Tyler Cowen's Blog, page 529
March 21, 2012
Bank lending in China
With caveats about the data, yes, but still this is striking:
That is from Christopher Balding's Asia/China blog, the post is here. It is entitled "Why I am Concerned About the Chinese Economy in One Picture." If you would prefer the words:
From 2008 to 2009 new local currency loans rose from 3.48 trillion rmb to 10.32 trillion according to the PBOC for an annualized increase of nearly 300%.
I do not know if those who praised the Chinese in 2009 for their aggressive stimulus program are having second thoughts, or fearing that the stimulus simply postponed — and intensified — a much-needed adjustment.
March 20, 2012
Sentences which were not expected
"I can't see why we should be printing bank notes at all anymore," says Bjoern Ulvaeus, former member of 1970's pop group ABBA, and a vocal proponent for a world without cash.
That is from The Washington Post, hat tip to Brad Plumer. The article is interesting throughout, for instance:
The Swedish Bankers' Association says the shrinkage of the cash economy is already making an impact in crime statistics.
The number of bank robberies in Sweden plunged from 110 in 2008 to 16 in 2011 — the lowest level since it started keeping records 30 years ago. It says robberies of security transports are also down.
"Less cash in circulation makes things safer, both for the staff that handle cash, but also of course for the public," says Par Karlsson, a security expert at the organization.
The prevalence of electronic transactions — and the digital trail they generate — also helps explain why Sweden has less of a problem with graft than countries with a stronger cash culture, such as Italy or Greece, says economics professor Friedrich Schneider of the Johannes Kepler University in Austria.
"If people use more cards, they are less involved in shadow economy activities," says Schneider, an expert on underground economies.
*The Social Conquest of Earth*
By Edward O. Wilson, Amazon link here. I am a big Wilson fan, but I didn't find anything new in it, although for some readers it might be a good introduction to a variety of ideas such as eusociality.
I was surprised to see the main blurb as "A monumental exploration of the biological origins of the human condition!" — James D. Watson.
More on the time-dependence of fiscal policy
Chris Reicher has a new paper (pdf) and the abstract is here:
This paper documents the systematic response of postwar U.S. fiscal policy to fiscal imbalances and the business cycle using a multivariate Fiscal Taylor Rule. Adjustments to taxes and purchases both account for a large portion of the fiscal response to debt, while authorities seem reluctant to adjust transfers. As expected, taxes are highly procyclical; purchases are acyclical; and transfers are countercyclical. Neither pattern has changed much over time, except that adjustment happens more slowly after 1981 than before 1980. The role of adjustments to purchases in stabilizing the debt indicates that the recent discussion about spending reversals is highly relevant.
The gated, published version is here. Chris writes me in an email:
Germany uses a similar mix of spending restraint vs. tax increases as the United States in order to consolidate its fiscal position over time. My 2012 article basically corroborates Bohn's results using different techniques for the postwar period. I have a set of unpublished estimates which indicates the same thing for Germany and a number of other countries–adjustments to real spending and taxes both account for large portions of fiscal authorities' endogenous response to debt.
Chris points me to a further paper on the topic, forthcoming in ReStat.
Amazing Bezos
A delightful thought from Pascal-Emmanuel Gobry at Business Insider.
If you had asked an 11-year-old Jeff Bezos to let his imagination run wild and think of the stuff that he would most dream to have as an adult, he might have said:
The world's biggest bookstore! Maybe even a bookstore that can beam any book directly to your hand in an instant (and movies and music, too!).
A giant sky computer that can imitate human intelligence.
A spaceship.
…And maybe even a robot army.Of course any adult would have smiled slightly condescendingly, patted him on the head and helpfully explained that these things aren't possible.
A new and revised and more pessimistic view of U.S. manufacturing
Between 2000 and 2010, manufacturing output of computer and electronic products rose at a remarkable rate of almost 18 percent per year.
Over the same period, output in the rest of U.S. manufacturing remained roughly flat, according to Bureau of Economic Analysis figures tallied by Houseman. That's a dismal showing for a decade.
It is only when computer and electronic products are included that overall manufacturing output registers the impressive increases. Though it represents 15 percent or less of manufacturing output, the sector's strong growth makes the rest of U.S. manufacturing seem much more robust than it really is.
At the same time:
…much of the nation's production of computers and electronics has moved overseas. The number of consumer electronics shipped from U.S. factories dipped about 70 percent between 2000 and 2010, according to the Census Bureau's Current Industrial Report.
And:
…at least some of the productivity gains shown in U.S. computer manufacturing reflect the increasing power and decreasing prices that come with innovation. When a computer chip doubles in efficiency, that can turn up in a doubling of output and productivity in computer manufacturing. But that is not what is ordinarily thought of as manufacturing efficiency.
The article is here. It also makes the point that a lot of measure manufacturing productivity gains are actually the result of offshoring, not actual higher productivity in U.S. factories; "This bias may have accounted for as much as half of the growth of U.S. manufacturing output from 1997 to 2007, excluding computers and electronics manufacturing, Houseman and her co-authors have estimated."
I thank Brent Depperschmidt for the pointer.
Assorted links
1. Scott on lunch at China Star.
2. Aristide update, the bottom line, worth a read.
3. High school graduation rate is showing progress.
4. Europe puts solar energy on standby, that was the headline in the print version of the story.
5. The marmite crisis in New Zealand.
The quest for microfoundations
There has been recent debate in the blogosphere about what we learn from demanding microfoundations for macro results. I am a firm believer in microfoundations, while recognizing the abuses to which the concept has been put.
Via Mark Thoma, enter Robert Hall and his latest paper (pdf), here is the abstract:
The financial crisis of late 2008 shifted household expenditure downward, as financial institutions tightened lending standards and required repayment of outstanding consumer loans. The crisis also raised financial frictions by depleting the equity capital of financial institutions. The result was a severe reduction in business and residential investment expenditure. The zero bound on the interest rate worsened the adverse effects of these developments by limiting the corrective response of monetary policy. In a straightforward and comprehensible macro model, I measure the two financial driving forces by matching the actual and forecasted movements of two key variables, the unemployment rate and the investment/GDP ratio. I then use the model to describe a counterfactual economy over the period 2009 through 2020 in which the same increase in financial frictions occurred but no household deleveraging took place. The comparison of the counterfactual and actual economies reveals the separate effects of the two financial driving forces. Deleveraging had an important but transitory role immediately after the crisis, while high financial frictions account for the long period of high unemployment, depressed GDP, and subnormal investment.
Maybe you don't agree with Hall (I am of mixed mind), but he gives us a systematic framework for analyzing the depth and length of the recent recession, noting that it is microfoundations but not strict DSGE because he wishes to create more space for changes in basic structural parameters.
I have three observations: a) such a paper would not have been possible without a microfoundations approach, b) Hall finds a strong role for intermediation, which is a favorite topic of the microfoundations advocates and a feature lacking in IS-LM models, and c) his methods suggest some weaknesses in the recent stress on deleveraging as the continuing plague, again noting this is a framework for discussion rather than the final answer.
The microfoundations approach proves its value virtually every day.
March 19, 2012
Timothy Noah's *The Great Divergence*
The subtitle is America's Growing Inequality Crisis and What We Can Do About It. His policy conclusions are:
1. Soak the rich
2. Fatten government payrolls
3. Import more skilled labor
4. Universalize preschool
5. Impose price controls on colleges and universities
6. Reregulate Wall Street
7. Elect Democratic Presidents
8. Revive the labor movement
This book is well-written and it is a useful survey of left-democrat points of view on the problem. I do not think most of these recommendations will much limit inequality (though they may have other virtues), but my main wish is that he had offered some additional possible solutions. #1 on my list is "more innovations which benefit virtually everybody," which is how the last great equalization (1870-1970 or so) came about. Parts of his list, such as #3, get at this obliquely but it should be front and center of the entire book. Let's debate how we can make that happen. If there were a new invention as important as the toilet, shareholders would not and could not appropriate most of the gains. "Deregulate housing" and "deregulate medical care" also deserve a ponder, as does "abolish occupational licensing" and "subsidize basic science." That global inequality has fallen radically is understood and recognized but not emphasized. It is culturally beyond the pale — on the left at least — to write "encourage conversions to Mormonism" but as a recommendation it is right on the mark. This book needs more which is culturally beyond the pale. How about "run some of the bad schools with lots of discipline, more like the KIPP academy?"
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