Tyler Cowen's Blog, page 75

Thursday assorted links

1. Jeff VanderMeer has a very interesting and smart favorite fiction of 2014 list.

2. Does the Super Bowl require subsidized insurance?

3. There is no great sports stagnation (short video).

4. Economic divergence of China and Japan?

5. Cataloging various development successes and failures.

6. Is YouTube becoming the dominant media source?

7. 1972 Harvard Crimson profile of Judith Sklar, fascinating along multiple dimensions.

Applying behavioral economics to development professionals

Timothy Taylor has a superb blog post on that topic, here is one choice passage out of many:

A final example looks at mental models that development experts have of the poor. What do development experts think that the poor believe, and how does it compare to what the poor actually believe? For example, development experts were asked if they thought individuals in low-income countries would agree with the statement: “What happens to me in the future mostly depends on me.”  The development experts thought that maybe 20% of the poorest third would agree with this statement, but about 80% actually did. In fact, the share of those agreeing with the statement in the bottom third of the income distribution was much the same as for the upper two-thirds–and higher than the answer the development experts gave for themselves!

Do read the whole thing, which offers many points of interest.  By the way, here is a good blog post on a first visit to Haiti.

Are anthropologists better than you think?

Many economists like to dump on their fellow social scientists, and personally I find that reading anthropology is often quite uninspiring.  That said, I would like to say a small bit on the superiority of anthropologists.  I view the “products” of anthropology as the experiences, world views, and conversations of the anthropologists themselves.  Those products translate poorly into the medium of print, and so from a distance the anthropologists appear to be inferior and lackluster (I wonder to what extent the anthropologists realize this themselves?).

Yet anthropologists have some of the most profound understandings of the human condition.  They have witnessed, absorbed, and processed some of the most interesting data, especially those anthropologists who do fieldwork of the traditional kind.

The rest of us are simply (usually) too blind to see this.  It even can be argued that anthropology is the queen and most general of the social sciences, and that economics, as a social science, is simply playing around in one of the larger anthropologically-motivated sandboxes, namely the economy.

We so often confuse “what can be translated into print well” with “what is important and interesting.”  In classical music there have been performers, such as Jorge Bolet, who are incredible but whose genius didn’t translate well in the recording studio.  That does mean anthropology is very often not a highly leveraged means of status and influence.

I believe that travel — when done intelligently — is the most fundamental method of learning.  And yet most travel books are a crashing bore.  Don’t confuse what you — as an outsider — can consume well with what is good and important from an inside perspective.

Comparing living standards over time

Scott Sumner writes:

Here’s one thought experiment. Get a department store catalog from today, and compare it to a catalog from 1964. (I recently saw Don Boudreaux do something similar at a conference.) Almost any millennial would rather shop out of the modern catalog, even with the same nominal amount of money to spend. Of course that’s just goods; there is also services, which have risen much faster in price. OK, so ask a millennial whether they’d rather live today on $100,000/year, or back in 1964 with the same nominal income. Recall the rotary phones and bulky cameras. The cars that rusted out frequently. Cars that you couldn’t count on to start on a cold morning. I recall getting cavities filled in 1964, without Novocaine. Not fun. No internet. Crappy TVs, where you have to constantly move the rabbit ears on top to get a decent picture. Lame black and white sitcoms, with 3 channels to choose from. Shorter life expectancy, even for the affluent. No Thai restaurants, sushi places or Starbucks. It’s steak and potatoes. Now against all that is the fact that someone making $100,000/year in 1964 was pretty rich, so your social standing was much higher than that income today. So it’s a close call, maybe living standards have risen for people making $100,000/year, maybe not. Zero inflation in the past 50 years may not be right, but it’s a reasonable estimate for a millennial, grounding in utility theory. In which period does $100,000 buy more happiness? We don’t know.

I say I prefer $100k today to $100k in 1964, that being a nominal rather than a real comparison.  If you are not convinced, try comparing $1 million or $1 billion (nominal) today to 1964.  For some income level, we have seen net deflation.

But here’s the catch: would you rather have net nominal 20k today or in 1964?  I would opt for 1964, where you would be quite prosperous and could track the career of Miles Davis and hear the Horowitz comeback concert at Carnegie Hall.  (To push along the scale a bit, $5 nominal in 1964 is clearly worth much more than $5 today nominal.  Back then you might eat the world’s best piece of fish for that much.)

So for people in the 20k a year income range, there has been net inflation.

Think about it: significant net deflation for the millionaires, but significant net inflation for those earning 20k a year.  In real terms income inequality has gone up much more than most of our numbers indicate.

Social network Swedish markets in everything

You need only 2,000 Facebook friends:

You’ve heard of internet celebrities getting paid to mention a product in a tweet or shoot out an Instagram with a brand in the shot. Now a hotel in Sweden is taking social media marketing to a new level by offering a free stay to anyone with a serious online following.

In the words of Stockholm’s Nordic Light Hotel, it “accepts personal social networks as currency.”

Anyone with more than 2,000 personal Facebook friends or 100,000 followers on Instagram gets a free seven-night stay at the luxury hotel, which usually costs $360/night. All you have to do is post when you make the reservations, when you check in, and when you check out, all with the requisite hotel tags. (“If the guest does not shares the posts that are necessary to take part of the discount/ free nights, the guest will be charged full price for the stay,” the hotel warns.)

The full article is here, and for the pointer I thank Bryan Lassiter, a loyal MR reader.

Assorted Wednesday links

1. New blog from the research department of the IADB (much but not all is in Spanish).

2. Feline average is over.  But there is a counter here.

3. NPR favorite albums of the year list.

4. Lingerie RCT, safe for work, sort of.

5. How a car door should sound.

6. What a Harvard Business School professor orders from a Sichuan restaurant.  For all the fuss, he could have chosen better dishes (only the fish was a good selection), nor did the items as a whole have proper balance.

7. The now-full Cato forum on reviving economic growth.  Videos of the panels are here.

Entrepreneurship and Business Dynamism

Here is the video of my panel at the Cato Conference on Growth (other videos at the link). John Haltiwanger leads off with a very good talk summarizing some of his work on declining business dynamism (see also his important paper with Decker, Jarmin and Miranda.) Amar Bhide follows with some skepticism about productivity statistics. My talk begins at 50:26. I discuss regulation and dynamism, why less-developed economies are more entrepreneurial than the United States, Japan’s Ise Grand Shrine and its lessons for entrepreneurship, how Zara is internalizing creative destruction and more.

Has American wealth inequality really gone up?

This is from Wojciech Kopczuk in his recent NBER paper:

The methods that rely on direct measurement of wealth — that is, those based on the Survey of Consumer Finance and on the estate tax — show at best a small increase in the share of wealth held by the top 1 percent, while the capitalization methods show a steep increase.

These methods start diverging in their estimates in the 1980s, and the paper has a very useful discussion of their strengths and weaknesses.  This is a notable paragraph:

The most striking feature of the estimates for 2000s is a huge run-up of fixed income-generating wealth in the capitalization series. In fact, this run-up accounts for virtually all of the increase in the share of the top 0.1% between 2000 and 2012 and most of the increase since 2003. The underlying change in taxable capital income (reported by Saez and Zucman, 2014, in their Figure 3) is nowhere as dramatic. The fixed income actually falls in relative terms, as would be expected when yields fall. Instead, the (almost) tripling of the fixed income component on Figure 3 (from 3.3% of total wealth in 2000 to 9.5% in 2012) is driven by an increase in the underlying capitalization factor from 24 to 96.6. This is precisely what the method is intended to do: as yields have declined, the capitalization method should weight the remaining income much more heavily. This increase – if real – would correspond to enormous re-balancing of the underlying portfolios of the wealthy throughout the 2000s. An alternative possibility is simply that the capitalization factors are difficult to estimate during periods of very low rates of return resulting in a systematic bias.

Overall Kopczuk does not favor the capitalization method and thus there seems to be a very real possibility that U.S. wealth inequality has gone up by only a modest amount.

For the pointer I thank Allison Schraeger.

Do Japanese interest rates have stability problems?

This is a problem with this large debt. If people start saying the Japanese government will eventually accept that it is money-financed, not debt-financed, it might produce more inflation than the Bank of Japan wants. A downward spiral could start: Inflation would produce a devaluation of the Yen which fuels even more inflation. This could lead to higher government bond yields, the government would have to pay higher interest on their debt which is not money-financed. But there are policies to offset the inflationary effect. When a central bank buys government debt, it creates commercial bank reserves at the central bank balance sheet. The banks currently do not borrow as much as they are allowed to do by reserve rules. To stop banks from creating more private money, you could use the reserve requirement at the central bank. This can be used as a mopping up exercise if the stimulus got too big.

That is from Lord Adair Turner.  He also offers up this bit:

Are there other successful monetizations?

One of the best examples from economic history where it was done successfully and on a large scale is actually Japan. Finance minister Takahashi from 1931 to 1936 used central bank financed fiscal deficits to drive the economy out of recession. It was very successful. Japan pulled out of recession faster than most countries in the 1930s.

Krugman covers Rogoff’s related argument here, I would note that Dornbush overshooting effects hardly show up in the data at all, which are dominated by “news,” in this context unexpected changes in exchange rates.  Exchange rate overshooting is very much an overrated theory.

 

Assorted links

1. Nouriel Roubini on the new machine age.

2. Do high heels influence how men behave?

3. Amazon introduces Dutch-style auctions.

4. Steve Albini defends today’s world of music.

5. An app for valet parking service.

6. Jonathan Gruber’s opening statement (pdf).

7. Russia’s richest man bought Watson’s Nobel medal and now will return it to him.