Assorted links
“Kiwi up on China baby talk”
That is one of today’s WSJ headlines, from Nicole Wong, here is the scoop:
“New Zealand exports milk products, which is what China needs and wants,” said Anders Faergemann, who helps manage $69.1 billion at PineBridge Investments and is buying the New Zealand dollar. Mr. Faergemann said that it is likely that a relaxation of China’s one-child policy will result in more demand for New Zealand’s products over time.
“If you can export more to a growing country the size of China, your currency is in a good spot,” he said.
The kiwi wasn’t the only asset to benefit from the policy change: In China, shares of baby-formula producers, piano makers and tutoring companies jumped following the news.
And that is what greater liberty looks like.
Best non-fiction books of 2013
There were more strong candidates this year than usual. The order here is more or less the order I read them in, not the order of preference:
Jeremy Adelman, Worldly Philosopher: The Odyssey of Albert O. Hirschmann.
Daniel Brook, A History of Future Cities.
Lawrence Wright, Going Clear: Scientology, Hollywood, and the Prison of Belief.
I liked Neil Powell, Benjamin Britten: A Life for Music and also Paul Kildea, Benjamin Britten: A Life in the Twentieth Century.
M.E. Thomas, Confessions of a Sociopath.
Rana Mitter, China’s War With Japan 1937-1945, the US edition has the sillier title Forgotten Ally. The return to knowing some background on this conflict is rising.
Emile Simpson, War from the Ground Up: Twenty-First Century Combat as Politics.
William Haseltine, Affordable Excellence: The Singapore Health System.
Clare Jacobson, New Museums in China. Good text but mostly a picture book, stunning architecture, no art, full of lessons.
Mark Lawrence Schrad, Vodka Politics: Alcohol, Autocracy, and the Secret History of the Russian State.
Paul Sabin, The Bet: Paul Ehrlich, Julian Simon, and our Gamble Over Earth’s Future.
Charles Moore, Margaret Thatcher: An Authorized Biography, from Grantham to the Falklands.
From books “close at hand,” I very much liked John List and Uri Gneezy, Virginia Postrel on glamour, Lant Pritchett, The Rebirth of Education, and Tim Harford on macroeconomics.
Scott Anderson’s Lawrence in Arabia gets rave reviews, although I have not yet read my copy. From the UK I’ve ordered the new Holland translation of Herodotus and Richard Overy’s The Bombing War and have high expectations for both.
If I had to offer my very top picks for the year, they would all be books I didn’t expect to like nearly as much as I did:
Joe Studwell, How Asia Works: Success and Failure in the World’s Most Dynamic Region.
Alan Taylor, The Internal Enemy, Slavery and War in Virginia, 1772-1832.
Mark Lewisohn, Tune In: The Beatles: All These Years, volume I.
Peter Baker, Days of Fire: Bush and Cheney in the White House.
Apologies to those I left out or forgot, I am sure there were more.
Keith Richards’s *Life*
I very much enjoyed this book, which also gave me an excuse to dig out old Rolling Stones albums and listen to them again (“Dear Doctor” is perhaps my favorite Stones song, an odd choice). If it were a 2013 publication this memoir would make my best books of the year list. Here is p.167:
“The only reason we got a record deal with Decca was because Dick Rowe turned down the Beatles. EMI got them, and he could not afford to make the same mistake twice. Decca was desperate…they thought, it’s just a fad, it’s a matter of a few haircuts and we’ll tame them anyway. But basically we only got a record deal because they could just not afford to fuck up twice.”
Arnold Kling on “secular stagnation” theses
He makes some good additional points:
Here are some criticisms that come to mind.
1. If “the” full-employment real interest rate is negative, then why do we need quantitative easing? Why does not the excess of saving over investment not by itself drive long-term rates to zero?
2. Summers wants to claim that full employment has been achieved in recent years because of asset bubbles. However, in a world of negative real interest rates, there is no such thing as an asset bubble. Real assets have infinite value in such a world.
The full post is here.
Assorted links
The FDA and International Reciprocity
Bacterial meningitis causes swelling of the membranes covering the brain and spinal cord. In the United States the disease kills approximately 500 people a year, often within days of infection. Survivors can have permanent disabilities including paralysis and mental disabilities. Since March seven cases of the type B strain have been diagnosed at Princeton University, with one case just last week. A vaccine exists and is available in Europe and Australia but the FDA has not permitted the type B vaccine for use in the United States.
The Centers for Disease Control and Prevention, however, has lobbied the FDA and they have now received special and unusual permission to import the type B vaccine. Following the CDCs recommendation, Princeton University has agreed to administer and pay for the vaccine for any student that wants it.
It’s good that the FDA has lifted the ban on the type B vaccine but why should Americans have to wait for the FDA? Americans living in Europe or Australia can be prescribed the vaccine so why not here? I believe that Americans should have the right to be prescribed any drug that has been approved in Europe, Australia, Canada, Japan or other developed nation.
Indeed, as Dan Klein and I wrote at FDAReview.org, international reciprocity of drug approvals is simple common sense:
If the United States and, say, Great Britain had drug-approval reciprocity, then drugs approved in Britain would gain immediate approval in the United States, and drugs approved in the United States would gain immediate approval in Great Britain. Some countries such as Australia and New Zealand already take into account U.S. approvals when making their own approval decisions. The U.S. government should establish reciprocity with countries that have a proven record of approving safe drugs—including most west European countries, Canada, Japan, and Australia. Such an arrangement would reduce delay and eliminate duplication and wasted resources. By relieving itself of having to review drugs already approved in partner countries, the FDA could review and investigate NDAs more quickly and thoroughly.
As has now become clear, international reciprocity is not just about choice it can also save lives.
Will hospitals buy ACA insurance for their uncovered patients?
I had not thought of this angle before:
US hospitals are exploring ways to buy “Obamacare” insurance plans for their sickest and poorest patients as they strain under the weight of tens of billions of dollars in uncompensated costs from the uninsured.
But the move is opposed by the Obama administration and insurers, who fear it could add to the turmoil surrounding the new healthcare marketplace.
…Both the White House and insurers are concerned that if hospitals started paying for insurance for certain chronically ill patients, it will skew the insurance risk pool for the new healthcare exchanges, created under the Affordable Care Act. The exchanges need to attract at least 2.7m healthy and young people, out of 7m that were estimated to join the exchanges by March 2014, in order to keep monthly premiums low.
Ms Hatton said the prospect of buying health insurance for patients has become especially important in Republican-controlled states that have decided not to expand the federal insurance programme for the poor, known as Medicaid.
From the FT, here is more.
England fact of the day
From Sarah O’Connor and Chris Giles, this one is a bruiser:
The earnings of recent English graduates have deteriorated so rapidly since the financial crisis that the latest class is earning 12 per cent less than their pre-crash counterparts at the same stage in their careers. They also owe about 60 per cent more in student debt.
As Britain starts to emerge from the downturn, a Financial Times analysis of student loan data exposes the damage done to a generation of graduates, for whom a degree has all but ceased to be a golden ticket to a decent job. Tuition fees in England almost tripled last year to a maximum £9,000 a year.
…Each cohort of graduates since the financial crisis is earning less than the one before. New graduates who earned £15,000 or more in 2011-12 – enough to start repaying their loans – were paid on average 12 per cent less in real terms than graduates at the same stage of their careers in 2007-08.
This real terms fall is three times as deep as the decline in average pay for all full-time workers over the same period.
From the FT there is more here.
Wise Crowds Tell No Lies
One of the benefits of tapping the wisdom of the crowds is that the market doesn’t lie*. Not even white lies, as Lars Christensen found to his chagrin when he recently gave a talk to investment advisors in the Danske Bank group:
As I was about to start my presentation somebody said “The audience have been kind of quiet today”. I thought that was a challenge so I immediately jumped on top of a table. That woke up the crowd.
I ask the audience to guess my weight. They all wrote their guesses on a piece of paper. All the guesses was collected and an average guess – the “consensus forecast” – was calculated, while I continued my presentation.
I started my presentation and I naturally started telling why all of my forecasts would be useless – or at least that they should not expect that I would be able to beat the market. I of course wanted to demonstrate exactly that with my little stunt. It was a matter of demonstrating the wisdom of the crowds – or a simple party-version of the Efficient Market Hypothesis.
I am certainly not weighing myself on a daily basis so I was“guestimating” my own weight then I told the audience that my weight is 81 kilograms (fully dressed). I usually think of my own weight as being just below 80 kg, but I was trying to correct it for the fact I was fully dressed – and I added a bit extra because my wife has been teasing me that I gained weight recently.
As always I was completely confident that the “survey” result would come in close to the “right” number. So I was bit surprised when the ”consensus forecast” for my weight came in at 84.6 kg
It was close enough for me to claim that the “market” – or the crowd – was good at “forecasting”, but I must say that I thought the “verdict” was wrong – nearly 85 kg. That is fat. I am not fat…or am I?
So once I came back home I immediately jumped on the scale – for once I hoped to show that the Efficient Market Hypothesis was wrong. But the verdict was even more cruel. 84 kg!
So the “consensus forecast” was only half a kilo wrong and way better than my own guestimate. So not only am I fat, but I was also beaten by the “market” in guessing my own weight.
* The market doesn’t lie doesn’t mean the market is always correct. A lie is an intentional falsehood. Market manipulation would be analogous to an intentional lie so it’s not impossible for markets to lie only difficult much of the time.
Arrived in my pile
William Nordhaus, The Climate Casino: Risk, Uncertainty, and Economics for a Warming World.
Joseph H. Carens, The Ethics of Immigration.
The practice habits of Alexandre Tharaud
He is one of my favorite pianists, try his Chopin Preludes. The blog Ionarts reports:
After this residency at the Cité de la Musique, he will take a vacation of three months, during which he will move into a new apartment, with a view of the Seine. He will still not have a piano at home, which he offers as advice to many young musicians. Most important, he says, is not to play on a beautiful piano, because it does not encourage you to work.
Tharaud only practices on pianos in the homes of his friends.
Assorted links
1. Gendered Average is Over (nice photos, recommended). Where have all the other men gone? Off to pick the flowers?
2. The role of uncertainty in time discounting.
3. Why don’t Russians smile more?
4. Strategies for better living, and the imposition of visual externalities by a Detroit strip club owner. Or try using a 20-year-old IBM keyboard.
American schools seem to be getting safer
From Greg Toppo:
It’d be easy to conclude that school has never been a more dangerous place, but for the USA’s 55 million K-12 students and 3.7 million teachers, statistics tell another story: Despite two decades of high-profile shootings, school increasingly has become a safer place.
…By nearly every measure, safety has improved and violence has dropped for students and teachers, according to recent findings issued jointly by the Justice Department and Education Department.
The data do not include post-2011, but still the overall trends, as outlined in the longer article, seem pretty clear.
Are real rates of return negative? Is the “natural” real rate of return negative?
Here is a long and very interesting post by Paul Krugman, also referencing a recent talk by Larry Summers. There is also this older Krugman post, and here is Gavyn Davies, and also Ryan Avent. And Scott Sumner. Do read and listen to these, there is much in there to ponder. I do very much agree with the claim that lower rates of return make recovery more difficult and for the longer haul as well. And I am happy to welcome these thinkers, or in the case of Krugman re-welcome, to stagnationist ideas.
I cannot, however, agree with the central arguments about negative real interest rates, and the necessity for negative natural rates of interest (there are a variety of interlocking claims here, so do read them for yourself. I am not sure any brief summary can quite reproduce the arguments, which are also not fully clear).
As I frame the data, we have had negative real rates on government securities, but positive rates on many other investments in the U.S. The difference reflects a very high real risk premium, which of course we would like to lower, and the differences also reflect some degree of investment segmentation. The positive rates on these other investments are evidenced by recent broad stock market gains, observed rates of productivity growth (low but clearly positive), high internal corporate hurdle rates, and so on. The “average vs. marginal” distinction is an important one, but still I don’t see how it can be used to push us away from seeing relevant real rates of return as positive. Nor do I think monopoly is widespread enough for that assumption to be a game-changer. Even Apple competes with Samsung and others in its major product lines.
Given the multiplicity of real rates in the American economy, I get nervous when I read about the real rate or the natural rate. (Don’t forget Sraffa [1932] and also Arnold Kling discusses the different issue of varying rates across people. Interfluidity questions whether the idea of a natural rate makes sense at all.) I also get nervous when I do not see serious talk about the embedded risk premium in the observed structure of market rates. I grow more nervous yet when the average vs. marginal question is not spelled out more explicitly.
In my view very negative real rates of return would not be a “natural rate” giving rise to full employment through a better equilibration of planned savings and investment. Given a pretty flat employment to population ratio, very negative real rates of return across the economy as a whole would have to mean negative economic growth and other attendant difficulties.
And no, I don’t think that output shrinkage associated with the persistently negative real interest rate would be expansionary through liquidity trap mechanisms; for one thing the negative wealth effect and the higher risk premium likely would offset the positive velocity effect on currency balances. The velocity effect on currency balances, from inflation, just isn’t that strong. At persistent negative rates of return we are much more likely to see an interdependence of AS and AD and some kind of cascading collapse of both. Or maybe it is simply better to say the framework has broken down than to try to squeeze one’s own predictions out of that set up.
Furthermore if you think destruction will help you ought then think that capital obsolescence will pull us out of Hansen’s long-term stagnation within five to ten years. On top of all that, I worry about the apparent “out of equilibrium” assumptions embedded in a model that has both a) negative real rates of return on investment and b) those investments being made in the first place, given that storage costs don’t seem to be enormously high.
I don’t mean this in a rude or polemic way, but the arguments we have been reading do not yet make sense.
Here is a claim I do find possible, although it is not one I am pushing. That would be a neo-Wicksellian argument that rates of return on capital are positive but low, and investors need low and indeed very negative borrowing rates to reflate the economy, given how high the risk premium is. I don’t read Krugman as promoting that view (note his citation of Samuelson’s OLG model for instance), although I think that is what the argument will have to boil down to. Otherwise it ends up being a call for output destruction, which, while I do understand how in some models at some margins that can help, I don’t think at current margins is going to be anything other than an unmitigated disaster. Literally.
I see it this way. If you are postulating a stagnation across the longer run, ultimately it will have to boil down to supply side deficiencies. The simple way to explain the mediocre recovery is to tack on slow growth assumptions to the underlying demand deficiencies. But that would constitute a big concession to real business cycle theory and it would put Thiel-Mandel-Gordon-Cowen stagnationist views in the driver’s seat, all the more so over time. The look back to Alvin Hansen is an effort to work in some (very much needed) stagnationist ideas, while at the same time doubling down on a demand-side perspective.
That just isn’t going to work.