New RGE Monitor blog
New issue of Econ Journal Watch
Catch it here, edited by Daniel Klein. It includes a discussion of freedom and economic growth, a critique of Robert Frank on positional goods, possible bias against The Economic Report of the President, economists in Sweden, and what economists believe on rail transit.
What would dollar depreciation bring?
From the National Bureau of Economic Research, here is the latest on the J-curve:
The pattern of international trade adjustment is affected by the
continuing international role of the dollar and related evidence on
exchange rate pass-through into prices. This paper argues that a
depreciation of the dollar would have asymmetric effects on flows
between the United States and its trading partners. With low exchange
rate pass-through to U.S. import prices and high exchange rate
pass-through to the local prices of countries consuming U.S. exports,
the effect of dollar depreciation on real trade flows is dominated by
an adjustment in U.S. export quantities, which increase as U.S. goods
become cheaper in the rest of the world. Real U.S. imports are affected
less because U.S. prices are more insulated from exchange rate
movements – pass-through is low and dollar invoicing is high. In
relation to prices, the effects on the U.S. terms of trade are limited:
U.S. exporters earn the same amount of dollars for each unit shipped
abroad, and U.S. consumers do not encounter more expensive imports.
Movements in dollar exchange rates also affect the international trade
transactions of countries invoicing some of their trade in dollars,
even when these countries are not transacting directly with the United
States.
Here is the paper. This asymmetry is no accident but rather stems, in large part, from the central role of the dollar as a reserve currency and a medium for invoice pricing. When an Asian export is priced in terms of dollars in the first place, exchange rate movements lead to less pass-through. In other words, to the extent we would see an improvement in our trade balance, from dollar depreciation, it would be vis-a-vis the countries with the highest propensity to consume more American exports. It would not be with the countries whose exports we are most likely to consume. This also means that we cannot in every way extrapolate European currency experience to the United States.
Imagining the 10th Dimension
Here is a nice flash animation explaining the meaning of the zeroth to tenth dimension.
The Rich Sleep Efficiently
According to a recent paper in the American Journal of Epidemiology the rich are more efficient sleepers. Not that they sleep fewer hours, in fact they sleep more than the poor, but their sleep latency, the time spent lying in bed trying to get to sleep is lower than for the poor.
Graphic from University of Chicago Magazine.
Me? I have money but I sleep like a pauper.
Hat tip to Robin Hanson.
Assorted
In which I am made obsolete
It turns out, without knowing it, I had held a minor record of sorts for 29 years, and now the record is broken. Read an interview with me — the modern me — about this story.
Luxury goods
…very early on Arnie called me into his office for some reason, and I had an interview with him. He told me that I was a luxury good and that I didn’t do business. I did theoretical economics and it wasn’t something that business schools could really support, and he did it in a very obnoxious way that really pissed me off. And I said "—- you, Arnie."
That is David Cass, from William Barnett and Paul Samuelson’s new book Inside the Economist’s Mind: Conversations with Eminent Economists. Their version of the quotation adds a "f" but not the three further letters.
Mostly this book bored me, but only because I know so much about the subjects already. If you know less about them than I do, but know enough about them that you care, you might find it fascinating.
Use foreign aid to prevent catastrophe?
Our research find that a 5% drop in per capita income due to drought increases the likelihod of a civil conflict [in African countries] in the following year by nearly one half. That’s a very large effect.
…Currently, most foreign aid focuses on long-term investments in infrastructure of education but does little to deal with such short-term triggers of violence as drought or falling export commodity prices. But our research suggests a larger share of aid should aim to dampen the sharp falls in income that actually generate recruits for rebel movements.
That is from Edward Miguel, p.14 of Business Week, edition of 18 September. My main worry is that these are the societies where foreign aid is least likely to find its way into the hands of the poor. In fact the distribution of the aid might, at the margin, make the plum of political power all the more appealing to would-be rebels. Keep in mind that many of these civil wars are led by elites, not the starving poor. (So what is the mechanism linking drought and conflict? Focality?) Nonetheless I am sympathetic with the basic idea that simply preventing catastrophe is often the best that aid can do.
Here are links to the guy’s working papers and the data set for this paper.
Here is Bill Easterly on what the World Bank should be doing, namely focusing on modest and measurable projects, in the name of accountability. Michael Kremer argues the World Bank should support global public goods. Here are other views, courtesy of New Economist blog.
Old post for complaining about Mel Gibson
Stating the obvious
Afghanistan is going worse than Iraq. Not on a "how many people were killed today" basis, but on a "which country has a better chance of climbing out of its current muck fifteen or twenty years from now" metric. And no, I don’t intend that point as either a critique of invading Afghanistan, which I favored, or as a defense of our very badly botched policy in Iraq. It is a simple observation: we have never had good reason to believe that the occupation of Afghanistan was going well.
Papers to shock the unwary
The lead article in the August 2006 Journal of Political Economy offers the following abstract:
We solve each household’s optimal saving decisions using a life cycle model that incorporates uncertain lifetimes, uninsurable earning and medical expenses, progressive taxation, government transfers, and pension and social security benefits. With optimal decision rules, we compare, household by household, wealth predictions from the life cycle model using a nationally representative sample. We find, making use of household-specific earnings histories, that the model accounts for more than 80 percent of the 1992 cross-sectional variation in wealth. Fewer than 20 percent of households have less wealth than their optimal targets, and the wealth deficit of those who are undersaving is generally small.
In other words, most Americans are saving enough for their retirements. The authors (John Karl Scholz, Ananth Seshardi, and Surachai Khiatrakun) stress that their data cover only the early 90s, although if anything they believe this biases their estimates downwards by missing out on later capital gains. Here is the paper.
Notes: This result does not deny that America may face coming demographic problems for funding social programs, most of all Medicare. But next time you read that "the U.S. savings rate is zero," think back on this blog post and on that paper.
The Trouble with Physics
That is the new book by Lee Smolin. It is a fascinating take on theories of physics which have not worked out, including but not only string theory. The author explains why progress in particle physics is tough, opposes the anthropic principle and multiverses, explains string theory better than its popular science proponents, and sees a future in "loop quantum gravity." He stresses how differing views on "frame of reference dependence" underlie differences in fundamental approaches. Highly recommended, and yes it does go beyond other popular science books on similar topics. Excerpt:
As I reflect on the scientific careers of the people I have known these last thirty years, it seems to me more and more that these career decisions hinge on character. Some people will happily jump on the next big thing, give it all they’ve got, and in this way make important contributions to fast-moving fields. Others just don’t have the temperament to do this. Some people need to think through everything very carefully, and this takes time, as they get easily confused. It’s not hard to feel superior to such people, until you remember that Einstein was one of them. In my experience, the truly shocking new ideas and innovations tend to come from such people.
The Good Old Days
That great sacred cow– Rent Control– is a textbook case of Economic stupidity.
Paul Krugman writing in the New York Times in 2000.
Markets in everything, aviation edition
Georgia corporate pilot Bob Smith has a soaring sideline:
helping couples join the infamous "mile-high club." For $299, he’ll
take a frisky twosome past 5,280 feet in a Piper Cherokee 6 fitted with
a mattress. The hour-long [TC: only?] flights out of Carrollton, Ga., (details at milehighatlanta.com) have lured couples from as far as New York.
Here is the full story. 3/4 of the flights are booked by women, and not by male partners. Not all couples want their names on the certificate, and yes you get to keep the sheets.