Tyler Cowen's Blog, page 271

*Deliberating American Monetary Policy: A Textual Analysis*

The author is Cheryl Schonhardt-Bailey and that is a new book published by MIT Press.  The Amazon link is here.  Here is a bit from the book’s home page:

In this book, Cheryl Schonhardt-Bailey provides a systematic examination of deliberation on monetary policy from 1976 to 2008 by the Federal Reserve’s Open Market Committee (FOMC) and House and Senate banking committees. Her innovative account employs automated textual analysis software to study the verbatim transcripts of FOMC meetings and congressional hearings; these empirical data are supplemented and supported by in-depth interviews with participants in these deliberations. The automated textual analysis measures the characteristic words, phrases, and arguments of committee members; the interviews offer a way to gauge the extent to which the empirical findings accord with the participants’ personal experiences.

The new “carry trade”?

Loosely regulated non-bank lenders have emerged as among the biggest beneficiaries of the Federal Reserve’s ultra-low interest rates with three specialist categories increasing their assets by almost 60 per cent since the height of the financial crisis.

Such lenders, widely considered part of the “shadow banking” system, have expanded rapidly on the back of investors who are clamouring for the higher returns on offer from financing riskier types of lending.

From the FT, there is more here.

Assorted links

1. The 100 best novels, as selected in 1898.  How many have you never even heard of?

2. Beyond Medicaid?  And the Swiss proposal for a guaranteed minimum income.

3. On Krugman and the eurozone, by Anders Aslund.  I don’t agree with everything in the piece, but it makes some good points and in any case this perspective is underrepresented in the economics blogosphere.

4. Which animals dislike their own pooh and why.

5. Mirowski responds to critics (pdf).  In the end section, he should have been more gracious to Diane Coyle.

6. “He’s my best friend.” (Department of Why Not?)  And maybe books do change peoples’ minds after all (NFL player quits after reading Noam Chomsky and the Dalai Lama).

Markets in everything

The words on the website say it all:

Monetize without ads

Let your visitors help you mine Bitcoins

The pointer is from the excellent Ashok Rao.

“Nobody dislikes currency inflation more than strippers”

The link to the associated cartoon with that caption is here, from Tim Harford’s Twitter feed.

But is that claim true?  It depends on the margin.  Let’s say the standard tip is a dollar, and price inflation lowers the real value of that dollar.  A lot of customers won’t substitute into stuffing $1.43 into the stripper’s garments.  They might do two or three singles, but strippers will be shortchanged at various points going up the price pole.  There is something about handing out a single bill that is easier and more transparent, or so it seems.

Say inflation gets high, or runs on for a long time for a large cumulative effect.  At some point the customers switch to giving $5 bills.

Does it help strippers if the Fed issues lots of $2 bills?  Well, the leap up to the larger tip comes more quickly, but the customers also stay at the $2 tip level a long time before moving up to $5.

At some margins inflation is bad for current strippers, but good for some set of future strippers.  If the economy is close to the margin where individuals upgrade from a $1 tip to a $5 tip, then inflation is good for current strippers but bad for future strippers (for a while).

The answer also may depend on whether the Fed adjusts the ratio of $5 to $1 bills to keep in proper synch with the stripper customers.  If the Fed doesn’t increase the supply of fivers rapidly enough, future strippers may not get their deserved payoffs for a long time.

Let’s explore this assumption that handing out a single bill of a given kind is easier (admittedly there may be other ways to specify the assumptions).  And let’s assume that overpaying some strippers and underpaying others is less efficient for some reason, whether Benthamite or having to do with the unevenness of medium-run supply elasticities.

In that case tips may be more efficient, with ongoing inflation, at the $5 level than the $1 level.  Given that two dollar notes are rare, the step up from a one to a five involves a fivefold increase.  But the step up from a five to a ten is only a twofold increase, as is the step up from a ten to a twenty.  Even the switch from twenties to fifties involves a smaller multiple than from a one to a five.  So there are fewer problems with the non-convexities within the 5-10-20-50 range than within the 1-5 range.

Perhaps the sooner we get the strippers away from “the ones” the better — who needs those non-convexities?  Strippers sure don’t.

On the whole, therefore, strippers may prefer price inflation.  Of course once the $100 bill is the standard tip, the next notch upwards is again hard to come by, outside of the eurozone that is.

Markets in everything: paid friends

This account may to some degree be speculative, but here goes:

According to one avid PF [paid friend] employer, ‘Once you’ve had paid friends who don’t argue with you, it’s actually quite hard to go back to real friends.’

The ex-wife of a PF hoarder said ‘many really successful men don’t actually have time for real friends,’ because normal friends ‘are either resentful or bitter or ask for money,’ and that some ‘are often competitive.’

She said that as a result, ‘very rich men have paid friends as an expensive filter, because they can control them.’

If her ex-husband were not wealthy, ‘he’d be sitting all alone in his apartment with a container of Haagan-Dazs and a bottle of vodka,’ she said.

I say why opt for “paid friends” when you can have a $6,000 Vertu smart phone?

The full story is here, hat tip goes to @ArikSharon.

What is the nature of France’s fiscal problem?

Here is a report today from William Horobin:

Until now, many of the deficits have been transferred to a little-known vehicle set up to pay down the social-security system’s overdrafts with a special tax. But the vehicle—called Cades—is quickly approaching the legal ceiling of €270 billion ($360.4 billion) of debt it is permitted to handle over its lifetime.

To breach the Cades threshold and plow in more debt, the government is bound by law to increase the special tax. But faced with at-times violent street protests over taxation, Mr. Hollande has pledged to stop raising taxes, saying the government instead must help companies regain competitiveness and preserve household spending power. As a result, Mr. Hollande’s government is considering leaving the debt load where it is, in the social-security system, instead of moving it to Cades.

The national audit office and many lawmakers are crying foul, saying the stockpile of deficits sits on the books of a social-security system designed to manage cash flow, not long-term debt, and is leaving the system vulnerable to an increase in interest rates.

“It’s creating a time bomb,” said Philippe Marini, a center-right senator who heads the finance commission of the French Parliament’s upper house.

The debate over where to store the debts underscores the shrinking room France has to maneuver in grappling with deficits tied to its generous, and underfinanced, welfare programs.

If you read the whole article, you will see this concern is held by many individuals in the French establishment, not just by Olli Rehn.  More generally, I would say that the most fundamental problem seems to be willful denial amongst the citizenry and a strong unwillingness to reform, for instance:

“You cannot take away guns from Americans, and in the same way you cannot take away social benefits from French people,” said Louis Paris, who lives on the Rue Louis Braille, a typical neighborhood in St Etienne, which has deep working-class roots and historically has leaned Socialist. “They won’t stand for it,” said Paris.

Sweden had a period where its government spent too much money, yet they snapped out of it and cut spending and marginal tax rates, like good, pragmatic Swedes.  We’ve yet to see serious signs that the French are going to do the same.  They certainly don’t have much if any room to raise taxes any further.

The point here is not to argue that the French economy is on the verge of collapse.  It isn’t.  But they do have serious fiscal problems which go beyond a static look at the usual metrics.

Assorted links

1. Video defense of Bitcoin, start at about 2:30.  Interesting up through the end.

2. MIE: Santas for hire, with real beards only.  These guys really look like Santa, unlike the phonies I visited with as a kid.  For an hour it is $218, plus travel costs.  The march of progress continues.

3. CoreEcon, a new project from the Institute for New Economic Thinking.  The mission is to provide open access materials for how an undergraduate economics curriculum should look.

4. Where in the world is household debt going up?  Going down?

5. Will China build a car-free city from scratch?

6. Diane Coyle reviews Mirowski.

Who is Juan Galt?

USA Today: Thousands of Venezuelans lined up outside the country’s equivalent of Best Buy, a chain of electronics stores known as Daka, hoping for a bargain after the socialist government forced the company to charge customers “fair” prices.

…Members of Venezuela’s National Guard, some of whom carried assault rifles, kept order at the stores as bargain hunters rushed to get inside.

“I want a Sony plasma television for the house,” said Amanda Lisboa, 34, a business administrator, who had waited seven hours already outside one Caracas store. “It’s going to be so cheap!”

…The president, who took over from Hugo Chávez in April 2013, appeared on state television Friday calling for the “occupation” of the chain, which employs some 500 staff.

“This is for the good of the nation,” Maduro said. “Leave nothing on the shelves, nothing in the warehouses … Let nothing remain in stock!”

…Daka’s store managers, according to Maduro, have been arrested and are being held by the country’s security services. Neither Daka nor the government responded to requests for comment.

In Atlas Shrugged‘s money speech Rand, drawing on Hayek, provides an implicit warning to Maduro and Venezuela:

…when a society establishes criminals-by-right and looters-by-law–men who use force to seize the wealth of disarmed victims–then money becomes its creators’ avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket.

Competitive hospitals as a virtue of the Singapore health care system

I won’t recap my earlier discussion, but rather here I will point out another feature of the system which makes it work and which keeps costs down: competition among hospitals.

Singapore has nine general hospitals, eight community hospitals, and twelve specialist hospitals, many of which are owned by the government.  (The public hospitals are usually bigger than the private hospitals, so the public hospitals serve about 80% of the market.)  To put that in proper perspective, Singapore is about the size of a U.S. county.  That’s 274.1 square miles, noting that most people do not live on the fringes of the territory.

The publicness of the public hospitals is not their most important feature.  Their most important feature is that they compete.  They do not merge, for instance.

Not every Singaporean public hospital is a contender to treat every kind of ailment.  And not every hospital is within convenient reach in a country where many people do not have cars.  Still, that’s a lot of competition by American standards.

To put matters in perspective, Fairfax plus Arlington counties have two hospital chains of significance, Virginia Hospital Center and Inova FFX hospital, and that is in a reasonably densely populated (by American standards) elite region.  Yes DC and Maryland may beckon (Sibley, Suburban, Children’s Hospital — what else is good?), but still ask yourself how many Americans can choose from a comparable number of hospitals as one can in Singapore?

One lesson is that urbanization is good for your health care system.  That is another reason to deregulate urban density.

A second lesson is that congestion prices for your roads make it easier for hospitals to compete.  Driving north on the Beltway to a Maryland hospital, from Fairfax, isn’t so great, especially if you are really sick.

A third lesson concerns the Hayek-Lange debate on managed competition as a potential solution to the socialist calculation debate.  The government-owned hospitals in Singapore would appear to be implementing one version of Lange’s proposal, namely that they are told to compete and they do.  Very successfully, so successfully that they are often cited as an example by market-oriented economists.  No, this could not work for an entire economy, and yes, in most other places public choice considerations would be a bigger problem than they are in Singapore.  Still, Lange’s proposal, viewed in light of the Singapore hospital system, looks a bit better than it used to.

Addendum: Here is Reihan on the monopoly power of U.S. hospitals.