The Portuguese fiscal cliff [penhasco fiscal?]

by  Tyler Cowen

Lisbon plans to lift income tax revenue by more than 30 per cent[this coming year], raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income.

We’ll see how that goes, here is the rest of the FT story.  Here are some related earlier posts.

Profile of John Ioannidis

by  Tyler Cowen in

He is an important thinker and here is one part of the profile:

Ioannidis’s current work stems from his deep love of math and statistics. He was born in New York City to physician parents but raised in Athens, Greece, where he excelled at math from a young age. He attended the University of Athens Medical School, added a PhD in biopathology, and later trained at Harvard and Tufts and joined the National Institutes of Health, where he worked on pivotal HIV research. These days, although he often collaborates on the design of specific studies, what he mostly does is meta-research, or the study of studies. Using powerful number-crunching programs and constantly evolving algorithms, Ioannidis analyzes many trials, each with many patients. He’s working to see not so much whether one treatment works or does not work, or whether one association of a specific risk factor with one disease is true or false, but whether factors related to the research process—the number of patients tested, the criteria for including data, statistical errors in an analysis, even fraud or financial incentives—may have compromised the data and conclusions. He burst on the medical establishment radar in 2005 with a paper in PLoS Medicine asserting nothing less than: “Why Most Published Research Findings Are False.”

Here is Alex’s earlier post on him.  For the pointer I thank Mark D.

Pakistan update

by  Tyler Cowen in

1. Militants kill 41 in the Peshawar region.

2. Adulterated cough syrup kills 33, the second such incident in recent times.

3. Pakistan lifts its YouTube ban, but for three minutes only.

Those are the headlines immediately visible today.

Less widely reported is that during 2012, the Pakistani stock index — namely the KSE-100 — is up 48% in local currency and 37% in U.S. dollars.

Which are the remaining economically underrated countries?

by  Tyler Cowen in

We read about the Philippines in yesterday’s FT:

Last quarter, its economy again surprised on the upside, growing 7.1 per cent and notching up its 55th straight quarter of growth. It now seems to be growing at a steady 5-6 per cent, despite an adverse external environment, against a lowly 3 per cent in the 1990s. The finance ministry believes the potential growth rate can be lifted to 6-7 per cent and eventually to 7-8 per cent.

…The stock market, one of the world’s best-performing in 2011, is up 32.5 per cent in the year to date in peso terms. That makes it the world’s fifth-best performing index. The peso itself has strengthened 7 per cent against the dollar. There is even talk of new investor interest in manufacturing. Japanese companies, looking for an alternative to China, have been nosing around. Philippine exports, not as important to the economy as for many Asian countries, have held up well in spite of falling demand for electronics, suggesting a degree of diversification.

Mexico is now also widely recognized as doing quite well.  So from the earlier list of undervalued countries, it seems all the pressure is on Pakistan.  Please keep in mind, the place need only outperform the expectations.

What are the policy implications of capital-biased technological change?

by  Tyler Cowen in

Paul Krugman has a very interesting post on this topic, so I will add a few points:

1. Taxing capital per se is not the way to go, since capital (of some kinds) bids up the wages of labor.  If one accepts Krugman’s distributional premises (not exactly my view but let’s see where it brings us), the answer is to tax mainly those forms of capital which substitute for labor, either directly or indirectly.  That would mean high taxes on the internet and other media of communications as well as high taxes on software and embedded software.  I don’t myself favor those policies, all things considered, but still I find it worth pursuing this logic to its implied conclusion.  It would imply especially high taxes on our technologically most dynamic sectors.

2. Intellectual property rights of many kinds should be weaker, as Alex discusses in his Launching the Innovation Renaissance.  That is one way to “tax” some forms of capital.  But do not expect the main action here to be found in easy-to-reproduce forms of capital, rather look to the more durable rents.

3. If you believe that the wages of labor are “stickier” than payments to capital, and there is downward pressure on wage shares, this implies a higher steady-state rate of price inflation.  I know, I know, there are various nominal vs. real finesses buried in my claim but still I think it holds up for the most part.

4. A lot of the surplus from Ricardian progress will end up captured by land, so we should follow Matt Yglesias’s recommendations in The Rent is Too Damn High.

5. A lot of the surplus from Ricardian progress will end up captured by resource owners, so we should relax constraints on resource exploration and development as an egalitarian move.  (NB: Beware tech models with only two factors!  They are usually wrong when it comes to incidence and the like; see for instance Nick Rowe.)

6. Let’s consider cutting the minimum wage.

7. Whatever we do, we should avoid mandated benefits programs — which raise the fixed cost of hiring an ever-cheapening labor — like the plague.  Whoops.

8. Lower wages strengthen the case for subbing in social security income for Medicare benefits, as the marginal value of cash is becoming higher for many of the elderly.  The case for in-kind as the appropriate form of aid is weaker.  Let’s also think about a longer-term consolidation of various aid programs into some form of guaranteed annual income.

What else can you think of?

Peter Boettke’s Ph.d grading strategy

by  Tyler Cowen in

…your final draft of your paper will be due on April 29th and I will submit your papers (blind) to external referees as well as myself for assessment, an A grade will be limited to those papers, and only those papers, that are recommended for acceptance or conditional acceptance, a B grade will be assigned to those papers that receive a recommendation of revise and resubmit, and a C grade will be assigned to those papers that are rejected by the external referees and myself.  I will be available throughout the semester to discuss and read your drafts, so don’t be a stranger.

The source is here, and for the pointer I thank Jacob T. Levy.

Most Popular MR Posts from 2012

by  Alex Tabarrok in

Here are some of the most popular MR posts as measured by page views from 2012:

1. Introducing Marginal Revolution University – we asked you to spread the word about MRUniversity and you did making this the most viewed page this year. Thanks!

2. Krugman’s Response to Alex and the original Krugman v. Krugman.

3. Racism by Political Party. This one showed up on television.

4. Robert Solow on Hayek and Friedman and MPS. Tyler should let loose more often.

5. Firefighters Don’t Fight Fires. A graph is worth a thousand words.

6. A Bet is a Tax on Bullshit. I don’t think the scheme I outlined is quite right but I worked for a long time on the final paragraph and I was pleased that it was widely quoted.

7. Why economic mobility measures are overrated. Lots of meat in this post and in Tyler’s related posts What does the inequality-immobility link mean? and Krugman on income mobility and my Stasis, Churn and Growth.

8. Debtor’s Prison for Failure to Pay for Your Own Trial. An issue that should be more widely reported.

9.  How savage has European austerity (spending cuts) been? Not that savage.

10. The Google Trolley Problem. A famous philosophical puzzle now must be answered in practice.

Among other meaty posts which were highly linked too were Tyler’s posts Why Old Keynesianism is looking worse these days; A simple theory for why so many smart young people go into finance, law and consulting and favorite non-fiction books of 2012. Also on the list were my posts Noble Matching and one of my favorites, Patent Theory on the Back of a Napkin.

A good year as we move towards MR’s tenth.

Are robots and aging demographics self-cancelling problems?

by  Tyler Cowen in

Dean Baker says yes:

This is one where a baseball bat might be necessary. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs. Let’s try that again. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs.

It is possible for too much productivity growth to be a problem, if the gains are not broadly shared. It is also possible for too little productivity growth to be a problem as a growing population of retirees imposes increasing demands on the economy. But, it is not possible for both to simultaneously be problems.

That is missing the point, as there is too much talk of “productivity growth” per se and not enough of either distribution or political economy.  If robots concentrate wealth in the hands of IP owners, wages for many workers might fall or remain stagnant.  That is a problem.

Similarly, if robots concentrate wealth in the hands of IP owners, it may be hard to drum up the tax revenue to support a higher dependency ratio.  The wealthy may produce a blocking political coalition or capital simply may be harder to tax for mobility, accountancy, and Laffer curve-like reasons.  There is then a problem with the dependency ratio.

We then have both problems, no contradiction.

Note that we can get out of at least one half of this mess if the robots are especially good at taking care of old people.  That seems unlikely to me, at least in earlier stages of robot development, but of course it is not impossible.  In reality, many old people would fare somewhat better if our economy were somewhat more like that of Mexico, namely with cheaper land and cheaper servants.  You could imagine robots lowering wages by say ten percent, yet still labor wouldn’t be cheap enough for most old people to afford much more in the way of servants.

Paul Krugman makes the argument for austerity

by  Tyler Cowen in

…it’s overwhelmingly likely that these [Social Security] projections will be hugely off in one or more ways.

No immediate moral from me, except as a reminder that all those long-term budget discussions in which people act as if we really know what the state of Social Security will be three decades from now are basically just boring science fiction.

Here is more, and this post too.  I bought, and still buy, that kind of argument when it comes to climate science and it seems to work for some number of fiscal issues as well.  Better safe than sorry.

Note, by the way, that to the extent the “robots” argument is true, some of the decline in work in the short-term will not be reversed anytime soon and thus the output gap is smaller — perhaps considerably smaller — than Keynesians have been claiming.