Are the Long-Term Unemployed on the Margins of the Labor Market?
There is new Brookings research by Alan B. Krueger, Judd Cramer, and David Cho:
The short-term unemployment rate is a much stronger predictor of inflation and real wage growth than the overall unemployment rate in the U.S. Even in good times, the long-term unemployed are on the margins of the labor market, with diminished job prospects and high labor force withdrawal rates, and as a result they exert little pressure on wage growth or inflation.
Consistent with my earlier views, this work is suggesting that many of the long-term unemployed are/have become an economically segmented group. This is noteworthy too, as it implies the problem is not merely initial discrimination:
…even after finding another job, reemployment does not fully reset the clock for the long-term unemployed, who are frequently jobless again soon after they gain reemployment: only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later.
I would consider that evidence for a notion of zero marginal product workers. Furthermore, in my view (I am not speaking for the authors here), right now further inflation is as likely to harm as to help these individuals. To ask whether the Fed “should give up” on the long-term unemployed is a biased framing which is more likely to mislead us than anything else.
There is a good piece up at 538:
Krueger and his coauthors, Princeton economists Judd Cramer and David Cho, find evidence that the long-term unemployed aren’t getting jobs even in parts of the country where the job market is comparatively healthy, suggesting that a stronger economic rebound won’t be enough to put them back to work.
Sentences to ponder
She discovered that dogs were more likely to yawn after hearing the yawn of a familiar human than of an unfamiliar human.
There is more here, and I thank Vic Sarjoo, a loyal MR reader.
Assorted links
1. Japan photos from the 1950s.
2. Food porn meets ruin porn meets profanity. The burgeoning culture that is Detroit.
3. James Meek on Putin’s counter-revolution. And a decentralization recipe for Ukraine, more information here. Roger Myerson is involved.
4. Mike Konczal criticizes David Beito and the “voluntarism fantasy.”
5. Does the measured financial cost of natural disasters rise with wealth?
Those new service sector jobs, once again — stunt nudity experts
Taub and Smith, stunt nudity experts, wore clothing that could be taken off quickly. “The photographer said, ‘Once people start getting on the bus, get naked and jump in line and pretend like you’re getting on the bus,’” Taub said.
The photo at the link does show nudity from behind, though not obscenity. Maybe it is not safe for work. The article has some other interesting angles:
But it was the Google-bound commuters who surprised Taub the most.
“They were quite uptight. Your average San Francisco bus — we would have gotten more of a reaction. People would clap or take pictures,” she said. “These buses, it was more like very uncomfortable.”
Jessica Powell, vice president of product and corporate communications at Google, said that this is not something Google condones.
“No, no nudes on the bus. It might interfere with the Wi-Fi.”
For the pointer I thank Samir Varma.
Jeff Bezos, The Washington Post, and his plan to take over the media world (speculative)
Remember Sherlock Holmes and the dog which did not bark? WaPo remains very much in the running to be the up-and-coming mega-web site which succeeds. Perhaps the model is a Coasean one:
Much of the media world has been waiting with bated breath since Jeff Bezos bought the Washington Post for $250 million last year, eager to see some sign of the Amazon founder and CEO’s hand at work. The first tangible evidence appeared on Tuesday, when the newspaper announced a major national subscription partnership that will offer free digital access to readers of other newspapers in major U.S. cities.
While this may not be as dramatic as shutting down the printing presses to go web-only, or offering everyone a free Kindle with their subscription, it’s still a fairly dramatic departure from the approach taken not just by the Washington Post but by most newspapers with traditional management.
The partnership — which will see the Post provide free digital access to subscribers of newspapers like The Dallas Morning News, the Minneapolis Star Tribune and the Pittsburgh Post-Gazette — allows the Post to (theoretically at least) build a broader online readership outside of its core subscription area. As the Nieman Journalism Lab notes, the Post effectively ceded the national newspaper market to the New York Times by not launching a national edition, but the partnership could give it a way of achieving the same thing at much lower cost.
One possible model at work here is simply to buy the best content from everyone else, at cut-rate prices, relying on the willingness of outside sources to price discriminate and shed some marginal IP rights for some marginal revenue. Before the rest of the world is fully aware of what is going on, suddenly you have one of the best news web sites.
But wait, doesn’t this article say the Post is giving free access to its content to other newspapers? Here is where Coasean contracting, and symmetry of externalities, enters the picture. WaPo giving free access to the Minneapolis Star-Tribune, or vice versa, end up being pretty much the same thing (over time, with renegotiations) in a world of Coasean contracting. WaPo will end up becoming the hub and the others will be feeder spokes, with Wapo paying a fraction of the cost for the content it receives from each one. (And I suspect there will be no easy “cross-access” of say the Minneapolis paper to the Pittsburgh paper, and so on, to limit the evolution of a rival hub.) Furthermore, at least in the short run, the marketing work is being done by other newspapers, not by WaPo.
Over time the WaPo web site can buy bits of content from Le Monde and FAZ (translated by software programs, of course), The Guardian, The (London) Times, various local U.S. papers, London Review of Books, Boston Review, and who knows where else? Probably only a few outlets, such as WSJ and NYT, will refuse to sell content to them at cut-rate prices. If there is low marginal cost there will be price discrimination, so why not be the one buying on the low part of the demand curve and avoiding most of the costs?
Plus hire a few blogs while you are at it, see how that goes, and maybe over time reel in a few hundred of them. Why not? We’ve already seen some moves in this direction, with The Monkey Cage and Volokh Conspiracy.
How about some music streaming while we are at it?
How about calling it…”Amazon for News”? And for other stuff too. By the way, this hypothesis helps explain why Bezos doesn’t feel any great need to shake up the current WaPo newsroom.
In this model there is a cannibalization effect and the price and value of content end up falling. Does that sound familiar?
Never underestimate how smart really smart people are.
For a further explication of what I take to be the Bezos business model, see my old MR post, “Luring Alex to Lunch,” still one of my favorites and a meditation on whether or not you should produce and write all of your own content. (We don’t, and our model is sustainable.) And thus, sometimes, I manage to lure Alex to lunch. Here is how Alex feels about lunch. That hasn’t changed.
Mark Toma’s *Monetary Policy and the Onset of the Great Depression*
The subtitle is The Myth of Benjamin Strong as Decisive Leader. Here is a summary from the book’s back cover:
Monetary Policy and the Onset of the Great Depression challenges Milton Friedman and Anna Schwartz’s now-consensus view that the high tide of the Federal Reserve System in the 1920s was due to the leadership skills of Benjamin Strong, head of the Federal Reserve Bank of New York. In this new work, Toma develops a self-regulated model of the Federal Reserve, which stands in contrast to a conventional discretionary model. Given the easy redemption of dollars for gold and the competition among Reserve banks, the self-regulated model implies that the early Fed could control neither the money supply nor the price level. Exploiting an untapped data set, later chapters test the thesis of self-regulation by focusing on the monetary decisions of individual Reserve banks.
The micro-based evidence indicates that “Reserve banks really did compete” – and that Benjamin Strong as decisive leader during the 1920s is a myth. This finding, with its emphasis on monetary policy in the years leading up to the Great Depression, will be of interest to scholars, students, and sophisticated lay readers with an interest in macroeconomic and monetary economic policy issues, specifically to those with an interest in economic history.
I have not read it yet, but it is sure to be controversial.
Claims about Goethe
In 1979, director Francis Ford Coppola, in the grip of clinical manic depression and anxiety over his incomplete opus Apocalypse Now, and while purportedly under the influence of his girlfriend, screenwriter Melissa Mathison, proposed making a “ten-hour film version of Goethe’s Elective Affinities, in 3D“.
There is more here. And here is the famed Walter Benjamin essay on Elective Affinities.
The new and excellent Howard Eiland and Michael W. Jennings biography of Benjamin has a good discussion of that essay.
How to improve referee performance
Via Michael Makowsky, there is a new and extremely useful paper by Chetty, Saez, and Sandor in “slides” form (pdf). Their conclusions include these:
1. Short deadlines for referees are extremely effective at increasing speed.
2. Cash incentives can generate significant improvements with salient reminders right before a deadline.
3. Even light social incentives, such as direct prods from an editor, can bring significant benefits.
More broadly, at least in this context cash incentives work, they do not displace social incentives, and attention really matters as do “nudges.”
Assorted links
1. Long explanation and explication of the work of Emmanuel Todd.
2. Is it time for floating cities?
3. Let’s deregulate recycling for second-hand medical implants from the bodies of dead people. (How’s that for a winning political agenda?)
4. The strongest chess tournament ever approaches its climactic showdown.
5. Austin Frakt has done a study of the job lock literature.
Sentences to ponder
Artists grew up in households w/typically higher incomes than doctors did…
There is more information here, along with a picture, and the original story here.
Addendum: Cowen and Tabarrok once wrote on this topic.
Modeling Vladimir Putin
Here are some options:
1. Putin is a crazy hothead who is not even procedurally rational. Merkel received that impression from one of her phone calls with him.
2. Putin is rational, in the Mises-Robbins sense of instrumental means-ends rationality, namely that he has some reason for what he does. He simply wills evil ends, namely the extension of Russian state power and his own power as well.
3. Putin is fully rational in the procedural sense, namely that he calculates very well and pursues his evil ends effectively. In #2 he is Austrian but in #3 he is neoclassical and Lucasian too. He knows the true structure of the underlying model of global geopolitics.
4. Putin lives in a world where power is so much the calculus — instrumentally, emotionally and otherwise — that traditional means-ends relationships are not easy to define. Power very often is the exercise of means for their own sake and means and ends thus meld and merge. Our rational choice constructs may mislead us and cause us to see pointless irrationality when in fact power is being consumed as both means and end. It is hard for we peons to grasp the emotional resonance that power has for Putin and for some of his Russian cronies. They grew up in the KGB, watched their world collapse, tyrannized to rise to top power, while we sit on pillows and watch ESPN.
Here is a former CIA chief arguing Putin has a zero-sum mentality, though I would not make that my primary framing. Here is Alexander J. Motyl considering whether Putin is rational (Foreign Affairs, possibly gated for you). Here is an interesting and useful discussion of differing White House views of Putin. This account of a several-hour dinner with Putin says he is prideful, resentful of domination, and hardly ever laughs. Here is Eric Posner on Putin’s legal astuteness.
My views are a mix of #2 and #4. He is rational, far from perfect in his decision-making, and has a calculus which we find hard to emotionally internalize. His resentments make him powerful, and give him precommitment technologies, but also blind him to the true Lucasian model of global geopolitics, which suggests among other things that a Eurasian empire for Russia is still a pathetic idea.
Putin is also paranoid, and rationally so. We have surrounded him with NATO. China gets stronger every year. Many other Russians seek to kill him, overthrow him, or put him in prison.
Assumptions about Putin’s rationality will shape prediction. Under #1 you should worry about major wars. With my mix of #2 and #4, I do not expect a massive conflagration, but neither do I think he will stop. I expect he keep the West distracted and seek to turn resource-rich neighbors into vassal states, for the purpose of constructing a power-intensive, emotionally resonant new Russian/Soviet empire, to counter the growing weight of China and to (partially) reverse the fall of the Soviet Union. Even if he does not grok the true model of the global world order, he does know that Europe is weak and the United States has few good cards it is willing to play.
Developing…
Addendum: Whatever your theory of Russians in general may be, watch this one-minute video of a Russian baby conducting and give it a rethink.
The economics of South Ossetia
They are not good, despite high expectations from some of the initial Russian sympathizers:
These days South Ossetia’s economy is entirely dependent on budgetary funds from Russia. Unemployment is high, and so are prices, since goods must now be shuttled in through the tunnel, long and thin like a drinking straw, that cuts through the Caucasus ridge from Russia.
Its political system is controlled by elites loyal to Moscow, suddenly wealthy enough to drive glossy black cars, though the roads are pitted or unpaved. Dozens of homes damaged in the 2008 war with Georgia have never been repaired. Dina Alborova, who heads a nonprofit organization in the South Ossetian capital, Tskhinvali, said her early hopes “all got corrected, step by step.”
The full story is here.
Crack cocaine estimate of the day
At present, no more than about 200 young people start using crack-cocaine each day. Ten years ago, the corresponding estimated daily rate was 1,000.
That is from this paper, via Kevin Lewis.
Tesla versus the Rent Seekers
The NYTimes has a very bad article on Tesla and auto dealer franchise laws. The worst bit is this mind blowing contradiction:
…most states have some limits on direct sales by auto manufacturers…These rules are generally meant to ensure competition, so that buyers can shop around for discounts from independent dealers, and to protect car dealers and franchises from being undercut by the automakers.
So there you have it, limits on direct sales ensure competition and protect car dealers from being undercut by the automakers. Sorry, but you can’t have it both ways. Which view is correct? Let’s begin with some background (drawing on a great article by LaFontaine and Morton).
Franchising arose early on in the history of the auto industry because, as in other industries, franchising can take advantage of local knowledge and at the same time control agency costs. Franchising rules evolved in Coasean fashion so that manufacturers could not expropriate dealers and dealers could not expropriate manufacturers. To encourage dealers to invest in a knowledgeable sales and repair staff, for example, manufactures promised dealers exclusive franchise (i.e. they would not license a competitor next door). But with exclusive franchises dealers would have an incentive to take advantage of their monopoly power and increase profits by selling fewer units at higher profits. Selling fewer units, however, works to the detriment of the manufacturer and the public (ala the double marginalization problem (video)). Thus the manufactures required dealers buy and sell a minimum quantity of cars, so-called quantity forcing. Selling more units is exactly what we want a monopoly to do, so these restrictions benefited manufactures and consumers.
Politics, however, began to intrude into this Coasean world in the 1940s and 1950s. Auto sales accounts for some 20% of sales taxes and auto dealers employ a lot of people so when it came to a battle in the state legislatures the auto dealers trumped the manufacturers. The result was franchise laws that were increasingly biased towards dealers. In essence, exclusive franchises became locked into place, manufactures lost the right to add dealers even with population expansion, quantity forcing became illegal and dealer termination became all but impossible.
The result of dealer rent seeking has been higher auto prices for consumers, about 6% higher according to one (older) study by the FTC. Consumers have been stiffed in other ways as well. In some states, for example, manufacturers were required to reimburse dealers for a repair under warranty whatever amount the dealers would have charged consumers for the same repair not under warranty. As a result, dealers had an incentive to increase their price to consumers because that increased what they would be reimbursed for repairs under warranty. The franchise laws have also resulted in a highly inefficient distribution of dealers as populations have moved but dealers have been frozen into place. The inability to close, move or consolidate dealers has impacted the big-3 American firms especially because they have older networks. As a result, a typical GM dealer sells 377 cars a year while a typical Honda dealer sells 1,062 and a Toyota dealer 1,488.
Tesla wants to sell directly to the public but more generally what we need is to restore the Coasean balance, put dealers and manufacturers back on a equal footing and let the market decide the most efficient means of retailing and distributing automobiles.
Addendum: Dan Crane and Lynne Kiesling have further posts on this topic.
Assorted links
1. Russ Roberts interviews Jeffrey Sachs, the most contentious parts are toward the end.
2. U. Chicago is the most leveraged of the wealthy colleges. Dangerous or not?
3. Very good 538 piece on Venezuela and Bolivia. And a list of the economics questions they are being asked. And Megan on the new media start-ups: “The biggest constraint that any of these organizations will face in growing traffic and reputation is the finite time of the founders.”
4. Billsnooper.com.
5. David Wu, currently of Lehigh, will be the next Provost of George Mason University.
6. For those of you who wish to debate the origins of Bitcoin.