Tyler Cowen's Blog, page 388

Megan on Chavez

Venezuela’s oil output has fallen by almost a third since Chavez took power.  That’s why Venezuelan economic growth is pretty underwhelming.  Those social programs so beloved of Nation writers came out of investment funds that were previously used to keep oil production high–necessary, as we’ve discussed, because Venezuela’s sludgy crude is hard to get out of the ground.   Which gives us a paradox: Venezuela’s reserves are growing, but its production is in decline.

The only reason that the economy isn’t worse is that oil prices have stayed high.  But with production falling, Venezuela doesn’t just need high oil prices, but continuously rising oil prices, to keep funding all that government spending.  This is why Venezuela has been one of the hawkiest hawks in OPEC, always agitating for tighter quotas and higher prices.  A country with falling production doesn’t need to worry about tighter quotas.  But they do need to worry that lower prices will throw their budget disastrously out of balance.

Here is more, devastating throughout.  Here is the closer:

Politically, what Chavez did was successful.  But that success came at the cost of the future.  Instead of building a more stable foundation for long-term prosperity, Chavez started cutting chunks out of the house and handing them out to the crowd.  Socialists, especially, take note: he essentially destroyed one of the most competent, successful, state run companies in the world.  Thirty years from now, that–and not the transitory social programs that were thereby funded–will be his real legacy to Venezuela.

Writing for free

The always-insightful Matt Yglesias discusses the benefits and propriety of writing for free.

I would add that I see the new “writing for free” model as changing in (at least) two ways.  First, high living costs make it harder to leverage the patronage of writers into significant impact.  There will arise new arrangements where newbies are offered 15k a year to go blog from the Yucatan, or somewhere else with low living costs but ok broadband.  Foundations or donors will pick up the bill and the newbies will consider the country to be an adventure not a burden.  The “winners” of these tournaments will end up with jobs similar to Matt’s.  Some people, especially those with “lender of first resort” parents, will manage to cover a Brooklyn lifestyle with the 15k.

Second, one’s choice of spouse will matter increasingly for journalism and also commentary.  The returns to a good marriage will rise.  Look for on-line writers to become slightly more establishment, slightly more romantic, and just a wee bit closer to the philosophy of Ross Douthat, minus the enthusiasm for a higher birth rate of course.

Assorted links

1. Italy chose bad austerity.

2. Are migrants happier? (Don’t forget about their children, by the way)

3. Claims about Canada.

4. Is the CBO forecasting that the ACA exchanges will end up shrinking?

5. Quantum fridge cools object a million times heavier.

6. Cute animal pictures, or toward a theory of facial affect, via Michelle Dawson.

What is the consumer surplus from the internet?

The Economist has an excellent survey article, here is one (not the only) estimate:

Yet another technique is to assign a value to the leisure time spent on the web. Erik Brynjolfsson and Joo Hee Oh of the Massachusetts Institute of Technology note that between 2002 and 2011, the amount of leisure time Americans spent on the internet rose from 3 to 5.8 hours per week. The authors conclude that in so far as consumers must have valued their time on the internet more than the alternatives, this increase must reflect a growing consumer surplus from the internet, which they value at $564 billion in 2011, or $2,600 per user. Had this growth in surplus been included in GDP, it would have raised economic growth since 2002 by 0.39 percentage points on average.

I would note one caution.  Consumer surplus per se does not make published gdp figures inaccurate for most purposes, since all goods and services yield consumer surplus to some extent.  One might argue, however, that the internet has higher than average consumer surplus, for purposes of thinking about human welfare.

Different framings when people agree

Let’s take two cases, namely higher infrastructure spending for the United States today and looser monetary policy for the eurozone.  I favor both, but often I am left discomforted by the endorsements I see, in part because I wish to see those issues framed differently.

On infrastructure spending, I prefer to start with a frustration with current and recent infrastructure spending.  It doesn’t seem very well allocated.  It takes too long.  We just spent a huge chunk through ARRA and couldn’t even clear up the backlogs at LaGuardia and Kennedy airports, the major gateways to America’s #1 city.  We don’t seem able to build up nuclear power as significant protection against climate change.  High-speed rail doesn’t seem like a good investment in the places where it is going through.

One can favor more infrastructure without thinking that “the point” is simply to demand and then get more spending.  “The point,” in my view, is to improve the quality of our decision-making and our processes of implementation.  If it were one or the other, I would rather improve the long-run quality than get the extra $$ today.  So that is the issue people should talk and write about more often, and it seems odd to me to bring up the current $$ issue without insisting on the broader and more important point about massive institutional failure.  It’s almost as if the writers don’t want to weaken their case for the extra $$ to be spent.

Alternatively, I would put it this way: I would like to be able to favor more infrastructure spending than I do (which is still to favor an upgrade).

(I also get nervous when I read 2013 claims that infrastructure spending will significantly boost employment.  I doubt if it will make any more than a very small difference in long-term unemployment, the core of our remaining employment problem.)

Ultimately, I think that these differences in framing are more important than any agreement over the conclusion, although of course both should be reported.

On eurozone monetary policy, I prefer to start by understanding the roots of poor ECB policy.  I don’t ascribe it to bad macroeconomic theory, for the most part, although it is never hard to find examples of bad macroeconomic theorizing, including in the policy community and in speeches.

I ascribe it to the desires of European voters, most of all in the wealthier northern countries.  Very often they have protected professional and service sector jobs and a privileged insider status, for both private sector and public sector reasons.  Four to six percent inflation, to them, means something close to a four to six percent real wage cut.  They won’t be able to renegotiate their way back to the previous real wage because deep down they sense — correctly — that today we live in a different world.   So they hate inflation and prefer to hold on to their insider rents.

So much of eurozone economic policy, and indeed the entire underlying structure of EU interest groups, is based on the desire to protect inside workers from possible real wage cuts.  It therefore should come as no surprise that those same forces have such a stranglehold over monetary policy.  A lot of creditor financial institutions don’t like inflation either.  Nor do old people like inflation, in part because not all of them understand indexing and in part because indexing may be imperfect for the portfolio decisions of the elderly.  The elderly are a major swing voting bloc in many countries.  In the past I have referred to “gerontocratic deflation.”

Now I don’t mind people fulminating against bad (read: tight) eurozone monetary policy per se.  But in my view it misses or at least buries the lede.  The real story here is that a “dysfunctional to begin with” set of EU interest groups have now, due to changing circumstances, become much more dysfunctional.  The core lesson here, in my view, is that governments devoted so obsessively to rent protection won’t be able to make a lot of required tough decisions.  And yes, I become frustrated when I see the whole mess somehow blamed on Austrian economics, the Austerians, or related ideas.  At best that is superficial and at worst misleading or downright false.  It’s mostly a way to score debating points, at the expense of a fuller picture of what is going on.

I don’t like the meme “it’s the xxxx, dummy,” but I’ll try it in modified form: “it’s the interest groups, mein Freund.”

So there we have a story: “entrenched EU interest groups — including labor and the elderly — hinder easy money.”  Much of the left doesn’t like to stress the former factor and much of the right doesn’t like to stress or even admit the relevance of easier money, and so you have an under-reported story.

The bottom line is this: I am happy to read that there is a “sensible middle” position on both infrastructure and monetary policy.  I am happy to hold some version of that position.  But I am unhappy when that broom is used to sweep some very important underlying issues under the carpet.  The insistence on a sensible middle position, while true, is very often a cloak for partisan reframing of the issue itself and a somewhat Orwellian forgetting of what is really going on.  If we could get the underlying issues right, better policy would have a greater chance of coming to pass.  And we would understand the world better.  It also would be harder to score points in written or televised debate.

China fact of the day

Ninety members of the National People’s Congress are on a list of China’s 1,000 richest people published by the Shanghai- based Hurun Report, up from 75 last year, according to a review of the data by Bloomberg News. Everyone on the Hurun list had a fortune of at least 1.8 billion yuan ($289.4 million), more than former Republican presidential candidate Mitt Romney.

Here is more, via a retweet from Yana.

Assorted links

1. The long data of European Jewish expulsion.

2. The economics of hiring paralysis; this piece goes a lot further than does a lot of sticky wage theory, noting that the two can be combined into a larger final explanation.  Nonetheless it gives real support to “risk premium” theories.

3. Columbia thievery of Nutella becomes costly.

4. Potato parties lead to misconduct at McDonald’s Japan.

5. Jeremy Stein on reaching for yield, not my view but always worth hearing from dissenters.

6. Upgrade or die.

Coasean markets in everything?

A consortium of Central Texas businesses and communities has floated a novel solution to the tug of war over Colorado River water: Pay downriver rice farmers not to farm rice.

Members of the Central Texas Water Coalition are asking the Lower Colorado River Authority to pay rice farmers at least $100 million not to farm rice in perpetuity. They figure that’s cheaper than the cost of a proposed downriver reservoir, whose costs the LCRA estimates at $206 million.

The full story is here, and for the pointer I thank Bill, a marginally loyal MR reader.

Not in a Better Place

Better Place, about which I was optimistic several years ago when visiting Israel, is not doing well:

Better Place, which staked out its position in the electric car market with an innovative battery-swapping technology, has sold only about 750 cars in Israel, while piling up losses of more than $500 million. Agassi was forced out of Better Place in October, his successor as CEO quit in January, and the company has put its global rollout on hold. Better Place needs to raise more money this year, and that won’t be easy, insiders say.

The devil appears mostly to be in the details. The technology works, people who use it like it, but it isn’t cheap enough yet to overcome a bunch of individually minor regulatory and societal hurdles.

One point which occurs to me is that the automatic battery-swapping technology pairs well with self-driving cars. The cars can charge themselves when not in use.

Hat tip: Brad Plumer at Wonkblog.

Not all of higher education is in financial trouble

In the almost six years since Falwell’s death, Liberty University has doubled its student head count — twice.

Total enrollment now exceeds 74,000, with nearly 62,000 working toward degrees online in fields such as psychology, business, education, criminal justice and, of course, religion. That makes Liberty the largest university in Virginia — with more than double the number of students at No. 2 George Mason — and the largest private, nonprofit university in the country. With a slogan of “training champions for Christ,” Liberty also is the nation’s largest university with a religious affiliation.

Liberty figured out how to recruit masses of students via the Internet years before elite universities began ballyhooed experiments with free online courses.

…Liberty’s expansion has yielded a river of money. The university ended 2012 with more than $1 billion in net assets for the first time, counting cash, property, investments and other holdings. That is 10 times what the school had in 2006, putting Liberty in the same financial league as universities such as Pepperdine, Georgetown and Tulane.

Flush with cash, Liberty is building a huge, $50 million library, replacing old dormitories and angling to place its Flames football team in a conference eligible for NCAA bowl games.

That is by Nick Anderson, here is more.