Piero Garegnani passes away at age 81

by  Tyler Cowen in

He combined neo-Ricardian and Marxist ideas with Keynesian aggregate demand and he thought marginalist neoclassical economics was incoherent, for reasons related to the Cambridge capital debates.  Robert Vienneau offers one summary of his work.  Matías Vernengo writes:

As early as 1961, while spending an academic year at MIT, he suggested during a presentation by Paul Samuelson that his results depended on the assumption that all sectors use the same capital-labor ratio. The final results of his critique were presented in Garegnani’s paper “Heterogeneous Capital, the Production Function and the Theory of Distribution.” His paper shows conclusively that the marginalist theory of value and distribution based on an aggregate production function is untenable. This of course builds on Sraffa’s work in the Production of Commodities (PC). By 1966, in the famous Quarterly Journal of Economics (QJE) Symposium, Samuelson had admitted that the neoclassical parable was not defensible.

Here are some of his articles on scholar.google.com.  He always struck me as a very intelligent writer and capable of a good bracing critique, even though I don’t think his proposed alternatives have gone anywhere.  Every profession needs smart and articulate dissenters and I am glad that we have had Garegnani.

For the pointer I thank Juan Carlos Esguerra.

New novels of interest (what I’ve been reading)

by  Tyler Cowen in

I have benefited from travel in Italy and a keen eye for UK editions in airport bookshops and the like:

1. A.S. Byatt, Ragnarok: The End of the Gods.  Beautifully written, mixing moods from fantasy and Icelandic sagas, but it did nothing for me.  Some of you will like it.

2. Audur Ava Olafsdottir, The Greenhouse.  From Iceland, one of my favorite novels this year, it’s funny and sheer fun to read and short and easy yet deep and moving all at the same time.

3. Julian Barnes, The Sense of an Ending.  This one just won the Booker Prize.  At first I thought it was contrived, then I realized it was deliberately contrived, and then I thought it was contrived in its deliberate construction of the contrivance, and so on.  I’ll try it again, in the spirit of being fooled by prizes, in the meantime you may be better off reading “spoilers” about the book before you start it, so you can skip right to your final opinion.

4. Jeffrey Eugenides, The Marriage Plot.  I’ve read only thirty pages but so far I’m impressed, I doubt the so-so reviews of the book, and note I have never loved his work in the first place.  This one has potential.

5. Michael Ondaatje, The Cat’s Table, above average.

The new Ha Jin sits in my pile, he is underrated.  Next week Murakami and Nadas join that pile, lots to do!

The Rent Seeking is Too Damn High

by  Alex Tabarrok in

Bloomberg: Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.

The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.

Does desire for a weaker currency keep Germany committed to a full eurozone?

by  Tyler Cowen in

I hear this argument a lot, but I don’t quite understand it.

Let’s start with a contrast, namely that Ecuador, El Salvador and Panama all use the U.S. dollar.  It is unlikely that lowers the value of the dollar and since it boosts the demand for currency it may even strengthen the dollar a bit, though of course there is a Fed offset on the currency supply side.  The U.S. may have a partial geopolitical commitment to these countries, but it has to do with location, the Monroe Doctrine, and the drug war, not  with their currency choice per se.

So why does it lower the value of the euro to have Greece use the currency?  The simplest reason is that Greek participation, and involvement of the other periphery countries, creates a real chance that the eurozone will blow up, partially or fully.  (El Salvador does not pose a comparable threat to the dollar.)  Fair enough.  But then it cannot be argued that the lower currency value means Germany can/will stop such a blow up.  In equilibrium those are inconsistent conjectures.  For the blow up option to lower the value of the euro, the blow up option must be real and if that is not a real risk now when is it supposed to be a real risk?

Another option is to claim that the the participation of the periphery countries in the eurozone raises the expected rate of price inflation in the eurozone.  First, it’s not clear this is true and it has not been true so far.  Second, it is not obvious why the euro should become weaker before that higher inflation arrives.  Third, if German export prices are equally flexible it doesn’t give us a weaker real exchange rate for Germany, which was the original supposed benefit.  Fourth, if German export prices are not flexible we have an overshooting model, which a) implies the low real exchange rate for Germany goes away over time, and b) implies that far more real exchange rate volatility is predictable than is actually the case.

A related question is whether solving the eurozone crisis, for ever and ever, with a neat nifty eurobond (or whatever ha-ha) also would remove Germany’s supposed real exchange rate advantage.

My analysis has not exhausted the options but perhaps you see the problem.  I have not yet heard a coherent version of the argument.  The simplest answer, and the answer most likely to be correct, is that the euro is lower in value, to the benefit of German exporters, but only because there is very real chance of a crack-up, and this is a reason why a crack-up might happen, not a reason why a crack-up will not happen.

Ultimately, the conjectures have to add up.

Will China soon have a trade deficit?

by  Tyler Cowen in

China may see its first annual trade deficit for two decades next year, Wei Jianguo, former vice-minister of commerce, said.

September and October are traditionally the peak time for contracts ahead of the festive season in Europe and the United States but demand is sharply down this year, he said.

“China’s export-reliant enterprises are facing their toughest time in years. The possibility of a full-year trade deficit cannot be ruled out next year,” Wei, secretary-general of the China Center for International Economic Exchanges, a government think tank, told China Daily.

The article is here and I thank Mark Thorson for the pointer.

So much for cheap housing the culture that is Fairfax

by  Tyler Cowen in

A zoning board in Fairfax County, Va., is standing firm in its decision to order a war veteran to destroy a tree house he built for his two young sons.

County officials determined Mark Grapin, an Army aviation specialist, violated zoning regulations when he built a tree house in his backyard.

“The boys wanted a tree house,” Grapin told Fox News Radio, explaining it was a promise he made to his 8-year-old and 10-year-old sons before he left for Iraq. “It was a commitment I made to the boys and, frankly, we should do our best to keep our commitments to our children.”

There is more here and thanks to Rob Nelson for the pointer.

A point of light

by  Tyler Cowen in

The Obama administration moved Tuesday to roll back a number of rules governing hospitals and other health care providers after concluding that the standards were obsolete or overly burdensome to the industry.

Among other things, the proposals would allow hospitals to save money by sometimes using qualified nurse practitioners and physician assistants in place of better-paid doctors, allowing doctors to focus more on patients and helping address “impending physician shortages.”

Here is more.  Had I been President, this would have been one of my priorities from day one.

*Grad School Rulz*

by  Tyler Cowen in

Let’s turn the mike over to Bryan Caplan:

Fabio Rojas’ pearls of wisdom for grad students are now available as a concise, information-packed $2 e-book.  Definitely worth the money if you have any noticeable interest in grad school.

I have yet to read this book, but Alex and I both love Fabio, who has been a frequent MR guest-blogger in the past.  He also has excellent taste in jazz.

“Theoretical question relating to life on other planets”

by  Tyler Cowen in

That was the email heading from Nick Mann a week or so ago.  Nick asked:

If humans saw strong signs of life on Mars when telescopes became powerful enough to detect it (1800’s?), how would’ve that impacted our economic space priorities? Would’ve we already have sent a manned mission there? Does it matter what stage the life was in (i.e. seeing villages & dirt roads vs glowing metropoli)?

I will predict a one-way mission to Mars, sent in the 1980s, but not too much earlier.  For one thing, Mars is far away (duh).  The moon shot already took quite a concentrated effort, and it is hard to imagine it being started before the 1950s, given earlier missile technology and the like.  World War II already gave associated technologies a big boost, large relative to the likely effect of Mars-gazing on the political equilibrium for everyday science funding.

Ask a comparable question about today.  Let’s say we could identify a distant planet as having intelligent life, or likely to have intelligent life.  How much would the budget of NASA go up?  Not enough to make a huge difference in the short run I suspect.  It already seems there may be not-very-intelligent life on Mars (though don’t forget the slime mold, maybe the Martians are smart), and possibly something of interest on some moons of Saturn and Jupiter, and yet we are dismantling NASA’s space efforts.

If you wish to argue this the other way around, both voters and politicians up through the 1960s seemed to have a much more “can do” attitude about large science projects than they do today.  As Peter Thiel mentioned recently, is it not odd — and bad — that we refer to ourselves as “the developed nations”?

Sentences to ponder

by  Tyler Cowen in

Support for redistribution, surprisingly enough, has plummeted during the recession. For years, the General Social Survey has asked individuals whether “government should reduce income differences between the rich and the poor.” Agreement with this statement dropped dramatically between 2008 and 2010, the two most recent years of data available.  Other surveys have shown similar results.

…the change is not driven by wealthy white Republicans reacting against President Obama’s agenda: the drop is if anything slightly larger among minorities, and Americans who self-identify as having below average income show the same decrease in support for redistribution as wealthier Americans.

Here is more.  The researchers, Ilyana Kuziemko and Michael I. Norton, attribute this to “last place aversion,” namely the desire to always have someone below you in the income pecking order:

Which group was the most opposed [to an increase in the minimum wage]? Those making just above the minimum wage, between $7.26 and $8.25.

For the pointer I thank The Browser.