Tyler Cowen's Blog, page 559
January 27, 2012
The Innovation Nation versus the Warfare-Welfare State
[image error]We like to think of ourselves as an innovation nation but our government is a warfare-welfare state. To build an economy for the 21st century we need to increase the rate of innovation and to do that we need to put innovation at the center of our national vision. Innovation, however, is not a priority of our massive federal government.
Nearly two-thirds of the U.S. federal budget, $2.2 trillion annually, is spent on just the four biggest warfare and welfare programs, Medicaid, Medicare, Defense and Social Security. In contrast the National Institutes of Health, which funds medical research, spends $31 billion annually, and the National Science Foundation spends just $7 billion.
That's me writing at The Atlantic drawing on Launching the Innovation Renaissance. Here is one more bit:
Our ancestors were bold and industrious–they built a significant portion of our energy and road infrastructure more than half a century ago. It would be almost impossible to build that system today. Could we build the Hoover Dam today? We have the technology but do we have the will? Unfortunately, we cannot rely on the infrastructure of our past to travel to our future. Airports, an electricity smart grid that doesn't throw millions into the dark every few years, ubiquitous Wi-Fi — these are among the important infrastructures of the 21st century, and they are caught in the regulatory thicket.
Putting innovation at the center of the national vision is not simply about spending more, it's about how we approach all problems. Read the whole thing for more discussion of regulation and other issues.
January 26, 2012
I have a longstanding sympathy for dirt
Kevin Outterson writes of "Hand Sanitizers as Agent Orange":
Over at CommonHealth, Aayesha rounds up the literature on the limits of hand sanitizers, but fails to mention the collateral damage to the skin microbiome. Alcohol-based hand sanitizers kill many bacteria, viruses and fungi, but they don't selectively target pathogens. They kill a wide swath of the microbial life on your hands, including little-understood non-pathogenic species. For an ecological analogy, think of using Agent Orange to kill a couple weeds.
A good introduction to the skin microbiome is a recent article in Nature Reviews Microbiology by Elizabeth A. Grice and Julia A. Segre (9, 244-253 (Apr. 2011)). From the abstract:
"The skin is the human body's largest organ, colonized by a diverse milieu of microorganisms, most of which are harmless or even beneficial to their host. Colonization is driven by the ecology of the skin surface, which is highly variable depending on topographical location, endogenous host factors and exogenous environmental factors. The cutaneous innate and adaptive immune responses can modulate the skin microbiota, but the microbiota also functions in educating the immune system."
As I've said before, our relationship with microbes should also be evaluated as an ecological issue. Completely germ-free environments are not necessarily the goal.
Cell phone taxes and the tragedy of the anticommons
Why are cell phone taxes so high? In the United States we tax cell phones more than beer. The usual explanations for high taxes, negative externalities and low elasticity of demand don't seem to apply to cell phones. Our colleagues Thomas Stratmann and Matt Mitchell offer an answer based in political economy.
…no single politician does choose to tax them that much. Instead, the high taxes that we pay on our cell phones are the sum of lots of little taxes imposed by several different political entities. Consider, for example, the tax bill of a typical New Yorker. It includes a federal USF fee, four state taxes, five city taxes, and a local 9-1-1 fee. Each of these is relatively small, but when you add it all up, the combined rate is over 22 percent.
…The mobile service tax base appears to suffer from a tragedy of the anticommons…numerous overlapping tax authorities seek to obtain revenues through wireless-service taxation, and this may lead to overexploitation of the tax base.
…We use state-level data from three years to examine the possible economic, demographic, and political factors that might explain the variation in these rates. We find that wireless tax rates increase with the number of overlapping tax bases.
Hat tip: Neighborhood Effects.
What does the inequality-immobility link mean?
Justin Wolfers writes:
Predictably enough, I spent yesterday reading lefty blogs trumpeting Corak's analysis, and right-leaning blogs who didn't want to believe the inequality-mobility link, endorsing Winship. But both missed the bigger picture implications. Either you're convinced by Corak that the data can be trusted, and that they show there's a strong link between actual inequality and actual mobility. Or you believe Winship that the data are a pretty poor proxy for what's really happening, and so there's actually a very strong link that's being disguised by imperfect data.
Here is Scott's latest response, with links to various critics.
As for my take, Justin is painting himself into a corner here of his own making. Let's step back for a moment. I see two big and very real problems: slow income growth for many income classes and a problem with excessively high returns to finance at the very top. (As an aside, both of these problems contain elements of both "left-wing concerns" and "right-wing concerns," and both problems are deeper than any particular ideology can solve and they should make virtually everyone rethink their views).
Those are the problems and we should try to fix them.
If we could fix these problems, that would mean a smaller financial sector, less moral hazard, better allocation of capital, and for most/all income classes rates of income growth comparable to the 1948-1972 period, chop it up as you wish. Imagine that everyone's income went up three percent a year, every year, and every generation was about twice as rich as the parents. Whether there then would be more or less marginal "churn" in the relative income rankings is not a matter of irrelevance but having somewhat more churn should not be viewed as a major social goal per se. It would depend on the reason for the immobility, and the real focus of our concern would be the reason (e.g., bad schools? some kind of unfairness?), and not the marginal change in the numerical churn per se.
Given that background, and those two very real problems, you can in fact create other "problems" by creating and manipulating more complicated statistics, based on the initial problems, and that can lead you to various measures of inequality and immobility. But not all inequalities are bad, or avoidable, and the same is true for immobilities. The valid problems, as embedded in the new complicated measures, still will boil down to the two simpler problems mentioned above. In the meantime, toying around with misleading and less transparent aggregate measures of inequality and immobility will bring confusion as to what is really at stake.
Focus on the two very real and fairly simple (as distinct from simple to fix) problems.
Addendum: If you are looking for Turing test fail, mood affiliation, unwillingness to recognize comparisons on the margin (as if I am defending hereditary aristocracy), and us vs. them thinking, here are John Quiggin, Brad DeLong, and Paul Krugman, as if I had staged a satirical interchange to illustrate and make fun of their occasional proclivities. The commentary of Matt Yglesias, also on the left, does not commit any of these fallacies and in fact deftly sidesteps them; perhaps they should drink from his water, or from that of his father, who apparently did not finish high school.
January 25, 2012
Where was the web invented?
From David Galbraith, via Kottke:
I'll bet if you asked every French politician where the web was invented not a single one would know this. The Franco-Swiss border runs through the CERN campus and building 31 is literally just a few feet into France. However, there is no explicit border within CERN and the main entrance is in Switzerland, so the situation of which country it was invented in is actually quite a tricky one. The current commemorative plaque, which is outside a row of offices where people other than Tim Berners-Lee worked on the web, is in Switzerland. To add to the confusion, in case Tim thought of the web at home, his home was in France but he temporarily moved to rented accommodation in Switzerland, just around the time the web was developed. So although, strictly speaking, France is the birthplace of the web it would be fair to say that it happened in building 31 at CERN but not in any particular country! How delightfully appropriate for an invention which breaks down physical borders.
Possible Greek facts
It was funny when the first Greek bond hit a yield of 100 per cent, says investment editor James Mackintosh. But Greece may be the proud issuer of the first bond to yield more than 1,000 per cent outside periods of hyperinflation.
The explanatory video is here.
*Knowledge and Coordination: A Liberal Interpretation*
The author is Daniel Klein and you can buy it here. My blurb reads:
The best book on Smithian economics, or for that matter Austrian economics, in many years.
Here is a thirty-minute presentation of some themes from the book. Here is an associated podcast with Dan and Russ Roberts. Here is the syllabus for Dan's class on economics and philosophy (pdf); here is the syllabus for his class on Adam Smith (pdf).
Studies of the value of private equity
Here is a very useful survey by Steven M. Davidoff, excerpt:
…in a separate paper, Steven Kaplan of the University of Chicago and Mr. Stromberg estimated that private equity-owned firms had a default rate of 1.2 percent a year from 1980 to 2002. That compares with Moody's Investors Service's reported default rate of 1.6 percent for all corporate bond issuers in the United States in the same time period.
Private equity-owned companies may have a lower general default rate because of the better debt terms that sophisticated private equity firms can negotiate. For example, Moody's has found that an outsize number of companies owned by private equity firms avoided default during the financial crisis because they had so-called covenant-lite debt, which had fewer terms that could be violated.
Beyond default rates, evidence of the private equity industry's ability to create value is still surprisingly uncertain, given that the industry has more than 30 years of history. One of the reasons is that private equity firms do not generally publicly disclose the performance of their buyouts.
…A new paper, however, finds evidence that private equity firms do add value. Adam C. Kolasinski and Jarrad Harford of the University of Washington examined 788 large private equity buyouts in the United States. They found that private equity-owned companies invested more efficiently than other companies, a fact the authors attributed to private equity firms' greater access to capital. The authors also found that the payment of large dividends to private equity firms, a common practice, did not create future financial distress.
There is more of interest at the link. "Some positives, lots of uncertainty" would be a good description of the available evidence.
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