Month: September 2022

Will Putin use nuclear weapons?

by  Tyler Cowen in

Here is the entire thread.

“Religious Festivals and Economic Development”

by  Tyler Cowen

The article subtitle is “Evidence from the Timing of Mexican Saint Day Festivals,” and the authors are Eduardo Montero and Dean Yang.  Here is the excerpt:

Does variation in how religious festivals are celebrated have economic consequences? We study the economic impacts of the timing of Catholic patron saint day festivals in Mexico. For causal identification, we exploit cross-locality variation in festival dates and in the timing of agricultural seasons. We estimate the impact of “agriculturally coinciding” festivals (those coinciding with peak planting or harvest months) on long-run economic development of localities. Agriculturally coinciding festivals lead to lower household income and worse development outcomes overall. These negative effects are likely due to lower agricultural productivity, which inhibits structural transformation out of agriculture. Agriculturally coinciding festivals may nonetheless persist because they also lead to higher religiosity and social capital.

My n = 1 experience in San Agustin Oapan (Guerrero, Mexico) is strongly consistent with this hypothesis.  Another factor is that the most talented individuals in the village typically are selected to fulfill leadership and ceremonial roles at the festivals, and that costs them a good deal of money (they are expected to pick up the expenses).  Those are precisely the individuals who might start small businesses and otherwise undertake beneficial commercial activities, but now they are starved of liquidity.

My podcast with Dwarkesh Patel

by  Tyler Cowen

Dwarkesh writes me:

“Your interview for The Lunar Society is out! Extremely fun & interesting throughout!!! Thank you so much for your time!
Watch on YouTube. Listen on Apple Podcasts, Spotify, or any other podcast platform. Read the full transcript at the episode website.
 
Here are some…quotes from the interview:

Dwarkesh Patel   Somebody comes in, and they’re very humble.Tyler Cowen   Immediately I’m suspicious. I figure most people who are going to make something of themselves are arrogant. If they’re willing to show it, there’s a certain bravery or openness in that. I don’t rule out the humble person doing great. A lot of people who do great are humble, but I just get a wee bit like, “what’s up with you? You’re not really humble, are you?”…Tyler Cowen   But we’ll be permanently set back kind of forever. And in the meantime, we can’t build asteroid protection or whatever else. It’ll just be like medieval living standards: super small population, feudal governance, lots of violence, rape. There’s no reason to think like, oh, read a copy of the Constitution in and 400 years, we’re back on track. That’s crazy wrong…

Dwarkesh Patel   What do you think podcasts are for? What is happening?Tyler Cowen   To anaesthetize people? To feel they’re learning something? To put them to sleep. So they can exercise and not feel like idiots. Occasionally to learn something. To keep themselves entertained while doing busy work of some kind.”

Recommended.

Will a nuclear weapon be launched in combat by the end of 2023?

by  Alex Tabarrok

This prediction is from Manifold Markets. Metaculus gives similar odds to a similar question. These are serious predictions.

In a 2019 post I pointed out that expert surveys (not markets) suggested the annualized probability of a nuclear war was on the order of  ~1%–and I thought that was worryingly high. We are now at ten times that level. This is very, very bad.

USA (Sweden) fact of the day

by  Tyler Cowen in

Middle-age mortality increases among non-Hispanic Whites from 1992 to 2018 are driven almost entirely by the bottom 10 percent of the education distribution.

Here is the newly published paper, by Paul Novosad, Charlie Rafkin and Sam Asher (AEA gate).  In another new paper, by Randi Hjalmarsson and Matthew J. Lindquist, being sentence to extra time in a Swedish prison is good for your health.

Why energy price policy is hard

by  Tyler Cowen in

That is the topic of my latest Bloomberg column.  The core problem is that if you let prices go up “too much” (i.e., to where they ought to be), many people will stop paying their bills.  We don’t in fact have the political economy in place to enforce the wealth transfer to the public utility:

You might think, as I do, that utilities should take a relatively tough stance on delinquents. Still, the realities of politics can intervene. By one estimate, Truss’s plan would lead to average energy bills of £2,500, compared to £3,548 with no plan.

That is quite a difference, and many people might have trouble paying the higher amount. They might be able to pay more, but at what cost? Fewer pub visits? No satellite TV? Would people in fact choose such austerity? Customers know that if enough of them do not pay their bills, it would be very difficult to cut off service to such a large part of the electorate, especially with winter approaching.

By way of comparison, consider the current water crisis in Jackson, Mississippi. The town’s water utility is undercapitalized, and almost one-third of customers are behind on their bills . About one-sixth of customers are not even receiving bills. Yet it would be politically unfeasible for Jackson’s elected officials to cut off all those users, regardless of whether it would ultimately be more humane.

The fact is, it’s not always possible to increase prices. Especially if you are unable to collect any payment at all from many customers.

The problem is worse yet. Once customers are in the habit of not paying their utility bills, it gets harder to collect payment, even if future prices are much lower. Customers might expect the no-payment-necessary regime to continue, and to organize with that goal in mind. This is a common problem in lesser developed nations.

I do not favor the extensive UK energy subsidies, which unduly distort relative price signals, but they have to be understood in this context.  Their net cost, relative to the alternatives actually on the table, is not nearly as large as it looks.

Wednesday assorted links

by  Tyler Cowen

1. The end of senior politics in China?

2. A prediction market on prediction market approval.

3. New genetic results on ASD and ADHD overlap.

4. Redux: my 2017 post on Putin and Nord Stream.

5. New Brink Lindsey Substack.  And new Sam Hammond Substack.

6. “Contact queuing on the Kazakh border for the second day says that locals have a business where they get two cars in the queue and then let people cut in between them. Selling spots for $500 and can do as many as they want. “So you get why I’ve been here two days,” he says.”  Link here.

Open the Skies!

by  Alex Tabarrok in

Here’s a list of the world’s top ten airlines:

  1. Qatar Airways
  2. Singapore Airlines
  3. Emirates
  4. ANA (All Nippon Airways)
  5. Qantas Airways
  6. Japan Airlines
  7. Turkish Airlines
  8. Air France
  9. Korean Air
  10. Swiss International Air Lines

The airlines in this list have at least two things in common: None of world’s best airlines are US owned and none of them are allowed to operate domestically in the United States. The two common elements are related because so-called “cabotage laws” prohibit foreign airlines from serving domestic travelers.

Imagine what international travel would be like if you could only fly on a US owned airline? Ok it’s not that hard to imagine. Restricting international flights to domestic airlines would make international travel much more expensive and more inconvenient. The US State Department rightly lauds the Open Skies Agreements that have brought competition to international flights:

Since 1992 the United States has pursued an “Open Skies” policy designed to eliminate government intervention in airline decision-making about routes, capacity, and pricing in international markets…Open Skies agreements expand cooperative marketing opportunities between airlines, liberalize charter regulations, improve flexibility for airline operations, and commit both governments to high standards of safety and security.  They are pro-consumer, pro-competition, and pro-growth, and facilitate countless new cultural links worldwide.

True! But US domestic flights fly on Closed Skies. Europe has opened up competition to all European airlines. Indeed, Europe is also substantially open to US carriers, but the US is closed to foreign carriers for domestic flights. Cabotage laws are, in effect, a Jones Act for the airlines.

In an good review, Scott Lincicome summarizes:

Europe’s deregulatory experiences—and our own—show that nixing cabotage restrictions would not only put additional downward pressure on fares but also likely improve route coverage and maybe even customer service.

Sadly swept from the headlines

by  Tyler Cowen in

Cost estimate, we hardly knew ye:

Joe Biden’s plan to cancel up to $20,000 in student loan debt for federal aid borrowers is expected to cost about $400 billion, according to the Congressional Budget Office...

About 95% of borrowers meet the criteria for forgiveness and about 45% of borrowers will have their balances completely wiped out, the CBO said.

Here is the full story.

The economy that is British

by  Tyler Cowen in

Risk of British default has not gone up.  Real interest rates are up.

To be clear, I don’t envy their current macroeconomic situation.  But again, the talk of how terrible this is seems much overblown to me.

Now you might be wondering how the five-year break even rates can be so well behaved.  Well, here is a dirty little secret: there is much less stimulus in the Truss plan than people are claiming.

I don’t mean to pick on Josh Barro, of whom I am a huge fan, but his pithy summary is so clear it allows me to summarize some of my disagreements on these issues.  Here is one excerpt from his Substack:

It’s a huge fiscal stimulus at exactly the wrong time. Truss is proposing over £160 billion of deficit-increasing policies over the next five years. To give you a sense of scale, since the US economy is approximately eight times the size of Britain’s, the equivalent would be if we implemented an additional $1.4 trillion, five-year stimulus package.

I agree this is expenditure, but by no means is all or even most of it “stimulus.”  As Josh notes, the energy price subsidies are the biggest part of this announced plan.  I am against that policy, but it is trying to absorb a contractionary shock rather than being stimulus per se.  The Truss plan is transferring much of that higher energy cost from the private sector to the public sector.  The real cost involved is mostly the preexisting problem from the higher cost of energy, which now is on the government’s books to an increasing degree.  Many people are speaking of that as “a cost of the Truss plan,” which it is in terms of nominal flows but not nearly as much in real resource terms (I would admit and indeed stress that the plan distorts relative prices, which is a big part of my objection to it).

That is probably one reason why the five-year break-even rates for the UK generally have been falling, not rising.

Then there are the tax cuts for the wealthy.  But those too are (mostly) not stimulus.  Dare I make a…Barrovian argument?  If you cut taxes, hold spending constant, and the tax cut recipients save most of that money, that satisfies the Barrovian neutrality theorem.  That also isn’t stimulus.  (Obviously government spending isn’t constant, but the main boost in spending, as discussed immediately above, is not itself net stimulus but rather a funny inefficient transfer that still leaves a net contractionary force partly in place, namely higher energy prices.)  You might object to the tax cut policy for distributional or other reasons, but you shouldn’t add it to “the stimulus pile.”  At least not most of it.  Furthermore, you can buy this argument without accepting the (Robert) Barro analysis for more general settings.

Again, people think there is much more “stimulus” in the new plan than there really is.