Tyler Cowen's Blog, page 162

*Srugim*, Orthodox Jews do speed dating

That is the recent Israeli TV show — a dramatic comedy of sorts — about the dating lives of Modern Orthodox Jews.  It is interesting to see a professionally made serial where the erotic tension of a date cannot be satisfied, or for that matter further inflamed, not even by a kiss or by a brush of one shoulder against another.  It was once dubbed “No Sex in the City.”  Everyone is in a hurry to do lots of dating and those who are not candidates for marriage are disposed of swiftly.  Quite a bit of lying and double-dealing and rapid switching goes on, yet without sex being present in the background.  There is frequent discrimination against those who are not the right shade of seriousness about their degree of adherence to Judaism.  The men and women who are “just friends” seem to have the best relationships of all, although for some reason they cannot convert that into romantic capital.

You can view it here on Amazon or buy it, or it is on Hulu.  Here is Wikipedia.  Definitely recommended if you are looking for something different, or something interesting about social conservatism, there are many excellent scenes.

Should restaurant reservations be for sale?

Here is the entire NYT forum, here is my contribution, “Democratizing the Dining Experience,” excerpt:

Consider how it works when you can’t just buy a place at the table, as is still the case in most restaurants today. Tables at the best places are hard to get and you have to take other measures, such as waiting in long lines, trying to befriend restaurant staff, becoming a regular, or eating much earlier or later than you want to, among other tactics. Those actions cost money, or time, or they are inconvenient, or all of the above. For most people, it is better to have the option to pay money up front to ensure access when desired.

While the explicit pricing of reservations does favor the wealthy, keep in mind a restaurant can only demand so much money. The ability to charge for tables will, over time, limit the rate at which prices for the food go up and that is likely more or less a wash. Besides, paying for a reservation is commonly about 10 percent of the total value of the check, so if you need to, skip dessert and win those dollars back.

When restaurants don’t charge for reservations, they tend to hold back tables for regular customers, celebrities, very attractive people and the politically and socially well connected. You might be dying to go to that restaurant for a special birthday or anniversary, but you’ll simply be unable to get in. Money is ultimately a more egalitarian force than privilege, as everyone’s greenbacks are worth the same.

Here is very different contribution from that forum, “The Latest Slap in the Face From Restaurants,” and here is “Hospitality Shouldn’t Have a Price.”  Here is a chef and restauranteur explaining how he sees it.

If you would like to ponder two follow-up questions, they might be these.  First, has the growth of on-line reviews made charging for reservations easier?  (And not just technologically easier.)  Reputations spread on-line rather than through word of mouth, and thus the restaurant need not work so hard to put the price below market-clearing and attempt to cull customers on the basis of who will spread good word of mouth.  Second, how much of the efficiencies here are coming from a form of output-increasing price discrimination (high demanders can pay more to buy their way in, for low demanders some times remain free or cheap), and how much from better matching or other features of the reservations-buying institution?

*All That is Solid*, by Danny Dorling

I have written a review of this book, subtitled The Great Housing Disaster, for the Times Literary Supplement of 13 June 2014.  As I explain in the review, he tried to write a book about housing problems in the UK without accepting the Avent-Yglesias analysis that legal restrictions on supply are a big part of the problem.  Rather than looking to supply and demand, Dorling instead tries to blame “inequality, selfishness and hoarded extra bedrooms.”  It doesn’t succeed.  Here is an excerpt from my review:

There is not much of an argument in this book against a greater reliance on additional building and thus cheaper house prices.  Dorling refers to “slum landlords and cowboy builders” and complains that not all housing for low-income groups will be of high enough quality.  But that’s more of a general complaint about the nature of poverty than a problem with the way the housing market works.  He then retreats to the claim that the mobilization of space and empty bedrooms around the country, combined with refurbishing, will solve the problem.  On any given night, he argues, most bedrooms in the country are not being slept in.

But how to redistribute this unjust largesse of sheets and pillows?  It is not as if a bureaucratic authority can scour the country for the empty bedrooms of the elderly and hand over keys to struggling young families.  Dorling repeats the incantation that housing inequality is immoral, but without much of a recipe for turning spare rooms into cheaper housing.  Refurbishment, as the author suggests, is all to the good.  But why isn’t more of that happening already?  Either regulatory forces are holding back redevelopment (a suggestion Dorling is reluctant to entertain), or landlords are waiting because it is not yet clear which kinds of investments will be best on a piece of land.  In that latter case, the law would be unwise to force the matter too quickly and, more generally, legal control could well discourage entrepreneurs from refurbishing at all.

As I write in the concluding section of the review: “You can’t write a good book which attempts to repeal the laws of economics, especially when it focuses on an economic topic.”

I don’t yet see any link on line, not even a gated one.

Time markets in everything, mainstream media edition

The Financial Times recently announced that it will sell display ads based off the time its audience spends with content. The British newspaper hopes this will solve some of the viewability problems that plague the advertising industry, and more properly value The Financial Times‘ deeply engaged audience. According to Jon Slade, commercial director of digital advertising for The Financial Times, the newspaper’s readers are spending six times more time on The Financial Times than on similar business sites.

This strategic shift is part of the broader vision that the The Financial Times sees for the future of advertising. Slade said that The Financial Times wants to distinguish every aspect of their brand through quality, and using time as an advertising currency fits that mission perfectly.

There is more here.  N = 1 here, but I can vouch that I spend lots of time with most of the FT stories I read.

Assorted links

1. Evidence from the banking sector for a “regulatory schooling” hypothesis (pdf).

2. Eleven maps of the U.S. energy system.

3. Krugman reviews Geithner.

4. China relaxes standards for martial virtue.

5. Asking liars how often they lie (dept. of why not?).

6. Thomas Edsall survey on welfare and the poor.

7. Every Russian novel ever.

A new argument for ACA, and how ACA interacts with disability insurance

From Yue Li:

This paper examines the effects of the Affordable Care Act (ACA) by considering a dynamic interaction between extending health insurance coverage and the demand for federal disability insurance. This paper extends the Bewley-Huggett-Aiyagari incomplete markets model by endogenizing health accumulation and disability decisions. The model suggests that the ACA will reduce the fraction of working-age people receiving disability benefits by 1 percentage point. In turn, the changes associated with disability decisions will help fund 47 percent of the ACA’s cost. Last, compared to the ACA, an alternative plan without Medicaid expansion will reduce tax burdens and improve welfare.

The pointer is from the excellent Kevin Lewis.  I have not yet read the piece but thought it of sufficient interest to pass along right away.

How many catastrophes can we avert?

There is a new Martin and Pindyck paper on this topic, “Averting Catastrophes: The Strange Economics of Scylla and Charybdis”:

How should we evaluate public policies or projects to avert or reduce the likelihood of a catastrophic event? Examples might include a greenhouse gas abatement policy to avert a climate change catastrophe, investments in vaccine technologies that would help respond to a “mega-virus,” or the construction of levees to avert major flooding. A policy to avert a particular catastrophe considered in isolation might be evaluated in a cost-bene�fit framework. But because society faces multiple potential catastrophes, simple cost-bene�fit analysis breaks down: Even if the benefi�t of averting each one exceeds the cost, we should not avert all of them. We explore the policy interdependence of catastrophic events, and show that considering these events in isolation can lead to policies that are far from optimal. We develop a rule for determining which events should be averted and which should not.

The ungated version is here, I do not at the moment see the link to the gated NBER version I printed out and read.  The main point is simply that the shadow price of all these small anti-catastrophe investments goes up, the more of them we do, and thus we cannot do them all, even if every single investment appears to make sense on its own terms.

I think of this paper as providing a framework for assessing the debates between modern Progressives and pessimistic old school conservatives (not exactly the main debate we are seeing today by the way).  The Progressive states “here is a potential or real catastrophe, let us fix it.”  The pessimistic conservative says in response “there are far greater and less visible catastrophic dangers.  We need to address those instead.”  The pessimistic conservative usually is ignored, and so at the relevant margin it appears the Progressive is correct.  Maybe in a sense the Progressive really is correct.  But in another, more systemic sense the Progressive is walking a dangerous path.  Society is losing the resources it may need to avert the more catastrophic catastrophes.

For the pessimistic conservative of course these often involve foreign policy threats, or they may involve “barbarism” more generally.  I find also that pandemics are popular causes of concern with pessimistic conservatives.

Each time one of these Progressive remedies is adopted, the calculus looks even worse for the pessimistic conservative, as there are fewer resources left to address his causes for concern.  Yet the danger of which the pessimistic conservative warns is greater each time, the longer we ignore it, and the more we devote our resources to other endeavors.

It is an interesting question whether optimistic libertarians or pessimistic conservatives have better (as opposed to more persuasive) arguments against Progressives.  The optimistic libertarian can try “we have a better way of solving this problem!”  The pessimistic conservative is still believing “we must neglect this issue so we can prepare for the even greater doom which may await us.”  The Progressive prefers to argue from general grounds of benevolence, rather than debating which potential catastrophes to confront and neglect, and thus a quest for “free lunch” arguments ensues.

Some sophisticated Progressives may think they are in fact the best friends of the pessimistic conservatives.  They may think the choice under consideration is not “which catastrophe to address?” but rather how we can build up our overall willingness to invest in preventing catastrophes.  In this sense the Progressive may be presenting a valuable warm-up exercise, a bit like flexing the muscles for later combat.  Imagine for instance if ACA were to also later help us monitor and confront a pandemic.  Or if it gave us the political will to make other, later sacrifices.  In that case Progressivism could well be right but only as the handmaiden of pessimistic conservatism and the Progressives would become the true Straussians, achieving one view under the guise of another.

The economic recovery in the United Kingdom

There is an excellent Chris Giles FT article on this topic, here is the bit of greatest interest to some recent debates:

The latest IMF fiscal monitor shows a cyclically-adjusted deficit of 5.9 per cent of national income in 2011, falling only to 5.7 per cent in 2012. This 0.2 percentage point drop in the cyclically-adjusted deficit appears tiny compared with the 2010 vintage of the same IMF document, which shows plans for a 1.4 percentage point decline over the same two years.

That’s not my favorite measure of fiscal stance, but it is the one most commonly cited.  What we see is that “austerity didn’t get much worse,” to borrow the language of many of the Keynesians.  It remains a mystery to me how this could account for the British recovery, as for instance expressed by Krugman:

Finally, Britain is growing much faster right now than I expected. Fundamental model flaw? I don’t think so. As Simon Wren-Lewis has pointed out repeatedly, the Cameron government essentially stopped tightening fiscal policy before the upturn, which means in effect that the “x” in my equation didn’t do what I thought it would. On top of that, there was a drop in private savings, which is one of those things that happens now and then.The point is that the deviation of British growth from what a standard Keynesian model would have predicted, while real, wasn’t out of line with the normal range of variation-due-to-stuff-happening; nothing there that warranted a major revision of framework.

I would say the fiscal stance of the British government stayed more or less the same, and a rapid recovery came, because the labor market was flexible and market economies have a natural (though in my view not universal) tendency to mean-revert and put unemployed resources back to work.  Furthermore the UK had a relatively loose monetary policy, which sustained nominal values, even in light of a supposed liquidity trap.  (The hypothesis that the relatively high inflation rate came from a VAT hike didn’t last long.)

I took the Keynesian position on Britain to be “they are in a liquidity trap, and possibly secular stagnation, so they will just sit there and not experience any natural tendency toward major recovery, at least not for a long time.”  If the current Keynesian position (would it now be the New New Old Keynesian view?) is “in the absence of additional negative shocks, even in a liquidity trap market economies have a natural tendency to mean-revert and put unemployed resources back to work pretty quickly,”…well, I guess I am more of a Keynesian than I used to think.

Addendum: The article also offers this:

UK officials have no time for such comparisons, based on “spurious cyclical adjustment”. The Treasury said: “It’s interesting how the people who have started saying that we eased up on austerity are the very same people who just a few months earlier were accusing us of doggedly sticking to it. We have been consistent and stuck to the plans we set out.”

The independent Office for Budget Responsibility provides data with which to arbitrate this dispute. On the public spending side, there is no evidence of a secret stimulus. Public expenditure in 2012 and 2013 was a little lower than the level planned in 2010.

Its data also show there were no significant changes to the UK tax system in 2012-13, so no deliberate stimulus. Tax revenues, by contrast, were much weaker than expected as the economy stagnated, showing the strength of the automatic stabilisers in Britain.

Measures of the degree of fiscal tightening that do not rely on tax revenues, but changes in the tax system, such as those from the OBR or the independent Institute for Fiscal Studies, still show as much austerity in 2012 and 2013 as they did in 2010.

Sorry guys, but I have to call this one for some version of the classical hypothesis.  And by the way, I still think the UK recovery is relatively fragile, but not for reasons which have much to do with traditional Keynesianism.

The “average is over” economic recovery proceeds

Average hourly earnings for private-sector American workers rose about 49 cents an hour over the last year, to $24.38 in May. But that wasn’t enough to cover inflation over the year, so in “real” or inflation adjusted terms, hourly worker pay fell 0.1 percent over the last 12 months. Weekly pay shows the same story, also falling 0.1 percent in the year ended in May.

Neil Irwin offers more here.  Many people I know thought my earlier prediction of “falling or stagnant wages during the U.S. recovery” was an absurd prognostication, but so far it seems to be on the mark.  Just wait for The Great Reset.

Is there a lot more insider trading than most people think?

I’ve long thought so, here are some new results supporting that view:

… a groundbreaking new study finally puts what we’ve instinctively thought into hard numbers — and the truth is worse than we imagined.

A quarter of all public company deals may involve some kind of insider trading, according to the study by two professors at the Stern School of Business at New York University and one professor from McGill University. The study, perhaps the most detailed and exhaustive of its kind, examined hundreds of transactions from 1996 through the end of 2012.

The professors examined stock option movements — when an investor buys an option to acquire a stock in the future at a set price — as a way of determining whether unusual activity took place in the 30 days before a deal’s announcement.

The results are persuasive and disturbing, suggesting that law enforcement is woefully behind — or perhaps is so overwhelmed that it simply looks for the most egregious examples of insider trading, or for prominent targets who can attract headlines.

The professors are so confident in their findings of pervasive insider trading that they determined statistically that the odds of the trading “arising out of chance” were “about three in a trillion.” (It’s easier, in other words, to hit the lottery.)

There is more here, via Ray Fisman.