Assorted links
1. Six case studies of writers who changed their minds. On what basis were they picked to contribute? And when you like the writer but not the books.
2. Markets in everything: I want to be Brahms’s German Requiem.
5. The North Carolina experience with cutting unemployment benefits.
6. Leading economists endorse Christmas presents, sort of. And Times Higher Ed best books list, deep and broad.
Shiller on Trills
In this short piece, Robert Shiller explains one of the basic ideas of his work on macro markets:
The governments of the world should issue shares in their GDPs, securities that pay to investors as dividends a specified fraction of GDP, in perpetuity (or until the government buys them back on the open market). Governments need to end their historic reliance on debt financing: governments issuing shares in GDP is analogous to corporations issuing equity. My Canadian colleague Mark Kamstra and I propose issuing trillionth shares in GDP, and so to call these “Trills.” Last year, a U.S. Trill would have paid $15.09 in dividends, a Canadian Trill C$1.72. The dividends will change every year as GDP is announced, and predicting these changes will certainly interest investors, just as in the stock market. Governments can auction off Trills when current government debt comes due and needs to be refinanced, as part of a debt reduction program.
In this piece, Shiller focuses on the benefits of Trills as opposed to debt:
Substituting Trills for conventional debt helps deleverage the government, something whose importance has become very clear with the debt crisis in Europe. The payments required of the government by the Trills is connected to the country’s ability to pay, measured by their GDP.
Trills could also be the foundation for many types of insurance products, for example, products that would pay off when GDP was down helping to alleviate business cycle issues. A market in Trills could also be used to make predictions and to judge policies (see Gurkaynak and Wolfers for an early test). Which policies will most increased the value of future trills? Similarly, by looking at how the market for trills changes as the Iowa Political Markets change we could identify which politicians are best for GDP (not just the equity and bond markets).
I featured Shiller’s work on macro markets in my book Entrepreneurial Economics: Bright Ideas from the Dismal Science. I think of this body of work as his most visionary and deserving of the Nobel.
Economic convergence between black immigrants and black natives
Alison Jane Rauh, a job candidate from the University of Chicago, has a new (job market) paper on this topic. The abstract is full of information:
The number of black immigrants living in the US has increased 13-fold from 1970 to 2010, increasing their share of the black population from 1% to 10%. Black immigrants’ labor market outcomes surpass those of native blacks. This paper determines in how far the relative success of black immigrants is passed on to the second generation. While blacks of the second generation have equal or higher education and earnings levels than the first generation, the return on their unobservable characteristics is converging to that of native blacks. Race premia are put into a broader context by comparing them to Hispanics, Asians, and whites. Blacks are the only group that experiences a decrease in residual earnings when moving from the first to the second generation. Black immigrants do not only converge to native blacks across generations but also within a generation. For Asians and Hispanics, residual earnings decrease monotonically with age of immigration. For blacks, the residual earnings-age of immigration profile is upward sloping for those immigrating before the age of 15. Convergence across generations is mostly driven by low-educated second generation blacks that drop out the labor force in greater numbers than low-educated first generation immigrants do. Similarly, convergence within a generation is mostly driven by low-educated blacks who immigrate when they are young dropping out of the labor force in greater numbers than those who immigrate when they are older. A social interactions model with an assimilation parameter that varies by age of immigration helps explain this phenomenon. When making their labor force participation decision, immigrant men of all races, but not women, generally place more weight on the characteristics of natives the earlier they immigrate.
I take this to be a “peer effects are really really important” paper, namely that many of the virtues of immigrant culture are swallowed as the second generation assimilates. I should note that the contents of this paper are interesting throughout, for instance: “Conditional and unconditional annual earnings of native black women are at 91% and 78% of white women, which points to a much more equal distribution than that of men (64% and 78%).”
Here is the abstract of another paper (pdf) by Alison, entitled “Successful Black Immigrants Narrow Black-White Achievement Gaps”:
The number of black immigrants in the US quadrupled from 1980 to 2010, increasing their share of the black population from 4% to 10%. During that time period the black-white wage and employment gap widened substantially. This paper explores the extent native blacks differ from immigrant blacks. Additionally it determines in how far increased selective immigration masks an even greater deterioration in the economic condition of native blacks. In 2011, excluding black immigrants increases the white-black wage gap by 4% for men and 9% for women. It increases the employment gap by 13% and 19% for men and women respectively.
Here is the author’s home page. I hope she gets a very good job.
Who disapproves of Obamacare?
I was somewhat surprised by these numbers:
Fifty-three percent of the uninsured disapprove of the law, the poll found, compared with 51 percent of those who have health coverage. A third of the uninsured say the law will help them personally, but about the same number think it will hurt them, with cost a leading concern.
I wonder if any of this poll was conducted in Spanish, and if not whether that would have changed the results. I found this interesting too:
Of the uninsured who said they were not likely to sign up by the deadline, fully half said it was because of the high cost. Twenty-nine percent said they planned to go without coverage because they object to the government’s requiring it, and 11 percent said they did not need health insurance.
And this:
Seventy-seven percent of the uninsured said they disapproved of the mandate, compared with 65 percent of those who already have health insurance.
Chinese translation of *Modern Principles*
There is now a Chinese translation out of Modern Principles, our Principles text.
Information (in Chinese) on the macro text is here. Information about the micro text is here. You will note that China is a key example in our discussion of catch-up Solow growth, a topic neglected by many other leading Principles textbooks.
For basic information on the English language version of the book, see here.
Assorted links
2. The dangers of barter with gingerbread biscuit tickets. And Izabella Kaminska on shadow banking as free banking.
3. Clemens reviews Collier on immigration.
4. Will drones revolutionize agriculture?
6. Pre-order the new Murakami book here, due out in August.
7. More excellent John Cochrane on the Nobel Laureates and finance. And behavioral economics at the movies.
What predicts the differential impact of the taper?
There is a new paper by Eichengreen and Gupta (pdf):
In May 2013, Federal Reserve officials first began to talk of the possibility of tapering their security purchases. This tapering talk had a sharp negative impact on emerging markets. Different countries, however, were affected very differently. We use data for exchange rates, foreign reserves and equity prices between April and August 2013 to analyze who was hit and why. We find that emerging markets that allowed the real exchange rate to appreciate and the current account deficit to widen during the prior period of quantitative easing saw the sharpest impact. Better fundamentals (the budget deficit, the public debt, the level of reserves, the rate of economic growth) did not provide insulation. A more important determinant of the differential impact was the size of the country’s financial market: countries with larger markets experienced more pressure on the exchange rate, foreign reserves and equity prices. We interpret this as investors being able to better rebalance their portfolios when the target country has a relatively large and liquid financial market.
You can think of this as a step in building a new theory of the non-neutrality of money. The suggestion it seems is that liquidity begets further liquidity, a’ la Matthew. Here is a related and non-gated FT post about “the fragile five.”
China moves against Bitcoin
China’s biggest Bitcoin exchange was forced to stop accepting renminbi deposits on Wednesday, sending the price of the virtual currency tumbling in one of its biggest markets globally.
You will find more here, and FT coverage here. Since Tuesday, the price of Bitcoin in China has fallen more than thirty percent. Here is my earlier post on China and Bitcoin., where I wrote “If Beijing shuts down BTC China, the main broker, which by the way accounts for about 1/3 of all Bitcoin transactions in the world, the value of Bitcoin very likely will fall.” And here is Hal Varian on Bitcoin.
The politics of science fiction
Science fiction is an inherently political genre, in that any future or alternate history it imagines is a wish about How Things Should Be (even if it’s reflected darkly in a warning about how they might turn out). And How Things Should Be is the central question and struggle of politics. It is also, I’d argue, an inherently liberal genre (its many conservative practitioners notwithstanding), in that it sees the status quo as contingent, a historical accident, whereas conservatism holds it to be inevitable, natural, and therefore just. The meta-premise of all science fiction is that nothing can be taken for granted. That it’s still anybody’s ballgame.
That is from Tim Kreider, who praises the political visions and fiction of Kim Stanley Robinson. Kreider also longs for a more political literature, devoted to such ideas as common stewardship of land and water, and also “small co-ops” instead of “vast, hierarchical, exploitative corporations.” Among other changes. He then writes:
My own bet would be that either your grandchildren are going to be living by some of these precepts, or else they won’t be living at all.
What is a good response to that? Let’s look at the article itself, and we can see sentence which is smarter than Kreider himself seems to realize:
If historians or critics fifty years from now were to read most of our contemporary literary fiction, they might well infer that our main societal problems were issues with our parents, bad relationships, and death.
I would myself note that the politics of science fiction, on average (with exceptions), encourage us to think about “breaking a few eggs,” and not for the better. The reality is that when it comes to the future, we can “see around the corner” only to a limited degree. The upshot is that the rights of the individual — when applicable — should remain paramount, and no I don’t mean Caplanian libertarian rights. You can only rarely be sure you will get such a great gain from violating rights, so why not do the right thing instead? Science fiction inhabits the realm of fiction precisely because the building of grand scenarios is denied to us, for the most part.
To again use Kreider’s own words, societies where “nothing can be taken for granted” are exactly the ones I would never wish to visit, much less live in. I know the radical anarcho-capitalist strand, but is there a Burke-Oakeshott-Hayek science fiction, in the traditionalist and conservative sense of that combination? Or must we resort to the “fantasy” genre to capture such a vision? What would a science fiction account of a macro-level spontaneous order look like? Iain Banks? Frank Herbert?
Does a warm climate discourage economic output?
Geoffrey Heal and Jisung Park have a new paper “Feeling the Heat: Temperature, Physiology & the Wealth of Nations,” here is the abstract:
Does temperature affect economic performance? Has temperature always affected social welfare through its impact on physical and cognitive function? While many studies have explored the indirect links between climate and welfare (e.g. agricultural yield, violent conflict, or sea-level rise), few address the possibility of direct impacts operating through human physiology. This paper presents a model of labor supply under thermal stress, building on a longstanding physiological literature linking thermal stress to health and task performance. A key prediction is that effective labor supply – defined as a composite of labor hours, task performance, and effort – is decreasing in temperature deviations from the biological optimum. We use country-level panel data on population-weighted average temperature and income (1950-2005), to illustrate the potential magnitude of the effect. Using a fixed effects estimation strategy, we find that hotter-than-average years are associated with lower output per capita for already hot countries and higher output per capita for cold countries: approximately 3%-4% in both directions. We then use household data on air conditioning and heating expenditures from the US to provide further evidence in support of a physiologically based causal mechanism. This more direct causal link between climate and social welfare has important implications for both the economics of climate change and comparative development.
The NBER version is here, I do not otherwise see ungated access.
Assorted links
1. Does market monetarism require stronger financial microfoundations?
2. Should your children be learning how to code? My views on that topic.
4. Izabella Kaminska on the role of fiscal distribution effects (FT Alphaville).
5. The Thought Leader. Is this the cynical David Brooks? The Straussian David Brooks? Both? Something else altogether? And here is a good recent David Brooks interview, more depth than most interviews get to.
6. Piketty slides on wealth and inequality in the long run (pdf). Here is my earlier column on Piketty and Zucman.
Does Ramadan make you happy? Harm output growth?
Filipe Campante and David Yanagizawa-Drott have a new paper (pdf), here is the abstract:
We study the economic effects of religious practices in the context of the observance of Ramadan fasting, one of the central tenets of Islam. To establish causality, we exploit variation in the length of the fasting period due to the rotating Islamic calendar. We report two key, quantitatively meaningful results: 1) longer Ramadan fasting has a negative effect on output growth in Muslim countries, and 2) it increases subjective well-being among Muslims. We then examine labor market outcomes, and find that these results cannot be primarily explained by a direct reduction in labor productivity due to fasting. Instead, the evidence indicates that Ramadan affects Muslims’ relative preferences regarding work and religiosity, suggesting that the mechanism operates at least partly by changing beliefs and values that influence labor supply and occupational choices beyond the month of Ramadan itself. Together, our results indicate that religious practices can affect labor supply choices in ways that have negative implications for economic performance, but that nevertheless increase subjective well-being among followers.
Why is liquidity “passing through” the global economy in such a segmented, non-neutral fashion?
“It is fair to say that the Fed has created a marvellous environment for virtually all assets, even if this remains one of the weakest economic recoveries on record in the US and through virtually all of the developed markets,” wrote Deutsche Bank in a note.
European high yield, or “junk”, corporate bonds have fared best, producing total returns of more than 150 per cent. Among the few losers were owners of Greek shares.
And yet the eurozone may be approaching deflation and has exhibited weak nominal gdp growth. From the FT there is more here. You should be certain about the appropriateness of the taper — or not — only if you understand this issue better than any human being I have met or heard or read. I wonder if that’s you.
Milton Friedman, some time ago, wrote that money was for the most part neutral, and that the new money rapidly mixes in with the old. That made sense to me at the time, and it nudged me away from Austrian views, yet we have seen decidedly non-neutral effects from the various QEs and the periodic taper talk.
(Where does this non-neutrality come from? Do liquidity injections swing to concentrated areas in financial markets when an underlying economy has not solved what Arnold Kling calls its “PSST problems“, and/or when rates of return are low? That is speculation.)
Note that Michael Woodford supports the taper, and Stanley Fischer has called for the same (“It would be good to start“). They are the leading experts on this question, along with Bernanke himself of course, and each also appreciates the potential benefits from monetary stimulus. Donald Kohn wants to delay the taper but refers to it as a “close call.”
Here is another opinion:
“The best argument for tapering sooner rather than later?” Peter R. Fisher, senior director at the BlackRock Investment Institute, wrote in a recent analysis. “The Fed is running out of stuff to buy.” He estimated that if it maintained the current level of asset purchases, the Fed could soon be consuming all the new issuance of Treasuries and mortgage bonds.
Is this the methadone for withdrawal from QE?
Overall, we don’t have a very good understanding of the different ways in which economies can build up imbalances. Unfortunately, we may soon learn more.
Update: There is indeed a new tapir.
From the comments, on lotteries and education
John S. wrote:
States don’t use lottery proceeds to *increase* funding to schools. They tie the lottery to education as a marketing gimmick, both to sell it to the voters initially, and then to deflect criticism (what do you mean you don’t like the lottery — are you anti-education?) See http://goo.gl/f5b55R
We’re told we need lotteries because people would gamble anyway, and yet a large fraction of lottery revenues go toward advertising, presumably so that people don’t lose interest in it.
I also liked the remarks from ant1900:
This (http://en.wikipedia.org/wiki/Racino) suggests that the appeal of racinos is being able to bring in slot machines to an existing race track. After reading only a few pages of ‘Addiction by Design’ I can see why. The smart machines are now subsidizing the humans and the horses. The horses are probably the hook that convinces voters to allow horse tracks to expand into slot machines (‘we have had the hose track for many years and that has worked out ok, and they are already regulated and already in the gambling business, so let’s let them expand into slot machines, which is not a huge leap from betting on horses’).
Assorted links
1. Where might we be getting new nations?
2. Does the American way of hiring worsen long-term unemployment?
3. The forthcoming Thomas Piketty book will be very important.
4. Stephen Williamson on the Phillips curve. And a bit more here.
5. Making a life-size origami elephant.
6. Is Sweden rethinking education privatization? Here are some further results on U.S. preschool, by the way.