Greece facts (?) of the day

by  Tyler Cowen in

The figure of 53 years old as an average retirement age is being bandied about. So much, in fact, that it is being seen as fact. The figure actually originates from a lazy comment on the NY Times website. It was then repeated by Fox News and printed on other publications. Greek civil servants have the option to retire after 17.5 years of service, but this is on half benefits. The figure of 53 is a misinformed conflation of the number of people who choose to do this (in most cases to go on to different careers) and those who stay in public service until their full entitlement becomes available. Looking at Eurostat’s data from 2005 the average age of exit from the labour force in Greece (indicated in the graph below as EL for Ellas) was 61.7; higher than Germany, France or Italy and higher than the EU27 average. Since then Greece have had to raise the minimum age of retirement twice under bail-out conditions and so this figure is likely to rise further.

The graph is at the link.  That analysis seems more plausible than the competing accounts, but if you believe it to be wrong, please enlighten us in the comments.

Hat tip goes to Guy LaRoche.  Guy also recommends this post:

And if the lending of money wasn’t enough, the paranoia that Turkey (also a member of NATO) will invade Greece has led to an arms race. Think of what was going on: France was lending money to Greece, to buy French arms. Let alone that most (all?) of the 12 Phantoms Greece bought in 1988 have crashed since during exercises (second grade quality?), killing most of their pilots. Not to mention that because of bribery to civil servants from foreign medical companies, Greece pays 3x the amount of money for medicines and medical instruments than any other European country.

In other words, the problems are more cultural than we might think and less susceptible to direct fiscal management than we might think.  All of the posts are interesting throughout.

Greg Mankiw’s exam question

by  Tyler Cowen in

Via Ron Paul and Dean Baker (really):

  1. According to Congressman Paul, to deal with the debt-ceiling impasse, we should tell the Federal Reserve to destroy its vast holding of government bonds.
  2. Because the Fed might have planned on selling those bonds in open-market operations to drain the banking system of the currently high level of excess reserves, the Fed should (according to Baker) substantially increase reserve requirements.

This would be a great exam question:  What are the effects of this policy? Who wins and who loses if this proposal is adopted?

My answer is a little different from Greg’s, though without denying he has outlined a possible and indeed plausible scenario (he argues that destroying the bonds is irrelevant and #2 would be contractionary).

I don’t quite view the Fed as a pure Ricardian shell of the government as a whole, at least not for every marginal choice.  So if the Fed has its stock of bonds destroyed, it wishes to recapitalize itself, in part because it doesn’t fully trust the indirect option on recapitalization through Congress and it wishes to restore its financial power base.  It can do this in a number of ways, but the simplest is to print up more money and buy something valuable.  We get QEIII, though on which assets is unclear.  The shadow banking system expands, while the higher reserve requirements (assuming a penalty rate of interest) contract the non-shadow banking system.  Overall that’s a bad mix, though we have temporarily solved the debt ceiling problem.

In the longer run the Fed is more subject to the will of Congress (it required some kind of implicit permission to recapitalize, and thus some kind of deal was struck) and that is probably contractionary after the new QEIII wears off.  Overall, it can be said that when there are agency relationships it matters in whose pocket the assets are stored and thus full Modigliani-Miller neutrality will not hold.

If you’re from Minnesota (I am not), you will start by asking how the destruction of the bonds is done in a “balanced budget” manner or not.  Is an offsetting change in fiscal policy required to maintain a balanced budget constraint, or can we think of the bond destruction as itself an act of fiscal policy?

Returning to the previous track, you might alternatively think that Congress and the Fed cannot cut a deal and, after this policy change, the Fed cannot recapitalize.  In that case the Fed’s “sopping up the expanded monetary base” option is weaker than before, this is viewed as implicit monetary expansion if only probabilistically.  Instead of QEIII we get a probabilistic QEIII.  A boom is boomier because M2 is rising and there is less mopping up, but there is probably less expansion in the more pessimistic scenarios because until there is strong positive pressure on M2 the absence of the mopping up option doesn’t mean that much.

Those are not the only scenarios.

Paul Starr’s *Remedy and Reaction*

by  Tyler Cowen in

Here is Austin Frakt’s review.  I thought the book was beautifully written, crystal clear, well-informed, and the single best introduction to the history of American health care policy.  That said, I am not sure specialist readers will learn much from it.  I did not find it conceptually very deep.

The book’s home page is here.  You can pre-order it here.

Berlin markets in everything

by  Tyler Cowen

Camping vacations may summon nostalgic appeal for many consumers, but the logistics of making them happen can be overwhelming. That’s why we’ve seen a company that orchestrates backyard camping events, for example, and it’s also presumably the thinking behind Berlin’s newly opened Hüttenpalast hotel, which offers caravan-style camping in the safety and predictability of an indoor setting.

Launched earlier this month, the Hüttenpalast hotel offers consumers a way to “walk in flip-flops with your towel, even in winter, to the beautiful new showers,” as the company puts it. Set in a former Berlin factory, the hotel includes what it calls an “indoor garden” featuring an assortment of old caravan campers and wooden huts. Consumers can reserve either of these for a taste of retro happiness — pricing starts at EUR 40 per night — with separate facilities for men and women. Alternatively, if they’re less interested in “roughing it,” they can opt for one of the hotel’s six traditional rooms complete with luxury en-suite bathrooms. Either way, an attached cafe offers breakfast, coffee and homemade cakes, while the lunch menu focuses on regional and seasonal products.

The link is here and for the pointer I thank Michael Rosenwald.  For a European hotel, much less one with a theme, that’s pretty cheap.

The utility function

by  Tyler Cowen in

Wimbledon’s queuing public welcomes the abuse. In fact, the experience is such a delight that some daydream about it all year.

“We get to spend time together—no husbands, no children, no after-school clubs,” said Suzanne Pyefinch, who has queued for 27 years with her sister, Michelle, and seen everyone from Bjorn Borg to Roger Federer. Last weekend she was cooking sausages by her tent.

“Our bacon went off, and we had a bit of a panic,” she said. “The ice melted, and it just went funny in the car. But the important things are done. We’ve got the Pimm’s, so we’re happy.”

Ms. Pyefinch said she was still recovering from an encounter with a snorer. “That guy snoring last night, it was a song—fantastic, absolutely fantastic,” she said. “But you just get on with it. We all look like rubbish at the end of the two weeks, but we’ve had the greatest time ever.”

The article is here (interesting throughout) and for the pointer I thank John Chilton.

Assorted links

by  Tyler Cowen

1. Betting odds for the literature Nobel Prize.  Cormac McCarthy is favored.

2. Fast Company review of TGS.

3. Rybka, world chess champion from 2007 to 2010, stripped of title and asked to return prize money.  This is also an implicit argument for a looser patents policy.

4. More serious evidence of structural unemployment.

5. Iowa just put up its new electronic political markets, make them deep and liquid!

6. Mario’s post-mortem on the stimulus.

*Between Parentheses*

by  Tyler Cowen in

That’s the new collection of Roberto Bolaño’s assembled bricolage, essays, speeches, and critical notes.  It wins the award for “the book this year which has most made me want to read other books.”  It also reveals how smart and original he was as a reader, not just as a writer.  I enjoyed this passage, among many others:

Of those three lineages — the three strongest in Argentina literature, the three departure points of the literature of doom — I’m afraid that the one which will triumph is the one that most faithfully represents the sentimental rabble, in the words of Borges.  The sentimental rabble is no longer the Right (largely because the Right busies itself with publicity and the joys of cocaine and the plotting of currency devaluations and starvation, and in literary matters is functionally illiterate or settles for reciting lines from Martin Fierro), but the Left, and what the Left demands of its intellectuals is soma, which is exactly what it receives from its masters.  Soma, soma, soma Soriano, forgive me, yours is the kingdom.

Strongly recommended, but only for those with a preexisting interest in, and knowledge of, Latin American literature.  It gets an A+ for “helps you see an apparently familiar area in an entirely new light.”

Markets in everything

by  Tyler Cowen in

Intentionally flawed goods:

Artist Jeremy Hutchison commissioned a series of intentionally incorrect products from factories around the world.

“I asked them to make me one of their products, but to make it with an error,” Hutchison explains. “I specified that this error should render the object dysfunctional. And rather than my choosing the error, I wanted the factory worker who made it to choose what error to make. Whatever this worker chose to do, I would accept and pay for.”

Hutchison received a comb without tines…

Medicare Cost Control?

by  Alex Tabarrok in

Long-time readers will know that I am skeptical of the FDA. Let’s ignore that for the purpose of this post. Now consider the following two quotes.

The FDA recommended unanimously that Avastin no longer be used to treat breast cancer, saying that the risks of the drug far outweighed any benefits.

…”Even though we have anecdotal information, we don’t have evidence that it prolongs survival or improves quality of life,” said Natalie Compagni-Portis, a patient representative and voting member of the FDA panel. In a series of four questions, the six-member panel voted across the board that the clinical trials conducted by Genentech did not provide evidence that Avastin prolonged life for breast cancer patients, nor did it improve their quality of life. The panel also recommended that FDA commissioner Peggy Hamburg should not continue to allow the drug to be used for breast cancer patients.

A strong statement from the FDA. Now compare:

Medicare will continue to cover Avastin for breast cancer treatment even if U.S. Food and Drug Administration Commissioner Peggy Hamburg decides to withdraw Avastin for such use, according to Don McLeod, a spokesman for the Centers for Medicare and Medicaid.

“The FDA decision, when it comes, does not affect CMS,” McLeod told Reuters.

How does this make sense? Does CMS have information that runs counter to the FDA’s information? If so, let’s hear it. Or is this just a turf war? What does this say about the prospects for cost control of Medicare?

A change in regime?

by  Tyler Cowen in

In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.

Here is more.  The normal recovery pattern is more skewed toward capital than you might think, but this particular gradient is unprecedented as far as I know.