Tyler Cowen's Blog, page 496

Assorted links

1. When will we have enough energy to travel to the stars?

2. Companies’ borrowing practices reflect their bosses’ borrowing practices.

3. The economics of restaurants in Australia.

4. “All you can eat [publish]” deal at a journal; don’t fill up on the bread.

5. What are the economic returns to robbing banks?

Karl Storchmann reports from the front: French wines vs. Jersey wines

At the Princeton tasting, led by George Taber, 9 wine judges from France, Belgium and the U.S. tasted French against New Jersey [TC: that's the New Jersey] wines. The French wines selected were from the same producers as in 1976 including names such as Chateau Mouton-Rothschild and Haut Brion, priced up to $650/bottle. New Jersey wines for the competition were submitted to an informal panel of judges, who then selected the wines for the competition. These judges were not eligible to taste wines at the final competition The results were similarly surprising. Although, the winner in each category was a French wine (Clos de Mouches for the whites and Mouton-Rothschild for the reds) NJ wines are at eye level. Three of the top four whites were from New Jersey. The best NJ red was ranked place 3. An amazing result given that the prices for NJ average at only 5% of the top French wines.

A statistical evaluation of the tasting, conducted by Princeton Professor Richard Quandt, further shows that the rank order of the wines was mostly insignificant. That is, if the wine judges repeated the tasting, the results would most likely be different. From a statistically viewpoint, most wines were undistinguishable. Only the best white and the lowest ranked red were significantly different from the others wines.

There was a third similarity to the Paris tasting. In Paris, after the identity of wines was revelared, Odette Kahn, editor of La revue Du Vin De France, demanded her score card back. Apparently, she was not happy with having rated American wines number one and two.

At the Princeton blind tasting, while both French judges preferred NJ red wines over the counterparts from Bordeaux. After disclosing the wines’ identity the French judges were surprised but did not complain. In contrast, several tasters from the U.S. did not want their wine ratings to be published.

All results and the statistical analysis can be found here:

http://wine-economics.org/WineTastings/Judgment_of_Princeton_no_comments.html

Orley Ashenfelter also refers me to www.liquidasset.com, click on “tastings” and then “the latest” for data.

This point is not lost on the Germans

“The extremely important discipline of the market would be partially lost. Even more seriously, joint liability for banks would, at least, partially extend to the sovereign bonds of these countries,” she said. “The result would be joint sovereign liability through the back door – without the possibilities for intervention and control, and therefore the protection, of a fiscal union.”

That is from Sabine Lautenschläger, vice-president of the Bundesbank.

Who will be next to ask for a raise?

Angus reports:

Kudos to Thomas Sargent for landing a two year position at Seoul National University for an estimated $1,250,000 per year.

Economists can pull down 7 figures in total compensation when you figure in consulting and speech-giving on top of the academic salary, but this is the biggest salary+”research funds” number that I’m aware of in economics.

Two more underrated countries?

Recently I discussed a few potentially underrated countries.  Since then I have been hearing and reading talk of Venezuela and Ethiopia.  Here is one take on Venezuela:

Venezuela’s economy grew at the fastest pace since 2008 in the first quarter as record oil revenue allowed President Hugo Chavez to finance a boom in housing construction ahead of elections this year.

The economy expanded 5.6 percent from the year earlier, Finance Minister Jorge Giordani said at a press conference in Caracas today. The median estimate of seven analysts surveyed by Bloomberg was for growth of 4.1 percent. The economy grew at the fastest pace since the second quarter of 2008, when it expanded 7.8 percent.

On Ethiopia:

The industrial sector in Ethiopia is growing by an average of 10.8% in the last few years said the Ministry of Industry.

The sector has grown by 15% in just the last year accounting for 13.4% of the GDP noted Tadesse Haile, Minister of State for Industry.

According to that source, however, it is still less than $200 million over the last nine months for manufacturing exports.  And there is this:

Huajian, one of China’s biggest shoe manufacturers, plans to invest up to US$2 billion (1.5 billion euros) in Ethiopia to make shoes for export to Europe and North America.

I am not convinced by the prospects of either country but I will monitor these situations more closely than I had in the past.

Portugal fact of the day

In 2009, only 30 percent of Portuguese adults had completed high school or its equivalent, according to figures from the Organization for Economic Cooperation and Development.

Here is more, mostly on the Portuguese response to fiscal consolidation.

Let the Tacocopters Fly!

Very good piece by Ryan Avent at the Economist:

Consider the tacocopter. The tacocopter is a not-quite-real-not-quite-a-joke business idea that became a brief internet sensation back in March. The concept is stunningly simple: order tacos on your iPhone and a quadracopter drone will deliver them to your doorstep. As you can read here, the plan would face technical and (especially) regulatory hurdles if implemented today. Yet the potential, for this or similar experiments, is obvious. Cheap, agile drone technology is available now. Building apps is trivially easy. Mapping and location technology and data are getting better all the time. If not drone copters, perhaps 3D printers or autonomous vehicles. It’s a short leap from the ridiculous to the transformative. And the ideas needed to transfer these technologies to everyday life are increasingly the domain of entrepreneurs rather than academics. One doesn’t need 20 years of study to spot profit opportunities.

…I’m most inclined to think that its the pace of societal evolution that is most binding: growth proceeds at the fastest pace that legal and social institutions can tolerate.

Think of the challenges that would face the would-be tacocopter entrepreneurs. Consider that issues surrounding liability and law, rather than technology, now appear to be the biggest obstacle to autonomous vehicles. Look at the legal struggles faced by innovative services like Uber and Airbnb. Disruptive innovations are bumping against a broad array of regulatory hurdles that built up during a very different era of economic growth.

As I argued in Launching our regulatory system has gotten so large and complex that it’s main effects are now unintended. In short, the product of the regulatory system is a result of human action but not of human design.

The fiscal cliff, a reader request, and which new states will there be?

Celestus, a loyal MR reader, asks:

A couple suggestions:

(a) The “fiscal cliff.” Whether it should be avoided, and how it should be avoided assuming that politics requires it be so. [I did a search for "fiscal cliff" with no results; apologies if it has been covered using more generic language].

(b) Name the 51st through 55th U.S. states, including Gingrich Moon Colony or N/A as necessary.

The fiscal cliff has a few quite different components, ranging from expiration of the Bush tax cuts to the AMT to automatic spending cuts, and each year you can toss in the Medicare doc fix as well.  Most economists agree the best solution is no fiscal contraction now, but fiscal consolidation later on.  That said, most economists should recognize (but often do not) that “fiscal consolidation later” is very often a myth.  If it were “now or never” should we do fiscal contraction and cause a recession but restore some fiscal sanity?  The correct answer will boil down to your probability forecast for “fiscal contraction later.”  It’s tricky, though, because for a low enough probability of “fiscal contraction later” you end up believing that “fiscal contraction now” isn’t possible either, and then what is the original question about anyway?  The original question appears to be straightforwardly normative, but it embodies hidden assumptions about which counterfactuals one is willing to entertain.  It’s the counterfactuals assumptions which are often doing the work in generating the fiscal policy recommendation.  Many people writing on this topic don’t make that clear.

Ideally we should bring more and more taxpayers under AMT-like rules.  As for the Medicare doc fix, I would cut reimbursement rates whenever I could, and without fear of much fiscal contraction.  The health care sector is growing in any case and full of price discrimination and other price oddities.

I don’t think we will have extra states, but the most likely candidates are the obvious, starting with Puerto Rico (a very clear first choice), Alberta, and the Maritime Provinces.  I would bet against all or any of those becoming states, if only because of the extreme status quo bias when it comes to sovereignty.  Why give it up?  Even bankrupt countries are reluctant to give it up.

Luigi Zingales defends Glass-Steagall

Last but not least, Glass-Steagall helped restrain the political power of banks. Under the old regime, commercial banks, investment banks and insurance companies had different agendas, so their lobbying efforts tended to offset one another. But after the restrictions ended, the interests of all the major players were aligned. This gave the industry disproportionate power in shaping the political agenda. This excessive power has damaged not only the economy but the financial sector itself. One way to combat this excessive power, if only partially, is to bring Glass-Steagall back.

There is much more at the link (“Why I was won over by Glass-Steagall”), interesting throughout.  An ungated version is here.

The cultures that is Europe

All from last week:

Greece’s health minister appealed to panicked patients struggling to secure medical treatment to remain calm after pharmacists continued their boycott of the country’s largest state health-care provider by refusing to extend credit to patients, in another sign of a credit squeeze taking hold of the economy.

Here is that article.  There is also:

Even as many European countries tighten their belts in response to the sovereign-debt crisis, French President François Hollande granted more generous pension benefits to some workers, delivering on a campaign promise ahead of legislative elections.

Here is that article.  Furthermore:

The French government approved a measure Wednesday that will restore the retirement age of 60 for some workers, partly reversing unpopular 2010 pension reforms made by former president Nicolas Sarkozy that raised the retirement age to 62 as he sought to cut state deficits.

Finally:

Europe’s troubles look daunting enough already, but another crisis looms.

Most European Union countries owe more than twice their annual gross domestic product in pensions promised to current workers and retirees. As governments scale back benefits, companies and individuals face a rising burden. But saving for old age could prove a crushing blow to growth.

And so the clock ticks.