New issue of Econ Journal Watch
In the new issue:
Greek bond buyback
Paul Krugman's link (and old paper) reminded me I had wanted to cover this idea:
Analysts said on Wednesday that having Greece buy back its own devalued bonds could be an important step toward solving Europe’s sovereign debt crisis.
It's an interesting equilibrium. Let's say Greek bonds are selling for 60 cents on the dollar. If the Greek government offers sixty-one cents, arguably the government is signaling a more optimistic prognosis than a 60 cent value or even a 61 cent value for the bond. Don't sell ("beware of Greeks bearing gifts!"). If everyone is a rational Bayesian, the price of bonds should go up to the point where the Greek government doesn't want to buy the bonds any more or where indifference holds.
If buying back some of the bonds makes the rest of the debt easier to pay back, all the more reason not to sell your bonds at the initial offer price.
The purchase might work if the Greek government can signal they don't have inside information about their own ability or willingness to pay back the money. That's hard to do, but not impossible. After all, companies do buy back their own shares and I don't think tax arbitrage is the only motive. For instance the company also may wish to shift the composition of its creditors and perhaps governments have the same motive. Then the purchase can be a win-win.
Another equilibrium is if the Greek government offers to buy back the bonds with some probability. Sellers might then play a mixed strategy in response and maybe then we are getting somewhere, with some probability that is. These games usually are complicated and if you don't already get the intuition here don't bother with it.
Overall, the schemes are unlikely to work in practice.
Does mismeasured inflation overturn a relative stagnation thesis?
In the comments, Slocum writes:
My skepticism is not that the nominal household income or GDP number are wrong, but that the inflation-adjusted numbers are wildly off because they fail to capture the innovations and transformational improvements in goods and services. Consider music. The music industry, measured in sales, is shrinking. 25 years ago as a college student, I bought a lot LPs and CDs (probably a few hundred $$ a year). Now I spend very little. Am I worse off as a music listener now? Obviously not — I am immensely better off. But judging by the gross dollar volume of the music business, you would reach exactly the wrong conclusion about 'stagnation'.
The fundamental fact is that U.S. real median income has risen at a lower rate since 1973, not that progress has been absent. One might think that the CPI is skewed and there are reasonable arguments to be made in this direction. But the CPI will be most skewed to underappreciate progress when truly new goods and services are being introduced into the marketplace or spreading to new regions. And that is (roughly) the 1870-1950 period, more than any other time. In other words, if you account for CPI bias, the slowdown in median income growth — the difference — is probably larger than the numbers make it appear, even though in absolute terms both growth rates will be higher than measured.
When some people hear the relative stagnation thesis, their minds shoot to various bogeymen: Paul Ehrlich, ridiculous 1907 proposals to close the patent office, predictions of mass starvation, and so on. The simplest version of the point is that technological progress is not uniform, and that is borne out by thousands of years of human history. This isn't Lake Wobegon, so some periods have to have lower than average growth in living standards than other periods. One of those periods happens to be now, since 1973, give or take. And from that flows many propositions of importance, for politics too.
You can buy the eBook here.
Assorted links
1. More recommended public choice readings, of a different slant.
2. Chronic pain and its relief.
3. Women prefer larger governments.
4. Paul Samuelson as investor.
5. Virginia = Poland; comparing U.S. state economies to countries.
Uganda fact of the day
At 71 members strong, Uganda has the third largest cabinet in the world after North Korea and Kenya. This is in circumstances where the global average of ministers is 30. The average for Sub-Saharan Africa is 40. Even by regional standards, apart from Kenya, the average in the East African community is 30 as Tanzania has 34, Rwanda 27 and Burundi 29. Even among Africa’s oil producing countries, Uganda retains the gold medal – only Nigeria comes close with 54 cabinet ministers. The rest of the oil producing countries have ministers in the mid 40s.
Here is more and for the pointer I thank Michael Orthofer. Is there a literature on when cabinet positions are the most effective ways of distributing political rents?
Have track and field performances peaked?
I don't know much about track and field, but I found this article interesting, excerpt:
Today 64 percent of track and field world records have stood since 1993. One world record, the women’s 1,500 meters, hasn’t been broken since 1980. When Berthelot published his study last year in the online journal PLoS One, he made the simple but bold argument that athletic performance had peaked. On the whole, Berthelot said, the pinnacle of athletic achievement was achieved around 1988. We’ve been watching a virtual stasis ever since.
It seems unlikely to me that we have reached a true peak, rather a temporary plateau with slower-than-average growth, until the next breakthrough in training, technique, genetic manipulation, or whatever. Does that sound familiar?
Negative Externalities
Snopes verified. Hat tip: Ben Cahill.
Tim Worstall gets it
There was somewhere between none and fuck all economic growth in the US (and many other economies) in the 1929-1945 period. But the production frontier continued to move outwards, indeed, the 30s are one of the all time great decades for both technology and productivity improvements. The 50s to the 80s were simply playing catch up, in the same way that China and India are now.
And:
For it’s…saying that the great Post WWII economic expansion was nothing to do with high unionisation rates, Bretton Woods, restrictions upon capital movements, high marginal tax rates, fixed exchange rates or any other of the “liberal” or “social democratic” (use one for the US, the second for Europe) theories that are so often advanced.
The full post is here.
Assorted links
1. Which economists signed "repeal and replace"?
2. French response on why France succeeds.
3. Man made bombs to clear snow.
4. Journal of Universal Rejection.
5. Interfluidity: on Star Trek, Scott Sumner, and everything else.
Assorted Links
1. Sadly, on some days, I feel that all journals are like this one.
2. TED talks set to music, including, In Praise of Free Trade and Free Rhythms.
4. Drunken scientists slosh alcohol on experiment, create new superconductor.
China fact (book) of the day
When it comes to the overall death toll, for instance, researchers so far have had to extrapolate from official population statistics…Their estimates range from 15 to 32 million excess deaths. But the public security reports compiled at the time, as well as the voluminous secret reports collated by party committees in the last months of the Great Leap Forward, show how inadequate these calculations are, pointing instead at a catastrophe of a much greater magnitude: this book shows that at least 45 million people died unnecessarily between 1958 and 1962.
That is from Frank Dikötter's Mao's Great Famine: The History of China's Most Devastating Catastrophe, 1958-1962, which is one of the scariest books I have read. Here is another passage, I am not sure how well it is sourced:
Mao was delighted. As reports came in from all over the country about new records in cotton, rice, wheat or peanut production, he started wondering what to do with all the surplus food. On August 4 1958 in Xushui, flanked by Zhang Guozhong, surrounded by journalists, plodding through the fields in straw hat and cotton shoes, he beamed: "How are you going to eat so much grain? What are you going to do with the surplus?"
"We can exchange it for machinery," Zhang responded after a pause for thought.
[Showing a poor understanding of Say's Law] "But you are not the only one to have a surplus, others too have too much grain! Nobody will want your grain!" Mao shot back with a benevolent smile.
"We can make spirits of out of taro," suggested another cadre.
"But every county will make spirits! How many tonnes of spirits do we need? Mao mused. "With so much grain, in future you should plant less, work half time and spend the rest of your time on culture and leisurely pursuits, open schools and a university, don't you think?…You should eat more. Even five meals a day is fine!"
Here are some reviews of the book.
What are the highest prices for video art?
Bill Viola's Eternal Return sold for $712,452 in 2000. The rest of the top ten is all by Viola, Nam June Paik, Matthew Barney, and Bruce Nauman, with the #10 work going for $234,814. I like video art, but to buy it…to me that is one very expensive movie ticket. I did, however, shell out for a Netflix subscription, so at the margin I can watch Black Narcissus for nothing.
The data are from the new and interesting book Art of the Deal: Contemporary Art in a Global Financial Market, by Noah Horowitz.
*The Great Stagnation*, excerpt
From my new eBook, here is one bit:
I’m also persuaded by the median income numbers because they are supported by related measurements of other magnitudes. For example, another way to study economic growth is to look not at median income but at national income, gdp, or gross domestic product, the total production of goods and services. Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past. Even more worryingly, he finds that now that we are done exhausting this accumulated stock of benefits, we are discovering new ideas at a speed that will drive a future growth rate of less than one-third of a percent (that’s a rough estimate, not an exact one, but it is consistent with the basic message here). It could be worse yet if the idea-generating countries continue to lose population, as we are seeing in Western Europe and Japan.
I do not hold the view that relative stagnation will last forever, only that it has lasted for thirty-seven years and that it will not end immediately. Oddly, it is the so-called "economic right" — which complains bitterly about decades of increasing taxes and regulation and litigation and government privilege — which finds such a claim hardest to accept.
You can pre-order the eBook; the Amazon link is here, Barnes&Noble here, $4.00. I offer further information on the book here.
Assorted links
1. Taking a test helps cement your learning.
2. Communist Monopoly game, called Queue.
3. Threats against Francis Fox Piven.
4. "This study may be true but it is hard to know because the study that served as the counterfactual was never able to get published :)" Link here.
6. Markets in everything: human cheese; "soft and spreadable…"
7. Bob Barr, former LP candidate, now representing Duvalier. Say it ain't so. It's so!
*Peddling Protectionism*
The author is the excellent Douglas A. Irwin and the subtitle is Smoot-Hawley and the Great Depression. The book's home page is here. Excerpt:
The popular perception is that the Smoot-Hawley tariff raised import duties to record levels and helped cause the Great Depression. In fact, the legislated tariff increase was much smaller than commonly imagined, although it still managed to erase 15 percent of America's imports of dutiable goods upon impact. For reasons that will be explained, it was the deflation of prices that accompanied the Great Depression that pushed the tariff to near record levels, restricting trade even more…most economic historians do not believe that the Smoot-Hawley tariff played a large role in the macroeconomic contraction experienced during the Great Depression.
It is well known that Doug is hard at work on what will prove to be "the modern Taussig," a history of international trade, and protection, in the context of the rise of the American economy; one assumes that this more focused book will be feeding into the larger whole.