Assorted links
1. "Best buy" programs, from the Poverty Action Lab.
2. More favorite fantasy novel picks.
3. The research productivity of Robert Tollison varies with the business cycle.
4. Economic incentives can work for blood donation: another blow against the Titmuss hypothesis.
5. Blog posts to giggle over; read the comments too. And then there is Robin's response.
My NYT column on Austro-Chinese business cycle theory
The column is here and one excerpt is this:
China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector.
A longer excerpt is this:
China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.
Chinese planners now talk of the need to restrict investment in sectors that are overflowing with unsold products. The global market is no longer strong, and domestic demand was never enough in the first place.
Regional officials have an incentive to prop up local enterprises and production statistics, even if that means supporting projects or accounting practices that are not sustainable. For an individual business, the standard way to get more capital resources is to put forward a plan for growth. Because few sectors are mature, and growth has been so widespread, everyone can promise to be profitable in the future.
Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.
Put all of this together and there is a very real possibility of trouble.
I then outline how the negative scenario might run and that involves deflation on the goods side, for both China and the U.S., and higher U.S. borrowing costs on the capital side. A few related points:
1. The word "malinvestment" does not appear in The New York Times style guide but it survived to the final published draft of the piece.
2. Scott Sumner offers a skeptical take on my claims.
3. The piece cites Malthus in the same breath as Hayek. Malthus is a much-underappreciated economist and in macroeconomics he was much better than the naive overproduction theorists. His cyclical story is ultimately about proportionality and it is based on a "tragedy of the commons" effect — for the production of capital goods — which is not so different than his population mechanism. Malthus, by the way, had quite a modern understanding of supply and demand, well before the marginalist revolution.
4. I still am not convinced that we have avoided a new version of "the vertigo years," based on a fundamental discombobulation of economic expectations. This is probably just historical coincidence, but the Great Depression did come last to China.
Bad Scrabble strategy, from Alaska
I try not to blog Sarah Palin, but this passage, reproduced on Andrew Sullivan's blog, caught my interest for non-Palin reasons:
"Everybody in the family played Scrabble and took great pride in hoarding Ks and Qs and slapping them down in long, fancy words on triple-letter scores." — Going Rogue, p. 12.
Sullivan's reader objects that there is only one K and one Q but I think permissible to use the plural in this context, referring to general acts of hoarding over time.
My point is that this is bad Scrabble strategy. The way to do very well is to put down seven-letter words on bonus squares, thereby getting the fifty-point bonus for using all your letters and doubled or tripled at that. Such a strategy means maximizing one's holdings of S, R, E, T, O, A, and N, essentially, and dumping awkward letters which stand in the way. "ING" is a powerful combination. In addition, high frequency letters help you link up with other words running crossways, boosting your score further.
The astute MR reader will recognize here that we are dealing with portfolio theory, albeit where many assets are complements rather than near-perfect substitutes.
K doesn't mesh well with most other letters and so you should try to dump it quickly. Q is paralyzing unless you have a U to go with it. If you are happy because you could lay down "quit" on a double word score, for 26 points, I would say you are not a very ambitious Scrabble player, all the more if you hoarded letters and waited turns to do that. (You have some chance of "aliquot" or "quaeres" or "quinoas," but do you really expect to score "obloquy," "quassia," or "qigongs"?, keeping in mind that if you build upon an already-laid tile you need an eight-letter word with q to score the bonus.)
If this is her game of Scrabble, you can only imagine what her foreign policy would be like.
Correction: If you search inside the book, you will see that she is referring to the Scrabble strategies of her grandparents, not her own Scrabble strategies. They are the ones who cannot be trusted with U.S. foreign policy and it can also be said that she misses this chance to condemn their weak gaming strategies.
I thank Seth H. for the pointer.
Debtors’ prison
Ahem:
“I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.”
With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.
I guess you can't say you were simply late in assembling the funds. Debtors account for about forty percent of the Dubai prison population. Here is much more information. For the pointer I thank Chris.
Assorted links
2. European arts philanthropy continues to grow.
3. Cookbooks aren't about cooking.
4. Magma bleg: is there anything to these jokers? Please let me know.
The Navajo mother-in-law taboo
It's not what I had expected:
Observing an old and curious Navajo taboo, Narbona was not allowed to look at his mother-in-law, nor she at him. It was a custom designed to keep the peace and, apparently, to avoid sexual tension. In fact, many mothers-in-law in Navajo country went so far as to wear little warning bells on their clothing so that a son-in-law would not round a corner and inadvertently find himself staring at her. This was no small thing, especially if he happened to look her in the eye. Even an accidental violation of the mother-in-law taboo might require that the family hire a healer to perform an elaborate — and expensive — nightchant to undo all the harm that had been done.
That is from Hampton Sides's quite interesting Blood and Thunder: The Epic Story of Kit Carson and the Conquest of the American West. From the specialized academic literature, here is an entire study of the mother-in-law taboo (JSTOR); I'm not sure any of the offered hypotheses or explanations are persuasive. It seems the taboo lasted well through the twentieth century. Here is another discussion, under the more general heading of Navajo taboos:
The only explanation ever given for this custom is that “it avoids a lot of trouble in the family.”
Paragraphs to ponder, but not for too long
Humans are animals, so every hipster will try Cannibalism. Perhaps we'll just eat people we don't like, as author Iain M. Banks predicted in his short story, "The State of the Art" with diners feasting on "Stewed Idi Amin." But I imagine passionate lovers literally eating each other, growing sausages from their co-mingled tissues overnight in tabletop appliances similar to bread-making machines. And of course, masturbatory gourmands will simply gobble their own meat.
That's from a discussion of the future of in-vitro meat. The pointer is from The Browser.
Should we apply a transactions tax to REPO?
A number of readers wrote me this morning and asked what I thought of Paul Krugman's column today. Krugman writes:
As Gary Gorton and Andrew Metrick of Yale have shown, by 2007 the United States banking system had become crucially dependent on “repo” transactions, in which financial institutions sell assets to investors while promising to buy them back after a short period – often a single day. Losses in subprime and other assets triggered a banking crisis because they undermined this system – there was a “run on repo.”
And a financial transactions tax, by discouraging reliance on ultra-short-run financing, would have made such a run much less likely. So contrary to what the skeptics say, such a tax would have helped prevent the current crisis – and could help us avoid a future replay.
My view is different. I do favor such a tax in the following sense: capital requirements on financial institutions should rise with our best estimate of risky behavior and of course these capital requirements serve as a tax. From this follows a few points:
1. The net tax applied, whether through capital requirements or a demand for a revenue payment, can only be so high. I would prefer to "convert" all of the applied tax into the form of capital requirements. Krugman doesn't call his idea "a proposal for lower capital requirements," but relative to the better and more politically feasible reform of higher capital requirements, that's what it is. At the margin we have to choose between various forms of tax.
2. Is the quantity of short-term REPO, or other financial transactions, really the best measure of risky behavior? I doubt it. So we're taxing the wrong thing, relative to what we might do.
3. Taxing short-term credit means that firms will resort to long-term credit. In most models longer-term credit increases moral hazard and excess risk, even if it does limit the short-term "runs" effect.
A few broader points are relevant:
4. In many jurisdictions, REPOs are already taxed, as the "borrowed" security is counted for tax purposes as "owned" and the income from it is subject to tax. Of course the tax could be higher, but is there evidence that the taxes to date have had beneficial effects on financial stability?
5. There are many substitutes for REPO — virtually any transaction can include an implicit short-term credit component — and I am skeptical of the ability of the regulators to catch them all and prevent destabilizing regulatory arbitrage.
6. There was a transactions tax on sale and transfers of stock before and during the Great Depression; it did not obviously help matters.
7. There will always be some untaxed network for speculators to trade in and a transactions tax would push them into such a network, probably in destabilizing fashion. The fact that trading is relatively centralized now does not refute this effect.
Of these points, only #6 and #7 apply to the standard Tobin "currency tax." No matter what you think of the Tobin tax, overall there is not sufficient logic or empirics to justify its extension to REPO and related short-term transactions.
Addendum: I am more in agreement with Krugman's post on Dubai.
A Fiscal Stimulus Turkey
From A Brief History of Black Friday:
In 1939, the Retail Dry Goods Association warned Franklin Roosevelt that if the holiday season wouldn't begin until after Americans celebrated Thanksgiving on the traditional final Thursday in November, retail sales would go in the tank. Ever the iconoclast, Roosevelt saw an easy solution to this problem: he moved Thanksgiving up by a week.
Roosevelt didn't make the announcement until late October, and by then most Americans had already made their holiday travel plans. Many rebelled and continued to celebrate Thanksgiving on its "real" date while derisively referring to the impostor holiday as "Franksgiving." State governments didn't know which Thanksgiving to observe, so some of them took both days off. In short, it was a bit of a mess.
Trying to increase spending by moving Thanksgiving up a week? Dumb. But really, is this so different than say cash for clunkers? Hat tip: Boing Boing.
Best books of the year, with an eye toward Christmas gifts
This year my three favorite books were:
1. The new Gabriel GarcÃa Márquez biography.
2. Chris Wickham's The Inheritance of Rome, and
3. Orhan Pamuk, The Museum of Innocence, read it slowly in small bits.
A very good gift book is Eric Siblin's new The Cello Suites: J.S. Bach, Pablo Casals, and the Search for a Baroque Masterpiece. It signals the sophistication of both the giver and receiver and yet it is short and entertaining enough to actually read. Package it with the recent Queyras recording of the Suites, if need be.
My favorite classical recording this year was Alexandre Tharaud playing Satie for piano.
Assorted links
2. Via Arnold Kling (do read his new book), Presidential cabinets: prior private sector experience.
4. Via Bruce Bartlett, French government still paying off a 1738 annuity.
5. Conspicuous consumption in the Congo, here and here (click through).
6. The fifty most interesting Wikipedia articles?
7. The great Robert Trivers on self-deception (one hour lecture).
Just-in-time search
The rhythm of the nation’s kitchens can also be parsed, on an hour-by-hour basis.
At Allrecipes.com, pie searches got the most action on Wednesday morning. But by 10 a.m., people began earnest hunts for sweet potato casserole and stuffing recipes. By noon, 100,000 people had searched for mashed potato recipes.
The real outlier is gravy. If this Thanksgiving Day is anything like last year’s, most searches will slow by 10 a.m. But not gravy. That vexing cook’s kryptonite should peak about 3 p.m.
Search data are also a way to track the Thanksgiving trends, which cycle through the years like hemlines. Curiosity about deep-fried turkey is growing faster than questions about brining, with Allrecipes.com reporting a 188 percent jump in people viewing information on the technique this year over 2008.
Here is much more information, interesting throughout.
We interrupt your regularly scheduled Thanksgiving
Dubai World won't repay its debt on time and the government of Dubai won't pick up the bag, raising doubts about its credibility. Who would bail out Dubai itself? Maybe it will be an "interesting" weekend:
Banking stocks tumbled on concern about their potential exposure to
Dubai. Indeed, the cost of insuring against default by the emirate
jumped, with Reuters reporting the Dubai five-year credit default swap
being quoted as high as 500-550 basis points. This means it would cost
about $500,000 a year to insure $10m of Dubai’s debt. On Tuesday it
would have cost about $360,000.
Funds are surging into Germany and Japan, etc. For purposes of comparison, Dubai CDS contracts now cost more than for Iceland.
If you're feeling a little down today, and looking for something to be thankful for, be thankful you have not lent money to Dubai. Unless, of course, you have lent money to Dubai.
Ariely on Thanksgiving
Ezra Klein asked Dan Ariely for Thanksgiving advice:
"Move to chopsticks!" he exclaimed, making bites smaller and harder to take. If the chopsticks are a bit extreme, smaller plates and utensils might work the same way. Study after study shows that people eat more when they have more in front of them. It's one of our predictable irrationalities: We judge portions by how much is left rather than how full we feel. Smaller portions lead us to eat less, even if we can refill the plate.
Speaking of which, Ariely suggests placing the food "far away." In this case, serve from the kitchen rather than the table. If people have to get up to add another scoop of mashed potatoes, they're less likely to take their fifth serving than if they simply have to reach in front of them.
"Start with a soup course," he says. That is what economists refer to as a default: Rather than putting everything on the table for people to choose, you begin by making the choice for your guests. If the first course is relatively filling and relatively low in calories, everyone will eat less during the rest of the meal.
Indeed, it's not a bad idea to limit the total number of courses. Variety stimulates appetite. As evidence, Ariely brings up a study conducted on mice. A male mouse and a female mouse will soon tire of mating with each other. But put new partners into the cage, and it turns out they weren't tired at all. They were just bored. So, too, with food. "Imagine you only had one dish," he says. "How much could you eat?"
What you eat, of course, is also important. Studies show that people aren't very consistent in the amount of calories they eat each day, but they're very consistent in the volume of food they eat each day. Thanksgiving is an exception to that consistency, but probably not to the underlying rule. Satisfaction doesn't depend on caloric intake; low-calorie, high-fiber foods and foods high in water content are filling. Thus, the more broccoli rabe there is at the table, the better.
Markets in everything, Thanksgiving day edition
Get the dog involved in the festivities with Merrick Thanksgiving Day Dinner Dog Food! 12 cans for $21.99 on Amazon
.
The description: "The house is filled with love and the wonderful
smells of Thanksgiving infiltrate the air. Could it get any better as
you fill your plate with juicy slices of turkey and all the trimmings?
We don't think Thanksgiving should come only once a year, so we created
this meal for your dog to enjoy all year round."
The photos are here and I thank Courtney Knapp for the pointer.