Tyler Cowen's Blog, page 374

Empty ZMP billboards in Greece

Here is a lovely photo display and sequence.  Again, nominal wages clearly are sticky in a wide variety of circumstances and in a way which matters for macroeconomics and monetary policy.  Still, it would be a significant mistake to reduce unemployment to issues of stickiness.

For the pointer I thank Marty Messer.

Assorted links

1. The culture that is manga Japan.

2. One look at why income inequality is growing.

3. Overview of the current economic crisis in Slovenia.

4. I met Bush once and also thought he was very smart.  No need to waste comments space with banal observations about job involvement, morality, or Woodrow Wilson.

5. Markets in everything, Rhode Island breast milk jewelry edition, I am not sure if I believe this related product.

6. How much of the health care cost slowdown is due to the slowing economy?

7. Portland has a vegan strip club.

8. The wisdom of Scott Sumner, on the UK.

Substitutes for the Second Amendment

One of the purposes of the 2nd Amendment was to protect the people from government tyranny. The most important aspect of this was probably not to arm the public per se but rather to minimize the necessity and use of a standing army. Unfortunately, Americans have long gone from fearing standing armies to loving them. So isn’t it time for an additional or substitute amendment? Given the immense changes since the founding what amendments would best protect the people from tyranny today? Here are some possibilities:

The right of the people not to bear arms shall not be infringed (i.e. no conscription. Requiring someone to bear arms, thus taking all of their freedom, is a far worse example of tyranny than preventing them from bearing arms.)


If 1/3rd or more of the Supreme Court rule that a law is unconstitutional it shall be unconstitutional. (Greater protection of minority rights).


Congress shall pass no law abridging the right of the people to encrypt their documents and effects. (Modern supplement to the fourth amendment.)

Other ideas?

The 2nd Amendment does have an important (unique?) advantage in protecting against tyranny namely that the right is self-enforcing, it creates the conditions, an armed public, which make the right difficult to abrogate. To some extent, free speech works in a similar way but “you’ll have to take my gun from my cold, dead hands” is a bigger threat than “you’ll have to take my free speech over my objections.” Are there are other self-enforcing amendments?

Hat tip for discussion to Bryan Caplan.

Subsistence economies and surplus economies

I am not sure this paper (pdf) is sound, and it is hardly in publishable form.  Still, it probably qualifies as the most interesting paper I have read this year to date.  It is by Lemin Wu, graduate student in economics at UC Berkeley, who appears to have links to Brad DeLong and Peter Lindert.  The title is “Millennia of Poverty: If Not Malthusian, Then Why?” and here is the abstract:

Living standards were constant for thousands of years before the industrial revolution. Malthus explained it this way: population grows faster when living standards rise; therefore, changes in technology alter the density of population but not the average welfare. This paper challenges Malthus’s explanation of the constancy and replaces it with the theory of group selection.

Malthusian theory is inadequate because it misses the fact that a dollar’s worth of diamonds contributes less to survival and reproduction than a dollar’s worth of grain. Grain is a subsistence commodity and a diamond is a surplus commodity. The Malthusian force anchors the average level of subsistence, but not that of surplus. If the surplus sector had grown faster than the subsistence sector, then living standards could have grown steadily before the industrial revolution, but they did not. The constancy of living standards thus implies that growth was balanced between subsistence and surplus, something Malthus did not explain.

To explain the balanced growth, I propose the theory of group selection. Selection of group characteristics, including culture and technology, goes on by migration and conquests. Since living standards rise with the ratio of surplus to subsistence, migrants and invaders usually move from places relatively rich in subsistence to those relatively rich in surplus. They spread the culture and technology of their subsistence-rich origin to the surplus-rich destination – the bias of migration favors the spread of subsistence over that of surplus. Even if surplus cultures and technologies would develop faster than subsistence ones in a local environment, the o�setting biased migration balances the two sectors on a global scale. This explains the constancy of living standards.

My new theory reinterprets why living standards declined after the Agricultural Revolution and stagnated afterwards, how the Industrial Revolution happened and where the prosperity of Roman Empire and Song Dynasty came from.

I expect to hear more from Lemin Wu.

The paper is here (pdf), the slides to the paper are here, more pdf and 100 pp. at that.  I first saw this cited by @mattyglesias.

How good are schools in Guinea-Bisseau?

Not that good.  Here are some new results from Peter Boone, Ila Fazzio, Kameshwari Jandhyala, Chitra Jayanty, Gangadhar Jayanty, Simon Johnson, Vimala Ramachandrin, Filipa Silva, Zhaoguo Zhan:

We conducted a survey covering 20% of villages with 200-1000 population in rural Guinea-Bissau. We interviewed household heads, care-givers of children, and their teachers and schools. We analysed results from 9,947 children, aged 7-17, tested for literacy and numeracy competency. Only 27% of children were able to add two single digits, and just 19% were able to read and comprehend a simple word. Our unannounced school checks found 72% of enrolled children in grades 1-4 attending their schools, but the schools were poorly equipped. Teachers were present at 86% of schools visited. Despite surveying 351 schools, we found no examples of successful schools where children reached reasonable levels of literacy and numeracy for age. Our evidence suggests that interventions that raise school quality in these villages, rather than those which target enrollment, may be most important to generate very sharp improvements in children’s educational outcomes.

On the bright side here are some true chances for low-hanging fruit.

Assorted links

1. Poverty in New York City.

2. How does competency-based learning work?

3. Are the Chinese switching out of Hollywood movies because the movies are too stupid?  It seems so.  And at what rate does popular culture depreciate?

4. James Hamilton on Reinhart-Rogoff, and a good overview/scoring of the overall controversy.

5. “Dwight Howard missed more free throws this season (366) than Lakers teammate Steve Nash has missed in his 17-year NBA career (322). Howard: 355 for 721 this season, 49.2 percent; Nash: 3,038 for 3,360 from 1996-97 through 2012-13, 90.4 percent.”  Link here.

6. Update on a potential Slovenia bailout.

7. Japanese robot for kids at 20k.

Why are younger Americans driving less?

Brad Plumer considers several good hypotheses, including the recession, gas prices, student debt, tougher legal requirements, and a stronger desire to live in places such as Brooklyn.  I would add one other factor to his list: because they are working less.  A more speculative additional hypothesis would be “because it is easier to have sex without driving to get it.”

Autocracy and Technology

It’s no surprise that autocracies have not created many innovations in information technology. The autocracies, however, are quite capable of adopting and adapting IT for the own purposes. Google’s Eric Schmidt and Jared Cohen argue that we are moving into a new era of autocratic IT. Here from the WSJ:

….everything a regime would need to build an incredibly intimidating digital police state—including software that facilitates data mining and real-time monitoring of citizens—is commercially available right now. What’s more, once one regime builds its surveillance state, it will share what it has learned with others. We know that autocratic governments share information, governance strategies and military hardware, and it’s only logical that the configuration that one state designs (if it works) will proliferate among its allies and assorted others. Companies that sell data-mining software, surveillance cameras and other products will flaunt their work with one government to attract new business. It’s the digital analog to arms sales, and like arms sales, it will not be cheap. Autocracies rich in national resources—oil, gas, minerals—will be able to afford it. Poorer dictatorships might be unable to sustain the state of the art and find themselves reliant on ideologically sympathetic patrons.

And don’t think that the data being collected by autocracies is limited to Facebook posts or Twitter comments. The most important data they will collect in the future is biometric information, which can be used to identify individuals through their unique physical and biological attributes. Fingerprints, photographs and DNA testing are all familiar biometric data types today. Indeed, future visitors to repressive countries might be surprised to find that airport security requires not just a customs form and passport check, but also a voice scan. In the future, software for voice and facial recognition will surpass all the current biometric tests in terms of accuracy and ease of use.

Why no gdp-indexed bonds?

Might some eurozone nations benefit from gdp-indexed bonds?  Imagine if required bond payments went down when your gdp went down, thereby providing some insurance against bad economic times.  Here is a good summary blog post of the idea.  Here are other writings on the idea.  Alternatively, you might also ask why governments don’t find ways, indirect ways if necessary, to issue equity shares.

Yet we hardly ever see these instruments, although Argentina and Greece have tried what are arguably variants on the idea (pdf.)  Why not?  I can think of a few reasons:

1. Nations might falsify their gdp figures.  Yet I am not sure it is the fundamental reason, since you can imagine the contracts based on more objective gdp correlates, such as prices taken from securities markets or prediction markets.

2. Signaling and adverse selection reasons make large, highly scrutinized entities reluctant to buy explicit, blatant insurance against their own failures.

3. There is no missing market here, because governments could always — either directly or indirectly — short themselves in the CDS market.  See #2 for a caveat.

4. Prosperous and creditworthy nations do not need the bonds, and the less secure nations will encounter costs from splitting the liquidity of their government bonds market.

5. Most governments do not run big budget surpluses in good times, even though they should.  The absence of gdp-linked bonds is a corollary of this failure and the consumption return profiles of those two options are remarkably similar.  In any case if a government has the discipline to forsake cash in good times, to save it up for bad times, as for instance Chile and Norway have shown, savings are easier than the gdp-indexed bonds.  Alternatively a profligate will neither save nor buy insurance.

Most of all, I say #5.

Contemporary macroeconomics and the phrase “aggregate demand”

Without meaning to take sides in the controversy, I got a kick out of this sentence, which describes the attitudes of contemporary macroeconomists:

Even something anodyne like “demand might also play a role” would come across like the guy in that comic who asks the engineers if they’ve “considered logarithms” to help with cooling.

The blog post, by JW Mason, is interesting throughout.  I liked this bit too:

Only conservative economists acknowledge this theoretical divide. You can find John Cochrane writing very clearly about alternative perspectives in macro. But saltwater economists — and the best ones are often the worst in this respect — are scrupulously atheoretical. I suspect this is because they know that if they wanted to describe their material in a more general way, they’d have to use the language of intertemporal optimization, and they are smart enough to know what a tar baby that is. So they become pure empiricists.

This is a useful and fun piece for sorting out different attitudes, methods, and terms in contemporary macroeconomics.  Hat tip goes to the excellent Interfluidity.