Tyler Cowen's Blog, page 50

Are British high earners taking the heaviest whack?

Sarah O’Connor reports from the FT:

Pay inequality has lessened in the UK during the past three years because the real wages of highly paid employees have fallen more steeply than those in low-paid jobs.

While there is concern about high levels of income inequality in the UK, analysis by the Institute for Fiscal Studies think-tank suggests the squeeze on wages has been more acute at the top than the bottom. It also shows that men have fared worse than women and the young worse than the old.

The full story is here.

Something is assortative in the state of Denmark

From a recently published research paper by Gustaf Bruze:

Counterfactual analysis conducted with the model suggests that Danish men and women are earning on the order of half of their returns to schooling through improved marital outcomes.

For the pointer I thank the excellent Kevin Lewis, and there are ungated versions here.

Omniscient sellers (an email from Alex Rosaen)

I’ve been puzzling through a thought experiment, and I hope it interests you enough that you will choose to address it on your blog…

The logical endgame of all this consumer data mining, web tracking, ad targeting, and loyalty clubs is what I am calling “omniscient sellers.” Omniscient sellers know with 100% certainty how effective an ad will be and what it will take to get a consumer to change consumption decisions. What happens then? Here are some bullets on what I’ve come up with:

* Consumers’ attention becomes even more valuable than it is now, and the rewards for controlling that attention even greater (Facebook, Google, the NBA salary cap all explode even more?).

* Consumers feel very happy because they are largely consuming products that marketers have made them (or discovered they would?) want very badly.

* Could attention-controllers start paying users to use their sites, since attention is so valuable now? Could there be an attention equivalent of credit card reward points?

* I can’t figure out who collects rents here, other than the platforms benefiting from network externalities.

* Does this increase or decrease market entry costs? It certainly will give startup companies something valuable to spend their capital on.

I would value any thoughts you care to share on this topic, or if you know of someone already addressing it.

All very good questions.  I would pose it this way: do consumers buy the ads, or do sellers/intermediaries bid for the attention of consumers?  If intermediaries are competitive and goods suppliers are monopolistically competitive, the surplus mostly goes to the consumers, who are paid to read the ads and then get exactly what they want.  If there is a dominant intermediary,  say Google or Facebook with unique information, that intermediary will extract surplus from both buyers and sellers.  People are happy with their purchases as they experience them, but both consumers and artistic producers have lower lifetime expected wealth, as the intermediary rather efficiently vacuums up those gains.  Not that this scenario in any way resembles our world today…

Further assorted links

1. How smart is the unconscious mind?

2. Mexico City nudge markets in everything, they can no longer say “I don’t give a squat.”

3. The culture that is New Zealand.

4. Is Nigeria also an overrated economy?

5. Price theory summer camp at Chicago.

6. Profile of the new Niskanen Center.

The robot culture that is Japanese markets in everything

A hotel with robot staff and face recognition instead of room keys will open this summer in Huis Ten Bosch in Nagasaki Prefecture, the operator of the theme park said Tuesday.

The two-story Henn na Hotel is scheduled to open July 17. It will be promoted with the slogan “A Commitment for Evolution,” Huis Ten Bosch Co. said.

The name reflects how the hotel will “change with cutting-edge technology,” a company official said. This is a play on words: “Henn” is also part of the Japanese word for change.

Robots will provide porter service, room cleaning, front desk and other services to reduce costs and to ensure comfort.

There will be facial recognition technology so guests can enter their rooms without a key.

At least for now, the facial recognition bit means you cannot send your robot to stay there…

The story is here, alas I have forgotten whom I should thank for this pointer.

The ski resort that is Swiss (and sets its own exchange rate)

I hope Robert Mundell is proud:

The idyllic Swiss village of Grächen, flanked by better-known competitors Zermatt and Saas-Fee, has declared itself a financial microclimate, with constant exchange rate of 1.35 francs to the euro. The rate has been in place during winter months since 2011, and squarely ignores the official rate, which is currently closer to parity. It’s observed by the vast majority of hotels, shops, lift pass providers and restaurants—and has particularly paid off during the last two weeks. The only catch? You have to pay cash.

“In 2011, when the euro started falling during the eurozone crisis, bookings decreased rapidly for the winter season because it was just becoming too expensive for tourists, especially those from abroad,” explains Berno Stoffel, director at the tourism office in Grächen, which has less than 1,400 permanent residents and is almost exclusively economically dependent on farming and tourism. As the Swiss franc has soared, resorts in neighboring France, Austria and Germany – all in the eurozone – have become cheaper. “We had to do something so we decided to play central bank,” says Mr. Stoffel.

And so far it’s proved lucrative.

“I have heard from colleagues in other resorts that they have seen a huge number of holiday cancellations after the Swiss National Bank removed the currency floor, because it’s just become too expensive. We haven’t had a single cancellation on a holiday home or in a hotel due to the currency,” he says.

That is from Josie Cox at the WSJ.  Here is a picture of the village.

Assorted links

1. The new Bloomberg business and economics site.  What do you all think?  And The Guardian will sell ads based on time.

2. Janos Kornai reflects on post-reform Hungary (pdf), important to note that history can run backwards.

3. WaPo on my hypothesis that northern Virginia is becoming two different places.  I liked this piece, but the front page sub-headline (“…Fairfax will fail”), probably not from the author, isn’t descriptive of my views.  I don’t want Fairfax to become like Arlington, and in many ways I prefer the future of Fairfax, although admittedly it will be “less Millenial.”  Perhaps the WaPo sub-headline writers did not consult the MR vocabulary guide, under which “dumpy” usually means “good.”

4. Republish of my earlier post that Andrew Sullivan has been the most influential public intellectual of the last twenty-five years.

5. theworstthingsforsale.com.  And here is a relevant Amazon product, truly markets in everything.  Do you get the point?  “They’ve monetized an Amazon technicality,” Anna writes to me.

Is Sweden an economically overrated country?

In addition to my earlier pick of Chile, I now must nominate Sweden and Norway for this honor.  Both are wonderful countries, and in absolute terms very likely to remain strong performers.  But I think a good deal of that old Nordic magic is slipping away, and this has become more evident in the last few years.

Let’s start with Sweden and maybe I’ll get to Norway another time:

1. The average product of their education system seems to have declined rather rapidly, as measured by test scores.  On PISA they have gone from #4 to #21.

2. Arguably the basic Swedish economic social model is inconsistent with their level of immigration, and I don’t see them switching to a different economic and social model anytime soon.  You can be pro-immigration, and still not think Sweden is honing in on the right mix of domestic policy and immigration policy.

3. Swedish manufacturing seems to be deindustrializing at a faster than expected pace.  And some of Sweden’s most successful sectors are exposed to a lot of competition from emerging markets, in particular because they rely heavily on engineering talent.  Sweden also has a significant presence in financial services, but they are not an obvious future winner in that area.  And do timber, hydropower, and iron — their main commodity exports — have such a promising future?  There are probably few disasters lurking here, but lots of question marks.

4. Sweden doesn’t seem to have a lot of low-hanging fruit left.  Female participation in the labor force already is high, and they already have done lots of liberalization, privatization, and deregulation.  It is not clear where the next generation of policy improvements will come from.  The McKinsey report recommends “increasing government productivity” as a major source of potential gains, but that is hardly easy, even for the Swedes.

5. The Swedish central bank seems to have scored an “own goal” by engaging in premature tightening, coming out of the earlier recession.  They’ll make much of that up over time, but still it is a sign the country has lost some mojo.

6. Sweden’s household to debt ratio is about 170%, one of the highest in the world.  This is not only troubling in its own right, but arguably it is a sign debt is being used to make up for a slow accumulation of underlying economic deficiencies, as was the case in the United States.  Furthermore “Four in 10 mortgage borrowers in Sweden are not paying off their debt, according to data collected by Reuters, and those that are repaying the principal are doing so at a rate that would on average take nearly a century.”  They are probably still in the middle of a housing bubble.

7. There is an erosion of support for mainstream Swedish political parties.  You don’t have to approve of those parties to see this as a symptom of a very slight underlying political rot setting in.  The “extreme Right” party has seen a rapid rise in support.

8. A rampaging Putin probably won’t harm them directly, but still recent Russian events raise geopolitical risk in their neighborhood.

Don’t worry, the Swedes will do fine, but they have arrived at officially overrated status.  I was more sanguine about their prospects a few years ago than I am today and I would not invest in their stock market.  If you wish to count their pluses however, they still have a very good system of government, a strong ethic of trust and cooperation, a good ability to change course when necessary, high productivity, a strong presence in information technology, a wonderful export capacity, low public debt, and first-rate proficiency in English, among other virtues.

That all said, the Swedish currency is actually down against the euro since the beginning of the year.

*Schubert’s Winter Journey*

The author is Ian Bostridge and the subtitle is Anatomy of an Obsession, and of course it focuses on Die Winterreise.  This is the first book published this year to make it into my 2015 “best of the year list.”  Here is one good review of the book.

Assorted links

1. How do pot dealers operate in a blizzard?

2. John Cochrane on why the Swiss broke their peg.  And John on the new unemployment insurance results.

3. The Russian “blockade diet” will indeed help you lose weight.  And The Haggis Lollipop.  And China police suspended after dining on enormous salamander.

4. The top one percent, state-by state; for a given income it is easiest to break into the top in New Mexico, toughest in Connecticut.

5. UK museums are hiding away art works depicting The Prophet Muhammad.

6. How good was Maria Callas?  And Paul Krugman on the game of chicken unfolding in Greece (and Germany).

7. How Raghu Rajan is reshaping economic debate in India.

8. The guy behind Bounded Gaps Between Primes: “No one who knows him thinks that he is suited to a tenure-track position.”