to do next.  The ECB, IMF, and others still have Greece “by the balls,” to cite one colloquial expression.  They’re still trying to spin that “the institutions” are not the Troika, but they don’t talk much about liberating the economy as a means of increasing exports.  It seems Emergency Liquidity Assistance may be up for review.  Oops.

The Greek government also riled up its citizens and now doesn’t know how to deliver anything satisfactory to them, to the detriment of political stability.  The latest irresponsible plan is to threaten a referendum on a new government, a new economic plan, or in one case even a referendum on euro membership was mentioned.  Message discipline is scarcely to be seen.

All of that is simply painting the Greek government into a corner all the more, since a referendum will simply heighten the demands for mutually inconsistent outcomes.  Signs of broader eurozone recovery, and the relative success of QE in talking down the value of the euro, have almost completely removed the bargaining power of Syrizas, or so it seems as of early March.

As I’ve said before, these people ruling Greece are The Not Very Serious People, and they are increasingly acquiring a reputation as such within the rest of the EU and eurozone.

All of this reminds me of the wisdom of Dani Rodrik and his propositions about the incompatibility of democracy, national sovereignty, and global economic integration.  Angry words won’t undo those constraints and they are not something you will hear the Greek government mention very often.

Krugman a few times has praised Syrizas for renegotiating the required primary surplus figures, but it seems this is hardly mattering.  Due to plummeting tax collection, the primary surplus is gone in any case, and the agreement with “the institutions” [read: Troika] is not even the main driver of the action here.  Greece needs to take steps to reestablish a higher [read: positive] primary surplus in any case.

The broader lesson is this: if politicians are not “speaking the truth to power,” there are usually some pretty good reasons for that.   As a political strategy, it doesn’t typically work and it is worse than irrelevant as it very often backfires.

The situation is still not beyond repair, but the Very Serious People are serious for a reason.