Spring Break

Slow blogging this week...

The World Bank

Doug Mills/The New York Times

It has been announced that Jim Yong Kim, President of Dartmouth College, is the Obama administrations choice for the head of the World Bank - which means, of course, that he will be the next President of the Bank.  From The New York Times:

Highly respected among aid experts, Dr. Kim is an anthropologist and a physician who co-founded Partners in Health, a nonprofit that provides health care for the poor, and a former director of the department of H.I.V./AIDS at the World Health Organization.

“The leader of the World Bank should have a deep understanding of both the role that development plays in the world and the importance of creating conditions where assistance is no longer needed,” President Obama said Friday. “It’s time for a development professional to lead the world’s largest development agency.”

Dr. Kim, who was awarded a prestigious MacArthur Fellowship in 2003, was born in Seoul, South Korea, in 1959 and moved with his family to the United States when he was 5. He graduated from Brown University in 1982, earned an M.D. from Harvard University in 1991 and received a Ph.D. in anthropology there in 1993.

This announcement has been met with some surprise (his was not a name mentioned anywhere that I read, nor a name I have heard of before) but overall a lot of praise.

Some, like Felix Salmon, wonder about his qualifications:

Kim has the requisite development-policy background, and also an outstanding professional background, but he’s not a banker, an economist, or a diplomat.

As an economist, my knee-jerk reaction is to want an economist in the job. But, much like a university president, the job these days is a lot about diplomacy (both without and within the Bank). It is not at all clear to me that we should want an economist in the job. The Bank has a wonderful staff of research economists that can both generate a lot of great new research and interpret research that academic development economists like myself conduct.

What the Bank needs, I think, is a very smart person who can be an unbiased arbiter of competing ideas and ideologies. It also needs someone skilled at diplomacy (for which university president is decent training). Having someone extremely knowledgable about global health issues is a particular bonus as the key characteristic of growing up in poverty is the susceptibility to infectious disease - and is the easiest to target.

To me, it sounds like Dr. Kim is a good and inspired choice.  Say what you will about the Obama administration, this is an impressive choice.  Not an obvious political flunky (e.g. Wolfowitz), a crass self-promoter (e.g. Sachs) nor a jerk (e.g. Summers), but an outside-the-box, creative and smart choice for one of the most important jobs in the world.  Bravo.

As an aside, and only because of Dr. Kim's Korean heritage, I will give a quick plug for Adam Johnson's North Korean novel The Orphan Master's Son which is a wonderful and fascinating novel, but an incredibly dystopian and depressing picture of life in modern North Korea.  Still, definitely worth a read.

Picture of the Day: Stimulus v. Austerity

I am grading, grading, grading today so I'll resort to the good ol' picture of the day.  This one from Krugman who uses it as a provocation for those that claim that resorting to stimulus rather than austerity has slowed our recovery.

While the US has used fiscal stimulus the UK has gone whole hog on austerity and here are the results.  Is this a good natural experiment?  Can we reasonably draw conclusions from this?  Discuss below.  Oh wait, Spring break has begun for most of the OSU students out there so nevermind - go empty your minds and soak in some sun while us poor faculty are knee deep in snow grading endlessly...

Picture of the Day: Gas Taxes

From Jim Hamilton who has a great piece on why gas prices differ across states.  The main cause is differential taxes, but there is a lot more going on - go to his blog to read the post.  Here is a map from his post that shows gas taxes by state:

One thing he fails to mention is the ban on self-service gas in OR and NJ.  But as a rough guesstimate were are probably talking about 3 cents a gallon, which pales in comparison to the taxes above.

Oregon's Employment Recovery Hits Bump in Road

The Oregon February employment numbers are out and the news is depressing: Oregon lost a seasonally adjusted 6,400 jobs and the unemployment rate held steady at 8.8%.

Still, the trend over the last few months has been positive and I suspect that this will be a temporary aberration as the health of the US economy is getting stronger.  But this exposes a lot of the underlying weakness of the US revovery: while we are in positive feedback loop of increasing demand and increasing employment in general, there is no obvious driver of growth at the moment other than pent-up demand which may not be that strong or that lasting.

If Only He'd Studied Forestry at OSU...

Lumberjacking 101: Don't Do This (via the Telegraph)



NB: Finals week - busy busy busy

Going Down in Flames

You remember this logo don't you?

At least one Portland major league sports franchise seems to know what it is doing and is connecting well with the community.  Because the other is a basket case.  True, there has been a lot of bad luck surrounding the Blazers but there has also been a lot of curious and destructive personnel moves.  Both the Blazers and the Seahawks seem to be similar - taste a brief moment of glory and then fall back into ineptitude.  Thanks Paul.

Why Nations Fail

...is the title of the new book (and accompanying blog) from Daron Acemoglu and James Robinson.  I haven't read it (it isn't out until March 20) but am quite familiar with the work upon which this book is based.  In fact, I first met James Robinson in 1998 when I was a grad student and he was a young economist at USC and came to Cornell to give a talk. The topic was precisely this: the political economy of development.  Soon he would hook up with Daron Acemoglu (perhaps the most prolific economist ever born) and they would write a series of extremely influential and fascinating papers on the topic. [I've met Daron as well and I can say with confidence that both he and James are delightfully personable, kind and extremely smart - always nice to meet nice people in a profession that is often a bit lacking that category]

This book appears to be a culmination and summation of all of this work.  This is good news for two reasons: One, the work is very technical and dense and this is a popular press book that puts it all into plain language.  Two, it is based on work that is very technical and extraordinarily thorough, especially the empirical work.  So this is not a book of idle suppositions and possible links but a book based on theories that have been rigorously tested empirically and subjected to the intense scrutiny of peer-review.

But since I have not read it, I'll punt to the review of the book from The Economist:

THE rich world’s troubles and inequalities have been making headlines for some time now. Yet a more important story for human welfare is the persistence of yawning gaps between the world’s haves and have-nots. Adjusted for purchasing power, the average American income is 50 times that of a typical Afghan and 100 times that of a Zimbabwean. Despite two centuries of economic growth, over a billion people remain in dire poverty.

This conundrum demands ambitious answers. In the late 1990s Jared Diamond and David Landes tackled head-on the most vexing questions: why did Europe discover modern economic growth and why is its spread so limited? Now, Daron Acemoglu, an economist at MIT, and James Robinson, professor of government at Harvard, follow in their footsteps with “Why Nations Fail”. They spurn the cultural and geographic stories of their forebears in favour of an approach rooted solely in institutional economics, which studies the impact of political environments on economic outcomes. Neither culture nor geography can explain gaps between neighbouring American and Mexican cities, they argue, to say nothing of disparities between North and South Korea.

They offer instead a striking diagnosis: some governments get it wrong on purpose. Amid weak and accommodating institutions, there is little to discourage a leader from looting. Such environments channel society’s output towards a parasitic elite, discouraging investment and innovation. Extractive institutions are the historical norm. Inclusive institutions protect individual rights and encourage investment and effort. Where inclusive governments emerge, great wealth follows.

Britain, wellspring of the industrial revolution, is the chief proof of this theory. Small medieval differences in the absolutism of English and Spanish monarchs were amplified by historical chance. When European exploration began, Britain’s more constrained crown left trade in the hands of privateers, whereas Spain favoured state control of ocean commerce. The New World’s riches solidified Spanish tyranny but nurtured a merchant elite in Britain. Its members helped to tilt the scales against monarchy in the Glorious Revolution of 1688 and counterbalanced the landed aristocracy, securing pluralism and sowing the seeds of economic growth. Within a system robust enough to tolerate creative destruction, British ingenuity (not so different from French or Chinese inventiveness) was free to flourish.

This fortunate accident was not easily replicated. In Central and South America European explorers found dense populations ripe for plundering. They built suitably exploitative states. Britain’s North American colonies, by contrast, made poor ground for extractive institutions; indigenous populations were too dispersed to enslave. Colonial governors used market incentives to motivate early settlers in Virginia and Massachusetts. Political reforms made the grant of economic rights credible. Where pluralism took root, American industry and wealth bloomed. Where it lapsed, in southern slaveholding colonies, a long period of economic backwardness resulted. A century after the American civil war the segregated South remained poor.

Read the rest of the review at the Economist and then go out and buy the book when it is released on March 20.

Me

A Q&A with the Oregonian News Network

Economist's Notebook: Scalpers

I suppose it is going to be a surprise to no one that I, an economist, do not have a problem with scalpers.  I appear to be a distinct minority, for example, the some in the Timbers Army are dead set against them:

Don’t buy from them.
Don’t sell to them.
Don’t acknowledge them.

The argument against scalpers generally follows along the lines of them simply enriching themselves while providing no value. Vultures, parasites and the like are generally the terms used to describe scalpers.

But they are providing value.  To an economist they are providing a service: creating a market where there was none prior. That the service they supply is valuable is evidenced by the fact that they do make a living doing it. People use scalpers to be the intermediaries for ticket transactions that are hard. Now sites like Stub Hub provide markets for these transactions, but they still generally work only when you know in advance that you'll be missing a game.

The right thought experiment is to imagine the case where there was no resale market at all.  Without scalpers for example if someone got sick the night of a game and could not attend, they would lose the opportunity to recover some of the value of the ticket and someone who wanted to attend the game but could not get tickets would be denied the opportunity of attending.  This is clearly a worse outcome than a scalper.  Sure the scalper may make some money in the transaction, but this is the reward for the time and effort they spend buying and selling tickets.

So simply denigrating scalpers serves no purpose.  Creating more effective resale markets is. One useful response in the case of the Timbers has been to tap into social media, in this case Facebook, to provide a market expressly for those that have a preference for selling their tickets at face value to those that are passionate about the Timbers. Once again this is a response to a missing market and I think it is wonderful. Those whose preferences match will use this venue.

I think the thing that really upsets people is the fact that the resale market with scalpers works to the advantage of the wealthiest consumers and serves to keep out less well-resourced fans that may be more passionate.  Economics says that this is efficient - those with the highest valuation should attend - but the unequal outcome is somehow disturbing.  I would argue that this is not really different than the regular ticket market but that is another issue.  That market efficiency and equality are not linked is one of the ongoing themes of economics, especially when it comes to policy.

But it is not alway so.  On opening night the seat next to mine was occupied by a dude who had spent his very last $10 on the ticket - well below face value.   Obviously a scalper had a single ticket that was hard to unload and in the end the market price ended up being quite low.  So the seat was filled, my broke neighbor had a great time and the owner of the ticket was able to recoup some of the cost.  Everybody wins...except, I suspect, the scalper who probably took a loss on this ticket.

And Now For Something Completely Different...Timbers and more

The Timbers opened their season in nice style last night at Multnomah Stadium Civic Stadium PGE Park Jeld-Wen Field with a 3-1 win over the Philadelphia Union.  What stuck me most was the contrast with the slick, fast ball possession and quick counter attack game they played last night with the route 1 punt the ball up to the forward and hope to win the second ball they began last season doing.  I had some slight trepidation that with the arrival of Kris Boyd they would go back to that dismal pointless style.  Fortunately the lesson in football class that was delivered to them by Ajax last year had stuck and they dominated the possession game.  It wasn't always that pretty, it looked like a team in their first game, but it got better and by the second half the Timbers started playing with purpose, energy and desire and it was fun to watch.

Particularly fun, though, was watching four incredibly impressive performances.  First and foremost Kalif Alhassan had his best game ever as a Timber and was the best player on the field, full stop.  He played with extra passion and drive and he finally, finally pulled off one of his spectacular attempts at goal.  Even better he combined well and put in an inch perfect cross to Kris Boyd.  Second, Eric Alexander was a revelation.  He only got a little game time last year usually in late game situations, but last night he started and was a constant threat on the left side.  Third, Andrew Jean-Baptiste, 19 years old and playing in his first ever game, was remarkably poised, strong and solid in defense.  He kept it simple and was both unlucky to be at fault on the Union's goal and lucky to score his goal, but looked every bit the part of the prototypical central defender of the future.  And finally, he does it so well and so consistently it is easy to take him for granted, but Jack Jewsbury was simply a rock in the center of the midifeld: he won balls everywhere, was dangerous in combining with the attack and was quick of mind on the ball the sprung Alhassan.  A true captain of the team.

And to add icing to the cake, we got Kris Boyd off to the start he needs to have a successful season.  His runs were intelligent and what he lacked in touch on the ball can hopefully be put down to still getting back into game form.  And to top it all off, we still haven't had Franck Songo'o on the pitch, but with Alhassan and Alexander in top form, he is going to have to fight to get his spot back.

In other footy news:

Ricardo Texiera is FINALLY out as the head of the Brazilian Football Federation (CBF).  Long overdue, Texiera, son-in-law of the impossibly corrupt Joao Havelange ran the CBF as a personal fifedom and enriched himself through improper connections with businesses that did business with the CBF.  As soccer legend Romario said: "Today we can celebrate, we exterminated a cancer from Brazilian football. Finally, Ricardo Teixeira resigned." Let's hope that this is yet another step in the very promising anti-corruption reforms of Dilma and that the World Cup preparations can gain some speed.  They need it.  Sao Paulo, for example, is a city of 16-20 million and the main airport is about as big as PDX and a nightmare to fly in and out of.

Arsenal scored an injury time winner over Newcastle to solidify its place in the 4th and final champions league spot in the Premiership and is now but one point behind the despised Tottenham Hotspur.  The one thing that could save the season is pipping Tottenham at the end and finishing above them.

Picture of the Day: Income Inequality Across High Income Countries

This graph comes from Daron Acemoglu and James Robinson.  What is shows in essence is the great democratization of wealth after the concentrations of the industrial revolution and the gilded age followed by, in a couple of countries, a huge move back to incredible concentrations of wealth at the very top. But not all.  So what is it about the US particularly, and to a lesser degree the UK, that causes this?

US Unemployment: Another Good Month

Part of me wants to celebrate what appears to be strong sustained job growth signaling the steady march toward normalcy.  The other part is sobered by the realization that at his pace that march will take many years.  But every journey starts with a single step - or something like that - so I am still in glass half full mode.

The BLS reports today that another 227,000 jobs were created in February while the unemployment rate held steady at 8.3%. Actually both side of this is good news, the jobs numbers are great and at 200+ K we are creating many more jobs than new working age people, and the fact the new job seekers kept the unemployment rate up is good because it likely shows that people are perceiving that the job market is improving and starting to look for work again.

So is is another good month and we are definitely on the path back, plus good news in Europe as the Greek mess looks at least reasonably contained leaves me reasonably optimistic.

But this is the dismal science so here is the sobering graph courtesy of the New York Times which compares job losses in the post war recessions:

Source: New York Times from Bureau of Labor Statistics Data. Chart by Amanda Cox.
Horizontal axis shows months. Vertical axis shows the ratio of that month’s nonfarm payrolls to the nonfarm payrolls at the start of recession. Note: Because employment is a lagging indicator, the dates for these employment trends are not exactly synchronized with National Bureau of Economic Research’s official business cycle dates.

Econ 101: Productivity

While I was doing my little morning commute a short little piece on NPR about the latest productivity numbers popped up.  In sum the US Q4 productivity number showed productivity up but by a very small amount.  In other words, productivity growth slowed.  Then there was a quote from economist Richard DeKaser of the Parthenon Group:

While strong productivity growth is usually good for the economy, there are times when slower productivity gains can also be helpful by contributing to jobs and income gains.

Which got me to thinking that, one, it is not clear to many people why productivity growth is a good thing in general if we care about jobs and two, how does productivity growth and employment relate in the short and long run.

First why it is good. The best way to conceptualize this is to use my favorite pedagogical tool, the "Robinson Crusoe" economy. Think of yourself stuck on a deserted tropical island. When first you land there you are terrible at catching fish, collecting coconuts, etc. Let's say you spend your entire day trying to do both and end up with one fish and two coconuts. Over time, however, you get better and better at it so that after a month you could spend your whole day doing both and end up with 20 fish and 50 coconuts. You have become much more productive and now you can consume more than you could before and you don't have to work all day to provide for your basic needs - you can consume more leisure.

This is a simplistic world (a model economy) but it generalizes quite well.  What do high income, high productivity economies look like as compared to low income, low productivity economies?  They have higher consumption (and not just of fancy electronics and stuff, but of quality health care, parks and clean air, education and so forth) and consume more leisure.  For the econ students out there, productivity increases move the production possibility frontier out.

Wealth also creates new investment, new demand and can lead to higher growth all of which is good for employment - new investment, demand and growth translates to new jobs.

So why does DeKaser suggest that slower productivity growth could be a good thing in the short run?  Well let's go back to the Crusoe economy and see that one natural aspect of increased productivity is the ability to spend more time relaxing on the beach and not fishing or climbing coconut trees.  But most Americans can just decide that they would like to work 36 hours this week instead of 40 and take 10% less pay, or take an extra week or two of vacation, etc.  In other words there are rigidities in the labor market that can mean that productivity gains accrue mostly to the currently employed.  When productivity growth is slower than the increase in demand there is only one solution, more workers.

Yes, this means less overall increase in prosperity, but a more widespread enjoyment of the current prosperity.  So while we like to see good productivity growth in general because it is the backbone of economic growth which is the driver of employment in the long run.  In a period of recovery where there is high unemployment but increasing demand, a little slow down in productivity growth might not be such a bad thing if what we are concerned about most is unemployment (which, I suggest, is the main concern right now).

Picture of the Day: Income Inequality

Emmanuel Saez updates his well-known data on income inequality:

Notice the massive concentration of wealth that occurred during the Gilded Age and then again in the run up the the financial crisis.  Well with the crash, you might be tempted to think that it was a temporary blip - and you'd be wrong, the trend is continuing right on through the recession.

And here is the takeaway, stated beautifully by Saez:

The labor market has been creating much more inequality over the last thirty years, with the very top earners capturing a large fraction of macroeconomic productivity gains. A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II - such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality. We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.

College Tuition

Catherine Rampell of The New York Times has an interesting post on the Economix blog on the increase in college tuition.  Here is the main graph that shows the trend:

Source: New York Times from Bureau of Labor Statistics Data

This increase is driven by both private and state universities and colleges.  For state schools the most immediate cause is clear, we are shifting the burden of the cost of college to students themselves and away from the public:

Source: New York Times from State Higher Education Executive Officers

It seems to me there are two ways of thinking of this shift.  One is that college education is increasingly vital to a productive and prosperous life not only for those who get it but for those who live in communities where college graduates congregate.  This suggests that society has a large interest in subsidizing higher education investments to capture those spill-over effects.  The other is that as the college wage premium increases relative to high school diplomas it make senses, perhaps, to shift the burden more to those recipients themselves and away from non-recipients.  I happen to believe the former is the dominant principle here: consumption goods with sizable positive externalities need to be subsidized in order to get efficient outcomes.  But to know how much they should be subsidized, we need to know how far away from that efficient point we are.

There is also another aspect of these numbers which is the fact that these are list prices for schools and many students pay far below the list price.  Colleges are perhaps the worlds ore effective price discriminators: charging different prices to different students based on their incomes.  This is a good thing if the goal is to increase college graduates for economic theory shows that, generally, quantities increase with price discrimination.  If colleges and universities are just practicing more price discrimination than these numbers aren't nearly as worrying as the would otherwise be.

Go Timbers!

NOTE: Oops - as evidence of my illness, I meant to post this on my Beeronomics blog and misfired - didn't even notice it until now (Friday afternoon).  

Nice - from Lompoc, the new Year-Round Kick Axe: