Category: Uncategorized

Corruption and the history of development economics

by  Tyler Cowen in

A few observations, based on some recent reading:

1. It is remarkable how little the topic is discussed in the mainstream literature before the 1990s.  Gunnar Myrdal to his credit does discuss it a bit in his Asian Drama.

2. I have seen more than a few articles suggesting Anne Krueger showed that rent-seeking accounted for 7.3 percent of Turkish gdp (in the 1960s).  That’s not what Krueger said.  Rather she showed that import licenses were equivalent to this value, and that this provided an upper bound for the amount of rent-seeking.

3. The real costs of rent-seeking and corruption are the “limits to technology transfer” argument of Parente and Prescott, not the standard rent-seeking box.  That paper alone could bring a Nobel Prize, and yet it’s hardly ever mentioned in assessments of Prescott.

Will Arab Spring lead to democracy?

by  Tyler Cowen in

A new BPEA paper by Eric Chaney (pdf) suggests maybe not:

Will the Arab Spring lead to long-lasting democratic change? To explore this question I examine the determinants of the Arab world’s democratic defi…cit in 2010. I …find that the percent of a country’s landmass that was conquered by Arab armies following the death of the prophet Muhammad statistically accounts for this defi…cit. Using history as a guide, I hypothesize that this pattern reflects the long-run influence of control structures developed under Islamic empires in the pre-modern era and …and that the available evidence is consistent with this interpretation. I also investigate the determinants of the recent uprisings. When taken in unison, the results cast doubt on claims that the Arab-Israeli conflict or Arab/Muslim culture are systematic obstacles to democratic change in the region and point instead to the legacy of the region’s historical institutional framework.

Here is a good sentence:

…the fact that the Arab world’s democratic defi…cit is shared by 10 non-Arab countries that were conquered by Arab armies casts doubt on the importance of the role of Arab culture in perpetuating the democratic defi…cit.

And this:

Once one accounts for the 28 countries conquered by Arab armies, the evolution of democracy in the remaining 15
Muslim-majority countries since 1960 largely mirrors that of the rest of the developing world.

International PPP for faculty salaries

by  Tyler Cowen in

Not exactly what I would have thought:

Canada comes out on top for those newly entering the academic profession, average salaries among all professors and those at the senior levels. In terms of average faculty salaries based on purchasing power, the United States ranks fifth, behind not only its northern neighbor, but also Italy, South Africa and India.

You will note however that this is not covering the extreme right hand tail of top faculty salaries in top U.S. universities, but rather a measured mean from public institutions.  There is more here, hat tip goes to Jacob Levy.  In percentage terms, the biggest gap between entry salaries and top salaries is found in China.  There is much more data here.

A new and revised and more pessimistic view of U.S. manufacturing

by  Tyler Cowen in

Between 2000 and 2010, manufacturing output of computer and electronic products rose at a remarkable rate of almost 18 percent per year.

Over the same period, output in the rest of U.S. manufacturing remained roughly flat, according to Bureau of Economic Analysis figures tallied by Houseman. That’s a dismal showing for a decade.

It is only when computer and electronic products are included that overall manufacturing output registers the impressive increases. Though it represents 15 percent or less of manufacturing output, the sector’s strong growth makes the rest of U.S. manufacturing seem much more robust than it really is.

At the same time:

…much of the nation’s production of computers and electronics has moved overseas. The number of consumer electronics shipped from U.S. factories dipped about 70 percent between 2000 and 2010, according to the Census Bureau’s Current Industrial Report.

And:

…at least some of the productivity gains shown in U.S. computer manufacturing reflect the increasing power and decreasing prices that come with innovation. When a computer chip doubles in efficiency, that can turn up in a doubling of output and productivity in computer manufacturing. But that is not what is ordinarily thought of as manufacturing efficiency.

The article is here.  It also makes the point that a lot of measure manufacturing productivity gains are actually the result of offshoring, not actual higher productivity in U.S. factories; “This bias may have accounted for as much as half of the growth of U.S. manufacturing output from 1997 to 2007, excluding computers and electronics manufacturing, Houseman and her co-authors have estimated.”

I thank Brent Depperschmidt for the pointer.

Do we remember less well when we read from computer screens?

by  Tyler Cowen

From Maia Slalavitz:

E-books, however, provide fewer spatial landmarks than print, especially pared-down versions like the early Kindles, which simply scroll through text and don’t even show page numbers, just the percentage already read. In a sense, the page is infinite and limitless, which can be dizzying. Printed books on the other hand, give us a physical reference point, and part of our recall includes how far along in the book we are, something that’s more challenging to assess on an e-book.

Jakob Nielsen, a Web “usability” expert and principal of the Nielsen Norman Group, believes e-reading does lead to a different type of recall. “I really do think we remember less” from e-books, he says. “This is not something I have formally measured, but just based on both studies we’ve done looking at reading behavior on tablets and books and reading from regular computers.”

He says that studies show that smaller screens also make material less memorable. “The bigger the screen, the more people can remember and the smaller, the less they can remember,” he says. “The most dramatic example is reading from mobile phones. [You] lose almost all context.”

I liked this sentence from the piece:

“We bombarded poor psychology students with economics that they didn’t know,” she says.

I would consider these results “speculative,” but the questions are nonetheless interesting to ponder.  The full article is here.

Temporary vs. permanent increases in government spending

by  Tyler Cowen in

Not long ago Paul Krugman wrote:

To a first approximation, in other words, the effect of current fiscal policy — whether stimulus or austerity — an [on?] the actions of future governments is zero.

He makes further points at the link, although there is not a citation to the literature.  I thought we should look at the evidence a little more closely.  Some of it contradicts Krugman as read literally, though it is not all bad news for his larger point.

Here is an abstract from Brian Goff:

In spite of Peacock and Wiseman’s 1961 NBER study demonstrating the “displacement effect”, simplistic theoretical and empirical distinctions between temporary and permanent spending are common. In this paper, impulse response functions from ARMA models as well as Cochrane’s non-parametric method support Peacock and Wiseman’s conclusion by showing 1) government spending in the aggregate displays strong persistence to temporary shocks, 2) simple decomposition methods intended to yield a “temporary” spending series have a weak statistical foundation, and 3) persistence in spending has increased during this century. Also, as a basic “fact” of government spending behavior, the displacement effect lends support to interest group and bureaucracy models of government spending growth.

There is persistence to spending, although this study does not create a category for stimulus spending per se, however that concept might be defined.  The work of Robert Higgs also provides a clear look at ratchet effects on government spending, control, and regulation, although Higgs focuses on war rather than spending.  State governments also seem to exhibit a ratchet effect, whereby good times bring about permanently higher budgetary demands, if only through endowment effects, lock-in, and status quo bias.

That said, the federal debt/gdp ratio seems to show mean reversion, as does the measure of primary surplus.  That would mean that fiscally troubled situations are followed by improvements, though not necessarily from spending decreases.  In fact there has been  considerable reliance on a “growth dividend.”  And here is Henning Bohn from the QJE:

How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.

In other words, we make up for first-temporary-then-permanent spending boosts by a mix of growth and higher taxes.  Krugman might well be happy with that scenario, but the data do show intertemporal interdependence for budgetary decisions, with a mix of persistence on one variable (spending) and mean-reversion on another (debt-gdp ratio).  And if you think a lot of government spending is inefficient, you should still be troubled by apparently “temporary” spending bursts.

As with much of macroeconomics, I would apply a good dose of agnosticism to these results (noting that agnosticism is not the same as assuming zero effect), but still the correlations are consistent with my intuitions more generally.

Assorted links

by  Tyler Cowen

1. Zero- or positive-sum game?

2. Via Chris F. Masse, which classic books do the French buy?  Asimov beats out Proust and Stendahl.

3. Interview with Martin Walser, on literature and religion.

4. More Charles Murray, on economic vs. cultural forces; “It is condescending to treat people who have less education or money as less morally accountable than we are. We should stop making excuses for them that we wouldn’t make for ourselves. Respect those who deserve respect, and look down on those who deserve looking down on.”

5. What lessons are other countries learning from the Greek default?

6. Article about me in Calcalist, Israeli periodical, in Hebrew.

Corporate cash and Apple

by  Tyler Cowen

Apple alone represents $64 billion or 36% of the total $179 billion increase in corporate cash since 2009. And in 2011, overall corporate cash would have actually declined by $6 billion had it not been for Apple’s $46 billion increase.

…Supported by our expectations that consumers worldwide will continue to feast on Apple products, we expect overall corporate cash and its concentration will increase in 2012. Apple alone could represent 12% of total corporate cash, about three times more than the next cash king. …

There is more here, and I thank Brian Bares for the pointer.