Results for “baumol” 55 found
Who will win the economics Nobel Prize this year?
Diane Coyle mentions some possible picks:
Environmental economics: Partha Dasgupta, William Nordhaus
Update: Twitter folks strongly recommend adding Martin Weitzman in this category.
Growth: Paul Romer, Robert Barro
Inequality: Anthony Atkinson, Angus Deaton
Innovation (and much else): Will Baumol (now 93!)
Econometrics: David Hendry
All good guesses. I’ll add Diamond and Dybvig for banking, and possibly an early grant to Banerjee, Duflo, and Kremer for development and RCTs. That would make economics look scientific, for a year at least. I expect Bernanke, Woodford, and Svensson to get a prize as well for monetary economics, although probably not right now. It is too close to Bernanke’s memoir and Svensson’s tenure at the Swedish central bank.
Here is a WSJ list. What do you think? Since I’ve never once been right about a particular year, trying to pick someone would only curse them. The award will come this Monday of course.
Is the cost disease of services an illusion?
That is a new suggestion made by Alwyn Young in the latest American Economic Review.
The cost disease argument suggests that some services do not augment their productivity very readily (e.g., the barber), and furthermore the demand for many services is income elastic and price inelastic, so with economic growth services take up a rising percentage of gdp over time. The relative cost of producing service output rises. And since services are more sluggish in productivity, and being weighted more heavily in output, we can expect economy-wide productivity rates to decline.
Young’s argument is to draw out the implications of the heterogeneity of workers. Let’s say that a worker’s skill in one sector is only loosely correlated with his skill in some other sector. That will mean when individual workers have comparative advantage in a sector, they also are likely to have absolute advantage in that same sector. The typist really is a better typist than the lawyer.
Now let’s go back to the services sector. It expands over time and sucks in labor by offering higher relative wages. That draws in more individuals with low comparative and also low absolute advantage in that sector. More concretely, the system ends up pulling in a lot of losers into law and medicine, while we are left with only the very best factory workers still on the job. Or think of all those mediocrities who flooded into punk rock in the early 1980s. It’s a bit like a Peter Principle.
The services sector will appear less efficient, but what is called “underlying true levels of productivity growth” — taking into account the average efficacies of the workers present in the two sectors — might not be changing much at all. In other words, a quite different mechanism can generate the same observation as Baumol’s cost disease.
The paper presents plenty of industry-level evidence that this declining efficacy of service workers is indeed the case.
An ungated version of the paper is here, the published, gated version is here.
Who will win the next Nobel Prize in economics?
Jon Hilsenrath says Bernanke deserves one, I agree. I would gladly see a Bernanke-Woodford-Svensson prize, perhaps working in Mark Gertler too.
But for this year’s pick, due October 13, I am predicting William J. Baumol, possibly with William G. Bowen, for work on the cost-disease. As you probably know, this hypothesis suggested that the costs of education and health care would continue to rise in relative terms, thereby creating significant economic problems. Not a bad prediction for 1966, and of course it has become a truly important issue.
One problem is that the initial Baumol and Bowen hypothesis focused on the performing arts, rather than health care and education. A lot of live performance is pretty robust, although not always European high culture, and furthermore the internet has proven a much closer substitute in the minds of consumers than many people had expected. So the cost-disease argument, in the area where it was originally formulated, hasn’t panned out but rather has evolved into a kind of merit good demand — “I wish more people were paying for Mozart rather than for sports and live music in bars.”
A second problem is whether it should be Baumol or Baumol and Bowen. Bowen was co-author on the major and initial work, but Baumol has numerous other contributions, including contestability, operations research and economics, entrepreneurship, externalities and Pigouvian taxes, portfolio theory, and even in the older literatures on money demand and also sales maximization for business firms. One can well imagine Baumol paired with one or two other people, perhaps from industrial organization, and the cost-disease as one but not the only reason for the prize. Or if they give it to him and Bowen, it looks more like an “economics of education” prize, with a mention of health care tacked on.
So yes, that’s my pick. Keep in mind people, in the past I have never, ever gotten the timing of the pick right. Not once. But Baumol is now ninety-two, so I think this will be his year. Of course the Bayesian will note that last year he was ninety-one.
The Thomson Reuters Nobel picks
This source mentions Mark Granovetter, Aghion and Howitt, and Baumol and Kirzner. I don’t know if those are their “top picks,” or simply some of their picks. (Addendum: This further link suggests it is their only picks.)
For the pointer I thank Peter Boettke.
Robert J. Barro on aggregate demand
There has been a recent kerfluffle over whether Robert Barro rejects the notion of aggregate demand, which he had written with quotation marks as “aggregate demand.” Scott Sumner surveys the back and forth.
I say use The Google to find out what Barro really thinks and indeed he has written a whole piece on the topic (jstor), namely “The Aggregate-Supply/Aggregate Demand Model,” from the mid 1990s, and here is the abstract:
In recent years, many macroeconomic textbooks at the principles and intermediate levels have adopted the aggregate-supply/aggregate-demand (AS-AD) frame- work [Baumol and Blinder, 1988, Ch. 11; Gordon, 1987, Ch. 6; Lipsey, Steiner, and Purvis, 1984, Ch. 30; Mankiw, 1992, Ch. 11]. The objective was to allow for supply shocks in a Keynesian framework and to generate more satisfactory predictions about the behavior of the price level. The main point of this paper is that the AS-AD model is unsatisfactory and should be abandoned as a teaching tool.
In one version of the aggregate-supply curve, the components of the AS-AD model as usually used are contradictory. An interpretation of the model to eliminate the logical inconsistencies makes it a special case of rational-expectations macro models. In this mode, the model has no Keynesian characteristics and delivers the policy prescriptions that are familiar from the rational-expectations literature.
An alternative version of the aggregate-supply curve leads to what used to be called the complete Keynesian model: the goods market clears but the labor market has chronic excess supply. This model was rejected long ago for good reasons and should not be resurrected now.
If you read the paper, you will see three things. First, Barro is fully aware of “AD-like” phenomena and does not reject that notion. Second, Barro seems to prefer the IS-LM model to AS-AD, albeit with some caveats about possible false predictions of IS-LM and also noting in footnote two that he prefers his own presentation in his 1993 text. Third, Barro’s criticism is (whether you agree or not) that AD-AS collapses too readily into standard rational expectations models and doesn’t really provide an independent foundation for sticky price macroeconomics. In a nutshell “The AS-AD model is logically flawed as usually presented because its assumption that the price level clears the goods market is inconsistent with the Keynesian underpinnings for the aggregate-demand curve.”
Krugman had written this:
If you read Barro’s piece, what you see is a blithe dismissal of the whole notion that economies can ever suffer from am inadequate level of “aggregate demand” — the scare quotes are his, not mine, meant to suggest that this is a silly, bizarre notion, in conflict with “regular economics.”
I believe that is not a good characterization of Barro’s views and it is also an object lesson in the importance of the Ideological Turing Test. I would cite not only this piece, but also forty years of journal articles, many of which study the importance of nominal shocks and demand, albeit without (in general) using textbook AD-AS terminology. Indeed, Barro working with Herschel Grossman is one of the founding fathers of quantity-constrained Keynesian sticky-price macro and he is still citing this work favorably in his mid-1990s piece; see for instance Barro and Grossman (1971, 1974) and also their book from 1976: “This is a textbook on macroeconomic theory that attempts to rework the theory of macroeconomic relations through a re-examination of their microeconomic foundations. In the tradition of Keynes’s General Theory of Employment, Interest and Money…”
On the UI issue, I would note that the multiplier from transfers is likely unimpressive relative to the multiplier from government consumption.
Why does Singapore have such a low birth rate?
In the comments, Collin asked:
How is it the most productive, functional country Singapore has one of the lowest birth rate in the world? Is this robot future in which only the better off have children? Why is it richer the world is the less people can afford children?
Right now the total fertility rate in Singapore is at about 1.2 and at times it has slipped down as far as 1.16. (Though it just went up to 1.29, perhaps because of “dragon babies,” noting that intertemporal substitution may snatch some of this back.) Why?
1. Singapore does education very well, and education lowers birth rates.
2. Singapore land and housing prices are especially high, which makes it very costly to have a family with three kids. Long working hours are expected too.
3. Singapore is a lot more fun than it used to be, and in this regard it has improved more than say France has. Children are a bit more fun, because modern life is safer, but “the fun of children” is subject to Baumol’s cost disease.
4. Women are doing very well in Singapore and arguably they are not so willing to marry down in terms of income and educational status. I was struck, when I gave a talk to the economists at the Civil Service College in Singapore this summer, that well over half the audience was female. Sadly for some, rates of female “singlehood” for women in their twenties are still rising (pdf, very useful). Controlling for education, however, female singlehood is not going up, which indicates the decline in fertility is related to the rise in education. And in that same piece you will find direct evidence for a “marriage squeeze” for well educated women and less educated men. That same squeeze doesn’t seem as strong in the other wealthy East Asian countries.
5. This 209 pp. cross-national comparative study (pdf, also very useful) suggests that Singapore’s generous childbearing subsidies do not work because women are still expected to shoulder so many responsibilities of child rearing. The traditional family model there is stronger than in say France. At the same time, France is a culture of leisure, long vacations, and limited work hours in a way which is quite far from practices in Singapore.
6. Modern fairytales do not work. Rap music also does not work (try this video, if you need help), nor do government-sponsored cruises and speed dating services.
7. It is suggested that population density lowers birth rates.
8. Child care and subsidized child care have been less common in Singapore than in France (see about p.119 of this pdf, the comparative study cited above), though Singapore has been changing in this regard.
Here is a typical Singaporean answer to the question:
What is stopping you from having more than 1-2 children?
“Very stressful, because when they misbehave, you have to scold them.”Why do you think some Singaporeans are not having children nowadays?
“It is very stressful for Singaporeans as the cost of living has gone up and they do not have time for their children. More women are now busy working too.”
If you are interested in the comparison, ethnic Chinese in Malaysia have a total fertility rate of about 1.8. Malays in Singapore have a TFR of about 1.6, whereas the ethnic Chinese and ethnic Indians in Singapore are just barely above 1.0. To me that suggests that both culturally-specific-to-Chinese-high-earner factors and cost-of-living-in-Singapore factors are playing a significant role. Malay population growth, in terms of Malay babies born in Malaysia, is robust. Perhaps Singaporean men need more confidence. In Shanghai, by the way, the rate is barely above 1.0.
If I had to put it all in a sentence, I might try this: in Singapore, work and educational norms have shifted far faster than have family norms, relative to other birth-subsidizing countries such as France.
Note, most of all, that the low birth rate in Singapore is not the fault of Lee Kuan Yew.
Handicapping the 2012 Nobel
This article mentions Alvin Roth, Bob Shiller, Richard Thaler, Robert Barro, Lars Hansen, Anthony Atkinson, Angus Deaton, Jean Tirole, Stephen Ross, and William Nordhaus.
I’ll predict a triple prize to Shiller, Thaler, and Eugene Fama. Fama clearly deserves it, can’t win it solo (too strongly EMH in an age of financial crisis), but can be bundled with two people from behavioral finance and irrational exuberance theories.
Barro will get it, but not in an election year. Hansen and Ross are good picks but I don’t see them getting it before Fama does. Paul Romer deserves mention but this is probably not his year because of politics in Honduras.
William Baumol cannot be ruled out. A neat idea — but unlikely — is Martin Feldstein and Joseph Newhouse for their pioneering work in health care economics, plus for Feldstein there is public finance too.
Tirole and Nordhaus are deserving perennials, with various bundlings (e.g., Oliver Hart, or for Nordhaus other names in environmental). I hope the Krueger-Tullock idea is not dead but I would bet against it, same with Armen Alchian and Albert Hirschman. Dale Jorgensen has a shot.
I believe Duflo and Banerjee (and possibly Michael Kremer too, maybe even Robert Townsend) will get it sooner than people are expecting, though not this year as they just presented in Stockholm. Next year I think.
Not once in the past have I been right about this.
Addendum: Here is the talk from Northwestern.
What does the cost disease imply about the public sector?
Matt Yglesias has a good post on the recent Steven Pearlstein column. Here is Matt:
…people need to start paying much more attention to questions of tax efficiency. It’s overwhelmingly likely that we’re going to want the public sector to be a larger share of the economy in 10, 20, 30, 40 years than it is today and we need to find relatively growth-friendly ways to make that happen.
Here is Pearlstein:
From a political perspective, Baumol’s most important insight is that government spending must grow as a percentage of the economy. Most of the services that are provided by, or financed by government — health care, education, criminal justice, national security, diplomacy, industry regulation, scientific research — are those that suffer most acutely from Baumol’s disease. That’s not because of incompetence or self-interest on the part of public servants or even the socialist instincts of Democratic politicians — it’s in the nature of those activities.
To demand, as Republicans do, that government be held to some historical average as a percentage of the economy stubbornly ignores this reality. It would condemn the country, as John Kenneth Galbraith once put it, to a future of “private affluence and public squalor.”
Let’s for the purposes of discourse take the cost-disease argument, and this classification of sectors, for granted. I would stress that there are two different ways of measuring the relative size of government in the economy. The first is as expenditure share, say as a fraction of gdp, and that indeed may well go up because of Baumol’s argument (I’ll return to this).
The second question concerns the real value of outputs from government, as measured from the consumer side. If government outputs increasingly cost more to produce, should not a substitution effect kick in and lead us to prefer, at the margin, a higher proportion of productivity enhancement-enjoying private sector outputs? In common parlance, if flat screen TVs become much cheaper, buy more of them.
This implication often receives less stress from cost-disease advocates and you will note that it militates in favor of substituting away from government outputs.
There is a further implication. What goes up on the expenditure side is the share of any given governmental output in gdp. If we substitute out of government outputs enough, the total share of government output, as an expenditure fraction of gdp, could go up or down in an optimum. If the elasticity of demand is sufficiently high, flat screen TVs can become an increasing share of gdp and government social workers a smaller share. Right now for instance internet commerce is a growing share of gdp as measured in terms of expenditures.
In any case, moving away from expenditure shares and back toward output: if government responds optimally, we end up with government as a smaller share of real output over time, yet at higher costs. Surely that is a recipe for cynicism, justified or not.
Economists who support the arts
Hi Tyler (we are Facebook friends),
I am working on a blog posting for my new blog (www.wormwood-and-honey.com) and I want to write about instances where economists supported the arts in some special way. So far I have four cases: Professor Norton T. Dodge and his support of the Russian avant grade artists; Professor Alexander Gershenkron for his great review of Nabokov’s abominable translation of” Eugene Onegin”, Professor Gregory Grossman at Berkeley for inviting and supporting the Polish poet Alexander Wat who dictated his great book “My Century” while visiting there; and lastly, John Maynard Keynes for his support of theater, ballet and dance. Could you think of other cases? Or articles/books on the subject?
Thanks,
Julian Berengaut
Richard Caves collects Picasso, Bill Landes collects Charles Burchfield, and William Baumol did a good deal of wood sculpture, but I do not know that any of them have served as patrons of living artists. Assar Lindbeck also works as a painter, as does Robert Mundell. Spencer MacCallum (not an economist but he has written on economic issues) has been an important patron and promoter of Mexican pottery, and my own patronage efforts in Mexico are discussed in my book on the economics of Mexican art.
Roderick Deane is a New Zealand businessman, economist, and a supporter of New Zealand artists. Marie-Josée Kravis is an economist and also a patron of the arts, mostly for Canadian artists I believe. Georges Menil, of the Menil family, is an economist in Paris. Wayne Cox (not an economist) writes on tax issues and has been an important supporter and collector of Jamaican Intuitive art. Henry Kaufman is an economist who has donated a good deal of money to the arts. Henry Raeburn painted a portrait of 19th century economist Francis Horner, but it was paid for by Horner’s brother rather than by Francis. Maybe there was a Beckerian or Coasian bargain behind the scenes.
Richard D. Bodig was a singer, scholar of Renaissance music, and also an economist. How about this headline?: “Jazz singer Olesya Yalunina on how jazz freed her from a career in economics.” Stephen Dubner used to play in a rock band.
That is what comes to mind. Who am I missing?
*A Handbook of Cultural Economics*, second edition
The editor is Ruth Towse and the Amazon link to this now-definitive edition is here. Contributors include William Baumol, David Throsby, Mark Blaug, yours truly (“Creative Economy”), Dick Netzer, Ruth Towse, Orley Ashenfelter, Michael Rushton, William Landes, and other luminaries from the field.
Markets in everything the future of kung fu?
Today, however, temple officials seem more interested in building the Shaolin brand than in restoring its soul. Over the past decade Shi Yongxin, the 45-year-old abbot, has built an international business empire–including touring kung fu troupes, film and TV projects, an online store selling Shaolin-brand tea and soap–and franchised Shaolin temples abroad, including one planned in Australia that will be attached to a golf resort. Furthermore, many of the men manning the temple's numerous cash registers–men with shaved heads and wearing monks' robes–admit they're not monks but employees paid to look the part.
Over tea in his office at the temple, Yongxin calmly makes the case that all of these efforts further Buddhism.
As for some of the traditional styles, perhaps Baumol's cost disease is operating:
"There are no high kicks or acrobatics," he says. Such moves create vulnerable openings. "Shaolin kung fu is designed for combat, not to entertain audiences. It is hard to convince boys to spend many years learning something that won't make them wealthy or famous." He seems drained by the thought. "I worry that is how the traditional styles will be lost."
Here is much more, and for the pointer I thank The Browser.
Who will win the Nobel Prize in economics this year?
I see a few prime candidates:
1. Richard Thaler joint with Robert Schiller.
2. Martin Weitzman and William Nordhaus, for their work on environmental economics.
3. Three prominent econometricians of your choice, bundled.
4. Jean Tirole, possibly bundled with Oliver Hart and other game theorists/principle agent theorists. But last year the prize was in a similar field so the chances here have gone down for the time being.
5. Doug Diamond, bundled with another theorist or two of financial intermediation, such as John Geanakopolos. Bernanke probably has to wait, although that may militate against the entire idea of such a prize right now.
6. Dale Jorgenson plus ???? (Baumol?) for a productivity prize.
I see #1 or #2 as most likely, with Al Roth and Ernst Fehr also in the running. Sadly, it seems it is too late for the deserving Tullock.
In general I think Robert Barro has a good chance but I don't see him being picked so close to a financial crisis; the pick would be seen as an endorsement of Barro's negative attitude toward fiscal stimulus and I don't expect that from the Swedes. The financial crisis is a problem for Fama especially, though he is arguably the most deserving of the non-recipients. Paul Romer is another likely winner, although they may wait until rates of growth pick up in the Western world. He is still young. The Thomson-Reuters picks seem too young and for Alesina the political timing probably is not right for the same reasons as Barro.
Here is a blog post on the betting odds for the literature prize; NgŠ©gÄ© wa Thiong'o is rising on the list. Not long ago the absolute favorite was Tomas Tranströmer, who perhaps should start his own line of toys or have his name put on a school of engineering.
In my pile
1. Sebastian Edwards, Left Behind: Latin America and the False Promise of Populism.
2. Matthew Bishop and Michael Green, The Road from Ruin: How to Revive Capitalism and Put America Back on Top.
3. Daniel R. Headrick, Power over Peoples: Technology, Environments, and Western Imperialism, 1400 to the Present.
4. David S. Landes, Joel Mokyr, and William J. Baumol, editors, The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times.
Assorted links
1. Appreciative thinking, an underexplored virtue.
2. Markets in everything, wet nurse Baumol cost disease edition.
3. The transformation of Chile into a developed nation.
4. Proof that intercourse is special.
*From Poverty to Prosperity* watch
That's the title of the new and self-recommending book by Arnold Kling and Nick Schulz. This work has text by the authors, interspersed with interviews with famous economists, including Robert Fogel, Robert Solow, Joel Mokyr, Doug North, Bill Easterly, Edmund Phelps, Amar Bhide, William Lewis, and Bill Baumol. Here is Paul Romer:
It's the kind of culture that can tolerate rap music and extreme sports that can also create space for guys like Page and Brin and Google. That's one of our hidden strengths.
You can buy the book here. The subtitle is Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity.