My goodness, many of you are jumping on David Brooks
You’ll find a lengthy list of criticisms here, read for instance the continuing invective from the usually reasonable Ezra Klein. Brooks for instance wrote:
…after a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years.
This met with many screams, not the least because he did not report the median wage. Yet the following shows up as reported in Brooks’s own NYT:
The average hourly wage for workers below management level [emphasis added] – everyone from school bus drivers to stockbrokers – rose 2.8 percent from October 2005 to October of this year [2006], after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.
The author on that piece is David Leonhardt (with Jeremy Peters), who is usually accorded significant (and deserved) respect by the left-wing side of the blogosphere. Yes there are other ways to read the data, and of course that was December, but read that piece and you will see that Brooks is not way out of line. For instance Leonhardt and Peters report (with caveats):
For now, however, paychecks are growing fatter in nearly every corner of the economy.
A 2007 update shows higher gas prices hurting this trend in real terms; that doesn’t change the fact that labor markets have been doing better than in the recent past.
Brooks makes nine claims (or try this link), and to my eyes eight of them check out directly, based on material I am familiar with and yes I mean the original sources, not journalistic summaries of them. (I should note it is not easy to estimate the total gains from globalization, and I wouldn’t put much weight on any particular number here; still those gains are likely very large, as Brooks suggests.)
I am busy recording your podcast requests, and haven’t had time to check out his claim number two:
The second complicating fact is that according to the Congressional Budget Office, earnings for the poorest fifth of Americans are also on the increase. As Ron Haskins of the Brookings Institution noted recently in The Washington Post, between 1991 and 2005, “the bottom fifth increased its earnings by 80 percent, compared with around 50 percent for the highest-income group and around 20 percent for each of the other three groups.”
Your opinions on this claim are, of course, welcome in the comments. But in the meantime the economy — however imperfect — simply isn’t as bad as many bloggers are suggesting.
Markets in everything, Eugene Debs edition
We again see life imitating art:
The picketers marching in a circle in front of a downtown Washington office building chanting about low wages do not seem fully focused on their message.
Many have arrived with large suitcases or bags holding their belongings, which they keep in sight. Several are smoking cigarettes. One works a crossword puzzle. Another bangs a tambourine, while several drum on large white buckets. Some of the men walking the line call out to passing women, "Hey, baby." A few picketers gyrate and dance while chanting: "What do we want? Fair wages. When do we want them? Now."
Although their placards identify the picketers as being with the Mid-Atlantic Regional Council of Carpenters, they are not union members.
They’re hired feet, or, as the union calls them, temporary workers, paid $8 an hour to picket. Many were recruited from homeless shelters or transitional houses. Several have recently been released from prison. Others are between jobs.
"It’s about the cash," said Tina Shaw, 44, who lives in a House of Ruth women’s shelter and has walked the line at various sites. "We’re against low wages, but I’m here for the cash."
Carpenters locals across the country are outsourcing their picket lines, hiring the homeless, students, retirees and day laborers to get their message across. Larry Hujo, a spokesman for the Indiana-Kentucky Regional Council of Carpenters, calls it a "shift in the paradigm" of picketing.
Political groups also are tapping into local homeless shelters for temps.
One resident of the Community for Creative Non-Violence shelter earns $30 a day holding a sign outside a Metro stop protesting nuclear war. In 2004, residents of at least 10 shelters were paid to collect signatures on petitions in favor of legalized gambling. Residents call this type of work "lobbying."
The carpenters union is one of the most active picketers in the District, routinely staging as many as eight picket lines a day at buildings where construction or renovation work is being done without union labor.
Supporters of the practice consider it a creative tactic in an era of declining union membership and clout. But critics say the reliance on nonunion members — who are paid $1 above minimum wage and receive no benefits — diminishes the impact and undercuts a principle established over decades of union struggles.
Here is the story, and thanks to Scott Rogers for the pointer.
How much better is local food for the environment?
Local food can consume more energy, especially when it is shipped — even short distances — by truck. Here is from The Boston Globe:
…a gathering body of evidence suggests that local food can sometimes
consume more energy — and produce more greenhouse gases — than food
imported from great distances. Moving food by train or ship is quite
efficient, pound for pound, and transportation can often be a
relatively small part of the total energy "footprint" of food compared
with growing, packaging, or, for that matter, cooking it. A head of
lettuce grown in Vermont may have less of an energy impact than one
shipped up from Chile. But grow that Vermont lettuce late in the season
in a heated greenhouse and its energy impact leapfrogs the imported
option. So while local food may have its benefits, helping with climate
change is not always one of them.
And more:
Judged by unit of weight, ship and rail transport in particular are
highly energy efficient. Financial considerations force shippers to
pack as much as they can into their cargo containers, whether they’re
being carried by ship, rail, or truck, and to ensure that they rarely
make a return trip empty. And because of their size, container ships
and trains enjoy impressive economies of scale. The marginal extra
energy it takes to transport a single bunch of bananas packed in with
60,000 tons of other cargo on a container ship is more than an order of
magnitude less than that required to move them with a couple hundred
pounds of cargo in a car or small truck.
Yes even grapes from Chile end up on a truck but perhaps on a more efficient truck. Why is there no talk of how they are transported from the Chilean vine to the Chilean port? Here is a previous post on this topic.
How far behind is the U.S. in terms of broadband?
In response to Paul Krugman and others, FCC commissioners Robert McDowell writes:
The OECD says the U.S. has dropped from 12th in the world in broadband subscribers per 100 residents to 15th. The OECD’s methodology is seriously flawed, however. According to an analysis by the Phoenix Center, if all OECD countries including the U.S. enjoyed 100% broadband penetration — with all homes and businesses being connected — our rank would fall to 20th. The U.S. would be deemed a relative failure because the OECD methodology measures broadband connections per capita, putting countries with larger household sizes at a statistical disadvantage.
Here are statistics on household size; I am suspicious that McDowell cites only a polar point (which in essence is ranking *only* household size, and not how much household size contributes to the current rank order) in support of his case. Not every argument in his rebuttal succeeds.
More fruitfully, should we should compare Europe to the whole U.S. or to individual states?:
…if we compare many of our states individually with some countries that are allegedly beating us in the broadband race, we are actually winning. Forty-three American states have a higher household broadband adoption rate than all but five EU countries. Even large rural western states such as Montana, Wyoming, Colorado and both Dakotas exhibit much stronger household broadband adoption rates than France or Britain. Even if we use the OECD’s flawed methodology, New Jersey has a higher penetration rate than fourth-ranked Korea. Alaska is more broadband-saturated than France.
Maybe federal policy is not mainly at fault, though more contestability is still a good idea. By the way, here are some alternative broadband rankings, the U.S. comes in twelfth.
The pointer is thanks to Ben Davis.
Addendum: Over at Mark Thoma’s, Peter Schaeffer has a good comment at July 23, 2007 at 11:05.
Assorted links
1. The earthquake that is Germany, Germany is recovering and sustainably
2. The corporate book event is growing
3. Does radio play hurt record sales? Stan Liebowitz says yes
4. Steven Pinker’s list of dangerous ideas
5. Are bonobos really sweet and playful?
On Galata Bridge
On the famous Galata bridge fisherman cast from the top level while outdoor restaurants line the walkway below. The fishermen’s lines are hard to see so dining at dusk you are surprised when silvery fish, glittering in the last light of the sun ascend to the sky as if swimming to the heavens.
An experiment with personalized podcasts
Lately I’ve been intrigued with the idea of individualized uses of mass communication technologies. Imagine if they made an episode of Seinfeld tailored for your personal consumption.
So I’d l like to try an experiment. I will make a podcast — a personalized podcast — just for you.
You can ask me anything you want, and I’ll try my best to answer the question.
I believe this will be fun for me. But to give it a chance of being fun, I need a principle of rationing.
So if you want the podcast, pre-order my Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist. The Amazon link is here, Barnes&Noble is here.
There are a few simple rules:
1. Write me at [email protected] that you have pre-ordered. You must pre-order (and write me) before 8 p.m. (EST) on Thursday, July 26.
2. We again use the honor system. Last time I was amazed how many people submitted proof of purchase voluntarily, without my even asking.
3. When you write to me, include your question. Only one question per purchase.
4. I’ll write you back with a link to the personalized podcast. If I can’t answer or at least address your question (e.g., "Who is the mightiest tailor in the Ukraine, and why?"), I’ll let you know and you can try another question.
5. The offer of the secret blog has expired, you get only the podcast.
What if I’ve already pre-ordered? Don’t worry.
One option is to order another copy. But I don’t wish to penalize lovers of secret blogs (I’m one myself). A second and cheaper option is to review the book on either Amazon.com or Barnes&Noble.com. If you have already pre-ordered and you write a review within three weeks of publication date (Aug.2, so that’s Aug.23), at the right time just send me a copy of the review along with your podcast question. I’ll record these additional podcasts later in August. That way you’ll have both a secret blog and a personalized podcast.
When will I get my podcast? I have blocked off several days this week to do nothing but record your podcasts. Call me crazy but I’m quite looking forward to it. (Since I’ve blogged every day for four years, perhaps you’ll believe I am an outlier.) We’ll see how long the process takes, but if you wish to be early in the queue, pre-order and write in now. I’ll answer questions in the order I receive them.
How long will my podcast be? That depends on your question. But I envision my answers as roughly comparable to the answer I would give a good friend over dinner.
What can I do with my podcast? You can link to it, send it to your friends, or disseminate it as you wish.
I do want to receive your interesting questions and even your silly questions. But impossible questions involving paradoxes of self-reference will be returned automatically. And when it comes to the Newcomb problem, let me tell you right now, the cautious Tyler is taking only one box…
How long should the wait be to see a doctor?
Matt Yglesias notes that seeing a doctor in the U.S. involves waiting. I’ve never had this experience (not going to the doctor is my trick) but I’ve heard the same from other people. My question is a simple one: in market equilibrium, should we expect two- or three month-long waits to see a doctor? Or is this somehow an artifact of government intervention?
I understand why I might have to wait to get an iPhone (though I didn’t) or Harry Potter (though Yana didn’t). I understand why I can’t just call up El Bulli and get a reservation; they want the highest status people eating there, plus the air of exclusivity creates positive publicity for spin-off products. But I wouldn’t expect those mechanisms to matter for medicine, at least not at the GP level ("he won’t transplant a heart for just anyone, he’s promoting his personal line of stents", etc.).
Why might one have to wait for a doctor?
1. There are big gains to sticking with your previous doctor, and demand is uncertain each period so the lines add up. But I would expect the law of large numbers to kick in, plus sometimes the wait should be very short.
2. Waiting lists are a form of price discrimination. Some patients "hoard time" (just as dept. chairs in a university "hoard space") by making lots of appointments, many of which are unnecessary ex post. Indirectly they are charged for this privilege but they get immediacy when they need it. Matt (maybe) didn’t need immediacy and wasn’t willing to pay for it.
3. The President is always the last person to enter the room and that policy maximizes the value of his time. Maybe doctors have lots of "drop out" appointments (patients get better or perhaps they die), and so doctors maximize the value of their time by keeping a long queue. But for this to maximize profits, must the queue be longer than a week or so?
4. Some constraint — legal or otherwise — prevents doctors from raising their prices. (This hypothesis, by the way, suggests that American medical care is even more expensive than it looks.)
Readers, why is the wait often as long as it is? I’m not interested in debating health care policy today, I’d just like an answer to this question.
Addendum: Jane Galt adds commentary and analysis.
On being lost
I am in Turkey this week. (Where else can you go where the secularists are protesting in the streets! Awesome.) Aside from seeing things, I like to travel for the challenge.
Getting to that interesting restaurant reviewed in the New York Times you have to find the ferry station, purchase the right ticket, get off at the right stop, find the restaurant on the streets with no names (ah there’s the bull statue! must be somewhere to the east!) and overall get lost many times. It’s a bit like running a marathon but the honeyed pumpkin at the finish line tastes sweeter for all the running.
I don’t like being lost, but I like having been lost.
Markets in everything — lawncare edition
The women of Tiger Time Lawn Care offer to mow customers’ lawns dressed in bikinis…
A click here will get you through to a story and video. Thanks to Michael for the pointer.
Article about me
How else can one title such a post? Here it is, from New York magazine. Excerpt:
Among this new crowd of economists, Cowen, a 45-year-old professor at George Mason University just outside D.C., is a cult hero, insofar as he co-runs an influential blog called marginalrevolution.com. You don’t need to be an economist to enjoy it. There are only a handful of posts a day, but the range of ideas is awe-inspiring. Cowen weighs in on everything from “wage compression”–when bosses give raises at a rate below productivity gains–to household pets, arguing that “if you must support the life of either a cat or a dog, choose the undervalued cat.” (Dogs’ friendly disposition increases the odds of their being well-cared for by other people, while the natural diffidence of cats makes them more susceptible to neglect).
Here is their selection from the series "My Favorite Things"…
Fraudulent subprime mortgages
The market seems (more or less) competitive on the supply side. So the greater the opportunity for fraud (by lenders), the more lenders will enter the market. This will bid down prices (interest rates on loans). The loan contract will move toward lower price, lower quality. Of course prices are lower on average but for those who end up ripped off the real price, ex post, is much higher.
On average who loses from such a shift? Well, to some extent there is a pooling of heterogeneous tastes into a single market segment. The ones who don’t like the lower price, lower quality equilibrium will be the higher valuation buyers for the contract, that is the wealthier people in the relevant loan class, not the poorer people. The poorer buyers in the market segment might well be better off.
This result does not require buyers to be wary about fraud. It is even possible to get a superior outcome if buyers are totally unaware of prospects for fraud. To the extent buyers are suspicious, they will invest resources in monitoring the behavior of suppliers. Often such monitoring is simply keeping/capturing pecuniary externalities, and thus it is oversupplied relative to a first best. If buyers are fully unaware there will be no socially wasteful monitoring and the lower prices still will arrive.
You might say "Ah, but we cannot dismiss pecuniary externalities when insurance markets are incomplete." I might say "Ah, but aren’t buyers generally risk-loving in terms of prices"?
The bottom line is this: whenever you see fraud, apply tax incidence analysis to understand the final results.
What I’ve been reading
1. Douglas Wolk, Reading Comics: How Graphic Novels Work and What They Mean. My consumer surplus from this book was huge. The author calls it an "economic history" of the graphic novel; he hasn’t read Bob Fogel but it remains one of the best introductions to any topic.
2. Martin Krause, La Economia Explicada a Mis Hijos, and Por el ojo de una aguja. Economics, explained through the medium of literature and fables, from an Argentinian classical liberal.
3. Jennifer Michael Hecht, The Happiness Myth: Why What We Think is Right is Wrong. The claim is that happiness follows from self-knowledge, self-control, self-realization, and awareness of death. There is little consideration of what is the proper margin for each.
4. Alfredo Jose Estrada, Havana: Autobiography of a City. One of the best city biographies, almost as good as the books on Cairo.
5. Ruth Rendell, The Water’s Lovely. I used to think she was past her peak, but the first third of this is superb and the rest stays pretty good.
Five Best
This is one of my favorite features of The Wall Street Journal. Yesterday they asked Kanye West to name his five favorite restaurants. Usually (and more usefully) some other celebrity is asked to name five favorite books, CDs, or movies.
Five is enough to frame the namer’s tastes. And your chance of learning about a new peak experience is relatively high. Even if you get no useful information, you’ve had a chance to judge a celebrity.
I believe this method of "criticism" will become increasingly popular. The biggest potential downside is encouraging excess winner-take-all behavior on the part of producers.
Addendum: Here are favorites from HobNobBlog.
I’ve been waiting for a paper like this
Steve Kaplan and Joshua Rauh write:
We consider how much of the top end of the income distribution can be
attributed to four sectors — top executives of non-financial firms
(Main Street); financial service sector employees from investment
banks, hedge funds, private equity funds, and mutual funds (Wall
Street); corporate lawyers; and professional athletes and celebrities.
Non-financial public company CEOs and top executives do not represent
more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%,
0.001%, and 0.0001%). Individuals in the Wall Street category comprise
at least as high a percentage of the top AGI brackets as non-financial
executives of public companies. While the representation of top
executives in the top AGI brackets has increased from 1994 to 2004, the
representation of Wall Street has likely increased even more. While the
groups we study represent a substantial portion of the top income
groups, they miss a large number of high-earning individuals. We
conclude by considering how our results inform different explanations
for the increased skewness at the top end of the distribution. We argue
the evidence is most consistent with theories of superstars, skill
biased technological change, greater scale and their interaction.
Here is the link, here is the non-gated version. How about this bit from the text?:
…the top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and estimated).
This is important too:
…we do not find that the top brackets are dominated by CEOs and top executives who arguably have the greatest influence over their own pay. In fact, on an ex ante basis, we find that the representation of CEOs and top executives in the top brackets has remained constant since 1994. Our evidence, therefore, suggests that poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution. We also discuss the claim that CEOs and top executives are not paid for performance relative to other groups. Contrary to this claim, we find that realized CEO pay is highly related to firm industry-adjusted stock performance. Our evidence also is hard to reconcile with the arguments in Piketty and Saez (2006a) and Levy and Temin (2007) that the increase in pay at the top is driven by the recent removal of social norms regarding pay inequality. Levy and Temin (2007) emphasize the importance of Federal government policies towards unions, income taxation and the minimum wage. While top executive pay has increased, so has the pay of other groups, particularly Wall Street groups, who are and have been less subject to disclosure and social norms over a long period of time. In addition, the compensation arrangements at hedge funds, VC funds, and PE funds have not changed much, if at all, in the last twenty-five or thirty years (see Sahlman (1990) and Metrick and Yasuda (2007)). Furthermore, it is not clear how greater unionization would have suppressed the pay of those on Wall Street. In other words, there is no evidence of a change in social norms on Wall Street. What has changed is the amount of money managed and the concomitant amount of pay.
There is a great deal of analysis and information (though to me, not many surprises) in this important paper. The authors also find no link between higher pay and the relation of a sector to international trade.