Subscribe: EconLog
Added By: Feedage Forager Feedage Grade B rated
Language: English
american  cash  economic  gold mine  gold  jobs  mine  people  point  prices  rogoff  stigler  terrorist  time  war  world 
Rate this Feed
Rate this feedRate this feedRate this feedRate this feedRate this feed
Rate this feed 1 starRate this feed 2 starRate this feed 3 starRate this feed 4 starRate this feed 5 star

Comments (0)

Feed Details and Statistics Feed Statistics
Preview: EconLog


Last Build Date: Tue, 22 Aug 2017 18:01:10 -0500

Copyright: Copyright 2017

Never say never, by Scott Sumner

Tue, 22 Aug 2017 18:01:10 -0500

I've been extremely critical of the Trump administration, but if the following Politico story is true it could be a very good sign going forward:

President Donald Trump's top aides and congressional leaders have made significant strides in shaping a tax overhaul, moving far beyond the six-paragraph framework pushed out in July that stoked fears about their ability to deliver on one of the GOP's top priorities.

There is broad consensus, according to five sources familiar with the behind-the-scenes talks, on some of the best ways to pay for cutting both the individual and corporate tax rates.

The options include capping the mortgage interest deduction for homeowners; scrapping people's ability to deduct state and local taxes; and eliminating businesses' ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities.

The article says there are still lots of hurdles to overcome, but this is actually more than I expected.

People often say, "the mortgage interest deduction will never be removed". I've learned over time that when it comes to politics one should never say never. (There was a time when I thought gay marriage would never be approved.)

Given the structure of our tax system, and the way it evolves over time, even just capping the mortgage interest deduction would likely be the first step toward repeal, if it happens. And ending the deductions for S&L taxes and business interest are even bigger wins.

Why is progress now possible? I see this as the GOP's revenge against the blue states, which benefit far more than red states from the deductibility of mortgage interest and state income taxes. (Compare California and New York with Texas, for instance.) Perhaps it's not the best of motivations, but the result would be a dramatic improvement in our tax system, and an economy that moves away from debt and toward equity financing of investment. And that would make another 2008-style financial crisis less likely. (Equity crises like the tech bubble collapse of 2000-01 do far less damage to the financial system.)

Still a long way to go, but this is a good sign given that the Treasury Secretary had previously opposed some of these changes.


The Curious Absence of American Emulationists in the Third World, by Bryan Caplan

Tue, 22 Aug 2017 14:59:06 -0500

After World War II, virtually every Third World country had a major political faction that looked on the Soviet Union as a model society.  What path should their nation take?  The answer was obvious: Emulate the Soviet Union.  With minor allowance for local conditions, they sought to copy Soviet institutions and policies.  Despite the fiery anti-colonial nationalism of the day, members of the Third World's pro-Soviet factions happily publicized their desire to follow in the footsteps of a foreign land - even putting a string of Europeans - Marx, Engels, Lenin, Stalin - on their banners.

You could say, "Of course they did.  It was the Cold War.  Every Third World country was debating which alliance to join."  But there's a stark asymmetry.  While most Third World countries had a faction that wanted to ally with the U.S., few had factions that emphasized their desire to emulate the United States.  You could say that many in Western Europe and Japan wanted to model their societies after the U.S., though even that's a stretch.  As far as I know, the Christian Democratic parties of Germany and Italy never anointed the United States as the Promised Land.  But in the Third World, it's hard to think of any major political parties that held the U.S. up as an ideal.  For example, the governments of South Korea and South Vietnam angrily rejected the Soviet path, but their alternative was independent nationalism, not Americanism.

Personally, I think post-war U.S. institutions and policies were often bad.  But it still seems like American emulationism should have had great psychological appeal at the time.  Compared to the rest of the world after World War II, the U.S. looked absolutely fabulous: rich, strong, tranquil, and safe.  You'd think that anyone from a newly independent country who visited the U.S. would say, "The Americans have their act together.  Wouldn't it be great if we could make our country just like theirs?"  Furthermore, the Us-Versus-Them mentality of the Cold War should have amplified the variance of opinion.  Once you dub communists the spawn of Satan, it seems natural to embrace the Yankees as God's Chosen People.  But almost no major movement did.

All of this leads me to a question I struggle to answer: Why exactly was Soviet emulationism so much more prevalent than American emulationism?  While you're at it, what are the strongest counter-examples to my claim?  Again, I'm looking for Third World movements that explicitly advocated the emulation of the United States, not groups that were merely "pro-Western."

Please show your work!


Can regulations stop terrorism?, by Alberto Mingardi

Tue, 22 Aug 2017 09:38:25 -0500

The attack in Barcelona has been the latest in a chain of terrorist acts performed following a similar modus operandi to the one in Nice which happened more than one year ago, when a truck was deliberately driven over the crowd celebrating Bastille Day. In its turn, this was a "copycat" of the Palestinian terrorist campaign started in Israel in 2014. Terrorism is all the more shocking and frightening when it uses means that are seemingly cheap and ordinary. In an earlier post, I made the point that over-regulation would not greatly affect terrorist behaviour. My understanding is that engaging in a terrorist act, particularly a suicidal terrorist act, involves such a commitment that it would easily override existing bans or regulations, as the terrorist sets to put his (as terrorists are almost invariably young males) will into practice. Commentators seem not to agree with me very much, and they raised some interesting points. JFA, in particular, argues that "a person decides to participate given the costs and benefits" and therefore "if those costs are raised, those marginal terrorists will not commit the act." JFA strikes a point, alluding to the fact libertarians are all too eager to abandon the economic way of thinking when they want to defend their preference for little or no regulation. And yet I would propose the opposite may be true too: a certain widespread belief in the powers of regulation, the view by which government can effectively engineer people's behaviour, may be so strong as to make terrorism nothing else than another matter which can be "fixed" with a proper regulatory arrangement. I wish it was so, but I fear this attitude may divert attention and resources from more needed anti-terrorist activities. Co-blogger Bryan Caplan has one of his great papers on the subject, "Terrorism: the relevance of the rational choice model". Bryan distinguishes between three types--sympathizers, active terrorists, and suicidal terrorists--and considers their different "rationality." The point which is relevant to our discussion is the responsiveness to incentives. Building on the findings of qualitative literature, Bryan acknowledges that "the common sense view that suicide attacks are self-destructive, not self interested, is probably correct." His paper is a much worth reading defense of the rational choice model, updated with his own analysis of irrationality, applied to terrorism.." I didn't want, however, to argue on terrorists' rationality, but only on the likelihood that regulations on purchases of some specific items may be good in deterring them. This is different from anti-terrorist deterrence, of the sort which is practiced, every day, by police and intelligence forces. My post was actually sparked by the idea, emerging from British left wing circles, that the London attacks were made easier by some deregulation of sales of chemicals. Now, after Barcelona, I find myself reading comments from fellow Italians who want to make van hire all the more difficult, of course with the very good reason of making terrorism harder. It seems that a similar notion was aired in England a few months ago. This may be a car hire version of the "if you see something, say something" principle. Stricter regulation, that applies uniformly to anybody renting a car or a van, seems to me a different matter. For one thing, how could such "stricter" regulation actually help in identifying, let alone fighting, terrorists? I would suppose that document forgery is something a person that plans to kill tens of people would see no problem in getting: which is my original point. Let's put it in other terms: if you despise the established order, legality, and human life to the point of becoming a terrorist, do we really think that, being prohibited to hire a van, you would not simply steal one? I know some may argue that this way the police force can catch you because of such a stolen property: but, at least in my part of the world, I would doubt that policemen are better at ret[...]

New Reflections on the Evolution in France, by Bryan Caplan

Mon, 21 Aug 2017 11:02:16 -0500

I just returned from a month in France.  I stand by everything I said during my last visit in 2008, but have plenty to add:1. The biggest change is the ubiquitous police and military presence.  Teams of militarized police and policified military patrol every tourist site and every public function, plus numerous random locations.  It wasn't just Paris; even small cities like Bayeaux were on guard.  I've never seen anything like this in the United States, even on September 12, 2001.2. France's massive effort still looks like security theater to me.  None of the major terrorist attacks of recent years targeted high-profile locations, and endless unguarded targets remain.  Any fanatic who can drive could kill dozens of people with ease.  So why isn't it happening every day?  Because suicidal fundamentalists are thankfully very very rare.  3. The behavioral economics of crime inspires some lingering doubt.  If ordinary people can be fooled by security theater, could would-be terrorists be fooled as well?  But given recent high-profile vehicular attacks, I can't take my lingering doubt seriously.  Terrorists may be dumb, but they're not that dumb.4. This visit, I noticed many more biracial French families - about 90% of them black-white pairings.  This wasn't just Paris; I saw the same pattern even in small towns in Normandy and Brittany.  Overall, French blacks seem markedly more assimilated than American blacks.  If they had a distinctive accent, I couldn't detect it.5. On my earlier visits to France, their grocery stores seemed to have markedly higher-quality food than in the U.S.  At least in the D.C. area, however, I'd say that France has actually fallen behind the U.S.  During an entire month in France, we never found bread better than what my neighborhood Wegmans sells every day.  Quality pastries and cheese are definitely cheaper in France (though even that partly reflected the strong U.S. dollar), but the best U.S. grocery chains have leapfrogged over their French counterparts.6. What I'd call France's "convenience gap" doesn't seem to have narrowed at all.  You don't have to look any further than a French hotel bathroom.  Most showers lack soapdishes.  Half of the toilets have seats so flimsy they wobble or fall off.  The median amount of counter space is under one square foot.  So many minor annoyances could be fixed for a few Euros, but they haven't been fixed.  7. I spent fifteen days teaching high school students at the John Locke Institute's Summer School.  The students - most from British boarding schools - were brilliant and enthusiastic.  Many of the students from British boarding schools were not actually British, but even the Nigerians, Spaniards, and Romanians seemed fully Anglified.  The biggest surprise: The students accepted one-on-one face-to-face essay feedback with good humor.  If they were American, I think many would have been on the verge of tears.  In strange contrast, the British students were visibly nervous during their mock interviews.  Weird.  8. I taught at two separate sessions of the summer school on a wide range of topics, including open borders.  The first group of students seemed to take cultural objections very seriously.  The second group barely mentioned culture; their most common objections revolved around brain drain.  Random variation?  Group dynamics?9. I also lectured on my case against education.  As usual with lay audiences, almost no one questioned the descriptive accuracy of the signaling model of education.  Instead, students' modal objection was distributional: Whatever the efficiency gains of budget cuts and vocationalism, the poor would lose out.10. I met an American student whose family probably survived World War II thanks to heroic Japanese non-conformist Chuine Sugihara.  If you don't know Sugihara'[...]

All That Glitters Is Not Gold: A Parable, by Scott Sumner

Sun, 20 Aug 2017 19:37:31 -0500

Atlantis is on the gold standard. The unit of account is called the "dollar" and it's defined as one gram of gold. Atlantis has a state-owned gold mine with a monopoly on gold production, near limitless reserves, and a very low cost of production. The gold mine is charged with the responsibility of keeping the value of the Atlantis dollar stable, by adjusting the quantity of gold it sells (or buys) each month. There are also privately produced metals such as silver, palladium and especially platinum, which are close (but not perfect) substitutes for gold. When the gold mine injects gold into the economy, they typically buy platinum, which is considered a relatively safe asset (in case the gold mine later has to sell assets to keep gold from losing purchasing power.) All goes well until Atlantis is hit by a financial crisis, caused by reckless lending (ultimately caused by an ill-fated attempt by the Atlantis government to insure bank deposits--but that's another story.) The panicking residents scramble for any sort of safe asset they can find, and now gold and platinum become virtually perfect substitutes, and even palladium and silver are being considered pretty close substitutes. Open market purchases of platinum for gold don't have the usual impact on the price level. The state-owned gold mine struggles to stabilize the value of gold, which is gaining purchasing power (i.e. prices of goods and services are falling.) Unemployment is rising. The gold mine doesn't want to buy all the platinum, as it worries that market efficiency might be reduced. (Although if gold and platinum really are perfect substitutes, it's not clear why this would be so.) There are calls for the mine to buy palladium and silver, even . . . gasp . . . copper and zinc, but those purchases are viewed as excessively risky. Some radicals even call on the gold mine to start giving gold away, but the conservatives who run the mine wonder what would happen if prices started rising and they had to buy back lots of gold. Wouldn't the gold mine go broke without (platinum) assets on its balance sheet, or at least fail to achieve its mandate of stable prices? A Swedish mining engineer named Lars Svensson comes along with a "foolproof" plan to stop the deflation. He proposes reducing the gold content of the dollar. Instead of a dollar representing one gram of gold, henceforth it would be defined as 0.90 grams of gold. This would cause the dollar to lose purchasing power; even if gold itself remained as valuable as before. Then a very old historian recalls that something similar was proposed about 80 years ago by Irving Fisher, the last time Atlantis had a big financial crisis. And Fisher discovered that there were more than a dozen still earlier proposals of this type, going all the way back to the deflation of the 1820s. Unlike Atlantis, America is not on a gold standard. So I ask you, dear readers, what would be the fiat money equivalent of this foolproof escape from deflation? PS. Did you notice that I wrote a parable about liquidity traps without even once alluding to such a thing as "interest rates"? PPS. Svensson's plan worked at ending the deflation, but it led to court cases as to whether debts should be repaid in dollars as currently defined, or with dollars as defined at the time the loans were incurred. In a shocking (and legally dubious) 5-4 decision, the Atlantis Supreme Court allowed debts to be discharged using current dollars, even when the original contract specified payments in grams of gold. But the public didn't care; prosperity was returning to Atlantis. (7 COMMENTS)[...]

Prices and Your Pocketbook, by David Henderson

Sun, 20 Aug 2017 02:02:22 -0500

This is another in the series of NBC radio broadcasts that involved Milton Friedman as one of the three panelists. See here and here for earlier posts on the NBC shows. This one shows both Friedman and George Stigler to be believers in fiscal policy to control inflation and advocates of high taxes for the war effort. The three participants are Leo M. Cherne, executive director and editor-in-chief of the Research Institute of America, Milton Friedman of NBER and on leave in the Division of War Research at Columbia University, and George Stigler, associate professor of economics at the University of Minnesota and at the time visiting professor in the department of economics at the University of Chicago. The show is titled "Prices and Your Pocketbook." The date is June 27, 1943. Recall that the United States was in the midst of a relatively comprehensive regime of price controls at the time. Some highlights follow. Stigler introduces the show with typical Stigler humor: America, gentlemen, really is pretty lucky. It has about one hundred million military experts and one hundred million economists. The hundred million military experts are pretty well satisfied with the conduct of the war, and, as a matter of fact, I think one could even charge that they are a little complacent about the early day of victory. As one hundred million economists, though, they are not quite so happy. They, as consumers, claim that their prices are going up a good deal faster than their pocketbooks are growing. Friedman makes a point about the amount of production going to the war effort: approximately half of GDP: The point there is that only one of out of every two people who is producing goods these days is producing goods he himself can buy. The other people are producing instruments of war that they cannot purchase. Later, Stigler and Friedman discuss briefly how rationing distorts the statistics on pricing: Stigler: We can, therefore, say that, on the average, costs are up 25 per cent. It takes a dollar and a quarter to do what a dollar did only a couple of years ago. But that is not the whole story. You still have to be able to get the goods. ... Friedman: Try to buy an automobile these days unless you happen to have a ration coupon. Stigler on how price controls cause producers to reduce quality: Stigler: Let us add just one item to this background material of obvious information, but, nevertheless, things we ought to keep in mind for perspective. I have in mind quality degradation--houses are not heated so well or repaired so often; clothes are not so good; meats seem to be fatter in spite of anything steers can do; and so forth. Later, Stigler discusses how to reduce inflation: Stigler: The general picture is pretty clear. While we were cutting down on the amount of goods or at least not increasing the amount of goods, we were giving more and more dollars to consumers. The simplest way to stop it, and the sensible, fundamental way, is to take dollars away from people by withdrawing income from individuals, so that they cannot bid up prices. On price controls and rationing: Friedman: That is not quite so much an attack on a symptom really. Starting by fixing prices and saying that prices shall not be higher than a certain amount, we shortly found ourselves in the difficulty that people could not buy things at those prices because just saying that prices should not go up in no way increased the supply of goods available and in no way reduced the amount of money people had available. The only answer to that, unless we were willing to go to the fundamental cause and remove the excess purchasing power, was to try to ration the goods. [Notice that he doesn't mention another fundamental cause, at least of the shortages: the price controls.] Stigler: I think that we can say, by and large, in the field of rationing that we have done a very mixed job. On some commodities like sugar and like coffee, I thin[...]

Worstall on Robots and Jobs, by David Henderson

Sat, 19 Aug 2017 09:16:48 -0500

Tim Worstall, referring to my article that I posted on yesterday, makes an important point I should have made. Here are two highlights:

The Keynes point is here in Economic Possibilities for our Grandchildren. What Henderson says about it is entirely true, but it's incomplete, as was Keynes on this. As I say, both will go "Ah, yes" when bearded on this (well, maybe the ghost of Keynes). The biggest change in working hours over this past century is the fall in household working hours for women. I've seen one estimate which says that it took 60 hours of drudge work back in 1930 to run a household, today it's about 15 hours. I tend to think both those numbers are a little exaggerated, the first up, the second down, but still roughly correct.

What happened to all that work? We automated it. Ha Joon Chang and Hans Roslin refer to it as the "washing machine" but they mean that grab all of domestic technology, not just the washing machine, but the gas or electric stove, the microwave, the vacuum cleaner and on and on to the Roomba and the takeaway restaurant and the chilled prepared food aisle at the supermarket. It's precisely this which enabled the economic (near if you want to still complain about it) equality of women. Once that household work was automated then they could, and did, righteously, come out into the world of market paid work. Do note that this rise of female market work is only the second largest change in working hours over the past century--that decline of household work is larger than the rise of paid. This must be so as leisure hours have increased over the same time.

The whole article by Tim, which is not long, is worth reading. It's "The Robots Stealing Human Jobs--Bring It On,", August 19, 2017.


Henderson on Robots, Jobs, and Productivity, by David Henderson

Fri, 18 Aug 2017 14:25:15 -0500

If you're still worried that robots will be too human-like, consider what happened to men's jobs when women, who not only are human-like but also are actual humans, increasingly entered the labor force. Men's jobs didn't decline; they increased. In 1950, before the large entry of women into the U.S. labor force, 43.8 million men and 18.4 million women were employed. By 2015, women's employment had skyrocketed to 78.0 million, while men's employment, far from shrinking, almost doubled to 84.4 million.

The simple fact is that the amount of work to be done in the economy is unlimited. What's limited is the number of humans, which is why the late population economist Julian Simons called humans, in a book by the same name, the "the ultimate resource." There's a story--perhaps apocryphal but no less insightful for that--about an American engineer visiting China in the 1960s, when the Chinese government was building a dam. The American, noting the large number of workers digging with shovels, told his Chinese host that the digging could be done more quickly if the Chinese used steam shovels. "Oh," answered the host, "but then there would be fewer jobs." "I didn't realize that was the goal," answered the American, "but if your goal is jobs, you might consider replacing the shovels with spoons."

What this story illustrates is that although jobs are important for creating value, if we can create the same amount of value with less input, it's wise to do so. Who, for example, wouldn't want an innovation that allowed them to do their current job and be paid just as much, while working half the time? This is not a fantasy. Pay is closely tied to productivity. The hypothetical innovation would destroy "half a job." And we would love it. We would use that freed-up time for leisure, or, more likely given our unlimited wants, for doing other work that gives us pecuniary rewards. That is the story of economic growth.

This is from David R. Henderson, "Will Robots Steal Human Jobs?" Defining Ideas, August 17, 2017.


Fifty years ago, by Scott Sumner

Thu, 17 Aug 2017 15:52:09 -0500

Fifty years ago, the Red Guards were rampaging through the streets of Beijing. Chairman Mao issued weird, over-the-top statements about the evils of American capitalism. Free markets were seen as exploitation, as a sort of winner-take-all. Meanwhile, the US was trying to promote the ideology of open markets, emphasizing that trade is mutually beneficial.

So how about today? The FT quotes one of Trump's top advisors:

Steve Bannon, the brains behind Donald Trump's nationalist economic agenda, added to tensions roiling the White House by pouring scorn on his colleagues, rubbishing US policy on North Korea and pressing for the administration to be "maniacally focused" on "economic war with China". . . .

Mr Bannon said US defence and security officials were "wetting themselves" as they urged a softer line on China in order to secure its help in curbing Pyongyang's nuclear missile programme. North Korea was a "sideshow" in the context of a winner-takes-all competition between the world's two largest economies. . . .

Mr Bannon claimed he was working to place anti-China hawks in key positions at the defence and state departments.

"We're at economic war with China," Mr Bannon said. "One of us is going to be a hegemon in 25 or 30 years and it's gonna be them if we go down this path.

And here's how the Chinese responded:

China's foreign ministry responded by saying that the China-US economic relationship was "mutually beneficial" and there could be "no winner from a trade war". It added: "We hope that people will not use 19th- and 20th-century perspectives and measures to address 21st-century problems."

PS. In his later years, Mao became somewhat mentally unstable. His pragmatic advisors tried to moderate his policies, but his instincts were with the radical advice he was getting from the "Gang of Four".

PPS. This post is about rhetoric, not policy.


Hummel on the Curse of Cash, by David Henderson

Wed, 16 Aug 2017 21:57:03 -0500

In "Anti-Paper Prophet: Comments on The Curse of Cash." Jeff Hummel has written an excellent response to Ken Rogoff's response to Hummel's review of his book The Curse of Cash. The whole thing is well worth reading. Here are the parts I found most striking. When Rogoff gets to bona fide predatory acts within the underground economy, such as extortion, human trafficking, and violence associated with the drug trade, he descends primarily into lurid anecdotes. He fails to give even crude quantitative estimates to buttress his claim that eliminating cash would curtail these activities. As for corruption and bribery, Rogoff admits that they are really serious only in poorer countries--precisely where he also concedes that a premature elimination of cash would have dire economic consequences. In his discussion of terrorism, he admits that eliminating cash would have at best trivial impacts. Nor can Rogoff demonstrate any increased revenue for the U.S. government from phasing out large denomination notes. Relying on IRS estimates of the legally earned but unreported taxes in 2006 and extrapolating forward to 2015, he puts the potential gains to the national government at $50 billion annually (or less than 0.3 percent of GDP), along with approximately another $20 billion gain for state and local taxation. Yet his most comprehensive estimate of the seigniorage the government would lose from phasing out cash is $98 billion, or over 0.5 percent of GDP. Add to that the $32 billion annual cost of free electronic accounts for the poor, and Rogoff has failed to make a credible case that his proposal would create a net gain for the U.S. government, much less a net benefit for society overall. Here's Jeff's accomplishment in affecting Rogoff's own views: Rogoff's response to my review is quite respectful. He clearly wishes to encourage a civil dialogue on this question. Indeed, much of his response consists of amplifying details of his proposal. He does accuse me of "polemic exaggeration" because I titled my review "The War on Cash," but that hardly seems unwarranted given that the title of his book is The Curse of Cash. More important, Rogoff's response exhibits a shift in emphases [sic] in order to make his proposal appear still more tentative than in his book. Thus, he includes "many years of discussion and analysis" before any "advanced democracy is likely to start down the less cash-road." And he pushes the "ultimate move to coins only (which I throw out as a very long-run idea ...)" to "a time frame on the order of half a century or more." Although I have only skimmed Rogoff's book, I have read a number of reviews and the distinct view I got was that Rogoff wanted substantial moves to coins in a decade or two rather than in 5 decades. That's a huge change. Another insight from Hummel: However these shifts introduce some additional tensions into Rogoff's case. By admitting that phasing out cash is less of a priority for the U.S. than for other countries, especially those with high levels of tax evasion, he in essence is saying that his scheme is least needed where it is least onerous to implement and most needed where it is premature or dangerous to impose. And yet another great point: By adding emphasis to how slowly he is willing to implement his proposal, Rogoff also undercuts the urgency he has attached to overcoming the zero lower bound, which in his book he characterized as having "essentially crippled monetary policy across the advanced world for much of the past 8 years" (p. 4). Indeed, if he is really willing to wait "at least a couple decades" for the phasing out of large denomination notes, why not just rely on market processes and technological innovations already in play to achieve a less coerced transition? Rogoff even predicts in his response that "the use of cash in the U.S[...]