Krugman vs the CEA

Paul Krugman goes beyond the bounds of decency and evidence when he accuses the Council of Economic Advisors of corruption. His evidence? The following graph (click to expand):

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Krugman writes:

…wishful thinking on this scale is unprecedented. What you see in this chart is the signature of a corrupted policy process, in which political propaganda takes the place of professional analysis.

Now, the CEA has certainly made mistakes and can justifiably be accused of optimism (see Brad DeLong and passim) but Krugman’s chart is highly misleading. Here is the same data but over a slightly longer time-frame.

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With this graph it becomes clear that the CEA has in essence been predicting a return to trend. Obviously, the CEA has been wrong, employment has not returned to trend, but that surely tells us more about the peculiar nature of this recession than it does about corruption at the CEA.

Has political progaganda taken the place of professional analysis? Indeed.

Mexican democratization

1. “The making of Mexico’s democracy was distinctive in many ways. There was no Nelson Mandela, no single leader to personify and guide the struggle. Nor was there a single democratic movement, but rather a multitude of initiatives from individuals and groups across the society and the country, which gradually converged as more and more Mexicans became convinced of the need to end the PRI’s despotic rule.”

2. “We contend that Mexico’s opening to democracy is one of the few major developments in the country’s modern history that was not shaped by invasion or intervention by the United States.”

3. The Salinas cabinet had an amazing preponderance of economics Ph.ds. His Finance Secretary had a Ph.d. in economics from MIT. The Trade Secretary and Budget Secretaries had Ph.ds. in economics from Yale. Salinas’s Chief of Staff studied Political Economy at Stanford. The head of the PRI at the time had a masters in economics from University of Pennsylvania. His government favored economic liberalization but did much less for democracy.

4. “It can be argued that Raul Salinas de Gortari [brother of the president, Carlos] did more than any other living Mexican to contribute to his country’s transition to democracy. His, however, was not a hero’s role; his impact stemmed from the compelling force of his negative example. He did more to discredit the PRI system in the eyes of the Mexican people than anyone else in seven decades, and in so doing, he significantly hastened the demise of authoritarian rule.” Follow this link to the famous photo of Raul with his mistress.

5. Since democratization, progress against crime, corruption, and drug trafficking has been slow at best. The Mexican public agrees.

6. Some communities in southern Mexico still reckon time with the Mayan calendar.

7. By 2002, “some were saying that [Vincente] Fox’s only truly major achievement had been to get himself elected.”

The facts and quotations are from Opening Mexico: The Making of a Democracy, by Julia Preston and Samuel Dillon, an excellent book on how an autocratic society can find its way to democracy.

The jobless recovery

This week’s Business Week had a useful though non-revelatory feature article on the jobless recovery (note that the paper edition has much more than the link).

The bottom line? Two root causes — productivity gains and fear — appear to be causing our economy’s weak employment performance.

Rapid productivity gains mean that a business can produce the same output with fewer workers. So unless demand is truly booming, why hire more people?

At the same time uncertainties have kept business cautious. Terrorism, corporate scandals, and the bursting of the high-tech bubble all provide extra reasons to wait. Counterintuitively, largely positive changes, such as productivity boosts and their accompanying sectoral shifts, can spur caution as well. Why make your irreversible investment today when you will know more two years’ down the road?

Some research sources suggest that outsourcing has cost the U.S. only 300,000 jobs in three years, though all such figures should be taken with a grain of salt (for instance, when calculating the number, what is the relevant counterfactual?). A Wall Street Journal survey (12 March 2004) found that only sixteen percent of responding economists blamed outsourcing as a significant source of job losses. More importantly, outsourcing creates more jobs than it destroys; let us not forget the positive role of insourcing as well, the U.S. receives massive capital flows from outside.

And who is to blame for the jobless recovery? Paul Krugman finds a not unsurprising culprit:

…should we blame the Bush administration? Yes – because it refuses to learn from experience. Franklin Roosevelt, in his efforts to combat economic woes, was famously willing to try anything until he found something that worked. George Bush, by contrast, seems determined to try the same thing, over and over again.

I hope Krugman does not really mean the Roosevelt point. Recall that the Great Depression was by many measures worse in 1937-8 than in 1932. A willingness to “try anything” is hardly a recipe for economic success.

And while I buy the Krugman line on Bush’s fiscal irresponsibility, we don’t find it priced in the bond market. So why should we think those bad policies are driving the labor market?

Brad DeLong suggests that the tax cut was ill-targeted for the purposes of stimulating aggregate demand. Point granted. That being said, government is better at stimulating nominal rather than real aggregate demand. In times of structural uncertainty, often the latter is more badly needed. So I don’t blame Bush fiscal policy, whatever its flaws, for the jobless nature of recovery.

The Democrats have little to offer in the way of short-run cures. Perhaps assisting the jobless can be defended on distributional grounds, but it can delay reemployment as much as boost it. A new President, whether or not you favor the idea, would increase rather than lower uncertainty, at least at first. Greater fiscal responsibility will pay off in the future (I am all for it), but I don’t see how it will boost employment over the course of, say, two years. Most of the relevant uncertainties are real and structural in nature.

Read this post on why many people are no longer looking for jobs. Reeducation is a significant reason why many people have stopped looking for work. This might someday kick in with higher productivity. But note also that workers fear being locked into jobs that will later brand them as losers. So in times of uncertainty they, like businesses, often will simply prefer to wait.

The bottom line: There is a potential silver lining in the cloud that we call the jobless recovery. Once those people get to work, output could be especially high, provided we don’t mess up in the meantime. That being said, responsible economists all along the political spectrum remain puzzled by the jobless recovery. We can cite and roughly agree on its causes. But at the end of the day, relative to other recoveries, we all remain surprised by the slowness of employment to adjust.

Addendum: Here is Alex on productivity and employment.

Alison Krauss + Union Station

Alison Krauss has the voice of an angel. You probably heard her on the Academy Awards singing a track from Cold Mountain or on the wonderful soundtrack for O Brother, Where Art Thou? where she sings the heart-breakingly beautiful Down to the River to Pray. She plays with the versatile Union Station whose I am a Man of Constant Sorrow was also featured in O Brother. For more, Alison Kraus + Union Station Live is an excellent place to begin.

Cultural imperialism watch

Did the idea of the enclosed shopping mall come to the United States from Vienna? And was the ideology of communal European planning the original inspiration?

Austrian architect Victor Gruen brought the mall concept to this country and designed the first enclosed American mall, drawing on ideas from socialist theory. He saw malls as the new source of American community, though later in his life he became more skeptical.

By the way, what do we do when socialists bring us ideas that transform our country? In this case we named a shopping theory after the guy:

“The Gruen Effect” is what happens when a clever layout causes task-oriented shoppers to forget the purpose of their quick trip to the store and begin shopping aimlessly. It’s also the very threshold that the designers of the Mall of America want visitors to cross. “We want people to get lost in the mall,” explains Tim Magill of Jerde Partnerships, the group that designed the Bloomington complex. “We want to tweak your perceptions so you’ll be exposed to areas you would regularly pass by.”

Rich nations can conserve water

Efforts to conserve water – from low-flush toilets to more efficient power plants and crop irrigation – are working so well that Americans use less of it than they did 30 years ago, a report issued Thursday by the federal government says.

The flat trend in consumption came even as the USA’s population grew and electricity production, the largest user of water, increased.

The study from the U.S. Geological Survey says consumption is largely unchanged since 1985 and is 25% less than the 1970s, when it peaked.

Here is some more evidence:

The biggest savings have been by industry. And that is a result of water-saving technology driven by energy-saving and environmental protection laws passed in the 1970s. Utilities that once needed huge amounts of water to cool electrical generating plants in “once-through” fashion now conserve water by recirculating it in a closed loop.

The report says the USA consumes 408 billion gallons a day. Homes and most businesses use 11% of that. Nearly half, 48%, goes to power plants. Watering crops takes 34%. The remaining 7% includes mining, livestock and individual domestic wells.

Here is the full story, which also ranks states by water use. Here is the original report. On a global scale, agriculture accounts for 70 percent of water use, which indicates further room for conservation. It is indeed a problem that rich nations use ten time more water per capita than poor ones. But in a time when people are talking seriously of nanotechnology, can cheap desalinization be so far on the horizon? Read here on a recent Israeli effort.

What do we know about the children of gay parents?

Not much, according to this incisive article on Slate.com: “The existing science is methodologically flawed and ideologically skewed.”

Here is another major point:

…the defensive goal of proving sameness is almost a guarantee of weak science. (The hypothesis that both groups of kids are alike is hard to rule out, but that doesn’t mean you’ve established that there are no differences.) That “heterosexist” bias, Stacey argues, has also encouraged researchers to fudge results, anxiously claiming homogeneity where there’s actually some variety. Why, she asks, buy into the view that “differences indicate deficits”?

And consider the following:

Digging around in the existing data on kids of gay parents leads the authors and others to similarly rosy speculations that these children are unusually open-minded. Some studies, for example, show boys playing less aggressively and behaving more “chastely” as youths, while girls’ early interests are more androgynous and their adolescence evidently somewhat more sexually adventurous. On the hot topic of sexual orientation, the only long-term study of lesbian-headed families reports 64 percent of the young adult children saying they’ve considered same-sex relationships (compared to 17 percent with heterosexual parents)–although the percentage of those who identify themselves as gay, lesbian, or bisexual is the same in both groups.

Here is a survey of some reader reactions.

The bottom line: We need some good labor economists, or demographers, to tackle this problem. That being said, the policy-relevant comparison is not “gay parents” vs. “straight parents.” Rather it is gay parents vs. an orphanage, or gay parents vs. not having been born in the first place. I’ll put my money on the gay parents.

Are bubbles good for economic development?

Fools rush in, but should we mind?

…when it comes to transformative technologies, overoptimistic investors are actually working for the common good–even if they don’t know it. We can be glad that investors financed the construction of thousands of miles of track in the middle of the nineteenth century, despite the fact that most of them dropped a bundle doing it. The same goes for overoptimistic investors who poured money into semiconductors thirty years ago, financed undersea fibre-optic cables in the late nineties, and now are poised to lose their shirts in the coming nanobubble. In the dreams of avarice lie the hopes of progress.

The full story concerns the nanotechnology bubble, by the ever-intelligent James Surowiecki, writing for The New Yorker.

My take: The real story of the invisible hand is that many of the rewards offered by the capitalist system are illusory in value. Ayn Rand had a point that the world rests on the shoulders of the talented few. She forgot that those people often aren’t very rational.

Securitizing human education

MyRichUncle is not a lender. MyRichUncle is a network of investors, “Rich Uncles” if you will, interested in financing the next generation of undergraduate and graduate students.

MyRichUncle provides students with Education Investments–funds for school. Upon graduation, students pay a fixed percentage of their future income for a fixed period of time. At the end of the period, their obligation is over regardless of what they have paid.

Education Investments are not loans. That means there is no principal or interest, and there is no obligation to payback the amount initially received. At the end of the payment period, your obligation is over, regardless of what you’ve paid.

Education is the greatest investment one can make toward his or her future. It is the key to opportunity. MyRichUncle is here to make sure everyone can afford it.

In other words, investors give students money and hold equity in their future income performance. Payments range from one to three percent, over a ten to fifteen year period. This is an onerous burden over time but the marginal tax rate is not so large to make the person stop working. Plus there is a 2.5 percent service fee on what you borrow.

Here is their web site. Here is an article on the involvement of Michael Robertson, the MP3.com guy. Here is a Cato policy analysis on the idea.

My take: Why not try this? It will help some people go to a better school. True, the offer will take in some high time preference suckers, who don’t really need the money, but those people already have enough paths to ruin.

Keep in mind this is an insurance scheme, not just a loan market or a way to go through school. If it turns out that you are less smart or less hard-working than you thought you were, you pay less back. The self-confident may refuse to buy it, which leaves the fearful dominating the market. Think of this as stupidity insurance, or laziness insurance, packaged under a more marketable and flattering guise (“You too can go to school…”). Of course it is a central question in economics why markets provide so little insurance protection for long-term risks. Let’s hope this instrument is the start of a new trend.

Thanks to Paul Edwards for the pointer.

How bestsellers have changed

Here are some basic facts:

The popularity of religious titles has soared. Books such as Left Behind by Tim LaHaye and Jerry Jenkins, the first in a popular series and No. 61 for the decade, used to be sold primarily in Christian bookstores. Now they’re stacked thigh-high at discount stores such as Wal-Mart.

Self-help, always a fixture of best-seller lists, is shifting the focus from improving people’s lives to improving their health as many baby boomers pass 50. [Diet books, most of all Atkins-related, have become especially popular.]

Brand-name series grabbed a growing share of the list. Chicken Soup for the Soul begat Chicken Soup for the Woman’s Soul, which begat Chicken Soup for the Teenage Soul. All were among the decade’s 100 most popular titles.

With 12 novels on the list of 100, John Grisham staked out a nearly permanent spot on the weekly best-seller list. Only the titles changed. But if the familiar was popular, there were a few surprises. Previously unknown novelists such as Dan Brown (The Da Vinci Code) and Alice Sebold (The Lovely Bones) ended up among the decade’s best sellers.

Fiction, led by thrillers, staged a comeback, accounting for 72% of last year’s weekly best sellers, compared with 59% in 1998.

Here are other facts of import:

1. Never have so many books been published: in the U.S. more than 1,000 new titles a week, nearly double the rate in 1993.

2. Aggregate book sales are flat.

3. “last year the average American spent more time on the Internet (about three hours a week) than reading books (about two hours a week). And…the average American adult spent more money last year on movies, videos and DVDs ($166) than on books ($90).”

4. Bestsellers (top ten in the major categories) account for only 4% of book sales.

5. Amazon, Barnes&Noble.com and BookSense.com account for 8% of U.S. book sales.

6. Discount stores and price clubs account for 11% of U.S. book sales.

7. Humor books have fallen from 5.3% of the bestsellers market in 1995 to 0.6% today.

8. The Cliff Notes version of The Scarlet Letter outsells the real thing by 3 to 1.

9. In August dictionaries are 77% of all reference book sales. Otherwise they run less than five percent of the total.

Here is the the full story, noting that some of the facts are found in the paper edition only.

The bottom line? The book market works wonderfully. If you have any complaint, it should be with the quality of public taste.

USA Today (from Thursday) offers a list of the 100 best-selling books of the last ten years (not on-line). Once you get past Tolkien and Harry Potter, there is little to interest me. That being said, I find it easy to walk into my public libraries and every week find numerous good new books to read.

They should have blogged

In Dry Holes in Economic Research (Kyklos subscription required) David Laband and Robert Tollison find that a large fraction of economics papers (26%) are never cited and despite large increases in resources devoted to publication this percentage has not changed in decades.

Between 1974 and 1996, there was a substantial increase in the emphasis on academic research in universities located in the United States and elsewhere throughout the world. This increased emphasis was, and continues to be, reflected in a variety of increased incentives for faculty to produce research, including higher salaries, reduced teaching loads, increased money for travel, on so on. Yet, as we report in this paper, during this time period the rate of uncitedness of economics papers remained constant (at 26 percent). Clearly, universities and taxpayers/supporters of universities are obtaining no enhancement of research output (in terms of citations) from the increased subsidy to faculty research. We discuss the implications of this result for the publication and organization of economic research. In particular, we discuss the fact that resources devoted to up-front screening of papers by authors and journals have risen substantially over this period, but to no avail with respect to reducing the incidence of dry holes.

Copyright protection for folklore?

Two days ago I asked whether we should extend copyright protection to folklore. Thank you all for your interesting and informative replies.

Here are some possible answers which I don’t find sufficiently forcing:

1. Folklore has already been produced. TC: Of course you could say the same for a good deal of music. Why treat folklore differently?

2. Most folklore is very old and copyright protection would have expired by now anyway. TC: Folklore is not so old and musty; rather it evolves frequently and changes rapidly. Here is one source on contemporary folklore, here is another. Here is a brief account of contemporary Haitian folklore.

3. Folklore could never have evolved in the first place, had much earlier folklore received copyright protection. TC: This point is true, but you still could have copyright protection against for-profit uses of folklore. Author Edwidge Danticat can publish and copyright a processed version of folklore. Since those books bring in money, the law could stipulate that some royalties go back to the folklore creators.

4. Copyright is an incentive for future production, and we’re not going to have much future folklore anyway. TC: Hard to disprove a claim of this kind, but I don’t believe it. Arguably folklore has never been more vital than in today’s world.

So we are left with the following:

5. With folklore it is harder to define a clear line between copying and independent discovery. Similarly it is hard to draw a clear line between general inspiration and outright borrowing. Borrowing in general is harder to trace, a given derived story could have come from numerous sources. TC: This argument carries real force with me, although how different is music, consider George Harrison.

6. A culture is better off if other cultures can borrow its tales and “memes” without restriction. TC: Copyright holders could always waive their rights if that were beneficial, though admittedly there is an externalities problem for a culture as a whole. And again, you could apply the same argument to music.

7. Folklore is collectively produced, ownership is hard to assign, and there are no relevant corporate entities in most cases. Entrusting copyright ownership to “tribes” will encourage politicization and rent-seeking behavior. TC: Hard to argue here.

8. Folklore rarely offers a final, set, canonical, or well-defined final product. TC: I wonder if digital technologies will move other art forms in this same direction.

All interesting hypotheses. Many of them might be true, I still can’t get past “I don’t trust the courts in these other countries to enforce copyright in folklore, it will just lead to rent-seeking.” See my earlier post, at the first link, for further clarification.

I hope to soon consider other angles on related problems, such as whether there is a right to cultural privacy.