Results for “concentration” 203 found
George Terborgh’s *The Bogey of Economic Maturity*
Since the idea of secular stagnation has reemerged in economic discourse, I thought I would go back and reread this 1945 critique of Alvin Hansen. It is uneven, overly polemic, but definitely interesting in places. The author argues for instance that rates of population growth simply don’t predict spurts of economic growth very well. It is also interesting to see how much commentators of that time blurred together demand-side and supply-side approaches to stagnation. Is that insight or misunderstanding? Perhaps we still don’t know. Here is one excerpt from Terborgh:
There is thus no evidence that investment in major innovations as a class, including the young and old ones alike, has had any higher growth rate than investment in minor innovations as a class. There is no evidence that one “great new industry” is any more dynamic in its impact on capital formation than ten small new industries. The important thing is the total flow of technological development, not its degree of concentration.
And I enjoyed this rhetoric:
Capital formation is not a polite game in which replacements meekly and decorously await, like dutiful heirs, the natural death of existing assets. It is a ruthless and cutthroat struggle in which new capital goods rob the function of the old.
You can buy the book here, and here is a Questia link to the text. And here is his 1966 book The Automation Hysteria. It seems he had the temperament of a debunker. I don’t know much about Terborgh, but for a while he was a private sector economist and also a research economist at the Fed.
Paul Krugman on the political salience of inequality
Krugman wrote:
…it is notable that in a time of deeply depressed labor markets, our biggest thing is long-run inequality.
Or closer to home, I do of course track how my columns do on the most-emailed list; and there’s no question that inequality gets a bigger response than demand-side macro.
This doesn’t mean that we should (or that I will) stop trying to get the truth about depression economics across. But it’s an interesting observation, and I think it has implications for how politicians should go about doing the right thing.
This is a very interesting point (link here), but it differs from my view. I see the inequality issue as having high salience for NYT readers, for Democratic Party donors, and for progressive activists. It has very little salience for the American public, especially with say swing voters in southern Ohio or soccer moms. Unlike in Singapore or South Korea, where the major concentrations of wealth are pretty hard to avoid for most people, American income inequalities are well hidden for the most part.
McLean is one of the wealthiest towns in Virginia, but if you drive through the downtown frankly it still feels a bit like a dump. I’ve never wanted to live there, not even at lower real estate prices. You don’t stumble upon the nicest homes unless you know where to look. Middleburg is wealthier yet, but it has few homes, feels unreal, and most people don’t go there anyway. If they do, they more likely admire well-groomed horses and still read Princess Diana biographies. They are not choking with envy over the privileges of old money rentiers, and there is no Walmart in town to bring in the masses (who probably would not care anyway).
Perhaps ironically, to the extent that inequality as a phenomenon consists of the top 0.01% pulling away from the pack (not my prediction, by the way), general public resentment against the very wealthy will be especially hard to generate. Out of sight, out of mind.
What swing voters really hate is inflation, probably irrationally so. That does mean the aggregate demand argument won’t have much political salience, but as a result I see the Left as not quite knowing what to do next. We’ll get pre-school in more cities, a $15 minimum wage in Seattle, and lots of action targeted at high cable bills, which for the intelligentsia will be tied to net neutrality and various mergers. As the de Blasio reign indicates, blue cities may be the new laboratories for trying out bad ideas. The states which won’t expand Medicaid may yet budge, but most of them are firmly in the “red” category. The political influence of the local hospitals will matter more than intellectual discourse.
In short, you can expect a series of totally unsatisfying political debates, and they will further distort the discussions of economists, on both sides of the political ledger.
Krugman’s review of Piketty
You will find it here. Excerpt:
Just about all economic models tell us that if g falls—which it has since 1970, a decline that is likely to continue due to slower growth in the working-age population and slower technological progress—r will fall too. But Piketty asserts that r will fall less than g. This doesn’t have to be true. However, if it’s sufficiently easy to replace workers with machines—if, to use the technical jargon, the elasticity of substitution between capital and labor is greater than one—slow growth, and the resulting rise in the ratio of capital to income, will indeed widen the gap between r and g. And Piketty argues that this is what the historical record shows will happen.
Krugman calls the book “awesome,” but here are his critical remarks:
I don’t think Capital in the Twenty-First Century adequately answers the most telling criticism of the executive power hypothesis: the concentration of very high incomes in finance, where performance actually can, after a fashion, be evaluated. I didn’t mention hedge fund managers idly: such people are paid based on their ability to attract clients and achieve investment returns. You can question the social value of modern finance, but the Gordon Gekkos out there are clearly good at something, and their rise can’t be attributed solely to power relations, although I guess you could argue that willingness to engage in morally dubious wheeling and dealing, like willingness to flout pay norms, is encouraged by low marginal tax rates.
My own review is still due out in about a week’s time.
Assorted links
1. The premium for turning black money into white.
2. Israel’s anti-concentration law goes into effect.
4. Settlers of Catan. And Megan McArdle sits in on Steve Teles’s class.
5. The CBO says a minimum wage hike will increase unemployment (pdf). And Scott Sumner is right about the new ARRA study.
6. Smart guns.
John Roemer changes his mind on a bunch of things, including socialism
He has a new published paper, in Analyse & Kritik, entitled “Thoughts on Arrangements of Property Rights in Productive Assets,” here is the abstract:
State ownership, worker ownership, and household ownership are the three main forms in which productive assets (firms) can be held. I argue that worker ownership is not wise in economies with high capital-labor rations, for it forces the worker to concentrate all her assets in one firm. I review the coupon economy that I proposed in 1994, and express reservations that it could work: greedy people would be able to circumvent its purpose of preventing the concentration of corporate wealth. Although extremely high corporate salaries are the norm today, I argue these are competitive and market determined, a consequence of the gargantuan size of firms. It would, however, be possible to tax such salaries at high rates, because the labor-supply response would be small. The social-democratic model remains the best one, to date, for producing a relatively egalitarian outcome, and it relies on solidarity, redistribution, and private ownership of firms. Whether such a solidaristic social ethos can develop without a conflagration, such as the second world war, which not only united populations in the war effort, but also wiped out substantial middle-class wealth in Europe — thus engendering the post-war movement toward social insurance — is an open question.
There are some probably gated versions here. He also explains later in the paper that socialism cannot work because a generally solidaristic social ethos will be undermined by a selfish minority, driven by greed, which will turn social institutions to their favor and evolve into a new ruling class. In other words, Hayek’s The Road to Serfdom is not yet obsolete and still holds the power to sway men’s minds.
For the pointer I thank Kevin Vallier.
Notes on Israeli inequality
Inequality in Israel has been rising rapidly, but it is neither from trade with China nor because of robots. In part more of the Israeli economy has shifted — for technological reasons — into inequality-inducing sectors, such as information technology. The greater size and openness of the Israeli economy also mean that preexisting educational disparities, many of them rooted in religious and ethnic differences, now map into greater income differentials. For instance a growing role for exports in the economy boosts income inequality because not all workers have access to the international customers, whether directly or indirectly.
Many of the ultra-Orthodox here have characteristics of “threshold earners,” as I have discussed that concept in the past. Their wages have stagnated in real terms or even fallen over the last decade.
Russian-born Israelis have enjoyed strong income gains, whereas the non-Haredi Israeli-born middle class Jews have lost a small amount of ground.
The price of housing remains inefficiently high.
I sometimes say that Israel is where “Average is Over” happens first:
“…the income gap between the 90th percentile and the median worker in Israel is the highest of all the developed countries, as is the income gap between the median (50th percentile) and the 10th percentile. And if that is not enough, the income gap between the 75th percentile and the 25th percentile, in other words the income gap within the middle class − between the upper and lower middle class − is also the highest in the developed world.” The link is here.
The bottom decile actually has done quite well in terms of rates of change, but the 6th through 8th deciles have done especially poorly (same link). That source serves up the intriguing hypothesis that the disappearance of middle class-earning middlemen in the Israeli economy is due to the disintermediation of the internet, although without citing any data. In any case, it is the non-substitutable, non-automatable, manual labor jobs which have seen rising pay at the very bottom.
(As an aside, a number of recent studies of rising income inequality caricature the technology hypothesis in a variety of non-useful ways, and thus (incorrectly) reject it. I hope to consider those arguments in more detail, in the meantime I will note that the Israel case study is a useful corrective to those views, by showing the broad spectra of ways in which technology influences income distribution. It’s not just or even mainly about “robots.”)
The Israeli economy has a high degree of economic and financial concentration. How much that problem would be alleviated if Israel could have normal trade and investment relations with its immediate neighbors?
A higher employment to population ratio would yield a good deal of low-hanging fruit. It is hard for me to judge across what time horizon that might happen here.
Why should we not recreate Neanderthals?
A few of you were puzzled over this question two days ago, or at least pretended to be. So why not? For a start, the cloning process probably would require a lot of trial and error, with plenty of victims of experimentation being created along the way.
Then ask yourself some basic questions about Neanderthals: could they be taught in our schools? Who would rear the first generation? Would human parents find this at all rewarding? Do they have enough impulse control to move freely in human society? How happy would they be with such a limited number of peers? What public health issues would be involved and how would we learn about those issues in advance? What would happen the first time a Neanderthal kills a human child? Carries and transmits a contagious disease? By the way, how much resistance would the Neanderthals have to modern diseases?
What kinds of “human rights” would we issue to them? Would we end up treating them better than lab chimpanzees? Would they be covered by ACA and have emergency room rights?
We don’t know the answers here, but I would expect to run up against a number of significant fails on these issues and others.
We do, however, know two things. First, the one environment we know they could survive in (for a while) was a Europe teeming with wildlife. That no longer exists.
Second, we’ve already run the “human/Neanderthal coexistence experiment” once, and it seems to have ended in the violent destruction of one of those groups. It would be naive to expect anything much better the second time around.
Most likely the Neanderthals would end up in some version of concentration camps, with a lot of suffering and pain along the way, and I don’t see that as an outcome worth bringing about.
Addendum: If you’d like to read another point of view, there is George Church and Ed Regis, Regenesis: How Synthetic Biology Will Reinvent Nature and Ourselves.
Looking at pictures of cute animals makes you work more carefully and deliberately
A new study by Japanese researchers now shows there are more benefits to looking at pictures of these universal delights than just getting a case of the warm and fuzzies. Afterwards, we concentrate better.
Such is the “Power of Kawaii”, as a paper documenting the research is appropriately titled. The Japanese word “kawaii” means cute. The paper was published in the online edition of the U.S. journal Plos One on Thursday. Through three separate experiments a team of scientists from Hiroshima University showed that people showed higher levels of concentration after looking at pictures of puppies or kittens.
For the pointer I thank Mark Thorson.
Are isolated capital cities worse?
From Filipe R. Campante, Quoc-Anh Do, and Bernardo Guimaraes (pdf):
We show empirical evidence that non-democratic countries with [geographically] isolated capital cities display worse quality of governance, as measured across many diff erent dimensions. We provide a framework of endogenous institutional choice that accounts for this stylized fact, based on the idea that autocratic elites are constrained by the threat of rebellion, and that this threat is rendered less eff ective by distance from the seat of political power. Broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city. Conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite (the rents that would have to be shared) are larger. In equilibrium, a correlation between isolated capitals and misgovernance emerges as a result. The framework yields additional predictions on the size of the income premium enjoyed by capital city inhabitants and on the level of military spending by ruling elites, which are also supported by the evidence.
The title is “Isolated Capital Cities and Misgovernance: Theory and Evidence.”
As I wrote yesterday, Naypyidaw! And yet there is more. Across the fifty American states, isolated capital cities are more corrupt:
We show that isolated capital cities are robustly associated with greater levels of corruption across US states. In particular, this is the case when we use the variation induced by the exogenous location of a state’s centroid to instrument for the concentration of population around the capital city. We then show that different mechanisms for holding state politicians accountable are also affected by the spatial distribution of population: newspapers provide greater coverage of state politics when their audiences are more concentrated around the capital, and voter turnout in state elections is greater in places that are closer to the capital. Consistent with lower accountability, there is also evidence that there is more money in state-level political campaigns in those states with isolated capitals. We find that the role of media accountability helps explain the connection between isolated capitals and corruption. In addition, we provide some evidence that this pattern is also associated with lower levels of public good spending and outcomes.
“Trenton Makes the World Takes” — not exactly!
China and Russia billionaire facts of the day
…two men who in the last decade held the title of richest man in China are now in jail on corruption charges of one kind or another. That is not to say that the charges were baseless, only that in China’s freewheeling business culture, the authorities seem to pay particularly close attention when the deal-making generates fortunes approaching $10 billion. Deng Xiaoping declared that “it’s glorious to be rich,” but the message now is, not too rich. The government appears intent on generating competitive churn at the top, in part to contain social resentments.
Now look at Russia, where one hundred billionaires control fortunes worth an astonishing 20 percent of national GDP. Russia has nearly as many billionaires as China but they control twice as much total wealth in an economy one-fourth the size. Just as striking, Russia is missing not only a middle class but also a millionaire class; according to Boston Consulting Group, China ranks third in the world for number of millionaires, while Russia is not even in the top 15 for millionaires.
The growing business influence of the state is reflected in the fact that 69 of those billionaires live in Moscow, the largest concentration for any city in the world. Protected by their patrons, the richest face little competition. Eight of the top 10 are holdovers from 2006. More than 80 percent of the wealth of Russian billionaires comes from non-productive industries like real estate, construction and especially commodities, namely oil and gas, in which political ties can sustain fortunes indefinitely. In no other developing nation is this share greater than 35 percent. Even in Brazil, a commodity economy at the same income level as Russia, the non-productive share of billionaires’ wealth is just 12 percent.
The entire post, by Ruchir Sharma, is fascinating, and with some superb visuals, do read it.
Jared Diamond reviews *Why Nations Fail*
There is much in the review, excerpt:
In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area’s being landlocked or of environmental damage, factors that they don’t discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse. True, the book provides anecdotes of the resource curse (Sierra Leone cursed by diamonds), and of how the curse was successfully avoided (in Botswana). But the book doesn’t explain which resources especially lend themselves to the curse (diamonds yes, iron no) and why. Nor does the book show how some big resource producers like the US and Australia avoid the curse (they are democracies whose economies depend on much else besides resource exports), nor which other resource-dependent countries besides Sierra Leone and Botswana respectively succumbed to or overcame the curse. The chapter on reversal of fortune surprisingly doesn’t mention the authors’ own interesting findings about how the degree of reversal depends on prior wealth and on health threats to Europeans.
Do read the whole review (that is not just the usual cliched command to do so), and I will gladly link to any response by Acemoglu and Robinson. Here is Diamond’s bottom line:
My overall assessment of the authors’ argument is that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity. That’s enough to establish such institutions as one of the major forces in the modern world. Why Nations Fail offers an excellent way for any interested reader to learn about them and their consequences. Whereas most writing by academic economists is incomprehensible to the lay public, Acemoglu and Robinson have written this book so that it can be understood and enjoyed by all of us who aren’t economists.
The Chicago School
In Launching the Innovation Renaissance I wrote:
In the United States, “vocational” programs are often thought of as programs for at-risk students, but that’s because they are taught in high schools with little connection to real workplaces. European programs are typically rigorous because the training is paid for by employers who consider apprentices an important part of their current and future work force. Apprentices are therefore given high-skill technical training that combines theory with practice—and the students are paid!
In the United States there are some experimental programs moving in this direction. One of the most interesting is being pushed by Chicago mayor Rahm Emanuel:
Chicago Public Schools (CPS) students will have the opportunity to attend five Early College STEM Schools (ECSS) that focus on technology skills and career readiness – as well as earn college credits– under a partnership agreement with five technology companies, CPS and City Colleges of Chicago, Mayor Rahm Emanuel announced…
The five technology companies, IBM, Cisco, Microsoft Corporation, Motorola Solutions and Verizon Wireless, will help develop a unique curriculum at each new school to teach students the skills required in that marketplace, as well as provide mentors and internships. Upon graduating from these tailored programs, the students will be prepared for careers in science and technology.
…All of the new schools will open in September 2012 with a class of ninth graders. Each student will be able to graduate in four-years with a high school diploma with college credits, with a goal of graduating within six years with an Associate of Science (AS) degree in Computer Science or an Associate in Applied Science (AAS) in Information Technology. The college courses will be taught by professors from CCC.
Emanuel is also redesigning the City Colleges of Chicago along similar lines:
Rahm fired almost all the college presidents, hired replacements after a national search, and decreed that six of the seven city-run colleges would have a special concentration. Corporations pledging to hire graduates will have a big hand in designing and implementing curricula. “You’re not going for four years, and you’re not going for a Nobel Prize or a research breakthrough,” he says. “This is about dealing with the nursing shortage, the lab-tech shortage. Hotels and restaurants will take over the curriculum for culinary and hospitality training.” Already AAR, a company that has 600 job openings for welders and mechanics, is partnering with Olive-Harvey College; Northwestern Memorial Hospital is designing job training in health care for Malcolm X College.
It’s too early to judge these developments but Emanuel’s op-ed on this subject was surprisingly good. The key question, which I haven’t yet seen answered, is whether the the companies will have real skin in the game, which I see as critical to success.
Hat tip: Ben Casnocha.
Corporate cash and Apple
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.
Should speed limits be higher?
Arthur van Benthem, who is on the job market from Stanford, says no:
When choosing his speed, a driver faces a trade-off between private benefits (time savings) and private costs (fuel cost and own damage and injury). Driving faster also has external costs (pollution, adverse health impacts and injury to other drivers). This paper uses large-scale speed limit increases in the western United States in 1987 and 1996 to address three related questions. First, do the social benefits of raising speed limits exceed the social (private plus external) costs? Second, do the private benefits of driving faster as a result of higher speed limits exceed the private costs? Third, could completely eliminating speed limits improve efficiency? I find that a 10 mph speed limit increase on highways leads to a 3-4 mph increase in travel speed, 9-15% more accidents, 34-60% more fatal accidents, and elevated pollutant concentrations of 14-25% (carbon monoxide), 9-16% (nitrogen oxides), 1-11% (ozone) and 9% higher fetal death rates around the affected freeways. I use these estimates to calculate private and external benefits and costs, and find that the social costs of speed limit increases are three to ten times larger than the social benefits. In contrast, many individual drivers would enjoy a net private benefit from driving faster. Privately, a value of a statistical life (VSL) of $6.0 million or less justifies driving faster, but the social planner’s VSL would have to be below $0.9 million to justify higher speed limits. The substantial difference between private and social optimal speed choices provides a strong rationale for having speed limits. Although speed limits are blunt instruments that differ from an ideal Pigovian tax on speed, it is highly unlikely that any hidden administrative costs or unforeseen behavioral adjustments could make eliminating speed limits an efficiency-improving proposition.
The Rent Seeking is Too Damn High
Bloomberg: Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.
The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.