Tyler Cowen's Blog, page 213

March 13, 2014

Have we been mismeasuring Chinese inflation?

This is from a reputable source, although it is not an established consensus conclusion:


That is the tricky task that Emi Nakamura, Jón Steinsson and Miao Liu of Columbia University set themselves in a recent study. They start with an economic law first observed by a 19th-century statistician, Ernst Engel: richer households spend a smaller share of their income on food. Thus as a household becomes richer over time, its spending pattern should match that of households who were equally rich a year or two before.


But in China, they discovered something different. They compared urban households in 2006 with households that were, according to the official figures, equally rich in 2008. They discovered that the later households were devoting 3-4% more of their budgets to food. Perhaps they were not quite as rich as their 2006 counterparts, after all.


That would suggest the Chinese economy tanked more during the financial crisis than is usually believed.  This part I believe for sure:


Moreover, it turns out that China’s official figures do not always understate inflation. From 1996 to 2006, they actually exaggerated it in every year but one, according to the same method. As a result, urban consumption was growing even faster in this period than the official statistics conveyed. China’s policymakers had more to boast about than they knew.


The inflation figures calculated by the three economists are also remarkably well correlated with the official numbers. They rise and fall in unison. It is just that the unofficial figures rise faster and fall further. The trio conjecture that two competing biases are at work. First, new goods are often of higher quality than the ones they replace, but their price is the same. That would explain why China overstated inflation before 2007. More subtly, statisticians sometimes fail to grasp that new goods are merely upgrades of existing ones. So they invent new categories; that biases inflation towards zero. As a consequence, China’s official figures “present a smoothed version of reality,” the authors write.


You can read more here.  You will find the pdf of the paper here.


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Published on March 13, 2014 22:37

*The Once and Future King*

The author is my colleague F.H. Buckley and the subtitle is The Rise of Crown Government in America.  I am very enthusiastic about this book, which is a comparative study of American and Canadian systems of government with respect to the abilities to produce varying degrees of tyranny, in the former case mostly through the executive branch.  Buckley is himself from Canada and overall favors that system of government.  Here are two excerpts:


That was why McGee and the other Fathers thought Canada the freest country in the world.  When they looked south, they saw a country with more of Constant’s liberty of the ancients, but with less (so it seemed to them) of the liberty of the moderns.  Moreoever, of the former, the right of self-government had been corrupted by political machines and trivialized by elections for dogcatchers.  The high ideals of the American Founders had been forgotten, and McGee thought that their republican virtue, in the era of Boss Tweed and Tammany Hall, was now little more than American braggadocio.


And:


Presidential regimes are more likely than parliamentary ones to turn into dictatorships, and to rank lower on measures of public corruption.  Thus far we have examined two explanations for this: The president is the head of state and symbol of the nation; and he is relatively immunized from accountability to the legislature.  We now turn to a third possible explanation: The separation of powers creates inefficiencies in government that invite the president to step in and correct, and in so doing, to augment his powers and independence from congressional oversight.


I would argue that, for better or worse, a big part of the differences is driven, not only by constitutions but also by the much more active foreign policy of the United States.  I wonder what a true parliamentary discussion of nuclear weapons use would look like.


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Published on March 13, 2014 11:25

Stacked principal-agent problems

The…Obama administration accused Sprint today of overcharging the government more than $21 million in wiretapping expenses.


Sprint, like all the nation’s carriers, must comply with the Communications Assistance in Law Enforcement Act of 1994, which requires telcos to be capable of providing government-ordered wiretapping services. The act also allows carriers to recoup “reasonable expenses” associated with those services.


Sprint, of Overland Park, Kansas, inflated charges approximately 58 percent between 2007 and 2010, according to a lawsuit (.pdf) the administration brought against the carrier today.


There is more here, hat tip goes to Vic Sarjoo.


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Published on March 13, 2014 09:53

Norway fact of the day, the Norwegian century continues

…companies have introduced “Knausgaard-free days” in order to keep people’s minds on work.


By Adrian Wooldridge, a longer Economist profile of Knausgaard is here.


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Published on March 13, 2014 09:31

Government’s Empty Buildings Are Costing Taxpayers Billions

emptybuild


The boarded up building in the photo sits a mere 6 blocks from the White House on prime real estate but it’s been empty for 30 years! What’s the problem? The building is owned/controlled by the Federal government which often doesn’t even know what it owns, lacks the incentive to control costs and whose bureaucratic strictures make selling difficult even when motivation exists.


From an excellent piece on NPR:


Government estimates suggest there may be 77,000 empty or underutilized buildings across the country. Taxpayers own them, and even vacant, they’re expensive. The Office of Management and Budget believes these buildings could be costing taxpayers $1.7 billion a year.


…But doing something with these buildings is a complicated job. It turns out that the federal government does not know what it owns.


…even when an agency knows it has a building it would like to sell, bureaucratic hurdles limit it from doing so. No federal agency can sell anything unless it’s uncontaminated, asbestos-free and environmentally safe. Those are expensive fixes.


Then the agency has to make sure another one doesn’t want it. Then state and local governments get a crack at it, then nonprofits — and finally, a 25-year-old law requires the government to see if it could be used as a homeless shelter.


Many agencies just lock the doors and say forget it.


The NPR article is excellent but it vastly underestimates the size of the problem. In addition to empty buildings, the Federal government owns/controls millions of acres of land that are worth hundreds of billions and perhaps even trillions of dollars. The land is not being used to its full value or potential even though maintenance costs runs in the tens of billions annually.


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Published on March 13, 2014 04:25

March 12, 2014

*Inventing Freedom*

That is the new book by Daniel Hannan and the subtitle is How the English-Speaking Peoples Made the Modern World.


Oh how one can mock those subtitles about the making of the modern world, heh heh!  Yet this subtitle has a plausible claim to be…true.  Even more shockingly, the subtitle accurately describes the book.


Every time my plane lands in England I shed at least a tear, maybe more, out of realization that I am visiting a birthplace (the birthplace?) of liberty.  This is not a joke and during my trips there I never quite snap out of that feeling, though I am also well aware of all the problems those people have foisted upon the world as well.


I found many parts of this book to be superficial, or perhaps well-known.  Yet often they were superficial and…true.  Here is one excerpt:


To put it another way, the distinction was not between Catholic and Protestant individuals, but between Catholic and Protestant states.


Here is from an Amazon review:


Author Daniel Hannan is a person of English ancestry who was born and raised in Peru then relocated to the United Kingdom as an adult and made a career in politics, including becoming one of the U.K.’s representatives to the European Parliament. His global experience has shown him how unique is our “Anglosphere” heritage of representative democracy, protection of property rights, the sanctity of law, and the inalienable rights of the individual.


This is in some ways an important book, though I do not think it is a book which will satisfy everybody.


For the pointer I thank Daniel Klein.


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Published on March 12, 2014 23:37

The market is already expecting fairly loose monetary policy

Evan Soltas has an excellent post on this topic, here is one bit:


There’s no doubt that the costs and benefits of an “overshoot” of full employment are asymmetric. Stay too loose for too long, and you get a temporary bit of inflation. Exit too early, and you leave the work of fixing the recession unfinished forever. Who wouldn’t take the first one?


The problem with this cost-benefit logic is that the consensus policy track already agrees with it, as do I, to the extent to which the logic works. Futures markets anticipate the first rate hike in the fall of 2015. Rate are then set to rise about one percentage point per year. This locks in a solid amount of “overshoot” already.


How do I figure that? The unemployment rate is 6.7 percent. It has fallen roughly 0.8 percentage points per year. Extrapolate forward to the fall of 2015, and you get that the first rate hike will happen with an unemployment rate of about 5.5 percent. The Fed’sestimate of the natural rate of unemployment is 5.2 percent to 5.8 percent, and the middle of that range is 5.5 percent.


Markets therefore expect the Fed to cross its own estimate of full employment with its policy rate at zero. That’s extraordinary.


Like Soltas, I am of the opinion that no further loosening is in order, while fully granting and indeed stressing that a more expansionary monetary policy absolutely was called for in earlier years.


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Published on March 12, 2014 11:14

*The Curmudgeon’s Guide to Getting Ahead*

That is the new forthcoming Charles Murray book and the subtitle is Dos and Don’ts of Right Behavior, Tough Thinking, Clear Writing, and Living a Good Life.


Murray by the way just published a review of Average is Over in the latest Claremont Review of Books which I enjoyed very much.  It is not yet on-line but cited here.


For the pointer I thank Alex.


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Published on March 12, 2014 07:45

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