Results for “law literature” 167 found
The internationalization of Italy?
Two days ago I reported on how Italian food was the big winner from culinary globalization. How are things going in Italy itself?:
Annual spending by Italian families on restaurants and cafes shrank nearly 2% between 2007 and 2014, Eurostat’s latest data show, while consumption of ethnic foods such as Chinese or North African has nearly doubled during that period.
The Masuellis—with a back-of-the-envelope way of running their business—can’t get bank loans to modernize their restaurant. They had to sell a property to fund the restaurant in 2011 and 2012, and have also reached into their own pockets to pay salaries and taxes at times.
Mr. Masuelli considered firing some of his five employees, but the rigid labor laws meant the cost of dismissing them was too high. At the same time, new health and safety regulations have eaten into profit.
More broadly there is this:
Officer Pang is a top supervisor in one of China’s biggest police departments, in the southern metropolis of Guangzhou. But for two weeks, he and three other Chinese police officers are in Italy with strict orders: to protect Chinese tourists.
Of course it is only four officers, but isn’t that what they said at first about RoboCop? I also enjoyed this paragraph:
“It’s our duty to make Chinese fall in love with Rome and Italy,” said Alessandro Zucconi, the president of the Young Hoteliers Federation in Rome, who agreed that “misunderstandings” sometimes occur between the two cultures. “They are not like the Germans, who mostly come knowing our culture and literature better than we do.”
Developing…
The economics of pandemic influenza risk
There is a new NBER paper on this topic, by Victoria Y. Fan, Dean T. Jamison, and Lawrence H. Summers, here is the abstract:
Estimates of the long-term annual cost of global warming lie in the range of 0.2-2% of global income. This high cost has generated widespread political concern and commitment as manifested in the Paris agreements of December, 2015. Analyses in this paper suggest that the expected annual cost of pandemic influenza falls in the same range as does that of climate change although toward the low end. In any given year a small likelihood exists that the world will again suffer a very severe flu pandemic akin to the one of 1918. Even a moderately severe pandemic, of which at least 6 have occurred since 1700, could lead to 2 million or more excess deaths. World Bank and other work has assessed the probable income loss from a severe pandemic at 4-5% of global GNI. The economics literature points to a very high intrinsic value of mortality risk, a value that GNI fails to capture. In this paper we use findings from that literature to generate an estimate of pandemic cost that is inclusive of both income loss and the cost of elevated mortality. We present results on an expected annual basis using reasonable (although highly uncertain) estimates of the annual probabilities of pandemics in two bands of severity. We find:
1. Expected pandemic deaths exceed 700,000 per year worldwide with an associated annual mortality cost of estimated at $490 billion. We use published figures to estimate expected income loss at $80 billion per year and hence the inclusive cost to be $570 billion per year or 0.7% of global income (range: 0.4-1.0%).
2. For moderately severe pandemics about 40% of inclusive cost results from income loss. For severe pandemics this fraction declines to 12%: the intrinsic cost of elevated mortality becomes completely dominant.
3. The estimates of mortality cost as a % of GNI range from around 1.6% in lower-middle income countries down to 0.3% in high-income countries, mostly as a result of much higher pandemic death rates in lower-income environments.
4. The distribution of pandemic severity has an exceptionally fat tail: about 95% of the expected cost results from pandemics that would be expected to kill over 7 million people worldwide.
In other words, in expected value terms an influenza pandemic is a big problem indeed. But since, unlike global warming, it does not fit conveniently into the usual social status battles which define our politics, it receives far less attention.
Thursday assorted links
1. How well is Polish democracy doing?: a symposium. The answer from the Polish government is the most interesting, even if not entirely accurate. And might Poland be kicked out of the Eurovision Song Contest?
2. James Fallows is launching a war on leaf blowers.
4. Symposium on Jacob Levy’s Rationalism, Pluralism, and Freedom. And Kareem Abdul-Jabbar’s beautiful mind.
5. Why accurate financial disclosure may harm the interests of shareholders.
6. The economics of Netflix, and is it the next Amazon? (NYT)
7. Computerized dating at Harvard, circa 1965. And yes it is the same Douglas Ginsburg.
Best fiction of 2015
I thought it was a stellar year for fiction, even though most of the widely anticipated books by famous authors disappointed me. These were my favorites, more or less in the order I read them, not in order of preference:
Michel Houellebecq, Soumission/Submission. The correct reading is always a level deeper than the one you are currently at.
Larry Kramer, The American People. Epic, reviewed a lot but then oddly overlooked in a crowded year.
The Seventh Day, by Yu Hua. Perhaps my favorite of all the contemporary Chinese novels I have read: “Lacking the money for a burial plot, he must roam the afterworld aimlessly, without rest.”
Chris Adrian and Eli Horowitz, New World, “An innovative story of love, decapitation, cryogenics, and memory by two of our most creative literary minds.”
Vendela Vida, The Diver’s Clothes Lie Empty. Fun without being trivial.
Elena Ferrante, volume four, The Story of the Lost Child. See my various posts about her series here, one of the prime literary achievements of the last twenty years.
The Widower, by Mohamed Latiff Mohamed. My favorite novel from Singapore.
The Meursault Investigation, by Kamel Daoud. I’ll teach it this coming year in Law and Literature.
Eka Kurniawan, Beauty is a Wound. It’s been called the Garcia Marquez of Indonesia, and it is one of the country’s classic novels, newly translated into English. Here is a good NYT review.
Nnedi Okorafor, Binti. Okorafor is American but born to two Nigerian parents, this science fiction novella is creative and fun to read. Ursula K. Le Guin likes her too.
Of those, Houllebecq and Ferrante are the must-reads, the others are all strong entries, with New World being perhaps the indulgence pick but indulgences are good, right?
And here are three other new books/editions/translations which I haven’t had any chance to spend time with, but come as self-recommending:
The Poems of T.S. Eliot, volume 1 and volume 2, annotated. Rave reviews for those.
Tale of Genji, by Murasaki Shikibu, translated by Dennis Washburn.
Homer’s Iliad, translated by Peter Green. Also gets rave reviews.
Why has productivity dispersion across firms gone up?
Yesterday Alex outlined the facts, which I take to be not in dispute. Firms at the frontier have seen significant productivity gains, the others not so much. Alex calls this a “lack of innovation diffusion” and considers whether IP law might be one cause.
My framing is somewhat different. The result reminds me of the international trade literature on why so few firms export. The notions of increasing returns to scale, and fixed costs to trade abroad, provide the beginnings of an answer. In such a setting, let’s say the world has become more globalized, more IRS, and more based on learning curves, much of those trends being attributable to information technology. In that case we would expect a growing bifurcation of firm productivity outcomes, just as we find a strong bifurcation of export outcomes, with a relatively small percentage of firms doing most of the international trade, or innovating, as the case may be. The “only a small percentage of firms export” and the “only a small percentage of firms are on the productivity frontier” may sometimes even be the same way of describing the same basic fact.
The on the ground reality I observe is that the large, famous, exporting firms put together fantastic O-Ring teams of talent in a way the smaller, medium-size enterprises do not. That is the relevant diffusion barrier, but of course there may be limits on that diffusion as well. Eliminating barriers across firms is a good idea but not enough either.
And does the presence of relatively strict IP law subsidize such O-Ring teams, or limit their diffusion? You can argue it either way.
My International Trade reading list for Fall 2015
This is quite long, so it goes under the fold…class starts tomorrow night!
Books: Jacob Viner, Studies in the Theory of International Trade (on-line, optional).
All videos can be found on MRUniversity.com, if not in the international trade section than in the development economics class or a few on Mexico in the Mexico class. In general I recommend viewing the videos before tackling the readings.
I. Comparative advantage and free trade
Bernhofen, Daniel and John C. Brown. 2005. “An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan.” American Economic Review.
Autor, David H. David Dorn and Gordon H. Hanson. Untangling Trade and Technology: Evidence from Local Labour Markets. The Economic journal, 2015, 125 (584), p. 621 – 646.
Acemoglu, Daron, David Autor, David Dorn, and Gordon H. Hanson. 2014. “Import Competition and the Great US Employment Sag of the 2000s.” NBER Working Paper.
Feenstra, Robert C. 2008. “Offshoring in the Global Economy.” Ohlin Lecture Series, Lecture 1 only, through p.66 only.
Grossman, Gene M. and Esteban Rossi-Hansberg. 2006. “The Rise of Offshoring: It’s Not Wine for Cloth Anymore.” Federal Reserve Bank of Kansas City.
Donaldson, David. 2011. “Trade and Labor Markets.” powerpoint.
Khandelwal, Amit. 2009. “The Long and Short (of) Quality Ladders.” Review of Economic Studies.
Baldwin, Richard. 2011. “How Trade and Industrial Organization After Globalization’s 2nd Unblundling: How Building and Joining a Supply Chain are Different and Why it Matters.” NBER Working Paper. Also this is a chapter in the NBER book Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century (2014), Robert C. Feenstra and Alan M. Taylor, editors, pp. 165–212.
Goldberg, Pinelopi Koujianou and Nina Pavcnik. 2007. “Distributional Effects of Globalization in Developing Countries.” Journal of Economic Literature.
Tyler Cowen, “Why the theory of comparative advantage is overrated,” Marginal Revolution blog post, https://marginalrevolution.com/marginalrevolution/2013/09/why-the-theory-of-comparative-advantage-is-overrated.html
Videos: The two videos on Comparative Advantage, Sources of Comparative Advantage, Development and Trade, empirical evidence, Evidence on Comparative Advantage from Japan, Factor price equalization, Specific Factors Models, Economics of Offshoring, The Rybczynski Theorem, Trade, Investment, and Migration as Substitutes, Unbundling the Supply Chain.
II.Tariffs
Paul Krugman. “The One-Minute Trade Policy Theorist.” (powerpoint)
The Economic Benefits of U.S. trade, Office of the President of the United States, May 2015.
Broda, Christian, Nuno Limao, and David Weinstein. 2008. “Optimal Tariffs and Market Power: The Evidence.” American Economic Review.
Arkolakis, Costas, Arnaud Costinot and Andres Rodriguez-Clare. 2012. “New Trade Models, Same Old Gains?” American Economic Review.
Melitz, Marc J. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica 2003.
Kehoe, Timothy J. and Kim J. Ruhl. 2006. “How Important Is the New Goods Margin in International Trade?” NBER Working Paper, and now just published, Journal of Political Economy 2013.
Bernhofen, Daniel M., Zouheir El-Sahli, and Richard Kneller. 2012. “Estimating the Effects of the Container Revolution on World Trade.” University of Nottingham Discussion Paper Series.
Nunn, Nathan and Daniel Trefler. 2010. “The Structure of Tariffs and Long-Term Growth.” American Economic Review.
Dave Donaldson, “Trade and Growth (Empirics)”, MIT Lectures notes.
Videos: Tariffs v. Quotas, International Trade Disciplines Monopolies, Monopolistic Competition and International Trade, Effective rate of protection, Theory of Optimal Tariffs, Trade and Variety, Does “fair trade” help?, Malawi restrict trade in corn, Market reforms in Bangladesh, John Stuart Mill Terms of trade, The Shipping Container.
III. Heckscher-Ohlin and factor abundance theories of trade
Helpman, Elhanan. 1999. “The Structure of Foreign Trade.” Journal of Economic Perspectives.
Debaere, Peter. 2003. “Factor Abundance and Trade.” Journal of Political Economy.
Deardorff, Alan V. 1979. “Weak Links in the Chain of Comparative Advantage.” Journal of International Economics.
Trefler, Daniel. 1993. “International Factor Price Differences: Leontief Was Right!” Journal of Political Economy.
Davis, Donald R. and David E. Weinstein. 2001. “What Role for International Trade.” NBER Working Paper.
Davis, Donald R. 1995. “Intra-Industry Trade: A Heckscher-Ohlin-Ricardo Approach.” Journal of International Economics.
Trefler, Daniel. 1995. “The Case of the Missing Trade and Other Mysteries.” American Economic Review.
Costino, Arnaud and Jonathan Vogel. “Beyond Ricardo: Assignment Models in International Trade,” NBER Working Paper, October 2014.
Videos: What is at Stake in Trade Theories?, The Heckscher-Ohlin Theorem, Evidence on the Heckscher-Ohlin Theorem.
IV. Increasing Returns
Donaldson, David. “Increasing Returns to Scale and Monopolistic Trade.” Powerpoint, on-line, http://economics.mit.edu/files/7444
Helpman, Elhanan. 1987. “Imperfect Competition and International Trade: Evidence from Fourteen Industrial Countries.” Journal of the Japanese and International Economics.
Davis, Donald R. and David E. Weinstein. 2003. “Market Access, Economic Geography, and Comparative Advantage: An Empirical Test.” Journal of International Economics.
Antweiler, Werner ; Trefler, Daniel. Increasing Returns and All That: A View from Trade, American Economic Review, 1 March 2002, Vol.92(1), pp.93-119.
Debaere, Peter. 2005. “Monopolistic Competition and Trade, Revisited: Testing the Model Without Testing for Gravity.” Journal of International Economics.
Yi, Kei-Mu. 2003. “Can Vertical Specialization Explain the Growth of World Trade?” Journal of Political Economy.
Harrigan, James. 2001. “Specialization and the Volume of Trade: Do the Data Obey the Laws?” NBER Working Paper.
Bernard, Andrew B. ; Jensen, J. Bradford ; Redding, Stephen J. ;Schott, Peter K. “Firms in International Trade,” Journal of Economic Perspectives, 1 July 2007, Vol.21(3), pp.105-130.
Helpman, Elhanan. Foreign Trade and Investment: Firm‐level Perspectives,” Economica, 2014, Vol.81(321), pp.1-14.
Tybout, James R. 2001. “Plant- and Firm-Level Evidence on “New” Trade Theories.” NBER Working Paper.
Bernard, Andrew B. and J. Bradford Jensen. 2004. “Why Some Firms Export.” Review of Economics and Statistics.
Baldwin, Richard ; Harrigan, James. Zeros, Quality, and Space: Trade Theory and Trade Evidence,” American Economic Journal: Microeconomics, 1 May 2011, Vol.3(2), pp.60-88.
Armenter, Roc and Koren, Miklos. “A Balls-and-Bins Model of Trade.” American Economic Review, 2014, https://www.aeaweb.org/articles.php?doi=10.1257/aer.104.7.2127.
Videos: Trade and External Economies of Scale, Monopolistic Competition and International Trade, Trade and Increasing Returns: Evidence, Paul Romer, Robert Torrens on strategic trade policy, The Economics of Bollywood.
V. Is there a trade and industrialization slowdown?
Hausmann, Ricardo, Jason Hwang, and Dani Rodrik. “What You Export Matters.” Journal of Economic Growth, 12, 1, March 2007, 1-25.
Rodrik, Dani. “The Future of Economic Convergence.” Harvard Kennedy School, August 2011, RWP11-033.
Rodrik, Dani. “Unconditional Convergence in Manufacturing.” Quarterly Journal of Economics, 2012.
Rodrik, Dani. “The Perils of Premature Deindustrialization.” Project Syndicate, 11 October 2013.
Rodrik, Dani. “Are Services the New Manufactures?” Project Syndicate, October 13, 2014.
Davies, Gavyn. “Why world trade growth has lost its mojo.” The Financial Times, January 9, 2015.
VI. Gravity models
Anderson, James and Eric van Wincoop. 2004. “Trade Costs” Journal of Economic Literature.
Head, Keith. 2011. “Gravity for Beginners.” Presented at US-Canada Border Conference.
Donaldson, David. 2011. “Gravity Models.” No Journal—powerpoint.
Hummels, David. 2007. “Transportation Costs and International Trade in the Second Era of Globalization.” Journal of Economic Perspectives.
Anderson, James and Eric van Wincoop. 2003. “Gravity with Gravitas: A Solution to the Border Puzzle.” American Economic Review.
Eaton, Jonathan and Samuel Kortum. 2002. “Technology, Geography, and Trade.” Econometrica.
Chaney, Thomas. “The Network Structure of International Trade,” American Economic Review 2014.
Video: The Gravity Equation and the Costs of Trade.
VII. Trade in economic history
Harrison, Ann and Andres Rodriguez-Clare. 2010. “Trade, Foreign Investment, and Industrial Policy for Developing Countries.” Handbook of Development Economics, Volume 5, Ch 63, also the same is Ann Harrison and Andres Rodriguez-Clare. 2009. “Trade, Foreign Investment, and Industrial Policy for Developing Countries.” NBER Working Paper.
Irwin, Douglas. 2002. “Interpreting the Tariff-Growth Correlation of the Late Nineteenth Century.” American Economic Review.
Irwin, Douglas. 2002. “Did Import Substitution Promote Growth in the Late Nineteenth Century?” NBER Working Paper.
John Nye, “The Myth of Free Trade Britain and Fortress France,” Journal of Economic History, 1991.
Irwin, Douglas. 1997. “From Smoot-Hawley to Reciprocal Agreements: Changing the Course of U.S. Trade Policy in the 1930s.” NBER Working Paper.
Irwin, Douglas. 1998. “The Smoot-Hawley Tariff: A Quantitative Assessment.” The Review of Economic Statistics.
Crowley, Meredith A. and Xi Luo. 2011. “Understanding the Great Trade Collapse of 2008-09 and the Subsequent Trade Recovery.” Journal of Economic Perspectives.
Francois, Joseph and Julia Woerz. 2009. “The Big Drop: Trade and the Great Recession.” No Journal, article online.
Videos: Corn Law debates, Friedrich List, Robert Torrens on sliding tariffs, The Deindustrialization of India, Tariffs and Growth in the late 19thCentury, South Korea and Industrial Policy, The Smoot-Hawley Tariff, Why Did Trade Plummet in the Great Recession?
VIII. FDI and multinationals
Blonigen, Bruce. A Review of the Empirical Literature on FDI Determinants, Atlantic Economic Journal, 2005, 33, 4, pp.383-403
Ramondo, Natalia and Andres Rodriguez-Clare. 2013. “Trade, Multinational Production, and the Gains from Openness.” Journal of Political Economy, 2013, vol. 121, no. 2.
Antras, Pol and Stephen R. Yeaple. 2013. “Multinational Firms and the Structure of International Trade.” NBER Working Paper, it is also Pol Antras and Stephen Yeaple, “Multinational Firms and the Structure of International Trade,” 2013, Handbook of International Economics,Volume 4, http://dx.doi.org/10.1016/B978-0-444-54314-1.00002-1
Cole, Harold L., Jeremy Greenwood, and Juan M. Sanchez. “Why Doesn’t Technology Flow From Rich to Poor Countries?” National Bureau of Economic Research Working Paper, 20856, January 2015.
Videos: Basics of multinational corporations, Intra-firm Trade, Intra-industry Trade, Gains from Multinationals, Who Gains from FDI?, Productivity in firms, Foreign investment in India, Competition from foreign retailers, What is a Maquiladora? Introduction to NAFTA, NAFTA and Mexican Agriculture, The Effect of NAFTA on the Mexican Economy.
IX. The politics of trade
Grossman, Gene M. and Elhanan Helpman. 1994. “Protection for Sale.” American Economic Review.
Goldberg, Pinelopi Koujianou and Giovanni Maggi. 1999. “Protection for Sale: An Empirical Investigation.” American Economic Review.
Mayda, Anna Maria and Dani Rodrik. 2005. “What are Some People (and Countries) More Protectionist than Others?” European Economic Review.
Grossman, Gene M. and Elhanan Helpman. 1995. “The Politics of Free-Trade Agreements.” American Economic Review.
Harrison, Ann and Jason Scorse. 2010. “Multinational and Anti-Sweatshop Activism.” American Economic Review.
Videos: The Political Economy of Tariffs, Does Trade Help the Environment?, Regulation as a Major Trade Barrier, Who Supports Free Trade?, The Cultural Diversity Critique of Markets.
Extra readings and videos will be added, as global events indicate.
How much of the value of the internet is not captured in gdp?
I have been hearing this question more and more lately, even in China. Overall I think it has gone from an underrated effect to an overrated effect. Tim Worstall offers an introduction to this debate.
Let’s not forget that you do in fact pay for Facebook access, indirectly, when you pay for your cable connection, your iPad, and your smart phone. including the monthly bill, all of which are part of measured gdp. The more value Facebook brings you, the more you would be willing to pay for these goods and services. The same is true for Google and the like. So Facebook and other internet services are part of a bundled package of market value, but that is very different from claiming they are not measured in gdp at all.
There is of course consumer surplus from the internet and Facebook, just as there is from Dunkin’ Donuts. Might that consumer surplus be especially high? Well, we don’t know, but don’t assume it will be. I did some casual googling, and found a number of estimates suggesting that smart phone demand is relatively price elastic, with the iPhone a possible exception to that regularity. That implies consumer surplus isn’t especially high, because many people aren’t willing to buy at the higher price. I thus think Brad DeLong is far too optimistic in his estimates of ratio consumer surplus to market price.
You also could look at the literature on the demand for cable internet services. The results are mixed, but again I don’t see a strong case for a disproportionately high consumer surplus from these services, if anything the contrary.
Now maybe these estimates are wrong, or looking at the wrong margin in some way, but the fact that I hear them mentioned so rarely gives me pause. Cowen’s Third Law.
There is also advertising over the internet. Let’s say Facebook is a profit maximizer. Insofar as Facebook is of value to consumers, the company can get away with putting a lot of ads on the site. These will spur additional market purchases, and so part of the value of the site is again captured in gdp. Obviously some of these ad effects are simply expenditure-switching, and so there is no full capture of value, but still Facebook shows up in gdp statistics in yet another way.
Here are some previous posts on this topic.
Immigration and the Institutions of Freedom
One of the perennial worries about immigration, especially from libertarian/conservative types, is that it will corrode the foundations of a free society. Using the Economic Freedom of the World Index, Clark, Lawson, Nowrasteh, Powell, and Murphy find no evidence for this fear. Countries that accept more immigrants tend if anything to grow in economic freedom:
The economics literature generally finds a positive, but small, gain in income to native-born populations from immigrants and potentially large gains in world incomes. But immigrants can also impact a recipient nation’s institutions. A growing empirical literature supports the importance of strong private property rights, a rule of law, and an environment of economic freedom for promoting long-run prosperity. But little is known about how immigration impacts these institutions. This paper empirically examines how immigration impacts a nation’s policies and institutions. We find no evidence of negative and some evidence of positive impacts in institutional quality as a result of immigration.
*Guantánamo Diary*
That is the recent book by Mohamedou Ould Slahi, who has been held at Guantánamo for many years. This is a classic of prison literature, and I will teach it next year in my Law and Literature class. Almost every page is interesting:
It is just amazing that the FBI trusts the Jordanians more than the other American intelligence agencies.
And:
I don’t know any other language that writes Colonel and pronounces it Kernel.
His written English is quite good. Definitely recommended, and the heavily redacted nature of the text enhances the reading experience rather than detracting from it. Here is a good review from The Guardian.
Will the Black Panthers make a comeback?
In my spare time I was reading some Huey Newton, and it struck me how contemporary his ideas were in some regards, in particular the risk of arbitrary violence at the hands of the police. Here is an excerpt from Revolutionary Suicide:
As our forces built up, we doubled the patrols, then tripled them; we began to patrol everywhere — Oakland, Richmond, Berkeley, and San Francisco. Most patrols were a part of our normal movement around the community. We kept them random, however, so that the police could not set a network to anticipate us. They never knew when or where we were going to show up…The chief purpose of the patrols was to teach the community security against the police, and we did not need a regular schedule for that. We knew that no particular area could be totally defended; only the community could effectively defend and eventually liberate itself. Our aim simply was to teach them how to go about it. We passed out our literature and ten-point program to the citizens who gathered, discussed community defense, and educated them about their rights concerning weapons.
By the way, Hillary Clinton worked as a young intern for the Huey Newton legal defense team (he was accused of shooting a policeman).
Why I like trigger warnings
At a growing number of campuses, professors now attach “trigger warnings” to texts that may upset students, and there is a campaign to eradicate “microaggressions,” or small social slights that might cause searing trauma. These newly fashionable terms merely repackage a central tenet of the first p.c. movement: that people should be expected to treat even faintly unpleasant ideas or behaviors as full-scale offenses.
Read his whole discussion, but he more or less disapproves. I’ve long wanted to disagree with Chait “from the left,” and it seems this is my chance, I had better grab it while I can.
While teaching Law and Literature this year, I attached very gentle, low key “trigger warnings” to a number of items on the syllabus, namely those dealing with extreme violence, rape, and some other very unpleasant situations. I am glad I did this. I told students that if they preferred to do a substitute assignment, I could arrange that. Is that so unreasonable? There were no takers, but I don’t see it did anyone harm or limited free speech in the classroom (or outside of it) to make this offer. If anything, it may have eased speech a slight amount by noting it is OK to feel uncomfortable with some topics, or at least serving up that possibility into the realm of common knowledge. That struck me as better and wiser than simply pretending we were studying the successful operation of the Coase theorem the whole time.
I don’t doubt that trigger warnings may be misused in some situations by some professors, but overall they seem to me like another small step to a better world. I do agree we need to liberate trigger warnings from the strictures of the PC movement, no argument there.
Addendum: I am pleased to see that GMU was moved into the highest category for university free speech, according to FIRE.
What I’ve been reading
1. Dead Wake: The Last Crossing of the Lusitania, by Erik Larson. My favorite of his books, fun and readable as you would expect, many interesting details including what happens to you in water at 55 degrees Fahrenheit.
2. Philip Glass, Words Without Music. “A lot of Einstein on the Beach was written at night after driving a cab.” An excellent memoir of both Glass’s early life and the New York creative world up through 1976 or so.
3. Colm Tóibín, On Elizabeth Bishop. A good example of a book I wish was longer than it was, it is shorter than its 199 pp. might indicate. As a poet I much prefer Bishop to her correspondent Robert Lowell; their letters collection by the way makes for superb reading and drama.
4. Njal’s Saga. I just taught this in Law and Literature, and on the re-read I enjoyed it more than expected. The core model is that arbitration is binding, provided the expected outcome does not stray too far from what violence would bring. The best way to go through the book is first to master the internal story of sections 121-145, then read to the end, and finally go to the beginning. A recommended guide is William Ian Miller’s “Why is Your Axe So Bloody?”; yes that is the same Miller who wrote very good books on disgust and humiliation.
Are S&P 500 firms now 5/6 “dark matter” or intangibles?
Justin Fox started it, and Robin Hanson has a good restatement of the puzzle:
The S&P 500 are five hundred big public firms listed on US exchanges. Imagine that you wanted to create a new firm to compete with one of these big established firms. So you wanted to duplicate that firm’s products, employees, buildings, machines, land, trucks, etc. You’d hire away some key employees and copy their business process, at least as much as you could see and were legally allowed to copy.
Forty years ago the cost to copy such a firm was about 5/6 of the total stock price of that firm. So 1/6 of that stock price represented the value of things you couldn’t easily copy, like patents, customer goodwill, employee goodwill, regulator favoritism, and hard to see features of company methods and culture. Today it costs only 1/6 of the stock price to copy all a firm’s visible items and features that you can legally copy. So today the other 5/6 of the stock price represents the value of all those things you can’t copy.
Check out his list of hypotheses. Scott Sumner reports:
Here are three reasons that others have pointed to:
1. The growing importance of rents in residential real estate.
2. The vast upsurge in the share of corporate assets that are “intangible.”
3. The huge growth in the complexity of regulation, which favors large firms.
It’s easy enough to see how this discrepancy may have evolved for the tech sector, but for the Starbucks sector of the economy I don’t quite get it. A big boost in monopoly power can create a larger measured role for accounting intangibles, but Starbucks has plenty of competition, just ask Alex. Our biggest monopoly problems are schools and hospitals, which do not play a significant role in the S&P 500.
Another hypothesis — not cited by Sumner or Hanson — is that the difference between book and market value of firms is diverging over time. That increasing residual gets classified as an intangible, but we are underestimating the value of traditional physical capital, and by more as time passes.
Cowen’s second law (“There is a literature on everything”) now enters, and leads us to Beaver and Ryan (pdf), who study biases in book to market value. Accounting conservatism, historical cost, expected positive value projects, and inflation all can contribute to a widening gap between book and market value. They also suggest (published 2000) that overestimations of the return to capital have bearish implications for future returns. It’s an interesting question when the measured and actual means for returns have to catch up with each other, what predictions this eventual catch-up implies, and whether those predictions have come true. How much of the growing gap is a “bias component” vs. a “lag component”? Heady stuff, the follow-up literature is here.
Perhaps most generally, there is Hulten and Hao (pdf):
We find that conventional book value alone explains only 31 percent of the market capitalization of these firms in 2006, and that this increases to 75 percent when our estimates of intangible capital are included.
So some of it really is intangibles, but a big part of the change still may be an accounting residual. Their paper has excellent examples and numbers, but note they focus on R&D intensive corporations, not all corporations, so their results address less of the entire problem than a quick glance might indicate. By the way, all this means the American economy (and others too?) has less leverage than the published numbers might otherwise indicate.
Here is a 552 pp. NBER book on all of these issues, I have not read it but it is on its way in the mail. Try also this Robert E. Hall piece (pdf), he notes a “capital catastrophe” occurred in the mid-1970s, furthermore he considers what rates of capital accumulation might be consistent with a high value for intangible assets. That piece of the puzzle has to fit together too. This excellent Baruch Lev paper (pdf) considers some of the accounting issues, and also how mismeasured intangible assets often end up having their value captured by insiders; that is a kind of rent-seeking explanation. See also his book Intangibles. Don’t forget the papers of Erik Brynjolfsson on intangibles in the tech world, if I recall correctly he shows that the cross-sectoral predictions line up more or less the way you would expect. Here is a splat of further references from scholar.google.com.
I would sum it up this way: measuring intangible values properly shows much of this change in the composition of American corporate assets has been real. But a significant gap remains, and accounting conventions, based on an increasing gap between book and market value, are a primary contender for explaining what is going on. In any case, there remain many underexplored angles to this puzzle.
Addendum: I wish to thank @pmarca for a useful Twitter conversation related to this topic.
Institutions are not always so important (or easy to measure properly?)
Jinfeng Luo and Yi Wen from the St. Louis Fed have a new working paper (pdf), “Institutions Do Not Rule: Reassessing the Driving Forces of Economic Development”:
We use cross-country data and instrumental variables widely used in the literature to show that (i) institutions (such as property rights and the rule of law) do not explain industrialization and (ii) agrarian countries and industrial countries have entirely different determinants for income levels.
In particular, geography, rather than institutions, explains the income differences among agrarian countries, while institutions appear to matter only for income variations in industrial economies. Moreover, we find it is the stage of economic development (or the absence/presence of industrialization) that explains a country’s quality of institutions rather than vice versa.
The finding that institutions do not explain industrialization but are instead explained by industrialization lends support to the well-received view among prominent economic historians — that institutional changes in 17th and 18th century England did not cause the Industrial Revolution.
I am reminded of a puzzle which I think was first posed by Jeff Sachs. Go back to 1960 and choose any measure of institutional quality you want. Then see how well it predicts cross-national growth since then. And that is doing the exercise knowing how the answer comes out!
SNB tweets to ponder
It’s funny how faculty who work at universities with large endowments can’t understand the decisions of the Swiss National Bank…
That one is from me. In this kind of status-driven, bureaucratic environment, the incentive is to extend your cushion, not run it down and have to print up new money to replenish it, thereby receiving egg on your face and appearing dependent and outside the rules of the game. You’ll do better understanding the SNB by reading Pierre Bourdieu on social capital than portfolio theory or the literature on optimal seigniorage.
I will note that university endowments are somewhat of a puzzle too (pdf) — for instance why don’t schools spend them down more, as a kind of crude political business cycle theory might suggest?
(On the other hand, just try dropping your items into a Swiss recycling bin on a Sunday.)
There is at least one big difference here: the SNB doesn’t want a balance sheet which is as large as possible, because that means both assets and liabilities. Colleges and universities are far more likely to wish to maximize their endowments, which do not (one hopes) come with offsetting liabilities. The “endowment” of a central bank has more to do with political chits, favors, and public impressions, backed by extreme solvency but not too big a target either.
Paul Krugman makes some good and interesting points about the comparison with Hong Kong; in my view influence capital in Hong Kong has been (ultimately) determined externally for a very long time, first Britain now China. That gives the territory some special feasibility properties for a wide variety of issues. Krugman is falling into a kind of sophisticated “public choice” mistake that is more frequently committed by libertarians.
In none of these cases am I suggesting that the current incentives are optimal from a social point of view. And here is an earlier post on central banks and capital. It is not that a partially privately-owned, cantonally owned SNB is maximizing raw seigniorage, a view which has come in for some rebuttal as of late. Rather the partial private ownership helps account for what kind of legitimacy needs to be produced and what kinds of rules that legitimacy requires.
C’mon people, read your Gramsci!