Torcida Fiel

Timbers Army are pretty good but not yet quite at the Corinthians level.  Here is a little video I took before the kick-off of the Clássico Majestoso - the derby match between São Paulo Futebol Clube and Corinthians Paulista:

The banner reads: "Peoples Republic of Corinthians: A Nation of More Than 30 Million Crazies" And below it "The Team of the People."

And many of the Torcidas were still waiting to get in.  Sadly Corinthians lost 2-1 after Emerson put them ahead 1-0.  Luis Fabiano scored two impressive goals for SPFC.

The World Gets a Little Smaller

Countries with their own coffee culture have generally resisted the Starbucks.  Now another domino has fallen - Starbucks has arrived in São Paulo:

Here is the Starbucks Rua Augusta in Jardins, fittingly there is another one a few blocks away on Avenida Paulista.

Subway too:

Economist's Notebook: A Note From Brazil on Hyperinflation

Teatro Municipal - São Paulo

Greetings from Brazil where I am working on a couple of research projects for 10 days.

I had the opportunity on Friday to visit the Henrique Cardoso Foundation in São Paulo and get a private tour of the offices that includes his library, his papers a museum and lots of interesting displays. One had letters from world leaders including Jacque Chirac and Hugo Chavez and another had various gifts he got durning his tenure as the President of Brazil.  Prior to becoming President of Brazil in 1995 he was the finance minister and, ironically for one of the key intellectuals of dependency theory, led the movement to liberalize the economy - steps that are credited with sparking a period of growth and prosperity that extends to today.

At its peak, Brazil's inflation hit 80% per month

While he was finance minister he initiated the Real Plan as a way to fight the extremely high inflation that plagued Brazil at the time and when I visited the foundation workers were working on an interactive exhibit intended to explain to school-age children the Real Plan.  One of the goals of the exhibit is to try and get today's children, who have never known high inflation, to understand to some extent what high inflation means and how destructive it is.  I was very excited about this because it is fascinating to talk to my friends who lived during this period about how they dealt with it.  The key of course is to take your wages the moment you get them to the store and convert them into real goods.

Anyway to get kids to understand this and how damaging high inflation can be to people and the economy, they have a few exhibits to manipulate a couple I show here:

This is an exhibit where many kids will have rods representing different sectors of the economy and without enough rods the money dropped in at the top will fall into the metal jaws below that eats and destroys the money.

This is an exhibit where there is a room with white walls and projected on the walls will be picutres of more furniture.  The TV will show news reports from the time about inflation and simultaneously the furniture displayed on the walls will start to get old and shabby, disappear and so on (or so I understood, my Portuguese needs work so caveat emptor).

Finally an amusing (and sad) anecdote.  There was one person in government responsible for making what was essentially the old currency and new currency exchange rate daily which was a key provision of the real plan.  [Click here for one of those pithy Planet Money takes on the process]  Since it was ended in 1995, he has been continuously tied up in lawsuits - people have tried to sue him for damages. He now works at FGV, where I am a research fellow.  The American was shocked that individual government workers could be sued for doing their job to implement legal government policy.  But apparently in Brazil it is very common.  One of the guys I was talking to said that the problem with getting good people in government is that there is a substantial risk of ending up with a negative salary from having to defend yourself in court.  Anyway the happy ending is that the very last lawsuit was successfully defended last week and now he can enjoy the twilight of his life.  Every single lawsuit failed.

Some Friday Reads

I am on my way back to Brazil to continue my research on child labor, education and adult outcomes next week, so look for sporadic posting with a decided southern hemisphere twist.  I am heading into the depths of winter there so I am packing all my warm winter clothes...

And since I have a lot to get organized between now and my Monday departure here are a few interesting reads for a hot and sultry Friday afternoon.

Six Policies Economists Love (and Politicians Hate) (from NPRs Planet Money)

Central Planning in History (from the Why Nations Fail blog) 

Can Capitalism Survive Climate Change? (from Berfrois)

Is Simple Demography Behind Weak Economy? (from the NY Times)

Enjoy the weekend!

Picture of the Day: Taxes in Comparison

From the New York Times with an accompanying article about taxes and services.  Not sure we want to be Italy, yikes, but Germany always makes an interesting comparator: high income country with a humming economy and yet a cripplingly high tax burden.  Go figure.

My take has always been that the focus on the tax burden is wrong, the focus should be on how the money is spent and how government services can enhance growth prospects through things like education.  One of the big conundrums of the US is that a lot of money is being spent on healthcare - much more than other industrialized countries - with worse outcomes.  Which is the same as saying we are spending money inefficiently.

Oregon July Unemployment Rises to 8.7%

The July Oregon employment numbers are out today and the news is...okay.  Oregon added 1,800 jobs on a seasonally adjusted basis and the unemployment rate rose to 8.7% from 8.5%. 

Doldrums.

Eco-nomics: The Law if Unintended Consequences

Here, via The New York Times, is a cautionary tale of what happens when well meaning policy makers don't fully understand the science.

When the United Nations wanted to help slow climate change, it established what seemed a sensible system.

Greenhouse gases were rated based on their power to warm the atmosphere. The more dangerous the gas, the more that manufacturers in developing nations would be compensated as they reduced their emissions.

But where the United Nations envisioned environmental reform, some manufacturers of gases used in air-conditioning and refrigeration saw a lucrative business opportunity.

They quickly figured out that they could earn one carbon credit by eliminating one ton of carbon dioxide, but could earn more than 11,000 credits by simply destroying a ton of an obscure waste gas normally released in the manufacturing of a widely used coolant gas. That is because that byproduct has a huge global warming effect. The credits could be sold on international markets, earning tens of millions of dollars a year.

That incentive has driven plants in the developing world not only to increase production of the coolant gas but also to keep it high — a huge problem because the coolant itself contributes to global warming and depletes the ozone layer. That coolant gas is being phased out under a global treaty, but the effort has been a struggle.

The moral for this economist is that people respond to incentives and so it is critical to understand all of the incentives before implementing policy.

Perhaps the other moral is that you need to build in flexibility in policies so that you can quickly respond to unintended consequences.

Or perhaps the real moral is that the world clearly needs is more economists!

More Olympic Ranting

Okay so now that I have sounded off on swimming and the limitations of fencing as a spectator sport, why stop there?

So: firing a projectile at a target.  How many ways do we need to do this?  Answer, one.  And the one is obvious - archery is the only legitimate 'sport.'  Self propelled bullets need not apply.

Horses: are not humans.  Get your own olympics.  I want to see no more of horse jumping and dressage.

Anything that requires perfect synchronization with another person is not a sport.  Full stop.  No more synchronized swimming, diving and anything else.

Bicycling: you get to ride down a road from point a to point b.  First person there wins. Done.  No more track cycling.  After all there is no indoor track and field, why do we need both road and track cycling.  Answer: we don't.  [Yes, I know that velodromes can be both outdoor and indoor...]

Rhythmic gymnastics: no.

Finally, if you are going to have a canoe race, use a canoe.

This is not a canoe.

A commentator suggested there are too many ways to throw s*#%! in the olympics (though I think it was meant to be taken sarcastically).  But I am not against throwing stuff, I can see how javelin is different than shit put which is different than discus and so on.  Hammer throw is pushing it I suppose, but on the list of transgressions, it is down there.  

Oh and finally: sorry Canada, you were robbed.  A six second call on a keeper and then a questionable handball in the box??  Disgraceful.

On Inequality in the US

Dan Airely writes in The Atlantic about inequality in the US and how it corresponds to what we think it is and what we want in terms of an ideal income distribution.  Here it is in one neat graph:

Each column is a quintile of the population arranged from poorest to richest.  The height of the bars is the percentage of the income each quintile earns.  To fix ideas, in a completely equal society, each quintile would earn exactly 20% of the income.  From this you get a pretty good idea of how unequal the US really is (white bars).  What is interesting is how unequal the typical American thinks we are (the striped bars) - the typical American has a wildly inaccurate view of reality.  And perhaps even more interesting is how the typical American would ideally like the nations inequality to be.

Airely started with Rawls' concept of a just society being one in which a person would be willing to be inserted at random and then asked respondents to describe an income distribution into which they would be willing to be randomly inserted.  The results are above and are quite different from the reality and the perceived reality.

There is one problem with the way the question was asked, however, which is that most Americans don't think that randomness has much to do with where you are on the income distribution, I suspect.

Robert Frank in Sunday's Times writes about luck versus talent and effort and suggests that luck may have a lot more to do with success than we like to believe.  How much you believe this probably shapes how you fell about equality (not the only thing of course, much of it is a moral judgement regardless of luck).

US Employment Update

The US added 163,000 jobs in July, a good number but not fantastic. [BLS report is here] This is what counts for good news however in this moribund recovery.  I a previously 'normal' recovery we should be seeing 250,000 new jobs by now, but this is the new normal.  The unemployment rate ticked up to 8.3% but this is inconsequential, what matters now is new jobs.

The Wall Street Journal has an interesting note about warm winter weather and the lingering depressing effect on job gains in the spring (from which this graph is taken):

The unusual weather spanning 2011′s close and the starting months of this year is widely believed to have disrupted economic activity in a way that goosed up all manner of data at the start of the year. The unexpected weakness that began to emerge in the numbers from the spring forward has been at least partially attributable to some give back from accelerated gains that marked 2012′s opening months, in the view of many.

Perhaps but job gains were not affected so much that it would make a substantial difference.

Economists Notebook: Olympic Swimming

I have a problem with Olympic swimming. Why are there so many different varieties of swimming and do we really need them all?

Can you really consider it a spot when we have to put so many constraints on how it is done?  Yesterday an Austrian swimmer was DQ-ed because he failed to keep his hands apart for the obligatory instant upon making a turn.  Really?  We place no such restrictions on runners, do we? What I want to see is a 100 meter, 200 meter, and 400 meter swim. I don't care how you do it save for you can't leave before the gun.  Ready, steady, go!  Okay so you can have a relay version of one or two but that is it!

I mean it is not like we have the 100 meter sprint, the 100 meter backward sprint, the 100 meter sideways shuffle, etc.  Maybe it is just that track has missed the boat into pioneering new ways to run...

Which is also why though I am impressed by Michael Phelps' achievement, I am not that impressed.  It is pretty much the same skills across different styles and there are so many relay versions that a for a good swimmer, racking up medals is relatively easy.  

Now, don't get me started about speed walking....

And since I am on a roll, is fencing the worst spectator sport ever?  Yes.  I have a big giant HD TV and I cannot see the swordplay for the life of me.  Now two people dressed up in knights armor smashing themselves with claymores would be a spectator sport...

On Investment Now

The criticism about Keynesian responses to the economic doldrums relies on the premise that piling on more government debt will actually be harmful.  How is not clear, debt is a bad thing say critics and this will lead to higher borrowing costs a la Greece and Spain. But the US faces vanishingly low interest rates for borrowing money at the moment despite the run up in debt.  Yes, structural budget problems are a concern, but fiscal stimulus is not about introducing new entitlements. Bob Frank in his New York Times column recently did, as is his wont, a very nice job making the case for investment now in elegant simplicity:

Some people object to the additional government debt that infrastructure repairs would require. As austerity proponents like to say, governments can’t spend beyond their means indefinitely, any more than businesses or families can. It’s a fair statement if we’re talking about the long run. But in the short run, it’s utterly false. When prudent investment opportunities arise, families, businesses, and governments can and should spend more than they take in.

Consider an indebted family that must decide whether to borrow $5,000 to install additional insulation in its attic, a project that would reduce its utility bills by an average of $100 a month and require loan payments of $50 a month. In the short run, obviously, the project would increase the family’s indebtedness. But can there be any doubt that the family would be better off, in both the short and the long run, by going ahead with it? Even while making payments on the loan, it would have $50 more each month. And once the loan was paid off, it would have $100 a month more. What possible argument could be offered against this project?

The same logic applies to overdue infrastructure investments. Yes, paying for them requires more government debt. And while austerity advocates fret that such projects will impoverish our grandchildren, they concede that the investments can’t be postponed indefinitely, and that they’ll become much more expensive the longer we wait.

My only gripe is that it is not at all clear that we have the infrastructure projects ready to go to invest in, it seems we have done a pretty good job getting the shovel-ready projects going the first time around.  But block grants tot the states would be a good place to start so that we can invest in educating our kids and that is an investment that pays off in spades...

Picture of the Day: Youth Unemployment

From the Financial Times:

The share of American 18- to 24-year-olds who were employed fell to 54 per cent last year, the lowest since the labour department began tracking data in 1948, according to the Pew Research Center. The share who are in college has risen, but the researchers say this only partly explains the drop. The jobless rate for Americans age 16 to 24 is above 16 per cent, more than twice the national rate.