Do land use restrictions increase restaurant quality and diversity?

by  Tyler Cowen in

Daniel Shoag and Stan Veuger say yes, but I am not so convinced.

It turns out that metrics of land use restrictions are correlated with restaurant quality, across cities.  To cut to the chase, Los Angeles ranks number one on this index, and I can agree with that assessment in terms of food quality and also diversity.  (Other good food cities, such as Miami, also rank high on the index.)  Yet for the metropolitan area near L.A., food is generally best where the land use restrictions are least binding.  Beverly Hills and Santa Monica have some decent fancy restaurants, but the real gems are to be found elsewhere, in fringes such as northeast Hollywood, Silverlake (gentrifying a bit too much these days, however), north Orange County, Monterey Park, and so on.  Pasadena has hardly anywhere excellent to eat.

I would suggest an alternative channel of influence: urban areas with high inequality have both better food (see An Economist Gets Lunch, but basically imagine the wealthier people generating demand and the poorer people supplying cheap labor) and more building restrictions.  The wealthier people decide to do something to keep the poorer people out of their neighborhoods.

I hate to say “correlation does not prove causation,” but…correlation does not prove causation.

Via the excellent Kevin Lewis.

What should I ask Emily R. Wilson?

by  Tyler Cowen in

I will be doing a Conversation with her, no associated public event.  She is the translator of a splendid and highly readable Homer’s Odyssey, which I named as the very best book of the year for last year.  She is also a professor at the University of Pennsylvania, a classicist, a Seneca scholar, and an all-around very smart person.  Here is her Wikipedia page.

So what should I ask her?

Further new results on the marginal rate of income taxation

by  Tyler Cowen in

I study optimal income taxation when human capital investment is imperfectly observable by employers. In my model, Bayesian employer inference about worker productivity drives a wedge between the private and social returns to human capital investment by compressing the wage distribution. The resulting positive externality from worker investment implies lower optimal marginal tax rates, all else being equal. To quantify the significance of this externality for optimal taxation, I calibrate the model to match empirical moments from the United States, including new evidence on how the speed of employer learning about new labor market entrants varies over the worker productivity distribution. Taking into account the spillover from human capital investment introduced by employer inference reduces optimal marginal tax rates by 13 percentage points at around 100,000 dollars of income, with little change in the tails of the income distribution. The welfare gain from this adjustment is equivalent to raising every worker’s consumption by one percent.

That is from the Harvard job market paper of Ashley C. Craig, via Steven Hamilton.

If the gdp deflator is off, which financial investments should you make?

by  Tyler Cowen in

Many people suggest that we are under-measuring the benefits of innovation, and thus real rates of economic growth are much higher than we think.  That in turn means the gdp deflator is off and real rates of interest are considerably higher than we think.  Someday we will all realize the truth and asset prices will adjust.

Let’s say that view is correct (not my view, by the way), how should that change your investment decisions?

One implication, it seems to me, is that you should short the goods and services which are being produced so rapidly under this regime.  If that is hard to do, short their substitutes.  Say the new innovative growth is coming from the internet sector, and internet activity is a good substitute for collecting stamps (which seems to be true), well short stamps if you can.  At least get them out of your diversified portfolio.

Similarly, you may wish to invest in companies which produce goods not easily substituted for over the internet.  One observer has mentioned “perfume” to me in this connection, though I do not have the expertise to render a judgment.

More generally, if real rates of return are high, but not perceived as high by most investors (who are still victims of fallacious “great stagnation” arguments and the like), at some point those investors will learn.  With more rapid growth enriching the future, and with the realization of such, there will be a sudden demand to shift funds into the present, so as to equalize marginal utilities.  So bond prices will fall and that means you should short bonds and buy puts on bonds.

Don’t load up on land and public utilities.  Incumbent firms also may fall in value.

You also might fear this new technological progress will bring some fantastic but hard-to-afford new goods and services.  How about life extension or immortality but priced at $10 million?  The way to hedge that risk is to invest in life extension companies, but even more than their earnings prospects might dictate.  That is the best way to insure against life extension being too costly to afford.  Note that poorer investors should do this, but the very wealthy do not need to.

What else?

I thank B. and S. and Alex T. for relevant discussions connected to this post.

Valentine’s day markets in everything

by  Tyler Cowen in

Looking to get yourself a present this Valentine’s Day? The El Paso Zoo has you covered. It will name a cockroach after your ex and then feed it to a meerkat live on camera.

You can message the zoo on Facebook with your ex’s name, then wait patiently for February 14 to watch the roach get devoured during the “Quit Bugging Me” meerkat event, which will live-stream on Facebook and the zoo’s website. The names of those exes will also be displayed around the meerkat exhibit and on social media starting February 11. The zoo calls it “the perfect Valentine’s Day gift.”

Here is the story, via LegalNomads.  Just when I think I have all of these covered, one comes along that is worse than anything I was expecting…

Stop demeaning billionaires and you were unfair to Howard Schultz

by  Tyler Cowen in

Here is my Bloomberg column on that point.  Furthermore, that tape of Schultz is much better than what many media sources reported, here is the excerpt on that:

In an interview, Schultz was asked whether billionaires have too much power. He responded by noting that the moniker “billionaire” has become a “catchphrase” and proceeded to reframe the question: “I would rephrase that and I would say that people of means have been able to leverage their wealth and their interest in ways that are unfair.” So he didn’t necessarily disagree with the premise of the question. Nor did he say that other people shouldn’t use the term “billionaires.”

For the record, he also noted that such people have “unbelievable influence,” and that speaks to the problem of inequality. And he included corporations (not just people) and the political ideologies of the two major parties as part of the problem.

Is that such a terrible answer? Not only on the merits, but also in explaining why Schultz might want to move away from the term “billionaire” as the sole locus of blame? Then again, maybe that’s just what you would expect a billionaire to say.

You can watch the interview here, and note the rest of the column is making more general points about how we should talk about people and their wealth:

My parents taught me never to ask a person how much he or she earns. I was told that it was rude, and I still believe that. It follows that we also should not ask people about their net wealth. And, out of politeness, perhaps it is also inappropriate to openly discuss the range of their net wealth.

A new idea (really)

by  Tyler Cowen in

I am not convinced by the argument which follows (see Cowen’s Third Law), but I am committed to passing new ideas along, and the researchers — Liu, Mian, and Sufi — have a strong track record.  Here goes:

A unique prediction of the model is that the value of industry leaders increases more than the value of industry followers in response to a decline in the interest rate, and, importantly, the magnitude of the relative increase in value of the leaders versus followers when the interest rate declines is larger at a lower initial level of the interest rate.

And:

The model’s prediction is confirmed in the data.

And finally:

The model provides a unified explanation for why the decline in long-term interest rates has been associated with rising market concentration, reduced dynamism, a widening productivity gap between leaders and followers, and slower productivity growth.

I will ponder this further, anyway here is the link to the paper, 88 pp. long.  If they are right, this is big, big news.  Here is a WSJ summary.

For further background, see also Alex’s earlier post about population/labor force decline and economic stagnation.  It is easier for me to believe that their real interest rate effect is working through the propagation mechanism of population and labor force participation.  Furthermore, I have read too many papers which seem to imply that real interest rates do not much, within normal limits, have a big effect on firm investment decisions.  Their model would seem to imply the opposite, and I would like them to test their implied elasticity against the actual elasticities other researchers have measured.

Paul Romer’s advice for the World Bank

by  Tyler Cowen in

First, outsource the bank’s research upon which it depends for identifying problems and proposing solutions. Diplomacy and science cannot both thrive under the same roof. One consequence of the bank’s commitment to diplomacy is its necessary embrace of the helpful ambiguity that makes it possible for multilateral institutions to allow “Chinese Taipei” compete in the Olympic Games without “Taiwan, China” having a seat in the UN. Dispassionate examination makes clear that what the bank does to maintain conformity on the diplomatic front is not compatible with scientific research.

All that matter in science are the facts. When complex political sensitivities are allowed to influence research by stifling open disagreement, it ceases to be scientific. For good reasons, the bank’s shareholders have chosen to protect its diplomatic function, at the expense of its research.

Outsourcing research would be a better, more efficient way for the bank to establish the facts needed to do its job. This would also be an investment in the universities that make the discoveries that drive human progress.

Here is the full piece.  What do you all think?

Sentences to ponder — *Who Wants to Run?*

by  Tyler Cowen in

Incumbent polarization is also consistently below that of new candidate polarization.

That is from the forthcoming interesting book by Andrew B. Hall.  He also argues that while voters can elect moderates, they cannot force more extreme candidates to govern as moderates.  Furthermore, devaluing office leads to more extreme candidates being interested in running for office.

The book’s argument is that who runs for office helps determine the level of ideological polarization in the legislature.

Women in Economics

by  Alex Tabarrok in

Tyler and I are very pleased to announce a new series at MRU, Women in Economics.

Women in Economics highlights the groundbreaking and inspiring work of female economists – not only to recognize the important work they’ve done but to also share their inspirational journeys.

Our first major video on Elinor Ostrom will be released on February 12 followed by videos on Janet Yellen (featuring Christina Romer and Ben Bernanke), Anna Schwartz (featuring Claudia Goldin), Joan Robinson and more. We also have some more informal “mini-testimonials” discussing the work of some major contemporary economists who have been inspirational. In the video below I discuss the work of Petra Moser. (I should have cleaned my office.)

Tyler and I also want to take a moment to thank the fantastic team at MRU for a huge amount of creativity, inspiration and hard work in putting this series together. Lots of thanks and appreciation to Roman Hardgrave, Alexandra Tooley, Mary Clare Peate, Brandon Davis, Justin Dile, Lindsay Moss and William Nava. You too can join the team!

More here.