Tyler Cowen's Blog, page 520
April 6, 2012
Does low socioeconomic status have to bring poor health outcomes?
Maybe not, from Edith Chen and Gregory E. Miller:
Some individuals, despite facing recurrent, severe adversities in life such as low socioeconomic status (SES), are nonetheless able to maintain good physical health. This article explores why these individuals deviate from the expected association of low SES and poor health and outlines a "shift-and-persist" model to explain the psychobiological mechanisms involved. This model proposes that, in the midst of adversity, some children find role models who teach them to trust others, better regulate their emotions, and focus on their futures. Over a lifetime, these low-SES children develop an approach to life that prioritizes shifting oneself (accepting stress for what it is and adapting the self through reappraisals) in combination with persisting (enduring life with strength by holding on to meaning and optimism). This combination of shift-and-persist strategies mitigates sympatheticnervous-system and hypothalamic–pituitary–adrenocortical responses to the barrage of stressors that low-SES individuals confront. This tendency vectors individuals off the trajectory to chronic disease by forestalling pathogenic sequelae of stress reactivity, like insulin resistance, high blood pressure, and systemic inflammation. We outline evidence for the model and argue that efforts to identify resilience-promoting processes are important in this economic climate, given limited resources for improving the financial circumstances of disadvantaged individuals.
For the pointer I thank Michelle Dawson.
Do most economists welcome ideological openness?
Daniel Klein has a new paper, with Davis, Figgins, and Hedengren:
A sample of 299 U.S. economics professors responded to our 2010 survey, which asked: "Suppose you are reading or listening to an economist, and he discloses his own ideological proclivities. Which best represents your attitude toward his doing so:" The results surprised us. Sixty-three percent of respondents chose "I welcome it," twenty percent chose "I am indifferent," and only ten percent chose "I dislike it." Most economists, it appears, welcome ideological openness, and only a small minority dislikes it. Follow-up questions asked reasons why the respondent liked (or disliked) it. These results suggest that economists – or, at least those inclined to complete a survey – are quite inclined toward natural discourse.
I suppose this is good news for the future of the economics blogosphere. Or do economists just say that they welcome this openness, without really meaning it?
Cardiff Garcia at FT Alphaville has written a very very good post
Just read this post, and of course the entire site is superb. The post is hard to summarize, but here are a few bits:
FT Alphaville has spent much of the past year thinking about collateral shortages in the shadow banking system and how safe assets function as a kind of currency.
But it's about time someone actually calculated just how much money these assets might represent.
And, now quoting Credit Suisse:
Less debt, lower value, higher haircuts, and reduced collateral velocity: in our view, this is an ongoing and significant monetary shock.
Back to Garcia:
…that precipitous fall in private shadow money amounted to tremendous deflationary pressures.
Don't forget this:
And yes, that does lead to an argument against tightening fiscal policy too quickly: fiscal consolidation tightens monetary policy also.
Here are three more knockout paragraphs:
It's no longer enough to understand traditional monetary policy transition mechanisms (money multipliers, federal funds rates, reserves); it is also necessary to understand the shadow banking system (collateral supply, rehypethecation) affect monetary policy, and vice versa.
And this also seems like the source of the many challenges in working out how to regulate the sector.
Because one thing that's clear from the note is that the shadow banking system represents a lot of money, and more specifically a lot of credit flowing through the economy. Regulating it won't be as easy as saying bring it all on balance sheet or higher capital standards (though the latter is probably still a good thing).
In the post there is much much more, and do check out the graphs and the discussion of Gary Gorton. We are just beginning to understand this critical angle of the financial crisis.
Garcia also recommends this excellent link, very good on collateral and shadow banking.
April 5, 2012
Would I lie to you?
The subtitle is "The problem with buying sports "experiences"" and it is now up on Grantland.com. Co-author Kevin pulled out this excerpt:
The biggest issue is that our own desire for thrills often works against our better judgment. As a species, we derive pleasure from thinking about what will come — how nice that powdery snow on the slopes is going to be. So we turn off our critical faculties at the worst possible moment in hopes of maximizing the value of the anticipation and getting a bigger buzz. This is particularly bad when it comes to sports experiences, which are rife with "asymmetric information" — when the seller knows something you don't. Your best defense, of course, is to be aware of your vulnerability and maximize your information, as any smart shopper does when in the market for a used car. But when it comes to shopping for experiences, emotions all too often rule.
Read the whole thing.
Very good sentences
The idea of the paper is that firms accumulate bad projects during a boom. They hold onto them in order to–as I would put it–save face. When someone signals the end of a boom (for example, by coming to Congress with hurried legislation to bail out banks), it becomes ok to kill off the bad projects.
That is from Arnold Kling, including a link to Grenadier, Malenko, and Strabulaev.
Why I think the Mexican government is winning the drug war
Mexico is still growing, and quite robustly, even after the drug lords have given it their best shot. The currency is up over nine percent this year.
If Mexico keeps on getting richer, and the drug lords keep on killing each other, eventually Mexico will win. Think rates of return, or think of government revenue as rising over time. I'm not saying the drug problem will ever disappear there.
Murder rates have stabilized or fallen in some key northern cities, including Juarez. Sending in the army seems to yield returns, in light of scared and corrupt local police forces.
Both the American recovery and the slowdown in China, combined with higher Chinese wages, will help Mexico and thus help the government against the drug gangs.
I fully admit this is speculation on my part, but it is my view.
Assorted links
1. Full video from the Kansas City blogger's conference.
2. German temporary markets in everything, bet against it lasting.
4. Ryan Avent on American exports, and Yglesias on exports and rents; he is a man who understands that Ricardo remains underrated. Here is Karl Smith on related issues.
5. Thinking politically makes you callous. It really does.
Saudi Arabia fact of the day
The country is not energy efficient:
With domestic electricity demand rising 10% per year in Saudi Arabia, the kingdom now devours more than a quarter of its oil production—nearly three million barrels per day. International Energy Agency figures show that Saudi Arabia now consumes more oil than Germany, an industrialized country with triple the population and an economy nearly five times as large.
That is from Jim Krane via Brad Plumer.
Who would be a better president of the World Bank?
I see so many tweets and posts on this question. None of you know, I suspect. A few questions:
1. It is widely recognized that the Bank's board "interferes" in WB activities too much, often meeting two times a week and also pushing through contracts which should be stopped or reexamined. Who can best stand up to that board when necessary? Can that be done at all, while keeping the contract-addicted major economic powers still interested in the Bank?
2. The WB is financially fairly dependent on China, which for whatever reason prefers to borrow from the Bank rather than use its reserves to finance projects. What should a president do if China starts seeing itself as "graduating" from this relationship? Or what if China falls apart economically? Will the World Bank end up like the UN, losing some of its talent and being hat in hand, asking for funds?
3. Let's say the BRICS continue with their plan to set up a separate lending facility, as endorsed recently by Zoellick. How should a president keep the BRICS interested in the World Bank? Should the new lending facility be fought, co-opted, subsidized, or whatever? Competition or collusion?
4. The U.S. President tries to pressure the WB to create projects in Afghanistan or Iraq which the Bank doesn't really want to do. Stand up to the President, fold, or meet him halfway? How should project demands involving the West Bank be finessed?
Maybe, maybe, maybe — if you knew the major candidates well — you could have some sense who would perform better at those tasks. And at about fifty others. Maybe. Maybe not.
It is hard to predict how any particular candidate would do. We do know who is likely to get the job. We don't know what it is like to have a non-American facing those kinds of problems.
Addendum: Chris Blattman comments.
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