Tyler Cowen's Blog, page 514

Cambodian motorbike protectionism

The [motorcycle taxi] drivers want a blanket ban on motorbike rentals for foreign tourists.

“We don’t want [tourists] to rent motorbikes, because foreign tourists don’t know Khmer habits when driving; they don’t comply with the law, and some drive by keeping on the left side, so that causes traffic accidents,” Heng Sam Om said.

The story is here.  Will Koenig writes to me:

As someone who lived and worked in Cambodia for years, I find this hilarious. Traffic laws in Cambodia are rarely enforced, and “motordopes,” or motorcycle taxi drivers, are stereotyped as the worst drivers — including driving on the wrong side of the road. But they have formed a union and want to protect their market.

Assorted links

1. Evan Soltas on India.

2. Palindrome summarizing the plot of Star Wars.

3. Paul Krugman on science fiction and fiction.

4. Hamilton responds to Sumner and DeLong.

5. A history of first class airline passes for life, interesting throughout.

Where is the deflationary pressure in the eurozone “going”?

The difficulty of wording this question is indicative of Scott Sumner’s point about the poverty of our language.  Here is Scott:

The most recent inflation rate in Greece is 1.7%, whereas Spain has 1.9% inflation.  I don’t know about you, but I find those figures to be astounding.  That’s not deflation, and yet Tyler’s clearly right that they are being buffeted by powerful deflationary forces.

1.  This shows the poverty of our language.  Economics lacks a term for falling NGDP, even though falling NGDP is arguably the single most important concept in all of macro, indeed the cause of the Great Depression.  So we call it “deflation” which is actually an entirely different concept.  I wouldn’t be the first to find connections between the poverty of our language and the poverty of our thinking.

2.  Through experience I’ve learned that whenever a data point seems way off, there are probably multiple reasons.  Thus Greece and Spain probably have less price level flexibility due to structural rigidities in their economies.  And the inflation might be partly due to special factors like increased VAT or higher oil prices.  Nonetheless, these sorts of depressions would have been associated with falling prices in the 1930s, so it’s not your grandfather’s business cycle.

One option (not the only piece of the puzzle) is that automatic stabilizers, in the form of highly inefficient government jobs and government-privileged jobs, are maintaining consumption, at some level, in the periphery economies.  The deflationary pressures are being driven by the collapse of intermediation and are being “taken out” in the form of lower investment and lower capital maintenance.  Look for instance at the M3 collapse in Italy.

This would have a few implications.  First, the fiscal austerity story becomes more obviously secondary to the deflationary story, though not irrelevant.  If the fiscal austerity story were driving the deflationary pressures, you might expect to see lower rates of price inflation, unless you think it all can be pinned on VAT increases (doubtful).  Second, it is probably a more pessimistic view, since it implies things only look as good [sic] as they do because in essence current consumption is being funded by eating into capital growth and maintenance.

Third, given high rates of unemployment in Spain and Greece, those economies should not be operating at or near full capacity.  High rates of price inflation suggests the importance of bottlenecks, which in turns means this is an AD and also an AS story, and not just a pure AD story.

I would stress the speculative nature of this discussion.  In any case this is an extremely important but radically underdiscussed issue.  It makes a lot of different theories look bad, and thus makes it harder to maintain an attitude of thundering certainty.

Good news from Africa

From Michael Clemens:

If you’re sick of the sad, hopeless stories coming out of Africa, here’s one that made my year. New statistics show that the rate of child death across sub-Saharan Africa is not just in decline—but that decline has massively accelerated, just in the last few years. From the middle to the end of the last decade, declines in child mortality across the continent plummeted much faster than they ever had before.

These shocking new numbers are in a paper released today by Gabriel Demombynes and Karina Trommlerová in the Kenya office of the World Bank.

The figures can be found at the link.

Thoughts this morning

There isn’t a proper policy response for every need.

That is from Bob Samuelson.  His stance on monetary policy is not mine, but still these are neglected words.

I also see just how much economists are doing macroeconomic analysis without using the concept of trust.  Following yesterday’s elections, including in France, trust among the eurozone nations went down.  That makes the chance of a good outcome less likely, not more likely.  It is painful to admit this, but things still could get much worse and now they are likely to do so.  A seventeen-member currency zone (scary just to type those words) has to be based on trust and this one isn’t, least of all now.  There is little reason to think that Hollande can browbeat the Germans into picking up more of the bill, and if the Germans perceive their former French partner as an unreliable ally, this becomes all the less likely .

Jim Manzi’s *Uncontrolled*

The subtitle is The Surprising Payoff of Trial-and-Error for Business, Politics, and Society, with an emphasis on RCT.

This is a truly stimulating book, about how methods of controlled experimentation will bring a new wave of business and social innovation.  Here is an Eric Posner review.  Here is a Kirkus review.  There will be more.  Kevin Drum offers good remarks.

Assorted links

1. On Posner and Weyl, John Cochrane is essentially correct.

2. Peter Thiel lecture notes on attracting venture capital.

3. Who complains the most about political polarization”: the polarized.

4. Is it worthwhile to recycle eyeglasses?

5. Scott Sumner on strategy and monetary policy.

Bertrand Russell’s 10 Commandments for Teachers

Do not feel absolutely certain of anything.
Do not think it worth while to proceed by concealing evidence, for the evidence is sure to come to light.
Never try to discourage thinking for you are sure to succeed.
When you meet with opposition, even if it should be from your husband or your children, endeavour to overcome it by argument and not by authority, for a victory dependent upon authority is unreal and illusory.
Have no respect for the authority of others, for there are always contrary authorities to be found.
Do not use power to suppress opinions you think pernicious, for if you do the opinions will suppress you.
Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric.
Find more pleasure in intelligent dissent that in passive agreement, for, if you value intelligence as you should, the former implies a deeper agreement than the latter.
Be scrupulously truthful, even if the truth is inconvenient, for it is more inconvenient when you try to conceal it.
Do not feel envious of the happiness of those who live in a fool’s paradise, for only a fool will think that it is happiness.

Hat tip: Brainpickings.

Worry about India

Here is my NYT column from today, on the recent growth slowdown in India.  Excerpt:

Why is India’s economic growth slowing? The causes are varied. They include a less than optimal attitude toward foreign business and investment: recall the Indian government’s reversal of its previous willingness to let Wal-Mart enter the retailing sector. The government also has been assessing retroactive taxation on foreign businesses years after incomes are earned and reported. Another problem is the country’s energy infrastructure, which has not geared up to meet industrial demand. Coal mining is dominated by an inefficient state-owned company and there are various price controls on both coal and natural gas. Over all, the country does not seem headed toward further liberalization and market-oriented reforms.

These problems can be solved. More troubling are the causes that have no easy fix.

Agriculture employs about half of India’s work force, for example, yet the agricultural revolution that flourished in the 1970s has slowed. Crop yields remain stubbornly low, transport and water infrastructure is poor, and the legal system is hostile to foreign investment in basic agriculture and to modern agribusiness. Note that the earlier general growth bursts of Japan, South Korea and Taiwan were all preceded by significant gains in agricultural productivity.

For all of India’s economic progress, it is hard to find comparable stirrings in Indian agriculture today. It is estimated that half of all Indian children under the age of 5 suffer from malnutrition.

Another worry is that India’s services-based growth spurt may have run much of its course. Call centers, for example, have succeeded by building their own infrastructure and they often function as self-contained, walled minicities. It’s impressive that those achievements have been possible, but these economically segregated islands of higher productivity suggest that success is achieved by separating oneself from the broader Indian economy, not by integrating with it.

India also has one of the world’s most unwieldy legal systems, and one that seems particularly hard to reform. On the World Bank’s Doing Business Index, the country ranks 132 out of 183 listed countries and regions, behind Honduras and the West Bank and Gaza, and just ahead of Nigeria and Syria. One undercurrent of talk is that the days of “the license Raj” have returned, referring to the country’s earlier subpar economic performance under a regime of heavy government regulation.

Assorted links

1. The mathematics of bookbinding.

2. The campus tsunami.

3. Resume padding among economists.

4. At around 2:45, Rush Limbaugh refers to Kevin Grier and me as a young liberal who writes for a tech blog.

5. Wealthy French looking to move to London at higher rates.