*Grand Pursuit: The Story of Economic Genius*
By Sylvia Nasar, due out September 13.
In a sweeping narrative, the author of the megabestseller A Beautiful Mind takes us on a journey through modern history with the men and women who changed the lives of every single person on the planet. It’s the epic story of the making of modern economics, and of how economics rescued mankind from squalor and deprivation by placing its material fate in its own hands rather than in Fate.
I just pre-ordered my copy.
William Breit has passed away
Here is a short bio. He also used the pen name of Marshall Jevons and wrote economics-related mysteries with Ken Elzinga. Here are some of his writings on antitrust. We shall miss Bill.
Assorted links
1. Relative Irish bond yields, read the comments also, more on Ireland, and more on Greek banks.
2. Is China’s dominance a sure thing? (pdf, and where does that seven percent growth assumption come from anyway?)
3. Is oil constraining economic growth? And Richard Posner as pessimist.
4. Han Solo markets in everything (“The Empire will compensate you if he melts”)
Claims about North Dakota
If you have a license and no criminal record, you can get a six-figure trucking job almost overnight.
The article is here, hat tip goes to Garett Jones on Twitter. If your response is: “How many of the unemployed could get work in North Dakota?” you have missed the point.
You can find some of the ads here, and more broadly here. My poking around showed that some of them start at 75k a year, though with raises for good performance. It is also required that you have no DUI convictions. The sense of community is strong and the State Capitol is an Art Deco masterpiece. You can get Canadian TV. What more could anyone want?
Twin Studies and Beyond
Brian Palmer has a very weak article in Slate trying to make the case that “Twin studies are pretty much useless.” The article is supposed to be about the problem of twin studies as a method but it begins by raising the specter of eugenics. As if that were not enough guilt by association, Palmer then argues that twin studies threaten democracy or at least they would if they were true. (The argument is unclear but seems to rest on the false assumption that if genetics matters then nothing else does. Need I quote the tiresome point that poor eyesight has high heritability but that doesn’t make eyeglasses useless etc.)
After having muddied the waters, the author’s primary argument is this:
Twin studies rest on two fundamental assumptions: 1) Monozygotic twins are genetically identical, and 2) the world treats monozygotic and dizygotic twins equivalently (the so-called “equal environments assumption”). The first is demonstrably and absolutely untrue, while the second has never been proven.
On the first point, the fundamental assumption is not that MZ twins are identical but that they are more identical than fraternal twins. The math is a bit easier if you assume that MZ twins share all of their genes and fraternal twins share 50% on average but this is not necessary. In fact, if you take into account that MZ twins differ genetically this raises the variation that you should ascribe to genetics. If twin one smokes and twin two does not and you assume that they share 100% of their genes then you must conclude that smoking does not vary with genes. If the twins share only 99.99% of their genes then smoking may vary with genes.
On the second point (the equal-environments assumption), Palmer writes as if comparing MZ and DZ twins was the only source of heritability estimates. In fact, heritability estimates are found by looking at twins raised together and twins raised apart, siblings and siblings raised apart, parents and child correlations and so forth and the results from these studies are broadly similar.
Even more important, for an article that goes on about “modern genetics” the author seems completely unaware that it is now possible to do a whole-genome analysis. That is, instead of assuming that siblings share 50% of their genes on average it is possible to estimate, sibling-pair by sibling-pair, how many genes siblings share and then correlate that with various characteristics. Obviously, it takes a lot more data to do a study like this but it has been done. Visscher et al., for example, use data from 3,375 sibling pairs to estimate the heritability of height. Interestingly, they find a heritability of 0.8, very close to that found in traditional studies.
Using whole-genome methods it is not necessary to assume equal environments for MZ and DZ twins. In fact, using these methods you can do genetic studies across unrelated individuals. For example, in Genome-wide association studies establish that human intelligence is highly heritable and polygenic, the authors note:
Data from twin and family studies are consistent with a high heritability of intelligence, but this inference has been controversial. We conducted a genome-wide analysis of 3511 unrelated adults with data on 549 692 single nucleotide polymorphisms (SNPs) and detailed phenotypes on cognitive traits. We estimate that 40% of the variation in crystallized-type intelligence and 51% of the variation in fluid-type intelligence between individuals is accounted for by linkage disequilibrium between genotyped common SNP markers and unknown causal variants. These estimates provide lower bounds for the narrow-sense heritability of the traits.
Twin studies have their problems, just like any method. The thrust of recent advances–advances which have been made to analyze and surmount the kinds of objections that Palmer raises–however, is that the results from twin studies are robust.
Ok, here is a final and telling point. Palmer argues that “Mutations and environmental factors cause measurable changes to the genome as life progresses.” Now that is true but you can judge how eager Palmer is to discredit twin studies regardless of the science by how he quickly concludes from this something which is truly laughable:
By the time a pair of twins reaches middle age, it’s very difficult to make any assumptions whatsoever about the similarity of their genes.
Where does the Japanese slowdown come from?
Chris Reicher refers me to his recent paper, entitled “A simple decomposition of the variance of output growth across countries”:
This paper outlines a simple regression-based method to decompose the variance of an aggregate time series into the variance of its components, which is then applied to measure the relative contributions of productivity, hours per worker, and employment to cyclical output growth across a panel of countries. Measured productivity contributes more to the cycle in Europe and Japan than in the United States. Employment contributes the largest proportion of the cycle in Europe and the United States (but not Japan), which is inconsistent with the idea that higher levels of employment protection in Europe dampen cyclical employment fluctuations.
On Japan in particular, Chris sums up his results as follows: “I think that Karl Smith is right about Japan’s productivity performance; that seems to be the real long-term issue there. Shrinking population + no more convergence in productivity + some convergence in hours worked per worker from a very high level = very slow growth, independently from the business cycle.”
Matt Yglesias frequently asks why TGS arrived first in Japan. Chris’s paper reports:
In the United States, productivity only contributes about 27% of the cycle and labor input four-fifths. Meanwhile, in France and Germany, productivity contributes 43% and 38% of the cycle, respectively. Japan is more European than Europe in this regard; productivity contributes 59% of the cycle there, while Korea looks more like the United States.
That’s hardly an answer, but it suggests the Japanese economy was more dependent on productivity gains in the first place. As those gains start to slow down or dry up, it bites harder and more quickly.
Here is Japan investment as a share of gdp. Here are falling real wages in Japan. Here is Noah on Japanese unemployment. Another (possible) story is that Japan was hit first by outsourcing to China.
Greece fact of the day (not much of a bailout sir, is it?)
The uncertainty caused by the deal has led Greek bonds to plummet in recent days, with yields on Greece’s benchmark 10-year bonds breaching 18.5 per cent on Thursday, a new euro-era high, wiping away all gains achieved after the bail-out deal was reached.
There is more interesting information at the link, which is about whether there will be a bailout deal at all.
The silent run on European banks, update
Separately, bankers estimate that Italian banks lost the equivalent of €40bn-worth of money market funding in July. And while money market funds are still lending to French banks, the duration of deals has shrivelled dramatically, from several months to just a few weeks (at most). This matters, since French banks rely on money markets for about €200bn of funding.
Now, the good news is that these raw numbers are small compared to the total volume of money that eurozone banks raise in the wholesale and interbank markets, which is around €8,000bn. Better still, the European Central Bank has stepped into the gap to replace those vanishing funds. That has kept the system running, even as funding costs for eurozone banks have exploded to a level which are “massively prohibitive” – and thus unsustainable – for most banks, as Suki Mann, analyst at Société Générale says.
Here is the article. The “Better still” sounds funny to my ears, but I think you get the point. I’ve been saying for quite a while that this is the mechanism which will do in the (current configuration of the) euro, I suppose we will see.
Is fusion power going to work out?
Chris F. Masse sends me many links on this topic, and I am willing to give it a hearing. Here is a new summary article:
“We could produce net electricity right now, but the costs would be huge,” says Cowley. “The barrier is finding a material than can withstand the neutron bombardment inside the tokamak. We could also just say damn to the cost of the electricity required to demonstrate this. But we don’t want to do something that cannot be shown to be commercially viable. What’s the point?”
…on Earth, scientists have to try and replicate a star’s intense gravitational pressure with an artificial magnetic field that requires huge amounts of electricity to create – so much that the National Grid must tell Culham when it is OK for them to run a shot. (Namely, not in the middle of Coronation Street or a big football match.)
Assorted links
1. Mike’s dinner with me and Chug, and my take.
2. Does Australia have a Dutch disease?
3. Energy and the Industrial Revolution, very good piece.
4. David Beckworth provides a neo-monetarist critique of the “balance sheet recession” view.
5. Why more polygyny in West Africa? (pdf)
Good news, sort of
Medicare’s growth slowdown has been much greater than that of private health insurance, however, as Maggie Mahar has noted on the Century Foundation’s Health Beat blog. In the 12-month period that ended in June 2011, Standard & Poor’s index for commercial health insurance rose 7.5 percent, while its Medicare index rose only 2.5 percent. The S&P data show that Medicare spending growth has been falling fairly steadily over the past 18 months.
That is from Peter Orszag, interesting throughout. Some of this may actually be productivity improvements.
Nothing to Envy
Based on hundreds of interviews with escaped North Koreans, the novel-like Nothing to Envy is a fascinating portrait of North Korea, a sociological investigation of how a totalitarian state operates and a love-story with an O. Henry like ending. Here is one stunning excerpt that describes a defector as she crosses over into China.
Dr. Kim staggered up the riverbank. her legs were numb, encased in frozen trousers. She made her way through the woods until the first light of dawn illuminated the outskirts of a small village.…
Dr. Kim looked down a dirt road that led to farmhouses. Most of them had walls around them with metal gates. She tried one; it turned out to be unlocked. She pushed it open and peered inside. On the ground she saw a small metal bowl with food. She looked closer – it was rice, white rice, mixed with scraps of meat. Dr. Kim couldn’t remember the last time she’d seen a bowl of pure white rice. What was a bowl of rice doing there, just sitting out on the ground? She figured it out just before she heard the dog’s bark.
Up until that moment, a part of her had hoped that China would be just as poor as North Korea. She still wanted to believe that her country was the best place in the world. The beliefs she had cherished for a lifetime would be vindicated. But now she couldn’t deny what was staring her plain in the face; dogs in China ate better than doctors in North Korea.
Highly recommended. I will say more in future posts.
Hat tip: Bryan Caplan.
How bad is it in Japan?
Karl Smith offers some useful comments, stressing that Japanese unemployment does in fact seem high. My view is twofold:
1. Japanese output performance, while hardly stunning, is not as bad as the numbers make it appear. In a TGS age, the numbers will basically overstate the performance of health care + education economies (lots of rent-seeking counted as output) and understate the performance of export economies. Most exports are “real stuff,” and with some exceptions, such as arms sales, the buying is not driven by rent-seeking or agency-ridden third party payment. Japan of course is an export-based economy. Consider the possibility that the U.S. and Japanese growth rates have not been as different as they look in the published numbers.
By the way, regarding output per man hour, Japan has been about 70 percent of the U.S. level since the 1990s and not falling.
2. As Interfluidity points out, it is precisely the inefficient sectors of the U.S. economy which are the sources of whatever employment growth we have. If those sectors are smaller in your economy, reemployment will be correspondingly tougher.
Put this together and you get a common picture. The U.S. for a while has been more willing to absorb its displaced workers in the rent-seeking sectors and thus it looked more different from Japan than it really was. Some of that willingness has gone away, as voters have sought or tolerated cuts in state and local government spending,and other areas. Our published growth numbers decline and our measured unemployment increases, and so we look more like Japan, but it’s not as big a shift in regime as it might appear.
Oddly, it is Japan which comes off looking like the more transparent society.
What is the alternative to explanations along this track? That Keynesian nominal stickiness holds across time horizons of twenty years and up? Let’s turn to Scott Sumner again:
If you look at the Japanese unemployment rate you do see the normal ups and downs of the business cycle. You also see no change since 2000. There is no monetary model that I know of that suggests tight money could slow economic growth without raising unemployment. Thus although Japanese tight money might have slowed growth in the 1990s (when the unemployment rate trended upward), the recent slow growth should be due to non-monetary factors (unless the data is wrong.)
Japan is in any case full of puzzles.
Jon Huntsman speaks
When we take a position that isn’t willing to embrace evolution, when we take a position that basically runs counter to what 98 of 100 climate scientists have said, what the National Academy of Science – Sciences has said about what is causing climate change and man’s contribution to it, I think we find ourselves on the wrong side of science, and, therefore, in a losing position….I can’t remember a time in our history where we actually were willing to shun science and become a – a party that – that was antithetical to science. I’m not sure that’s good for our future and it’s not a winning formula.
Here is more. The recent evidence, by the way, is making matters look worse, not better.
Who will receive the next national holiday?
Adam Burns, a loyal MR reader, asks:
Who do you think will be the next person to receive a national holiday in the US?
Or, if they are currently unknown, what characteristics/achievements will this person have to earn themselves that recognition?
Someone Latino sounds about right, since there is a growing number of Latino voters. Yet who exactly should that be? It’s been a long time since Cesar Chavez and in any case his cause is no longer fashionable. Picking “an invisible Latino” won’t quite do the trick either. American Latinos seem to have less mainstream canonicity, at least qua Latino. There is no equivalent of Martin Luther King. Nor are we about to dedicate a day to all the people who run across the border, no matter how persuasive Michael Clemens may be.
How about a day named after a generic old person? They vote too, and this could be done while limiting the “doc fix” to trick them into submission before preparing the ice floes. But how to make it polite? “Oldies Day” won’t cut it, even if they can get away with a version of that in baseball or on the radio.
Most likely is that a naming opportunity will be sold to the highest bidder, in the midst of our forthcoming fiscal crisis, 侯逸凡 Day anyone?