Household size and stagnant median income
One loyal MR reader writes to me:
However, census Bureau data show that the size of the average US household decreased from 3.1 to 2.6 from 1970 to 2007…
The underlying question is whether figures for the median household are underrating the true growth in average living standards. A few points are in order.
1. Here is one passage from The Great Stagnation: "Since 1989, the size-adjusted and size – unadjusted measures have been rising at roughly the same rate, and post-1979 the difference between the size-adjusted and the size-unadjusted median income measures is never more than 0.3 percent." For more on this, see Lawrence Mishel, Jared Bernstein, and Heidi Shierholz, The State of Working America 2008/2009, chapter one.
2. David Leonhardt writes: "In fact, households were shrinking more quickly in the 1960s, ’70s and ’80s than they are now – and incomes were growing." Read the rest of this post as well.
3. That households are smaller decreases the aid and assistance available to those living in them.
4. There are an increasing number of women in the labor force, and that factor biases the household number to be higher than true productivity growth alone would dictate. Unmeasured household production is a mix of "lower than it would have been" or more harried than it would have been. I suspect this is a large effect, not a small effect.
5. On the issue of students and retirees, see the adjustments performed by Lane Kenworthy, pp.37-38.
Overall I do not see that changing household size allows one to dismiss the notion of relatively stagnant median income.
Hernando de Soto on Egypt
†¢ Egypt's underground economy was the nation's biggest employer. The legal private sector employed 6.8 million people and the public sector employed 5.9 million, while 9.6 million people worked in the extralegal sector.
†¢ As far as real estate is concerned, 92% of Egyptians hold their property without normal legal title.
†¢ We estimated the value of all these extralegal businesses and property, rural as well as urban, to be $248 billion–30 times greater than the market value of the companies registered on the Cairo Stock Exchange and 55 times greater than the value of foreign direct investment in Egypt since Napoleon invaded–including the financing of the Suez Canal and the Aswan Dam. (Those same extralegal assets would be worth more than $400 billion in today's dollars.)
My video dialogue with Nick Schulz
Find it here, and Nick's summary is very good:
In my conversation with Tyler about his new and much-debated book, The Great Stagnation, I was particularly struck by his explanation (at around 21:30) for how he came to embrace the idea that we are experiencing an innovation slowdown. His remarks about Julian Simon are also very noteworthy.
It would be an innovation for this blog if I could embed, but alas it is not to be…
Assorted links
1. China mega-city of the day.
2. Michael Mandel reviews TGS: he says buy not just one copy, but two.
3. Harold Meyerson of WaPo on TGS. And more from Brink.
4. "Sparks and Praise Fires: A Theory of Unanticipated Revolution."
Dialogue with David Leonhardt
It's about how to spur innovation, read it here. Here is one excerpt:
I would also like to see more of our elite institutions of higher education take the explicitly meritocratic and indeed arguably anti-egalitarian approaches of Caltech and also University of Chicago. Those two institutions are big successes – M.I.T. too – yet they are not always so easy to copy. We should be trying harder. In terms of respect for intelligence, achievement, and science, we should be more like Singapore.
The question did not come up, but I also favor reduced liability standards for major new innovations. Take the various plans for robot-driven cars. They will kill some people, as do human-driven cars. We run the risk of having the status quo so locked into place, so grandfathered, and so implicitly favored by the realities of regulation and lawsuits, that such an idea might never get off the ground. That in turn affects the incentives of innovators ex ante.
Is a charter city coming to Honduras?
David Wessel reports:
Honduras is interested. Two weeks ago, with only one "no," its Congress voted to amend the constitution to allow for a ciudad modelo.
(No filibuster there!) And:
In early January, Mr. [Paul] Romer went to the capital, Tegucigalpa, to meet privately with various groups, then make his case at a public gathering. "You can't change the rules in the middle of the game," he said, flashing a photo of a soccer game on a screen. "Create a new playing field and see if anyone wants to play." Think big, he pleaded. Build an airport big enough to be a hemispheric hub, he said, turning to his father Roy, former governor of Colorado, to tell the story of how Denver got its big airport.
The evolution of regionalisms on Twitter
Postings on Twitter reflect some well-known regionalisms, such as Southerners' "y'all," and Pittsburghers' "yinz," and the usual regional divides in references to soda, pop and Coke. But Jacob Eisenstein, a post-doctoral fellow in CMU's Machine Learning Department, said the automated method he and his colleagues have developed for analyzing Twitter word use shows that regional dialects appear to be evolving within social media.
In northern California, something that's cool is "koo" in tweets, while in southern California, it's "coo." In many cities, something is "sumthin," but tweets in New York City favor "suttin." While many of us might complain in tweets of being "very" tired, people in northern California tend to be "hella" tired, New Yorkers "deadass" tired and Angelenos are simply tired "af."
The "af" is an acronym that, like many others on Twitter, stands for a vulgarity. LOL is a commonly used acronym for "laughing out loud," but Twitterers in Washington, D.C., seem to have an affinity for the cruder LLS.
That is from Science Daily, hat tip goes to LanguageHat and the original paper (pdf) is here.
Ireland fact of the day
A single bank, Anglo Irish, which, two years before, the Irish government had claimed was merely suffering from a “liquidity problem,” faced losses of up to 34 billion euros. To get some sense of how “34 billion euros” sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank.
That is from the new Michael Lewis piece on Ireland, hat tip to Daniel Lippman.
What I’ve been reading
1. Tino Balio, The Foreign Film Renaissance on American Screens, 1946-1973. One of the best pieces of U.S. cultural history I've read in years. This book explains and recreates the time when foreign films were culturally central in the United States. Here is a recent article on how we are consuming foreign films today; we're in a new renaissance of production, but few people seem to know the films themselves.
2. Darin Strauss, Half a Life. The author, as a young man, runs over a young girl on her bike and it ruins much, but not all, of his life. It wasn't his fault. This tract was well done enough to hold my interest, but I'm not sure how much it goes beyond the summary I offer right here. Nominated for a National Book award.
3. Martin Gilman, No Precedent, No Plan: Inside Russia's 1998 Default. This is not the definitive study it could have been, but it is a start toward writing a serious economic history of a still-neglected period.
4. Jeffrey Friedman, editor, What Caused the Financial Crisis. Of all the books on the crisis, this one is arguably the most conceptual. The authors of the essays include Stiglitz, John Taylor, Acemoglu, and Richard Posner.
5. New readings on the Euro include Paul Krugman's essay, Philipp Bagus, The Tragedy of the Euro, and Matthew Lynn, Bust: Greece, the Euro, and the Sovereign Debt Crisis.
6. Richard B. McKenzie, Predictably Rational: In Search of Defenses for Rational Behavior in Economics. The subtitle says it all, and the cover inverts the colors on the Dan Ariely book. Here is a short McKenzie piece on the book and here is Mario Rizzo on the book.
For the Canadians amongst us
From a loyal MR reader:
When I go to the Amazon site and pretend I'm a new, Canadian customer, GREAT STAGNATION does appear to be available…
I don't understand what that means, or how to do it but I was sent a screen shot, so I am sure it is true. Also remember, you don't need a Kindle or E-reader to buy or enjoy the book.
Stan Kenton and Leslie Kenton
I never knew my paternal grandfather, but I was told he loved the music of Bartok, Stravinsky, Hindemith, and above all, Stan Kenton. My grandfather was a professional jazz drummer in the era of big band, supposedly with more talent than workplace discipline. Maybe because it's a way of keeping a connection with Grandpa Tom, but I've been listening to the music of Stan Kenton for about thirty-five years. In any case the best Kenton cuts (download here) still strike me as underrated. Despite the clunky and sometimes elephantine side of Kenton's style, his work draws upon, and anticipates, developments in compositional jazz, European modernism, Phil Spector's "Wall of Sound," and early Latin rhythms, all topped off with an energetic American brashness. I eagerly lapped up last year's new Kenton biography. But now — what am I to do? I've just read Leslie Kenton's Love Affair: A Memoir of a Forbidden Father-Daughter Union, which among other things is a very good treatment of how little consent lies behind father-daughter incest (review here, and it was from ages 11 to 13).
None of Kenton's previous biographers seems to have suspected this horror and overall he had the reputation of a straight-laced man. I had long thought of him as a somewhat dour disciplinarian, firmly wrapped up in middle American values.
The lesson is how little we know of an individual life. And what do we still not know? When we judge others, or decide not to, that is worth keeping in mind.
Assorted links
2. Arbitrage fail in the Canadian Lotto?
3. Carlos Slim: against charity.
4. Steve Pearlstein on TGS. And more on TGS.
5. Moon and Venus over Lichtenstein.
Are IVs Going the Way of the Atlantic Cod?
It's hard to come up with a good instrumental variable (plausible source of exogenous randomization) so when someone does come up with one (e.g. legal origin) it's tempting to want to use it again and again. Unfortunately, as Randall Morck and Bernard Yeung point out in Economics, History and Causation, IVs with more than one use are deeply problematic. If a variable is a good IV for X then it can't also be a good IV for Y without also controlling for X and vice-versa. What this means is that every new use of an IV casts doubt on every previous use. Or as, Morck and Yeung, memorably write:
A Tragedy of the Commons has led to an overuse of instrumental variables and a depletion of the actual stock of valid instruments for all econometricians. Each time an instrumental variable is shown to work in one study, that result automatically generates a latent variable problem in every other study that has used or will use the same instrumental variable, or another correlated with it, in a similar context. We see no solution to this. Useful instrumental variables are, we fear, going the way of the Atlantic cod.
I am not quite so pessimistic, I don't see this as a fundamentally new problem or one specific to IVs. Nevertheless, I appreciate their advocacy for a wide variety of empirical methods as a solution to the over-fishing problem.
Among the alternative methods Morck and Yeung recommend, are event studies and Granger causality. I couldn't help but laugh at the last. But I wholeheartedly applaud their primary recommendation which is greater use of and respect for narrative history.
China state-contingent markets in everything
China stopped handing them out to foreign dignitaries 30 years ago, having spotted their potential as currency earners. These days all pandas are leased out, typically for 10 years at a time. The standard fee paid by the four US zoos that hold pandas – Memphis, San Diego, Zoo Atlanta and the National Zoo in Washington DC – has been $1 million a year for each pair, plus roughly the same again in sponsorship for panda research and conservation projects, plus an annual premium of $600,000 if the pandas mate and produce cubs (only the Memphis pandas have failed on this score)…
The article is here and hat tip goes to The Browser.
The culture that is Italy?
It is not just birds, rabbits and wild boar who meet a sticky end in the Italian hunting season.
According to statistics published today, 35 people have also been killed in the past four months, and another 74 injured. Italy's anti-hunting league, the LAC, said all but one were hunters killed accidentally by their shooting companions.
But the 35th victim was a mushroom collector shot dead near Arezzo in Tuscany. Of the injured, 13 were also non-hunters, mostly people out for a walk in the woods or cycling down a country lane.
The annual bloodletting is a result of the unusual freedom allowed to shooting parties under Italian law. They can go on to private property and fire anywhere not within 50m of a road or 150m of a house.
Here is more.