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Claims about Italy, Tiebout edition

by  Tyler Cowen in

Using census data, we study false birth-date registrations in Italy, a phenomenon well known to demographers, in a setting that allows us to separate honesty from the benefits of cheating and deterrence. By comparing migrants leaving a locality with those who remain in it, we illustrate the tendency of Italians to sort themselves across geographic areas according to their honesty levels. Over time, this tendency has modified the average honesty level in each locality, with relevant consequences for the distribution across geographic areas of outcomes like human capital, productivity, earnings growth, and the quality of local politicians and government.

That is from a new paper by Massimo Anelli, Tommaso Colussi, and Andrea Ichino, via the excellent Kevin Lewis.  How many people recall that Tiebout’s initial work was drawn from New Jersey data?

What should I ask Rebecca F. Kuang?

by  Tyler Cowen in

I am a big fan of her latest book Yellowface, which I read straight through (and it’s much more double-edged and subversive than you might be expecting).  Here is a partial bio:

Rebecca F. Kuang is the award-winning, #1 New York Times bestselling author of the Poppy War trilogy and Babel: An Arcane History, as well as the forthcoming Yellowface. [TC: no longer forthcoming] She has an MPhil in Chinese Studies from Cambridge and an MSc in Contemporary Chinese Studies from Oxford; she is now pursuing a PhD in East Asian Languages and Literatures at Yale.

Here is her Twitter.  Here is her full of facts, but somehow a bit convoluted Wikipedia page.  So what should I ask her?

Law-Abiding Immigrants

by  Tyler Cowen in

The subtitle is The Incarceration Gap Between Immigrants and the U.S.-Born, 1850–2020, and the authors are Ran Abramitzky, Leah Boustan, Elisa Jácome, Santiago Pérez, and Juan David Torres.  Here is the to-the-point abstract:

Combining full-count Census data with Census/ACS samples, the researchers provide the first nationally representative long-run series (1870–2020) of incarceration rates for immigrants and the U.S.-born. As a group, immigrants had lower incarceration rates than the US-born for the last 150 years. Moreover, relative to the U.S.-born, immigrants’ incarceration rates have declined since 1960: Immigrants today are 60% less likely to be incarcerated (30% relative to U.S.-born whites). This relative decline occurred among immigrants from all regions and cannot be explained by changes in immigrants’ observable characteristics or immigration policy. Instead, the decline likely reflects immigrants’ resilience to economic shocks.

Here is the full paper, via Anecdotal.

My Conversation with the excellent Jerusalem Demsas

by  Tyler Cowen in

Here is the audio, video, and transcript.  Here is the episode summary:

In this special episode, Tyler sat down with Jerusalem Demsas, staff writer at The Atlantic, to discuss three books: The Dispossessed by Ursula K. Le Guin, Gulliver’s Travels by Jonathan Swift, and Of Boys and Men by Richard V. Reeves.

Spanning centuries and genres and yet provoking similar questions, these books prompted Tyler and Jerusalem to wrestle with enduring questions about human nature, gender dynamics, the purpose of travel, and moral progress, including debating whether Le Guin prefers the anarchist utopia she depicts, dissecting Swift’s stance on science and slavery, questioning if travel makes us happier or helps us understand ourselves, comparing Gulliver and Shevek’s alienation and restlessness, considering Swift’s views on the difficulty of moral progress, reflecting on how feminism links to moral progress and gender equality, contemplating whether imaginative fiction or policy analysis is more likely to spur social change, and more.

An actual conversation!  This one is difficult to excerpt, and unlike many I suspect it is better to listen than to read the transcript.  Nonetheless here is one short excerpt:

DEMSAS: Yes. The only walls on the anarchist planet [in The Dispossessed] are the ones that surround the space travel, the launching pad or whatever it is. That’s something that’s said very early on, but then you discover throughout the book how much there are all of these other “invisible walls” that he’s discovering. That’s made very explicit at times, sometimes maybe too explicit. [laughs] But I think it’s also a lesson in how much you have to have an other to compare yourself to in order to even understand yourself.

He’s alone for a really long time, and when he’s doing his studies at the beginning or in the middle of the book, and he can’t get these scientific breakthroughs that he inevitably does get to — it’s when he starts interacting with other people and rebuilding those bonds with other humans that you do actually get these breakthroughs. I think that’s also another point in favor of Le Guin pointing out that communitarianism is important.

Recommended.

America is asleep on its AI boom

by  Tyler Cowen

That is the topic of my latest Bloomberg column, here is one observational part:

Not long ago I walked through Tysons Corner Center in northern Virginia, one of America’s largest malls, serving a prosperous and well-educated community. I didn’t see a single sign or marker referring to AI. No posters announcing the coming new AI-powered toys for Christmas. No AI-enhanced shopping app. No AI-assisted beauty salons. There were, however, a lot more stores selling high-end clothing.

Progress is nonetheless continuing at a rapid pace, as much of the rest of the column discusses.  Maybe good if the general population is not paying entirely full attention!

Mimetic desire and India’s IT growth

by  Tyler Cowen in

We study how US immigration policy and the Internet boom affected not just the US, but also led to a tech boom in India. Students and workers in India acquired computer science skills to join the rapidly growing US IT industry. As the number of US visas was capped, many remained in India, enabling the growth of an Indian IT sector that eventually surpassed the US in IT exports. We leverage variation in immigration quotas and US demand across occupations to show that India experienced a ‘brain gain’ when the probability of migrating to the US was higher. Changes in the US H-1B cap induced changes in fields of study, and occupation choice in India. We then build and estimate a quantitative model incorporating trade, innovation, and dynamic occupation choice in both countries. We find that high-skill migration raised the average welfare of workers in each country, but had distributional consequences. The H-1B program induced Indians to switch to computer science occupations, and helped drive the shift in IT production from the US to India. We show that accounting for endogenous skill acquisition is key for quantifying the gains from migration.

That is from a new paper by Gaurav Khanna and Nicolas Morales.  One implication is that for many countries brain drain is not a problem, rather many people train to go abroad but end up staying home, to the benefit of the home country.

Rewatching *Close Encounters of the Third Kind* (with a few spoilers)

by  Tyler Cowen

I hadn’t seen it in many years, and this time around I know more about demonology.  Much more.  If there were a Second Coming, how would we distinguish it from the Antichrist?  How would we distinguish aliens from either?  The movie explores these questions in considerable depth, so no it’s not Spielberg happy and shiny aliens movie.  I was reminded of Shyamalan’s (excellent) Signs throughout.  There is even a background scene where The Ten Commandments is playing on a TV.  In this movie, who are the Apostles?  Is the notion of “The Chosen” being redefined?  Doesn’t the final scene, where the big ship comes through the clouds, remind you of The Book of Revelation?  And if “the aliens” are so benevolent, why do they kidnap people and return so many of them as frozen zombies?  Or are those the demons?  Or the saved?  Or whatever.

Oh, and from Wikipedia there is this: “The name “Devil’s Tower” originated in 1875 during an expedition led by Colonel Richard Irving Dodge, when his interpreter reportedly misinterpreted a native name to mean “Bad God’s Tower”.”

By the way, did you notice the role of the “Deep State” in this movie?  You don’t see the President, members of Congress, or even generals greeting the aliens.  There is instead some weird French guy who barely speaks English, surrounded by a bunch of bureaucrats.

Disputes over China and structural imbalances

by  Tyler Cowen in

There has been some pushback on my recent China consumption post, so let me review my initial points:

There exists a view, found most commonly in Michael Pettit (and also Matthew Klein), that suggests economies can have structural shortfalls of consumption in the long run and outside of liquidity traps.

My argument was that this view makes no sense, it is some mix of wrong and “not even wrong,” and it is not supported by a coherent model.  If need be, relative prices will adjust to restore an equilibrium.  If relative prices are prevented from adjusting, the actual problem is not best understood as a shortfall of consumption, and will not be fixed by a mere expansion of consumption.

Note that people who promote this view love the word “absorb,” and generally they are reluctant to talk much about relative price adjustments, or even why those price adjustments might not take place.

You will note Pettis claims Germany suffers from a similar problem, America too though of course the inverse version of it.  So whatever observations you might make about China, the question remains whether this model makes sense more generally.  (And Australia, which ran durable trade deficits from the 1970s to 2017, while putting in a strong performance, is a less popular topic.)

Pettis even has claimed that “US business investment is constrained by weak demand rather than costly capital”, and that is from April 4, 2023 (!).

It would take me a different blog post to explain how someone might arrive at such a point, with historic stops at Hobson, Foster, and Catchings along the way, but for now just realize we’re dealing with a very weird (and incorrect) theory here.  I will note in passing that the afore-cited Pettis thread has other major problems, not to mention a vagueness about monetary policy responses, and that rather simply the main argument for current industrial policy is straightforward externalities, not convoluted claims about how foreign and domestic investment interact.

Pettis also implicates labor exploitation as a (the?) major factor behind trade surpluses, and furthermore he considers this to be a form of “protectionism.”  Now you can play around with scholar.google.com, or ChatGPT, all you want, and you just won’t find this to be the dominant theory of trade surpluses or even close to that.  As a claim, it is far stronger than what a complex literature will support, noting there is a general agreement that lower real wages (ceteris paribus) are one factor — among many — that can help exports.  This point isn’t wrong as a matter of theory, it is simply a considerable overreach on empirical grounds.  Of course, if Pettis has a piece showing statistically that a) there is a meaningful definition of labor exploitation here, and b) it is a much larger determinant of trade surpluses than the rest of the profession seems to think…I would gladly read and review it.  Be very suspicious if you do not see such a link appear!

Another claim from Pettis that would not generate widespread agreement is: “…in an efficient, well-managed, and open trading system, large, persistent trade imbalances are rare and occur in only a very limited number of circumstances.” (see the above link)  That is harder to test because arguably the initial conditions never are satisfied, but it does not represent the general point of view, which among other things, considers persistent differences in time preferences and productivities across nations.

Now, it does not save all of this mess to make a series of good, commonsense observations about China, as Patrick Chovanec has done (Say’s Law does hold in the medium-term, however).  And as Brad Setser has done.

In fact, those threads (and their citation) make me all the more worried.  There is not a general realization that the underlying theory does not make sense, and that the main claim about the determinants of trade surpluses is wrong, and that it requires a funny and under-argued tracing of virtually all trade imbalances to pathology.  And to be clear, this is a theory that only a small minority of economists is putting forward.  I am not the dissident here, rather I am the one delivering the bad news.

So the theory is wrong, and don’t let commonsense, correct observations about China throw you off the scent here.

Why are folk songs such a poor guide to economics?

by  Tyler Cowen

Oliver Anthony (perhaps he should leave his town of per capita income 13k?) is the centerpiece of the column, but I’ll excerpt the bit of Springsteen:

When singers turn to economic issues, who plays the role of victim? Very often it is people who have lost their jobs, such as in Bruce Springsteen’s “My Hometown,” about a textile mill leaving the singer’s hometown. (Springsteen is not generally considered a folk singer, but many of his songs have folk roots and channel folk vibes.) That sounds terrible, and for many former workers it was.

But in fact the mill was relocated further south, where presumably it helped to create other jobs. Was this development an egalitarian way to help spread prosperity to a poorer part of the country? Did it help spur the transition of New Jersey to a service economy? That seems to have worked out: Average household income today in Freehold, Springsteen’s hometown, is more than $133,000. Or were more sinister forces at work? Was the factory closing a form of regulatory arbitrage against trade unions that protect worker interests?

No matter what your view, the song doesn’t clarify the issue very much. Nor should it be expected to.

As a general rule, music and the arts excel at pointing attention toward the seen — that is, identifiable victims or beneficiaries. In contrast, many of the most important insights of economics concern the unseen — that is, people who benefit in non-obvious ways, and sometimes many of them actually are unidentifiable. Automation, for instance, will throw some people out of work, but economics teaches us that in the longer run it usually benefits society, through both lower consumer prices and the creation of jobs in other, less visible sectors of the economy. You don’t hear many songs about that.

Not surprisingly, Bob Dylan is the hero of the story.

That was then, this is now, Budapest edition

by  Tyler Cowen in

Trains between the two cities [Budapest and Vienna] were fast — four and a quarter hours in 1896.  In 2022 it was three hours and thirty-five minutes.

And:

Budapest finance caught up and surpassed the growth of agricultural and industrial production.  By 1900 Budapest became the bankming centre of Central and Eastern Europe.  Between 1867, the date of the ‘Compromise’ which created the Dual Monarchy of Austria-Hungary, and 1914 the number of Hungarian banks grew from eleven to 160 and their capitalization increased fivefold.  A few of them — the First Hungarian Commercial Bank and the Hungarian Credit Bank — rivalled the biggest Viennese and German banks in size and prestige, as their palatial headquarter buildings in downtown Budapest, designed by the most renowned European and Hungarian architects, showed.  Their owners, such as the Wolianders, the Wahrmanns, Hatvany-Deutsch and Chorins, joined the European super-rich.

That is all from Victor Sebestyen’s interesting new book, Budapest: Portrait of a City Between East and West.

Sunday assorted links

by  Tyler Cowen

1. Ian Leslie on stories.

2. When and why did French fertility fall so rapidly?

3. Different accents in English.

4. Glimpse inside the Delhi punk scene.

5. Can you blame him?  A story of biryani.

6. Alas, GBD was not about protecting the vulnerable.  Sorry, people.

7. Is the standard model of the universe wrong? (NYT)

8. The invention of a new chess variant? (“Try as hard as you can to lose, and then win when your opponent resigns”?)