*The Price of Civilization*

by  Tyler Cowen in

That is the new Jeffrey Sachs book, with the subtitle Reawakening American Virtue and Prosperity.  Here is one excerpt:

Though I can’t prove that America’s mass-media culture, ubiquitous advertising, and long hours of daily TV watching are the fundamental causes of its tendency to let markets run rampant over social values, I can show that America represents the unhappy extreme of commercialism among the leading economies.  To do this, I have created a Commercialization Index (CI) that aims to measure the degree to which each national economy is oriented toward private consumption and impatience rather than collective (public) consumption and regard for the future.  My assumption is that the United States and other heavy-TV-watching societies will score high on the CI and that a high CI score will be associated with several of the adverse conditions plaguing American society.

Here is Sachs writing further on TV; here is Steve Johnson on TV.

What does the Old Keynesian economics predict here?

by  Tyler Cowen in

I will ask the Old Keynesians, here is the report from last week:

“The lack of income growth meant that the boost in spending came from a decline in the savings rate,” said David Semmens, US economist at Standard Chartered.

…The savings rate fell 0.5 per cent in the period, reaching a level last seen at the end of 2007.

I will predict that the savings rate does not substantially rise next quarter.  Absolute savings will go up over some time horizon but I don’t expect it to do so immediately for cyclical reasons.  Are the Old Keynesians now expecting savings to go up in some manner, due to “the paradox of savings”?  After all, spending has risen.  Here is a chance for Old Keynesian economics to score some points, so what will happen with savings?  What does a liquidity trap model predict?  Should savings be higher already, or does it take longer for that effect to kick in?  How long?

Note that the New Keynesians generally do not have much to do with the paradox of savings; my view is that it may have applied to parts of 2008-2009 but is unlikely to apply today.

When it comes to Old Keynesian predictions I don’t want to count “money matters” (formerly an anti-Keynesian prediction by the way),”the recession was really bad,” or beating up on various odd right-wing views.   I want forcing predictions which discriminate against the best available alternative theories.

In the comments I also would like to hear Keynesian accounts, New or Old, of why gdp growth was suddenly 2.5%, not a great number for a recovery in absolute terms, but was it the predicted number or direction, given that the stimulus was finally exhausted?  I am comfortable citing “noise,” but does a liquidity trap model offer this same freedom?  Doesn’t the model itself imply that one margin is what matters and you are truly “trapped”?

Drawing really long time-lines to obscure false predictions of the moment does not count as an answer!

Sugar doesn’t cause hyperactivity

by  Alex Tabarrok in

Here is Aaron Carroll at The Incidental Economist:

Let’s cut to the chase: sugar doesn’t make kids hyper. There have been at least twelve trials of various diets investigating different levels of sugar in children’s diets. That’s more studies than are often done on drugs. None of them detected any differences in behavior between children who had eaten sugar and those who hadn’t. These studies included sugar from candy, chocolate, and natural sources. Some of them were short-term, and some of them were long term. Some of them focused on children with ADHD. Some of them even included only children who were considered “sensitive” to sugar. In all of them, children did not behave differently after eating something full of sugar or something sugar-free….

In my favorite of these studies, children were divided into two groups. All of them were given a sugar-free beverage to drink. But half the parents were told that their child had just had a drink with sugar. Then, all of the parents were told to grade their children’s behavior. Not surprisingly, the parents of children who thought their children had drunk a ton of sugar rated their children as significantly more hyperactive. This myth is entirely in parents’ heads. We see it because we believe it.

Even when science shows time and again that it’s not so, we continue to persist in believing that sugar causes our kids to be hyperactive. That’s likely because there’s an association. Times when kids get a lot of sugar are often times when they are predisposed to be a little excited. Halloween. Birthday parties. Holidays. We may even be causing the problem ourselves. Some parents are so restrictive about sugar and candy that when their kids finally get it they’re quite excited. Even hyper.

This does not mean that there aren’t a ton of great reasons why our kid should not ingest large quantities of sugar. As almost any parent knows, sugar has been linked to cavities and the obesity epidemic. Just don’t blame it for your child’s bad behavior.

Why is Greece turning down the “bailout”

by  Tyler Cowen in

Make no mistake about it, the decision to hold a “referendum” is a decision to turn down the deal altogether.  The referendum will never be held.  It is scheduled for January and the current deal, which is not even a worked out deal, won’t be on the table by then.  It’s already not on the table.  The opposition leader is already opposed to the referendum, there are months more of market volatility to come, the other EU powers will get skittish about the deal, how is the conscientious Slovakia supposed to feel, and how many other factors do I need to cite?  And how can the Greeks decide how the referendum will be worded?

This is a way to back out of everything, under the guise of “democracy” and ex post blame the speculators and the rest of Europe.  But why?  Here is one on the mark take on the matter:

A plan be­ing devel­oped to help reduce Greece’s debts — and pre­vent it from becom­ing the first eu­ro-zone country to default on its debts — will fall hard­est on the country’s banks and the national pen­sion system. They would face tens of billions of dollars in losses on invest­ments in Greek govern­ment bonds.

Accord­ing to data from the Eu­ropean Bank­ing Au­thor­ity, major Greek banks hold about $70 billion

in Greek bonds, more than one-fourth of the total held by private investors worldwide. Greece’s national pen­sion system has about $30 billion at risk, accord­ing to local bank and corporate of­ficials.

Even as Greece ben­efits from emergency debt re­lief included in the new bailout plan approved by Eu­ropean leaders last week, the Greek govern­ment will have to borrow even more mon­ey to shore up its financial system and replen­ish the pen­sion fund. Greek bankers say they doubt they could come up with the mon­ey on their own.

In other words, the deal would make the country totally bankrupt.  Greek voters already feel blackmailed.  A good rule of thumb is that if a very unpopular government holds a referendum on something — anything — that government will lose.  Seriously now, which way do you expect the Greek bus drivers to vote?

Did I mention that the Italian ten-year yield was up to 6.31%?

I would not have written the paragraph this way

by  Tyler Cowen in

This is from the NYT:

Even the generic drug industry is calling for more regulation. The industry recently agreed to provide the F.D.A. with nearly $300 million annually to bolster inspections and speed drug applications. That amounts to about 1 percent of the industry’s revenues and about 5 percent of its profits in the United States, an extraordinary vote of confidence in the government’s ability to improve the situation.

Two economists explain the NBA lockout

by  Tyler Cowen

Those two economists are Tyler Cowen and the excellent Kevin Grier, we were very happy to produce this piece for Bill Simmons (one of my favorite writers), at www.grantland.com, excerpt:

How far apart are the two sides?
The split on BRI (Basketball Related Income) is supposedly the biggest point of contention. Players want 52.5 percent (down from 57 in the previous contract). Owners are “adamant” on 50 percent and started with an initial lowball offer of 37.

Take the NBA’s 2009-10 BRI estimate of $3.6 billion; 2.5 percent of that is $90 million. Let’s say the life of the contract is 6 years. The total value of that over six years, with reinvestment, is around $500 million.

Is it economically worthwhile for the players to hold out for $500 million?
No. Total NBA salaries last year were over $1.5 billion, about three times the amount they are fighting over. Canceling a third of the current season would wipe out the gain of winning the extra 2.5 percent of BRI over the life of the new collective bargaining agreement. Canceling the whole season over 2.5 percent of BRI is insane for the players.

Addendum: Here is the paragraph which did not make the final cut.

The shoe drops (cut and run)

by  Tyler Cowen

Greece’s prime minister unexpectedly announced a referendum to approve a second EU bail-out deal for his austerity-hit country, less than a week after it was agreed with international creditors at a European Union summit.

More here, and here, but that’s all you really need to know.  The so-called eurozone deal didn’t last a week, not that there was ever a deal in the first place.

p.s. they’re not going to vote yes on the referendum!

Update on the Austro-Chinese business cycle

by  Tyler Cowen in

Someone is sitting on a mound of $3.2 trillion in foreign exchange reserves, and yet this is possible:

With the same force that powered the most ambitious rail programme in history, China has slammed the brakes on its investment in high-speed trains.

The sudden halt has led to system-wide whiplash, leaving workers without pay, battalions of heavy machinery sitting idle and setting back plans for bullet trains that were meant to carry the nation’s future.

…Spending had already been slowing after a surge from stimulus money in 2009 but the decline since the Wenzhou crash in July has been precipitous. In year-to-date terms, investment in railways and transport had been up 7 per cent in the first half of 2011. By the end of September it was down 19 per cent, according to official data.

There is little chance of a return to the construction frenzy of the past five years but the government appears to be slowly setting the high-speed rail plans back in motion. Restarting the investment would provide an immediate boost to the weakening economy. Longer term, it is also expected to encourage a big structural shift, opening up China’s interior to make domestic growth more self-sustaining.

But this is less encouraging:

Passenger numbers have fallen sharply since the Wenzhou crash. About 151 million trips were made on Chinese trains in September, almost 30 million fewer than in July, according to ministry data.

Model this (a continuing series)

by  Tyler Cowen in

From a profile of Donald Keene:

“He [Mishima] died, as you know, at the age of 45, leaving at least 45 stacked volumes of novels, plays, criticism, poetry.” Mishima slit his belly after leading a failed, and farcical, coup to restore the emperor’s power but Keene thinks he committed suicide because he was passed over for the Nobel Prize. During the 1964 Tokyo Olympics, Mishima had written Keene a letter with the line, “I envy the athletes who know if they are first, second or third.” Keene says: “That was all he said but I knew exactly what he meant.” The irony was that Kawabata, who did win the Nobel Prize, also committed suicide because of the pressure of living up to his new reputation.

The Snuggle Theory of Horror

by  Alex Tabarrok in

From a survey on the psychology of scary stories:

With regard to age, there’s a suggestion that enjoyment rises through childhood, peaks in adolescence and then gradually fades with age. Related to this is the ‘snuggle theory’ – the idea that viewing horror films may be a rite of passage for young people, providing them with an opportunity to fulfil their traditional gender roles. A paper from the late 1980s by Dolf Zillmann, Norbert Mundorf and others found that male undergrads paired with a female partner (unbeknown to them, a research assistant), enjoyed a 14-minute clip from Friday the 13th Part III almost twice as much if she showed distress during the film. Female undergrads, by contrast, said they enjoyed the film more if their male companion appeared calm and unmoved. Moreover, men who were initially considered unattractive were later judged more appealing if they displayed courage during the film viewing. ‘Scary movies and monsters are just the ticket for girls to scream and hold on to a date for dear life and for the date (male or female) to be there to reassure, protect, defend and, if need be, destroy the monster,’ says Fischoff. ‘Both are playing gender roles prescribed by a culture.’

Happy Halloween.