Tyler Cowen's Blog, page 261

Assorted links

1. Kelefa Sanneh in The New Yorker on blockbuster effects in cultural markets.

2. Planet Money follows a T-shirt around the world.  And Slate staff picks favorite books for 2013.

3. Yakov Smirnoff tells jokes about Russia (video).  And further analysis of Ukraine.

4. Will China be the first country to legalize drone deliveries?

5. 285,000 brush strokes.

6. “Indeed, Mr. Zimmerman says he can no longer tell the difference between stories he finds interesting and stories that will be popular.”  Or try this version of the link.

When are minimum wage hikes most likely to boost unemployment?

When the wage profile for low-skilled workers is sloping upward with time, minimum wage increases are less likely to increase unemployment (for the moment put aside your estimate of the absolute likelihood that minimum wage increases will boost unemployment, just ask the question in relative terms).  After all, the employer might feel that with rising wages and rising productivity, those low-skilled workers might “grow into” the higher and legally mandated new wage rate.  So maybe keep them, noting that the search costs of pulling in a good replacement will be higher too.  Furthermore, even if some of those workers are laid off they have a higher chance of being reemployed elsewhere, due to the relatively strong labor market.

What about when the wage profile for low-skilled workers is sloping downward over time?  One would expect the opposite result to hold, namely that employers are less likely to hold on to workers when confronted with a mandated wage increase.

For much of the 1990s, the labor market for less skilled workers was in decent shape.  Since 1999 or so often it has been in bad or declining shape, excepting the “bubbly” years of 2004-2006.  Therefore a minimum wage hike today would be more likely to boost unemployment than the minimum wage hikes of the past.  And that unemployment is more likely to be long-term, corrosive unemployment than in previous decades.

I do understand that a minimum wage hike, in the eyes of some, is more “needed” today, perhaps for distributional reasons.  But can we admit it is more likely than average to lead to additional unemployment?

Does anyone disagree with this logic?

Addendum: Scott Winship offers some relevant comments.

The Real Costs of Virtual Money

Bitcoin miners, just like gold miners, use real resources to produce bitcoins. How much? In April when bitcoins traded for around $100 the electricity consumption of bitcoin miners was an astounding 1000 MGW hours a day, enough to power about 31,000 US homes or some $150,000 in daily expenditure.

As the price of bitcoin rises, so do the mining costs. Thus, today with bitcoin trading around $1000 the costs are much higher. According to BlockChain’s Bitcoin Statistics, miners are currently using 98,000 MGW hours or $14 million dollars of electricity a day to mine bitcoins. (One wonders, whose electricity?) And that is just the electricity costs, miners are also spending on hardware which has evolved from CPUs, to graphics processors to field-programmable gate arrays (FPGAs) and now to application-specific integrated circuits (ASICs).

Unlike the resource costs of a gold standard, which Milton Friedman once (over?) estimated at some 2.5% of GDP ever year forever, bitcoin mining may slow once the bitcoin limit of 21 million bitcoins is reached.  Even that is tricky, however, because bitcoin mining currently subsidizes transaction costs so these will rise as bitcoin mining declines. Transaction costs are a necessary cost for a useful purpose so not all the mining is a net cost. Printing money is cheaper than gold or bitcoin mining but don’t forget that moving around fiat currency, by Brink’s truck or electronically, also has resource costs.

Hat tip for discussion to Eli Dourado.

Addendum: It’s an interesting bit of economics to ask why the cost of electricity doesn’t impact these numbers (even though it is used to calculate these numbers!).

The UK recovery is not just a single blip in the data

From the FT:

The strength of the UK economy is drawing covetous and occasionally envious glances from the eurozone as investors from around the world size up the opportunity presented by Britain’s recovery.

The UK economic revival has taken almost everyone by surprise, confounding domestic and international forecasting groups.

It’s perfectly fair to describe this as an “Average is Over” recovery, but a recovery it is, and far greater than might be accounted for by any slowdown in fiscal consolidation.

Is Ukraine the world’s next financial crisis?

Here are some simple numbers:

To grow, Ukraine’s $176 billion economy needs gas imports from Russia to be cheap and its steel exports to be expensive.

The opposite is now the case. The government ends up taking the strain because it subsidizes most of the cost of gas sold to households across the country of 46 million that borders Russia to the northeast and four new EU states to the west.

Yanukovich walked away from the trade deal because it lacked a hoped-for stand-by loan of as much as $15 billion from the International Monetary Fund.  The global lender was not prepared to lend new money without gas-price reforms.

Russian President Vladimir Putin has meanwhile made a gas discount conditional on Ukraine joining a Russia-led customs bloc that includes Kazakhstan and Belarus. He has not, however, ruled out possible further funding.

Jacob Nell, a Moscow-based economist at Morgan Stanley, estimates that Ukraine will have to raise external financing of $18 billion for Yanukovich to make it to the 2015 election.

The yield on the June 2014 bond is now closing in on 20 percent.  The full story is here.

The increasing velocity of goods is a deflationary pressure (rental markets in everything Average is Over)

Anouk Gillis often sports a pair of organic-cotton jeans she ordered online. But she doesn’t actually own them.

Rather than buying the pants, which retail for around €100 ($135), Ms. Gillis signed a 12-month lease with their designer, the small Dutch fashion label Mud Jeans. The terms: a €20 deposit and monthly installments of €5.

After a year, Ms. Gillis, who is also Dutch, can decide to buy the jeans, return them, or exchange them for a new pair.

“The idea was to make high-quality jeans available to everybody,” said Bert van Son, chief executive of Mud Jeans, which promises to recycle the used jeans into new pairs or sell them secondhand at the end of a lease.

The deal shows how companies are trying to reconnect with Europe’s cash-strapped consumers, who increasingly rely on renting, sharing or even bartering for products and services ranging from clothing to vacations to lawn mowing.

There is more here.  For the pointer I thank the man who delivered my morning Wall Street Journal.

Assorted links

1. A guy who wants to pretend there is no danger in sex and attraction.  It is nonetheless an interesting albeit highly flawed meditation on focal points and communication games.

2. The American places with surging crime are the same places with a surging middle class.

3. Noah nails the Stephen Williamson debate, many others got it wrong, badly wrong.  By the way, here is Williamson’s response, and his response to Noah.  Here is a good post by Scott on the debate.

4. Joe Weisenthal changes his mind about Bitcoin.  Matt hasn’t.

5. Eli Dourado on the regulation of drones.

6. Daily Telegraph on Average is Over, click through to p.9.

Why macroeconomics is not a science

From the United Kingdom:

Manufacturers enjoyed a jump in demand that pushed growth to its fastest rate for more than two years and saw the sector take on thousands of new staff last month.

New orders were the strongest for almost 20 years and job creation accelerated, according to the Markit/CIPS UK Manufacturing PMI survey.

There is more here, and I will reiterate that this trend was not very well predicted by any macroeconomic school of thought, including liquidity trap theories, recent emphases on long-run secular stagnation, or for that matter the contrasting “of course there is mean reversion” approaches, which don’t tell us much about timing and which would appear to contradict the slow recoveries seen elsewhere.  Spain, by the way, does not have an equivalent degree of cheer…

The economics of cheap drone delivery

Let’s say 30-minute drone delivery to your home were legal, well-run, and, for purposes of argument, free or done at very low cost.  You would buy smaller size packages and keep smaller libraries at home and in your office.  Bookshelf space would be freed up, you would cook more with freshly ground spices, the physical world would stand a better chance of competing with the rapid-delivery virtual world, and Amazon Kindles would decline in value.  Given that the storage costs for goods would fall (more storage by specialists, accompanied by later delivery), expected inflation would more likely be converted into price hikes today.  The liquidity premium of money (NB: not currency) would rise and the liquidity premium of goods would fall.  Some drug markets would be taken off the streets and the importance of gang “turf” would fall.

Addendum: What do we know about network economies in drone delivery systems?  FedEx and UPS and USPS, taken together, dominate the market for physical delivery of parcels to homes.  How much room would there be in the market for “lone drone” operators?

Protestors try a new tactic against the Ukrainian police

That is from @Reuterspictures and @pdacosta.