Tyler Cowen's Blog, page 285

Who needs eTexts and portals when you have drones?

From Down Under, one of the few countries to allow commercial drone deliveries:

Australian textbook rental startup Zookal will begin utilizing drones to make its deliveries in Australia next year, with ambitions of bringing the unique, unmanned delivery method to US customers by 2015. The company says this marks the first commercial use of fully automated drones worldwide. It will fulfill deliveries in Sydney using six drones to start, dropping off textbook purchases at an outdoor location of the customer’s choosing. To wipe away any potential privacy or surveillance fears, the drones aren’t equipped with cameras. Instead, built-in anti-collision technology keeps them clear of trees, buildings, birds, and other potential obstacles.

Both the location of the user and the drone’s GPS coordinates are transmitted via a smartphone app, and Zookal claims deliveries can be completed in as little as two to three minutes once a drone takes flight. You can track the drone’s progress from the app (which will only be available on Android at launch) and head outside once it’s getting close. The drone never fully lowers itself to ground level, but rather hovers overhead and lowers its textbook delivery with the tap of a button on your smartphone.

There is more here, via Michael Rosenwald.

“But we just had Indian food yesterday!”

I’ve never understood this argument, which is sometimes cited as a reason to go to a non-Indian restaurant on a given day.  How should people cope who live in India?  They have Indian food many, many days in a row, and often (not always, by any means) poorer Indians are choosing from a less varied menu of that food than Americans who visit Indian restaurants.  Would it be so terrible to eat only Indian food, whether at home or in restaurants, every day for a week?  Every day for a month?  I don”t see why.  So how about two days in a row?  Or two meals in a row?  Three?  What if you had Indo-Chinese food somewhere in the middle of the sequence?  Momos cooked by Nepalese immigrants?

Until a group meal yesterday, I had Korean food five days in a row, three meals a day, much to my joy.  I bet some Koreans, in Korea, did the same.

Apple trade: factor endowments or increasing returns?

That’s real apples, not the company.  Timothy Taylor reports:

But even within the production of apples, there is global specialization. The US economy both exports and imports apples, depending on the season, but overall runs a trade surplus in apples. However, the U.S. runs a substantial trade deficit in frozen apple juice concentrate, relying heavily on imports from China. Here are some statistics about U.S. trade in apples from the U.S. Department of Agriculture (which are helpfully archived on-line at Cornell University).

You should note that both increasing returns models and Heckscher-Ohlin approaches to trade can give rise to what is commonly called “specialization,” and thus citing specialization does not answer the question posed in the title of this post and it need not necessarily favor increasing returns to scale models.

By the way, here is a new Paul Krugman paper on trade (pdf).

Brink Lindsey predicts a slowdown of economic growth, even if we innovate more

Brink’s new paper is here, here is one excerpt:

Consider the four constituent elements of economic growth tracked by conventional growth accounting: (1) growth in labor participation, or annual hours worked per capita; (2) growth in labor quality, or the skill level of the workforce; (3) growth in capital deepening, or the amount of physical capital invested per worker; and (4) growth in so-called total factor productivity, or output per unit of quality-adjusted labor and capital. Over the course of the 20th century, these various components fluctuated in their contributions to overall growth. The fluctuations, however, tended to offset each other, so that weakness in one element was compensated for by strength in another. In the 21st century, this pattern of offsetting fluctuations has come to a halt as all growth components have fallen off simultaneously.

The simultaneous weakening of all the components of economic growth does not mean that slow growth is inevitable from here on out. The trends for one or more of them could reverse direction tomorrow. Nevertheless, it is difficult to resist the conclusion that the conditions for growth are less favorable than they used to be. In other words, growth is getting harder.

Brink offers further remarks here.  On October 29, at noon, I’ll be doing a Cato Forum with Brink on this paper.

A new estimate of the importance of unemployment benefits

This is a new NBER paper from Marcus Hagedorn, Fatih Karahan, Iourii Manovskii, Kurt Mitman, the abstract is here:

We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed — the micro effect — we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.

There is an ungated version of the paper here (pdf).

Iceland book fact of the day

One in ten Icelanders will publish one [a book].

“Does it get rather competitive?” I ask the young novelist, Kristin Eirikskdottir.

“Yes. Especially as I live with my mother and partner, who are also full-time writers. But we try to publish in alternate years so we do not compete too much.”

The story is here, hat tip goes to Robert Cottrell.

Assorted links

1. Die Zeit interviews me (in German).

2. The thoughts of my Provost on STEM.

3. Are digital games useful for learning? (pdf)

4. A good piece on why government IT so often fails.

5. Can a stock exchange which limits HFT flourish?

Banksy Comments on the Nobel Prize?

Mashable: Street artist Banksy set up a stall in New York’s Central Park Saturday, selling his original pieces — worth tens of thousands of dollars each — for $60.

The event was documented on video and posted on Banksy’s website. It took several hours for the first artwork to be sold, to a lady who managed to negotiate a 50% discount for two small canvases. There were only two more buyers, and by 6 p.m. the stall was closed with total earnings of $420.

For comparison, in 2007 Banksy’s work “Space Girl & Bird” was purchased for $578,000, and in 2008 his canvas “Keep it Spotless” was sold for $1,870,000.

What would Fama, Shiller and Hansen say about these asset prices?

Maximizing revenue for non-reproducible art is a matching process, the artist must find the handful of buyers in the world willing to pay the most (see An Economic Theory of Avant-Garde and Popular Art) so perhaps one can explain this as a failure of marketing.

An alternative explanation is that modern art is a bubble, people buy only because they expect to sell to others–take away this expectation and the art doesn’t sell. (Fashions and fads can help the latter explanation a long but there still needs to be an expectation of a future sucker buyer.)

Or perhaps Banksy is commenting on an earlier Nobel winner.

Equilibria in health exchanges

There is a recent paper (pdf) by Handel, Hendel, and Whinston, and it covers the issue of adverse selection through the new ACA exchanges.  The second paragraph of the abstract is this:

We find that market unravelling from adverse selection is substantial under the proposed pricing rules in the Affordable Care Act (ACA), implying limited coverage for individuals beyond the lowest coverage (Bronze) health plan permitted.  Although adverse selection can be attenuated by allowing (partial) pricing of health status, our estimated risk preferences imply that this would create a welfare loss from reclassification risk that is substantially larger than the gains from increasing within-year coverage, provided that consumers can borrow when young to smooth consumption or that age-based pricing is allowed.  We extend the analysis to investigate some related issues, including (i) age-based pricing regulation (ii) exchange participation if the individual mandate is unenforceable and (iii) insurer risk-adjustment transfers.

The core result here does not require individuals to violate the legal mandate, although the paper has a good and sobering discussion of that topic as well.  The adverse selection here is occurring across plans of differing quality.  On the positive side, having everyone enrolled in the “least comprehensive” plan can be a plus rather than a minus, depending on your point of view.  On the negative side, the paper does not consider how suppliers might respond by limiting the quality of their network and making the least comprehensive plan even less useful.

For the pointer I thank Dan in Euroland.

Cohorts born in the late 1930s and 40s did especially well

Via @ClaudiaSahm, there is a new paper (pdf) from Emmons and Noeth at the St. Louis Fed, the abstract is here:

The global financial crisis and ensuing Great Recession reduced the income and wealth of many families, but older families generally fared better than young and middle-aged families. The Federal Reserve’s Survey of Consumer Finances reveals that being young was a significant risk factor during the downturn, regardless of a family’s race, ethnicity, or education level. Among older families, those headed by someone 70 or over fared slightly better than those headed by someone between 62 and 69. Income and wealth also increased most strongly among older families during the two decades preceding the crisis. Part of the explanation for favorable income and wealth trends among currently living older Americans is a positive birth-year cohort effect. After controlling for a host of factors related to income and wealth, we find that cohorts born in the late 1930s and 1940s have experienced more favorable income and wealth trajectories over their life courses than earlier- or later-born cohorts. While it is too soon to know how cohorts born in recent decades will fare over their lifetimes, it appears that the median Baby Boomer (born in the 1950s and early 1960s) and median member of Generation X (born in the late 1960s and 1970s) are on track for lower income and wealth in older age than those born in the 1930s and 1940s, holding constant many factors other than when a person was born.

One driving force seems to be that the older generation was simply more motivated to save.  And here is a dramatic sentence:

Among young and middle-aged families, the median levels of net worth were 30.5 percent and 24.1 percent lower in 2010 than in 1989, respectively.

The paper presents many interesting facts, but I would start with pp.9-10.

From The Guardian, here is an argument that middle class youth in Great Britain today will end up faring worse than did their parents.