Monday, July 28, 2014

Big bag of blogs

Adam Smith put forward the basic idea of the stationary bandit vs. roaming bandit applied to India. Basically the Britishers overseeing India who expected to leave again were there primarily to take as much they could get their hands on, while those who had a more permanent interest wanted to invest in the country and make it more prosperous. Trying to get the incentives of the temporaries to align was difficult, in part because of the more permanent leaders didn't understand their own interest perfectly either.

People who lived in East Germany were more likely to cheat than people who lived in West Germany.

Cass Sunstein's (and Sumner's) defense of utilitarianism. The most interesting line for me is this argument:
the enterprise of doing philosophy by reference to such dilemmas is inadvertently replicating the early work of Kahneman and Tversky, by uncovering unfamiliar situations in which our intuitions, normally quite sensible, turn out to misfire. The irony is that where Kahneman and Tversky meant to devise problems that would demonstrate the misfiring, some philosophers have developed their cases with the conviction that the intuitions are entitled to a great deal of weight, and should inform our judgments about what morality requires. A legitimate question is whether an appreciation of the work of Kahneman, Tversky, and their successors might lead people to reconsider their intuitions, even in the moral domain.
Large retail chains give higher wages, mostly because there are a lot more middle-management and support positions.

A description of how people lived in Britain 100 years ago. It makes for a fascinating comparison to show how much living standards have improved.

Why you should probably self-publish.

Friday, July 25, 2014

Why do they matter? Fish and McD's

Pinstrup-Anderson, co-author on my textbook, recently asked what fish have to do with food and nutrition security. He answers that it matters a great deal and recommends a new report by a high-level panel of experts on the subject.
The current debate and the many papers written recently about how agriculture can be made more nutrition sensitive also miss the point.  We should talk about how the food system, including fisheries and aquaculture and the total supply chain, can be made more nutrition sensitive.  If we limit the discussion and policy recommendations to agriculture, we are foregoing some very big opportunities for improving food security and nutrition. ... 
The report, which is available at www.fao.org/cfs/cfs-hlpe or in hardcopy from cfs-hlpe@fao.org, is a goldmine of policy-related knowledge about the fisheries and aquaculture sectors, their importance, sustainability issues, governance and recommended policies for consideration by governments, the private sector, civil society and international organizations. It provides a comprehensive assessment of the interaction between the fisheries and aquaculture sector and food and nutrition security. The report is a must-read for those of us interested in food policy.
Handjiski points out that all of Sub-Saharan Africa only has two countries with McDonald's franchises. Even though countries like Seychelles, E. Guinea, Gabon, Botswana, and good old Nigeria have a higher income than Indonesia, Egypt, Pakiston, or Moldova did when they got their first. He suggests that, since having a McDonald's requires a certain level of infrastructure, entrepreneurship, and access to a large number of ingredients, it can be a development indicator:
In almost 60 percent of cases, developing countries grew [significantly] faster in the five years, compared to the previous five, following the opening of the first McDonald’s. ... What this means is that McDonald’s may be viewed as one of the tipping points for when a country has amassed sufficient urban middle-class, investment security and supply chains for economic take off.
 Speaking of which, there was also a recent article about how Americans' general stupidity with fractions stopped A&W from beating McDonald's Quarter Pounder with a "Third Pounder". People said 3 is less than 4 and therefore 1/3 is less than 1/4. Ouch. In related interesting news, New York states has decided that a burrito is a sandwich for tax purposes.
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Tuesday, July 22, 2014

We need more stats, stat

Tabarrok: Diversified stock portfolios have earned 7% on average, but with a large standard deviation. Even if you follow a buy and hold strategy, almost 70% of the time (more than 2/3) you will get less than 7%. In fact over 30 years, nearly 10% of all portfolios will lose money. The average portfolio return includes a handful of enormously large winners, so that the median return is only 5.1%. As one comment on the post pointed out: "Have you ever heard someone says that when you are young you should invest in stocks because even though they are risky you will have time to cancel out the ups and downs? Sure, you have, even someone as smart as Burton Malkiel has made this argument. Alex’s post shows that this common argument is wrong."

Blattman - Science magazine is now requiring empirical work to pass a statistics editor fluent in your empirical methodology. He notes, and I agree wholeheartedly: "In particular, I think that a 21st century undergraduate degree in social science ought to require fluency in statistics. It’s such a fundamental part of science, medicine, social science, and even reading the newspaper."

Henderson comments on McArdle's post about the choice between a 15-year and 30-year mortgage: 
"If you expect higher inflation in the future and you expect that inflation to stay at that higher level, that argues for the 30-year mortgage over the 15-year mortgage because the 30-year mortgage leaves more principal for inflation to whittle away. Other than a handful of gold coins, I have few good inflation hedges. My fixed-interest-rate loan is one of them. The more slowly I pay it off, the longer I keep my inflation hedge."
Goldstien - Benford's Law tells us that the first digit in a lot of numbers is more likely to be a 1 than a 9. Goldstien tells us how to use that information to double-check the survey information we have gathered. A comment usefully adds: "There is also a Stata package called firstdigit that will run Benford's Law tests for you: http://ideas.repec.org/c/boc/bocode/s456842.html."

Monday, July 21, 2014

Inequality and income support

Villarreal, Francisco (2014). "Monetary Policy and Inequality in Mexico," MPRA Paper 57074.
What happens to household income inequality when there is an unexpected increase in interest rates? "Monetary policy shocks are identified using a structural model, and inequality is measured from household survey data. Then the effect of shocks on inequality is evaluated using a time–series model." Earlier work on the US finds that an unexpected increase in interest rates increases inequality. In Mexico he finds that inequality decreases because median hourly wages drop and workers don't increase labor enough to make up for it, but this effect only lasts for about two years.

Sumner argues in a lot of places that we should focus much more on consumption inequality than on income or wealth inequality; even though the three should be correlated, it's actual standards of living we should be worried about. Oddly enough, then
The correct response to economic inequality (from utilitarian perspective) is to abolish all taxes on capital income, and institute a progressive consumption tax.
Unfortunately, most of the Piketty supporters seem to think it's better to have lower tax rates on a wealthy person who devotes his wealth to riotous living, as compared to a wealthy person who is thrifty, putting the money into capital formation, charity, and/or his children's welfare. I have yet to see a persuasive justification for this bizarre policy preference.
If what we're really concerned about, then, is increasing incomes for the bottom, how do you do it? Economists are best at telling us how not to do it. One example I am likely to mention in my intro macro class next semester from Carden tries to remind people of what is not seen when we choose to pay more to buy American. The broken window fallacy as seen in socks. Meanwhile, here are some comments on a universal basic income, none of which are very satisfying to me but at least it's being discussed.

Jobs in Africa

The African Economic Outlook (here) came out this month. It predicts continued 5% growth overall, with about 7% in the west and only 3-4% in the north and south. For Nigeria, and my former students should pay attention, it points out that most of that growth is NOT in the oil sectors: agriculture, trade, and ICT growing fastest. It also advises countries to invest more in the value added industries. Given that the vast majority of my intro economics students and even the people on the street in Nigeria not only could but did tell me the same thing on multiple occasions, I'm less impressed. It's a right answer, of course, but more needs to be done to identify why it isn't happening when everyone already knows it's the right answer and to take the political economy more seriously.

Oh, and as an aside, take a look at this graph from the AEO:
I could be wrong, but I don't think that's how gears work. The bottom two would turn just fine, but the Human Rights gear is pushing the Unequal Access gear counter-clockwise while the Exclusion gear is pushing it clockwise. From a graph standpoint, this undermines the presumed point that each of them exacerbates the others. It suggests maybe that a poor human rights record makes unequal access not as bad, or that unequal access improves human rights...

Teal argues that the increase in education supply in Africa is a good thing, but only provisionally. The question is: why is more education good? It's good from a human rights/development perspective, clearly. But whether increased education will bring people out of poverty depends in part on whether or not there are jobs available that demand the increased skills.
"Without the factories the dramatic increase in the primary educated work force will indeed see little economic gain from their education. The recent increases in the demand for education beyond the primary level certainly suggests that both students, and their parents, are aware that low levels of education have little value in the job market place. Focusing on meeting that demand rather than focusing on why that demand has arisen may well be to miss the critical problem facing educational policy in Africa."
One of the informal jobs I saw often in Nigeria is that of the porter. People, usually boys, wandered the Jimeta market with wheelbarrows, offering to carry my purchases. The Sudanese government, however, has decided that it is in the public's interest to create a monopoly on wheelbarrows in Khartoum. Porters are not allowed to own their own wheelbarrow, but must rent them at high fees, ruining what little income they were getting from a pretty thankless job.

El Alaoui, Aicha, Elhadj Ezzahid, and Jallal Eladnani (2013). "Estimating NAIRU: The Moroccan Case", MPRA Paper No 56815.
In intermediate macro we are introduced to the Non-Accelerating Inflation Rate of Unemployment (NAIRU). The idea is that if the level of unemployment is lower than NAIRU, you can expect inflation to increase, and to decrease if unemployment is higher. They estimate that the NAIRU has decreased from around 13% in 1998 to about 9% today. There is no explanation for why this happened and the policy conclusion - Morocco needs looser monetary policy based on the fact that the unemployment rate was consistently higher than NAIRU - does not capitalize on the fact that inflation has been remarkably low and sometimes negative since late 2009 or discuss the bank's mandate, goals, or governance.

Friday, July 18, 2014

Pez Romana - the value of markets

Way back in the time of the dinosaurs, my parents had a problem. My brother and I had birthdays fairly close to each other and always wanted to play with the other guy's toys. The solution they came up with was to give me a present on his birthday and him a present on my birthday. This at least reduced the sibling rivalry. We instituted this too, once Econolad was old enough to need it.

This year I was super sneaky. Econolad and I had just started watching Star Wars for the first time and he likes C3P0. I got him a Threepio Pez dispenser, recognizing that he might not like the candy (which he doesn't much).

I explained to him that  this was a useful present. His sister, you see, not only loves all things edible, but the #1 way she shows she loves someone is to share her food or ask you to share your food. I told Econolad he could offer to share one of his Pez candies if she would share a toy with him.

The best is that it works. She is willing to trade some, but not all, of her toys and has the ability to say no if his deal isn't good enough. They each feel loved from each other and are happier with the transactions than otherwise. Prices have tended to stay at one candy for renting a beloved toy for 2 hours, but she has sometimes held out for better terms of payment (now vs. later) or rental length.

The other best part is ... markets are great! As an economist I am very geekily happy every time they bargain and see that creating a market has restored peace to our home. 

Friday, July 11, 2014

Lit in Review: Nigerian Agriculture 3

(This post was started October 2011 and never finished. Let's get it out and done.)

Eze, Kwonko, Orebiyi, and Kadiri, "Land Tenure System, Farm Size, innocation, and Agricultural Productivity in South-East Nigeria"

From the abstract: "The laws of inheritance and increase in population led to the subdivision and fragmentation of existing farmland in such a manner that the sizes of farm holdings discouraged agricultural commercialization. ... It was also shown that mechanization of agriculture was impracticable under land fragmentation." They conclude that farmer cooperatives would consolidate fragmented farms, reducing time and energy waste and allowing more modern innovations and mechanization to improve efficiency and production.


What I learned from reading the Marginal Revolution magazine

(This post was written April 2013 and I'm not sure why it wasn't posted then)

I've been interested by the occasional posts by people who read a magazine cover to cover, then report on what they learned. These couple next posts are based loosely on that idea. I've been thoroughly busy and stressed this semester without much time for semi-curricular reading, which means the posts have been piling up in my reader.

While our NUC accreditors were at AUN, though, I needed to be on-call to answer questions. Completely unable to concentrate on research writing, I did a lot of reading. Below are a few of the things I learned reading every post from a few weeks' worth of Marginal Revolution:

Lit in Review: Money in India, Africa, and helicopters

Gupta, Abhijit and Rajeswari Sengupta. 2014. "Is India Ready for Flexible Inflation Targeting?" , Indira Gandhi Institute of Development Research Working Paper, June 2014.

The standard intermediate macro take has been to encourage some form of flexible inflation targeting or Taylor rule approach. In developing countries, however, financial systems are less well-developed which makes the lags between data, policy, and outcomes more troubling and, because food prices form a much larger portion of the price basket, if most central banks had responded to the recent food price spikes by sharply tightening the money supply the results would have been dire. India has followed a "multiple indicator approach" since 1998 that focuses more on stable interest rates and exchange rates, but also uses money, credit, output, trade, capital flows, government debt, and the inflation rate. The lack of a single policy rate reduced the clarity of signals sent to the market and introduced (predictable) variance in other variables, however, so in 2011 the RBI officially focused on the weighted average overnight call money rate.

Gupta and Sengupta estimate a Taylor rule for India using 90-98, 98-04, and 04-13 data. Inflation matters less and less for policy making, particularly in the last period that includes the food price spike - albeit the Wholesale price index (WPI) matters more than the CPI. They also estimate exchange rate stability, monetary independence, and capital account openness over time (the impossible trinity) and show that exchange rate stability has much less weight today than it did even as recently as 2000 when it was the primary goal. The increased monetary independence this bought indicates it would be more possible than in the past for India to follow some kind of Taylor rule.

Buiter, Willem. 2014. "The Simple Analytics of Helicopter Money: Why it Works - Always" Economics, Discussion Paper 2014-24.

Milton Friedman called a permanent increase in the money supply a "helicopter drop." It turns out that Quantitative Easing (QE) fits that description so long as people believe the Fed is not likely to sell off its assets. Buiter cites other research that says helicopter drops might successfully increase aggregate demand, but they also might fail. He then demonstrates that there are three conditions for this to always boost aggregate demand: 1) people want cash for reasons other than earning more money (ie - people value cash even when there is modest inflation because we use it as a medium of exchange); 2) the price of money is positive; 3) cash is irredemable (ie - it's not a liability for the government and not backed by gold). He claims it was failure to consider this last condition that led to the erroneous idea that helicopter drops would not increase AD. (PS - that picture is really not fair to our former Chairman, but it's entertaining.)

Asongu, Simplice. 2013. ''A note on the long-run neutrality of monetary policy: new empirics", MPRA Paper 56796 and AGDI Working Paper WP/13/032, posted 23 June 2014.

Money is neutral in the long-run in Africa too.

As it should be.

Thursday, August 29, 2013