What career helps other people the most?

by  Tyler Cowen in

That's a question from Katja Grace.  Let's assume pure marginalist act utilitarianism, namely that you choose a career and get moral credit only for the net change caused by your selection.  Furthermore, I'll rule out "become a billionaire and give away all your money" or "cure cancer" by postulating that said person ends up at the 90th percentile of achievement in the specified field but no higher.

What first comes to mind is "honest General Practitioner who has read Robin Hanson on medicine."  If other countries are fair game, let's send that GP to Africa.  No matter what the locale, you help some people live and good outcomes do not require remarkable expertise.  There is a shortage of GPs in many locales, so you make specialists more productive as well.  Public health and sanitation may save more lives than medicine, but the addition of a single public health worker may well have a smaller marginal impact, given the greater importance of upfront costs in that field.

An important question is whether the said job candidate should be seen as precommitting to an honest disposition or whether we should treat the person as developing the median disposition, in the chosen career field, over time.

What do you all think?  What other career — at the margin — has the stongest positive effect on other people?

How Singapore runs a casino: bump not nudge

by  Tyler Cowen in

To discourage locals from gambling, the government collects casino entrance fees — $70 for a 24-hour period or $1,400 for a year — from all Singaporeans and permanent residents.  Almost 30,000 people, mostly recipients of public assistance or those who have filed for bankruptcy, are automatically barred from entering.

The casinos, of course, are intended for foreign tourists.  Reversing his earlier position, Mr. Lee finally backed casino gambling, saying it was vital to Singapore's future.  He said rejecting casino gambling would send the message that:

…we want to stay put, to remain the same old Singapore, a neat place and tidy place with no chewing gum.

That's from the 4 June 2010 IHT, I can't find it on-line, at least not yet.

Forthcoming GMU email glitch: update GMU email now seems to be back up

by  Tyler Cowen in

This Saturday and Sunday, GMU email will be down completely, it seems.  You won't be able to reach me or Alex through the usual email channel for that time.  For me, use my gmail address those two days, if you wish.  I don't want to put the address on-line but it's a lot like my gmu email address.  Don't mail to it after this weekend, though, because I use it for storage and I don't check it regularly.  Sorry for the inconvenience, reader email is for me a positive externality and I very much appreciate all of the great material you send in.

Capitalism: Hollywood’s Miscast Villain

by  Alex Tabarrok in

In the WSJ online I cover Hollywood and capitalism including Star Wars, Star Trek, Avatar, The Wire and much else.  Here are two bits:

Although Hollywood does sometimes produce leftist films like "Reds," it has no deep love for socialism…

But Hollywood does share Marx's concept of alienation, the idea that under capitalism workers are separated from the product of their work and made to feel like cogs in a machine rather than independent creators. The lowly screenwriter is a perfect illustration of what Marx had in mind–a screenwriter can pour heart and soul into a screenplay only to see it rewritten, optioned, revised, reworked, rewritten again and hacked, hacked and hacked by a succession of directors, producers and, worst of all, studio executives. A screenwriter can have a nominally successfully career in Hollywood without ever seeing one of his works brought to the screen. Thus, the antipathy of filmmakers to capitalism is less ideological than it is experiential. Screenwriters and directors find themselves in a daily battle between art and commerce, and they come to see their battle against "the suits" as emblematic of a larger war between creative labor and capital.

On The Wire:

…although it uses character, "The Wire" is ultimately about how character is dominated by larger economic forces: drug dealers come and go, but the drug market is forever. "Capitalism is the ultimate god in The Wire. Capitalism is Zeus," says David Simon, the show's creator.

Over its five seasons, "The Wire" shows how money and markets connect and intertwine white and black, rich and poor, criminal and police in a grand web that none of them truly comprehends–a product of human action but not of human design. It's the invisible hand that's calling the shots, as Mr. Simon subtly reminds us in the conclusion to the third season, when Detective McNulty wondrously pulls a book from the shelf of murdered drug dealer Stringer Bell, and the camera focuses in on the title: "The Wealth of Nations" by Adam Smith.

Smith's metaphor of the invisible hand, like Mr. Simon's invocation of Zeus, tells us that to understand the world we need to look beyond the actions of individuals to see the larger forces at work. But Zeus is an arbitrary and capricious god whose lightning bolts fall out of the sky without reason or direction. Smith's "invisible hand," however, is that of a kinder god, a god that cares not one whit for individuals but nevertheless guides self-interest toward the social good, progress, and economic growth. So Mr. Simon understands that the Baltimore dockworkers lost their jobs because of the relentless change that capitalism brings and not through any fault of their own. But Adam Smith sees what Mr. Simon does not, namely that it was capitalism that brought the Baltimore stevedores their high wages in the first place and it is the relentless change of capitalism that slowly raises wages throughout the world.

More here.

Richard Florida’s index of the least bohemian cities

by  Tyler Cowen in

He measures Los Angeles as the most bohemian city in North America and the five least bohemian are the following:

1. Riverside

2. Hartford

3. New Orleans

4. Memphis

5. Birmingham

The lists continue at the link, along with a very interesting discussion.  I'll accede to some version of this more-scientific-than-my-intuition list, while noting that my picks were different in part because I restricted my attention to much larger population centers.  Florida also remarks that Stockholm measures as quite bohemian, while I wish to note I'm familiar with the Goth culture of Santiago, Chile but not so impressed by it as true bohemianism.

Addendum: Here's the start of Florida's definition: "The index charts the concentration of working artists, musicians, writers, designers, and entertainers across metropolitan areas."  I had something in mind more about the "feeling of the place," so I see L.A.'s "Downtown" as quite bohemian in spots but the city as less bohemian overall than Florida's index will indicate.

Should government be spending more when real interest rates are low?

by  Tyler Cowen in

Let's look again at Brad DeLong on fiscal policy:

The U.S. Treasury can borrow for thirty years, taking all CPI risk onto its own books, and pay only 1.83% per year in interest?

Wow.

Ahem.

It's not just that a greater amount of government investment meets the benefit-cost test when the government can borrow at 1.83% in inflation-proof bonds for thirty years, a whole bunch of tax postponements do as well. And so do a whole bunch of expanded social welfare programs. And so do a whole bunch of government issues of debt which are then invested in risky private ventures.

…the cost of borrowing for the government has fallen–the market value today of future cash tax flow earmarked for debt repayment has gone way, way up–therefore we should dedicate more future cash flow to debt repayment by borrowing more. There is no "but even." Expansionary fiscal policy is a good idea,

To explain why I view it differently, let's start with a parable from the private sector.  Managers in large corporations often are given project "hurdle rates" of twenty to thirty percent, not because their cost of capital is so high, but because of agency problems.  If the manager were given a hurdle rate of eight percent, he or she might go crazy with new projects and the company would too easily meet its ruin.  It then follows that changes in the actual cost of capital, within moderate ranges, don't so much influence private investment and in this second or third best sense shouldn't.  If the hurdle rate is thirty percent, and the cost of capital falls from ten to seven percent for a business, that maybe looks like a big change but actually it's a change in a largely non-binding constraint.

All that is standard and it has long been stressed by Joseph Stiglitz, among others. Furthermore in regressions the cost of capital often fares poorly in predicting private sector investment and that is one reason why.  I don't regard the above as "proven" but it does seem to be "likely."

Now let's turn back to the government.  Pre-crash, it already could borrow at low real rates of interest.  And there already were unexploited public sector projects with high potential rates of return.  But we don't want our government to go crazy, spending money without limit.  There are agency problems and a lot of the money ends up spent poorly.  We instead wish to impose a hurdle rate on government projects.  Let's say we trust our government more than shareholders trust private sector managers.  That could mean a government project hurdle rate of, say, fifteen percent, which would be below the typical private sector hurdle rate.  I'm being generous in that comparison of course; note that mistaken private sector projects get reversed more easily, through bankruptcy, than governmental mistakes do.

OK, there's a hurdle rate of fifteen percent and the cost of capital to government falls from three percent to one percent.  How much does it matter?  Should it matter?  The hurdle rate — the most binding constraint — hasn't changed.

There are many ways of complicating and modifying this model, and I am not saying that the correct "elasticity of projects," with regard to the real interest rate should be zero.  Still, I think this model explains why I am less impressed with the real interest rate changes than is Brad.

There is the separate — and very important issue — of covering for the worst-case scenarios.  This is stressed, correctly, in analyses of global warming but it matters in fiscal policy too.

One could make the quite different argument that we today have a better administration than average and that therefore the hurdle rate should be lower and government spending should be higher.  Now is not the time or place to evaluate such claims, but in terms of logic that to me is a stronger argument than citing the real interest rate effect.  It focuses on the most binding constraint, namely the hurdle rate stemming from the agency problems.  At the same time, it is an argument for higher spending with or without Keynesian factors or unemployed resources playing a major role.  It's the common sense point that a more competent manager should undertake more tasks.

The economics of copying in light of superstars

by  Tyler Cowen in

Here is an argument I had not thought of, courtesy of Francisco Alcalá and Miguel González-Maestre:

We provide a new perspective on the impact of unauthorized copying and copy levies on artistic creation. Our analysis emphasizes three important aspects of artistic markets: the predominance of superstars, the dynamics of talent sorting, and the importance of promotion expenditures. In the short run, piracy reduces superstars’ earnings and market share, and increases the number of niche and young artists. From a dynamic perspective, piracy may help more young artists start their careers, thereby increasing the number of highly talented artists in the long run. The long run impact on artistic creation of levies on copy equipment may crucially depend on whether their yields primarily accrue to superstars or are allocated to help young artists.

I wonder, though, if piracy doesn't increase the returns to the most popular market superstars.  There are also expressive reasons for purchasing cultural commodities.  If you own copies of so many cultural outputs — possibly illegal copies — maybe you shell out for the real thing for the few "must-have" cultural products that everyone else is buying.  Imagine for instance a mother who buys her child the new Harry Potter on the first day because it is a "relic" of sorts and everyone else is getting it right away.  Or maybe a teenager wishes to "affiliate" with Eminem (in the old days) by actually buying and owning a copy of the best Eminem CD.

Hat tip goes to Eric John Barker.

By the way, here's a claim that Spain is responsible for twenty percent of the world's downloads.

Markets in everything

by  Tyler Cowen in

Legendary rocker Lou Reed and artist wife Laurie Anderson will next month bring one of the most bizarre performances to Sydney's Opera House — a recital for dogs, largely inaudible to human ears.

At a press conference on Friday the pair said their programme for Sydney's Vivid LIVE arts festival includes an eclectic mix of heavy guitar music, martial arts and music for dogs.

Multimedia artist Anderson said the inspiration for the canine performance came while she was backstage before an event and thought: "Wouldn't it be great, if you were playing a concert and you look out and you see all dogs?

There is more information here.  Elsewhere, there is chatter of permanently closing the Sydney Opera House; perhaps it is just a strategic plea for aid.

Books in the house are correlated with good outcomes for children

by  Tyler Cowen in

A study recently published in the journal Research in Social Stratification and Mobility found that just having books around the house (the more, the better) is correlated with how many years of schooling a child will complete. The study (authored by M.D.R. Evans, Jonathan Kelley, Joanna Sikorac and Donald J. Treimand) looked at samples from 27 nations, and according to its abstract, found that growing up in a household with 500 or more books is "as great an advantage as having university-educated rather than unschooled parents, and twice the advantage of having a professional rather than an unskilled father." Children with as few as 25 books in the family household completed on average two more years of schooling than children raised in homes without any books.

That's from Laura Miller.

Who is really safe?

by  Tyler Cowen in

Sentences to ponder, from Simon Johnson:

But who is really safe in Europe?  With France running an 8% GDP budget deficit (for 2010) and a debt/GDP ratio of 83.6%, should we be confident they are safe while Spain is not (with debt/GDP at 65%)?  France’s thirty years of budget deficits do not bode well for anyone expecting an immediate strong fiscal response.  In many ways Spain appears better placed to take tough actions than France.

I agree with his general point, but I believe that Germany — though perhaps not all German banks — is truly safe.

What does successful monetary policy require?

by  Tyler Cowen in

Mark Thoma writes:

As for Tyler's (and others') call for monetary policy instead of fiscal policy, here's the problem. It relies upon changing expectations of future inflation (which changes the real interest rate). You have to get people to believe that the Fed will actually be willing to create inflation in the future when it comes time to do so. However, it's unlikely that it will be optimal for the Fed to cause inflation when the time comes. Because of that, the best policy is to promise that you'll create inflation, then renege on the promise when it comes time to follow through. Since people know that, and expect the Fed will not actually carry through, it's hard to get them to change their expectations now. All that credibility the Fed has built up and protected concerning their inflation fighting credentials works against them here.

This makes perfect sense in terms of a model, but I don't see inflationary expectations as the relevant factors for the real world.  Let's say the government/central bank prints up rebate checks and mails them around.  People either spend those checks or they don't.  If the checks are spent, AD goes up and the policy more or less succeeds.

If people don't spend the checks, they are engaging in "balance sheet repair."  In absolute terms, things are going less well than in the previous scenario, but still they're going as well as possible, given the dour expectations.  Balance sheet repair probably is needed and it is preparation for a later expansion, once the repairs are finished.  The policy still is "as successful as a policy can be."  (The alternative of fiscal policy won't have much of a multiplier and the higher debt may cause some more balance sheet worry.)

Which scenario will come to pass?  I doubt if it has much to do with the expected rate of inflation, or changes in real interest rates, at least not within normal U.S. ranges for those variables.  It probably has more to do with overall sentiment, indebtedness, joblessness, and so on.  A non-credible Fed, when it comes to the rate of future price inflation, need not crush the possibility that the funds will be spent.  I don't trust the Fed, or the ECB for that matter, and last night we went out for dinner.

Keep also in mind that balance sheet repair does not require currency holdings.  (Keynes is clear on currency vs. savings, but I'm not sure the current debates always are.)  Saved funds go to the bank.  The bank may or may not make more loans, and spur more investment and durables purchases, but we're no longer in a position where financial intermediaries are "broken."  The additional lending, while it's hardly guaranteed, could indeed happen and that would occur at the same time as balance sheet repair.  What a nice outcome.  Again, it is not obvious to me that the expected rate of price inflation, or expected real intereest rates, are major factors in determining how well this goes; I would again look to the overall state of expectations, including how much uncertainty there is.  I'll blog a bit more soon on why real interest rates don't always matter so much.

Even if it does come down to credible expectations, perhaps people only need to believe that the Fed will continue expansionary policy if unemployment remains high.  If a recovery is booming, expectations can allow for the Fed to contract a bit, because the first-order influence of all those positive income effects is so high.  Let's say you thought the Fed would contract as we approached macro-near-Nirvana and that was coming in three years' time.  I still think you'd be willing to spend your rebate check today.

I'm all for credible central banks, I just don't think that is currently the missing ingredient.