Tyler Cowen's Blog, page 412
December 29, 2012
Which are the remaining economically underrated countries?
We read about the Philippines in yesterday’s FT:
Last quarter, its economy again surprised on the upside, growing 7.1 per cent and notching up its 55th straight quarter of growth. It now seems to be growing at a steady 5-6 per cent, despite an adverse external environment, against a lowly 3 per cent in the 1990s. The finance ministry believes the potential growth rate can be lifted to 6-7 per cent and eventually to 7-8 per cent.
…The stock market, one of the world’s best-performing in 2011, is up 32.5 per cent in the year to date in peso terms. That makes it the world’s fifth-best performing index. The peso itself has strengthened 7 per cent against the dollar. There is even talk of new investor interest in manufacturing. Japanese companies, looking for an alternative to China, have been nosing around. Philippine exports, not as important to the economy as for many Asian countries, have held up well in spite of falling demand for electronics, suggesting a degree of diversification.
Mexico is now also widely recognized as doing quite well. So from the earlier list of undervalued countries, it seems all the pressure is on Pakistan. Please keep in mind, the place need only outperform the expectations.
What are the policy implications of capital-biased technological change?
Paul Krugman has a very interesting post on this topic, so I will add a few points:
1. Taxing capital per se is not the way to go, since capital (of some kinds) bids up the wages of labor. If one accepts Krugman’s distributional premises (not exactly my view but let’s see where it brings us), the answer is to tax mainly those forms of capital which substitute for labor, either directly or indirectly. That would mean high taxes on the internet and other media of communications as well as high taxes on software and embedded software. I don’t myself favor those policies, all things considered, but still I find it worth pursuing this logic to its implied conclusion. It would imply especially high taxes on our technologically most dynamic sectors.
2. Intellectual property rights of many kinds should be weaker, as Alex discusses in his Launching the Innovation Renaissance. That is one way to “tax” some forms of capital. But do not expect the main action here to be found in easy-to-reproduce forms of capital, rather look to the more durable rents.
3. If you believe that the wages of labor are “stickier” than payments to capital, and there is downward pressure on wage shares, this implies a higher steady-state rate of price inflation. I know, I know, there are various nominal vs. real finesses buried in my claim but still I think it holds up for the most part.
4. A lot of the surplus from Ricardian progress will end up captured by land, so we should follow Matt Yglesias’s recommendations in The Rent is Too Damn High.
5. A lot of the surplus from Ricardian progress will end up captured by resource owners, so we should relax constraints on resource exploration and development as an egalitarian move. (NB: Beware tech models with only two factors! They are usually wrong when it comes to incidence and the like; see for instance Nick Rowe.)
6. Let’s consider cutting the minimum wage.
7. Whatever we do, we should avoid mandated benefits programs — which raise the fixed cost of hiring an ever-cheapening labor — like the plague. Whoops.
8. Lower wages strengthen the case for subbing in social security income for Medicare benefits, as the marginal value of cash is becoming higher for many of the elderly. The case for in-kind as the appropriate form of aid is weaker. Let’s also think about a longer-term consolidation of various aid programs into some form of guaranteed annual income.
What else can you think of?
December 28, 2012
Peter Boettke’s Ph.d grading strategy
…your final draft of your paper will be due on April 29th and I will submit your papers (blind) to external referees as well as myself for assessment, an A grade will be limited to those papers, and only those papers, that are recommended for acceptance or conditional acceptance, a B grade will be assigned to those papers that receive a recommendation of revise and resubmit, and a C grade will be assigned to those papers that are rejected by the external referees and myself. I will be available throughout the semester to discuss and read your drafts, so don’t be a stranger.
The source is here, and for the pointer I thank Jacob T. Levy.
Assorted links
1. Last words of crashing airline crews.
2. David Brooks’s Sidney awards part II.
3. What went wrong with the Bush tax cuts? (pdf)
4. I wouldn’t label a university “D+” either, with an update from UC Berkeley as well.
5. Remix your own Philip Glass compositions.
6. Emily Oster is now on Twitter, self-recommending.
Most Popular MR Posts from 2012
Here are some of the most popular MR posts as measured by page views from 2012:
1. Introducing Marginal Revolution University – we asked you to spread the word about MRUniversity and you did making this the most viewed page this year. Thanks!
2. Krugman’s Response to Alex and the original Krugman v. Krugman.
3. Racism by Political Party. This one showed up on television.
4. Robert Solow on Hayek and Friedman and MPS. Tyler should let loose more often.
5. Firefighters Don’t Fight Fires. A graph is worth a thousand words.
6. A Bet is a Tax on Bullshit. I don’t think the scheme I outlined is quite right but I worked for a long time on the final paragraph and I was pleased that it was widely quoted.
7. Why economic mobility measures are overrated. Lots of meat in this post and in Tyler’s related posts What does the inequality-immobility link mean? and Krugman on income mobility and my Stasis, Churn and Growth.
8. Debtor’s Prison for Failure to Pay for Your Own Trial. An issue that should be more widely reported.
9. How savage has European austerity (spending cuts) been? Not that savage.
10. The Google Trolley Problem. A famous philosophical puzzle now must be answered in practice.
Among other meaty posts which were highly linked too were Tyler’s posts Why Old Keynesianism is looking worse these days; A simple theory for why so many smart young people go into finance, law and consulting and favorite non-fiction books of 2012. Also on the list were my posts Noble Matching and one of my favorites, Patent Theory on the Back of a Napkin.
A good year as we move towards MR’s tenth.
Are robots and aging demographics self-cancelling problems?
Dean Baker says yes:
This is one where a baseball bat might be necessary. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs. Let’s try that again. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs.
It is possible for too much productivity growth to be a problem, if the gains are not broadly shared. It is also possible for too little productivity growth to be a problem as a growing population of retirees imposes increasing demands on the economy. But, it is not possible for both to simultaneously be problems.
That is missing the point, as there is too much talk of “productivity growth” per se and not enough of either distribution or political economy. If robots concentrate wealth in the hands of IP owners, wages for many workers might fall or remain stagnant. That is a problem.
Similarly, if robots concentrate wealth in the hands of IP owners, it may be hard to drum up the tax revenue to support a higher dependency ratio. The wealthy may produce a blocking political coalition or capital simply may be harder to tax for mobility, accountancy, and Laffer curve-like reasons. There is then a problem with the dependency ratio.
We then have both problems, no contradiction.
Note that we can get out of at least one half of this mess if the robots are especially good at taking care of old people. That seems unlikely to me, at least in earlier stages of robot development, but of course it is not impossible. In reality, many old people would fare somewhat better if our economy were somewhat more like that of Mexico, namely with cheaper land and cheaper servants. You could imagine robots lowering wages by say ten percent, yet still labor wouldn’t be cheap enough for most old people to afford much more in the way of servants.
December 27, 2012
Paul Krugman makes the argument for austerity
…it’s overwhelmingly likely that these [Social Security] projections will be hugely off in one or more ways.
No immediate moral from me, except as a reminder that all those long-term budget discussions in which people act as if we really know what the state of Social Security will be three decades from now are basically just boring science fiction.
Here is more, and this post too. I bought, and still buy, that kind of argument when it comes to climate science and it seems to work for some number of fiscal issues as well. Better safe than sorry.
Note, by the way, that to the extent the “robots” argument is true, some of the decline in work in the short-term will not be reversed anytime soon and thus the output gap is smaller — perhaps considerably smaller — than Keynesians have been claiming.
Working Conditions in China: Supply and Demand
The NYTimes has a lengthy and self-congratulatory article on improved working conditions in Chinese factories which it suggests are due to negative publicity from earlier NYTimes articles. Indeed, as soon as the NYTimes starts to investigate, we are presented with this boardroom set piece:
“The world is watching!” [Foxconn Chairman] Mr. Gou yelled, according to multiple people. “We are going to fix this, right here!”
The Times articles, part of a larger series, are well written and informative and no doubt they have prodded some changes at certain companies. China, however, is a very big place and the real story of better working conditions is a story of supply and demand.
Wages in Chinese factories have been low because wages in China’s agricultural interior were even lower and the great migration from the country to the city, one of the largest migrations in human history, meant that there was a ready supply of workers desperate for work and the more work the better. Even today many workers want longer hours:
In March, when Foxconn announced that workers’ hours would be reduced to China’s legal limits, employees began complaining. “Absolutely I’d like to do overtime to work more than 60 hours, but now there’s a ceiling on it,” said Ma Changqiao, a 23-year-old at Foxconn’s Chongqing factory.
As the great migration leveled off, however, wages began to rise. At first, workers wanted all of the increase in wages in money but as the more basic needs of workers and their families have been met the demand for better working conditions and more leisure has increased and this has made it profitable for firms to supply better working conditions.
Thus, the real story of better working conditions is not a spate of negative publicity, a mere blip in the face of much larger forces, but rising wages with a touch of Maslow’s hierarchy.
To its credit, the NYTimes article provides evidence for the larger story although you have to dig past the self-congratulatory material. The article notes, for example, that working conditions are also improving rapidly in little known companies not subject to NYTimes oversight:
The factory, in Chongqing, makes computers for Hewlett-Packard, a company with little of Apple’s glamour. It is operated by Quanta, a little-known Taiwanese manufacturer.
Inside the plant, amid thousands of workers in bright white uniforms, are occasional flashes of pink worn by people like Zhang Xuemei, a bubbly 19-year-old with glinting earrings whose sole job is to chat with co-workers.
For eight hours a day, Ms. Zhang collects complaints about the factory’s free meals and dorms. She listens to workers who are divorcing, homesick or arguing with managers. When she finds someone suffering, she refers them to the company’s full-time doctor or professional counselors.
Quanta’s 10-story dormitories feel like a college campus. There is a free movie theater, television rooms, a large martial arts gym, two spacious karaoke bars, a huge cafeteria and an aerobics hall playing a Chinese remix of “Gangnam Style.”
and here is the key
And the amenities are partly selfish: one of the biggest problems for Chinese factories is that workers are constantly leaving. Hewlett-Packard hopes that by improving living conditions, turnover and training costs will fall.
Addendum: Tim Worstall points out that “Manufacturing wages have been improving at 14% a year (yes, after inflation) since 2000. That’s a decade before anyone started to agitate about the working conditions at these factories. Or at least it’s a decade before anyone took any notice of such agitation.”
What does OIRA do?
That is the new paper by Cass Sunstein:
Abstract:
Since its creation in 1980, the Office of Information and Regulatory Affairs (OIRA), a part of the Office of Management and Budget (OMB), has become a well-established institution within the Executive Office of the President. This essay, based on public documents and the author’s experience as OIRA Administrator from 2009-2012, attempts to correct some pervasive misunderstandings and to describe OIRA’s actual role. Perhaps above all, OIRA operates as an information-aggregator. One of OIRA’s chief functions is to collect widely dispersed information – information that is held by those within the Executive Office of the President, relevant agencies and departments, state and local governments, and the public as a whole. Costs and benefits are important, and OIRA does focus on them (as do others within the Executive Branch, particularly the National Economic Council and the Council of Economic Advisers), above all in the case of economically significant rules. But for most rules, the analysis of costs and benefits is not the dominant issue in the OIRA process. Much of OIRA’s day-to-day work is devoted to helping agencies to work through interagency concerns, promoting the receipt of public comments on a wide range of issues and options (for proposed rules), ensuring discussion and consideration of relevant alternatives, promoting consideration of public comments (for final rules), and helping to ensure resolution of questions of law, including questions of administrative procedure, by engaging relevant lawyers in the executive branch. OIRA seeks to operate as a guardian of a well-functioning administrative process, and much of what it does is closely connected to that role.
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