Tyler Cowen's Blog, page 508
May 19, 2012
Update on the Millennium Villages controversy
G., a loyal MR reader, writes to me:
I imagine you may find this interesting…
The blog post: http://blogs.worldbank.org/impactevaluations/the-millennium-villages-project-impacts-on-child-mortality
The retraction on the MVP website: http://www.millenniumvillages.org/field-notes/millennium-villages-project-corrects-lancet-paper
The retraction in the Lancet:
http://press.thelancet.com/MVP.pdf
…from the Lancet editors…http://download.thelancet.com/flatcontentassets/pdfs/S0140673612607879.pdf
Related:
http://www.economist.com/node/21555571
http://www.economist.com/blogs/newsbo...
Incentives matter
Divorce lawyers and wedding planners have been gearing up for the Facebook IPO, waiting for the influx of wealth in Silicon Valley to stir up drama in romantic relationships, for better and for worse.
“When Google went public, there was a wave of divorces. When Cisco went public there was a wave of divorces,” says Steve Cone, a divorce attorney based in Palo Alto, near the social network’s Menlo Park headquarters. “I expect a similar wave shortly after Facebook goes public.”
There is more at the link.
Why did the U.S. financial sector grow so large?
Edward Conard, author of Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong, offers a hypothesis. He suggests the underlying cause is the (relatively recent) prevalence of risk-averse foreign capital:
With an abundance of risk-averse offshore capital, the constraint to increase investment and risk taking has been the capacity of risk underwriters, not capital providers. Today, Wall Street uses financial innovation to decouple risk from investment capital and predominantly sells risk to risk underwriters, which is no different from an insurance broker or insurance company. Wall Street deconstructs, prices, underwrites, syndicates, trades, and makes markets for risk. Because Wall Street now performs the more abstract function of syndicating risk rather than merely raising capital, people — even people as well informed as former president Bill Clinton — have naively concluded that these transactions serve “no economic purpose.” Risk underwriting is every bit as important as funding investment, perhaps even more so in today’s economy where the trade deficit leaves us awash in risk-averse short-term debt to fund investment provided someone else underwrites the risk.
So far I find parts of this book brilliant and other parts dead wrong. In any case it is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.
May 18, 2012
Jared Diamond reviews *Why Nations Fail*
There is much in the review, excerpt:
In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area’s being landlocked or of environmental damage, factors that they don’t discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse. True, the book provides anecdotes of the resource curse (Sierra Leone cursed by diamonds), and of how the curse was successfully avoided (in Botswana). But the book doesn’t explain which resources especially lend themselves to the curse (diamonds yes, iron no) and why. Nor does the book show how some big resource producers like the US and Australia avoid the curse (they are democracies whose economies depend on much else besides resource exports), nor which other resource-dependent countries besides Sierra Leone and Botswana respectively succumbed to or overcame the curse. The chapter on reversal of fortune surprisingly doesn’t mention the authors’ own interesting findings about how the degree of reversal depends on prior wealth and on health threats to Europeans.
Do read the whole review (that is not just the usual cliched command to do so), and I will gladly link to any response by Acemoglu and Robinson. Here is Diamond’s bottom line:
My overall assessment of the authors’ argument is that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity. That’s enough to establish such institutions as one of the major forces in the modern world. Why Nations Fail offers an excellent way for any interested reader to learn about them and their consequences. Whereas most writing by academic economists is incomprehensible to the lay public, Acemoglu and Robinson have written this book so that it can be understood and enjoyed by all of us who aren’t economists.
What I’ve been reading
1. Héctor Abad, Oblivion: A Memoir. A charming and intense memoir of a boy and his relationship to his father. It seems to be true, but it can be read profitably as either non-fiction or the equivalent of fiction. Recommended. Abad is still an underrated author in the United States.
2. Steve Coll, Private Empire: ExxonMobil and American Power. It’s OK enough, and certainly informative, but I found it a little boring. Somehow the organizing principles behind the material needed to be stronger.
3. Michael Dirda, On Conan Doyle: Or, the Whole Art of Storytelling. Short meditation on both the merits of Doyle beyond Sherlock Holmes and why fiction, and our responses to it, are and should be deeply strange. I very much liked it.
4. Nell Freudenberger, The Newlyweds. For modern fiction this is not too trendy, and it ends up being deeper than one expects. It is the story of an American man who meets his Bangladeshi bride over the internet and flies to Bangladesh to woo her and bring her back.
5. Arthur Herman, Freedom’s Forge: How American Business Produced Victory During World War II. I wish the book had more explicit economic content, but it is nonetheless an interesting look at the supply-side improvements which helped the American economy during World War II.
What is the potential for German fiscal stimulus?
This idea has been overpromoted for a long time:
Even if Germany manages to increase domestic demand, there is no guarantee that the additional spending will find its way into the peripheral euro-zone economies. A simple macroeconomic simulation suggests that a permanent increase in German government consumption equivalent to one percentage point of GDP would raise output in Ireland and Greece by 0.1% at most, and in larger countries, such as Spain and Italy, by much less than that.
That should come as no surprise. After all, exports to Germany account for just 2.5% of the combined GDP of Italy, Ireland, Portugal, Spain and Greece. In order to make a difference, Germany would therefore have to embark on a fiscal expansion that is too big even for the largest economy in Europe.
What about households and companies? German household saving is relatively high at 11%, in theory providing some scope for additional private spending. Here, too, however, there are difficulties. Designing a fiscally neutral set of measures that encouraged spending would be challenging because German households have, on average, less net wealth than their counterparts in France or Italy.
There is also the possibility of faster wage growth in Germany, which would undoubtedly help stimulate consumption. But only a small portion of that additional spending would be directed toward the troubled countries. And Finance Minister Wolfgang Schäuble, while acknowledging the likelihood of more rapid German wage growth, also warned that the economy should not lose its focus on competitiveness, implying that there is a limit to how much wage growth German authorities will tolerate.
That is from Amit Kara, here is more.
*China Airborne*
That is the new book by James Fallows. On the surface it is a book about aviation in China, but it is also one of the best books on China (ever), one of the best books on industrial organization in years, and an excellent treatment of economic growth. It is also readable and fun.
Highly recommended, it is sure to make my best books of the year list.
Assorted links
1. Is Sweden or England the paragon of “austerity”? Scott Sumner comments.
2. Has Australia been avoiding economic stagnation?
3. Criticisms of Aishwarya Rai.
4. Giant turtle dined on crocodiles.
6. Via Chris F. Masse, Peter Thiel in New Zealand.
May 17, 2012
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