Tyler Cowen's Blog, page 307

Who Will Prosper in the New World?

That is a new and short essay from The New York Times, adapted from my almost-out (Sept. 12) book, Average is Over: Powering America Out of the Great Stagnation.  Here is an excerpt from the short piece:

Your smartphone will record data on your life and, when asked, will tell you what to do, drawing on data from your home or from your spouse and friends if need be. “You’ve thrown out that bread the last three times you’ve bought it, give it a pass” will be a text message of the future. How about “Now is not the time to start another argument with your wife”? The GPS is just the beginning of computer-guided instruction.

Take your smartphone on a date, and it might vibrate in your pocket to indicate “Kiss her now.” If you hesitate for fear of being seen as pushy, it may write: “Who cares if you look bad? You are sampling optimally in the quest for a lifetime companion.” Those who won’t listen, or who rebel out of spite, will be missing out on glittering prizes. Those of us who listen, while often envied, may feel more like puppets with deflated pride.

Read the whole thing, interesting throughout.

You can order my book on Amazon here.  On Barnes and Noble here.  On Indiebound.org here.  And from Penguin here.

Average Marginal Labor Income Tax Rates under the Affordable Care Act

That is a new paper by Casey Mulligan, here is the abstract:

The Affordable Care Act includes four significant, permanent, implicit unemployment assistance programs, plus various implicit subsidies for underemployment. Every sector of the economy, and about half of nonelderly adults, is directly affected by at least one of those provisions. This paper calculates the ACA’s impact on the average reward to working among nonelderly household heads and spouses. The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect. The ACA’s addition to labor tax wedges is roughly equivalent to doubling both employer and employee payroll tax rates for half of the population.

Mulligan summarizes the paper here, with further detail.  In another new paper, Mulligan compares ACA with Romneycase.

Ronald Coase has passed away

Very sad news, he was one of the true greats, notice is here.  Here is one good appreciation.

How much will Indian exports go up?

The rupee is lower, but don’t expect a very elastic supply response.  Here is one set of comments:

These [sectors] suffer in particular from numerous domestic obstacles, from overly-restrictive labour and land-acquisition laws to poor supporting infrastructure in areas like power and roads, which make rapid ramp-ups in exports difficult.

Other industries suffer from similar constraints. DG Shah, secretary-general of the Indian Pharmaceutical Alliance, a trade body, says new domestic regulatory impediments, including limits on clinical drug trials that make exports to western markets more difficult, could negate any boost from the plunging currency.

“I’m not entirely convinced that the conditions about the responsiveness of exporters to depreciation mentioned in economics textbooks hold true in India, given these problems,” says one senior Indian policy maker, who asked to remain anonymous. “So its not impossible exports in the round could even go down, which would be a disaster.”

Keep in mind that the Indian growth rate fell from over eight percent to 4.4 percent in not much more than a year, and without any huge noticeable, underlying shock to aggregate demand.  That likely means the Indian economy is supply-constrained and that ongoing growth bumped it up against a very steep portion of a bunch of marginal cost curves.  That limits future export potential.

Alternatively, you might see the Indian economy as oscillating across multiple equilibria.  Further bad news for the rupee could serve as a negative sunspot and indeed we already seeing year-to-year declines in manufacturing activity as of August.  On the brighter side, Indian exports are up 12 percent year-to-year as of July, but it is not obvious that a declining rupee will bring continuing gains through this channel.

There is also this problem:

A look at our major export items suggests there is a change in its composition from price-sensitive items such as leather footwear, dairy products, beverages, textiles and apparel, to less price-sensitive items such as refined petroleum products, chemicals, mineral products (especially, mineral fuels, bituminous substances, etc.), and machinery and transport equipment (engineering goods).

The share of petroleum products in India’s export basket increased dramatically from around 2 per cent in 1993 to around 20 per cent in 2012. The surge in exports in the case of petroleum items is because of India’s potential in oil refining activities.

On contrary, India’s CAD is likely to increase further as oil and precious metals still contribute to bulk of our imports. Controlling CAD is an important factor from the perspective of sovereign rating.

Fortunately, IT exports do seem to be doing well.  More NRIs will be planning weddings in India.  Elsewhere, the trade in processed Indian human hair with Bangladesh is hitting some bumps.  It is also becoming much harder for Indian students to invest in education abroad.

Labor Day and Open Borders

In honor of labor day here are a number of resources on the most pro-labor policy in the world, open borders.

1. OpenBorders.info, the uber-resource and the spearhead of the movement.

2. The Michael Clemens classic, Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? (pdf) and Clemens interview with Russ Roberts.

3. Why Should We Restrict Immigration? (pdf), excellent Bryan Caplan article.

4. My interview on CBC radio making the case for open borders (starts around 3:18).

5. My article from 2000, Economic and Moral Factors in Favor of Open Immigration.

6. The Open Letter on Immigration from over 500 economists.

Hat tip: Daniel Lin.

Assorted links

1. Are left-handed people smarter?

2. “Where was China?”

3. Ricardo Hausmann disaggregates emerging market ngdp.

4. The civil service culture that is Singapore.  The Civil Service College was my host in Singapore, and I am a big fan of what they are doing.

5. What happened to the words we added to the dictionary in the 1990s? (“Publify!”)

The etymology of “serendipity”

The first noted use of “serendipity” in the English language was by Horace Walpole (1717–1797). In a letter to Horace Mann (dated 28 January 1754) he said he formed it from the Persian fairy tale The Three Princes of Serendip, whose heroes “were always making discoveries, by accidents and sagacity, of things they were not in quest of”. The name stems from Serendip, an old name for Sri Lanka (aka Ceylon), from Arabic Sarandib. Parts of Sri Lanka were under the rule of South Indian kings for extended periods of time in history. Kings of Kerala, India (Cheranadu)were called Chera Kings and dheep means island, the island belonging to Chera King was called Cherandeep, hence called Sarandib by Arab traders.

Here is more, and for the pointer I thank Vivian.

The charitable deduction in Singapore

There is no reason why deductions cannot be super-charged:

To encourage greater charitable giving in Singapore as the economy recovered, the Minister for Finance announced in Budget 2011 that  tax deduction of 2.5 times will be extended for another 5 years to donations made from 1 January 2011 to 31 December 2015.

The full document is here.  If that does not sink through, here is another discussion:

What this means is that for every dollar that you donate to charities, the government will deduct $2.50 off your tax payable. If you have been paying Income Tax, you will know that this is something extremely beneficial.

A few years ago the deduction was only 2x and that in turn was a relatively new policy.  Do any of you know of research on the impact of these policies and changes?

Here is Bruce Bartlett, who is skeptical about the charitable deduction in the United States.

*Big Gods*

The author is Ara Norenzayan and the subtitle is How Religion Transformed Cooperation and Conflict.  I found this book insightful, well-written and to the point.  The book itself lists some of its key propositions:

1. Watched people are nice people.

2. Religion is more in the situation than in the person.

3. Hell is stronger than heaven.

4. Trust people who trust in God.

5. Religious actions speak louder than words.

6. Unworshipped Gods are impotent Gods.

7. Big Gods for Big Groups.

8. Religious groups cooperate in order to compete.

The book’s home page is here.

On the public choice of Abenomics

Sober Look reports:

Price increases have been driven by weaker yen rather than pricing power improvements of domestic producers. Japan is generating the “wrong” kind of inflation…The combination of declining or stagnant nominal wages and rising prices is creating serious hardships for the nation’s citizens.

Electricity and fuel prices are way up, for instance, as you will see in his graphs.  Contra Sober Look, I suspect this is the way Abenomics is “supposed” to work, and it hearkens back to a long tradition of Japanese policy toward “forced savings,” dating at least as far back as the 1930s.  Still, this decline in real consumption opportunities is exactly why I think there will be practical limits to Abenomics as a sustained strategy for economic growth.  It is rewriting real wage contracts for most workers, and most of them will never get that consumption back or bargain back to the old real wage.  Many exporters will be better off.

And by the way, if you exclude the cost of energy, there is still deflation in Japan.