Are Americans learning to love free trade?
The Chicago Council on Global Affairs has completed its 2018 survey on American attitudes toward trade (full disclosure: I serve on board of advisers for the Chicago Council survey), and a funny thing happened to U.S. opinions on the subject. As Dina Smeltz and Craig Kafura write in their latest policy brief, Americans love trade way more than they love Trump…
The survey itself reports:
The highest percentages ever registered in this survey (since 2004) say that trade is good for the US economy (82%), good for consumers like you (85%), and good for creating jobs in the US (67%).
That is from Daniel Drezner. I would raise the cautionary note that perhaps these newfound positions will not survive the removal of Trump from office, most of all among Democrats.
Monday assorted links
1. Scott Sumner on meaning. Scott on inflation and the liquidity trap.
3. This man can pronounce every word in the dictionary. Note the state fish of Hawaii.
6. “Exploiting plausibly exogenous variation in U.S. suffrage laws, we show that children from economically disadvantaged backgrounds who were exposed to women’s political empowerment during childhood experienced large increases in educational attainment, especially blacks and Southern whites.” Link here.
The Global Middle Class
Wash Post: The world is on the brink of a historic milestone: By 2020, more than half of the world’s population will be “middle class,” according to Brookings Institution scholar Homi Kharas.
Kharas defines the middle class as people who have enough money to cover basics needs, such as food, clothing and shelter, and still have enough left over for a few luxuries, such as fancy food, a television, a motorbike, home improvements or higher education.
It’s a critical juncture: After thousands of years of most people on the planet living as serfs, as slaves or in other destitute scenarios, half the population now has the financial means to be able to do more than just try to survive.
“There was almost no middle class before the Industrial Revolution began in the 1830s,” Kharas said. “It was just royalty and peasants. Now we are about to have a majority middle-class world.”
(Kharas’s definition of middle class takes into account differences in prices across countries.)
It’s interesting that middle class values are also expanding, especially in Asia, even as they may be declining in the United States:
According to the World Values Survey (2015), people in countries with burgeoning middle classes do not feel that governments are responsible for theirsuccess, but rather that it is thrift, hard work, determination, and perseverance that count.
How to motivate the unmotivated
“Realizing this, we decided to turn the standard solution to self-control on its head: What if instead of seeking advice, we asked struggling people to give it,” write Eskreis-Winkler and Fishbach. To answer this question, they conducted a series of experiments that appointed people struggling with self-control to advise others on the very problems they themselves were encountering. The population samples they studied included unemployed adults struggling to find a job, adults struggling to save money, adults struggling with anger management, and children falling behind in school.
“Although giving advice confers no new information to the advice giver, we thought it would increase the advice giver’s confidence,” they write. “Confidence in one’s ability can galvanize motivation and achievement even more than actual ability.”
Here is more from Leah Fessler, via the excellent Samir Varma. While these results should not be considered as confirmed, I personally believe in them enough that I often act on them.
My Fall Industrial Organization reading list
This is only part one for the class, do not panic over whatever you think might be completely left out. That said, suggested additions are welcome, here goes:
Competition
Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.
Bresnahan, Timothy and Reiss, Peter C. “Entry and Competition in Concentrated Markets,” Journal of Political Economy, (1991), 99(5), 977-1009.
Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.
Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.
“Benefits of Competition and Indicators of Market Power,” Council of Economic Advisors, April 2016.
Jan De Loecker and Jan Eeckhout, “The Rise of Market Power and its Macroeconomic Implications,” http://www.janeeckhout.com/wp-content/uploads/RMP.pdf. My comment on it is here: https://marginalrevolution.com/marginalrevolution/2017/08/rise-market-power.html
Me on intangible capital, https://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html.
Traina, James. “Is Aggregate Market Power Increasing?: Production Trends Using Financial Statements,” https://research.chicagobooth.edu/-/media/research/stigler/pdfs/workingpapers/17isaggregatemarketpowerincreasing.pdf
Shapiro, Carl. “Antitrust in a Time of Populism.” UC Berkeley, working draft from 24 October 2017, forthcoming in International Journal of Industrial Organization.
Klein, Benjamin and Leffler, Keith. “The Role of Market Forces in Assuring Contractual Performance.” Journal of Political Economy 89 (1981): 615-641.
Breit, William. “Resale Price Maintenance: What do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics (1991).
Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.
Sproul, Michael. “Antitrust and Prices.” Journal of Political Economy (August 1993): 741-754.
McCutcheon, Barbara. “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?” Journal of Political Economy (April 1997): 336-350.
Crandall, Robert and Winston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,” Journal of Economic Perspectives (Fall 2003), 3-26, available at http://www.brookings.org/views/articles/2003crandallwinston.htm.
FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml., an optional browse, perhaps read about some current cases and also read the merger guidelines.
Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.” American Economic Review 89, 5 (December 1999): 1216-1233.
Demsetz, Harold. “Why Regulate Utilities?” Journal of Law and Economics (April 1968): 347-359.
Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.
Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.
Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545.
Strictly optional most of you shouldn’t read this: Ariel Pakes and dynamic computational approaches to modeling oligopoly: http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf
http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf
Economics of Tech
Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.
Weyl, E. Glenn. “A Price Theory of Multi-Sided Platforms.” American Economic Review, September 2010, 100, 4, 1642-1672.
Tech companies as platforms, Tyler Cowen chapter, to be distributed.
Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.
Paul Graham, essays, http://www.paulgraham.com/articles.html, and on Google itself, http://www.slate.com/blogs/blogs/thewrongstuff/archive/2010/08/03/error-message-google-research-director-peter-norvig-on-being-wrong.aspx
Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607
Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,”http://www.people.fas.harvard.edu/~idew/papers/BPEA_final_ineq.pdf
Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” CEP discussion Paper no. 1354, May 2015.
Andrews, Dan, Chiara Criscuolo and Peter N. Gal. “Frontier firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries.” OECD working paper, 2015.
Mueller, Holger M., Paige Ouimet, and Elena Simintzi. “Wage Inequality and Firm Growth.” Centre for Economic Policy Research, working paper 2015.
Readings on blockchain governance, to be distributed.
Haltiwanger, John, Ian Hathaway, and Javier Miranda. “Declining Business Dynamism in the U.S. High-Technology Sector.” Ewing Marion Kauffman Foundation, February 2014.
Organization and capital structure
Ronald Coase and Oliver Williamson on the firm, if you haven’t already read them, but limited doses should suffice.
Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.
Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.
Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010.
Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.
Tyler Cowen chapter on CEO pay, to be distributed.
Cowen, Tyler, Google lecture on prizes, on YouTube.
Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.
Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf
Miller, Merton, and commentators. “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.
Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.
Hansemann, Henry. “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.
Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.
Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students. Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826
Production
American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633.
Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf
Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro, “The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss.
Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.
Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides.
Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.
Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.
David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.
Casselman, Ben. “Corporate America Hasn’t Been Disrupted.” FiveThirtyEight, August 8, 2014.
Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.
Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.
http://evansoltas.com/2016/05/07/pro-business-reform-pro-growth/
Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.
Scharfstein, David S. and Stein, Jeremy C. “Herd Behavior and Investment.” American Economic Review 80 (June 1990): 465-479.
Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.
Sectors: finance, health care, education, others
Gorton, Gary B. “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009.
Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011.
Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.
More to be added, depending on your interests.
Sunday assorted links
The Most Momentous Place?
The old city of Jerusalem is astonishingly small for a city with so many momentous places. One can walk from Christianity’s holiest site to the holiest site of Judaism, pausing to look at one of the holiest sites of Islam, in less time than it takes to walk from my office on the campus of George Mason University to the campus Starbucks. Jerusalem is actually smaller than the GMU campus. GMU has had a few big events to its credit–two Nobel Prizes, several presidential speeches and so forth–but few people come here on pilgrimage. GMU doesn’t compete with Jerusalem.
Is there another parcel of land of similar size to the old city of Jerusalem that can lay claim to being similarly momentous? The signing of the Declaration of Independence in Philadelphia was pretty important but not much has happened there since. Cape Canaveral gets a nod but doesn’t span multiple fields of endeavor. Rome was important for a long time but its momentous events have faded compared to those that occurred in Jerusalem.
My best guess for a momentous parcel of land of similar size to old Jerusalem would be Cambridge University in the UK. Cambridge can lay claim to being the place of Newton, Darwin, Maxwell, Babbage, Turing, Oppenheimer, and Crick and Watson and many others in the fields of politics, literature and the social sciences including economists such as Keynes, Marshall and Sen. Overall, Cambridge gives Jerusalem a run for its money. Jerusalem had its momentous period between say the building of the first temple in 957 BCE and Muhammad’s night journey around 621 CE, a period of roughly 1600 years, while Cambridge has had only an 800 year run since being built in 1231 so controlling for a time a case can be made that Cambridge beats Jerusalem. Perhaps you disagree but then Cambridge is still racking up momentous events while Jerusalem hasn’t had much in the past 1400 years so Cambridge is certainly catching up. Of course, one big event could put Jerusalem back on top.
Aside from Cambridge, cases can be made for other universities such as Oxford, Harvard and even newcomer Chicago. But it’s interesting that universities come to mind as perhaps the only places in real competition with Jerusalem. Are there others?
American government sentences to ponder
But on tech, Congress lacks real expertise. Of the 3,500 legislative staff on the Hill, I’ve found just seven that have any formal technical training.
Here is the source, Travis Moore, via Robert Dietrich.
Why isn’t inflation higher?
Excess reserves held at the Fed are down from their peak of about $2.8 trillion, but still close to $2 trillion, massively higher than their long-run historical average.
Inflationary pressures are modestly higher than they had been, but still in the range of roughly two percent.
The liquidity trap is gone, with 10-year rates around 3 percent and short rates at around two percent. In fact, from these rates there is significant pressure on emerging market currencies.
Since the liquidity trap is gone, and inflation remains well under control, the liquidity trap does not seem to be the reason why inflation did not explode post-2008, following the Fed’s stabilization measures.
No one is admitting this simple reality, which is staring us in the face.
*Singapore, Singapura: From Miracle to Complacency*
By Nicholas Walton, here is my blurb for the book:
“What better way to discover Singapore than to walk across it? In this splendid book, Walton serves up riches of the island’s history, geography, economics, and, most of all, serendipity.”
Due out March 1, pre-order here.
Saturday assorted links
1. Giraffe bible markets in everything.
3. “This Article introduces the reciprocal exchange, a type of insurance company that operates without any meaningful use of a legal entity. Instead of obtaining insurance from a common nexus of contract, customers directly insure one another through a dense web of bilateral agreements. While often overlooked or conflated with mutual insurance companies, reciprocal exchanges include some of America’s largest and best-known insurance enterprises.” Link here.
4. “The Argumentative Indian” is now available for on-line viewing.
5. Informal tourist guide threatened with €600,000 fine by Valencia region.
Olympic gold medals and longevity
Perhaps it is better to win the silver, to which other life outcomes might this apply?:
This paper compares mortality between Gold and Silver medalists in Olympic Track and Field to study how achievement influences health. Contrary to conventional wisdom, winners die over one year earlier than losers. I find strong evidence of differences in earnings and occupational choices as a mechanism. Losers pursued higher-paying occupations than winners according to individual Census records. I find no evidence consistent with selection or risk-taking. How people respond to success or failure in pivotal life events may produce long-lasting consequences for health.
That is from Adam Leive, via the excellent Kevin Lewis.
Religion matters for Senators
Does a senator’s personal religion influence their legislative behavior in the Senate? To date, empirical research has answered this question only using senators’ religious traditions, while more concurrent work implies that religion should be measured as a multifaceted phenomenon. This study tests this proposition by compiling a unique data set of senators’ religion, conceptualized and measured by three different elements—belonging, beliefs, and behavior. The study estimates the association between these three religious facets and senators’ legislative behavior on economic, social, and foreign policy issues, while controlling for their constituencies’ political and religious preferences. It finds that religious beliefs are a strong predictor of senators’ legislative behavior, while religious tradition and behavior are mostly not. Furthermore, it finds that religious beliefs are associated with legislative behavior across a wide array of policy areas and are not confined to sociocultural issues.
That is from Daniel Arnon, via Matt Grossman.
The economic value of the entire universe
This one is about as speculative as you get:
Suppose, just for fun, that we accept Posner’s $600 trillion estimate for the value of the Earth. What then is the value of the Universe?
…We could try to calculate the value of the Universe by estimating the number of planets with intelligent life and multiplying that by $600 trillion. It’s very hard to guess the number of such planets per cubic megaparsec. But since the Universe seems to extend indefinitely, the result is infinite.
That’s my best estimate: infinity!
But that’s not very satisfying. What if we limit ourselves to the observable Universe?
No matter what I say, I’ll get in trouble, but let me estimate that there’s one intelligent civilization per galaxy.
A conservative estimate is that there are 100 billion galaxies in the observable universe. There might be twice as many, but perhaps a lot of them are small or less likely to support life for various other reasons.
So, I get $600 trillion times 100 billion, or
$60,000,000,000,000,000,000,000,000as my estimate of the value of the observable Universe. That’s $6 × 1025, or $60 septillion.
That is from John Carlos Baez, via Benjamin Lyons. And to think it all cost nothing to produce…..the ultimate free lunch.
Friday assorted links
1. Charter cities, innovative governance conference, San Francisco, September 20.
2. Parrots can make economic decisions. Article here, it turns out the African grey parrots had an independent demand to hold the tokens (as stores of value? consumption objects?).
3. Felix Salmon on the German Facebook refugee study.