Wednesday, 22 March 2017

May be there are two questions

From an article by Eric Crampton at newsroom,
When I lectured at the University of Canterbury, Associate Professor Seamus Hogan wanted to set an honours project asking a student to work out whether there really were any economic questions to which an economic impact assessment could provide a plausible answer.
I would argue that there are two possible questions. The first question would be, What do economic consultants do get money to stay in business, while the second would be, How do we get a really big impressive sounding number to try to influence policy in a way we want.

I'm guessing the second answer is the motivation behind most studies and in many cases they work since the public is not critical enough of the results of such work. Which is why people should read Eric's article. to help develop a good BS detector.

If you were to ask the question, What economically meaningful question would an economic impact assessment provide a plausible answer to, then I think you have a problem. Its not clear there is an answer to it.

Andrew Gelman on social science, small samples, and the garden of the forking paths

Statistical significance, especially in small samples, is a problem in all empirical social science, including economics. Here statistician, blogger, and author Andrew Gelman of Columbia University talks with EconTalk host Russ Roberts about the challenges facing psychologists and economists when using small samples.

On the surface, finding statistically significant results in a small sample would seem to be extremely impressive and would make one even more confident that a larger sample would find even stronger evidence. Yet, larger samples often fail to lead to replication. Gelman discusses how this phenomenon is rooted in the incentives built into human nature and the publication process. The conversation closes with a general discussion of the nature of empirical work in the social sciences.

A direct link to the audio is available here.

Monday, 20 March 2017

If economic ignorance were a natural resource, our world would be paradise

You have to love a heading like that! It comes not from me but from the ever insightful Don Boudreaux at the Cafe Hayek blog. Boudreaux is commenting on the idea that the government subsidisation of low-skilled workers’ "housing, food, medical care, and transportation" enables employers of such workers to pay them less than some "true value" of their work.

There is an obvious question as to what this "true value' is.

Boudreaux writes,
The central economic point is this: the welfare programs to which Mr. Phelps alludes (with the possible exception of transportation subsidies) reduce the supply of labor and, thus, push wages up. Far from employers being subsidized by such welfare programs, employers of workers who receive these government benefits are obliged, as a result, to pay wages that are made artificially high.

But to show just how deeply confused this Mr. Phelps is, let’s pretend that he’s correct to insist that welfare programs artificially reduce wages. Mr. Phelps then asserts that “Failure to pay a living wage gives consumers artificially low prices and increases corporate profits.” Because nearly all employers of low-skilled workers operate in intensely competitive industries such as retail and food service, workers’ artificially low wages would indeed result in artificially low prices for consumer goods, but not in increased corporate profits. The ability to hire workers at artificially low wages would attract new entrants into these markets, as well as cause existing firms to expand their outputs, until the rate of profit earned by employers of these workers is no higher than it would be if wages were higher. That Mr. Phelps is oblivious to this reality is sufficient reason to dismiss his economic analysis.
While I agree with Boudreaux's point, I do wonder just how large the effect is. Of all the things the government does to stuff-up the labour market is this a big player?

Sunday, 19 March 2017

More on "Navarroism"

Peter Navarro's very strange views on trade have been attacked by many economists, from all parts of the political spectrum, recently. Diego Zuluaga offers some empirical background to the attacks on Navarro at the IEA's blog.
Here I intend to give some empirical texture to the rebuttal, by showing the relationship between current account deficits – the number that Navarro thinks we should be worried about – and growth rates – which Navarro claims would increase if the U.S. cut said deficits – in four representative countries.

The four charts below depict current account deficits and growth for the U.S., Mexico, the UK and Germany, from left to right and top to bottom. The reason I picked those countries is that they are the most likely to be mentioned in present discussions around trade. Furthermore, the UK is often said to suffer from a chronic current account deficit, whilst Germany is increasingly chastised for its large current account surplus which is alleged to benefit her at the expense of other Eurozone economies.


A number of observations can be made in light of the data above. Firstly, rather than there being a negative relationship between current account deficits and growth rates, the arrow seems to point in the opposite direction: the larger the deficit, the higher the growth rate. This should not come as a surprise. The healthier an economy, the more likely households are to spend and businesses to invest, using both domestic and foreign goods and services in the process. Moreover, a growing economy attracts foreign capital and, since the current account balance is always matched by a balance with the opposite sign on the capital account, this means that, the more foreigners invest in a country, the more that country will import in goods and services.

Secondly, current account deficits (surpluses) are not associated with consistently low (high) rates of GDP growth. The U.S. recorded periods of high growth at a time when its current account deficit was increasing, whilst German GDP has grown only modestly in the aftermath of the sovereign debt crisis in Europe, even as its current account surplus burgeoned. Thirdly, and perhaps most surprisingly, Trump’s nemesis in the form of the U.S.’s southern neighbour has itself been running persistent current account deficits over most of the period recorded by the OECD (where the figures come from). Given Trump’s rhetoric depicting Mexico as living at the expense of the U.S. worker, this may come as a shock, but when we consider that the country has seen record foreign investment inflows since the mid-2000s – indeed, since the entry into force of NAFTA in 1994 – it is only natural that the current account deficit would widen commensurately.
We can conclude that the historical record suggests that the relationship between deficits in traded goods and services, and the growth rate of the U.S. economy is almost exactly the opposite of the one Navarro tries to defend.

What do we gain from this?

From Stuff comes this bit of news:
A city council committee is advancing plans to create a "Christchurch dollar" and wants a meeting with regulators about the concept.

Te Hononga Council – Papatipu Runanga Committee is interested in a community currency for Canterbury and the Treasury and Reserve Bank have been approached about the concept.

The committee is focusing on the Bristol Pound as a potential model. It was introduced in Britain in 2012 and can be spent in Bristol and the County of Avon.
What I ask would we gain if this idea actually was carried out?
"It is ultimately is boosting local economy by creating currency that circulates just within that economy . . . it basically means people are buying and selling within the same place," he said.

"The general studies show that it decreases leakage out of an economy, but it increases the basic economic activity, but at a local level.
So this is another form of the idiot "buy local" idea?

While the idea is doable its not clear that there are any large benefits from it. And if the Christchurch City Council really thinks this the most important thing to deal with in Christchurch right now then they have lost the plot big time!

An interesting question is, Will the government accept Christchurch dollars in payment of taxes? If not then people will have to hold New Zealand dollars anyway and as these dollars do everything the Christchurch dollars would do and buy stuff from other regions of New Zealand and can pay taxes, what if the point of Christchurch dollars? Using New Zealand dollars dominates using Christchurch dollars. Christchurch dollars only seem to increase transaction costs (if only a bit), so what's the point.

Friday, 17 March 2017

The rise of Trump, fascism and the alt-right with Jeffrey Tucker

Jeff Berwick interviews Jeffrey Tucker (Director of Content for the Foundation for Economic Education), topics include: Jeff Tucker's report on Anarchapulco, the 'alt-right' and fascism, authoritarianism, Mises was the leading opponent of Marxism, collectivism, Hegel's criticism of economic freedom and total statism, Thomas Carlyle and the movement against free markets, Darwin and disgenics, Madison Grant and the eugenics movement, Spengler's Decline of the West, Carl Schmidt, the failure of government, growing fascism in the US, biometric exit scans at airports, tyranny only held in check by financial constraints, knowing when to leave the empire, the harsh reality of Trump, Trump's economic tomfoolery, Elizabeth Warren, changing the world, who is Satoshi Nakamoto?

Thursday, 16 March 2017

Economic action beyond the extent of the market by Per Bylund

The Murray N. Rothbard Memorial Lecture 2017, sponsored by Helio Beltrão, by Per Bylund. Bylund is an assistant professor of entrepreneurship and Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Presented at the Austrian Economics Research Conference at the Mises Institute in Auburn, Alabama, on 11 March 2017.

Wednesday, 15 March 2017

Corporations are evil

Or are they?
But before one jumps to the conclusion that therefore corporations should be denied the right to influence political decisions in the interests of efficiency, more must be considered. For example, last month, over one hundred public corporations, most of them high-tech firms, filed a brief opposing the legality of the executive order signed by President Trump barring various immigrants.1) This can be viewed as collective action by firms in defense of capitalism and the free flow of goods and services. Those opposed to firms lobbying regulatory agencies would probably approve this defense by corporations of human rights. Nor was this case unique. Corporations, like Apple, Facebook, and Google, have regularly defended human rights.
The above quote is from John C. Coffee Jr (Adolf A. Berle Professor of Law and director of the Center on Corporate Governance at Columbia Law School) in an interview at the Pro-Market blog. The idea that firms can be defenders of human rights is not an idea that many of our anti-corporation, anti-capitalism, anti-globalisation, anti-free trade warriors have given much thought but it is an idea that deserves more attention than it gets.

No government cash for new Auckland stadium

Some good news is reported in the New Zealand Herald,
An Auckland central city stadium wouldn't get Government funding, Prime Minister Bill English says.

A stadium is back on the cards after Auckland Mayor Phil Goff commissioned work on the feasibility of a new central city site costing up to $1 billion.

This morning English said the Government's position remained the same - it would not put up any money towards a stadium.

"Our top priority right now is this billion-dollar housing infrastructure fund, which we're in intense negotiations with the council about right now. That's going to take all our attention and cash for a while," English told The Am Show.

"It hasn't been raised with us. It's not a high priority. We're not aiming to put money into it."
Given that all economic studies on stadiums show that they are white elephant such news will please economists, if not many non-economists. The view of economists is summarised by Dennis Coates and Brad R. Humphreys in their article Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?
This paper reviews the empirical literature assessing the effects of subsidies for professional sports franchises and facilities. The evidence reveals a great deal of consistency among economists doing research in this area. That evidence is that sports subsidies cannot be justified on the grounds of local economic development, income growth or job creation, those arguments most frequently used by subsidy advocates. The paper also relates survey evidence showing that economists in general oppose sports subsidies. In addition to reviewing the empirical literature, we describe the economic intuition that probably underlies the strong consensus among economists against sports subsidies.
Now if we could just encourage the Auckland council to follow central government's lead.

Dan Griswold on trade deficits

Strangely national income accounting is big news right now, at least insofar as it pertains to trade. Thanks to some very weird thinking on trade in the Trump administration trade deficits are all the rage. Not that they are well understood.

This lack of understanding has bought forth a new paper by Daniel Griswold on Plumbing America’s Balance of Trade (pdf) to help people get a handle on the issue of the trade deficit.

The abstract reads,
By focusing only on the trade deficit, critics miss the full economic benefits of a more open American economy. This paper provides original analysis of the total inflow and outflow of dollars through numerous “pipes” that make up the plumbing of US commerce with the rest of the world. It explains how underlying macroeconomic factors determine the size and direction of America’s trade balance, why bilateral deficits with trading partners do not indicate a failure of US trade policy, and why efforts to employ trade policy to fix the overall trade deficit or bilateral deficits would be futile and self-damaging. Among the key policy conclusions: America’s net positive inflow of capital year after year indicates the continuing attractiveness of the United States as a destination for foreign investment; imports benefit US consumers as well as producers; and direct foreign investment abroad by US companies is not primarily a platform for importing goods and services back to the United States but for expanding sales to foreign customers.

Tuesday, 14 March 2017

P.J. O'Rourke on Trump, populism, and "How the Hell Did This Happen?"

In the latest Reason Podcast, O'Rourke tells Nick Gillespie what he learned about Donald Trump's appeal from his time spent covering the 2016 election, why populism is a "tragedy" for libertarians, and why he wants his kids to study English and the liberal arts at college. "Be immersed in the history of civilization, you know, in literature, in the arts," he says. "You're going to be force-marched through these things. Some of it's going to be boring. Some of it you won't appreciate for another 40 years, but it's that college liberal arts education, is the last chance you really get to [immerse yourself in art, music, and culture]."

Robert Whaples on the economics of Pope Francis

For those with an interest in the economics of religion here is an interview with Robert Whaples in which he discusses the Economics of Pope Francis.
Is capitalism part of the poverty problem facing the world or part of the solution? Are human beings doing a good job preserving the earth for future generations? To improve the world, should we improve capitalism or ourselves? Robert Whaples of Wake Forest University talks with EconTalk host Russ Roberts about "Laudato Si'," Pope Francis's encyclical on capitalism, poverty, and environmental issues.
A direct link to the audio.