Marginal Revolution

Zeno's paradox

Tyler Cowen

I did get stuck in The Great ???? -- have they given it a name yet? -- last night.  A ten mile commute home took me almost eight hours and from what I have read many people had it worse.  I thought of Keynes and liquidity.  The worst part came at the end when I saw the car crushed by a large, heavy tree, which also fell over the main road and turned four lanes and two directions into one lane and two directions.  For the most part human cooperation held up and people kept their places in line.  Bathroom norms evolved (and were improved), and I now know every station on my radio.  As the trip continued, the number of car corpses rose.

We at GMU are so dedicated they didn't even cancel classes.  And if a nuclear weapon is being launched at DC, I'm simply going down to the basement.

How much should the safety net grow? (and when?)

Tyler Cowen

Lane Kenworthy thinks there is much more to be done.  For instance:

Early education (preschool, child care), beginning at age one, is a very good idea. Not all states have full-day kindergarten; few have preschool for four-year-olds; none have much in the way of public funding of education for kids age one to three.

Paid parental leave is available in only a few states and covers a relatively short period.

Sickness insurance: ditto.

Unemployment insurance covers too few of us.

Unemployment insurance should be supplemented by or folded into a new wage insurance program.

Social assistance benefits have been decreasing steadily over the past generation.

If markets are now structured in such a way as to severely limit real earnings growth for those in the bottom half of the distribution, we may need to massively expand the EITC.

We ought to do more for children, working-age adults, and elderly persons with assorted physical, cognitive, emotional, and social disabilities.

These questions could and should be debated with thousands of pages.  But, in the meantime, may I offer my little squib/splat of doubt?

At what wealth level are these protections supposed to arrive?  Now?  One also wonders which risks are considered to be insurable at the individual and family level, either through insurance proper or through social norms, savings, and other voluntary institutions.  What will be the implicit marginal rate of taxation on earning additional income in this new arrangement?  Has it been estimated?  What will happen to the savings rate?  What coercions will accompany these protections?  What will the pressures be, legal or otherwise, to send your kid away at one year of age?  Will job creation for women go down if there is mandatory paid parental leave?  Probably so. Will women end up better off?  Quite possibly not.  How many people would count as falling under these disabilities?  Is this all to be financed by higher taxes on the rich?  We probably can't even pay for our current bills in that manner.  If it is all done by VAT, how many people would prefer to have the government spend the money for them, as opposed to spending it themselves?  Just asking.  How about just sending the needy people some cash?  What is the likelihood that such benefits will, in the longer run, discourage our willingness to take in immigrants, the most effective form of aid we know?

Another way to ask the question is to look for the low-hanging fruit, when it comes to social welfare.  Let's take Social Security as more or less given, though it will see marginal adjustments.  Are the big gains to be had from some new social welfare program, or from showing that Medicare and Medicaid and other regulated health care institutions can work better than the public health systems of other wealthy nations, without running the United States into insolvency? 

In my view it is the latter, and I don't think that fruit is hanging especially low.  Can we agree on a truce, and first improve the programs we already have?  Will the new programs have the problems of the old?

If I were to pick some other piece of low-hanging fruit, I would cite the still-neglected problem of pandemic preparation.

On the Kenworthy post, here are comments from Matt.

Sentences to ponder

Tyler Cowen

From the comments:

You do not need a Kindle device to read Kindle eBooks. You can download from Amazon and read on your PC, iPhone, Blackberry or iPad.

Another MR reader wrote:

free kindle for PC here: http://www.amazon.com/gp/feature.html?ie=UTF8&docId=1000426311&tag=googhydr-20&hvadid=6737383737&ref=pd_sl_92i9zans8g_b

You also can get an eReader here: http://us.penguingroup.com/nf/Book/BookDisplay/0,,9781101502242,00.html

And I am told that some foreign editions (including Canada!) will be ready soon.  I will keep you posted.

Matt Yglesias reviews *The Great Stagnation*

Tyler Cowen

Tyler Cowen’s new ebook How The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better is a bravura performance by one of the most interesting thinkers out there. I also think it’s a great innovation in current affairs publishing—much shorter and cheaper than a conventional book in a way that actually leaves you wanting to read more once you finish it. My guess is that this is the future of books.

Here is much more, and again the book is here.  Here is coverage from Arnold Kling, though I think he (like some MR commentators) is spending too much time on impressions and not considering (at all) the numbers presented in chapter one.

Assorted Links

Alex Tabarrok

1. Parfitian Problems.

2. The World is Sinking.

3. In Defense of Ligers.  I agree.

4. End the left!

5. Refuting Tyler on stagnation.

Charlie Louvin has passed away at 83

Tyler Cowen

One obiturary is here.  Tragic Songs of Life, by the Louvin Brothers, is one of my favorite recordings of all time, any genre.  I'm often surprised how many people do not know this music.

Assorted links

Tyler Cowen

1. Mark Bittman update.

2. Tyler Cowen answers questions about eBooks.

3. Irish politics: a pre-election primer.

4. *The Economist*, circa 1843.

5. Nominal gdp in Germany.

6. Daniel Bell passes away.

We are now on Facebook

Tyler Cowen

That is correct, the Cowen-Tabarrok text, Modern Principles.  It is a steady stream of resources for using the text, and learning and teaching economics more generally, updated on a very regular basis, organized using the wonders of Facebook.

Don't forget to click the "Like" button. 

http://www.facebook.com/ModernPrinciples

Thank you Mark Zuckerberg!  I rooted for you in the movie too.

Why do we care so much about sovereignty?

Tyler Cowen

IVV, a loyal MR reader, asks:

With all the talks about sovereign debt and default, the various EU problems, libertarian rumblings and increasing globalization, I'm mightily curious about one thing:

Why do we care so much about sovereignty?

Why are we trying so hard to declare this patch of land one place or another, and not neither nor both? Why are we trying to identify the people on that land as under one or another jurisdiction? What does being under a jurisdiction mean, and why must that choice be kept out of the hands of individuals? What's the economic value of all this?

We need units which produce public goods and we need people willing to declare their income and pay their taxes and, sometimes, fight and die for those units.  Therefore we need some amount of irrational belief in the idea of sovereignty, nation, and the like.  (Read Benedict Anderson's Imagined Communities.)  Today's distributional pattern of nation-states probably isn't ideal (I would prefer smaller units on the whole), but when it comes to OECD nations it works well enough.  We also don't know of good transition paths to something better, though within an overarching framework such as the EU such paths may be possible. 

Arguably the whole thing is sustained by evolutionary programming.  We cling to small groups, because we once needed to for purposes of survival.  Political entrepreneurs piggyback upon this sentiment to give us a largely illusory attachment to a bigger unit than just a band of hunter-gatherers or however it worked.  The large is made to feel small, through radio, TV, and local organization of political groups, among other methods.

At the margin, policies which "slip out" of sovereignty, without wrecking the entire superstructure of the nation-state, are usually a good idea.  Such as more immigration.  Diverting $1 million from Medicare to a helicopter drop over Haiti is also a good idea, although it cannot be made politically incentive-compatible on a larger scale.  So we have a simple formula for massive gains: subvert sovereignty, at the margin, without subverting belief in sovereignty.

Elsewhere, here is Bryan Caplan on "the stranger":

What fraction of your "fellow citizens" have you actually met?  Virtually zero.  The vast majority of your countrymen are, in fact, utter strangers to you.  When you tell your kid "Don't take rides from strangers," you don't make an exception for anyone who happens to share your citizenship.  Modern government - and most of political philosophy - is just a massive effort to pretend otherwise.

Bryan's right, but he's not facing up to the need for a certain amount of false belief, even though his rhetoric brings him very close to recognizing it.  If we all regard ourselves as nothing more than "strangers," what will happen to "the cement of society"?  The price system does not suffice and in fact the price system itself requires legal and cultural foundations.  Those foundations arise, and are sustained, only when people believe in something, and it can't be just anything they believe in.  Some of those beliefs have to consist of a loyalty to a workable political unit, even to some irrational degree, compared to true cosmopolitanism.

*The Great Stagnation*: a Straussian reading

Tyler Cowen

It’s clear that in this book Tyler Cowen has reverted to his roots as a radical anarchist theorist and agitator. This is the Tyler from before Cowen (1992) peeking out his head and letting the rest of us know that he’s still here. Waiting for the right time.

From Eli, here is more.

Reihan Salam reviews *The Great Stagnation*

Tyler Cowen

Excerpt:

I'm wary of summarizing the book -- I really want you to read it for yourself -- but the basic idea is very straightforward: Americans have grown accustomed to painless, automatic increases in prosperity. This is true of Americans on the right, who believe that painless tax cuts will deliver prosperity, and Americans on the left, who believe that above-market wages and more public investment funded by painless tax increases on the rich will deliver prosperity. Tyler convincingly argues that we've run out of this "low-hanging fruit."

In 1920, the marginal college student was fully capable of profiting from a rigorous college education. In 2011, the marginal college student is perhaps less capable, due to a confluence of factors. Some believe that credit constraints are the driver of an increase in dropout rates. Others, myself included, believe that traditional college instruction isn't necessarily right for, say, 80 percent of the population, and that the rigidity that defines an education sector that is tightly regulated and fueled by third-party public dollars doesn't lend itself to the kind of specialization that would yield big productivity increases. This is a subject of particular interest to me.

...Many thanks to Tyler for writing a really terrific provocation.

There is much more, including some very good points on commuting.

Uncelebrated biographies

Tyler Cowen

Nathan Labenz asks:

This got me thinking: what are the most compelling and informative biographies that remain uncelebrated?

"Uncelebrated by whom?" is of course the follow-up question.  Nonetheless I will put forward a few names: Jeremy Bentham, Leo Kanner, Norman Borlaug, Brahms and Stravinsky, Antoine Oleyant, a wide variety of 19th century German chemists, engineers, and scientists (who led a second Industrial Revolution), Montaigne, Thomas Bernhard, various French mathematicians, Simon Newcomb, Ramon Llull, Norbert Wiener, Babbage, and I would even say David Hume.

What are we to make of James K. Polk these days?  I am not sure.

Relative to their importance, their lives and exploits don't seem to receive much attention. In general, there are few good books (or movies) about the lives of famous economists.  Both Hayek and Friedman still lack good biographies, same with Samuelson and Arrow.  Smith, Keynes, and Nash are covered, but how many others? Why aren't there more scintillating biographies of engineers and second-tier scientists? It is harder to find important painters, even of the lower tiers, who have not received adequate biographic attention.

"Age and Great Invention"

Tyler Cowen

This is from Benjamin Jones:

Great achievements in knowledge are produced by older innovators today than they were a century ago. Using data on Nobel Prize winners and great inventors, I find that the mean age at which noted innovations are produced has increased by 6 years over the 20th Century. I estimate shifts in life-cycle productivity and show that innovators have become especially unproductive at younger ages. Meanwhile, the later start to the career is not compensated for by increasing productivity beyond early middle age. I further show that the early life-cycle dynamics are closely related to variation in the age at Ph.D. and discuss a theory where accumulations of knowledge across generations lead innovators to seek more education over time. More generally, the results show that individual innnovators are productive over a narrowing span of their life-cycle, a trend that reduces, other things equal, the aggregate output of innovators. This drop in productivity is particularly acute if innovators’ raw ability is greatest when young.

Hat tip goes to Mike Gibson, read his post.

Here is a Gideon Rachmann column from today, on a similar but not exactly the same question.  I agree with his penultimate remark on the division of labor.

Assorted links

Tyler Cowen

1. Symposium on inequality, including Acemoglu and Sumner.

2. China (Afghanistan) photo of the day.

3. Has digital music stopped growing?

4. Ip Man.

5. Critique of Myers-Briggs:"Due to these legitimate criticisms of the MBTI and its unscientific underpinnings, the test is rarely used in clinical psychology. I did a literature search on PubMed and discovered that, interestingly, many of the published studies of its practical utility come from nursing journals. Many of the other publications pertain to relationship counseling and religious counseling. Normally, this is a red flag. When you see a topic that purports to be psychological being used in practically every professional discipline except psychology, you have very good reason to be skeptical of its actual value."

6. The economics of the Davos conference.

7. How we subsidize banks (and see Krugman, to resolve this, one question is how well the expectations theory of the term structure in fact holds).

Kuwaiti Gift Exchange

Alex Tabarrok

KUWAIT CITY--Kuwait's ruler is marking several key anniversaries by literally paying tribute - handing out 1,000 dinar ($3,559) grants and free food coupons for every citizen in the Gulf nation.

The state news agency KUNA reports Monday that Sheik Sabah Al Ahmed Al Sabah has ordered the gifts for all the estimated 1 million Kuwaiti citizens.

It even covers newborns until Feb. 1....The food program is expected to offer free staples such as rice, eggs and milk until March 2012.

Hmmm, what could account for this sudden urge to gift?

In praise of picture books

Tyler Cowen

No, I don't mean the pictures, I mean the text.  Picture books are one of the best ways to learn basic information about a topic.  First, by viewing the photos you are more likely to remember some aspects of the material.  It works for kids and maybe it works for you too.  Second, the text is stripped down to essentials.  Third, the authors of picture books are often relatively "agenda-less," since most people don't read the text, the selling point is the pictures, and the book is so expensive that the publisher doesn't want to rule out the broadest possible audience.

I would not use picture books to resolve disputes over details or to find the best conceptual framework.  The text in picture books has some of the same strengths and weaknesses of Wikipedia pages.  It's odd to see a similar blandness in both the lowest cost and highest cost corners of the publishing world.

Lately I have been "reading" Ottoman Architecture, by Dogan Kuban, Toyokuni (oddly I can't find it on Amazon or remember the author's name), Textiles: Collection of the Museum of International Folk Art, by Bobbie Sumberg, and Architectura, by Miles Lewis.  You can walk into any public library and take home more splendid picture books than you will have time for.  How many you can carry is another constraint. 

New issue of Econ Journal Watch

Tyler Cowen

In the new issue: 

Channeling Robert Higgs: Steven Horwitz replies to Gauti Eggertsson on the Great Depression.

 

Advanced Placement ® Economics: What Kind of Economics Do High Schoolers Get? Tawni Ferrarini, James Gwartney, and John Morton investigate.

 

Housing Supply Constraints, Natural and Regulatory, by Wendell Cox; with a Reply by Haifang Huang and Yao Tang

 

Troubling Research on Troubled Assets – Linus Wilson reports.

 

Growth Accelerations Revisited: With errors corrected and data extended, previous results prove fragile – Guo Xu reports.

 

The Ideological Profile of Harvard University Press: David Gordon categorizes 494 book published 2000-2010.

 

The Never to Be Forgotten Hutcheson: Excerpts from W.R Scott (1900)

 

 

EJW Audio:Advance Placement ® Economics: Tawni Ferrarini discusses the importance of AP Economics and unsatisfactory aspects of its content.

 

EJW Audio: The Role of Economists in Ending the Draft. Noble efforts recounted by David R. Henderson.

Greek bond buyback

Tyler Cowen

Paul Krugman's link (and old paper) reminded me I had wanted to cover this idea:

Analysts said on Wednesday that having Greece buy back its own devalued bonds could be an important step toward solving Europe’s sovereign debt crisis.

It's an interesting equilibrium.  Let's say Greek bonds are selling for 60 cents on the dollar.  If the Greek government offers sixty-one cents, arguably the government is signaling a more optimistic prognosis than a 60 cent value or even a 61 cent value for the bond.  Don't sell ("beware of Greeks bearing gifts!").  If everyone is a rational Bayesian, the price of bonds should go up to the point where the Greek government doesn't want to buy the bonds any more or where indifference holds.

If buying back some of the bonds makes the rest of the debt easier to pay back, all the more reason not to sell your bonds at the initial offer price.

The purchase might work if the Greek government can signal they don't have inside information about their own ability or willingness to pay back the money.  That's hard to do, but not impossible.  After all, companies do buy back their own shares and I don't think tax arbitrage is the only motive.  For instance the company also may wish to shift the composition of its creditors and perhaps governments have the same motive.  Then the purchase can be a win-win.

Another equilibrium is if the Greek government offers to buy back the bonds with some probability.  Sellers might then play a mixed strategy in response and maybe then we are getting somewhere, with some probability that is.  These games usually are complicated and if you don't already get the intuition here don't bother with it.

Overall, the schemes are unlikely to work in practice.

Does mismeasured inflation overturn a relative stagnation thesis?

Tyler Cowen

In the comments, Slocum writes:

My skepticism is not that the nominal household income or GDP number are wrong, but that the inflation-adjusted numbers are wildly off because they fail to capture the innovations and transformational improvements in goods and services. Consider music. The music industry, measured in sales, is shrinking. 25 years ago as a college student, I bought a lot LPs and CDs (probably a few hundred $$ a year). Now I spend very little. Am I worse off as a music listener now? Obviously not -- I am immensely better off. But judging by the gross dollar volume of the music business, you would reach exactly the wrong conclusion about 'stagnation'.

The fundamental fact is that U.S. real median income has risen at a lower rate since 1973, not that progress has been absent.  One might think that the CPI is skewed and there are reasonable arguments to be made in this direction.  But the CPI will be most skewed to underappreciate progress when truly new goods and services are being introduced into the marketplace or spreading to new regions.  And that is (roughly) the 1870-1950 period, more than any other time.  In other words, if you account for CPI bias, the slowdown in median income growth -- the difference -- is probably larger than the numbers make it appear, even though in absolute terms both growth rates will be higher than measured. 

When some people hear the relative stagnation thesis, their minds shoot to various bogeymen: Paul Ehrlich, ridiculous 1907 proposals to close the patent office, predictions of mass starvation, and so on.  The simplest version of the point is that technological progress is not uniform, and that is borne out by thousands of years of human history.  This isn't Lake Wobegon, so some periods have to have lower than average growth in living standards than other periods.  One of those periods happens to be now, since 1973, give or take.  And from that flows many propositions of importance, for politics too.

You can buy the eBook here.

Assorted links

Tyler Cowen

1. More recommended public choice readings, of a different slant.

2. Chronic pain and its relief.

3. Women prefer larger governments.

4. Paul Samuelson as investor.

5. Virginia = Poland; comparing U.S. state economies to countries.

6. Buildings on rails?

7. Reihan Salam reviews The Great Stagnation.

Uganda fact of the day

Tyler Cowen

At 71 members strong, Uganda has the third largest cabinet in the world after North Korea and Kenya. This is in circumstances where the global average of ministers is 30. The average for Sub-Saharan Africa is 40. Even by regional standards, apart from Kenya, the average in the East African community is 30 as Tanzania has 34, Rwanda 27 and Burundi 29. Even among Africa’s oil producing countries, Uganda retains the gold medal – only Nigeria comes close with 54 cabinet ministers. The rest of the oil producing countries have ministers in the mid 40s.

Here is more and for the pointer I thank Michael Orthofer.  Is there a literature on when cabinet positions are the most effective ways of distributing political rents?

Have track and field performances peaked?

Tyler Cowen

I don't know much about track and field, but I found this article interesting, excerpt:

Today 64 percent of track and field world records have stood since 1993. One world record, the women’s 1,500 meters, hasn’t been broken since 1980. When Berthelot published his study last year in the online journal PLoS One, he made the simple but bold argument that athletic performance had peaked. On the whole, Berthelot said, the pinnacle of athletic achievement was achieved around 1988. We’ve been watching a virtual stasis ever since.

It seems unlikely to me that we have reached a true peak, rather a temporary plateau with slower-than-average growth, until the next breakthrough in training, technique, genetic manipulation, or whatever.  Does that sound familiar?

Negative Externalities

Alex Tabarrok

Snopes verified. Hat tip: Ben Cahill.

Tim Worstall gets it

Tyler Cowen

There was somewhere between none and fuck all economic growth in the US (and many other economies) in the 1929-1945 period. But the production frontier continued to move outwards, indeed, the 30s are one of the all time great decades for both technology and productivity improvements. The 50s to the 80s were simply playing catch up, in the same way that China and India are now.

And:

For it’s...saying that the great Post WWII economic expansion was nothing to do with high unionisation rates, Bretton Woods, restrictions upon capital movements, high marginal tax rates, fixed exchange rates or any other of the “liberal” or “social democratic” (use one for the US, the second for Europe) theories that are so often advanced.

The full post is here.

Assorted links

Tyler Cowen

1. Which economists signed "repeal and replace"?

2. French response on why France succeeds.

3. Man made bombs to clear snow.

4. Journal of Universal Rejection.

5. Interfluidity: on Star Trek, Scott Sumner, and everything else.

6. Undercover work, literally.

Assorted Links

Alex Tabarrok

1. Sadly, on some days, I feel that all journals are like this one.

2. TED talks set to music, including, In Praise of Free Trade and Free Rhythms.

3. Don't send prisoners home. 

4. Drunken scientists slosh alcohol on experiment, create new superconductor.

China fact (book) of the day

Tyler Cowen

When it comes to the overall death toll, for instance, researchers so far have had to extrapolate from official population statistics...Their estimates range from 15 to 32 million excess deaths.  But the public security reports compiled at the time, as well as the voluminous secret reports collated by party committees in the last months of the Great Leap Forward, show how inadequate these calculations are, pointing instead at a catastrophe of a much greater magnitude: this book shows that at least 45 million people died unnecessarily between 1958 and 1962.

That is from Frank Dikötter's Mao's Great Famine: The History of China's Most Devastating Catastrophe, 1958-1962, which is one of the scariest books I have read.  Here is another passage, I am not sure how well it is sourced:

Mao was delighted.  As reports came in from all over the country about new records in cotton, rice, wheat or peanut production, he started wondering what to do with all the surplus food.  On August 4 1958 in Xushui, flanked by Zhang Guozhong, surrounded by journalists, plodding through the fields in straw hat and cotton shoes, he beamed: "How are you going to eat so much grain?  What are you going to do with the surplus?"

"We can exchange it for machinery," Zhang responded after a pause for thought.

[Showing a poor understanding of Say's Law] "But you are not the only one to have a surplus, others too have too much grain!  Nobody will want your grain!"  Mao shot back with a benevolent smile.

"We can make spirits of out of taro," suggested another cadre.

"But every county will make spirits!  How many tonnes of spirits do we need? Mao mused.  "With so much grain, in future you should plant less, work half time and spend the rest of your time on culture and leisurely pursuits, open schools and a university, don't you think?...You should eat more.  Even five meals a day is fine!"

Here are some reviews of the book.

What are the highest prices for video art?

Tyler Cowen

Bill Viola's Eternal Return sold for $712,452 in 2000.  The rest of the top ten is all by Viola, Nam June Paik, Matthew Barney, and Bruce Nauman, with the #10 work going for $234,814.  I like video art, but to buy it...to me that is one very expensive movie ticket.  I did, however, shell out for a Netflix subscription, so at the margin I can watch Black Narcissus for nothing.

The data are from the new and interesting book Art of the Deal: Contemporary Art in a Global Financial Market, by Noah Horowitz.

*The Great Stagnation*, excerpt

Tyler Cowen

From my new eBook, here is one bit:

I’m also persuaded by the median income numbers because they are supported by related measurements of other magnitudes. For example, another way to study economic growth is to look not at median income but at national income, gdp, or gross domestic product, the total production of goods and services.  Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past. Even more worryingly, he finds that now that we are done exhausting this accumulated stock of benefits, we are discovering new ideas at a speed that will drive a future growth rate of less than one-third of a percent (that’s a rough estimate, not an exact one, but it is consistent with the basic message here). It could be worse yet if the idea-generating countries continue to lose population, as we are seeing in Western Europe and Japan.

I do not hold the view that relative stagnation will last forever, only that it has lasted for thirty-seven years and that it will not end immediately.  Oddly, it is the so-called "economic right" -- which complains bitterly about decades of increasing taxes and regulation and litigation and government privilege -- which finds such a claim hardest to accept.

You can pre-order the eBook; the Amazon link is here, Barnes&Noble here, $4.00.  I offer further information on the book here.

Assorted links

Tyler Cowen

1. Taking a test helps cement your learning.

2. Communist Monopoly game, called Queue.

3. Threats against Francis Fox Piven.

4. "This study may be true but it is hard to know because the study that served as the counterfactual was never able to get published :)" Link here.

5. Why wages are sticky.

6. Markets in everything: human cheese; "soft and spreadable..."

7. Bob Barr, former LP candidate, now representing Duvalier.  Say it ain't so.  It's so!

*Peddling Protectionism*

Tyler Cowen

The author is the excellent Douglas A. Irwin and the subtitle is Smoot-Hawley and the Great Depression.  The book's home page is here.  Excerpt:

The popular perception is that the Smoot-Hawley tariff raised import duties to record levels and helped cause the Great Depression.  In fact, the legislated tariff increase was much smaller than commonly imagined, although it still managed to erase 15 percent of America's imports of dutiable goods upon impact.  For reasons that will be explained, it was the deflation of prices that accompanied the Great Depression that pushed the tariff to near record levels, restricting trade even more...most economic historians do not believe that the Smoot-Hawley tariff played a large role in the macroeconomic contraction experienced during the Great Depression.

It is well known that Doug is hard at work on what will prove to be "the modern Taussig," a history of international trade, and protection, in the context of the rise of the American economy; one assumes that this more focused book will be feeding into the larger whole. 

Has school segregation gone down since MLK?

Tyler Cowen

I received this very useful email from Ken Hirsch:

I looked into the basis for the statement I read on Marginal Revolution that "American schools are more segregated by race and class today than they were on the day Martin Luther King, Jr. was killed". The source that was given did not actually have statistics going back to the 1960s, but the author of the report, Gary Orfield, pointed me to an earlier report, "Brown at 50: King's Dream or Plessy's Nightmare" (http://tinyurl.com/BrownAt50), which did contain a time series for one measurement, "Percent of Black Students at Majority White Schools".  There's a graph of this statistic for Southern black children on the cover of the report which I am attaching to this email.

This statistic is quite problematic. Most starkly, in "majority minority" states, such as Texas and California, this statistic measures the *opposite* of integration.  The more evenly distributed that ethnic groups are in schools, the lower the the number. If all schools in California had exactly the same ethnic make-up, there would be no majority white schools, so 0% of black students would be in them!  Indeed, in Table 11 from this report (p. 27), California is given as the most segregated state by this measure.

The other two measures that Dr. Orfield uses have similar problems. Most of the change in all three are probably caused by the increase in the percent of Hispanics and the decrease in the percent of non-Hispanic whites, not by segregation. By most mathematically sensible measures, segregation has decreased and integration has increased over the last 20 years. See "Measuring School Segregation" by David M. Frankel and Oscar Volij for details: http://www.econ.iastate.edu/research/working-papers/p11808

The original post was here.

Markets in everything

Tyler Cowen

Bosses at Washington's cash-strapped public transportation service are mulling selling "naming rights" for Metro stations as a way of filling a budget gap, a spokesman said Friday.

"We're looking at a possible $72 million dollar shortfall in our budget for the upcoming year, and so we're looking for creative ways to try to close that deficit," Metro spokesman Steven Taubenkibel told AFP.

"One idea would be station naming rights," where corporate entities buy the right to have their brand associated with one of Metro's 86 stations.

There are precedents:

Philadelphia has sold telecoms giant AT&T the rights to a station for $3 million, and Barclays can append its name to a station in Brooklyn, New York after buying the naming rights reportedly for $4 million for 20 years.

In Washington, Metro thinks selling station naming rights will help to raise around two million dollars.

For 86 stations, that doesn't seem very good to me.  The full story is here and for the pointer I thank Daniel Lippman.  There are now jokes like "Big-Macpherson Square" stop and the like.

Assorted links

Tyler Cowen

1. Elevator shame.

2. You are probably less popular than your friends.

3. The decline of American economists.

4. America's most bizarre taxes.

5. Claims about the neurology of music.

6. Nick Rowe makes sense on ZMP workers.

7. "When a billion pianos sound, no one can hear you scream."

8. The rise and decline of Borders.

Crowd-sourced economics department rankings

Tyler Cowen

Greg Mankiw will be happy, so far here is the list.  I have heard of comparable lists for political science and philosophy and perhaps other fields.  In my view the top ten is exactly right, I haven't scrolled through the rest yet.

Structural problems in the U.S. labor market

Tyler Cowen

I don't agree with everything in this piece, by Jim Tankersley, but it is a good overview of why currently high unemployment isn't just about demand (though it is about that too).  Excerpt:

Blinded by low unemployment, lawmakers and economists overlooked two crucial warning signs of the nation’s deteriorating economic health. One was the percentage of working-aged men—the traditional backbone of the U.S. labor force—who held a job. The other was the number of jobs being created each month. Throughout the 2000s, both numbers nose-dived.

From MIT:

[David] Autor is pioneering the research into what he calls the “polarization” of American jobs into low- and high-skill camps, but even he isn’t sure whether his findings explain our national jobs crisis or result from it. “I don’t have a simple answer,” he wrote in an e-mail recently. “I think the prosperity in the 2000s, even prior to the crisis, was quite ephemeral, bordering on illusory. I’m not sure that’s a result of polarization per se. But it is a mystery why the good times ended” at the turn of the century. The completed circle of losses and gains from globalization, he added, is “what is supposed to happen in the long run. But it requires investment, adjustment, adaptation.”

Read the whole thing.  I believe that the prominence and persistence of "demand-only" theorists in the blogosphere (DeLong, Krugman, Sumner, and others) give blog readers quite a skewed picture of the actual debate.

I won't bother to explain the context: Murphy, Krugman, etc.

Tyler Cowen

If you care, you already know the context with p = 0.87.  Bob Murphy writes:

Cowen is right that a sustainable lengthening of the capital structure initially requires a reduction in consumption; what happens is investors abstain and plow their savings into the new projects. But during a central-bank-induced boom, there hasn't been real savings to fund the new investments. That's why the boom is unsustainable, but it also explains why consumption increases at the same time. It's true that this is impossible in the long run, but in the short run it is possible to increase investment in new projects, and to increase consumption at the same time. What you do is neglect maintenance on critical intermediate goods, just as our islanders were able to pull off the feat for a few months.

Krugman's response, which focuses on slightly different issues, is here.  I will say that in the Austrian theory, once the central bank lowers the real interest rate, the increase in investment ought to come from shorter-term processes, such as real consumption.  (That's if you think the interest rate substitution effect is dominant, as the theory implies.)  Capital maintenance is usually a longer-term process and it ought to be encouraged by the lower rates induced by monetary policy.  The employment and liquidity boosts of the boom also might encourage more capital maintenance.

There is of course a literature on the cyclicality of depreciation, capital maintenance, and so on.  Overall it supports my claims, for instance: "In all cases, investment and maintenance are gross complements."  Or see here.  The most careful study I could find, based on Canadian data, shows that investment and capital maintenance move together in the same direction.  This piece argues for countercyclical maintenance expenditures, but not on the basis of any actual evidence.  In any case, how much is capital maintenance as a percent of gdp anyway?  Here is one earlier Canadian estimate of about six percent.  Will variations in that sum -- with conversion time -- be enough to support a consumption boom?  With expanding capital investment, a full employment assumption, and a basic closed economy model?  I doubt it.

Maybe Murphy has a revisionist view of the capital maintenance literature or maybe he would consider those unfair tests, because they are not all embedded in Austrian scenarios.  Still, the burden of proof here is on him and I don't see that he has cited evidence at all.  Comovement remains an embarassing empirical fact for Austrian accounts of the boom.

Stata Resources

Alex Tabarrok

Here are some Stata resources that I have found useful. Statistics with Stata by Hamilton is good for beginners although it is overpriced. For the basics I like German Rodriguez's free Stata tutorial best, good material can also be found at UCLA's Stata starter kit and UNC's Stata Tutorial; two page Stata is good for getting started quickly.

Christopher Baum's book An Introduction to Modern Econometrics using Stata is excellent and worth the price. The world is indebted to Baum for a number of Stata programs such as NBERCycles which shades in NBER recession dates on time series graphs--this was a big help in producing graphs for our textbooks!--so buy Baum's book and support a public good.

I have found it hugely useful to peruse the proceedings of Stata meetings where you can find professional guides to using Stata to do advanced econometrics. For example, here is Austin Nichols on Regression Discontinuity and related methods, Robert Guitierrez on Recent Developments in Multilevel Modeling, Colin Cameron on Panel Data Methods and David Drukker on Dynamic Panel Models.

I found A Visual Guide to Stata Graphics very useful and then I lent it to someone who never returned it. I suppose they found it very useful as well. I haven't bought another copy, since it is fairly easy to edit graphs in the newer versions of Stata. You can probably get by with this online guide.

German Rodriguez, mentioned earlier, has an attractively presented class on generalized linear models with lots of material. The LSE has a PhD class on Stata, here are the class notes: Introduction to Stata and Advanced Stata Topics. 

Creating a map in Stata is painful since there are a host of incompatible file formats that have to be converted (I spent several hours yesterday working to convert a dBase IV to dBase III file just so I could convert the latter to dta). Still, when it works, it works well. Friedrich Huebler has some of the details.

The reshape command is often critical but difficult, here is a good guide.

Here are many more sources of links: Stata resources, Stata Links, Resources for Learning Stata, and Gabriel Rossman's blog Code and Culture.

The wisdom of Katja Grace

Tyler Cowen

She puts together some very good points and aphorisms.  It starts with this:

Do what your heart tells you ‘means ‘stop making up excuses and do what my heart tells you’. ‘Clearly’  means ‘so unclearly I don’t want to explain it’. ‘We’ means different things to those with different political leanings, which helps them disagree.

Aphorisms tend to be cynical because only knowledge you don’t want to believe is short and easily verifiable enough to be an aphorism. People are more inclined to praise long, poorly written writing than short well written ones because it is easier for the former to cheat quality heuristics. Thinking is more fun than reading because it is more like ‘chasing’ than ‘searching‘. It’s interesting that reading isn’t better suited to chasing.

There is much more, read the whole thing.

*Theories of International Politics and Zombies*

Tyler Cowen

That is a new pocket-sized book by the excellent Daniel Drezner and it is indeed about zombies:

It is indeed to neoconservatism's credit that its doctrine is consistent with extant work on how best to respond to the zombie menace.  A war against zombies would, surely, be a war against evil itself.

Here is Dan's preview of the book.  A few days ago a loyal MR reader wrote to me and asked, if I were surrounded by a hoard of zombies, and could have only one weapon to fend them off, what would it be?  The answer is obvious: the rule of law.  Alternatively, a constitutional amendment against zombies.

Assorted links

Tyler Cowen

1. Austin Frakt on why not cut the doc fix?  (How much would the total supply of medical labor fall?)

2. Via Chris F. Masse, why are CEOs so rarely fired?

3. The real agricultural revolution.

4. 44,000 units is now enough to have the #1-selling album.

5. My view of "ACA repeal."

6. On taking oneself too seriously.

Does disability insurance discourage employment?

Tyler Cowen

Jagadeesh Gokhale writes:

Jobs lost during the recent recession caused a deluge of applications to the Social Security Disability Insurance program — more than 6 million each year in 2009 and 2010 — and threw into relief the fact that the SSDI program is structurally unsound.

The current applications surge will accelerate the exhaustion of SSDI's trust fund and will force Congress to have to choose among two unpalatable options — increase SSDI payroll taxes or reduce benefit allowance rates.

But that is not enough. If the particularly vulnerable population the SSDI is designed to serve is to be protected, while preserving incentives to work, the program has to be radically restructured.

Even in normal economic times, those with marginally physical or mental impairments apply in the hope of acquiring disabled status under SSDI. Among those already receiving SSDI benefits, the incentive to return to the work force is very poor.

Revealing one's ability to work, especially if it's in a low-paid occupation, could cause permanent loss of SSDI benefits. Strong work disincentives under SSDI result from its eligibility standard that guides benefit awards: an inability to engage in substantial gainful activity for 12 months or more.

Is this an underreported story?  What's the success rate on coming out of disability and finding a decent job?  What percent of the disabled, permanently unemployed are truly unable to engage in productive work?  I was put onto this question by a tip from Larry Katz.