Category: Economics

The Washington Consensus Works: Causal Effects of Reform, 1970-2015

Sustained economic reform significantly raises real GDP per capita over a 5- to 10-year horizon.

Despite the unpopularity of the Washington Consensus, its policies reliably raise average incomes.

Countries that had sustained reform were 16% richer 10 years later.

As for the method:

In this paper, we define generalized reform as a discrete, sustained jump in an index of economic freedom, whose components map well onto the points of the old consensus. We identify 49 cases of generalized reform in our dataset that spans 141 countries from 1970 to 2015. The average treatment effect associated with these reforms is positive, sizeable, and significant over 5- and 10- year windows. The result is robust to different thresholds for defining reform and different estimation methods.

There are dozens of books trying to tell you this is not true, but…it is true, at least as best we know.

That is all from the new paper by Kevin and Robin Grier, did you know by the way that I helped to fix them up, leading to their later marriage and also coauthorships?

Evidence from 27 Thousand Economics Journal Articles on Africa

The first two decades of the 21st century have seen an increasing number of peer-reviewed journal articles on the 54 countries of Africa by both African and non-African economists. I document that the distribution of research across African countries is highly uneven: 45% of all economics journal articles and 65% of articles in the top five economics journals are about five countries accounting for just 16% of the continent’s population. I show that 91% of the variation in the number of articles across countries can be explained by a peacefulness index, the number of international tourist arrivals, having English as an official language, and population. The majority of research is context-specific, so the continued lack of research on many African countries means that the evidence base for local policy-makers is much smaller in these countries.

Here is the article by Obie Porteus, via David Evans.

Those new service sector jobs, coffin whisperer edition

Also known as markets in everything:

Bill Edgar has, in his own words, “no respect for the living”. Instead, his loyalty is to the newly departed clients who hire Mr Edgar — known as “the coffin confessor” — to carry out their wishes from beyond the grave.

Mr Edgar runs a business in which, for $10,000, he is engaged by people “knocking on death’s door” to go to their funerals or gravesides and reveal the secrets they want their loved ones to know.

“They’ve got to have a voice and I lend my voice for them,” Mr Edgar said.

Mr Edgar, a Gold Coast private investigator, said the idea for his graveside hustle came when he was working for a terminally ill man.

“We got on to the topic of dying and death and he said he’d like to do something,” Mr Edgar said.

“I said, ‘Well, I could always crash your funeral for you’,” and a few weeks later the man called and took Mr Edgar up on his offer and a business was born.

In almost two years he has “crashed” 22 funerals and graveside events, spilling the tightly-held secrets of his clients who pay a flat fee of $10,000 for his service.

And:

In the case of his very first client Mr Edgar said he was instructed to interrupt the man’s best friend when he was delivering the eulogy.

“I was to tell the best mate to sit down and shut up,” he said.

“I also had to ask three mourners to stand up and to please leave the service and if they didn’t I was to escort them out.

“My client didn’t want them at his funeral and, like he said, it is his funeral and he wants to leave how he wanted to leave, not on somebody else’s terms.”

Despite the confronting nature of his job, Mr Edgar said “once you get the crowd on your side, you’re pretty right” because mourners were keen to know what was left unsaid.

You might think “that’s it,” but no the article is interesting throughout.  For the pointer I thank Daniel Dummer.

My Conversation with Matt Yglesias

Substantive, interesting, and fun throughout, here is the audio, video, and transcript.  For more do buy Matt’s new book One Billion Americans: The Case for Thinking Bigger.  Here is the CWT summary:

They discussed why it’s easier to grow Tokyo than New York City, the governance issues of increasing urban populations, what Tyler got right about pro-immigration arguments, how to respond to declining fertility rates, why he’d be happy to see more people going to church (even though he’s not religious), why liberals and conservatives should take marriage incentive programs more seriously, what larger families would mean for feminism, why people should read Robert Nozick, whether the YIMBY movement will be weakened by COVID-19, how New York City will bounce back, why he’s long on Minneapolis, how to address constitutional ruptures, how to attract more competent people to state and local governments, what he’s learned growing up in a family full of economists, his mother’s wisdom about visual design and more.

Here is one excerpt:

It was so much fun we even ran over the allotted time, we had to discuss Gilbert Arenas too.

Not your grandpa’s South Asia libertarianism

I did an Ask Me Anything for the South Asian chapter of Students for Liberty, based on their reading of my book Big Business: Love Letter to an American Anti-Hero.

By far the two most popular topics for questions were a) social media, and b) sexual harassment.  Understandable, given South Asian circumstances, but not necessarily what you would hear in the United States, especially from an SfL group.

I think most Western libertarians and classical liberals still do not understand how much South Asia is going to redefine their discourse.

Diminished choice in your neighborhood supermarket

Contactless shopping and the elimination of free samples. Less browsing and “product discovery” and more focus on the expediency of repurchasing. These are ways the novel coronavirus has changed how Americans buy groceries. The pandemic has altered what products people purchase, when and where, who is buying them, and how much time is devoted to the endeavor.

Americans are spending more, yet increasingly they are being offered fewer choices, both online and in person, slowing a years-long trend toward innovations that put “good for you” and “environmentally friendly” spins on established and much-loved products.

The winnowing — what one expert calls a “Sovietish” reduction of choice — is also solidifying eating patterns, for good or for ill. With customers’ selections reinforced by online advertising, repeat ordering and other algorithms, the food system is becoming bifurcated as consumers who have expressed enthusiasm for healthful or artisanal foods are offered more of the same, while those with a penchant for highly processed comfort foods are inundated with opportunities to restock.

There is a gender effect as well:

He says more men are claiming to be the primary shopper during the pandemic, and “they do buy different things and buy differently.” Men, Baum says, tend to favor efficiency: shopping club stores for bulk purchases, convenience stores and online. They report making fewer, larger, quicker trips for a narrower range of items.

This part surprised me, though I wonder if they have done a full data check:

This “narrower range” is not just a brick-and-mortar constriction. As the pandemic accelerates the shift to online shopping, the number of packaged food products available to purchase on the Internet fell 21 percent globally from January to May, according to Euromonitor International, a London-based market research company. It found that nine out of the 10 biggest countries by retail sales saw a drop in the number of unique SKUs available online.

Here is more from Laura Reiley, note this also is another reason why actual rates of price inflation are somewhat higher than what we are measuring.

New results on the housing boom and bust

We build a model of the US economy with multiple aggregate shocks that generate fluctuations in equilibrium house prices. Through counterfactual experiments, we study the housing boom-bust around the Great Recession, with three main results. First, the main driver of movements in house prices and rents was a shift in beliefs, not a change in credit conditions. Second, the boom-bust in house prices explains half of the corresponding swings in nondurable expenditures through a wealth effect. Third, a large-scale debt forgiveness program would have done little to temper the collapse of house prices and expenditures but would have dramatically reduced foreclosures and induced a small, but persistent, increase in consumption during the recovery.

That is from a recently published article by Greg Kaplan, Kurt Mitman, and Giovanni L. Violante in the Journal of Political Economy.  Here are some less gated versions.

NPR plays overrated vs. underrated with Banerjee and Duflo

Cardiff Garcia led the charge, along with Stacey Vanek Smith, here is one excerpt:

GARCIA: Overrated or underrated – being married to an economist.

BANERJEE: Underrated.

(LAUGHTER)

BANERJEE: Excellent.

DUFLO: Underrated, of course.

SMITH: (Laughter). What about overrated/underrated – dating an economist?

BANERJEE: I mean, if you’re married to one (laughter) overrated.

SMITH: I mean, did you guys, like, split checks? Or, like, how did that work? Did you run into any economic quandaries early on?

BANERJEE: We were pretty flexible. We’re not really money people, so we didn’t – never spent a minute thinking about it.

Here is the full program.  For the pointer I thank Michelle Dawson.

The future of distance work arbitrage! (those new Rwandan service sector jobs)

In the central African country of Rwanda, single mothers employed at a Japanese eatery have found a new source of income after their jobs took a hit from the novel coronavirus pandemic: babysitting Japanese kids online.

Despite the seven-hour time difference, the cross-cultural service sees women play and sing with children 12,000 kilometers away in Japan via the videoconferencing app Zoom. The mothers will sometimes stream themselves shopping, chopping vegetables and cooking, to the delight of the kids’ parents as well.

The service is provided twice a day for an hour each in a mix of local languages, English, and Japanese.

“There’s a groove that you can’t experience in neighborhood eurythmic classes,” said Toyochika Kamekawa, 36, from Takahama in Fukui Prefecture. His 2-year-old son regularly takes part in the online sessions and sings songs he has been taught, accompanying himself on his toy drum.

The initiative was started up by Rwanda resident Mio Yamada, 38, who hires single mothers to work at her Japanese restaurant in the capital city of Kigali, and her acquaintance Yushi Nakashima, 30.

Yamada, who studied Swahili at university and now has three sons, moved to Rwanda with her husband in 2016 and opened her restaurant the following year.

And:

“I think my son will come to some realization (about the economic disparity between countries) when he’s older and compares his allowance with the sitters’ wages.”

And:

Some of the songs performed by the sitters touch on these darker themes. In one that foreshadows the conflict, the lyrics implore a child to stop crying with the words that when the war begins, they will be given milk from a cow that isn’t sad.

Here is the full story, via Air Genius Gary Leff.

Caleb Watney emails me

Hey Tyler,

Wanted to let you know that Alec Stapp and I are launching a new blog today called Agglomerations where we’ll be covering a wide range of tech + innovation policy issues.

My first piece today ties to disentangle technology, innovation, and industrial policy, as I feel the conversations there have been quite muddled as of late. I hope you enjoy it.

https://www.agglomerations.tech/untangling-innovation-from-industrial-policy/

On vaccine timing, from the comments

Current US excess all-cause mortality is running around 10K above trend line on a good week. For these purposes we need neither know nor care if this is do to Covid directly, fear of catching Covid, or the effects of lockdown policies (e.g. increased rates of suicide from business failure).

Suppose we vaccinated the entire population. We would have to have a fatality rate of 1/32,000 to match a single week of the excess deaths the CDC is reporting every week.

Phase III, according to Moderna, is going to last around 4 months. If we skipped phase III and just jumped to phase IV, we could look to avert around 170,000 deaths with perfect effectiveness. Let’s say that between it being a lousy vaccine and people giving up on social distancing early we only save half of those lives. That gives us around 85,000 lives saved.

This means that we are looking at a 1/4,000 as our rough fatality rate for vaccines to be safer than waiting.

To date, I know of no vaccine that passed phase II clinical trials that has ever had this sort of fatality rate. Further, the vaccine adverse event rate is typically an order of magnitude or more higher than the fatality rate so absent truly astonishingly high rates of clinically significant adverse events it is highly unlikely to hit something greater than 1/4000 but not see some evidence of it with just a few hundred patients under your belt in the early phase trials.

My pre-test probability that any vaccine fall into a mortality rate somewhere between 1/100 and 1/4000 absolute risk increase is pretty low. So low, that all the papers I have read name them specifically rather than tabulating (e.g. Merck V710) and even those tend not to have dramatic increases in mortality (e.g. V710 had increased rates of Staph infections, but no increase in mortality).

Maybe something will be different this time and that will happen. Maybe we will be stuck with an inferior vaccine (though my guess is if we declared all of the top candidates ready for phase IV we could get a wide variety of use). But from where my point of view as I understand things from the coroner, we would need some massively high pre-test priors to make a dent in the weekly excess mortality rates.

For places that have been able to limit the virus’s entry (e.g. the island nations), this is all moot. For places that had massive initial spikes (e.g. Italy), this may also be moot. But for the US which flatten the initial curve and has maintained a steady excess death rate, early adoption seems to have very good Bayesian odds

You could of course make a QALY argument about Covid fatalities against vaccine fatalities, but again you are trying to hit a pretty narrow window: dangerous enough to beat down 10,000 excess deaths a weak, not so dangerous that it would have obviously failed early studies.

Challenge studies may have their place (e.g. ruling out antibody dependent enhancement), but we need to be sure that the immune response works in real world conditions. And at this point I still have terrible data for what actually happens during the course of the infection.

Inaction has one of the highest price tags we have ever seen in modern medicine. I just do not see any evidence that my pre-test priors for a vaccine being that deadly should be remotely high enough to make the math on delay work out (particularly if we can avoid the most susceptible patient populations for VAEs). Certainly my priors for the ability of social action to stop infections is far worse (e.g. HIV, Lyme, Scabies) so I am increasingly convinced that long term it is either a vaccine or the hard road to herd immunity.

CatintheHat addds:

I agree with this rough analysis and the risk is even less because we, probably only have to vaccinate 25 % of the population to stop the epidemic completely which could be done relatively quickly.

For the opposite case, don’t forget this earlier in August post of Alex’s.

I would very gladly run further estimates of this kind.  To be clear, I am not endorsing any particular conclusion, rather I think several hundred smart people should be working on this full time.  My personal suspicion is that the decisive factor will be “the gains from possibly ending a global depression a few months earlier” vs. “the risk that with a lower quality vaccine we don’t end said depression more effectively than we otherwise might have.”  And I hardly see anyone considering that trade-off at all.

There is also a closely related but conceptually separate question of how many vaccines to approve on an earlier basis, and also for how many should we be in a position to do so.

The impact of economic regulation on growth: survey and synthesis

This study provides a survey of research that uses cross-country comparisons to examine how economic regulation affects growth. Studies in the peer-reviewed literature tend to rely on either World Bank or Organisation for Economic Co-operation and Development measures of regulation. Those studies seem to reflect a consensus that entry regulation and anticompetitive product and labor market regulations are generally harmful to growth. The results from this cross-country research, taken in conjunction with economic theory as well as other country-specific studies of economic regulation, support the hypothesis that economic regulation tends to reduce welfare in competitive markets. Given the continued use of certain types of economic regulation, the findings may offer important lessons for policymakers.

That is a new Mercatus working paper by James Broughel and Robert Hahn.

Uh-oh Mumbai

And here is the research:

The spatial layout of cities is an important feature of urban form, highlighted by urban planners but overlooked by economists. This paper investigates the causal economic implications of city shape in India. I measure cities’ geometric properties over time using satellite imagery and historical maps. I develop an instrument for urban shape based on geographic obstacles encountered by expanding cities. Compact city shape is associated with faster population growth and households display positive willingness to pay for more compact layouts. Transit accessibility is an important channel. Land use regulations can contribute to deteriorating city shape.

Here is the full paper by Mariaflavia Harari.  “Transit accessibility” — what a funny phrase to apply to Mumbai traffic!  Try some Marathi slang instead.  And in case you are not familiar with Mumbai, some of the lower parts have some of the most valuable land.

The quality-adjusted rate of price inflation is much higher than measured

Higher ed on Zoom, fear of going to the hospital, and long lines at the DMV bring us to one part of my latest Bloomberg column:

Education, health care and government are pretty big parts of our economy. If you add on the lower quality of restaurant visits, reduced sports performances (your ESPN cable package is worth less), and an inability to take preferred vacations and trips, you have many more negative quality adjustments that don’t show up in measured rates of inflation.

And:

The Bureau of Labor Statistics, the Bureau of Economic Analysis, the Fed and other institutions have declined to make formal adjustments for these changes in the real standard of living. That is the politically practical way to proceed, if not the technically correct decision.

Inflation measures work best when the consumption bundle is roughly stable over short periods of time, and that just hasn’t been the case this year. Because so many government payments depends on rates of indexation, debating “the true degree of inflation” this year would become an unending political football, with all the major institutions involved, including the Fed, losing credibility. (Just exactly how much worse is that Zoom lecture?) Besides, implicit price inflation from restricted opportunities probably should, for purposes of policy and benefits indexation, be treated differently than price inflation resulting from more expensive food and rent.

One implication is that, at least for the time being, price inflation rules just aren’t that meaningful any more:

…price rules and other forms of inflation rules don’t really work in times of pandemic. The very measurement of price inflation becomes arbitrary, and dependent on inertial measurement conventions from normal times, so the numbers don’t have enough actual economic meaning to guide policy.

There is more at the link.