Tyler Cowen's Blog, page 239

Unified China and Divided Europe

There is a new paper on economic development by Chiu Yu Ko, Mark Koyama, and Tuan-Hwee Sng, the abstract is this:

This paper studies the persistence and consequences of political centralization and fragmentation in China and Europe. We argue that the severe and unidirectional threat of external invasion fostered political centralization in China while Europe faced a wider variety of external threats and remained politically fragmented. Our model allows us to explore the economic consequences of political centralization and fragmentation. Political centralization in China led to lower taxation and hence faster population growth during peacetime than in Europe. But it also meant that China was relatively fragile in the event of an external invasion. We argue that the greater volatility in population growth during the Malthusian era in China can help explain the divergence in economic development that had opened up between China and Europe at the onset of the Industrial Revolution.

Money Laundering

From a new paper that caught my eye in the journal Industrial and Engineering Chemistry Research:

With nearly 150 billion new banknotes being manufactured and printed every year around the world, the replacing of unfit currency is approaching $10 billion annually. In addition, central banks must also deal with the environmental challenge of annually disposing of nearly 150,000 tons worth of notes unfit for recirculation. Seminal work by the De Nederlandsche Bank (DNB) has identified that soiling is primarily a yellowing of the notes due to the accumulation of oxidized sebum. We show that supercritical CO2 (SCCO2) can be effectively utilized to remove sebum and other oils and contaminants, including common bacterial colonies, from both paper and polymer banknotes without destroying the costly and sophisticated security features employed by central banks to prevent counterfeiting. SCCO2 cleaning at 60°C and 5000 psi was shown to be effective in cleaning conventional straps of 100 banknotes, extracting nearly 4% of the initial strap weight. Measurements of note soiling distributions on a banknote sorting machine running at 10 banknotes per second showed a significant shift in soiling levels after cleaning, supporting the claim that processing of SCCO2-cleaned notes would result in significantly fewer notes being classified as unfit due to soiling and shredded.

Hat tip: Fast Company.

Assorted links

1. Japanese macaque monkeys optimizing (not just satisficing) in hot springs.

2. First issue of Review of Behavioral Economics, a new journal edited by J. Barkley Rosser and Morris Altman.

3. The guy who hacked OKCupid.

4. Norwegian geoengineering, sort of.

5. Predicting the popularity of the obvious method.   And the classic jam experiment does not replicate.

6. The hurdle model and what makes for a good paper.

7. Further interpretation of the new Chetty mobility results.

From the comments

From FC:

A knocking at the door.

“Who’s there?” I asked. “Amazon drone,” came a polite but firm bass voice.

I opened the door to find box on the step as the hexacopter retracted its delivery arm and spun up its rotors. An invoice icon appeared on my Amazon eyeglasses. What wonders had I been brought today and how much would they cost?

But then, I thought, which of the two of us was truly an Amazon drone?

The economic value of a law degree

Michael Simkovic and Frank McIntyre have a new paper on this topic:

Legal academics and journalists have marshaled statistics purporting to show that enrolling in law school is irrational. We investigate the economic value of a law degree and find the opposite: given current tuition levels, the median and even 25th percentile annual earnings premiums justify enrollment. For most law school graduates, the present value of a law degree typically exceeds its cost by hundreds of thousands of dollars. We improve upon previous studies by tracking lifetime earnings of a large sample of law degree holders. Previous studies focused on starting salaries, generic professional degree holders, or the subset of law degree holders who practice law. We also include unemployment and disability risk rather than assume continuous full time employment. After controlling for observable ability sorting, we find that a law degree is associated with a 73 percent median increase in monthly earnings and 60 percent increase in median hourly wages. The mean annual earnings premium of a law degree is approximately $57,200 in 2013 dollars. The law degree earnings premium is cyclical and recent years are within historical norms. We estimate the mean pre-tax lifetime value of a law degree as approximately $1,000,000.

For the pointer I thank the excellent Andres Marroquin.

Global austerity?

There is a new UBS study which among other things covers the fiscal stance of the world as a whole.  Please do not misinterpret me as suggesting this implies anything particular for the policy of any individual nation, still the aggregate numbers are interesting to ponder.  Here is part of an FTAlphaville summary:

Government consumption’s share of global GDP has risen from 11 per cent to 14 per cent over the past 15 years. In 2013, it hit its highest level since 1980.
At the same time, government debt-to-GDP ratios have hit record highs in many countries.
Working-age populations are growing more slowly, or in some countries, such as Japan, beginning to decline.
Accordingly, the window of opportunity for mature economies to bring government debt levels down to sustainable levels is narrowing, owing to demographic shifts.
Given the situation in the government sector, private consumption needs to make a bigger contribution to the next phase of the recovery. Its share of GDP continues to hit multi-decade lows. Fixed investment is also making a smaller contribution to global growth than it did in the pre-crisis years.

And this:

Since the start of 2008, government consumption at the global level has risen by 20 per cent in real terms, whereas private consumption and fixed investment have risen just 8 per cent and 5 per cent respectively. Despite talk of austerity, government spending continues to run ahead of spending in the private sector.

While I have not looked into this particular estimate, China is likely playing a big role in this effect.

Hugo Lindgren asked me to explain to him why I think Los Angeles is the best city in the world

I wrote this email, which in the interests of varying the “voice” on this blog I have not in the meantime edited:

Best food in the US, no real comparison especially adjusting for price.

Best driving for classic routes and views and also availability of parking along the way (NYC is awful for the latter).

Best walking city in the US (really), and year round.

The city has its own excellent musical soundtrack, Beach Boys, Byrds, Nilsson, etc., has aged better than the SF groups I think.

Incredible architecture and neighborhoods, almost everywhere.

Everyone goes to the movies.

First-rate concert life, including classical and contemporary classical.

Very interesting art galleries.

Few book stores (though disappearing everywhere, these days) and the people have no real sense of humor, but nowhere is perfect!

Hugo Lindgen asked me to explain to him why I think Los Angeles is the best city in the world

I wrote this email, which in the interests of varying the “voice” on this blog I have not in the meantime edited:

Best food in the US, no real comparison especially adjusting for price.

Best driving for classic routes and views and also availability of parking along the way (NYC is awful for the latter).

Best walking city in the US (really), and year round.

The city has its own excellent musical soundtrack, Beach Boys, Byrds, Nilsson, etc., has aged better than the SF groups I think.

Incredible architecture and neighborhoods, almost everywhere.

Everyone goes to the movies.

First-rate concert life, including classical and contemporary classical.

Very interesting art galleries.

Few book stores (though disappearing everywhere, these days) and the people have no real sense of humor, but nowhere is perfect!

Claims about coal

Counterfactual estimates of city population sizes indicate that our estimated coal effect explains at least 60% of the growth in European city populations from 1750 to 19o0.

That is from a new NBER working paper by Alan Fernihough and Kevin Kevin Hjortshøj O’Rourke.  There is an ungated version of the paper here.

Assorted links

1. Starling murmuration photos.

2. ?

3. Risk aversion and extra football points.

4. Lance Davis has passed away.

5. The economics of verticals.