Month: August 2006

China fact of the day

by  Tyler Cowen in

Or is that India fact of the day?

China invests $7 on roads, ports, electricity and other backbones of a
modern economy for every dollar spent by India and it shows.  Ports here
[in India] are struggling to handle rising exports, blackouts are frequent and
dirt roads are common even in Bangalore, the center of the country’s
sophisticated computer programming industry.

Here is the full story — recommended — on India’s rapid but bumpy rise as a manufacturing power.

Matt Yglesias could be the Gilbert Arenas of libertarianism

by  Tyler Cowen in

If only he wanted to.  Matt writes:

I actually think I am pretty cynical about government.  I’ve learned a lot from my various libertarian friends, from my seminar with Robert Nozick, from libertarian blogs, etc. and I think public choice economics is a very important perspective.  The upshot of this is that, as a general matter, I’m considerably less enthusiastic about regulatory solutions to policy problems than are most liberals.

Sadly, though, the upshot of my libertarian-infused cynicism has mostly been to push me left of where I used to be on domestic policy issues.  It’s cynicism about government and the political process that, for example, has made me much more enthusiastic about labor unions and much more hostile to means-testing entitlements than I used to be.  If I believed that the deliberative democracy people weren’t naive fools, I’d be much more sanguine about various "third way" approaches to things.

Matt is probably the closest I will ever get to thinking I could be a Democrat.  But I am not sure what he is favoring in his post. 

One view is that a once-and-for-all change favoring labor unions would produce a stream of ongoing benefits greater than we could achieve through smaller piecemeal government interventions.  On empirical grounds I am skeptical of our ability to manipulate the union participation variable in a very useful way, and that is assuming I were to like labor unions more than I do (I do like them somewhat; I am not a union-basher, but I am not nearly as keen on unions as Matt.)  Union participation varies largely with whether "unionizable" sectors of the economy expand and contract.  Clearly we are headed away from labor unions as manufacturing shrinks as a percentage of gdp.

Another view, not excluding the first, is that Matt has abandoned Rawls’s "publicity condition."  That is, he is willing to advocate policies he knows to be bad, out of fear that they prevent a political tidal wave.  Means-testing Medicare, for instance, might lead the whole system to lose favor and collapse.  Therefore we shouldn’t means-test, even if the idea taken on its own terms has merit.  I don’t dismiss this possibility.

If Matt is willing to admit I am right about unions (I am pretty sure about that one), I am willing to call the other question a draw.  Deal?

Addendum: Here is Matt’s new book-to-be.

Economics and the Law

by  Tyler Cowen in

That is a new revision of the book by Nicholas Mercuro and Steve Medema; here is chapter two.  Here is a book description. 

Elsewhere from Princeton University Press, here is the first chapter of Philip Tetlock’s wonderful book.  Thanks to www.politicaltheory.info for the pointers.

Addendum: Not from PUP, here is a new Daniel Drezner book on trade, completely on-line.

Markets I will bet against

by  Tyler Cowen in

Blurb.com, a self-publishing startup, will invite 600 bloggers this week to test out its new service by creating a free bound copy of their blog.  It’s a fresh shot across the bow to traditional publishers in an industry already facing disruptive changes from digital giants Google and Amazon.

Here is the story.  Not every blogger book has been a big hit, in part because the two media are so different.  Blogs are sequential, rely on daily freshness, an ability to send around links, and they are best consumed in small bits.  A snarky bit which is excellent in a daily blog cannot be repeated verbatim in a book, especially not every fourteen pages.  Translating good blog ideas into book format is best done by people who…have experience writing books, or who have journalistic experience, not by people who have large staplers.

The most suprising two paragraphs so far today

by  Tyler Cowen in

“How tall your parents are compared to the average height explains
80 to 90 percent of how tall you are compared to the average person,”
Dr. Vaupel said. But “only 3 percent of how long you live compared to
the average person can be explained by how long your parents lived.”

“You
really learn very little about your own life span from your parents’
life spans,” Dr. Vaupel said. “That’s what the evidence shows. Even
twins, identical twins, die at different times.” On average, he said,
more than 10 years apart.

Here is the full story, which is interesting throughout.  But of course the day is young, and I haven’t seen Bryan, Robin [Hanson], and Alex yet…

Are free capital movements a good idea?

by  Tyler Cowen in

The standard line is that Chile and China have avoided crack-ups — of the sort that plagued Thailand, Indonesia, and Argentina — by restricting the free flow of capital in and out of their country.  Kenneth Rogoff and co-authors now offer a very serious 92-page look at whether such views are true.  Their conclusions include:

The majority of empirical studies are unable to find robust evidence in support of the growth benefits of capital account liberalization. However, studies that use measures of de facto integration or finer measures of de jure integration tend to find more positive results. More importantly, studies using micro data are better able to detect the growth and productivity gains stemming from financial integration.

There is little formal empirical evidence to support the oft-cited claims that financial globalization in and of itself is responsible for the spate of financial crises that the world has seen over the last three decades.

The conceptual framework we present suggests that in addition to the traditional channels (e.g., capital accumulation), the growth and stability benefits of financial globalization are also realized through a broad set of “collateral benefits”…These collateral benefits affect growth and stability dynamics indirectly, implying that the associated macroeconomic gains may not be fully evident in the short run and may be difficult to uncover in cross-country regressions.

How does the argument here work?  First, liberalization tends to bring growth, which offers long-term protection against crises.  Banking crises tend to be more disruptive than currency crises and also tend to precede them; free capital markets are not usually at fault in those cases.  Plenty of countries with capital controls have gotten into big messes.  Macro-volatility has been declining as the world has become more integrated in terms of capital flows.

I wish this piece had looked at the (supposedly?) negative instance of free capital movements more closely, but still it shifted my priors [correction: posteriors] on the issue.

Blogs which give our lives meaning

by  Tyler Cowen in

Here is the blog, here is the premise:

From August 28, 2006 through August 27, 2007, I’m going
to buy (at least) one…superfluous item, use it, and then write
about it.  What made me want to buy it?  How did it feel to give someone
money, and take a product in exchange?  What will the workers think of
me?  If it’s food, what will it taste like?  If it’s a product, what will
happen when I use it for the first time?  What kind of feeling will I
get when I plug it in, charge it up, and turn it on?  [Judith] Levine calls her
experience "voluntary simplicity."  I’ll call mine "conscious
consumerism."

…Since today is the first day of my year of superfluous shopping, I
decided to kick off the experiment by purchasing the book that inspired
me: Judith Levine’s Not Buying It: My Year Without Shopping. 
It’s hard to think of something less necessary than a book about why
it’s good to stop shopping.  For that reason, and because I felt I
should be familiar with and understand Levine’s work if I’m going to
fully understand my own, I made this book the first purchase of the
year.

The public library is my version of this idea, the price is free, and the blog is called MarginalRevolution.com. 

Does the youth dependency ratio drive economic growth?

by  Tyler Cowen in

Jane Galt and Malcolm Gladwell have a tiff. 

Gladwell, citing David Bloom and David Canning, suggested that changes in the "youth dependency ratio," account for a big chunk of Irish economic growth.  The youth dependency ratio refers to how many young-uns require support, relative to the broader population.  The Irish legalized contraception in 1979, birth rates continued to fall, and later the economy boomed.  But is the connection a causal one?

Here is a basic argument and model that the youth dependency ratio can matter.

I can see three possible mechanisms.  1) Fewer babies mean that more women work.  2) Fewer babies mean that each baby gets more parental investment; in the long run those people are smarter.  3) Fewer babies raises the savings rate.

Which of these might have operated in Ireland? 

On Mechanism #1, Irish women still work much less than the OECD average, yet Ireland is wealthier than almost anywhere else in Europe.  If a theory of growth first postulates a big or dominant effect, and then predicts rates but fails when it comes to predicting levels, I worry.

If we look at "rates of growth" only, this estimate suggests that more Irish female labor accounts for 1.5 percent Irish growth a year.  That hardly covers the growth gap between Ireland and the rest of Europe.  One estimate of elasticities suggests that an extra kid lowers an Irish woman’s chance of working full-time by 11.3 percent, but raises her chance of part-time work by 7.7 percent.  How far does that get us?  Bloom is a renowned labor economist but his article is far from state of the art macroeconomics.  Do note that increases in "total factor productivity" — often driven by foreign investment — seem to be more important than "growth in labor inputs" by a three to two ratio.

It ought to be easy to show evidence that the Irish boom has been strongest in the sectors where women work the most, such as services and not manufacturing.  I can’t find that evidence, can my readers?

Mechanism #2 is for the long run and it cannot explain the Irish boom of recent times or the timing of its possible connection to contraception.  Higher skills are a big part of the Irish story, but the trend started in about 1967. 

Mechanism #3: In Ireland, since the mid 1970s, gross private savings rates have been falling, more or less.  More generally, time series models for a single country, including demographic ones, don’t predict savings rates very well.

These studies I am citing have their defects, but they do show that the overall question is not so simple.

Notes:

1. These graphs show that, for developing countries, the change in the youth dependency ratio has "eyeball power" for 1975-1990, but not for 1960-1975. 

2. This study of Asia suggests that the youth dependency ratio matters, often through the savings rate (not the Irish scenario); the entire story is conditioned by "institutional factors."

3. Latin America has had falling birth rates but has failed to cash in.  As Bloom stresses, favorable birth rates help only if the country has good policies for putting the new female workers into productive positions.  In this regard Galt and Gladwell may not be so far apart.

The bottom line: How much of the Irish boom is caused by the change in the youth dependency ratio?  I don’t know.  If I had to offer a "I’m just a poor lil’ ol’ blogger but I’ve read lots of real business cycles macroeconomics simulation papers" seat of the pants sort of estimate, I would opt for a maximum of 15 to 20 percent.  That’s certainly worth writing about, but it is not the major story either.  I’d like to see a sectoral decomposition analysis, and I suspect that would point our attention toward FDI, education, and a favorable tax regime as bigger factors.

Addendum: Malcolm adds more.

Lynne Munson reviews my book

by  Tyler Cowen in

She covers Good and Plenty: The Creative Successes of American Arts Funding, in The Weekly Standard.  Here is the link, which offers only a bit of the review to non-subscribers.  Here is an excerpt from the critical part of her review:

…few critical observers would agree that contemporary American art has put its best work forward in recent decades, when our artists and art institutions have enjoyed more riches than at any other time in history.  Contemporary American artmaking has been monopolized for nearly a half-century by postmodernism, a politics-obsessed formulaic approach that has yielded such shock-art masterpieces as Andres Serrano’s Piss Christ (which finds itself in numerous museum collections).  Artists who do not work in the postmodern mode are excluded from museum exhibitions and the best galleries.

Of course, no better can be said of the products of the European art world, whose denizens have, at best, striven to vie with their postmodern American counterparts for the prize of Most Shocking.  But to argue, as Cowen does, that "the American model encourages artistic creativity [and] keeps the politicization of art to a minimum," is to be unaware of how narrow and prescriptive American artmaking has become.  The simple fact is that artmaking in America has been taken over by a single bad idea, despite the ample and diverse funding it receives.

Her last sentence is a good illustration of how two people can look at the same facts and see such very different patterns.

China market(s) of the day

by  Tyler Cowen in

From A Singapore Economist:

Chinese officials have decided to crack down on the practice at some
rural villages of hiring strippers to perform at funerals.  The practice
is intended to attract more attendees to funerals because many people
believe that a greater number of people improve the deceased’s chances
for better afterlife.  They also think that more people bring luck to
the survivors as well.

Ah, but a new market has sprung up in its place:

Local officials [have been] told they must submit plans for funerals
within 12 hours after a villager dies.  Exotic dancing is off the menu –
and residents can report “funeral misdeeds” on a special hotline for a
reward of USD $35.

Everybody Coffins

by  Tyler Cowen in

Caterina reports:

Everybody Coffins produces coffins that are easy to assemble without tools, IKEA-style, and ship flat easily. They’ve built them for emergencies, but I think they will probably see another big market from people who want economical coffins, unlike those gilt mahogany extravaganzas that funeral homes try to push upon the bereaved.

Don’t think the lower-middle class is being denied the benefits of economic growth.

If you prefer a more modern look, here are coffins designed to look like sleek cocoon-like pods, made out of soy and jute.  They decompose in fifteen years.

Why People Die By Suicide

by  Tyler Cowen in

The studies on those who attempt suicide multiple times and on the vigorous association between past and future suicidality (even accounting for "kitchen sink" variables) are consistent with the view that people habituate to self-injury and thereby gain the ability to enact increasing severe suicidal behaviors.

That is the main argument of Thomas Joiner’s Why People Die by Suicide.  Here is the book’s home page.  Here is an excerpt.  Here is a summary.  By the way, athletes, who are used to harming themselves, commit suicides at relatively high rates.

The traditional economic approach compares the costs and benefits of staying alive, with option value thrown in for good measure.  It seems more realistic to treat people as having periodic suicidal urges, but (fortunately) usually lacking the capability to execute those urges.  Why some people find reason to work their way "up the ladder" of capabilities is the next question.  Perhaps the mechanisms behind suicide have more to do with employment, and with economic growth, than we used to think.  Rather than making an analysis of suicide more like modern economics, should economics become more like the theory of suicide? 

More people die by suicide in New York City than are murdered; here are twenty facts about death.  Have I mentioned?  It seems to be "Death Day" over at MarginalRevolution this lovely Tuesday…