Tyler Cowen's Blog, page 402

Assorted links

1. The evolution of the pharmacy.

2. Air Genius Gary Leff on Seth Godin and airports.

3. There is a Mormon transhumanist association.

4. The Reinhart/Rogoff data for download.

5. The “Neuro-Gastronomy” restaurant in NYC, better to try Xian’s Famous Foods.

The best at what they do

From Jeff:

When you look at a competition where one of the inputs of the production function is an exogenously distributed characteristic, players with a high endowment on that dimension have a head start. This has two effects on the distribution of the (partially) acquired characteristics that enter the production function. First, there is the pure statistical effect I alluded to above. If success requires some minimum height then the pool of competitors excludes a large component of the population.

There is a second effect on endogenous acquisition of skills. Competition is less intense and they have less incentive to acquire skills in order to be competitive. So even current NBA players are less talented than they would be if competition was less exclusive. So what are the sports whose athletes are the best at what they do?

My ranking

1. Table Tennis

2. Soccer

3. Tennis

4. Golf

5. Chess

How would such a ranking look for the social sciences?  Among a broader list of activities, where would blogging fall on the scale?

Czech fact of the day

At a typical local pub, a pint—500 milliliters, actually, in this metric-measuring country—costs about $1. A similar portion of water, juice or soda generally costs twice as much. Offering free tap water as at U.S. eateries is extremely rare.

At U Zelenku, a neighborhood institution for more than a century, for instance, a pint of the cheapest beer goes for 99 cents. The same size of soda water is $1.30. At the fancier Kolkovna restaurant in touristy Old Town, a pint is $2.50, while mineral water is $2.29, for a bottle less than half the size.

Here is more.  The Czech government may end up mandating that some non-alcoholic drinks be cheaper than beer.

For the pointer I thank Daniel Klein and also NB.

U.S. ownership of Mexican property

Morgan Warstler has a question:

On Mexican immigration, I’d like your thoughts on an open door policy conditioned on Mexico changing their Constitution to allow Americans to own beachfront property and companies outright.

The idea being we simply need to get Americans thinking about Mexico like a big Florida, thinking about their boomer parents buying condos and getting cheap medical care. Get entrepreneurs thinking about setting up manufacturing shops in Mexico and generally anything which makes more Americans feel annoyed by a closed border.

Why don’t free market economists that champion the import of human capital and free trade, spend more time pushing Free Market Manifest Destiny? Are we so sure Mexico wouldn’t agree to such horse trading? We push our ideas all over the globe, why not lean on Mexico where it is in our obvious strategic interest?

I believe Mexico would not agree to such horse trading, though it may happen in some lesser form, if the United States simply keeps quiet about the idea.  In particular Mexico is likely to allow greater FDI in its fossil fuels production, if only to prevent a fiscal crash from this revenue source going away.  They need expertise from U.S. companies in this area rather badly.

Beachfront property touches too closely on national pride and the efficiency gains to American ownership are in any case small.  Rent if you must, and Mexico has more wealthy people all the time to buy up that stuff.  I would favor the extension of Medicare coverage to American citizens living in Mexico, at least with some safeguards against fraud or maybe even without.  The U.S. medical establishment would not like that but I think Mexico would find it more than acceptable.

The U.S. does best in Mexico when it allows Mexicans to move the key ideas forward in the public arena.  Free trade in Medicare is the next big step we could take on our own.

A United Kingdom spending update

Remarkably, public spending actually went up last year as a share of our national income, according to a devastating analysis by the OECD.

In a spreadsheet buried deep on its website and annexed to its latest Economic Outlook, it says that public spending hit 49pc of UK GDP last year, a shocking increase on the 48.6pc of GDP spent by the state in 2011.

You should note that differing figures from the UK government show somewhat of a decline in spending in real terms, unlike this estimate.  It would be interesting to read a detailed explanation of why the OECD figures differ.

I would also note that, according to these estimates, UK public spending was 36.6% of gdp in 2000, and had edged up over 50% by 2009 and 2010 and now is still in the range of 49% or so.  Most of the run-up came over the bubbly years of 2000-2006.  Let’s start by calling that an unsustainable mistake.  I would say that, looking back, they didn’t get very much for this spending boost, did they?  That’s fact #1 that should start off any analysis of British fiscal policy looking forward.

Take a look at the recent sectoral details.  Public investment in varying forms is way down, and benefits and public pensions are way up.  It is correct to note that the decline in public investment, and its deleterious consequences.  It is also correct to see the British budget as illustrating David Brooks’s thesis — seconded by many conservatives — that benefits are eating our future.

Maybe I can forestall some of the usual objections to my UK posts simply by noting there are many different ways to measure austerity, and if you use the word in a particular way (“the UK should have had more public investment given its place in the business cycle”), you can claim the UK had austerity relative to that ideal.  Plus taxes went up a lot, most of all the VAT.

Still, these numbers should be put on the table.  Instead, I very often see these numbers being swept under the proverbial rug.  Perhaps it is believed they might confuse people.

Assorted links

1. There is no great stagnation.

2. What we now have less of.

3. An experimental economics look at Catalonian (?) independence (pdf).

4. Predictions about Massachusetts.

5. Fall in English crime appears to have resumed.

6. The statistics crisis in Greece.

7. Interview with Georg Baselitz (cranky).

8. Charter city proposal for Belle Isle, near Detroit.

*The Great Rebalancing*

The author is Michael Pettis and the subtitle is Trade, Conflict, and the Perilous Road Ahead for the World Economy.

Here is one excerpt:

There are huge tracts of empty homes outside of Dublin in part because of the overvaluation of East Germany’s currency after reunification.

I take his core message to be something like the following: DeLong and Krugman circa 2005-6 were right that the fundamental problem with the global economy is one of rebalancing out of whack trade flows.  The comeuppance is still on the way.

I hold two somewhat different views than those professed in this book, or at least I would describe them as different emphases.  The first is that explanations for resource unemployment, in my view, should be conducted across shorter and more local time scales.  The second is that even apparently unsustainable trade balances can be kept in manageable order if growth is healthy enough, admittedly a big “if.”  That said, I agree with the author that the global economy, despite recent declines in risk premia, still is not out of the woods.

We will of course see.  This book in any case makes for stimulating reading.  Here is the book’s home page.

Addendum: Also arrived on my desk from PUP is Peter Temin and David Vines, The Leaderless Economy: Why the World Economic System Fell Apart and How to Fix It.

Assorted links

1. What does Brexit look like?

2. Not everyone is living longer.

3. Profile of Kristin Forbes.

4. Markets in everything: “He is the only person in the world who makes a living at stair racing (his sponsors include a German health care company), which makes him the lord of an obscure but nonetheless codified sport.”

5. In defense of management consultants.

6. Rajan on stimulus and sectoral shifts.

A few points about the British growth slowdown

1. The BBC reports: “The Office for National Statistics (ONS) said the fall in output was largely due to a drop in mining and quarrying, after maintenance delays at the UK’s largest North Sea oil field.”

2. According to an FT account, output in the construction sector has fallen eleven percent over the last year.

3. Taking away those two problems, growth was about 0.7 percent, and 1.4 percent in the service sectors.  The service sectors represent about four-fifths of the economy.

4. Their relative shares in export markets are generally falling.

You can debate how much those numbers fit the pattern of an AD shortfall (I don’t see it myself, though there is room to make some of a case on the construction side), but what is remarkable is how many people don’t even want to raise these issues.

More Police, Fewer Prisons, Less Crime

The New York times as a good piece on prisons, police and crime:

“The United States today is the only country I know of that spends more on prisons than police,” said Lawrence W. Sherman, an American criminologist on the faculties of the University of Maryland and Cambridge University in Britain. “In England and Wales, the spending on police is twice as high as on corrections. In Australia it’s more than three times higher. In Japan it’s seven times higher. Only in the United States is it lower, and only in our recent history.”

…Dr. Ludwig and Philip J. Cook, a Duke University economist, calculate that nationwide, money diverted from prison to policing would buy at least four times as much reduction in crime. They suggest shrinking the prison population by a quarter and using the savings to hire another 100,000 police officers.

My work on policing in Washington, DC (with Jon Klick) also strongly suggests that more police pass the cost benefit test; we suggest that doubling the police force would not be unreasonable.