Category: Uncategorized

An argument for the McConnell plan

by  Tyler Cowen

We’ve never thought the debt ceiling was the best leverage for a showdown over the entitlement state…

The tea party/talk-radio expectations for what Republicans can accomplish over the debt-limit showdown have always been unrealistic. As former Senator Phil Gramm once told us, never take a hostage you’re not prepared to shoot. Republicans aren’t prepared to stop a debt-limit increase because the political costs are unbearable. Republicans might have played this game better, but the truth is that Mr. Obama has more cards to play.

The entitlement state can’t be reformed by one house of Congress in one year against a determined President and Senate held by the other party. It requires more than one election.

The full article is here.  Ezra reports:

You’re increasingly hearing about the possibility of a split Boehner/McConnell deal, in which Boehner gets less than $2 trillion in spending cuts, which is not quite as many as he wanted, and the McConnell process is used to raise the debt ceiling beyond where the spending cuts have gone. That would, in other words, be the GOP giving on its dollar-for-dollar demand, which seems likelier to everyone involved than the party making an agreement on taxes.

One of the strangest and most depressing markets in everything

by  Tyler Cowen

The link is here.  It deserves more than a mere link in a list, yet I can’t bring myself to excerpt from it either, or for that matter to really comment on it.  It is estimated that the woman (the link is safe for work, by the way) earns $90,000 a year, although she denies this.  There’s the consumer surplus on top of that.

For the pointer I thank Andrew H.

American vs. Russian notions of friendship

by  Tyler Cowen in

Not long ago I attended an evening-long discussion group on this topic, comprised mostly of Russian emigrants and their spouses.  The Russians were generally keen to argue that they have deeper and closer friendships than do the Americans.  They also dislike that Americans will call their acquaintances “friends.”  In response I noted that:

1. Relative to Americans, Russians are far more concerned with defining who is truly a friend, or not.  (Though Google+ may change this.)

2. Russians are far more likely to conduct purges of their friends.  (“A future enemy” is one good Eastern European definition of a friend, or so the joke goes, thanks to BC.)

3. American geographic mobility has been falling for some time and so we might move back toward some closer and more durable notions of friendship; social networks play a role here too.

Since that evening, I’ve formulated a new version of the question in my mind.  Putting aside the so-called “intelligentsia” (a Russian phrase, not one which comes quickly to my tongue), are Russian lower-middle class friendships so much more “life and death” than American lower-middle class friendships, especially among the immobile?  What if seven guys grow up together in Somerville, MA, never go to college or leave town, work in auto parts stores, and end up reminding you of characters in a Clint Eastwood movie?  Maybe they’re pretty tight, albeit with grudges and perhaps even purges along the way.

The new question is then this: why does the “treatment” of greater education have so much less affect on the nature of Russian friendships, relative to American friendships?  Are there other dimensions along which the treatment of education influences Russians less?  (Examples would be child-bearing age, taste in sports, taste in food, etc.)  Influences Americans less?  Other groups?

The Russian intelligentsia will be the first to insist how much education matters in their circles, but perhaps they doth protest too loud.

Do supermarkets improve our diets?

by  Tyler Cowen

Maybe not:

Better access to supermarkets — long touted as a way to curb obesity in low-income neighborhoods — doesn’t improve people’s diets, according to new research. The study, which tracked thousands of people in several large cities for 15 years, found that people didn’t eat more fruits and vegetables when they had supermarkets available in their neighborhoods.

Instead, income — and proximity to fast food restaurants — were the strongest factors in food choice.

The original piece (gated) is here.

Very good sentences thwarted markets in everything

by  Tyler Cowen in

“Such exorbitant commercialism must stop,” said Jan Tönjes, chief editor of Germany’s St. Georg magazine. At a recent show in Wiesbaden, he said, a woman tried to buy a rubber glove that the horse had spat on as a souvenir.

The article is here (interesting throughout) and for a related pointer (not to this passage) I thank Michelle Dawson.

From the comments

by  Tyler Cowen

Wiki writes:

One way to think about it is how much even relatively wealth Americans (those who travel abroad) willingly pay for expensive internet access while traveling. The answer is: Not very much. Look at how many people put up with less internet than they’re used to or go out of their way to find a cafe with free wifi when hotel charges are on the order of $10 or $15 per hour. But since it often takes search plus travel time (say 15-30 mins) to get to these inconvenient locations that tells me it’s REALLY not worth more than a few hundred dollars a month for most people to have internet for several hours a day in the most convenient locations. And think of all the people who can’t afford to travel or who don’t bother to get smart phones or who pay for neither texting nor email.

The infovores are overvaluing themselves and the relative weight of their consumer surplus in the economy. Certainly compared to those who were heavy users of air travel (in for example the 1960s) or those who first encountered modern highways (1930s to 50s) or who benefited from mail order catalogs and phone books. And certainly compared to users of penicillin.

Simple numbers about Italy

by  Tyler Cowen in

European banks have total claims and potential exposures of €998.7 billion to Italy, more than six times the 162.4 billion euro exposure they have to Greece, according to Barclays Capital. European banks have €774 billion of exposure to Spain and €534 billion of exposure to Ireland.

In the United States, banks are also more exposed to Italy than to any other euro zone country, to the tune of €269 billion, according to Barclays. American banks’ next biggest exposure is to Spain, with total claims estimated at €179 billion.

But at the end of the day, “if Italy goes, it’s no longer a domino,” said Mr. Gros, the analyst in Brussels. “It’s a brick.”

The link is here.

Argentina vs. economists (toward a theory of E. Barandiaran)

by  Tyler Cowen in

Here are the grisly details:

Argentina’s government has filed criminal charges against the managers of an economic consulting firm, escalating its persecution of independent economists.

…The government is charging MyS Consultores with “publishing false information about inflation data” to benefit themselves and their clients. The criminal complaint alleges that MyS’s data also lead to speculative behavior in Argentina’s bond market.

…Consumer prices rose 9.7% in May from a year ago, according to the national statistics agency, Indec. But virtually all economists say annual inflation surpasses 20%—one of the world’s highest rates—angering government officials who dismiss inflation as a problem.

…So far this year, the Secretariat has fined at least nine economic research firms 500,000 pesos ($122,000) each. This week, the Secretariat also slapped a second fine on Orlando J Ferreres & Asociados.

“They fine us for saying how much prices have risen,” Mr. Ferreres, director of his eponymous firm, said. “They could seek criminal charges against all of us. We don’t know how far they’re willing to go.”

Mr. Ferreres said the legal actions are part of a strategy to prevent independent economists from publishing potentially negative information during an election year…

Government officials say they hoped the fines would deter economists from “deceiving” the public into making poor financial decisions by publishing inflation estimates that differ considerably from Indec’s consumer price index.

And get this:

Economists point to unrestrained fiscal spending, a booming economy and an expanding money supply as the main drivers of inflation that is at least double that reported by Indec.

They also say the government tacitly admits to high inflation every time it backs collective-bargaining agreements that include annual wage increases of 20% to 30%.

How quickly do people adjust to nominal changes?

by  Tyler Cowen in

Eric Barker sends me this very interesting article:

Turkish monetary reform, which took effect in January 2005, introduced the New Turkish Lira (NTL) by deleting six zeros from the former currency, the Turkish Lira (TL). Two experiments investigated how the introduction of the NTL might affect price estimation. In the first, conducted in December 2004, 202 students were first presented with high or low anchor values and then estimated the average price of a “new Turkish mid-sized car” in different currencies (TL, NTL and Euro). Although anchoring bias was not significantly different across familiar (TL) and unfamiliar currencies (NTL and Euro), price estimates in Euro and NTL were significantly higher than those in TL. In the second experiment, carried out 6 months later, 212 adult consumers estimated the prices of 13 items in one of three currencies. For five items prices estimated in Euros were significantly higher than those expressed in either TL or NTL. However, there were no significant differences between TL and NTL, suggesting that Turkish consumers had quickly adapted. Such ease of adaptation is consistent with a rescaling hypothesis: when one or more zeros are dropped from a currency, consumers rescale all prices relatively quickly rather than relearn them selectively through gradual exposure.

It is much harder, I think, when the nominal change is either uncertain or not common knowledge or not distributed evenly across economic sectors.  In those alternative cases the signal extraction problem is multi-dimensional and not necessarily solved by a quick social conversation.  In other words, I would not expect all nominal adjustments to run so smoothly.  Still, this is a nice test of an old proposition from David Hume (and others).