Tyler Cowen's Blog, page 515
May 5, 2012
Sentences to ponder
Loveless has a very wide dynamic range– there’s no compression over the overall mixes. Because of that, it’s a very quiet record; most of it is about four or five dB below zero while most modern records are about six or seven above zero. That’s a huge difference in volume because every three dB is perceived as being twice as loud. But that’s not too important because people should just turn it up if they want to hear Loveless loud.
That is from Kevin Shields, much more here, all interesting to a fan or to an audiophile. The reissues are coming out, there is not much better in all of music than Loveless. By the way, don’t call it “popular music,” it isn’t popular!
For the pointer I thank James Murray.
*Living Economics*
That is the new book from my colleague Peter Boettke, and the subtitle is Economics Yesterday, Today, and Tomorrow. Of all of his books, it best captures what Peter is all about. He should now be considered the global leader of the Austrian School of Economics. Here is a Jeff Tucker review of the book.
May 4, 2012
Social Security, Savings and Stagnation
Here is Evans, Kotlikoff, and Phillips making the case that transfers to the elderly, such as Social Security and Medicare, have dramatically lowered the US savings rate, the investment rate and real wage growth:
In the lifecycle model, the young, because they have longer remaining lifespans than the old, have much lower propensities to consume out of their remaining lifetime resources. This prediction is strongly confirmed for the US by Gokhale et al (1996).
Hence, in taking from young savers and giving to old spenders, which Uncle Sam has spent six decades doing on a massive scale, the lifecycle model predicts a major decline in US net national saving associated with a major rise in the absolute and relative consumption of the elderly. This is precisely what the data show.
In 1965, the US net national saving was 15.6% of net national income. Last year, it was just 0.9%. And, according to Gokhale et al (1996) and Lee and Mason (2012), the secular demise in US saving has coincided with a spectacular rise in the consumption of older Americans relative to that of younger Americans.
As Feldstein and Horioka (1980) document, US net domestic saving tracks US net national saving. Hence, postwar intergenerational redistribution has not only lowered net national saving; it has also reduced net domestic investment, from 14.0% of national income in 1965 to just 3.6% in 2011. This decline in the rate of net domestic investment is, no doubt, playing a major role in the slow growth in US wages. Indeed, the level of private-sector average real earnings per hour, exclusive of fringe benefits, is lower today than it was 40 years ago.
We call this America’s “fiscal child abuse”. If it continues, it will no doubt shortly drive the national saving rate, which was negative 1.2% in 2009, into permanent negative territory and further reduce net domestic investment and prospects for real wage growth.
And yet there is no copyright for recipes (Singapore markets in everything)
How much is a recipe worth?
About $1.8 million, according to the owner of Kay Lee Roast Meat Joint, who boosted the sale price of her Singapore eatery by that amount when she put it on the market this year.
Betty Kong and her husband want S$3.5 million ($2.8 million) for their 60-plastic-stool establishment, a premium over the S$1.25 million assessed value of the site. The price includes the property, their recipe for roasting duck, pork ribs and crispy pig skin as well as other Cantonese-style classics, plus three months of cooking lessons — and, presumably, the loyal clientele that lines up outside, sometimes for more than an hour.
The article is interesting throughout. How about this bit?:
The Roast Meat Joint generates sales of around S$2,000 a day, she said, or S$620,000 annually, assuming it’s shut one day a week and three days for Lunar New Year holidays. Profit margin is 60 percent, according to her broker Raymond Lo at Knight Frank LLP. The asking price is 5.6 times annual sales, compared with the 1.1 multiple for the Singapore benchmark Straits Times Index. (FSSTI) It would take six years to recoup the recipe premium.
How about this paragraph, from a critic:
“Two million dollars for a recipe? Too much,” said Leong, known by patrons as Grandma or ‘Poh Poh,’ shaking her head in disbelief and counseling against giving up a line of work she herself has been doing for 53 years. “You will start developing dementia if you stop working.”
And this, from the woman selling the recipe:
Her knees are giving out, she said, and she can’t have replacement surgery because it takes four months to recover. Instead, she plans to start closing for two days a week, Mondays and Tuesdays. And to keep dreaming of an easy retirement — visiting her son in Australia, and eating someone else’s food for a change.
“Fish and chips in London, Kentucky Fried Chicken in America,” she mused, insisting on maintaining the fortitude that has helped her build her business. “I won’t haggle over the price. I will stick to it.”
The full article is here, and for the pointer I thank Alex Kowalski.
May 3, 2012
Double-talk on the Irish referendum
And yet I think they are wise:
Take the the following quote from Karl Whelan, professor of economics at UCD. It is a prime example. The fragment used by Sinn Féin is in italics.
“All that said, although I think the economics of this treaty are pretty terrible, on balance, the arguments favour Ireland’s signing up to it.”
Similarly Colm McCarthy, also of UCD and one of the most influential of the economic rock stars, was quoted by Sinn Féin as saying the following: “As an exercise in addressing the euro zone’s twin banking and sovereign debt crisis, the fiscal compact makes no worthwhile contribution”. But in the same article – and overlooked by Sinn Féin – he states: “If there has to be a referendum, the electorate would be well advised to swallow hard and vote Yes, notwithstanding the inadequacies of the proposed treaty.”
The story is here.
Why wise? Under one reading, Ireland needs to stake out its alliance with the European Union at all costs, and let other nations be the ones to strike down bad treaties and silly ideas. Under another reading, Ireland should to some extent defect, but they will get the best “defection deal” if they wait until Greece, Italy, and Spain are to some extent settled. Both mean voting “yes” on the treaty referendum, even though the arguments for the treaty are weak.
Assorted links
1. More on Milton Friedman and the Great Depression.
3. I actually want one of these.
4. Most consecutive yoga positions on a motorcycle.
5. Daytime raves, the culture that is Sweden, hat tip Caleb.
What percentage of 7-footers are in the NBA?
An actual accounting of 7-footers, domestic or global, does not exist in any reliable form. National surveys by the Center for Disease Control list no head count or percentile at that height. (Only 5% of adult American males are 6’3″ or taller.)…
The curve shaped by the CDC’s available statistics, however, does allow one to estimate the number of American men between the ages of 20 and 40 who are 7 feet or taller: fewer than 70 in all. Which indicates, by further extrapolation, that while the probability of, say, an American between 6’6″ and 6’8″ being an NBA player today stands at a mere 0.07%, it’s a staggering 17% for someone 7 feet or taller.
There is much further discussion at the link, and many more ins and outs to ponder.
Me on Twitter
Recently accepted wage cut for new project, ngdp will go up not down. I am helping to manufacture ngdp, people get with the program.
What did *you* do for nominal gdp today? Just asking.
Non-Twitter note: If my action contributes to a downward spiral of ngdp, wages, and prices, I will be deeply sorry. Apologies in advance.
Raghu Rajan nails it
The industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities. For better or worse, the narrative that persuades these countries’ governments and publics will determine their futures—and that of the global economy.
Every paragraph of his piece is excellent, and as I like to say “We are all stagnationists now.” Hat tip goes to The Browser.
May 2, 2012
What are the alternatives to austerity for the Eurozone?
Paul Krugman’s post on the topic was revealing, compared especially to the analytic and rhetorical flourish which he applies to criticizing austerity. You can’t fault his IQ or his knowledge of the situation, there simply isn’t much convincing to put forward. Here is Ryan Avent, in a good post but I think it also fails to put forward a workable solution:
What, then, are the alternatives to austerity? Well, first up would be an integration that would help break the diabolical loop now gutting the periphery. Creating a euro-zone-wide safe asset and a euro-zone-wide set of institutions to stand behind damaged banks would help accomplish that. America doesn’t expect Delaware to shoulder the costs of failures of banks headquartered in Delaware. That’s an important contributor to the stability of the American federal system. The euro-zone must recognise that it is the failure to build appropriate euro-zone-wide institutions—equal in scope to the considerations and resources of the central bank—that is contributing to soaring yields around the periphery and creating the illusion of the need for dramatic austerity in places that could do without it.
I call this the “Germany pays for everything and accepts all the risk of moral hazard” approach. Potential German liabilities could run in the trillions of euros and the “ball and chain” lasts forever. I know all about Connecticut and Mississippi, but without a common electorate, not to mention a common national identity, I don’t see how this is possible. Keep in mind that Eurozone-wide deposit insurance in essence serves as an implicit guarantee to the parent national governments as well, for Modigliani-Miller-like reasons.
It is like doing African development policy by suggesting that America send one-third of its gross national product to Mozambique. Maybe it is moral to do so (though I doubt that), but in any case it is not really a policy proposal. Lack of a common identity is a constraint, not a policy choice, except at fairly small margins or at moments of extraordinary cultural transformation (hint: this is not one of them [video], especially when there are seventeen nations involved).
Just to (imperfectly) integrate the relatively small unit of East Germany cost West Germany almost $2 trillion dollars.
By the way, will the periphery nations give much (any?) control over their finances to Germany? Clearly not, and thus we are back to the idea being dead as a doornail.
There is no common fiscal policy without a common electorate, not for long at least.
Ryan Avent also supports looser monetary policy for the eurozone, as do I. It’s worth trying. But keep in mind, the further along is a financial crisis, the more emergency monetary policy takes on a more purely redistributive element. You end up having to stick the money somewhere quite specific and forget about ever getting it back. Nominal reflation helps with some problems when done well in advance of crunch time, but right now it is a question of solvency for many of the parties involved. It’s already ineffective for the ECB to be doing three-year loans to rotten banks at one percent, against very low value collateral, how much more of a boost are we to expect?
Just how much monetary policy needs to be done? At this point, we’re not talking about a move from price stability to say four percent eurozone inflation (which I would nonetheless favor, and favored all the more a year or two ago), rather much more would be required. We’re running up against the same constraints which prevent the de facto Eurobonds from taking off. Revisit the well-known point that in a financial crisis fiscal and monetary policy blur together, and we return to the notion that solutions are based on massive cross-border redistribution. On top of all that, arguably the deflationary pressures in Greece, and possibly Spain, are already past the point of control from the ECB side, given the ongoing collapse in private lending.
Here is my earlier post, Austerity as a substitute for trust. Kevin Drum adds related comment.
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