Category: Economics
Beppe Grillo’s new advisor?
It would appear to be Joseph Stiglitz (link is in French, or try this link in English), but do we know? Here is Grillo discussing the situation in English (translated). The link includes a dialogue between the two. Yet here (in Italian) is already some discord between the two, with Stiglitz accusing Grillo of lying by claiming that his party’s platform is based on Stiglitz’s ideas.
I cannot be sure which of these links to believe in its entirety, but at the very least there is an ongoing exchange between these two men.
I wish to thank numerous sources on Twitter.
The more things change…
Malthus argued that redemption of the public debt wold be unwise given England’s economic circumstances, which were characterized by an excess of capital relative to aggregate demand and, consequently, a low rate of profit.
That is from Nancy Churchman, her full piece is here. Referring to the early 19th century, she also writes:
There was broad agreement that the debt had reached a dangerously high level and that action of some sort should be taken to address it.
There is good ‘ol Lord Lauderdale, circa 1803:
He constantly links the welfare of the country with the continuance of a high rate of yield to holders of the public debt.
(Source here, jstor) How about J.B. Say? From Wikipedia:
Say himself advocated public works to remedy unemployment, and criticized Ricardo for neglecting the possibility of hoarding if there was a lack of investment opportunities.
And turning to Ricardo:
Ricardo’s theory of public loans then was based on an emphasis of the fact that the primary burden to the community was derived from the wasteful nature of public expenditure itself rather than from the methods adopted to finance such expenditure.
I like this one from Ricardo, in favor of tax rather than debt finance, from his Essay on the Funding System:
When the pressure of war is felt at once, without mitigation, we shall be less disposed wantonly to engage in an expensive contest.
Ho hum, ho hum. Go back and read the classics, and hang your heads in despair.
As I’ve mentioned, it sometimes feels like we are living in the early 19th century.
Only the Cyborgs Can Compete With the Robots
I think this is inevitable and in a way desirable. Only the cyborgs can compete with the robots.
Are we living in the early 19th century?
I frequently make this reference in talks, though I can’t recall having blogged it yet.
Here is one report from the front today:
Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.
“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” Mr. Maki said.
If we turn to the industrial revolution, what do we see? Relatively high productivity from “restructuring,” (machinery replacing labor) but relatively low productivity from innovation or total factor productivity. Robert C. Allen, in his “Engels’ pause: Technical change, capital accumulation, and inequality in the British industrial revolution” (pdf, the final version is in Explorations in Economic History, 2009) estimates TFP from the time at about 0.69% a year, hardly a stunning number (the number runs in the 2%-3% range for the 1920s and 1930s) and actually that early number is close to what we are seeing today for TFP.
From 1780 to 1840, output per worker rose 46% and the real wage index rose by only about 12%, noting that none of these numbers are close to exact. (Contra Ricardo, the share going to land is declining steadily and capital is capturing the gains.) The significant real wage gains come after 1840 and — in my view — even more after 1870. After 1830 TFP is growing at the higher rate of about 1% a year, still not impressive by the standards of the early 20th century however.
During the early 19th century, there is much creative ferment, but much less in terms of products which translate into gains in living standards for the average person.
By the way, you also have theorists — Malthus, Lauderdale, Chalmers, Attwood, and others — who thought the main problem was simply lack of aggregate demand, which Malthus called effectual demand. They were absolutely right about part of the picture in the short run but missed most of the larger truths.
Eventually all of the creative ferment of the industrial revolution pays off in a big “whoosh,” but it takes many decades, depending on where you draw the starting line of course. A look at the early 19th century is sobering, or should be, for anyone doing fiscal budgeting today. But it is also optimistic in terms of the larger picture facing humanity over the longer run.
Very good sentences
…the more formidable the paywall, the more money you might generate in the short term, but the less likely it is that new readers are going to discover your content and want to subscribe to you in the future. Amazing offline resources like the Oxford English Dictionary and the Encyclopedia Britannica are facing existential threats not only because their paywalls are too high for people to feel that they’re worth subscribing to, but also because their audiences are not being replaced at nearly the rate at which they’re dying off. The FT, for instance, has discovered that its current subscriber base is pretty price-insensitive, and has taken the opportunity to raise its subscription prices aggressively. That makes perfect sense if Pearson, the FT’s parent, is looking to maximize short term cashflows, especially if it’s going to sell off the FT sooner rather than later anyway. But if you’re trying to build a brand which will flourish over the long term, it’s important to make that brand as discoverable as possible.
That is from Felix Salmon and here are other good sentences too. You can, by the way, check out our MRU class on the economics of the media here, class-specific link here.
Good or bad news for Bitcoin?
You tell me:
After hitting bottom at $1.994 in November [2011], however, Bitcoin simply refused to die. The price bounced back to a high of $7.22 in January 2012 before settling down at $4.90, and news slowly began to once again turn positive…
The Bitcoin price has just broken the all-time high of $31.9099 that it set on June 9, 2011 on MtGox. After a persistent, one-and-a-half month rally from $13 to $28, followed by nearly two weeks of bumping up against $30 and then hovering around the $28-$31.5 range, the bulls have finally won…
With apologies to Scott Sumner, I say Bitcoin is a bubble. Outside of war and rebellion, do “normal” new currencies behave this way?
The full story is here. For the pointer I thank Mark Thorson.
Addendum: Scott Sumner comments.
Sentences to ponder
Mid-wage occupations, paying between $13.83 and $21.13 per hour, made up about 60 percent of the job losses during the recession. But those mid-wage jobs have made up just 27 percent of the jobs gained during the recovery.
By contrast, low-wage occupations paying less than $13.83 per hour have utterly dominated the recovery, with 58 percent of the job gains since 2010. (This data all comes from an earlier report (pdf) from the National Employment Law Project.)
Important throughout.
A neglected piece of news from Italy
One reason Berlusconi did so well is because of his opposition to a very unpopular property tax from the previous government:
The [Berlusconi] letter was sent to voters in swing regions of Italy.
It vows to scrap the unpopular property tax brought in under ex-Prime Minister Mario Monti and pay voters back.
There is more here. Why does this matter? Note that Italy has much more wealth than income, as indeed do all countries I know of. Rogoff and Rinehart have focused our attention on the debt-gdp ratio, but as a pure accounting matter the debt-wealth ratio is more important. And debt-wealth ratios rarely if ever look terrifying. If you wish to get practical about it, imagine Italian homeowners — who have very low levels of debt on their homes — turning over twenty percent of the equity value in their living quarters to German and French banks. (“Unterschreiben Sie hier, bitte…”) The crisis is solved and, with apologies to Robert Barro, I am not even sure how much the negative wealth effect would crush consumer spending. Life would go on and day-to-day taxes on income and consumption do not need to rise.
Yet of course this rarely if ever happens. Indeed the Italians just took a big step away from such a “solution.” The real lesson is that debt crises are crises of political will, not problems in the numbers per se. And I take that to be bad news for the United States. It also means that neither the debt pessimists nor the debt optimists convince me much with their cited numbers. Look to the politics and adjust your mood accordingly.
A query about MRU
Christina asks on Twitter:
@tylercowen neat!#loyalreaderrequest: a post about how you all think about which courses to add?
The first prerequisite is that the teacher be interested in the material and familiar with current debates. A second issue is that it be readily teachable on-line, though I don’t think it is yet clear which segments of economics fit this bill. My suspicion is that extreme narrative material (economic history, history of economic thought) or purely technical material (“what are the mechanics of covered interest parity?”) will do best here, but that is unproven to say the least. (If that is right, why quality of coverage should be non-monotonic in degree of narrative is an interesting question.) Third, we would like to cover most courses and most fundamentals of economics, in due time, so in part these are issues of sequencing rather than either/or issues of coverage or not.
We will have many more videos coming up today, and in addition to the four new classes we are working on some forthcoming classes too. When using the new MRU page, you can go through the menus. Alternatively, I use visual fields differently than do most people, so I find it easiest to scroll down the page to the “All Videos” section and simply view the entire menu of choice. Up to you.
MRUniversity New Courses!
We have four new courses at MRUniversity and a brand new design! The new courses are
- The Euro Crisis, a 90 minute mini-course over 3 weeks.
- The Economics of Media, 4 hours over 4 weeks.
- The American Housing Finance System, 15 hours running to June taught by Arnold Kling.
- Mexico’s Economy, a 4.5 hour course over 4 weeks taught by Robin Grier.
You can find our more about all of the courses at MRUniversity. Lots of new features as well. After registering, for example, you can click the “Follow this Course” button on the main course page and receive weekly email updates on course content, video chats and what other MRU users are up to. We have also made it easy to add material by clicking the “User Contribution” section under the videos. There you can add videos, research, news and opinions related to the video. We’ll feature the best user contributions on our homepage.
Also do check out the new home page and be sure to scroll down to see The List, all of our videos released so far. And remember, all of our videos are freely available for non-commercial use. If you teach economics or related material feel free to assign a video for homework or try flipping the classroom!
Even more courses coming soon!
Finally, a big hat tip to MRU’s web guru and program manager, Roman Hardgrave, who has done a stellar job on the new features and design.
The culture that is New York/Los Angeles? (nanny markets in everything)
Dr. Heller, or the Nanny Doctor, as she calls herself (she has a Ph.D. in clinical psychology from the California School of Professional Psychology), is a consultant for an age of anxious parenting, acting as a mediator of sorts for parent and caretaker, at a rate of $200 an hour. She draws from her experiences, both as a mother to two daughters under 3 (she is married to Matt Donnelly, a TV writer), and as a former nanny to clients like the director Stephen Gaghan and his wife, Minnie Mortimer, a fashion designer and socialite.
“I remember her solving a conflict with the kids, who were 5 and 6,” Ms. Mortimer said. “She had them calm down and use their ‘I’ statements. Our little girl said, ‘I don’t feel safe when you throw a Lego at my head.’ Our boy said, ‘I feel that throwing a Lego at your head is the only way to get your attention.’ She treated them with such respect and dignity.”
The article is here. For the pointer I thank @DanielMoerner.
Questions that are rarely asked
If companies are just “sitting on cash,” doesn’t that mean the “procurement multiplier” should be low? Or can you have it both ways?
That is from me on Twitter.
The smell test for an academic paper
As recently as the 1990s, you could pick up an academic paper in economics and by examining the techniques, the citations, how clearly the model was explained, and so on, you could arrive pretty quickly at a decent sense of how good a paper it was.
Today there are still many evidently bad papers, but also many more papers where “the bodies” are buried much more deeply. There are many more credible “contender papers” where the mistakes and limitations are far from transparent and yet the paper is totally wrong or misguided. For instance, it is easier to “produce” a novel and striking result with falsified privately-built data than with publicly available macro data, which already have been studied to death and do not yield new secrets easily if at all.
One implied prediction is that a small number of absolute frauds will do quite well professionally. Another prediction is that having close (and reputable) associates to vouch for you will go up in value. (How reliable a method of certification is that in fact?) It may be harder for some outsiders to rise to the top, given the greater difficulty of those outsiders in obtaining credible personal certification. What would you think of a new paper from Belarus, or how about Changchun, which appeared to overturn all previous results?
What else can we expect?
I do not think we are ready for an academic world where our smell test does not work very well.
Binyamin Applebaum on the sequester and government spending
It is a very good piece, and here are the parts citing me:
“People focus on the upfront cost and they don’t think through the whole timeline,” said Tyler Cowen, an economist at George Mason University and an occasional contributor to the Sunday Business section of The New York Times. “You have to cut spending within the next 10 years anyway. It may be time to take some lumps.”
Of course there is a contrasting attitude that we can and will do this instead in the time of a rip-roaring recovery. And:
“It is cutting some of the best spending that government does,” Professor Cowen said of the cuts that would fall on the domestic side of the ledger. He said Congress should focus instead on cuts to military spending, farm subsidies and health care programs like Medicare that he regarded as ripe for reductions.
He said that military contractors and personnel might be able to find new jobs with relative ease, because unemployment rates are fairly low for well-educated workers; it is those with less education who are struggling most.
Of course the piece presents some other opinions as well. It’s also worth noting that in 2008-2009 I argued repeatedly that fiscal stimulus should have concentrated more directly on propping up state and local expenditures, and that many of the other projects, such as high-speed rail, were a waste and would only temporarily boost employment if that. In retrospect I believe that advice is holding up quite well.
What Republicans are thinking on the sequester (one man’s guess)
Ezra on Twitter asks for a Republican version of this Jonathan Chait column, which basically suggests the Republicans don’t know what they are doing with their policies on sequestration. Ezra has himself raised similar questions. I am not a Republican, but I do like a challenge, so here is a brief attempt.
Correctly or not, many Republicans believe some mix of these propositions:
1. Much of government spending is massively wasteful.
2. Deep historical pessimism is justified, as the United States is sliding into a morass of ever greater statism on the economic, government spending, and taxation fronts, if not right now over the next ten to fifteen years. Currently a majority of the public does not agree with the conservative Republicans and that is where the pessimism comes from.
3. All recent Republican strategies to stop this slide have been failing (this is evident to the Republicans, although not always admitted publicly so gladly, for obvious reasons). Furthermore, short-term deal-making and policy trade-offs, even if they represent moderate improvements, will not reverse or even much slow down this slide.
4. There is a long-term dynamic whereby the rich will get taxed more and more in an unstable dynamic, ending in the Frenchification of the American economy or worse.
OK, now let’s go to the sequester. The upfront costs are not viewed as so high, even on the defense side (see #1). Furthermore something must be tried (see #2). Given #1, there is some chance the public might see that government spending can be cut without causing disaster and this gives some chance the public might then support yet further cuts in government spending. Maybe this chance isn’t so high, but all other approaches have been failing (#3). Ideally, a big budget deal might be better on paper, but a line must be drawn in the sand on taxing higher earners (#4), especially given recent tax hikes, so right now a big budget deal is out of the question; this isn’t 1986 any more.
Draw up the Venn diagrams, or do the expected utility calculations, and you are left with sticking to the sequester. Furthermore it allows some Republicans to take a “victory” back to supporters, and that gives a “practical” reason to support the “intellectual” ones. Keep also in mind that a despairing group is a skeptical group, so how would Republican voters really know or trust that they got a good bargain with the Democrats, especially given the Democrats would have to sell it as a good bargain to their voters? Who understands baselines anyway?
Here is a related Justin Green piece.
I’m not seeking to debate the points in this post, but rather consider this anthropology. But if you ask about my views, I largely agree with #1, have mixed feelings about #2 (lately there is evidence of the health care cost curve bending; we will see), agree with the first sentence of #3 (though with a different normative slant), and don’t much agree with #4. In my view the ranks and influence of the rich are growing, some factions of the Democrats will become more like the old anti-tax Republicans, and I don’t see U.S. tax rates on the rich as having a big chance of reaching unsustainable or catastrophic levels. (If anything I worry much more about regulation stultifying the economy.) So I would myself definitely prefer a “grand bargain” to the sequester. The grand bargain would of course raise taxes further, but I don’t see this as a “slippery-slope-beginning-of-the-end.”
That I said, I have an affinity with #1, over fifty percent of the sequester cuts are obviously good ideas, and we could reverse the worst aspects of the sequester rather easily. So while the sequester is far from my first choice, I also don’t think it is the end of the world. I am distressed by the number of blogs posts emphasizing the “seen” costs of the spending cuts rather than the “unseen” benefits. I am distressed by the notion of agencies which might play the “Washington Monument” strategy. And I am distressed by the unwillingness of both sides — and possibly Obama will end up as the greater villain here — to make the cuts more flexible. (It is funny by the way how much Republicans distrust Obama, and yet want to give him that discretion so that he will own the costs of the spending cuts to a greater degree.) Given all that behavior, is a total shock to think that the public — or at the very least the Republican public in the partially gerrymandered House districts — might not want to trust so much of its money with those institutions?