Tyler Cowen's Blog, page 372

Auctions for airline upgrades

Airlines overseas have started auctioning off upgrades, with travelers in economy or premium-economy cabins bidding against each other for seats that offer better space, food, service and sleep. Bids for premium seats that otherwise might fly empty begin online weeks in advance and typically close 48 hours before takeoff. The company behind the auction technology says it may come to the U.S. soon.

Here is much more.

Observations on search theory in modern macro and in blogosphere macro

Let’s say you are 22, full of energy, don’t feel you need to marry soon, and have lots of cash in your bank account.  Many people in this position feel they can “date around” a lot, without fear of the repercussions.  They can enter into short-term relationships without much agonizing in advance, and simply break up if it doesn’t work out.

Alternatively, imagine you are 39, run down and vulnerable, wanting kids soon, and in a precarious financial situation.  You probably won’t date casually the same way.  You will treat every romantic relationship as if it is a significant investment.  You will be more careful, because the cost of mistakes is higher, and the cost of serial “running around” is higher too.  Search is tougher and you will apply higher standards to search.

In good times employers are like the 22-year-old and they will take chances with many different employees.  In 2009-2013, they often have seemed more like the 39-year-old.  They are waiting and watching, rather than trying out lots of dates.

Of course this analogy points to just one possible factor, it is hardly a comprehensive account of current unemployment, even if you ignore any possible problems in the story.

Note that the terms “involuntary unemployment” and “voluntary employment” do not make sense here, and usually it is a mistake to insist on one or the other.  There are jobs and for that matter dates in North Dakota, so how high does the cost of moving have to be to distinguish one category from the other?  Is theory going to supply an answer here?  No.  When you see arguments for either the “voluntary” or “involuntary” nature of unemployment, that is a good sign someone is trying to mix moral issues into positive issues.  It is also a move away from the concept of marginal analysis.

It is better to say that the quantity and quality of employer search is suboptimal and the outcomes are suboptimal too.  In this particular case, employers become choosier in their search, and raise their discount rates, without taking into account the social costs those decisions impose on the pool of available labor.

You also will note this explanation, and many others like it, differs from the traditional invocation of “sticky wages.” Sticky wages do apply to a large number of already employed workers (pdf), but the concept does not readily transfer to workers who are looking for a job.  There is a great mass of evidence for sticky nominal wages for workers who already hold jobs.  There is a good but not great deal of evidence for sticky and indeed possibly irrational reservation wages for the current unemployed, but this phenomenon is conceptually indistinguishable from what some people (not me) like to call “voluntary unemployment.”  If you insist on stickiness for the unemployed, you will quickly end up somewhere you probably do not wish to go.

Taking established labor market results for the employed and automatically transferring those same concepts to the unemployed, without critical scrutiny, is one of the most common mistakes in blogospheric economics.  You don’t see that mistake committed very much in standard academic macroeconomics and that is one of the advantages of modeling.

I sometimes hear it suggested that the sticky wage incumbent workers have “eaten up” all of the nominal gdp and there are only breadcrumbs left for the unemployed.  Yet most companies seem to be sitting on enough cash and enough profits to make additional hires if they want to; it cannot be asserted that the sticky wage incumbents are “soaking up” most corporate liquidity.  Plus in a full model velocity and credit will be endogenous so a cash constraint would end up doing all of the work here, not sticky wages.

I once heard Bryan Caplan mention (I am not sure how seriously) that insiders will resent outsiders hired at lower wages and thus the outsiders cannot get hired.  With the decline of unions if anything I observe the opposite — insider resentment is directed at the higher-wage hires — but in any case there is simply no mass of evidence behind this claim, not enough for it to serve as a major explanation of one of our largest economic and social problems.  One is led to this kind of move if one has to justify the claim that unemployment is “involuntary,” whereas a better question is why the quality of job market match is going down.

There is the macroeconomics of the academy and the macroeconomics of the blogosphere.  The latter does not devote nearly enough attention to search theory, combined with other market imperfections of course.

If you’d like to read one recent macro piece on search, there is Marcus Hagedorn and Iourii Manovskii, “Job Selection and Wages over the Business Cycle,” published in the latest AER but with an ungated version here.  It is not some kind of explanatory holy grail but it does illustrate the kind of questions contemporary macro is asking.

What is the implied liquidity preference of President Obama?

If not for the political issues involved with owning shares of specific companies, I might also ask about his implied equity premium:

The Obamas paid $45,046 in mortgage interest in 2012, which appears from the disclosure statement to be at a 5.625% interest rate with Northern Trust. That suggests an outstanding principal balance of about $800,000.

On the other hand, the bulk of their investments are in Treasury notes. Based on the disclosures, I estimate they hold about $3 million in Treasury notes (also held by Northern Trust), yielding 0.71% if averaging a five-year maturity.

By selling some of those Treasuries and paying off the mortgage, they would effectively be getting five more percentage points on the amount; they would also be about $40,000 better off each year before taxes, not to mention being less exposed to notes that could take a hit from possible rising rates.

The Obamas would pay more in taxes but make much more after taxes — especially since they aren’t getting the full deduction anyway, due to the AMT. That’s more money going to the U.S. Treasury and more money for them; Northern Trust would be the loser.

That is all via Greg Mankiw.  In any case he does not seem to think that bonds are a bubble, but does seem interested in recapitalizing the banking sector, small steps toward a better world.

Further assorted links

1. On the economy of Mordor.

2. Using Big Data to find better workers.

3. Whales seem to have culture.

4. If Paul Krugman wrote on the topics of Robin Hanson (pdf), this is what you would get.  Here is Miles Kimball on same.

5. Can the market monetarists also argue “we haven’t tried enough stimulus”?  Scott Sumner offers related commentary.

6. Facts about Daron Acemoglu.

Assorted links

1. They ask you to promise to be honest with others for 30 days and then report back to them (if you are still alive).

2. How the market for fake Twitter followers works, and the perils of pension advances.

3. “We propose that plagiarism is a statistical crime.”  Excellent piece, via AG.

4. This is what a watermelon stroller looks like, via AF.

5. “Standing-room only wild-pig management conference.”

Mark Bittman’s *VB6*

The subtitle is Eat Vegan Before 6:00 to Lose Weight and Restore Your Health . . . for Good.  This is an excellent book (recipes too) which comes to grips with the notion that virtuous eating also has to be fun and privately beneficial and involve a minimum of self-constraint or for that matter calculation costs.  As I’ve argued in my own An Economist Gets Lunch, eating less meat is the most socially beneficial change in your dietary habits you can make.  Here’s one very good way to do it.

Of course the economist in me wonders why Bittman chose “vegan before 6 p.m.” rather than after 6 p.m. or for that matter after some point closer to the middle of the day.  Is it simply two meals vs. one?  Or is it that the prospect of meat and dairy in the evening makes vegan eating during the day more tolerable, whereas the opposite would require too much retrenchment to be sustainable?  For most workers, free time also comes at the end of the day.  I have never heard of a society where you wake up, have five or so hours of free time, head off to work, and then come back home and go right to bed.  Yet surely at least a few of you wake up at 3 a.m. and construct such a daily pattern for yourselves, without much societal support of course.  What is it that sets you apart?

The politics of infrastructure in India

Tapan Kumar Chowdhury, 62, a retiree now working as an activist in the colony, said legalized status would be likely to improve sanitation and local health standards through installation of a true sewage system. But he remained skeptical about whether the election-year promises would be carried out, noting that politicians preferred to keep colonies vulnerable so that residents remained more beholden to them for even incremental improvements. “They have a vested interest in keeping us illegal and unauthorized,” he said, “so they can use us as a vote bank.”

Here is more.

Marginal increments of military spending track gdp better than well-being or actual economic performance

Perhaps you have seen reports such as this:

The report showed gross domestic product grew at an annual rate of 2.5 percent during the first three months of the year — significantly slower than most economists had expected. The culprit? A surprising 11.5 percent annualized drop-off in military spending.

In other words, much of the “missing” gdp — whatever its long-term geopolitical value for foreigners — was not creating actual, consumer-relevant value for the United States.  Putting back that military spending would pump the gdp number back up, but that is distinct from the economy improving.  Fetishizing gdp makes the least sense when it comes to military spending, and it is remarkable how few media accounts recognize this point in even a partial fashion.

Assorted links

1. How Singapore is trying to boost the birth rate.

2. How to retire at age 30?

3. Internet of Dreams, new blog by joanne mcneil.

4. Falcon hospital photos.

5. Profile of Adam Phillips.

*Oblivion*

It is one of the most visually spectacular movies I have seen.  The first half is a very good movie in its own right.  The second half is mostly narcissistic trash, only periodically compelling, in which Cruise also rewrites the story of his break-up with Nicole Kidman, in what seems to me an unseemly manner.

Most of all, it is a Straussian commentary on Scientology (and Kidman), you can start your research here.  I am stunned but not surprised that very few reviews have picked on this angle at all (so far it seems that none have and even Quora fell down on the job).  Without such knowledge, the movie makes no sense whatsoever.  With such knowledge, the movie is entirely coherent but in some regards more objectionable.

There are also some nice references to other Cruise movies, such as Top Gun and Eyes Wide Shut, not to mention some of the non-Cruise classics of science fiction cinema, including Star Wars and 2001 and Solaris.

I am very glad I saw this movie, but your mileage may vary.  The Wikipedia entry is here.