Sunday assorted links
2. Bay area public transit will subsidize Uber and Lyft.
4. Matt Levine on death arbitrage.
5. “Is Simeon the fastest athlete from the Marshall Islands?” Or why the slowest athletes compete in the Olympics: “We should also take a moment to admire these athletes who make it look incredibly, incredibly hard.”
6. Choices made by a Japanese female economist (video). A mistake?
Driverless vehicles, on their way
Uber passengers in Pittsburgh will be able to summon rides in self-driving cars with the touch of a smartphone button in the next several weeks. Uber also announced that it is acquiring a self-driving startup called Otto, co-founded by Israeli Lior Ron, that has developed technology allowing big rigs to drive themselves.
Via Mark Thorson, here is more. And in Finland:
Residents of Helsinki, Finland will soon be used to the sight of buses with no drivers roaming the city streets. One of the world’s first autonomous bus pilot programs has begun in the Hernesaari district, and will run through mid-September.
Finnish law does not require vehicles on the road to have a driver, making it the perfect place to get permission to test the Easymile EZ-10 electric mini-buses.
So perhaps Finland can become a market leader in this area.
Are sticky nominal wages an overrated idea?
Via Adam Ozimek, here is one recent (still unfinished) paper, by Kurmann, McEntarfer, and Spletzer:
Using administrative worker‐firm linked data for the United States, we examine the extent and consequences of nominal wage and earnings rigidities for U.S. firms. We find less evidence of downward wage rigidity in the administrative data than has been documented in previous studies based on self‐reported earnings from surveys. In our data, only 13 percent of workers who remain with the same firm (job stayers) experience zero change in their nominal hourly wage within a year, and over 20 percent of job stayers experience a reduction in their nominal hourly wage. The lower incidence of downward wage rigidity in the administrative data is likely a function of our broader earnings concept, which includes all monetary compensation paid to the worker (e.g. overtime pay, bonuses), whereas the previous literature has almost exclusively focused on the base rate of pay. When we examine firm labor cost adjustments on both the hours and wage margins, we find that firms have substantially more flexibility in adjusting hours downward than wages. As a result, the distribution of changes in nominal earnings is less asymmetric than the wage change distribution, with only about 6 percent of job stayers experiencing no change in nominal annual earnings, and over 25 percent of workers experiencing a reduction in nominal annual earnings. During the recent Great Recession, this earnings change distribution became almost completely symmetric and the proportion of job stayers experiencing a decline in annual earnings rose markedly to about 40 percent. Finally, we exploit the worker‐firm link in our data to show that it is mostly smaller establishments that show evidence of asymmetry in their earnings change distribution. For these smaller establishments, we find that indicators of downward wage rigidity are systematically associated with higher job destruction rates.
Here is another recent paper, this one from the NBER. It shows that real estate agents, who have flexible, commission-based wages, do have smaller employment fluctuations than sticky-wage construction workers. But that difference is only by about 10 to 20 percent.
Here is my previous post on sticky wages: Basu and House show that real wages vary a great deal through changes in expected career paths. Here is Alex’s 2014 post on half the men having new jobs since the recession.
Are your views on sticky nominal wages and the minimum wage consistent?
And how are nominal wages sticky for the unemployed?
Perhaps most significantly, high nominal demand economies such as Jamaica and Brazil (yes there are still a few left!) still appear capable of generating quite high rates of unemployment.
Saturday assorted links
1. Good explanation of wage segregation.
3. John Cleese has a new Miss Anne Elk video out. It’s not funny (at all), but viewing it is an object lesson in just how delicate a balance lies behind good humor.
4. BookForum does libertarianism.
5. “Indonesia considers renaming South China Sea to Natuna Sea.” I’ve been saying for a long time they need to do something like this.
How useful is it to formalize land titles?
There are both costs and benefits to bringing property into the formal sector. Along those lines, “The Deregularization of Land Titles” is a new paper by Sebastian Galiani and Ernesto Schargrodsky:
In the last years, several countries implemented policy interventions to entitle urban squatters, encouraged by the results of studies showing large welfare gains from entitlement. We study a natural experiment in the allocation of land titles to very poor families in a suburban area of Buenos Aires, Argentina. Although previous studies on this experiment have found important effects of titling on investment, household structure, educational achievement, and child health, in this article we document that a large fraction of households that went through a situation at which formalization was challenged (death, divorce, sale/purchase), ended up being de-regularized. The legal costs of remaining formal seem too high relative to the value of these parcels and the income of their inhabitants.
This piece helps explain why Hernando De Soto’s ideas, however useful they may be in some regards, have not quite transformed either the world or for that matter the practice of development economics.
Here is a good sentence from the paper: “The cost of processing the inheritance of an asset valued at US$ 11,700 is about US$ 2,300.” Legal systems are a normal good, and legalizing everything too quickly leads to burdens as well as benefits. Try this bit too: “When property rights are transferred to very poor people, preserving legal tenure will likely entail onerous expenses in the form of attorney and public notary fees, and courts costs. In addition, these charges are higher in relative terms in very unequal societies where the gap between the poor and the relatively well-off is wider.”
These topics remain under-explored.
The nature of upward Danish mobility
This link is now about two weeks old, but I’m on my way to Denmark and you’re going to get whatever I am thinking about, like it or not:
The first big idea is that Denmark is not a nation of Horatio Algersens. Its high social mobility is not the result of an economy that is uniquely good at helping poor children earn middle-class salaries. Instead, it is a country much like the U.S., where the children of poor parents who don’t go to college are also unlikely to attend college or earn a high wage. Social mobility in Denmark and the U.S. seem to be remarkably similar when looking exclusively at wages—that is, before including taxes and transfers.
It is only after accounting for Denmark’s high taxes on the rich and large transfers to the poor that its social mobility looks so much better than the U.S.’s. America’s (relatively conservative) economic philosophy is that, with low taxes and little regulation, the market is an open savannah where the most talent will win out. But Denmark’s economic philosophy seems to be that the market is an unfortunate socioeconomic lottery system, and so the country compensates the poor with generous transfers paid by high taxes on the rich.
The second big idea in the paper is that Denmark’s large investment in public education pays off in higher cognitive skills among low-income children, but not in higher-education mobility—i.e., the odds that a child of a non-college grad will go on to finish college.
That is from Derek Thompson. Here is his source:
…this Danish Dream is a “Scandinavian Fantasy,” according to a new paper by Rasmus Landersø at the Rockwool Foundation Research Unit in Copenhagen and James J. Heckman at the University of Chicago. Low-income Danish kids are not much more likely to earn a middle-class wage than their American counterparts. What’s more, the children of non-college graduates in Denmark are about as unlikely to attend college as their American counterparts.
Both the paper and the article are recommended.
Very good sentences
There are two unavoidable realities of making the American health-care system less costly: Americans must use less care, and our nation’s legion of well-paying, stable jobs in the health-care sector need to be both less numerous and less well paid. What no one can figure out is how to generate the political will to make this happen. The public option doesn’t fix that political problem.
That is from Megan McArdle, mostly on why the public option is no longer a viable…option.
Friday assorted links
1. Which celebrities are loved equally by Republicans and Democrats?
2. Male economists stand out once again (pdf).
3. Miles Kimball to move to University of Colorado at Boulder.
4. “Michelangelo’s David will explode.” (NYT) And “The most popular target for photographers was the David’s genitals.”
5. The gap between gdp growth and credit growth is widening in most Chinese provinces.
6. Martins Sandbu on Denmark and America; note the cited figures were means not medians.
The Japanese Zoning System
In Laissez-Faire in Tokyo Land Use I pointed to Japan’s constitutional protection of property rights and it’s relatively laissez-faire approach to land use to explain why housing prices in Japan have not risen in past decades, as they have elsewhere in the developed world. A very useful post at Urban kchoze offers more detail on Japan’s zoning system. Here are some of the key points.
Japan has 12 basic zones, far fewer than is typical in an American city. The zones can be ordered in terms of nuisance or potential externality from low-rise residential to high-rise residential to commercial zone on through to light industrial and industrial. But, and this is key, in the US zones tend to be exclusive but in Japan the zones limit the maximum nuisance in a zone. So, for example, a factory can’t be built in a residential neighborhood but housing can be built in a light industrial zone.
…[the] Japanese do not impose one or two exclusive uses for every zone. They tend to view things more as the maximum nuisance level to tolerate in each zone, but every use that is considered to be less of a nuisance is still allowed. So low-nuisance uses are allowed essentially everywhere. That means that almost all Japanese zones allow mixed use developments, which is far from true in North American zoning.
…[The] great rigidity in allowed uses per zone in North American zoning means that urban planing departments must really micromanage to the smallest detail everything to have a decent city. Because if they forget to zone for enough commercial zones or schools, people can’t simply build what is lacking, they’d need to change the zoning, and therefore confront the NIMBYs. And since urban planning departments, especially in small cities, are largely awful, a lot of needed uses are forgotten in neighborhoods, leading to them being built on the outskirts of the city, requiring car travel to get to them from residential areas.
Meanwhile, Japanese zoning gives much more flexibility to builders, private promoters but also school boards and the cities themselves. So the need for hyper-competent planning is much reduced, as Japanese planning departments can simply zone large higher-use zones in the center of neighborhoods, since the lower-uses are still allowed. If there is more land than needed for commercial uses in a commercial zone, for example, then you can still build residential uses there, until commercial promoters actually come to need the space and buy the buildings from current residents.
In addition, residential means residential without discrimination as to the type or form of resident:
…In Japan…residential is residential. If a building is used to provide a place to live to people, it’s residential, that’s all. Whether it’s rented, owned, houses one or many households, it doesn’t matter.
This doesn’t mean that people can build 10-story apartment blocs in the middle of single-family houses (at least, not normally). As I mentioned, there are maximum ratios of building to land areas and FAR that restricts how high and how dense residential buildings may be. So in low-rise zones, these ratios mean that multifamily homes must also have only one to three stories, like the single-family homes around them. So in neighborhoods full of small single-family homes, you will often see small apartment buildings full of what we would call small studio apartments: one room with a toilet.>
In short, as the author concludes, Japan’s zoning laws are more rational, more efficient and fairer than those used in the United States.
More details in the post. Hat tip: Sandy Ikeda.
The new “free lunch” economics
…what’s happened since 2009 involves not just one, but at least five new types of voodoo:
1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.
2. The claim that extended unemployment benefits—paying people not to work—will lead to more employment, by boosting AD.
3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.
4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.
5. Fiscal stimulus can boost AD when not at the zero bound, because . . . ?
In all five cases there is almost no theoretical or empirical support for the new voodoo claims, and lots of evidence against. There were 5 attempts to push wages higher in the 1930s, and all 5 failed to spur recovery. Job creation sped up when the extended UI benefits ended at the beginning of 2014, contrary to the prediction of Keynesians. The austerity of 2013 failed to slow growth, contrary to the predictions of Keynesians. Britain had perhaps the biggest budget deficits of any major economy during the Great Recession, job growth has been robust, and yet productivity is now actually lower than in the 4th quarter of 2007.
There is more at the link. And here is Scott from the comments:
As I recall, productivity did well during the 1930s. Why? If falling AD hurts productivity, then shouldn’t productivity have done very poorly during the 1930s?
See also my earlier post “Not all complaints can be true at the same time.”
My current pet peeve is advocacy of fiscal stimulus without even bothering to consider whether the economy might be at or very close to full employment, much less considering whether the stimulus will target unemployed resources.
We do in fact need a good aggregate demand-based macroeconomics; the topic is far too important to allow it to become so politicized.
*Remaking the American Patient*
The author is Nancy Tomes and the subtitle is How Madison Avenue and Modern Medicine Turned Patients into Consumers. Here is one excerpt:
While unwilling to pass any kind of national insurance program, the U.S. Congress strove to advance the cause of “medical democracy” by other means. Instead of guaranteeing a right to medical care, legislators voted to spend public funds on hospital construction and basic medical research as a means to yield more and better treatment. To make that treatment affordable, the federal government looked to the private sector for help, using tax policy to encourage the growth of employee insurance plans. In this fashion, postwar political and business leaders hoped to create a free enterprise alternative to “socialized” medicine.
The first step toward expansion came in 1946 when Congress passed the Hill-Burton Act, which funneled federal funds into hospital construction and expansion. Over the next two decades, Hill-Burton funds would be used on almost 5,000 projects, many of them in rural areas that previously had had no hospitals. The program proved very popular, giving local communities a new institution to be proud of while creating more “doctors’ workshops” for medical education and private practice. At the same time, Congress vastly increased funding for medical research, from about $4 million in 1947 to $100 million by 1957. Postwar political leaders found appealing the idea of tackling cancer, mental illness, and other dread diseases through “a medical research program equal to the Manhattan Project,” as the National Health Education Research Committee urged in 1958. Taxpayer dollars helped to build up the National Institutes of Health (NIH) in Bethesda, Maryland, as the hub of what a later generation would christen the “medical-industrial complex”: a network of researchers located in American universities and scientific institutes whose careers depended on the generation of medical innovations.
I found this book extremely useful for understanding the evolution of American health care policy and institutions before 1965.
Faroe Islands fact of the day
Actuality, the Faroe Islands have a crude birth rate higher than that of Denmark, Sweden, or Norway. Their fertility rate of 2.37 is higher than anywhere else in the White world:
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2127rank.html
That is from Jason Bayz.
Thursday assorted links
1. The Great Olympics stagnation.
2. Danish family is more important than Danish environment in predicting earnings (pdf). And Danish children’s television is stranger than you think.
3. Mark Koyama on why the Roman empire declined.
4. Interview with John Cochrane.
The growing culture that is Swiss
While only 25% of the Swiss population hiked regularly in 2000, today the figure is 44%.
That is from Dina Pomeranz, original source here.
What you can learn from the Faroe Islands
Should you go? I give the place high marks for food and scenery, but the total population of about 48,700 limits other benefits. It is like visiting a smaller, more unspoilt Iceland. There is a shop in the main city selling Faroese music and many shops selling sweaters. They will not tell you where the sweaters were knitted.
The natives seem to think Denmark is an excessively competitive, violent, harsh and hurried place. The norm here is to leave your door unlocked. It is a “self-governing archipelago,” but part of the Kingdom of Denmark. In other words, they get a lot of subsidies.
But they are not part of the EU, so they still sell a lot of salmon — their number one export — to Russia.
You see plenty of pregnant women walking around, and (finally) population is growing, the country has begun to attract notice, and the real estate market is beginning to heat up. But prices remain pretty low, and it would be a great place to buy an additional home, if you do that sort of thing.
In the early 1990s, their central bank did go bankrupt and had to be bailed out by Denmark. It is a currency board arrangement, and insofar as the eurozone moves in that direction, as it seems to be doing by placing Target2 liabilities on the national central banks, a eurozone central bank could become insolvent too, despite all ECB protestations to the contrary.
Every mode of transport is subsidized in the Faroes, including helicopter rides across the islands. Often the bus is free, and there is an extensive network of ferries. I wonder how many population centers there would be otherwise. There is now the notion that all of the communities on the various islands are one single, large “networked city.”
The Faroes are a “food desert” of sorts, with few decent or affordable fruits or vegetables. And not many supermarkets of any kind. Yet the rate of obesity does not seem to be high. And they have a very high rate of literacy with little in the way of bookstores or public libraries.
The seabirds including puffins are a main attraction, but I enjoyed seeing the mammals too, with pride of place going to the pony:
The domestic animals of the Faroe Islands are a result of 1,200 years of isolated breeding. As a result, many of the islands’ domestic animals are found nowhere else in the world. Faroese domestic breed include Faroe pony, Faroe cow, Faroese sheep, Faroese Goose and Faroese duck.
The country receives a great deal of negative publicity for killing whales, but overall they seem to treat animals better than the United States does. Fish consumption is very high and there are no factory farms.
If the Faroes had open borders, but no subsidies for migrants, how many people would settle there?
In 1946 they did their own version of Faerexit, from Denmark of course:
The result of the vote was a narrow majority in favour of secession, but the coalition in parliament could not reach agreement on how this outcome should be interpreted and implemented; and because of these irresoluble differences, the coalition fell apart. A parliamentary election was held a few months later, in which the political parties that favoured staying in the Danish kingdom increased their share of the vote and formed a coalition.
Overall I expect this place to change radically in the next twenty years. It is hard to protect 48,700 people forever. In part, they are killing those whales to keep you away.