Category: Uncategorized
David Leonhardt wins a Pulitzer Prize
Well-deserved (NYT link), he also has excellent taste in food.
Assorted links
1. A better approach to controlling Mexican drug violence.
2. The culture that is Japan; “The sole person in Japan who is not obliged to use honorifics, or rather, is prohibited from using them, is the emperor.”
3. David Frum on the welfare state.
4. The culture that is Mexico.
5. Edward O. Wilson changes his mind on altruism.
A convincing smile is difficult to fake
Here is a new paper by a few authors, including Paul Seabright:
We test the hypothesis that “genuine” or “convincing” smiling is a costly signal that has evolved to induce cooperation in situations requiring mutual trust. Potential trustees in a trust game made video clips for viewing by potential trusters before the latter decided whether to send them money. Ratings of the genuineness of smiles vary across clips; it is difficult to make convincing smiles to order. We argue that smiling convincingly is costly, because smiles from trustees playing for higher stakes are rated as significantly more convincing, so that rewards appear to induce effort. We show that it induces cooperation: smiles rated as more convincing strongly predict judgments about the trustworthiness of trustees, and willingness to send them money. Finally, we show that it is a honest signal: those smiling convincingly return more money on average to senders. Convincing smiles are to some extent a signal of the intrinsic character of trustees: less honest individuals find smiling convincingly more difficult. They are also informative about the greater amounts that trustees playing for higher stakes have available to share: it is harder to smile convincingly if you have less to offer.
Here is another paper by Paul and co-authors, about the end of low-hanging fruit in the pharmaceuticals market.
Why do Brazilians emigrate so infrequently?
It is a populous country, yet there are few major Brazilian communities in the United States. Only parts of Massachusetts, Queens, and Newark, New Jersey come to mind. The U.S. Census estimates about 250,000 Brazilians living in the United States, which is many fewer than come from El Salvador, namely about two million. Why is there such a difference? The Brazilian number may well be an undercount but unofficial estimates still lie well below those of El Salvador.
1. Could it be that Brazil is too much fun to leave? Or too much fun to generate the norms of upward mobility which encourage poorer people to leave for greater ambition? If you live on the beach in northeastern Brazil, what exactly do you aspire to?
2. Do inhabitants of large, populous countries face larger cultural costs in leaving and adjusting their perspective?
3. Has Brazil had so much construction (including Brasilia), in its fairly wealthy sectors, that internal migration is a good enough substitute for external migration?
4. Brazil has a particular history of viewing the United States as a rival; El Salvador does not.
5. It seems that most Brazilian emigrants are ashamed to admit that they are emigrating to the United States, instead they claim they are simply “passing through,” or something similar.
What other points are relevant? Here is a study (pdf) of Brazilian migrants to Massachusetts.
Brazil also does not attract many (recent) migrants, even though in some sectors the economic opportunities are strong. It could be that external migrants have to compete too strongly with internal migrants from the poorer regions of Brazil.
Leonardo Monasterio restates the initial question in Portuguese.
Assorted links
2. Stepping into the Wilkinson-Caplan debate on kids, and here.
3. Via Chris F. Masse, new quantum teleportation results.
4. Skeptical response on the origin of language.
5. Markets in everything: The Inflatable Crowd Company.
Duncan Foley on the growth slowdown
Via Rortybomb, there is a new paper:
Service industries such as Finance, Insurance, and Real Estate, Education and Health Services, and Professional and Business Services, for which value added is imputed from incomes, are included in Gross Domestic Product, distorting measures of recession and recovery. An alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower long-term real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive-unproductive labor distinction of the classical
political economists.
The short paper is interesting, and speculative, throughout. Here is one of the reproduced graphs. I am comfortable distinguishing “productive” from “unproductive” activities on the grounds of rent-seeking and signaling considerations, but I would not push the distinction beyond that point. I am not sure where Foley draws the line, and he stresses in the paper that his numerical measure is not conceptually perfect but rather given by the limitations of the data.
*The Origins of Political Order*
That is the new book from Frank Fukuyama and the subtitle is From Prehuman Times to the French Revolution. A few points:
1. Every page is intelligent and reasonable.
2. It is a useful general overview of what we know about the origins of states, with full coverage given to the non-Western world, most of all China.
3. My single sentence summary would be: “I am showing you how some polities developed workable, strong states, based in accountability, and how others did not.” If that is it, I would rather that the empirical material were more focused on the “model” and less on overall general narrative. Ultimately the organization sprawls. Nonetheless, this book is an important implied revision of public choice economics, with the focus on history and the question of how strong states get built.
4. In its scope and method, this book feels late 19th century.
5. I am not convinced by the discussion of why earlier China did not progress, found in the range of 51% on Kindle. Fukuyama seems to suggest they simply weren’t interested in doing better. I would be happier if so much did not rest on that question.
6. One implication of the analysis is that we should not be very optimistic about the current revolutions in the Middle East.
7. Try this sentence: “The very lateness of the European state-building project was the source of the political liberty that Europeans would later enjoy.”
8. The section on biology could use a major dose of Robin Hanson.
Here is one useful review. Here is a review from The Economist.
Nouriel Roubini on Austro-Chinese business cycle theory
At Project Syndicate, he writes:
When net exports collapsed in 2008-2009 from 11% of GDP to 5%, China’s leader reacted by further increasing the fixed-investment share of GDP from 42% to 47%.
Thus, China did not suffer a severe recession – as occurred in Japan, Germany, and elsewhere in emerging Asia in 2009 – only because fixed investment exploded. And the fixed-investment share of GDP has increased further in 2010-2011, to almost 50%.
The problem, of course, is that no country can be productive enough to reinvest 50% of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem. China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.
Commercial and high-end residential investment has been excessive, automobile capacity has outstripped even the recent surge in sales, and overcapacity in steel, cement, and other manufacturing sectors is increasing further. In the short run, the investment boom will fuel inflation, owing to the highly resource-intensive character of growth. But overcapacity will lead inevitably to serious deflationary pressures, starting with the manufacturing and real-estate sectors.
Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990’s – have ended with a financial crisis and/or a long period of slow growth.
Do read the whole thing.
Assorted links
1. Steven Soderbergh’s media diet (excellent list of films).
2. Privatizing adoption (pdf).
4. Was language invented only once? (worth one of your twenty).
Assorted links
1. Brink Lindsey on frontier economics, and a related comment on education.
2. Advertising markets in everything.
3. Short Gary Gorton bit on CDS and excess transparency.
4. What is the consumer surplus from computers? And is retirement stagnating? And engines of stagnation.
5. Optimism about solar power.
6. In case I hadn’t made it clear, contrary to its critics the city of Brasilia works reasonably well.
Cash grants instead of Medicare?
Matt Yglesias tweets:
Yes, I think converting Medicare into a straight cash grant to seniors makes sense.
They might rather have a servant, or a better car, or an apartment which doesn’t require them to drive, or to eat a better diet or join a better gym. Or maybe they would rather live it up, travel, and perhaps die at a younger age. That’s what pro-choice means.
On the public choice side, this suggestion would turn seniors into an active constituency for health care cost control.
Nonetheless I propose a more modest version of the idea. When people turn a certain age, allow them to trade in the current benefits package for a minimalistic package (set broken limbs and offer lots of potent painkillers), plus some of the rest in cash, doled out over the years if need be. For some people, medical tourism will fill the gap.
But if a person wishes, he or she can keep the extant benefit structure and forgo the cash altogether. No one is forced to take this deal.
Objections? You might think that “health” has a special moral status of some kind, but keep in mind “health care” is only one way of many to better health care outcomes, so you still can favor increasing the degree of choice.
Paul Krugman calls for a public provision option in Medicare, a bit like the VA system. He doesn’t mention letting people choose some cash instead. We have gone from “Free to Choose” to “Free to Choose more government.”
He makes a good point at the end: “And what would terrify the right, of course, is the likelihood that genuine socialized medicine would actually win that competition.”
What would terrify the left, of course, is the likelihood that genuine privatized cash would actually win that competition.
Assorted links
1. Miami markets in everything.
2. Has South Florida been set back to 2002?, and here.
4. More from the cool-headed Kevin Drum, on the budget.
5. Jason Brennan’s The Ethics of Voting, I recommend it too.
Why are real interest rates in Brazil so high?
In 2002 the ex ante real interest rate in Brazil seemed to be over fifteen percent (pdf). The linked analysis blames the budget deficit, risky swaps premia, and other factors. Sure enough, the Brazilian economy has done very well since 2002 and real rates are “down” to about five percent, which is still very high. They are not so high in Chile, Mexico, or Turkey, arguably the economic peer countries of Brazil. A different earlier analysis cites how the uncertainty of economic policy connects with international liquidity provision to generate high real rates. Here is a paper on jurisdictional uncertainty and high rates in Brazil. The history of high real interest rates is longer yet, covering many of the last thirty-five years.
I found the first and fourth links to offer overly complicated explanations, and those models did not offer stunningly correct predictions for the subsequent period. The “crude” analysis is that the Brazilian savings rate is very low for a developing country (about fifteen percent of income), the size of the Brazilian government is very high for a developing country (about forty percent of gdp), and the productivity of real investment here is high because of lots of low-hanging fruit (literally and figuratively, not just tasty bananas but add on soya and off-shore drilling and other resources). Yet bad mercantilist policies, bad labor law, and the pressure of government spending on savings all mean that the return on capital does not fall so much at the margin. There remain many underexploited opportunities, and thus one can be a Brazil optimist while seeing only a tolerably good policy environment, but tolerably good it seems to be.
Sometimes, when risk and liquidity factors intervene, the real rate of interest is especially high, but it is quite high to begin with.
Sometimes it is argued that when the “U.S. monetary expansion ends” (please don’t debate that issue in the comments on this post), Brazilian real interest rates will rise once again to extreme levels.
High real interest rates keep Brazil relatively free of excess private sector debt.
It is odd how little economists understand about real interest rates.
Assorted links
1. Interesting, but interpret with caution.
2. Motions of a Brazil textile plant, set to music.
3. Ezra Klein’s readers recommend excellent books, good picks.
4. Top ten German economists on Twitter.
5. Doctors choose differently and more riskily for themselves than for their patients, is it worth one of your twenty (W1OY20)?
7. Alexander Field, on the era of no great stagnation, the 1930s.
Porto Alegre notes
Dinner with ravioli, ice water, and a small coke cost $40. It was very good, but no better than in the days of hyperinflation. The real has risen more than forty percent against the U.S. dollar since 2008.
There is much here to study if you favor a greater density of high-rise buildings in cities. The population tends to grow beyond the limits of the infrastructure, but arguably that would happen with sprawling suburbs too.
You can taste the future (and past) of bananas, once current U.S. brands are devastated by rot. It is a bright future, though with lower quantity and probably higher price.
People keep on asking me if I know what acai is, and how Americans consume it.
“Cheeseburger” is spelled “Xis,” because that sound is how some Brazilians mispronounce the opening sound of”cheeseburger.” Xis is now as much of a platform for culinary innovation as it is a specific meal. It needn’t have meat or cheese at all, and it might be based on chicken hearts. “Sweet pizza” is another creative culinary platform here. Churrascarias are the static part of the food sector.
Pastels (a bit like empanadas) are very good and the expected rate of return from sampling random chocolate desserts is high.
If you imagine the Jardin section of Sao Paulo, and make it quieter and safer and greener, with an influence from B.A.’s Palermo district, you have the nice part of Porto Alegre, Moinhos.
The English-language expat sections of foreign bookstores are interesting; you get to see what people wish to read, not which books they wish to buy.