Stanley Fischer and the Palestinians

by  Tyler Cowen in

Palestinian Monetary Authority Chief Jihad Al Wazir suggested Mr. Fischer was skilled at navigating political sensitivities to focus on economic challenges.

“During Stan’s tenure [at the Bank of Israel], the relations remained on a professional level,” Mr. Al Wazir said from Ramallah. “It was devoid of politics. There was an understanding of the issues.”

…Mr. Al Wazir said Mr. Fischer helped ease strain in the Palestinian banking system during recurring liquidity crises because of shortfalls in foreign aid and occasional freezes in Israeli transfers of tax revenue collected on the behalf of Palestinians. He helped to get shipments of cash into the Gaza Strip’s blockaded economy.

That is from this story.  Here is much more on Fischer and the Palestinians.  Here are Fischer’s parting comments upon leaving his job in Israel.

Central Planning for Parking

by  Alex Tabarrok in

Central planning is everywhere discredited except for central planning of parking places in American cities. Here from an excellent post is Matt Yglesias.

Are members of the Rockville, Maryland Town Council experts in real estate development? In parking management? Are they putting their own money on the line in the success or failure of projects in the center of their town? Of course not! Nonetheless:

Mayor Bridget Donnell Newton said she attended the Christmas tree lighting recently and was unable to find a parking space in Town Center. Councilman Tom Moore said he would like to get a briefing on Town Center parking from city staff before making a decision.

And:

Councilwoman Virginia Onley said the proposed parking reduction was her biggest concern with Duball’s plan. In Petworth, she said, some apartment residents have a Safeway downstairs. In Rockville, Town Center residents have to get in their cars to go to Safeway.

Suppose other kind of business decisions were made this way. Maybe someone wants to open a burger joint in Rockville, but he doesn’t want to serve milkshakes. One councilman says the last time he wanted to get a milkshake there was a very long line, so obviously the new burger place must serve milkshakes. Another councilman protests that he doesn’t even like burgers. Aren’t more people vegetarians these days?

Market forces aren’t good at everything. But striking a balance between the demand for some service (parking) and the cost (including opportunity costs) of providing it, is exactly what market forces are good at. And yet somehow when it comes to parking spaces no politician in America is radical enough to suggest that the solution is to build as much parking as people want to pay for.

Tyler Cowen’s West Bank ethnic dining guide

by  Tyler Cowen in

I can recommend two places:

1. Siri (that is how they pronounced it, I don’t know the transliteration), a small restaurant on one of the main streets in the center of Ramallah.

They serve hummus, foul, and foul ringed with hummus, get the latter.  The accompanying vegetables were more strongly marinated than they typically would be in Israel, a plus in my view.

2. Laymoon [The Lemon restaurant], Ariha (Jericho)

The chicken musakhan, with piles of red onions and slivered nuts over bread, seasoned with generous doses of sumac and allspice, is very tasty.  The restaurant is also a nice place to sit outside and enjoy the weather, or to catch an Arabic-language film on their large outdoor screen.

I walked by many other places and in general they looked good.  The various fruits I purchased on the street were all winners, the small oranges and the dates most of all.  There is much less variety, but dish by dish my impression from a small sample was that the food in West Bank cities is slightly better than that of Tel Aviv.

Ariha was attracting a lot of Nigerian church tourism.

Overall I noticed how much economic growth and globalized advertising were to be seen in Ramallah.  My biggest surprise was how much being in Ramallah felt like…being in Israel.  Except the citizenry seemed less religious.

Stanley Fischer on the Israeli economy

by  Tyler Cowen in

The word is that Stanley Fischer will be nominated to be #2 at the Fed, good news in my view.  Here is Ari Shavit recounting his meeting with Stanley Fischer:

…he [Fischer] utters the relevant figures in slow, measured, Anglo-Saxon Hebrew.  In the years 2004 to 2008, Israel’s average annual growth rate was 5.2 percent.  While the world was in crisis in 2010-11, Israel’s average annual growth rate was 4.7 percent.

…Fischer tells me there are four reasons for this success: reducing government spending dramatically (from 51 percent of GDP in 2002 to 42 percent in 2011); reducing the national debt significantly (from 100 percent of GDP in 2002 to 75 percent in 2011); maintaining a conservative and responsible financial system; and fostering the conditions required for Israeli high-tech to continue to flourish.

There is then a discussion of how Israeli R&D and starts-ups are so strong and how dynamic the tech sector is.  Fischer then turns to the problems:

“We have four problems,” he says.  “Our education system has deteriorated, and it endangers our ability to sustain technological excellence.  The employment rate among ultra-Orthodox men is only 45 percent.  Most Arab women do not work.  Fewer than twenty business groups control much of the local market and thus restrict competition.  Right now the high-tech miracle helps to conceal these four problems that are weighing down the wider economy.  But in the long term, these problems endanger Israel’s ability to remain prosperous and successful.”

That is from Ari Shavit’s excellent new book My Promised Land: The Triumph and Tragedy of Israel, reviewed here.

Trudge rather than Nudge?

by  Tyler Cowen in

A Chinese factory worker says walking in huge iron shoes weighing more than 200kg each can cure back pain, but faces hefty competition in his bid to build the country’s heaviest footwear.

“I’ve been walking with iron shoes for seven years,” said Zhang Fuxing, before strapping two crudely welded iron blocks to his feet.

“After they reached 400kg, I felt very proud. Next spring I plan to add 50kg.”

Zhang took a deep breath before each wrenching step in the towering footwear, with every impact leaving him struggling for balance.

It took him more than a minute to take 10 paces, but he claims to walk up to 15 metres each day in the shoes, which he has gradually increased in weight, and touts them as a cure for back pain and hemorrhoids.

There is more here, including a photo, via the excellent Mark Thorson.  But wait, there is more:

Zhang believes his shoes to be the heaviest in China, but admits that competition from a number of other eccentrics renders his claim uncertain.

One of two Chinese iron shoe wearers to share a Guinness World Record for walking 10 metres backwards in heavyweight iron boots is Zhang Zhenghui from Changsha. According to a 2010 report by Xinhua news agency, he has gold-painted shoes weighing more than 200kg.

Lai Yingying, an entertainer from Fujian in the east, was shown by state broadcaster CCTV wearing shoes tipping the scales at a total of 300kg.

A runner, Liu Mei, took to exercising in metal footwear after growing bored of tying sandbags onto his trainers, the state-run China News Service reported, and challenged other exponents to compete for the title of “Iron Shoe King”.

Does Basel III encourage banking fragmentation in Europe?

by  Tyler Cowen in

I had not considered this point before:

Basel III and related regulation generally work against building scale. Larger capital charges based on size, leverage and complexity, and a bias toward ringfenced subsidiaries, may make for a safer global banking system, but applied across euro area countries, and in the absence of a strong banking union, they constitute a recipe for less efficiency and greater fragmentation.

It is an excellent piece by Gene Frieda (FT gated), here is more, on the consequences of an imperfect banking union:

Banks will continue to hold primarily national assets and their size will be constrained by their resident deposit bases. Any reconvergence of funding costs comes not as a function of greater confidence, but from the forced reimposition of national financing constraints.

Loan pricing, on the other hand, will remain highly differentiated amid elevated periphery default risk, as highly indebted economies will be unable to grow their way out of a debt trap. A complete banking union would remove these national financing constraints and promote a greater flow of credit to viable entities.

This will lead to strong deflationary pressures and indeed you will note that private loan growth in the eurozone remains negative, a sign the crisis is not over.  And then there is this:

Finally, given the lack of common fiscal backstops for the banking sector, the ECB’s independence is compromised. Indeed, without a credible backstop, supervisory responsibilities cannot be separated, giving rise to conflicts between monetary policy and financial stability objectives.

I would add that a full and perfect banking union probably is politically impossible, not just by a small amount but by a long mile.  Berlin/Brussels cannot guarantee a country’s banks without also guaranteeing the sovereign as well, either directly or indirectly (in the limiting case, imagine that sovereign nationalizing a bank to get the guarantee explicitly).  I just don’t see that in the cards.

Sentences to ponder…

by  Tyler Cowen in

Notably, easy-to-reach women are happier than easy-to-reach men, but hard-to-reach men are happier than hard-to-reach women, and conclusions of a survey could reverse with more attempted calls.

That is Ori Heffetz and Matthew Rabin, in the new AER.  An ungated version is here.  Understandably, the authors are worried about potential subject selection biases in studies of self-reported happiness.

Assorted Thoughts on the Market for New Econ PhDs

by  Alex Tabarrok in

Here’s the good news. There were 1,243 new econ PhDs in 2012 and the AEA has 2,790 job listings. Compared to other fields where quantity supplied far outstrips quantity demanded, econ is doing very well.

Why are there fewer PhDs than jobs? One factor may be that women are underrepresented in economics. Women earn 34% of the PhDs in economics which is below the 46% of doctoral degrees earned by women overall. (On the other hand, economics is more gender-balanced than psychology where 72 percent of all degrees are earned by women). If women earned more degrees in economics would total degrees increase? Perhaps, although that hasn’t happened in medicine where the cartel has limited total physician supply.

What about the bad news? The number of new jobs for econ PhDs fell by 4.3%. The fall was especially pronounced in academia where the number of new jobs fell by 6.6%. New jobs tumbled in 2008 and since that time there has been some recovery but no catch-up. Are we seeing the transition to a new equilibrium?

On the university side, Clay Christensen’s prediction that half of all universities may go bankrupt in the next 15 years is not yet showing up in the data. Should I file that under good news or bad news?

Time and tariffs

by  Tyler Cowen in

We estimate that each day in transit is equivalent to an ad-valorem tariff of 0.6 to 2.1 percent.

That is from David L. Hummels and Georg Schaur, the AER version of their paper is here, various ungated versions are here.  If you are wondering, parts and components are the most time-sensitive goods in international trade, according to the authors.  Note also that airplanes are increasingly important for international trade:

From 1965–2004, worldwide use of air cargo grew 2.6 times faster than use of ocean cargo.

The nature of the Medicaid cost problem

by  Tyler Cowen in

Harold Pollack writes:

The bottom 72 percent of Illinois Medicaid recipients account for 10 percent of total program spending. Average annual expenditures in this group were about $564, virtually invisible on the chart. We can’t save much money through any incentive system aimed at the typical Medicaid recipient. We spend too little on the bottom 80 percent to get much back from that. We probably spend too little on most of these people, anyway. For the bulk of Medicaid beneficiaries, cost control is less important than improved prevention, health maintenance and access to basic medical and dental services.

The real financial action unfolds on the right side of the graph, where expenditures are concentrated within a small and incredibly complicated patient group. The top 3.2 percent of recipients account for half of total Medicaid spending, with average expenditures exceeding $30,000 annually.

Many of these men and women face life-ending or life-threatening illnesses, as well as cognitive or psychiatric limitations. These patients cannot cover co-payments or assume financial risk. In theory, one might impose patient cost-sharing with some complicated risk-adjustment system. In practice, that is far beyond current technologies and administrative capabilities. Even if such a system were available, we couldn’t push the burden of medical case management onto these patients or their families.

Very much worth a ponder, and there is more in the post.

From the comments, on Dodd-Frank

by  Tyler Cowen in

This is on the Volcker Rule:

My own view (and I’m a banking lawyer) is that the ban on proprietary trading will have an immaterial effect on the asset size of banking organizations. It might reduce their complexity.

An overlooked issue is that Volcker applies throughout the banking organization. That is, the ban on proprietary trading is not limited to the federally insured depository institution and restricts the activities of all of the affiliates of the depository institution. That’s a dramatic expansion in scope, with questionable policy justifications.

Another overlooked issue is that Volcker also bans investments in certain types of investment funds. Some think this is simply a ban on investments in private equity and hedge funds that is intended to avoid regulatory arbitrage around the proprietary trading restrictions. The statutory definition of covered funds was sloppy, and so the covered fund restrictions are actually much broader – and without any apparent policy purpose. This is particularly a problem for foreign banking organizations, as it looks that Volcker will have a broad extraterritorial scope.

To me, one of the more interesting aspects of Volcker is its implications for administrative law. There are many who would prefer that Congress delegate less to the administrative agencies and instead legislate with particularity. The Volcker experience suggests that might not always work well. The statute defines “private equity and hedge fund,” “proprietary trading,” “solely outside the United States,” etc. with particularity, but those definitions are generally not well-connected to the underlying policy concerns. The statutory language really left the regulators with few options to salvage a good and sensible rule. We probably would have been better off had Congress deferred more to the agencies here.

Finally, as a general matter, the difference between “security” (subject to the proprietary trading ban) and “loan” (not subject) probably isn’t a distinction that matters when it comes to the safety and soundness of banking organizations. Stepping back a bit, it’s hard to imagine what, why and how Volcker is up to.

Thinking for the Future

by  Tyler Cowen in

That is the new and very good David Brooks column about Average is Over.  Here is one excerpt:

So our challenge for the day is to think of exactly which mental abilities complement mechanized intelligence. Off the top of my head, I can think of a few mental types that will probably thrive in the years ahead.

…Synthesizers. The computerized world presents us with a surplus of information. The synthesizer has the capacity to surf through vast amounts of online data and crystallize a generalized pattern or story.

Humanizers. People evolved to relate to people. Humanizers take the interplay between man and machine and make it feel more natural. Steve Jobs did this by making each Apple product feel like nontechnological artifact. Someday a genius is going to take customer service phone trees and make them more human. Someday a retail genius is going to figure out where customers probably want automated checkout (the drugstore) and where they want the longer human interaction (the grocery store).

…Motivators. Millions of people begin online courses, but very few actually finish them. I suspect that’s because most students are not motivated to impress a computer the way they may be motivated to impress a human professor. Managers who can motivate supreme effort in a machine-dominated environment are going to be valuable.

Do read the whole thing.