Category: Uncategorized
Monday assorted links
How hard is it to stimulate demand?
Recent studies have shown prices in some sectors—such as housing—do indeed rise faster when growth is in full swing, unemployment low and markets frothy. But a large chunk of the economy, from health care to durable goods, appears insensitive to rising or falling demand.
A paper published last month by economists James Stock of Harvard University and Mark Watson of Princeton University found prices accounting for nearly half of the Fed’s preferred inflation gauge, the personal-consumption-expenditures price index, don’t respond to changes in economic activity. In 2017 economists at the Federal Reserve Bank of San Francisco found such “acyclical” goods and services made up a whopping 58% of that index.
And:
The cyclically sensitive components of core inflation, which excludes food and energy, have accelerated to 2.33% in the 12 months through May from 0.41% in mid-2010, according to the San Francisco Fed, just as falling unemployment would predict. But that has been offset by falling inflation in acyclical categories—such as health care, financial services and most goods—which has slowed to 1.04% from 2.26% in the same period.
Of course, this also casts doubt on the whole meaning of a single “real” interest rate. And it seems to imply that monopoly power in the American economy is not so universal.
*The Great Reversal: How America Gave Up on Free Markets*
That is the new book by Thomas Philippon, and perhaps the title is a bit misleading, as the book covers both regulatory barriers and natural economic forces behind higher concentration levels. I am a big fan of Philippon’s work, but I am not so convinced by his arguments in this book. Most of all, he is trying to argue for systematically greater monopoly power in the American economy, but he is reluctant to provide much evidence for output restriction, the sine qua non of market power.
First note that market power does not seem to be up at the level of actual market competition. And capital’s share of income does not seem to be rising in a manner consistent with the monopoly theory, see here and here.
I agree with him about health care, and also (highly regulated) cable television and thus internet connections. I agree with all of his suggestions for removing regulatory barriers to entry, for instance by allowing foreign airlines to serve domestic U.S. markets. From a policy point of view, I am quite close to his perspective.
But when it comes to monopoly power too much of his evidence is circumstantial. OK, there is greater stability for market leaders in many sectors, and weak investment aggregates, but all the time antitrust suits find evidence for output restrictions — so why doesn’t this book offer more of such evidence? Here is one passage (p.39) that caught my attention:
…we see a sharp increase in concentration in the airline industry after 2010. That is enough to trigger our interest, but not enough to conclude that competition has weakened. We must first check that concentration has also increased at the route level. We find that it has. We can further show that it came together with higher prices and higher profits.
I have only a pre-publication copy, and perhaps some of the book is missing in my edition, but I don’t see the cited evidence presented, nor is it in the airlines section starting on p.137 (which does document increasing concentration at the national level). To consider the contrary evidence, here is an excerpt from an earlier MR post:
As for output restrictions, here is the DOT series on aggregate miles flown. No doubt, there are problems around the time of 9/11 and also the Great Recession, with 2008-2012 being a period of slight quantity contraction. But in 1985 there were 275,864 [million] total miles flown, in 2006 it was 588,471, and 641, 905 in 2015. I’ll ask again: if there is so much extra monopoly, where are the output restrictions?
Or look at the price index. Overall prices are down considerably since 2008, and from about 2000 to 2016 they run from about 250 (eyeballing) to about 270, noting 1998-2010 saw a huge run-up in oil prices.
Since I wrote that post there is clearer evidence for a steady price decline since 2012 (he is claiming higher concentration since 2010), just look at the price index, which is FRED channeling BLS. Now maybe those are the wrong numbers for some reason, but I don’t see anything in the Philipson book to counter them. I don’t see output restriction considered at all. I don’t see a price series presented at all.
That is only one sector, but it reflects my deeper worries about the book. I just don’t see the evidence for output restrictions, or, in many cases I don’t see the evidence for higher prices.
The most sustained discussion of prices comes on pp.114-122, where it is shown that PPP-adjusted prices are higher in America than in Europe, and furthermore the gap is growing. That is far too much aggregation for my tastes (“Europe”), PPP adjustments are not exactly scientific, it is not very direct evidence for market concentration being the culprit, and furthermore if I understand him correctly, the Big Mac index also has the United States becoming relatively more expensive, even though McDonald’s clearly has faced massive competition in recent years.
To be sure, if you believe in a productivity slowdown, as I do, you also have to feel that America’s economic sectors, in some counterfactual sense, could be much more dynamic, more prone to disruption, and yes more competitive. It is a great disappointment to me that is not the case. But that is far from the view that monopoly power is increasing in the American economy in an economically significant manner, across a wide variety of sectors (health care caveat noted, and even that is selective, as there has been a significant cost slowdown).
So I remain skeptical about the main claims in this book.
Sunday assorted links
1. What is it like being a Freemason?
3. Jennifer Doleac’s list of advice threads for economists and academics.
4. Steve Pearlstein on Elizabeth Warren and private equity.
5. “When thinking about whether new generations can or cannot afford housing keep in mind that the currently existing stock of houses will all be sold to a new generation.” — That’s Alex T. on Twitter!
More on street-by-street zoning
A number of commentators on my recent column have suggested that allowing street-by-street zoning would lead to more restrictionist outcomes than under the status quo. It might well be true that the improvement will be zero, but if new construction already is constrained at zero perhaps matters won’t get much worse. I see two reasons, however, for believing a number of streets would be willing to make bold or at least modest experiments in the direction of more development.
First, if you are considering more development for a larger area, say half of a county, you might worry that traffic problems will become much worse and thus the veto rights will prevail. In contrast, if a street of say thirty homes decides to add three homes more, they probably are less worried about the net traffic impact of that very small decision (unless running kids over in that very street is the main worry). Of course, if every street makes a matching decision, aggregate traffic still will go up a lot. But in essence, by breaking the problem down street by street, the traffic veto motives are weakened in prisoner’s dilemma-like fashion.
Of course you might think all that extra traffic and development is a bad thing, but that is a different and indeed opposite critique from fearing excess restrictionism.
Second, a lot of streets just aren’t up to making these decisions across a long series of legally complex variables. I can well imagine that generalized holding companies spring up to represent individual streets in their negotiations with the municipality/county/developer — whatever. Imagine negotiating companies funded by the developers, whether directly or indirectly, which in turn fund additional amenities for the street whenever new revenue is generated by a micro-local decision. Coase! “Well…if you will accept these five new homes, the developer will donate some money to park maintenance and a scholarship at the K-12 school.” It might not even amount to illegal bribery.
I don’t think street-by-street zoning is “the answer” to NIMBY, rather it is one idea worth experimenting with on a limited basis. If it works well, it can spread. If you start trying it in already NIMBY-dysfunctional areas, I just don’t see the downside.
Saturday assorted link
1. And yet so few people are celebrating: “Labor share being higher and corporate profit share being lower as a % of GDP than previously thought”.
You don’t need any other link for today, that explains so much of our intellectual and policy world.
Addendum: On the new Robert Barro gdp double-counting hypothesis, which lies behind all of this, here is a good MR comment:
The algebra is fine as it is, but I take strong issue with the idea that GDP “mismeasures” something. As any decent intro macro course will tells its students, “GDP is not a measure of welfare.” Indeed, the Kuznets quotes that Barro points to are exactly of this nature; we have this high profile GDP number, but it doesn’t do what you want it to do – or at least not ALL the things you want it to.
What Barro does here is construct a new measure – present discounted value of consumption – and shown how it relates to GDP (and GDP’s present discounted value). In addition, he provides a capital income / labor income decomposition for both measures (GDP having such an exact decomposition because of constant returns to scale, Euler’s identity for homogenous functions, and marginal-value input prices). He then says present discounted value of consumption, and its associated decompositions, are “right” while the other the construction GDP is “wrong” and thus gives “misstated” decompositions. Of course, “right/wrong” and “correct/incorrect” begs the question – right about WHAT? Correct for WHAT?
Barro says that in present discounted value terms GDP “double counts” investment. The “double counting” is only relative to how things are calculated for the present discounted value of consumption. This just reflects the fact that GDP counts production, while consumption only counts consumption. Market clearing, saving, and no storage imply that in every period consumption will be less than production. Specifically, looking at present values, future consumption in part reflects past savings i.e. past investments. GDP counts the production from the investment part (e.g. making the car) and the consumption part (e.g. driving the car), while consumption only counts the consumption part. If what you’re after is welfare – sure only count consumption. If what you’re after is production, well then you count production. Absolutely, GDP is higher than consumption. All Barro has done is given a more precise statement of how much bigger, in a PDV sense, GDP will be than consumption.
Noting that the “capital” share of GDP and the “capital” share of consumption are different is more word games. Indeed, assigning similar names to decompositions of different constructs is completely arbitrary. Barro doesn’t explain why the “capital share” of one thing is more important than the “capital share” of some other thing. In practice, we care about the “capital share” because it tells us something about the structure of the economy – i.e. with Cobb Douglas the capital share of GDP is used to calibrate the alpha parameter. Skimming the paper, its not immediately obvious what the structural parameter linked to the “capital share” of PDV consumption is, but I wouldn’t be surprised if its just alpha/2. Ok, the “capital share” of something different concept spits out a different number. For an RBC/neoclassical type, not thinking about the structural parameters is an obvious mistake…
More interesting than the LEVEL of any value is how these values change over time, and what this implies for the changing structure of the economy. Barro’s attempt to say the level of the capital share is “wrong” misses the point – we aren’t after the capital share per say, we’re after alpha. And since the two “capital shares” are proportional, a rising GDP capital share is the same as a rising PDV consumption capital share. The mystery continues, just with scaled down numbers…
But I think that means Barro is basically correct.
Jacob Rees-Mogg issues style guide to staff
1. Organizations are SINGULAR
2. All non-titled males — Esq.
3. There is no . after Miss or Ms
4. M.P.s — There is no need to write M.P. after their name in body of text
5. Male M.P.s (non-privy councillors) — in the address they should have Esq. before M.P. (e.g., Tobias Ellwood, Esq., M.P.)
6. Double space after fullstops
7. No comma after ‘and’
8. CHECK your work
9. Use imperial measurements
And:
Among the list of bizarre rules, he asks staff not to use the words “got”, “very” or “equal”.
Here is the full story, don’t even ask about “Hopefully,” and for the pointer I thank Esq. Kevin Lewis.
*Our Man: Richard Holbrooke and the End of the American Century*
By George Packer, I thought this book would be dull, but in fact it is interesting throughout. Holbrooke, if you don’t already know, was a lifetime American diplomat, but much more than that too. Here is one excerpt:
After the evacuation of dependents and the arrival of ground troops in 1965, South Vietnam became a vast brothel. But even before there were half a million Americans, sex was an elemental part of the war. “I have the theory that if the women of Vietnam had big copper spoons through their noses and looked like Ubangis,” a reporter once said, “this war wouldn’t have lasted half as long, and maybe wouldn’t have even started.” The whole scene repelled the Boston Puritan Henry Cabot Lodge. “I not only don’t wanna,” he said, “I don’t wanna wanna.”
A vivid passage to be sure, but two points. First, why call the one sensible guy a “Puritan”? (Yes, the Puritans in fact were great, but I don’t think the remark is to be taken in that spirit.) Second, it seems to me that many Ubangi women are likely quite beautiful, and probably I saw some of them while in Ethiopia. Furthermore, at least these days, it is optional whether they wish to take on the famed “lip plate.”
In any case, I would describe the book as “rollicking.” You can order it here.
For the recommendation I thank Mr. C. Weber.
Friday assorted links
1. Watch the Pioneer presentations! Wednesday, 2 p.m. (EST), register by Tuesday evening. All sorts of stars and budding stars will participate. Here is basic information on Pioneer.
2. The evils of motion-smoothing.
4. MbS plans for Neom, the new Saudi city. Here is the full WSJ piece, recommended, and this: “Building Neom will require money Saudi Arabia doesn’t have. The country has recently run budget deficits, and MBS has committed to bets like a $45 billion investment in a Softbank Group Corp. fund. The kingdom has used money borrowed from abroad to fund Neom’s first stages, according to people familiar with the matter.”
5. Who supports animal rights?
6. “In Hong Kong protests, faces become weapons” (NYT). “The police officers wrestled with Colin Cheung in an unmarked car. They needed his face.
They grabbed his jaw to force his head in front of his iPhone. They slapped his face. They shouted, “Wake up!” They pried open his eyes. It all failed: Mr. Cheung had disabled his phone’s facial-recognition login with a quick button mash as soon as they grabbed him.”
7. When animals interrupt sports (photo gallery).
Thursday assorted links
2. My BBS comment with Michelle Dawson on social motivation and autism, full set of comments here.
4. Lama’s questions to ask people (“Skip the small talk”).
5. “Privatization of public goods can cause population decline“: but it’s about microbials.
6. More Magnus.
7. Many academics give advice to their younger selves — many sad, pathetic and whiny, self-pitying answers, really an indictment of sorts. Why did so few of the respondents say: “I had one of the most remarkable guaranteed jobs in history, and I used it somewhat to help the world, but I wish I had used it so much more”?
Wednesday assorted links
Every era’s monetary and financial institutions are unimaginable until they’re real
That is the column subtitle, the actual title is “The Lesson of Bretton Woods.” Note that yesterday was the 75th anniversary of the signing of the final agreement. Here is one excerpt:
The Bretton Woods arrangements also seemed highly unlikely until they were in place. They involved a complicated system of exchange rate pegs, capital controls and a “gold pool” (and other methods) to control gold prices and redemption ratios. What’s more, the whole thing was dependent on America’s role as global hegemon, both politically and economically. The dollar still was tied to gold, and the other major currencies tied to the dollar, but as the system evolved it required that no one was too keen to redeem dollars for gold (the French unwillingness to abide by this stricture was one proximate cause of the collapse of Bretton Woods).
I don’t think a monetary economist from, say, 1890 could have imagined that such an arrangement would prove possible, much less successful. Yet the Bretton Woods arrangements had a wonderful track record, as the 1950s and 1960s generated strong economic growth for both the U.S. and Western Europe.
At the same time, once Bretton Woods ended in the early 1970s, few people thought it was possible to turn back the clock. The system required the U.S. to be a creditor nation, to hold much of the world’s gold stock, and for countries such as France to defer to American wishes on gold convertibility. Once again, the line between an “imaginable” and “unimaginable” monetary arrangement proved to be a thin one.
As I point out in the piece, today’s arrangements of fiat currencies and (mostly) floating rates were unimaginable to most previous thinkers, including Keynes. Here is the column’s closing bit:
So as you consider the legacy of Bretton Woods this week, remember that core lesson: There will be major changes in monetary and institutional arrangements that no one can even imagine right now. Assume the permanency of the status quo at your peril.
Tuesday assorted links
1. Health care and Medicaid effectiveness: “We find a 0.13 percentage point decline in annual mortality,
a 9.3 percent reduction over the sample mean, associated with Medicaid expansion for this population. The effect is driven by a reduction in disease-related deaths and grows over time…”
2. Some new Greg Clark results on heritability.
3. David Brooks on top artworks (NYT). And Ross Douthat on stagnation (NYT).
4. RIP Marylou Whitney, passing of an age. The NYT obit is better yet.
5. Six-figure deal for Claudia Goldin at Princeton University Press.
6. China’s payments of intellectual property fees over time.
Monday assorted links
My favorite things New Hampshire
1. Musician. I don’t love Steve Tyler/Aerosmith, so what am I left with?
2. Author: I find John Irving unreadable, so does it come down to Russell Banks? Who else is there? Salinger lived in New Hampshire for a long time, so I’ll pick him, though it is also pretty far from my favorite. Here is my Catcher in the Rye review.
3. Sculptor: August Saint-Gaudens.
“Law Supported by Power and Love”
4. Adam Sandler movie: The Waterboy, Happy Gilmore.
5. Poet: Robert Frost, who seems to be clear winner for the whole state. There is a scholastic version of Frost which is quite dull, don’t be put off if that is all you know of him.
6. Movie director: Brian DePalma, Dressed to Kill and Mission to Mars being my favorites.
7. Painter: Maxfield Parrish. I feel I’m being forced into many of these choices — I simply can’t think of anyone else.
8. Secretary of the Treasury: Salmon P. Chase. Chase is one of the few people to have had a major position in the executive branch, served in Congress, and sat on the Supreme Court.
9. Free trade economist: Douglas Irwin.
The bottom line: For all of my grumbling, for such a small state it does pretty well.