Tyler Cowen's Blog, page 295

*The Age of Oversupply*

That is Daniel Alpert’s book and the subtitle is Overcoming the Greatest Challenge to the Global Economy.  I found this a fun and interesting read and I agreed with more of it than I thought I would.  I’ve stressed numerous times that some of the dilemmas of our current day can be understood through nineteenth century parallels and also through the writings of the classical economists.  So why not pull Thomas Chalmers and Malthus out of the closet and worry about a general glut of goods and services, juxtaposed with Bernanke’s global savings glut, and a dash of MMT at the end for good measure?  The more the merrier, I say.

Here is one representative overview passage from the book:

The supply of global labor and capital is too great, and demand too weak, for them to resume proper functioning without proper assistance.  This imbalance has been going on for years and nobody seems to know what to do about it.  Private markets haven’t solved the problem, not because they are inherently dysfunctional, but because the sheer magnitude of changes in the global economy, thanks to the fall of the Bamboo and Iron curtains, has created challenges too big for private markets, acting alone, to reasonably address.

I like the integration of the international dimension, but I do have some worries:

1. The book too often lapses out of its international context and falls into standard Keynesianism.  I don’t mean to prejudge against that approach, but we’re already pretty familiar with it and it doesn’t justify another book to spell it out.  The author should have spent more time in the nineteenth century, in China, or both.

2. Good infrastructure selection, as the author proposes, could boost growth but it won’t undo any general glut that might exist and it won’t help current unemployment a lot.  Those are not the workers who would end up being hired to build the new projects.  Rather than closing the book with policy prescriptions (always a downer in a trade book), the author should have spelt out a vision for where all this is likely headed.  In any case, we’re unlikely to spend another $1.2 trillion on infrastructure over the next five years, so what happens then?  Can we depreciate our capital stock back into a more dynamic recovery?

3. Even when I agree with Alpert, I don’t think “oversupply” is what he is pinpointing.  Like Krugman’s recent flirtation with demand-side secular stagnation theories, it is an embarrassment for these views that current nominal gdp is considerably higher — more than ten percent — than its pre-crash peak.  The price level is higher too.  On p.135 Alpert recognizes this problem and even mentions that his own theory may have predicted as much as six percent deflation, which of course isn’t there.  He doesn’t have a good explanation on this point and yet it is critical to his overall framing (though not to each and every particular argument).

Yes, I know, many wages won’t fall in nominal terms and that limits price deflation.  But it won’t get you the increase in nominal values we have observed, the wage truncation hypothesis has theoretical problems, and also it is failing recent empirical tests.  Arnold Kling considers some recent research on the Phillips curve (pdf) and finds it can’t explain why the rate of inflation remained as high as it did, given the recession we experienced.  Or take a peek at the recent empirical study by Coibion, Gorodnichenko, and Koustas (pdf, interesting on several counts).  They find, to put it bluntly: “Hence, there is no missing wage disinflation puzzle to match the missing price disinflation puzzle.  This strongly suggests that downward wage rigidity is unlikely to be the key factor underlying the missing disinflation of the Great Recession.”  In other words, that whole line of explanation seems to fail and that is going to mean no general glut of goods and services.

Still, I am happy I bought this book.  Bravo for the nineteenth century.

Addendum: Alpert replies by email: “As to the price level and wage rigidity – I imagine we have differing views on what is supporting both.  I believe I make a reasonable argument that easing has kept financial asset value (incl. real estate) from falling, and that wages haven’t fallen because, ex-Japan, the labor oversupply has been absorbed via high levels of underemployment in advanced economies, rather than by wage reductions. Put it all on a per-capita basis and have another look at aggregate wages.  Prices, of course, have fallen in the tradable sectors. And but for rents (incl. owners equiv) (protected by monetary easing), and healthcare and education (guild industries with extensive price interference from third party payor systems), we would not have price stability since the beginning of the great recession.”

*The Tragedy of Liberation*

That is the new book by Frank Dikötter, the subtitle is A History of the Chinese Revolution 1945-1957, and it is a prequel to his earlier Mao’s Great Famine.  His books are superb documents of the tyrannical age he studies.  Here is one excerpt:

In an orgy of false accusations and arbitrary denunciations, few escaped with their reputations intact.  By February no more than 10,000 of a total 50,000 ‘capitalists’ in Beijing were considered honest.  Similar figures came from other parts of the country.  To punish all would wreck the economy.  Mao had a solution to this conundrum.  He came up with a quota, ordering that a few should be killed to set the tone, while exemplary punishment should focus on 5 per cent of the most ‘reactionary’ suspects.  Across most cities, by a rough rule of thumb, about 1 per cent of the accused were shot, a further 1 per cent sent to labour camps for life, and 2 to 3 per cent imprisoned for terms of ten years or more.

This is not easy material to read about, but Dikötter’s books are landmark achievements of their time.

And as I am wont to say, China’s prospects and fundamentals look pretty good if you scrutinize the country’s history over the last 30 or also the last 3000 years.  It’s the time frame of the last 300 years that doesn’t look so good.

Your robot anesthesiologist (the forward march of progress)

A new system called Sedasys, made by Johnson & Johnson, JNJ -1.31% would automate the sedation of many patients undergoing colon-cancer screenings called colonoscopies. That could take anesthesiologists out of the room, eliminating a big source of income for the doctors. More than $1 billion is spent each year sedating patients undergoing otherwise painful colonoscopies, according to a RAND Corp. study that J&J sponsored.

J&J hopes the potential savings from using Sedasys will appeal to hospitals and clinics and drive machine sales, which are set to begin early next year. Sedasys “is a great way to improve care and reduce costs,” J&J CEO Alex Gorsky said in an interview.

Anesthesiologists’ services usually cost more than the $200 to $400 generally charged by physicians performing the actual colon-cancer screenings, says health-plan CDPHP in New York state. An anesthesiologist’s involvement typically adds $600 to $2,000 to the procedure’s cost, according to a research letter published online by JAMA Internal Medicine in July.

By contrast, Sedasys would cost about $150 a procedure, according to people familiar with J&J’s pricing plans. Hospitals and clinics won’t buy the machines, instead paying a fee each time they use the device, these people say. The $150 would cover maintenance and all the costs of performing the procedure except the sedating drug used, which would add a few dollars, one of the people says.

Here is more.  As you might expect, anesthesiologists are convinced this is a bad idea.

Assorted links

1. The “what if failure?” taboo.

2. The new carbon tube computer.

3. 100 Works of Art That Will Define Our Age.

4. “I’m not interested in teaching books by women.”  Via Belle Waring.

5. Why is there no Milton Friedman today?  Here is a video of presentations by me, Sam Peltzman, David Colander, and Peter Boettke.  But in fact I say there is a Milton Friedman today, can you guess who it is?

6. Why no layoffs?

Do Americans favor debt ceiling conditionality?

I don’t think there should be a debt ceiling at all, and I also don’t favor conditionality on raising it, as I don’t think hostage-taking leads to better policy in the long run or even in the short run for that matter.  Yet it seems to me this is an under-reported angle on the recent controversies:

Americans by a 2-to-1 ratio disagree with President Barack Obama’s contention that Congress should raise the U.S. debt limit without conditions.

Instead, 61 percent say that it’s “right to require spending cuts when the debt ceiling is raised even if it risks default,” because Congress lacks spending discipline, according to a Bloomberg National Poll conducted Sept. 20-23.

That sentiment is shared by almost three-quarters of Republicans, two-thirds of independents, and a plurality of Democrats. Just 28 percent of respondents backed Obama’s call for a clean bill that has no add-on provisions.

The Bloomberg article is here, and I would say this means the Republican strategy may be working somewhat better, and be less insane and out of touch, than its critics often suggest.  (I do, by the way, understand that the framing of the initial question is going to influence the poll results significantly.)

As they sometimes say, it is time to elect a new people.

*The Why Axis*

That is the new, excellent, and self-recommending book by Uri Gneezy and John List.  The subtitle is Hidden Motives and the Undiscovered Economics of Everyday Life, and the core of the book revolves around the authors’ use of field and natural experiments to tease out what is causal and what is not.  List is in my view a candidate for a future Nobel Prize.

Here is one excerpt from the book, concerning the experience of trying to buy a car at auto dealerships:

In this experiment, we worked with our colleague Michael Price in assigning pairs of men to pose as our secret agents: straight men acting as friends, straight men playing loving partners, gay men acting as friends, and gay men portraying partners.  Each of these pairs visited various car dealerships to negotiate the purchase of a new car.  Every “couple” bargained at different randomly determined dealerships, and every dealership was approached twice.  We observed not only what kinds of offers the various “couples” received, but also how often they were offered niceties like a test drive and a cup of coffee.

Our results showed that the people acting as gay partners got shabbier treatment.  Many dealerships rejected offers from buyers they perceived as gay, while accepting identical offers from our straight buyers.  More than 75 percent of the time, dealers quoted the gay couples higher initial prices, when the gay couples extended counter offers, they were much more likely to be rejected and the salespeople ended the negotiations.

You can pre-order the book here.

Let’s privatize the ban on pennies

For the photo I thank Jacob Ma-Weaver.  I joined this privatization effort some time ago, as I take pleasure in throwing my pennies away (much to the consternation of my wife).

Designer American babies for the Chinese elite

Also known as “markets in everything”:

Wealthy Chinese are hiring American women to serve as surrogates for their children, creating a small but growing business in $120,000 “designer” American babies for China’s elite.

Surrogacy agencies in China and the United States are catering to wealthy Chinese who want a baby outside the country’s restrictive family planning policies, who are unable to conceive themselves, or who are seeking U.S. citizenship for their children.

Emigration as a family is another draw – U.S. citizens may apply for Green Cards for their parents when they turn 21.

The story is here, and for the pointer I thank Fred Smalkin.

Assorted links

1. Tribute to Ravi Ramrattan, development researcher, who was killed in Kenya.

2. Can math predict the rise and fall of empires? (I say no)

3. On Charles Mingus.

4. Should we trust Iran on nuclear weapons?

5. Knausgaard Kickstarter.

6. “Finally, I am not an aesthetic Stalinist.”

New results on labor market polarization

The piece is by Christopher L. Smith, at the Board of Governors, and from this work we learn a few things:

1. Once we adjust for demographics, labor market polarization is a stronger effect than the raw data themselves suggest.

2. Polarization is driven both by more people leaving the middle income category and fewer people entering it.

3. The actual changes in polarization often arrive during cyclical downturns but then stick.

4. “…the share in middle-type jobs has fallen for all types of workers.” (wrt education)  The declines have been the worst for younger workers and for non-college workers.  Even for college-educated workers, the share employed in low-end jobs has risen since the early 2000s.

5. The inflow into middle-type jobs, from the previously unemployed, is declining steadily with time.

6. Unemployed, previously middle-type workers are tending to remain non-employed rather than to trend into lower-type jobs.

7. The rate at which persons in low-type or (especially) middle-type jobs transition into high-type jobs is rising over time.

8. Yet the rate at which persons in low-type jobs transition into middle-type jobs is falling over time.

9. The core trends on labor market polarization date from the mid-1980s.

Here is a summary of the research.  The paper is here.

For the pointer I thank Claudia Sahm.