Carl Oglesby has passed away
Here is one bit from the obituary:
Yet unlike many of his compatriots on the left, Mr. Oglesby was, by his own account, a “radical centrist.” He proposed, for instance, that S.D.S. collaborate with the conservative group Young Americans for Freedom on antiwar demonstrations, a suggestion that only rankled the group’s more radical members.
Assorted links
2. One year anniversary of IHS Kosmos video, podcast, and informational site. Here is my short video on academic publishing.
3. Are puffins a cyclical asset, attracted by undervalued real exchange rates? Sadly this piece never considers an economic explanation for the phenomenon under study.
4. Is Japanese health care falling apart?
5. Alesina and Giavazzi on Italy.
6. Who are the world’s biggest employers?
7. Time inconsistent budget agreements.
8. Be very careful comparing poverty line changes over time.
U.S. fact of the day
From Justin Wolfers, based on the new census data:
Since 2007, real median household income has declined 6.4% and is 7.1 % below the median household income peak prior to the 2001 recession.
I am increasingly puzzled by those who think this is fundamentally a story of rising consumer surplus from the internet.
The Importance of Selection Effects
I love this example of the importance of selection effects:
During WWII, statistician Abraham Wald was asked to help the British decide where to add armor to their bombers. After analyzing the records, he recommended adding more armor to the places where there was no damage!
The RAF was initially confused. Can you explain?
You can find the answer in the extension or at the link.
Wald had data only on the planes that returned to Britain so the bullet holes that Wald saw were all in places where a plane could be hit and still survive. The planes that were shot down were probably hit in different places than those that returned so Wald recommended adding armor to the places where the surviving planes were lucky enough not to have been hit.
The new Brazil saying?
“Ever since I was a little girl I always heard Brazil was the country of the future. Now that the future is here, I am starting to fear it will be brief,” said Cynthia Benedetto, the chief financial officer of Brazil’s flagship manufacturing firm, Embraer SA, the world’s No. 3 jet maker.
Here is much more.
Lunch conversation on Iceland, wealth mark-downs, and national unity
A NYT piece from yesterday noted that Greece still may require a forty (!) percent mark-down in wealth/perceived wealth. Measured per capita Greek income is about 30k, for Bulgaria 14k, can Greece really be so much wealthier? It is no wonder that Greek politicians are reluctant to default and/or leave the eurozone. No matter how inevitable such courses of action may be, they are not political winners: “We pledge to cut your standard of living by forty percent, but unlike the other party, we’re going to do it right now!”
It was debated how high the mark-down must be for the United States; there was an estimate of 7-8 percent and another estimate of 3-4 percent. Ireland will have ended up facing quite a large mark-down.
How much of a mark-down has Iceland seen? I mean in terms of wealth not just per capita income. Do any of you know of figures? Their ability to “get their mark-down over with” is one fundamental reason for their turnaround. The loss is large but it is now behind them. Floating exchange rates don’t hurt either. As a quite small, fairly unified, previously used to hardship and bad fermented foods, extremely nationalist self-identifying kind of place, it is no surprise that Iceland has handled the markdown issue so well.
I find it useful to think about places in terms of how well they handle the issue of the wealth mark-down and how quickly they can get it behind them.
What I’ve been reading
1. Andes, by Michael Jacobs. Most travel books disappoint me, but I found this one interesting throughout, most of all the section on Venezuela. It is conceptually strong and overall enthralling.
2. Sergio Chejfec, My Two Worlds. Are you deeply interested in how an Argentinean observer might phenomenologically regard a southern Brazilian city, combined with his philosophy of walking, in fictional form? I am. This may or may not be of general interest.
3. David Graeber, Debt: The First 5,000 Years. Do you seek an overly verbose, sometimes fascinating synthesis of economic anthropology, early 20th century credit theories of money, and the history of debt? The book overinterprets early historical evidence and falls apart as it approaches contemporary times, still it has a vitality which many other tracts lack. Here is a chat with the author.
4. Wells Tower, Everything Ravaged, Everything Burned. This Jonathan Miles quotation is better than anything I will come up with: “Tower’s stories [have] the kind of torque that’s so damnably rare these days in American short fiction, where the payoff tends to be the faint, jewel-box click of epiphany, the small tilting of a life. Tower’s ambition is greater and brawnier than that.”
5. Charles Seife, Sun in a Bottle: The Strange History of Fusion and the Science of Wishful Thinking. An excellent and compulsively readable history of the attempts to make fusion power work; I thank Gordon for the original pointer.
6. Aurel Schubert, The Credit-Anstalt Crisis of 1931, no further comment required.
The anticipated Der Spiegel article on Greece leaving the eurozone
It’s now up. Maybe it’s “old news” by now, but the chances of the eurozone holding together have never looked smaller, even since two or three days ago. It’s clear, if anyone had doubts in the first place (I didn’t), that no eurobond and no major package of truly committal aid will be forthcoming. The next question is, when Greece goes, how strong a pledge do the remaining nations receive for EU/German aid? “Not so strong” is my current prediction, in which case we will work our way through a few dominoes, for better or worse. In that case, I wonder if Spain and Portugal would do better to leave with Greece or shortly thereafter. I don’t imagine that the treatment of “the Greek precedent” will make anyone have a warm and fuzzy feeling about the process of transition.
Don’t forget to note the remarks about Ireland on p.2.
Assorted links
1. No Belgian government could turn out to be a problem.
2. The excellent Erik Angner will join GMU.
3. Dean and Cindy Karlan start blogging their year of travel and homeschooling.
4. How Slovenia switched from the former Yugoslav currency to the Tolar (pdf).
5. Lots of early articles now free access on JSTOR.
6. Uh-oh.
What might be Robert Barro’s argument?
Paul Krugman, Brad DeLong, Justin Wolfers and others are not sure what is Robert Barro’s argument or model in his recent Op-Ed. I am puzzled by these responses, because, while I do not pretend to speak for Barro, I see at least one simple answer to these puzzlements.
Consider the following model. Sometimes growth slows down and afterwards it speeds up again. Temporary losses tend to be undone in future periods. For one thing the Solow model implies catch-up growth, furthermore cyclical losses may exhibit mean-reversion. There is in the meantime some depreciation of labor skills, from unemployment, but long-run output and welfare really does for the most part depend on the forces which govern economic growth. (Increases in the variance of consumption are not enough to overturn that emphasis.) That implies lower government spending in most areas of the economy, and it also implies lower taxation of capital, as supported by many empirical papers on growth including some by Barro himself.
That view may not be true (in my TGS book you will find some dissent from it but from another direction), but it’s hardly bizarre or economically illiterate. If some writers aren’t totally explicit, it could be they don’t have enough words and feel that a large enough part of their audience takes the emphasis on growth and its preconditions for granted.
We are once again witnessing the renaissance of old Keynesian economics as a theory of the long run not just the short run. The “New Old Keynesians” are of course entitled to their opinions, but given their minority status, it is strange when they find others difficult to comprehend.
Cities as hotels
Earlier this year I posted about India’s private city, Gurgaon. Gurgaon has grown from nothing to a city of 1.5 million people in just 30 years and it has done so based almost entirely on the private provision of public goods, including transportation, utilities, and security. Gurgaon is a desirable place to live in India but it has grown haphazardly as a city of private oases, rather than as an integrated city. As a result, Gurgaon has not enjoyed all the benefits of economies of scale in infrastructure provision or the benefits that come from internalizing externalities–the types of benefits that are possible with a single owner or integrated political system. As Matt Yglesias explained at the time:
Imagine if someone owned all of San Francisco and leased the land and structures out. Well obviously he’d want to have some kind of fire department and building standards to protect his investment. And he’d want to have a security force, since crime would reduce the value of the rent. And he’d want there to be some parks, because people like parks and their presence will increase the rent he can charge. (Indeed, my building includes a small private park). And obviously he’d need schools and really all the rest. …But in order to internalize the benefits of privately provided infrastructure, parks, public safety, etc. the scale of the enterprise would have to be really big. Like the size of a whole city.
Gurgaon, however, is not unique. Private cities are growing throughout the developing world and some of them are quite large.
Renaissance Partners, the investment unit of Moscow-based Renaissance Group, plans to build a 6,400- acre city in the Democratic Republic of Congo as it seeks to benefit from Africa’s urbanization.
The Russian firm is working on a master plan for the new urban center after securing the land outside Lubumbashi, the country’s second-largest city… Renaissance is considering similar projects in Ghana, Nigeria, Senegal and Rwanda, he said.
“The West has peaked in terms of economic growth and the new markets are in Africa,” Meyer, 39, said. “And the main drivers of this growth in Africa are going to be cities.”
Renaissance’s Lubumbashi project will be more than double the size of Tatu City, the $5 billion center that the Russian firm is building from scratch outside the Kenyan capital of Nairobi. The Moscow firm, headed by Stephen Jennings, plans to take advantage of Africa’s economic growth and emergence of a growing urban middle class demanding better infrastructure.
6,400 acres is a small city, about the size of Apple’s home of Cupertino CA (pop: 58,000), but it is big enough that Renaissance partners will have an incentive to build public goods such as city-wide sewage, parks, roads (congestion pricing!), an electric plant and grid and so forth, exactly as Matt argued (see also The Voluntary City).
Private cities are happening now for a reason. Africa, India, and China are urbanizing more rapidly than has ever occurred in human history. In Africa, the number of urban dwellers is projected to increase by nearly 400 million, in India at least 250 million will move to cities and in China more than 400 million will move to cities in just the next 20 years. Not all of these people will move to older cities, which are not always in the right places and which rarely possess anything like the right material let alone the right political infrastructure. The rising middle-class want to live in first-world cities and in many of these countries only the private sector can deliver those cities.
The rapid urbanization of the developing world is an opportunity to remake cities anew. Private cities as hotels on a grand scale.
The consumer hourglass theory?
P&G isn’t the only company adjusting its business. A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have begun to alter the way they research, develop and market their products.
Food giant H.J. Heinz Co., for example, is developing more products at lower price ranges. Luxury retailer Saks Inc. is bolstering its high-end apparel and accessories because its wealthiest customers—not those drawn to entry-level items—are driving the chain’s growth.
Citigroup calls the phenomenon the “Consumer Hourglass Theory” and since 2009 has urged investors to focus on companies best positioned to cater to the highest-income and lowest-income consumers. It created an index of 25 companies, including Estée Lauder Cos. and Saks at the top of the hourglass and Family Dollar Stores Inc. and Kellogg Co. at the bottom. The index posted a 56.5% return for investors from its inception on Dec. 10, 2009, through Sept. 1, 2011. Over the same period, the Dow Jones Industrial Average returned 11%.
“Companies have thought that if you’re in the middle, you’re safe,” says Citigroup analyst Deborah Weinswig. “But that’s not where the consumer is any more—the consumer hourglass is more pronounced now than ever.”
…Firms catering to low-income consumers, such as Dollar General Corp., also are posting gains, boosted by formerly middle-class families facing shrunken budgets. Dollar stores garnered steady sales increases in recent years, easily outpacing mainstream counterparts like Target Corp. and Wal-Mart Stores Inc., which typically are more expensive.
Here is more, no need to click on their silly links.
Bond markets in everything
But there is a backdoor onto Centre Court. About 2,500 seats are reserved for investors in the club’s so-called debentures, or bonds.
The club has issued these since the 1920s to finance development. But instead of paying cash coupons, like regular bonds, Wimbledon debentures pay interest in something much more valuable: tickets.
Holders get one ticket for each day of the Wimbledon tournaments during the five-year life of the bond. And here is the kicker: If you don’t feel like going on any given day, you can sell it—legally.
Such mini-bonds are a new trend in the UK, in part because the banking system is skittish about allocating credit to many small firms.
Assorted links
1. Business investment as a key to recovery, from Greg Mankiw. Lots of important truth in this piece.
2. Dalit classical liberalism, and here (pdf).
3. Robert Barro’s recipe for change.
4. Good analysis of how the second Greek bailout relates to the first, cynical piece. Here is an intelligent piece on doing the unthinkable for Europe.
5. Raghuram Rajan argues against a dose of inflation. And surprise as a reason to drink cheap wine, via The Browser.
Douglas Irwin on the 1937-38 contraction
If we are to avoid the mistakes of the past, it is important to have an accurate assessment of what those past mistakes were. The severity of the Recession of 1937-38 was not due to contractionary fiscal policy or higher reserve requirements. By contrast, the policy tightening associated with gold sterilisation was not modest – it did not simply reduce the growth of the monetary base by a few percentage points, it stopped its growth altogether. While the Federal Reserve is often blamed for its poor policy choices during the Great Depression, the Treasury Department was responsible for this particular policy error.
Here is more, and the paper is here. This should be considered the new default view.