From Cuesta and Sepulveda’s Price Regulation in Credit Markets: A Trade-off between Consumer Protection and Credit Access.
Interest rate caps are widespread in consumer credit markets, yet there is limited evidence on its effects on market outcomes and welfare. Conceptually, the effects of
interest rate caps are ambiguous and depend on a trade-off between consumer protection from banks’ market power and reductions in credit access. We exploit a policy in Chile that lowered interest rate caps by 20 percentage points to understand its impacts. Using comprehensive individual-level administrative data, we document that the policy decreased transacted interest rates by 9%, but also reduced the number of loans by 19%. To estimate the welfare effects of this policy, we develop and estimate a model of loan applications, pricing, and repayment of loans. Consumer surplus decreases by an equivalent of 3.5% of average income, with larger losses for risky borrowers. Survey evidence suggests these welfare effects may be driven by decreased consumption smoothing and increased financial distress. Interest rate caps provide greater consumer protection in more concentrated markets, but welfare effects are negative even under a monopoly. Risk-based regulation reduces the adverse effects of interest rate caps, but does not eliminate them.
Hat tip: Matt Notowidigdo.
Eric Peter Kaufmann (born 11 May 1970) is a Canadian professor of politics at Birkbeck College, University of London. He is a specialist on Orangeism in Northern Ireland, nationalism, political demography and demography of the religious/irreligious.
Eric Kaufmann was born in Hong Kong and raised in Vancouver, British Columbia, Canada. His ancestry is mixed with a quarter Chinese and a quarter Latino. His father is of Jewish descent, the grandfather hailing from Prostejov in the modern Czech Republic. His mother is a lapsed Catholic; he himself attended Catholic school for only a year. He received his BA from the University of Western Ontario in 1991. He received his MA from the London School of Economics in 1994 where he subsequently also completed his PhD in 1998.
Here is Eric’s home page. He’s also written on what makes the Swiss Swiss, American exceptionalism, and whether the Amish will outbreed us all.
So what should I ask Eric?
There has been lots of talk lately (including by me) about how unhappy and divided the UK is. The vote for Brexit is often described as a cry of pain from suffering people.
So I was stunned to see the chart reprinted below, which comes from the independent Resolution Foundation think-tank and shows that self-reported British life satisfaction is the highest since surveys began in the 1970s. About 93 per cent of Britons now say they are “fairly” or “very” satisfied with their lives.
Resolution reports “a very marked upward drift” since 2000, despite stagnating satisfaction during the financial crisis and since the referendum. Academic experts tell me they believe these findings. Nancy Hey, director of the What Works Centre for Wellbeing, says that, contrary to Britain’s doom-ridden national debate: “For most people, things have been getting gently better.”
Here is more from Simon Kuper at the FT, via Yana. In management, it strikes me as an interesting and underexplored question to what extent people, when things are going relatively well, turn on each other, or not.
Ahead of the second summit in Hanoi, North Korean dictator Kim Jong Un requested as part of the agreement between the countries moving forward that the U.S. send “famous basketball players” to normalize relations between the two countries, according to two U.S. officials.
The request was made in writing, officials said, as part of the cultural exchange between the two countries, and at one point the North Koreans insisted that it be included in the joint statement on denuclearization. The North Koreans also made a request for the exchange of orchestras between the two countries.
Among married women aged 20‐45, we estimate the average marginal willingness to pay (WTP) for a spring birth to be 877 USD. This implies a willingness to trade‐off 560 grams of birth weight to achieve a spring birth. Finally, we estimate that an increase of 1,000 USD in the predicted marginal WTP for a spring birth is associated with a 15 pp increase in the probability of obtaining an actual spring birth.
2. TV show about North Korean defector beauties (NYT, recommended).
3. China/Moldova fact of the day: “World alcohol consumption on the rise as China’s thirst grows. Chinese will surpass the US for per capita intake by 2030, research shows, but Moldova claims top spot for now.”
Here is the very good Alex Daniels story, here is one excerpt:
One of the benefits of receiving a grant from the center’s Emergent Ventures program, Cowen says, is that grantees will have access to a brain trust associated with the center and with his own well-established contacts among Silicon Valley’s tech elite. Cowen, a highly regarded economist who writes daily on his popular blog Marginal Revolution, doesn’t envision supporting a lot of traditional nonprofits. Instead, he tells the social entrepreneurs interested in applying that it’s OK to score a profit from their idea, calling a quick path to self-sufficiency a “feature, not a bug,” of any plan.
But the thrust behind Emergent Ventures isn’t ideological Cowen says. He’d simply like to get money out the door as quickly as possible to people who have a vision and need some support to bring those big ideas to fruition.
It’s a clear departure from what’s currently in fashion among institutional donors. Foundations often spend long hours tinkering with strategies to change broad societal systems. Some require grant applicants to enter monthslong challenges that are open to public input. Grant makers develop “scans” of the players involved in various social issues, employ consultants to develop measurements to determine success, and set up “feedback loops” to hear from other organizations and beneficiaries of grants.
Emergent Ventures may offer some insight, he says. So, too, could a philanthropy guided by public intellectuals with other perspectives, including Malcolm Gladwell, Paul Krugman, and Steven Pinker.
“I want to see a dozen or 20 other people set up their own version of this,” he says. “I’ll consider this a success if we’ve inspired people to do something similar.”
There is more at the link.
1. Robert W. Poole, Jr. Rethinking America’s Highways: A 21st Vision for Better Infrastructure. Highways can and will get much better, largely through greater private sector involvement. He is probably right, and there is much substance in this book.
2. Aysha Akhtar, Our Symphony with Animals: On Health, Empathy, and Our Shared Destinies. An unusual mix of memoir, animal compassion, and childhood horrors, I found this very moving.
3. Ethan Mordden, On Streisand: An Opinionated Guide. Should there not be a fanboy book like this about every person of some renown? Insightful and witty throughout, for instance: “…we comprehend Streisand from what she does — yet a few personal bits have jumped out at us through her wall of privacy. One is the “Streisand Effect”…which we can restate as “When famous people complain about something, they tend to make it famous, too.”
4. Jason Brennan and Phillip Magness, Cracks in the Ivory Tower: The Moral Mess of Higher Education. Hard-hitting and courageous, and I can attest that much of it is absolutely on the mark. Still, I did wish for a bit more of a comparative perspective. Are universities more hypocritical than other institutions? Might the non-signaling, learning rate of return on higher education still be positive and indeed considerable? I am not nearly as negative as the authors are, while nonetheless feeling much of their disillusion on the micro level. Furthermore, American higher education does pass a massive market test at the global level — foreign students really do wish to come and study here. What are we to make of that? Which virtues of the current system are we all failing to understand properly?
5. Kirk Goldsberry, Sprawlball: A Visual Tour of the New Era of the NBA. A highly analytical but also entertaining look at the rise of the three point shot, the history of Steph Curry, how LeBron James turned into such a good player, and much more, with wonderful visuals and graphics.
6. Paul Rabinow, Making PCR: A Story of Biotechnology. PCR is the polymerase chain reaction, and this is a genuinely good anthropological study of how scientific progress comes about, noting there is plenty of lunacy in this story, including love, LSD, and much more. There should be more books like this, this one dates from the 1990s but I am still hoping more people copy it. Via Ray Lopez.
Charles King, Gods of the Upper Air: How a Circle of Renegade Anthropologists Reinvented Race, Sex, and Gender in the Twentieth Century, covers Boas, Mead, Benedict, and others. Not enough of the material was new to me, though I expect for many readers this is quite a useful book.
I enjoyed Eric Foner, The Second Founding: How the Civil War and Reconstruction Remade the Constitution.
Daniel Markovits, The Meritocracy Trap: How America’s Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite. Remember how I used to say “The only thing worse than the Very Serious People are the Not Very Serious People?” Well, you should have listened. I have the same fear with the current critiques of meritocracy. That said, this is the book that does the most to pile on, against meritocracy, noting that much less space is devoted to possible solutions. There are arguments in their own right for wage subsidies and more low-income college admissions, but will those changes reverse the fundamental underlying dynamic of knowing just about everybody’s marginal product?
John Quiggin, Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly. The third lesson, however, is government failure, and you won’t find much about that here. Still, I found this to be a well-done book rather than a polemic. Here is the introduction on-line.
That is the topic of my latest Bloomberg column, here are some bits:
The trade talks are chaotic because a trade deal would be chaotic. By which I mean, it would be difficult to interpret and enforce, not unlike the present situation…
The basic problem is easy enough to state, though it is all but impossible to solve. Many of the U.S. objections to Chinese trade practices, regardless of their merits, are fundamental objections to how the Chinese economy is organized. They are more than mere complaints about easily monitored variables such as tariff rates.
…If a trade agreement is concluded, then, it is likely to have two parts: the parts that are easy to enforce, and the parts that aren’t. To the extent that the U.S. insists on greater Chinese compliance on the easier parts, a self-interested China will respond by shifting more trade onto the difficult-to-enforce parts of the agreement.
The tug of war will never cease. Trump will continue to tweet and move markets. The Chinese will continue to organize their economy to maximize state control. And maybe, over time, we will all recognize the broader truth: In a highly legalistic world, vague and hard-to define-strategies offer a competitive advantage.
Here is a new Reuters piece on how China already had started walking back many of its earlier commitments.
Here is the audio and transcript, this was one of my favorite Conversations. Here is the CWTeam summary:
Knausgård’s literary freedom paves the way for this conversation with Tyler, which starts with a discussion of mimesis and ends with an explanation of why we live in the world of Munch’s The Scream. Along the way there is much more, including what he learned from reading Ingmar Bergman’s workbooks, the worst thing about living in London, how having children increased his productivity, whether he sees himself in a pietistic tradition, thoughts on Bible stories, angels, Knut Hamsun, Elena Ferrante, the best short story (“Tlön, Uqbar, Orbis Tertius”), the best poet (Paul Celan), the best movie (Scenes from a Marriage), and what his punctual arrival says about his attachment to bourgeois values.
Here is one excerpt:
KNAUSGÅRD: You have this almost archetypical artist putting his art before his children, before his family, before everything. You have also Doris Lessing who did the same — abandoned her children to move to London to write.
I’ve been kind of confronted with that as a writer, and I think everyone does because writing is so time consuming and so demanding. When I got children, I had this idea that writing was a solitary thing. I could go out to small islands in the sea. I could go to lighthouses, live there, try to write in complete . . . be completely solitary and alone. When I got children, that was an obstruction for my writing, I thought.
But it wasn’t. It was the other way around. I’ve never written as much as I have after I got the children, after I started to write at home, after I kind of established writing in the middle of life. It was crawling with life everywhere. And what happened was that writing became less important. It became less precious. It became more ordinary. It became less religious or less sacred.
It became something ordinary, and that was incredibly important for me because that was eventually where I wanted to go — into the ordinary and mundane, even, and try to connect to what was going on in life. Life isn’t sacred. Life isn’t uplifted. It is ordinary and boring and all the things, we know.
COWEN: So many great Norwegian writers — Ibsen, Sigrid Undset, Knut Hamsun — there’s nationalism in their work. Yet today, liberals tend to think of nationalism as an unspeakable evil of sorts. How do we square this with the evolution of Norwegian writing?
And if one thinks of your own career, arguably it’s your extreme popularity in Norway at first that drove your later fame. What’s the connection of your own work to Norwegian nationalism? Are you the first non-nationalist great Norwegian writer? Is that plausible? Or is there some deeper connection?
KNAUSGÅRD: I think so much writing is done out of a feeling of not belonging. If you read Knut Hamsun, he was a Nazi. I mean, he was a full-blooded Nazi. We have to be honest about that.
COWEN: His best book might be his Nazi book, right? He wrote it when he was what, 90?
COWEN: On Overgrown Paths?
COWEN: To me, it’s much more interesting than the novels, which are a kind of artifice that hasn’t aged so well.
COWEN: But you read On Overgrown Paths, you feel like you’re there. It’s about self-deception.
KNAUSGÅRD: It’s true, it’s a wonderful book. But I think Hamsun’s theme, his subject, is rootlessness. In a very rooted society, in a rural society, in a family-orientated society like Norway has been — a small society — he was a very rootless, very urban writer.
He went to America, and he hated America, but he was America. He had that in him. He was there in the late 19th century, and he wrote a book about it, which is a terrible book, but still, he was there, and he had that modernity in him.
He never wrote about his parents. Never wrote about where he came from. All his characters just appear, and then something happens with them, but there’s no past. I found that incredibly intriguing just because he became the Nazi. He became the farmer. He became the one who sang the song about the growth. What do you call it? Markens Grøde.
COWEN: Growth of the Soil.
COWEN: Arnold Weinstein has a book on Nordic culture, and he argues that the sacrifice of the child is a recurring theme. It’s in Kierkegaard’s Fear and Trembling. It’s in a number of Ibsen plays, Bergman movies. Has that influenced you? Or are you a rejection of that? Are you like Edvard Munch, but with children, and that’s the big difference between you and Munch, the painter?
I told you we ask different questions.
KNAUSGÅRD: Yeah, yeah. You just said different. You didn’t say difficult.
Knausgaard showed up for the taping carrying a package of black bread, which he forgot to take with him when leaving. So for the rest of the day, I enjoyed his black bread…
That is the topic of my latest Bloomberg column, here is the opening:
Americans’ trust in their government is abysmally low, according to both survey data and a more subjective reading of opinions about President Donald Trump and Congress. I hold a contrarian view: Trust in the actual operations of government is pretty high, and the real growing mistrust is of each other.
Consider first that the Trump administration’s record spending and deficits don’t seem all that unpopular, even among those who detest Trump or might favor different spending priorities. No major candidate is campaigning on a platform of fiscal responsibility and restraint, and that is a sign of high trust in government.
I go through the major government programs, and show they are (mostly) pretty well trusted by the American people. Here is another consideration:
Finally, interest rates on government debt have been remarkably low for years, probably the single best measure of trust in a government; less trusted countries such as Argentina and Turkey have to pay very high interest rates to borrow. The recent rise in U.S. rates is due more to an economic expansion than to rising fears of default.
Here is the basic model:
In reality, as people get older, they rely on government for more and more. While that is indeed a form of trust, it also increases anxiety about those in charge, and their values and priorities. The higher level of anxiety exists precisely because there is, for better or worse, greater dependence. Don’t confuse the resulting nervousness with a lack of trust.
Our leaders aside, we trust the actual operation of government on the ground, so to speak. These days, what we do not trust is each other:
Many Democrats and Republicans do not want their children to marry into the other political party, for instance, and these preferences are growing stronger. So when one branch of the government is affiliated with one of the parties, as it inevitably is, members of the other party will voice a low level of trust. But their complaint may be about the supporters of that branch of the government as much as the government itself.
Here is a Washington Post obituary. Yes, he did write a bestselling tribute to Churchill, but more importantly he was one of the last representatives of a particular central European notion of history and culture. I much prefer the Times of Israel obituary. Here is Wikipedia. The Last European War and Budapest 1900: A Historical Portrait of a City and its Culture are two of my favorite books by him.