Tyler Cowen's Blog, page 18
April 4, 2015
It’s not the inequality, it’s the mobility
My latest column for The Upshot, at the NYT, is here. Here is one excerpt:
Data from the Economic Report of the President [p.34] suggests that if productivity growth had maintained its pre-1973 pace, the median or typical household would now earn about $30,000 more today. Those higher earnings would constitute a form of upward mobility. For purposes of comparison, if income inequality had maintained its pre-1973 trend, the gain for the median household would be about $9,000 in income this year, a much smaller figure.
Those changes in productivity and inequality trends aren’t entirely separate, but accelerating the growth of productivity has the potential to do more for upward economic mobility than redistributing money from the top 1 percent.
And this:
In the book “Equality for Inegalitarians,” George Sher, a professor of philosophy at Rice University, argues that the equality we should care most about is giving everyone a chance to “live effectively.” Most of all that means ensuring that people have enough for their daily needs. We can tolerate many of the inequalities that arise above this minimum income level, provided there is protection on the downside and plenty of opportunities for those who are economically ambitious.
Read Sher, Harry Frankfurt’s excellent forthcoming book On Inequality, Derek Parfit on equality and priority (pdf) and Huemer on Parfit (pdf). Read about prioritarianism more generally. I come away from these writings with the view that the current moral focus on inequality is a flat-out mistake in moral philosophy, analogous to how the philosophers sometimes make mistakes in economics. That’s right, not a difference in values but a mistake. (The difference in values, to the extent there is one, should be over the strength of our obligations to those at the bottom.)
This discussion of education provides another good example of how all this matters: if we successfully elevate people at the bottom, we don’t have to “fix” inequality.
A number of Twitter (and other) responses to my column are confusing several kinds of mobility: a) how many people from the bottom are elevated by how much, with b) what is the chance of people rising further quintiles?, and c) what is the intergenerational transmission of income and other variables? It’s a) that matters, as b) and c) run into many of the same problems that inequality notions do.
I also am not impressed by the “Gatsby Curve” observation that inequality and mobility (some kinds, some of the time) are correlated. Lots of things are correlated, but the question is what matters practically and morally.
By the way, here are estimates on how immigration might affect the Gini coefficient (pdf). I find that egalitarians have a hard time developing consistent intuitions about immigration.
Interfluidity offers a very different view from mine. Alex has much to say as well. Here is Schneider and Winship on the Gatsby Curve.
Here is my conclusion:
It is quite possible the future will bring higher levels of income inequality, which will undoubtedly distress many commentators. But we are likely to be better off if we keep our eye on the ball, identify what really helps people the most and do whatever we can to increase economic mobility. That is a practical program that we all should be able to endorse.
The Demand for R&D is Increasing
In my TED talk I said that if India and China were as rich as the United States is today then the market for cancer drugs would be eight times larger than it is now. Larger markets, both in size and wealth, increase the incentive to invest in R&D. Larger markets save lives. As India and China become richer, they are investing more in R&D and investing more in educating the scientists and engineers who produce new ideas, new ideas that benefit everyone.
The WSJ reports on this trend:
Chipscreen’s drug, called chidamide, or Epidaza, was developed from start to finish in China. The medicine is the first of its kind approved for sale in China, and just the fourth in a new class globally. Dr. Lu estimates the research cost of chidamide was about $70 million, or about one-tenth what it would have cost to develop in the U.S.
…China’s spending on pharmaceuticals is expected to top $107 billion in 2015, up from $26 billion in 2007, according to Deloitte China. It will become the world’s second-largest drug market, after the U.S., by 2020, according to an analysis published last year in the Journal of Pharmaceutical Policy and Practice.
China has on-the-ground infrastructure labs, a critical mass of leading scientists and interested investors, according to Franck Le Deu, head of consultancy McKinsey & Co.’s pharmaceuticals and medical-products practice in China. “There’re all the elements for the recipe for potential in China,” he said.
We have much to gain from increased wealth in the developing world.
Hayek on Gibraltar
In 1944, the celebrated economist Friedrich Hayek was commissioned by the British Colonial Office to undertake a report on the economy of Gibraltar. His conclusion was that the government of Gibraltar should use market forces to relocate working class Gibraltarians into neighbouring Spain. Yet despite the libertarian credentials Hayek had established via his work of the same year, The Road to Serfdom, such a policy would have moved Gibraltarians into the dictatorship of General Franco.
In a study presented to the Economic History Society’s 2015 annual conference, Chris Grocott argues that Hayek’s proposal to relocate Gibraltarians into Spain shows an alarming lack of political astuteness on the part of the winner of the 1974 Nobel Prize for Economics.
In the first instance, the British Colonial Office conveniently lost Hayek’s report. When it re-surfaced in early 1945, the Colonial Office then sent the report to the Admiralty who, unimpressed with Hayek’s condemnation of educational facilities in Gibraltar’s dockyard, moved to delay its publication. Meanwhile, Hayek himself was on a lecture tour of the United States, promoting The Road to Serfdom, and oblivious to the dismay that his report has caused.
There is more here, via the excellent but under-followed Mark Koyama.
What is the best introduction to Abbas Kiarostami films?
If we are going to have a nuclear agreement with them, we might as well eat their food and watch their movies. And Abbas Kiarostami is not only the premier Iranian director, he is a visionary with a major body of work and fans all over the world. But where to start? To the uninitiated, his movies seem like endless meandering and most of them have not received any U.S. release beyond New York and Los Angeles.
Here are my tips:
1. If you haven’t seen any Iranian movies before, go watch some others before trying Kiarostami. A Separation is sufficiently plot-rich to be a good place to start. Then return to this post.
2. Taste of Cherry is perhaps his best-known creation in the West, because it won the 1997 Cannes Palme D’Or. But, while it is a fine movie, it requires repeated viewings before it makes sense and anyway it is about death. It should not be one of the first three Kiarostami films you watch.
3. Ten is the best place to start. A woman drives around Teheran, taking on a changing variety of passengers, and the movie is structured around ten different conversations, all in the claustrophobic setting of the vehicle. That may not sound like much, but the viewer is gripped immediately. Could it be the best road movie ever made?
4. The charming Where is the Friend’s Home? is the most accessible of the early works. A child wants to return a friend’s notebook in a neighboring village and eventually it becomes magical. Here is from Wikipedia:
Jonathan Rosenbaum called Kiarostami the greatest living filmmaker and called the film (along with Through the Olive Trees and Life and Nothing More) “sustained meditations on singular landscapes and the way ordinary people live in them; obsessional quests that take on the contours of parables; concentrated inquiries that raise more questions than they answer; and comic as well as cosmic poems about dealing with personal and impersonal disaster. They’re about making discoveries and cherishing what’s in the world–including things that we can’t understand.”
5. There is no other movie in all of cinema like the brilliant Certified Copy, with Juliette Binoche (in French and English, not Farsi). For the first forty minutes or so, you think you are watching a stupid, cliched film, as if Kiarostami had sold out to reach the French art house audience. Eventually the narrative transforms into something quite different (I won’t spoil it for you) and you realize it was brilliant all along, not to mention a commentary on Vertigo. It is relatively briskly paced, but until you see the “trick” it does require some patience. You should all watch this one, especially if you are married, but you should not regard it as representative Kiarostami.
6. Shirin shows nothing other than the faces of Iranian women watching a theatrical production of a Persian mythological romance. I recommend this one for a very captivating fifteen minutes, but I am not sure you need more than that. It is also not representative Kiarostami. His Japanese movie “Like Someone in Love” showcases his versatility as well.
7. Once you like some of his movies, you will end up liking all of them. It just takes a while. And they all reward repeated viewings.
April 3, 2015
Should Iceland abolish fractional reserve banking?
You are all familiar with their recent financial mishaps in Iceland, note also theirs is not a history of financial stability:
It is fair to say that Iceland’s monetary history has been a turbulent one. Currency controls in the 1920s to the 1950s were followed by chronic inflation in the 1970s to 1980s, with annual inflation reaching a high of 83% in 1983. In 1981 it was considered necessary to redenominate the krona with 100 units being replaced by 1 new unit.
That is from a new Frosti Sigurjónsson report (pdf) advocating 100 percent reserve banking for Iceland. In the “good old days” we had so many arguments against this arrangement — “disintermediation!” — but do those critiques hold up when so many nominal interest rates are in any case negative or close to zero? In many countries banks may be fated to become money warehouses as it is.
An interesting question is whether Iceland can, with its current size and export profile, ever have monetary and financial stability. With their exports and thus gdp so depending on fish and aluminum smelting and tourism, no other country shares their economic fluctuations, even roughly. A fixed rate thus means a non-optimum currency, but a floating rate for 323,002 people may mean perpetual whipsawing from international capital flows, not to mention the risk of acquiring an oversized, hard to bail out banking system, as Iceland did before its Great Recession.
Should I file under Department of Why Not? What if Scott Sumner asks me how to do this without inducing a collapse in nominal gdp? If I interpret p.78 of the study correctly, the government will create new money by printing and injecting it into the economy through fiscal policy, as a means of forestalling this problem if need be. Under this scenario, how powerful does the state become? On what do they spend the money?
Frosti’s report, by the way, was commissioned by the Prime Minister and it is being taken very seriously.
I believe I first saw notice of this link from Stephen Kinsella. Here are some responses to the idea. Zero Hedge seems sympathetic.
The forthcoming Akerlof and Shiller book
Phishing for Phools: The Economics of Manipulation and Deception.
Due out September 6, I have pre-ordered of course. Hat tip goes to Cass Sunstein.
The culture that is North American leadership
When Lyndon Johnson hosted Lester Pearson in 1965, he hauled the Canadian prime minister up by his lapels and shouted, “you pissed on my rug” after his guest criticised the Vietnam war in a speech during his visit to the US. And when Prime Minister Pierre Trudeau learned that Richard Nixon had called him “an asshole”, he responded: “I’ve been called worse things by better people.”
From Demetri Sevastopulo, there is more here at the FT. Alex and I, however, get along just great…
How to find good Iranian food
I hardly ever blog Iran, most of all because I’ve never been there, but perhaps the time has come to serve up the meager amount I do know about the place. Let’s start with food, here are a few propositions about Iranian food, at least as it is found in the West:
1. Choose a restaurant which has a diversity of rices, such as zereskh polo (rice with barberries). Or sour cherry rice. The rice you order is a more important decision than the kabob you order. Personally, I like to commit the heresy of loading up a tart rice with a gooey yogurt concoction, such as Mast-o-Mosir, spellings on that one will vary greatly.
2. Choose a restaurant with koreshes, namely stews. The kabobs get boring, Afghan kabobs in this country are usually better anyway, so over time you should end up getting the stews in a Persian restaurant.
3. It is very hard to find Iranian restaurants in the United States which break from the usual medley of offerings. The good news is that there are very few bad Iranian restaurants around.
4. The best Iranian restaurants in this country are probably those in and near Westwood, Los Angeles, not far from UCLA.
5. If you get Iranian bread, it looks boring. But load it up with the spicy green sauce, butter, and yes sliced onion. Then it’s really yummy. Don’t be put off if your bread shows up cold and embedded in plastic wrap, just add the condiments and it will be yummy.
6. I always like the soups, but in this country opt for “minty” over “barley.”
7. Iranian food in Germany and London is also quite good, I don’t think I have had it elsewhere.
8. Buying fesenjan sauce out of a can and cooking with it is much tastier than you might think. This is super-easy and inexpensive. Fesenjan sauce, in case you don’t know, is a kind of walnut and pomegranate mix, for you vegans it works OK with tofu.
9. At the end of writing this post, my own googling led me to a 2009 post I had written on the same topic but had forgotten about completely, it is here if you wish to compare. If nothing else, it shows my views on Iranian food are pretty consistent over time, as is the food itself.
Friday assorted links
1. Should we have a new national holiday, Freedom Day?
2. Airbnb is now available in Cuba, how is it looking for New York City?
3. There is no great Easter bunny stagnation.
4. Jose da Silva Lopes has passed away, good jokes at the Krugman link too, befitting the man’s sense of humor.
6. New podcast series about how popular music works.
7. Raw thoughts on Amazon Dash.
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