Collected Links 04/2016: Krugmania

Okay, I admit this link collection is a little bit Krugman-heavy. But, to quote Tina Turner, he’s simply the best, better than all the rest, better than anyone…

What went wrong in Europe? Krugman points out the fact that European real GDP per capita and core inflation moved in sync with the US until 2011-12 and fell behind after that. He also points out that austerity cannot explain this, because both European and US governments pursued contractionary fiscal policies at that time. Krugman blames it all on the ECB who raised interest rates in 2011 whereas the Fed didn’t. I am not so convinced, but it’s an interesting fact that needs to be explained.

Olivier Blanchard and Paul Krugman about saving the world, um, the world economy.

Reason No. 39251 for using economic models: They sometimes prevent you from believing what you want to be true but isn’t.

How responsive are trade flows to changes in the real exchange rate? Some people think not very much, Krugman explains why they might be wrong. Why does it matter? Because if “elasticity pessimists” are correct, Spain and Greece and the other Eurozone crisis countries don’t actually need a lot of internal devaluation (falling prices and wages) to pay off their external debt.

Those of you who felt guilty for eating quinoa because your doing so would drive up quinoa prices which would hurt quinoa consumers in developing countries can now breathe a sigh of relief: “Not only has the [increased demand for quinoa] benefited farmers in Peru — it’s even benefited quinoa consumers in the region who don’t actually plant the crop”, says Vox.

Gita Gopinath.

The time discount factor (how much you weigh future utility relative to present utility) is a key determinant of a lot of things. Estimating it is very tricky. A change in Italian penal law in the mid-2000s provides a quasi-natural experiment to estimate how much criminals discount future prison time. The mean discount factor in the prison population is found to be 0.74, which is substantially below existing estimates for the general population. This supports the theory that high preference for present utility increases the likelihood to commit crimes.

Greatest field experiment ever: What If We Just Gave Poor People a Basic Income for Life?

My second-favorite economist’s theory of exploitative taxation: The more naturally beautiful a place is, the higher it’s discrepancy between the taxes its government collects and the public benefits it provides. Maybe Austria is a case in point?

The Uberization of Banking: How SoFi might bring about the world of 100% equity-financed banking.

Who created Bitcoin? A guy by the obviously fake name Satoshi Nakamoto. Now Craig Steven Wright (another fake name?) claims to be the guy. The Economist believes him.

Gross Domestic Product was one of the greatest ideas economists had in the 20th century. But it may be quite inadequate to measure economic activity in the 21st century. The Economist explains why here.

Argentina’s government went into default in 2001. Now, 15 years later, they return to the capital market.

Zweckentfremdungsverbot – that’s what Berlin’s new ban on renting out private rooms and apartments on Airbnb is called. The city claims that this would help preventing rents from rising further. This is so German, and so wrong.

Finally, a meta-study on the economic impact of a Brexit has appeared. The mainstream conclusion is that “disadvantages from lower economic integration appear to outweigh the economic advantages. However, overall, several reviews come to similar (mainstream) conclusions that the net economic effects of Brexit should lie in the lower single digit range between 1% and mostly significantly below 5% of GDP in the longer term”. Of course, they include the caveat that existing studies might miss out on some really damaging long-run risks.

New Graz Economics Papers:

This new paper by Grete Kreimer and Ricardo Mora uses micro data from the Austrian Labor Force Survey from 1996 to 2010 to study the evolution of gender segregation in the labor market. “Our main results show that the gender division of labor is very stable over the 15-year period. This is because the positive effects from the rising female labor force participation rates are counterbalanced by the negative effects from increasing gender differences in the incidence of part-time jobs.”

What will be the effect of climate change on public budgets and what should we do about it? Answers are found in this new paper by Gabriel Bachner and Birgit Bednar-Friedl.


Collected Links 03/2016: New Principles

If you are in Graz next week: Don’t miss the Economics Club’s guest lecture “The Myths and Realities of the European Migration Challenge” by Prof. Martin Kahanec from Central European University in Budapest. Here is the Facebook event page with more info.

We usually measure economic activity by multiplying the quantity of each final good with its price and summing over all final goods. The development of new technologies during the past few years has replaced CDs with online downloads and streaming services, telephone calls with Skype, books with ebooks. Many of these goods are delivered at zero (or close to zero) prices and financed through other means such as advertising. Hence GDP probably underestimates the volume of economic activity. What should we do about it? Sir Charles Bean has dealt with this issue and now produced a short summary here.

“Are we teaching the wrong principles of economics in the introductory course?”, asks David Collander. Greg Mankiw, not surprisingly, answers in the negative.

For those who don’t have a clue what I’m talking about, here’s Yoram Bauman’s classic translation of Mankiw’s principles.

If you believe, as I have long believed, that the criminalization of cannabis probably causes more harm than good, this paper may change your mind: It exploits the specific cannabis policy of the city of Maastricht which grants legal access based on individuals’ nationality. They find that “academic performance of students who are no longer legally permitted to buy cannabis increases substantially.”

Women, I am told, are under-represented in economics. As a partial remedy, I shall henceforth include a link to a female economist in every edition of the collected links. This month: Who was Mabel Frances Timlin?

Not entirely unrelated: The social and economic determinants of violence against women in Sub-Saharan Africa.

A new school in macroeconomics is on the rise. They are called Neo-Fisherians because they place strong emphasis on the Fisher equation, which says that the real interest rate equals the nominal rate minus expected inflation. The equation itself is not controversial – it’s part of every sensible macro model. What is controversial is the Neo-Fisherians’ claim that the Fisher equation implies that raising nominal interest rates increases inflation – quite the opposite of conventional wisdom. John Cochrane, one of the most prominent Neo-Fisherians, has come up with a simple model plus a good intuitive explanation of that point of view.

Helicopter money sounds scary, but is just normal textbook monetary policy, as Simon Wren-Lewis points out.

New Graz Economics Papers:

We all know Arrow’s theorem, right? Few of us, I guess, know Alfred Tarski. What the one has to do with the other is explained by Daniel Eckert and Frederik Herzberg in their new paper.

Providing public goods is hard. Even harder is providing public goods in a welfare maximizing way. Still harder (for me, at least) is reading this new paper about welfare-maximizing ways to deal with the binary public goods provision problem (let’s build the bridge/ let’s not).

Can one make sense of recent global imbalances in overlapping generations models? Karl Farmer and Bogdan Mihaiescu are trying.

Collected Links 02/2016: Big Ben Theory

A couple of tech/science celebrities have appeared on the Big Bang Theory, including Steve Wozniak and Stephen Hawking. Now in the new season of the show, Ben Bernanke gets a cameo. Is that the first step towards the econ comedy show I have been dreaming about for years?

I have not really been following the debate about abolishing high-denomination currency, mainly because the arguments I did hear on both sides seem incredibly silly to me (No, abolishing 500 euro bills will not end organized crime and terrorism worldwide, and no, it will also not be the end of liberty and property rights). However, this excellent post makes a couple of good points, including this one: “The Sands argument [in favor of abolishing the 100 dollar bill], if correct, is that forcing criminals to use a $20 bill serves as a tax. It’s my guess that the demand for criminal service is many times more inelastic than supply; especially drugs. A tax … would hurt poor consumers, not drug dealers.“

Here is what IMF economists have to say about refugee crisis, its effects on the European economy and policy recommendations. At the top of the agenda: speedy integration into labor markets.

Tyler Cowen’s plot of U.S. house prices shows they are now above their 2005 level. Question for the experts: Is this a housing bubble? If not, why was 2005 one?

The U.S. primary elections have got their post-Keynesian moment. Democratic candidate Bernie Sanders has relied on a study by Gerald Friedman, who describes himself as a “Joan Robinson Keynesian”. The study predicts that full implementation of Sanders’ economic policies would result in a fantastic 5.3 percent annual GDP growth rate over the next decade. Mainstream economists, including Paul Krugman, have been quick to point out the flaws is Friedman’s projections. I’d love to see, but haven’t been able to find, a reply from a credible Post-Keynesian economist to these criticisms.

Why do countries inhabited by the descendants of historically advanced civilizations perform much better than countries now inhabited by descendants of historically backwards civilizations? Bryan Caplan has started a reading club on that topic with a couple of interesting papers which I would love to read if I had more time.

A new old economics joke (not a joke about economics, but one that teaches economics), picked up by one of my favorite economists.

If you are an econ student contemplating whether to learn Mathematica, Python or C++11, or another programming language, you may find this comparison helpful.

Collected Links 2016/01: Neuland

The new year brings an innovation to the Graz Economics Blog: the collected links. Once every month, I will post a list of links which have gained the special attention of our bloggers. These lists will feature an eclectic mix of topics ranging in the degree of seriousness from fascinating new research insights to the latest econ jokes. Read, discuss, critize, or, if you want to add another link, feel free to do so in the comment section!

How much do immigrants from poor countries reduce wages in the destination countries? Not at all says a classic 1990 paper by David Card studying the Mariel Boatlift – a short episode in 1980 when Cubans were allowed to flee to Florida. George Borjas says that paper is seriously flawed and the wage effect is clearly negative. This article has the best summary of the debate.

Related to that: Branko Milanovic on the benefits and costs of free migration.

Greg Mankiw plots the price of oil in labor commanded (how many hours you have to work to be able to buy one barrel). That puts things in perspective, doesn’t it?

Venezuela’s Minister for Economy and Productivity says “inflation does not exist“. Prices are rising, he says, because corporations are greedy. He is a sociologist.

The Economist writes about a study measuring the productivity of young American researchers six years after receiving an economics PhD. The results are quite surprising: Even graduates from top schools mostly seem to under-perform. Or are they using an inappropriate measure?

People have analyzed cities and metropolitan areas in for all kinds of things: house or land prices, gentrification, air pollution, crime rates, etc. Three researchers from Denmark and the Netherlands, respectively, think cities are marriage markets and analyze whether people move to cities because of marriage market considerations.

Housing markets are super important – say the people doing research on housing markets. But given the experience of the past crisis, we should probably pay attention to what they have to say. Here’s a brief and concise overview on the importance of research in this field.

Why do bad policies get implemented when good policies are available? A new paper says it’s because people systematically fail to fully anticipate the equilibrium effects of new policies and hence vote for inefficient ones. And not just stupid people: they do experiments on students in Berkeley and Brown.

The economics of free parking. There is no such thing as free parking space.

New Graz Economics Papers:

In a conflict situation where you don’t know the preferences of your opponent going in, is it always optimal for you to learn about his/her preferences? Christoph Kuzmics and Florian Gauer have the answer.

If people give donations because of the “warm glow” they feel when donating, and when the intensity of the warm glow I feel depends also on how much everyone else is donating, then should we subsidize donations or tax them? It depends say Ron Wendner and co-authors.