What was the scope for British Keynesian policies in the 1930s?
There is a new paper by Nicholas Crafts & Terence Mills in the December 2013 Journal of Economic History, entitled Rearmament to the Rescue? New Estimates of the Impact of “Keynesian” Policies in 1930s’ Britain. The abstract is here:
We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and “defense news.” We find that the government expenditure multiplier was in the range 0.3 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may, however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending.
You will note that previous estimates of the multiplier for this period are much higher, but this conclusion is based on a new quarterly gdp series for the UK and also on identified “defense shocks,” drawn from The Economist magazine. At this time, by the way, Great Britain was very close to the zero lower bound and had significant unemployed resources. I am not sure I would push this as “the correct answer,” but rather as a more general lesson about the fragility of our knowledge in this area.
The published (gated) version of the paper is here. There are ungated versions here.
What is wrong with the Russian economy?
The Economist had a very good feature-long piece on that question this week, here is one good excerpt:
In today’s Russia, oil and gas account for 75% of all exports, compared with 67% in 1980. Although Russia no longer buys grain from America, as it did in the 1980s, 45% of what Russians buy today is imported. Walk around a department store in central Moscow, and it is hard to find anything that is produced locally. The state remains the single largest employer, while its corporations—controlling natural resources, infrastructure, banking and media—dominate the economy.
As Clifford Gaddy and Barry Ickes, two American economists, have argued, the highly inefficient industrial structure of the old Soviet economy, based on misallocation of both resources and people, remains intact. The oil rent reinforced and perpetuated it: it has bought political stability and the loyalty of the population, but has slowed down modernisation. Inevitably, the result is stagnation.
…The state is one of the chief obstacles to Russia’s modernisation. During the 2000s the number of bureaucrats almost doubled. A quarter of the workforce is employed in the public sector. The total number of people who depend on the state is between 35% and 40%, says Boris Grozovsky, a Russian economic observer. This, he says, points to the share of the electorate that benefits from the status quo. At election time municipal workers are bused in to show support for Mr Putin. Meanwhile, the main purpose of Russia’s civil service is to shuffle papers around and extract administrative revenue from firms and private citizens. The bureaucrats have little interest in fostering competition that might cost them their jobs.
The piece is interesting (and depressing) throughout.
How does democracy affect inequality?
Acemoglu and Robinson have a good post on this and some related issues, excerpt:
…there is a much more limited effect of democracy on inequality. Democracy just doesn’t seem to affect inequality much. Though this might reflect the poorer quality of inequality data, there is likely more to this lack of correlation between democracy and inequality. In fact, we do find heterogeneous effects of democracy on inequality consistent with the theories mentioned above, which would not have been possible if the poor quality of inequality data made it hard to find any empirical relationship.
Overall, our results suggest that democracy does represent a real shift in political power away from elites and has first-order consequences for redistribution and government policy. But the impact of democracy on inequality may be more limited than one might have expected.
The pointer is from Samir Varma. Here is an earlier post on democracy and inequality, broadly consistent with the claims of Acemoglu and Robinson.
Assorted links
1. Arnold Kling has a question for Thomas Piketty.
2. Suzanne Scotchmer has passed away. In addition to her research achievements, during her time at Harvard she was one of the most popular professors with the graduate students and also one of the most helpful.
3. “Al-Qaida is obsessed with documenting the most minute expenses.”
4. “(There is in fact no bowl.)” — how would we cover the Super Bowl if it were an event in another country? Recommended.
5. California students sue teachers over the existence of tenure.
One salvo in the fight against driverless cars
The group that stalked Anthony Levandowski, an engineer at Google X, the company’s clandestine research laboratory, calls itself the Counterforce, after a Thomas Pynchon novel. About a dozen members, all dressed in black, gathered outside the Berkeley house where Mr. Levandowski lives with his partner and two young children.
They unfurled a banner and handed out fliers detailing the engineer’s work on Google’s driverless car technology, Street View and Google Maps. The flier read: “Anthony Levandowski is building an unconscionable world of surveillance, control and automation. He is also your neighbor.”
This is still just a small and fragmented movement, as the article makes clear. I predict it will vanish, but I wouldn’t have predicted its existence in the first place.
Robert Sams writes me about Ethereum
…wanted to draw your attention to http://ethereum.org/. Their testnet has just been released tonight. This is NOT another alt-coin, but something much more interesting.
It’s a blockchain with hash-based proof-of-work, similar to Bitcoin, and it has a currency at its core called “ether”. But what makes this interesting is that it includes a Turing-complete scripting language that implements a new entity, a programmable *contract* which, like addresses, can generate and receive transactions.
From their whitepaper (http://ethereum.org/ethereum.html): “A contract is essentially an automated agent that lives on the Ethereum network, has an Ethereum address and balance, and can send and receive transactions. A contract is “activated” every time someone sends a transaction to it, at which point it runs its code, perhaps modifying its internal state or even sending some transactions, and then shuts down.” So the network doesn’t just compute meaningless hashes, it is a distributed computer automating any type of financial exchange expressible in its scripting language.
In theory, all manner of things can be implemented on the network: sophisticated escrow arrangements, securities, CFD’s, order books, games of chance. And being Turing-complete, there will be many things possible that are not currently anticipated or even conceived.
The creators use an internet analogy. As a protocol, Bitcoin is like SMTP, good for doing one thing well (transferring Bitcoin from A to B). Ethereum is like TCP/IP, a generic, low-level platform on top of which other high-level protocols can be built. The internet of finance, as it were.
Haven’t had a chance to look into the code yet. It will be awhile before we know whether the thing is robust. I predict lots of teething problems. I’m just guessing here, but the biggest question mark is whether the security of the network can withstand malicious or buggy code (Bitcoin’s simple scripting language is deliberately not Turing-complete for this reason). Creators of contracts must fund them with tx fees which, as far as I can tell, are proportional to the complexity of the program. So they’re taking an economic approach to solving that problem.
You can read about Ethereum on Twitter here. Here is Wired on Ethereum. By the way, it seems Goldman Sachs may be involved. By the way, here is Sams on cryptonomics.
Thoughts about children
“All Joy and No Fun” inspired me to think differently about my own experience as a parent. Over and over again, I find myself bored by what I’m doing with my children: How many times can we read “Angelina Ballerina,” or watch a “Bob the Builder” video? And yet I remind myself that such intimate shared moments, snuggling close, provide the ultimate meaning of life. I have never quite sorted out the conundrum of how I could be distracted into thinking about something as tiresome as email when I was with my beloved kids. If I lost all my emails, I’d manage, and if I lost my children, I’d never recover; yet still I sometimes find it hard to stay in the moment with them. Senior demonstrates that there is no contradiction in this seeming paradox; she understands that tolerating our children is the cornerstone of loving them.
That is from Andrew Solomon.
Does immigration expand or contract the welfare state?
Bryan Caplan reports:
If you look at the fifty United States, however, immigration has no detectable effect on TANF/AFCD, K-12 education, or Medicaid spending. This is true for both per capita and total spending…
He is drawing on a new Cato study (pdf) by Zachary Gochenour and Alex Nowrasteh.
How much snow it takes to cancel school
The pointer is from Ángel Cabrera, link here.
What happens when we correct for publication bias?
There is a recent paper by Leif D. Nelson, Uri Simonsohn, and Joseph P. Simmons on this topic, the abstract is this:
Journals tend to publish only statistically significant evidence, creating a scientific record that markedly overstates the size of effects. We provide a new tool that arrives at unbiased effect size estimates while fully ignoring the unpublished record. It capitalizes on the fact that the distribution of significant p-values, p-curve, is a function of the true underlying effect. Researchers armed with only the sample sizes and p-values of the published findings can fully correct for publication bias. We demonstrate the use of p-curve by reassessing the evidence for the impact of “choice overload” from the Psychology literature, and the impact of minimum wage on unemployment from the Economics literature.
When it comes to both the choice overload effect and the minimum wage, correcting for publication bias implies a lack of significance in the overall tenor of the results. In passing I am not sure the minimum wage is the best example here, since a “no result” paper on that question seems to me entirely publishable these days and indeed for some while.
For the pointer I thank Kevin Lewis. And Kevin Drum adds comment.
Assorted links
1. The Cato session on glamour, with Virginia Postrel, myself, and Sam Tanenhaus.
2. Does exposure to fast food diminish your happiness? (speculative) and electronic tongue can identify brands of beer.
3. Robot directing traffic in Congo.
4. The shaming culture that is China.
6. Social liberalism as class warfare, another home run post by Ross Douthat.
New issue of Econ Journal Watch
The link is here, here are the contents:
One Swallow Doesn’t Make a Summer: In a 2014 AER article, Zacharias Maniadis, Fabio Tufano, and John List grapple with the problem of the credibility of empirical results by presenting a framework for statistical inference. Here Mitesh Kataria discusses some of the assumptions and restrictions of their framework and simulation, suggesting that their results do not, in fact, allow for general recommendations about which inference approach is most appropriate. Maniadis, Tufano, and List reply to Kataria.
Should the modernization hypothesis survive the research of Daron Acemoglu, Simon Johnson, James Robinson, and Pierre Yared? New evidence and analysis is provided by Hugo Faria, Hugo Montesinos-Yufa, and Daniel Morales, supporting the hypothesis that there is a long-run positive relation between socio-economic development and political democracy.
Ill-Conceived, Even If Competently Administered: In a 2013 JEP article, Stuart Graham and Saurabh Vishnubhakat argue that the Patent and Trademark Office (PTO) is doing a good job of interpreting patent law, and suggest that the “smart phone wars” and related disputes are not evidence that the patent system is broken. Here Shawn Miller and Alexander Tabarrok argue that the main problem is not with the PTO but with patent law as it has been applied, particularly to software, resulting in patents that are overly broad and ambiguous, and hence vexing and stifling.
Ragnar Frisch and Norway: Arild Sæther and Ib Eriksen contend that for several decades bad policy derived in part from the climate of opinion among the country’s eminent economists.
The ideological evolution of Milton Friedman: Lanny Ebenstein explores developments in Friedman’s thinking, particularly after the mid-1950s.
EJW Audio: Lanny Ebenstein on Milton Friedman’s Ideological Evolution
A model of Catalonian independence
There is a September 2013 paper (pdf) on this topic by Ryan D. Griffiths, Pablo Guillen, and Ferran Martinez i Coma:
We propose a game theoretical model to assess the capacity of Catalonia to become a recognized, independent country with at least a de facto European Union (EU) membership. Support for Catalan independence is increasing for reasons pertaining to identity and economics. Spain can avoid a vote for independence by effectively ‘buying-out’ a proportion of the Catalan electorate with a funding agreement favorable to Catalonia. If, given the current economic circumstances, the buying-out strategy is too expensive, a pro-independence vote is likely to pass. Our model predicts an agreement in which Spain and the European Union accommodate Catalan independence in exchange for Catalonia taking a share of the Spanish debt. If Spain and the EU do not accommodate, Spain becomes insolvent, which in turn destabilizes the EU. The current economic woes of Spain and the EU both contribute to the desire for Catalan independence and make it possible.
My worry however is this. If Catalan took away its share of the Spanish debt, or even more than its share, I don’t think this would help the Spanish fiscal situation. For similar reasons, I have never been convinced that the debt-to-gdp ratio is such an important variable. I myself put greater stress on the ability of a government to rule its territory, command the wealth and allegiance of its subjects, and continue to generate a more or less stable political equilibrium. Every developed country has the wealth to pay off its debts, if at least it has the political willingness to do so. If you view fiscal stability in this kind of macro public choice framework, the unwilling loss of a major piece of wealthy, high status territory is a much, much bigger fiscal blow than can be offset by a marginal improvement in the debt-to-gdp ratio. Besides, which part of Spain might be then next in line with demands for greater autonomy?
I am entirely fine with the idea of a Catalonian independence referendum in normal economic times, however, as I do not in general wish to maintain nation-states on those who are truly unwilling. I am very happy for instance that Estonia is no longer part of Russia/USSR, and in turn one can see that an Estonian independence referendum would pass in either good economic states or bad. If the same is true for Catalonia, we should all be willing to wait.
Assorted links
1. Prose vs. poetry in the culture that is Russia. And why did Uzbeki growth go so well? (pdf)
2. Two new poems by Sappho (pdf)?
3. Silver service vs. butler service.
4. A summary of Obama’s MyRA proposal.
5. The hidden hierarchy of (some) string quartets.
6. Arnold Kling’s new macro book (free, I like it very much).
Do scholars produce too much and revise too little?
Art Carden asks me:
…do you think scholars spend too much time producing new content and too little time revising and refining their arguments? I’m thinking about the Scholars of Old (e.g. Smith) taking their work through multiple editions. Thomas Sowell is good about producing revised versions of some of his books, but a glance at my shelf makes me wonder if Eminent Scholar should’ve revised his/her first book instead of writing a second or third or fourth.Do you think books go through the optimal number of revisions? Is the editing process so good today that the first edition usually should be the last?
In music, Brahms is notorious for having spent a lot of time revising his drafts. Pierre Boulez explicitly revised and improved many of his pieces, after adding in years of extra work. Stravinsky’s later 1947 version of Petrouchka is much sharper and cleaner than his 1911 release. In all of these cases the revisions are worthwhile, because these works were very special and worth improving. Brahms’s first symphony might have done better with some further revisions yet.
When it comes to economics, individual works are less and less special all the time, unlike in the days of Adam Smith. Smith waited, more or less perfected his book, and in the meantime he was not really scooped. Today it is the collective body of work which carries the force. We also live in the age of the working paper, where it is the first released draft which matters most. There is an institutional failure that first released drafts are released too soon, for the purposes of receiving attention and credit. Yet I don’t think there is a corresponding problem of too few editions of the working paper. Ideally there should be no more than two. A first “here I am” version, to stimulate discussion and feedback, and eventually a final version which maximizes accuracy.
In fact if scholars had to commit to only two versions of the paper, they might be induced to make the early release more accurate in advance, knowing they cannot magically revise away errors a week later with the magic of word processing and web re-posting. This move toward fewer editions would offset some of the costs of premature release. Again, we do not see a case where a greater number of revisions would be better.
The scarcity of attention is the key reason why a very small number of accuracy-enhancing revisions is more or less optimal.