What do barter exchanges imply about depressions and recessions?
As was the case during the Great Depression, parallel currencies and barter exchanges are springing up around Spain and some other parts of Europe. Here is one account:
Psychologist Angels Corcoles recently taught a seminar about self-empowerment for women, and when she finished the organizers handed her a check with her fee. The amount was in hours, not euros.
But Corcoles didn’t mind. Through a citywide credit network that allows people to trade services without money, the 10 hours Corcoles earned could be used to pay for a haircut, yoga classes or even carpentry work.
At a time when the future of the euro is in doubt and millions are unemployed or underemployed with little cash to spare, a parallel economy is springing up in parts of Spain, allowing people to live outside the single currency.
In the city of Malaga, on the country’s southern Mediterranean coast just 80 miles from Africa, residents have set up an online site that allows them to earn money and buy products using a virtual currency. The Catalonian fishing town of Vilanova i la Geltru has launched a similar experiment but with a paper credit card of sorts. It implements a new currency worth slightly more than the euro when it is used at local stores.
You can find another series of accounts here.
One interesting feature of these enterprises is that they push a bit of emphasis away from sticky wage and price theories of depressions. In essence the sellers participating in these exchanges are price discriminating, by trying to sell more of their output — for lower prices — through credit or barter mechanisms. Getting back credits in return really is like receiving a lower price or wage. So these exchanges show that at least some people are wildly willing to cut prices, wages, and returns, if only to sell more.
(Please, no need for a lecture here on Keynes and downward price spirals; the ECB is keeping a price floor at the very least.)
So which factors behind depressions receive marginal support from the prevalence of these practices? First, these exchanges are a substitute for dysfunctional credit markets. Second, these exchanges attempt to solve the buyer-seller-buyer coordination problems analyzed by Clower, Leijonhufvud, and others.
Addendum: Here is Alex’s earlier post on barter and recessions. And Scott Sumner comments.
Get your Arnold Kling fix here
Here is Arnold on on-line education. Excerpt:
I am optimistic about tablets in large part because I believe that a magic bullet in educational technology is the adaptive textbook. By that, I mean an electronic textbook that adjusts to the cognitive ability and learning style of the student. Adaptive textbooks will query students in order to make sure that they understand what they have been studying. They will also respond to student queries. Adaptive textbooks will implement the many-to-one teaching model.
A glimpse of what lies in store can be found at the Inquire Project, which describes “an iPad app that combines the popular Campbell Biology textbook with a knowledge representation and reasoning system that answers students’ questions about the material.”
why are americans less stylish than europeans/japanese?
From Bob Unwin:
i mean style in clothing, but the same question could be asked about taste in architecture, interior design and other domains. (blog post by a fashion person: http://bangsandabun.com/2010/03/europeans-dress-better-than-americans-fact/)
1. greater average distance to a major fashion center. both physical and cultural distance.
2. less urbanization [these points 1&2 were maybe more important in the past]
3. distance from europe and few of the relevant european style-leaders emigrating
4. different signaling aims (more internal cultural diversity and weaker class distinctions; male clothing needing to be less ‘gay’ and more conventional).
5. any relation to the late blooming of US visual art and music on the world scene?
6. american is more informal in style and has been an influential exporter of informal styles (this doesn’t undermine the general point about the style difference)
related question: are there any fashionable american economists? i’d be especially interested in any that dress like artists or literary intellectuals.
Assorted links
1. What are the cues of distrust?
3. The throwing gap.
4. Chinese Straussians analyze America.
5. Cars that communicate with each other, and the road, are being tested in Michigan.
An empirical look at Austrian trade cycle theory
From Robert B. Lester and Jonathan S. Wolff:
Austrian Business Cycle Theory, as espoused by Mises (1912,1949) and Hayek (1935), predicts changes in the economy’s structure of production following an unexpected change in monetary policy. In particular, the theory predicts that following a credit expansion the production and price of goods further away from final consumption increase relative to the production of other goods in the economy. Despite the emphasis on the importance of relative prices and the structure of production, most of the existing empirical work discussing the relevance of the theory uses aggregate data. We rectify this, by using stage-of-process data to illustrate the relevance of the theory. We find that mechanisms emphasized by the theory are either not supported by the empirical results or are of second order importance in explaining the e ffects of monetary policy.
The Flynn Effect in East Germany
Economic, Educational, and IQ Gains in Eastern Germany 1990-2006 (gated), Eka Roivainen, Intelligence, Nov/Dec 2012
Abstract: Lynn and Vanhanen (2012) have convincingly established that national IQs correlate positively with GDP, education, and many other social and economic factors. The direction of causality remains debatable. The present study re-examines data from military psychological assessments of the German federal army that show strong IQ gains of 0.5 IQ point per annum for East German conscripts in the 1990s, after the reunification of the country. An analysis of IQ, GDP, and educational gains in 16 German federal states between 1990 and 1998 shows that IQ gains had a .89 correlation with GDP gains and a .78 correlation with educational gains. The short time frame excludes significant effects of biological or genetic factors on IQ gains. These observations suggest a causal direction from GDP and education to IQ.
For the pointers I thank Michelle Dawson and Ron Unz.
Is the urbanization of China inevitable?
From a loyal MR reader:
Now my economics question…
It’s often taken for granted in popular economics that China has an unalterable rate of urbanization. A good example would be this article by Stephen Roach (http://www.project-syndicate.org/commentary/china-is-okay-by-stephen-s–roach). In it he is arguing China’s growth worries are overstated because, essentially, its “urban population should expand by more than 300 million by 2030”. I don’t mean to reduce his argument to simply that statement, nor do I want to concentrate on this article in particular. I merely mention it because I’ve heard it (or something similar) many times before.
But it seems baked into this assumption that “China will add X more urban residents by date T” is some implicit growth factor. (Maybe the 8% growth target?) After all, why move to the city if it doesn’t have good, high paying jobs that can support an urban lifestyle? I mean, 300 million new urban residents at roughly 3 people per household is roughly 100 million new urban jobs! And perhaps the manufacturing/export sector can accommodate them, but since investment is 50% of the Chinese economy and simply by continuity arguments will have to remain a big piece of it for years to come, it seems unlikely that 100 million jobs can be created with the currently composition of economic activity, or anything similar. Also, the current mix of urban jobs has still left roughly half of the urban residents unable to afford high-rise apartment living, so those 100 million or so jobs will have to in essence be even better (higher paying, more stable) than what’s already available.
I find the “urbanization argument” perplexing and seemingly circular, especially when it is used to justify that it shall be the basis of growth. I know it’s not this simple, but am I missing something fundamental here? Stephen Roach is a pretty big name from what I can tell.
Scott Sumner comments on related issues. Here is an update on recent problems in Chinese real estate.
Assorted links
The new Oded Galor and Quamrul Ashraf paper
Here is from an editorial summary published in Science (gated):
…Ashraf and and Galor present the hypothesis that genetic diversity has exerted a long-lasting effect on economic development—which is quantified as population density in the precolonial era and as per-capita income for contemporary nations—beyond the influences of geography, institutions, and culture. They posit that intermediate levels of heterozygosity allow for a productive balance between the social costs of high diversity and the creative benefits of higher variance in cognitive skills. They show that the optimal level of diversity was approximately 0.68 in 1500 CE, and that this increased to 0.72 (which is pretty much where the United States sits) in the year 2000, with the most homogeneous country, Bolivia, placed at 0.63 and the most diverse country, Ethiopia, at 0.77. Just how large an effect are we talking about? They estimate that genetic diversity accounts of 16% of the cross-country dispersion in per-capita income; put in another way, shifting the diversity of the United States higher or lower by one percentage point would decrease per-capita income by 1.9%.
One version of the paper is here, and it will be coming out in the American Economic Review. Being on the road, I have yet to read this work.
MRUniversity will have a course unit especially on India
This will be a special part of our opening course on Development Economics. The topics we will cover will include:
History of the East India Company
The economics of Gandhi’s attack on the salt monopoly
Was British rule good for India?
Private education in India
Economic research on the caste system in India
The timing of Indian economic reforms and the boost in Indian economic growth, as discussed by Rodrik, DeLong, and others.
The contributions of the most famous and most important Indian economists.
Why does Kerala have such a good record when it comes to public health?
RCTs in India by Poverty Action Lab.
And much more.
Today I have a request for you. If you have any connection with India, please spread the word of this material to other people you may know who have a connection to India.
The motto of MRU is “Learn, Teach, and Share.” You can register for the course to come here. Background on MRU is here. Background on the development economics class is here.
The economic equivalent of a tongue twister, on interest on reserves
From Cardiff Garcia, it starts with something like this:
I first argued that there are risks to lowering IOER that weren’t being considered by some economists who were recommending it. Specifically, such a move could create havoc in money markets that aren’t built to handle negative nominal rates, which would be a possible if not likely consequence. An unlinking of policy from effective rates, a run on money market funds, or chaos in Treasury auctions are some of the possibilities I mentioned – potential consequences of removing what is essentially a safe asset substitute from heavily collateralised short-term lending markets.
Enjoy the rest, including numerous cameo appearances.
Assorted links
John Goodman’s book is now available for free
Have job openings become less potent?
In the post-recession environment, the employment-population ratio is no longer responsive to increases in job openings. This is a severe structural shift driven by a spike in the length of unemployment (see further discussion). People don’t have the skills, the mobility, or the will to fill those job openings. The problem is significantly worse than what economists have been estimating by using the official unemployment rate.
That is from Sober Look.
Charter cities and extraterritoriality
In part I am writing this post because Google yields so little on that combination of words.
It would be a mistake to equate charter cities with extraterritoriality. For one thing, a charter city has its own laws and governance, possibly enforced by overseas courts, rather than imposing foreign courts upon domestic governance, a’la Shanghai through the early 20th century. Still, the history of extraterritoriality gives us some sense of what it looks like to have foreign courts operating outside their usual domestic environment.
The problem with extraterritoriality, as I read the literature, is not the Chinese courts had a superior system of commercial or criminal law which was tragically pushed out by inferior Western ideas. The problem was that the foreign courts were not supported by comparably strong domestic interest groups and there was a clash between the foreign courts, national symbols, fairness perceptions, domestic rents and the like, all in a manner which led to eventual talk of foreign devils and violent overreaction against the influence of outsiders.
The history of extraterritoriality focuses one’s attention on the question of who has an incentive to support the external system of law, when such a system is transplanted abroad. This question does seem relevant to charter cities and related concepts.
Hong Kong worked because the UK and USA were able to exert enough control at a distance, at least for a long while, and because China was weak.
One vision is that a charter city works because a dominant hegemon — perhaps at a distance — supports the external system of law.
A second vision is that a charter city works because the external system of law serves up some new and especially tasty rents to domestic interest groups. In the meantime, avoid Tongans.
A related question is what it means for the external legal system to be “invited” in, and how much such an invitation constitutes prima facie evidence of real domestic support.
I would like to see these topics receive more discussion.
Two interesting books are:
1. Wesley R. Fishel, The End of Extraterritoriality in China, and
2. Par Kristoffer Cassel, Grounds of Judgment: Extraterritoriality and Imperial Power in Nineteenth-Century China and Japan.
Addendum: Here is an update about Romer’s group and Honduras. There is lots going on, and probably even more than is captured in this story. Here is the account from Romer’s group.