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*Deng Xiaoping and the Transformation of China*

by  Tyler Cowen in

That is the new book by Ezra F. Vogel, excerpt:

Deng in 1978 had an equally dramatic effect on the Japanese people.  In the 2,200 years of contact between China and its island neighbor, Deng was the first Chinese leader to set foot in Japan.  He was also the first to meet the Emperor of Japan.

So far the main lesson I am drawing from this book is how provincial the Chinese leaders were circa 1978, but also how willing they were to absorb evidence and change their minds, especially following visits to Western Europe and Singapore, both of which had significant impacts on them.  I am also learning that the 1979 war with Vietnam was a more significant event than I had thought.

The publication date of the book is listed as 26 September, but Amazon shipped my copy earlier this week.

Where is the Card and Krueger paper at?

by  Tyler Cowen in

Has it held up better than many people believe?  Here is a good and sure to prove controversial overview from Arindrajit Dube.  Excerpt:

Subsequent research that built on Myth and Measurement has found that while the sizeable positive effects in some of their specifications were likely due to chance, the lack of job loss was very much a robust finding. Card and Krueger’s own subsequent analysis in 2000 using Unemployment Insurance filings by firms (which was closer to the universe of firms in the two states than their original sample) over a longer period already moved towards this view, as the employment elasticities, while still positive, were smaller in magnitude and not statistically distinguishable from zero.(1) My own work with William Lester and Michael Reich (2010) demonstrated this point by comparing contiguous counties across state borders and pooling over 64 different border segments with minimum wage differences over a 17-year period (1990-2006).

There is also a lengthy discussion of whether Neumark and Wascher overturned the central Card and Krueger result.  Read the whole post.

Addendum: Tim Worstall comments.  Matt Yglesias comments.

Robin Hanson is forming a forecasting team, Kling and Schulz have a new edition

by  Tyler Cowen in

In response to the Philip Tetlock forecasting challenge, Robin is responding:

Today I can announce that GMU hosts one of the five teams, please join us! Active participants will earn $50 a month, for about two hours of forecasting work. You can sign up here, and start forecasting as soon as you are accepted.

There is more detail at the link.  Let’s see if he turns away the zero marginal product workers.

There is also a new paperback edition out of the excellent Arnold Kling and Nick Schulz book out, now entitled Invisible Wealth: The Hidden Story of How Markets Work.  The book has new forecasts…

Assorted links

by  Tyler Cowen

1. An oldie but goodie: let’s not forget Christina Romer’s classic paper on spurious volatility in the historical data (pdf).  This is with reference to recent writings from Eichengreen and Roubini.  I don’t favor a gold standard but criticisms should start with this paper.

2. Critical review of the new MLK memorial.

3. What do anesthetics do?

4. Predictions by Pettis, mostly correct I think, in any case worth a read.

5. Some of Alan Krueger’s academic work.

On this matter, nudge and technocracy failed to predict

by  Tyler Cowen in

Recent fiscal policies, including the 2008 stimulus payments and the 2009 Making Work Pay tax credit, aimed to increase household spending. This paper quantifies the spending response to these policies and examines differences in spending by whether the stimulus was delivered as a one-time payment or as a flow of payments from reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding in 2009 boosted spending at roughly half the rate (13 percent) as the one-time payments (25 percent) in 2008.

You may recall that the structure of these tax cuts was designed scientifically to produce maximum bang for the buck.  That is from a new paper by Claudia Sahm, Matthew Shapiro, and Joel Slemrod (pdf).

Of course, if you are more worried about the length of the deleveraging recession, some mistakes may cancel out and perhaps the ARRA approach, leading to higher savings and quicker balance sheet repair, was wiser after all.

The deflation of 1873-1896

by  Tyler Cowen

I believe this period in economic history deserves a closer look, starting with S.B. Saul’s book The Myth of the Great Depression.

1873-79 was quite turbulent, but afterwards the global economy adjusted to deflation.  Those years were among the most beneficial in human history, as the foundations of the modern world were laid.

This is one reason why I become suspicious when deflation is blamed for Japan’s current problems, or when we are told that weak AD could lead to two lost decades in the United States.   I do not favor deflation but its curse need not last forever.

If we are mired in the muck for two decades or more, as Japan has been, I blame low rates of productivity and technical progress.  A simple comparison with North Dakota and Nebraska drives home the point.  For the globe as a whole, increased resource prices are not the same as a productivity boost, but for a single region they can be.

Mexico facts of the day

by  Tyler Cowen

In another sign of the influx, private jet flights between San Antonio and Mexico nearly doubled between 2008 and 2010, reaching 3,997 in 2010, according to city officials.

The city’s Mexican Entrepreneurs Association, founded 15 years ago, has grown from a handful of members to 200. On a recent evening, dozens of members and guests sipped red wine and nibbled canapes of smoked salmon and roast beef at a networking event.

…The number of investment visas given to Mexicans has risen sharply. A total of 10,512 E-1 and E-2 investment visas were granted to Mexicans from 2006 to 2010, a 73 percent increase over the previous five-year period, according to the State Department.

The article is about how the new wave of immigrants from Mexico, fleeing the drug war, are often very wealthy and highly educated.  Keep in mind that the overall yearly flow of Mexicans to the United States is now about a fifth of what it was in 2006.  Nonetheless, it is being called the “Mexodus.”

The size of fiscal stimulus vs. the length of fiscal stimulus

by  Tyler Cowen in

For this blog post, let’s assume Keynesian economics.

For all the talk of a “large stimulus,” you don’t hear much about a “longer stimulus.”

The problem with a “too small” stimulus is that you get an initial economic boost, but when the stimulus expires the economy slumps back down, as indeed happened in mid 2011.  Ideally a stimulus employs some idle labor, stops it from depreciating, and tides those workers over until they can look for other jobs in fundamentally better economic conditions.  Those last few words are important.  If conditions are not improving soon, the ability of the stimulus to “buy time” for those workers isn’t worth much.  The workers get laid off from the government projects and their reemployment prospects are no better than to begin with.  We end up having spent a lot of money to postpone our adjustment problems, rather than achieving takeoff.

Deleveraging recessions last a long time, as shown by Rogoff and Reinhart.  The need for continuing deleveraging implies that even a stimulus twice the size of ARRA won’t turn the tide.

In those cases a well-designed stimulus program should not be so “timely.”  For a given presented expected value sum spent on stimulus, it is better to spread it out across the years.  It is better to help a smaller set of workers for five years (or however many years it takes for most of the deleveraging to end), after which they are reemployable , than to temporarily boost a larger number of workers for two years, and then leave them back in the dust because deleveraging is still going on.

The effectiveness of a stimulus will be measured by how many workers it bridges over until most of the deleveraging is over.  For ARRA, that number is close to zero.

Length may be one reason why WWII was effective stimulus (again, we are operating within the Keynesian worldview here, no need to argue this point in the comments).  The war lasted a while, and in the meantime a lot of balance sheet repair went on.

Oddly, there is not much discussion about the length of fiscal stimulus.  But there should be.