Category: Uncategorized

Stories to watch for in 2013

by  Tyler Cowen in

Here is a list from The Guardian.  Here is an FT list.  My list looks more like this:

1. Economic turnarounds in the Philippines, Sri Lanka, Indonesia, and possibly Pakistan and Myanmar.

2. Pressures for secession in Catalonia, and a potential crisis of the Spanish state.

3. East Asian belligerence, with more hawkish leaders in the three major countries.

4. There is actually a non-trivial chance we totally blow it on the debt ceiling.

5. The continuing rise of machine intelligence and the general recognition of such as the next major technological breakthrough.

6. Significant positive reforms in Mexico on education, foreign investment, and other matters too.

7. Political collapse in South Africa.

8. Continuation of America’s “Medicaid Wars,” over state-level coverage, combined with the actual implementation of much more of ACA.  Continuing attempts in Rwanda, Mexico, and China to significantly extend health care coverage to much poorer populations.

9. The return of dysfunctional Italian politics, combined with the arrival of recession in most of the eurozone economies, including France and Germany.

10. The ongoing barbarization of North Africa, including Mali, Syria, and possibly Egypt.  And whether any of these trends will spread to the Gulf states.

11. Whether China manages a speedy recovery and turnaround.

12. Watching India try to overcome its power supply problems, its educational bottlenecks, and its low agricultural productivity.

13. Seeing whether Ghana makes it to “middle income” status and how well broader parts of Africa move beyond resource-based growth.

14. Whether U.S. and also European political institutions can handle the intensely distributional nature of current fiscal questions.

Those are some of the main stories I will have my eye on, but of course I expect to be surprised.  I suppose Israel and Iran should be on that list somehow, North Korea too, but I don’t find that thinking and reading about it yields much in the way of return, compared to a simple “wait and see.”

Addendum: Here is Matt’s list.

The Portuguese fiscal cliff [penhasco fiscal?]

by  Tyler Cowen

Lisbon plans to lift income tax revenue by more than 30 per cent[this coming year], raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income.

We’ll see how that goes, here is the rest of the FT story.  Here are some related earlier posts.

Pakistan update

by  Tyler Cowen in

1. Militants kill 41 in the Peshawar region.

2. Adulterated cough syrup kills 33, the second such incident in recent times.

3. Pakistan lifts its YouTube ban, but for three minutes only.

Those are the headlines immediately visible today.

Less widely reported is that during 2012, the Pakistani stock index — namely the KSE-100 — is up 48% in local currency and 37% in U.S. dollars.

What are the policy implications of capital-biased technological change?

by  Tyler Cowen in

Paul Krugman has a very interesting post on this topic, so I will add a few points:

1. Taxing capital per se is not the way to go, since capital (of some kinds) bids up the wages of labor.  If one accepts Krugman’s distributional premises (not exactly my view but let’s see where it brings us), the answer is to tax mainly those forms of capital which substitute for labor, either directly or indirectly.  That would mean high taxes on the internet and other media of communications as well as high taxes on software and embedded software.  I don’t myself favor those policies, all things considered, but still I find it worth pursuing this logic to its implied conclusion.  It would imply especially high taxes on our technologically most dynamic sectors.

2. Intellectual property rights of many kinds should be weaker, as Alex discusses in his Launching the Innovation Renaissance.  That is one way to “tax” some forms of capital.  But do not expect the main action here to be found in easy-to-reproduce forms of capital, rather look to the more durable rents.

3. If you believe that the wages of labor are “stickier” than payments to capital, and there is downward pressure on wage shares, this implies a higher steady-state rate of price inflation.  I know, I know, there are various nominal vs. real finesses buried in my claim but still I think it holds up for the most part.

4. A lot of the surplus from Ricardian progress will end up captured by land, so we should follow Matt Yglesias’s recommendations in The Rent is Too Damn High.

5. A lot of the surplus from Ricardian progress will end up captured by resource owners, so we should relax constraints on resource exploration and development as an egalitarian move.  (NB: Beware tech models with only two factors!  They are usually wrong when it comes to incidence and the like; see for instance Nick Rowe.)

6. Let’s consider cutting the minimum wage.

7. Whatever we do, we should avoid mandated benefits programs — which raise the fixed cost of hiring an ever-cheapening labor — like the plague.  Whoops.

8. Lower wages strengthen the case for subbing in social security income for Medicare benefits, as the marginal value of cash is becoming higher for many of the elderly.  The case for in-kind as the appropriate form of aid is weaker.  Let’s also think about a longer-term consolidation of various aid programs into some form of guaranteed annual income.

What else can you think of?

How many bankruptcies to come in higher education?

by  Tyler Cowen in

Bryan Caplan doubts that on-line education will lead to many bankruptcies in higher education.  To provide a contrasting point of view, I see the landscape as follows:

1. The absolute wages of college graduates have been falling for over a decade, even though the relative premium over “no college degree” is robust.  Still, absolute wages do determine the long-term viability of any revenue model.  And note that a pretty big chunk of the relative college wage premium is captured through post-secondary education only.

2. The “debt bubble” behind a lot of recent higher education expansion won’t be repeated anytime soon.

3. A large number of institutions in the top one hundred will move to a hybrid on-line model for a third or so of their classes and they will do so gradually, without seriously disrupting norms of conformity or eliminating campus life.  In fact this will become the new conformity and furthermore through time-shifting it may increase the quantity and joy of drunken parties and campus orgies.  Eventually these on-line classes will be sold for credit to outside students.  Some top schools will sell credits in this manner, even if the more exclusive Harvard and Princeton do not.  Many lesser schools will lose a third or so of their current tuition revenue stream.  Note that the prices for these on-line credits, even if hybrid, will likely be much lower, plus lesser schools lose revenue to the schools better at designing on-line content.

4. Some state governors will try to put out a supposedly semi-passable degree from their state schools for 10k a year, with some on-line components of course.  That will put price and revenue pressure on many other schools.

So let’s say you are Trinity International University, in Deerfield, Illinois, 1,265 students, nominal tuition about 26k.  I had never heard of that place before doing a quick search through U.S. News rankings.  Still, it is rated in the second tier.  Will it survive?  Maybe their Evangelical orientation will push them through.  Maybe it will sink to 500 students.

How about Lynn University, in Florida, also second tier, nominal tuition listed as 32k?  1,619 students, but how many by say 2032?

I don’t think bankruptcy, literally interpreted, is the likely legal outcome (for one thing, these schools probably don’t have enough debt for bankruptcy law to be relevant).  Still, I think it is quite possible that one hundred or more schools in the U.S. News rankings will find their enrollments or at least their tuition revenue streams cut in half or more within twenty years.  They will be shells of their former selves, though on-line education might not even be their major economic challenge.  It will be one of three or four major whammies facing them.  Higher education as a general practice of course still will thrive, as will community colleges.

One key question is whether on-line education will encourage consolidation or not.  Under one vision, on-line offerings shore up the smaller schools, because you can go to them for the atmosphere while taking German III purely on-line.  (Even then, they survive but the revenue stream takes a huge whack.)  Under another vision, on-line — for most students — works best in hybrid form, mixed with various face-to-face forms, and the larger schools will have a much easier time getting this off the ground in a workable manner.

Two additional comments on Bryan’s post.  First, he thinks that for on-line education “…the dollars of venture capital raised are laughable.”  Yet keep in mind that the major players are or can be backed by the endowments of the top universities.  In any case, why raise extra money before you are able to spend it?  If these on-line efforts get any traction at all, the funding and lines of credit will be there.

Second, advocates of the relevance of the signaling model should be relatively optimistic about on-line education.  Because it is hard to pay attention in the on-line schoolhouse, it provides an especially potent signal!  And you always face the temptation to upgrade your signal by subbing in some Top School on-line credits for some of your Podunk University credits.  (Sooner or later Podunk will have to accept such credits.)  Social pressures for conformity will encourage rather than stop that trend.  On the other hand, if you subscribe to a learning model for higher education, there are some very legitimate questions as to how well the on-line product can teach you what you need to know, at least for people with some fairly wide variety of learning styles.

Conformity pressures and signaling may militate against the “stay at home all day” forms of on-line education, but not against on-line education more generally, in fact quite the contrary.  In my view Bryan is underestimating the economic problems to be faced by a wide range of colleges and universities, and putting up a not very plausible model of non-conformist on-line ed as the major threat.

Addendum: Matt Yglesias comments.