Book reviews: “The price of everything” and “Zombie Economics”

I recently discovered the basement at Blackwell’s in Oxford and the surprisingly large economics section (ht: von Bel!)… The good thing about hanging out in a bookstore is that you buy stuff you’re not necessarily looking for, hence you broaden your horizon… or not… anyway, I bought two books I hadn’t heard of. The first one is “The price of everything” by Eduardo Porter, a journalist at the NY Times, who also worked at the Wall Street Journal. I’m not sure what to think of this book. The comments on the cover suggest the book is enthralling, enlightening, and full of freakonomicsy nuggets… I wouldn’t go that far. It starts off with a chapter on how humans make decisions following subconscious cost-benefit analyses, as if the journalist had just discovered economics and found it so powerful. He then devotes chapters to the economics of happiness, climate change, intellectual property, always explaining why all these concepts can be valued using a dollar number. He’s quite good at vulgarizing research, but by doing so he oversells the results quite a bit… His concluding chapter covers the financial collapse, warning that prices often fail… Weird for a book which point seem to have been to put a price on everything…

The second book is Zombie economics by John Quiggin, an econ professor in Australia. This book deserves some merit just for the marketing, comparing dangerous conservative ideas, such as trickle-down economics, privatization, of the efficient market hypothesis, to zombies that just won’t die and still walk among us. But it turns out to be a bit boring.  Maybe this is because since 2010, when it was first published, many people have been repeating the same thing about the uselessness of modern macroeconomics. . No DSGE economists had anything to contribute to the policy debate. His quote of Gregory Clark is quite a good summary:

“The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1.  What is the multiplier from government spending?  Does government spending crowd out private spending?  How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner.  The bailout debate has also been conducted in terms that would be quite familiar to economists in the 1920s and 1930s.  There has essentially been no advance in our knowledge in 80 years.”

Despite the great cover art, the book is not so good at vulgarizing economic concepts such as DSGE models. So while it becomes clear to the reader that DSGE models were useless in helping policymakers act during the crisis, it is not no clear why so many economists like them so much, apart from their elegance. It is nonetheless a good overview of the history of economic thought in the last century. A new chapter offers straight-up Keynesianism and warns of the dangers of austerity during a recession. He then concludes that macro should include more behavioural stuff like loss aversion and that welfare states are the best way to manage economic fluctuations... Sounds quite obvious nowadays, maybe it wasn’t when he was writing the book. 

Blackjack in stata (wonkish)

You can do much more with stata than run regressions. Here's how you play blackjack:

 ht: Justin Wolfers.

New econ dept. ranking based on research output

Actually an update of this Tilburg-based ranking, based on research produced between 2007 and 2011.

Rank	University
1	HARVARD UNIVERSITY
2	UNIVERSITY OF CHICAGO
3	NEW YORK UNIVERSITY
4	UNIVERSITY OF CALIFORNIA, BERKELEY
5	MIT
6	STANFORD UNIVERSITY
7	COLUMBIA UNIVERSITY
8	YALE UNIVERSITY
9	NORTHWESTERN UNIVERSITY
10	UNIVERSITY OF PENNSYLVANIA
11	LSE
12	UNIVERSITY OF MICHIGAN
13	DUKE UNIVERSITY
14	UNIVERSITY OF OXFORD
15	PRINCETON UNIVERSITY
16	UNIVERSITY OF CALIFORNIA, LOS ANGELES
17	UNIVERSITY OF TORONTO
18	CORNELL UNIVERSITY
19	UNIVERSITY OF MARYLAND
20	UNIVERSITY OF CALIFORNIA, SAN DIEGO

Book review: An economist gets lunch, by Tyler Cowen

Tyler Cowen gets it when it comes to food. He wants to eat tasty stuff at every meal. He knows there is good food everywhere, if you know where to look. And he understands the economic forces that shape food consumption.

His latest book is "An economist gets lunch: New Rules for Everyday Foodies". The two best chapters of the book are “How to find a good place to eat” and “Why does food taste different in the US and Mexico”. The rest is too random, i.e. a chapter about barbecue variations across states, a chapter about which kitchen technology he uses. What?

So why is food different in El Paso and Ciudad Juarez, despite the same population, same geography, and same history? Food-safety regulation, much stricter north of the border, leads to refrigerated but less tasty meat and vegetables, a different selection of cheese, and make it harder to dig a hole for a traditional barbecue.

How to find a good place to eat? Well, he makes many good points without structuring them and convincing us about each of them but here are some rule-of-thumbs. Food is best where labour is cheap, ingredients are fresh, and consumers are informed. Sounds obvious? Maybe, but would you have realized it explains why food in Mahajanga , on the west coast of Madagascar, is much better than in Paris? The fresh seafood, the 5 maids cooking, the shredded green mango, the cucumber salad. As simple as that!

These principles can somehow explain the English food revival as England imports tons of cheap labour from France, Poland, Italy, and Spain that ends up working in restaurants, allowing for affordable labour-intensive delicacies.

Having lived and travelled to a bunch of places I agree with much of his statements, while he may be a bit too quick to generalize from his random observations across Europe. He definitely knows where to eat the best ethnic food in the US, and having had the best Thai of my life from a street cart in Denver, some amazing ceviche in a strip mall in Virginia, and amazing tostadas in the streets of Panajachel, I’m happy to see that such an enlightened thinker validates my impressions.  He understands why a street hot dog in Copenhagen is better than a dinner in a random 4-star hotel.

While all his arguments are good, he doesn’t spend enough time structuring them for a more convincing effect. When reading his book, I get the impression he sat, wrote, and the publisher printed. He seems to want to get it out too fast like a blog post. Some mistakes here and there get irritating. For example, he writes about tacos del pastor, rather than tacos al pastor, or mention food from the Reunion islands. The Reunion is only one island. He translates “sous vide” as slow vacuum, but there is no mention of speed in “sous vide”.

And while he definitely makes it clear that there is an abundant supply or amazing food around the world, the greatest puzzle remains. Why does taste disappear with development? Cheap labour and fresh ingredients disappear (unless cheap migrants come in like in the US or the UK, but then these will disappear with development). As I noted on Rigotnomics two years ago, I never eaten as well as in Madagascar, where zebu carpaccio and mango foie gras are ubiquitous and extremely cheap. In rich countries such as Switzerland, service is boring at its best, food, even in the most expensive places, is ordinary. Now that is a question to address.

How poor is Japan?

The Economist has a Daily Chart about Japan being overtaken by Asian Tigers in terms of living standards. As it writes, "most economists reckon that the best way to compare living standards is to take GDP per person measured at purchasing-power parity (PPP)". In other words, the Japanese are now able to consume less stuff then the Tigers, including South Korea in a near future. That is indeed remarkable, when one thinks about where South Korea started in 1980.

But what is also remarkable is that when GDP per capita is measured at market exchange rates, Japan is still the richest (Taiwan is not in the graph below due to Chinese interference).

Is this because the yen is worth too much, boosting Japan's GDP per capita at market exchange rates? The yen has indeed been appreciating quite a lot against the dollar since 1980. Or is it because goods are too expensive in Japan, reducing people's purchasing power? Maybe goods are too expensive because Japan is too protectionist, not allowing cheap Chinese goods to flow in. Or maybe its goods are of higher quality, something PPP exchange rates capture rather imperfectly. 


So here's what's weird. When the Japanese travel to the US, there are much richer than the Koreans. But back home, they both live as comfortably. Do they really?

How not to go Nash in a prisonner's dilemma (wonkish)

Discussion here.

ht: Friedschmidt

Heading the World Bank

The debate around who had to become the new head of the World Bank has been quite fierce, on blogs and on twitter. Now yesterday it was just revealed (surprise surprise) that Jim, the US's choice, was to become the new boss. Many are angry because this is a continuation of a political arrangement between Europe and the US, rather than a transparent selection process. But having Jim head the bank is certainly gonna be interesting, mostly because he comes as a complete outsider. The Economist had strongly backed the Nigerian candidate, stating that she was by far more qualified. Yet as I outlined in a letter to the editor, it wasn't so clear:

Sir,
Your leader on who is to head the World Bank is somewhat contradictory. On one hand you say that development is not something rich countries do to poor ones. On the other you claim that an experienced economist should head the Bank because the Bank is about bringing development.
In any case it seems to me the mandate of the Bank goes against recent advances in development economics. One the one hand the randomistas argue that small and targeted aid projects in health and education do have a positive impact on the treated. On the other macroeconomists like Acemoglu and Robinson argue that growth cannot come through outside help. As Easterly reviews their recent book, "Why Nations Fail", he puts it simply: “experts cannot engineer prosperity with the right advice to rulers on policies and institutions. Rulers "get it wrong not by mistake or ignorance but on purpose."”
Has the World Bank helped poor countries by suggesting the right policies? Nope. Can it? Of course not. Why stick to a failed model? Better stick to assistance projects that can actually make a difference. And for that Jim Yong Kim may be the right candidate. For sure it makes no sense to have Obama decide who is to head the Bank. But this doesn’t mean this is an obvious choice. There is no doubt that Ngozi Okonjo-Iweala is one of the world’s best hopes for development. Yet the main advantage of having Jim head the Bank is that Ngozi avoids useless meetings in DC and remains where she can change the world, i.e. in Nigeria.

And a few days later Acemoglu and Robinson said the same thing on their blog:

Perhaps the Bank could focus on doing a few things such as investing in health infrastructure, hospitals, perhaps some educational facilities targeted for the most disadvantaged populations in only the parts of the world that are most in need... perhaps this year offers another historic opportunity: to change the vision and structure of the World Bank.

EconAcademics.org

Rigotnomics is now on RePec:

The Federal Reserve Bank of St. Louis is lauching a blog aggregator,  EconomicAcademics.org, to highlight and promote the discussion of  economics research. Your blog is part of this effort. This email explains  why and how you can help promote the discussion of economic research in  the blogosphere. 

EconAcademics.org aggregates blog  posts that discuss economic research. The aggregator looks through blog  posts for a link to some research indexed on a RePEc service... IDEAS then also links back from the abstract  page to the blog posts... 

This blog aggregator is provided by the Federal Reserve Bank of St.  Louis, which also offers with FRED database and graphing tool as a useful  resources for bloggers. Feel free to use the graphs on your blog, best  done by embedding them so that readers can click on them to get more  details about the data....

Also, ... if you have a topical blog, you can have the  latest papers in your field featured in an RSS widget. See  http://nep.repec.org/. If you have suggestions, comments, or questions, do not hesitate to  contact me.

Sincerely, 

Christian Zimmermann

Rodrik on UNCTAD

Rich countries want to reduce UNCTAD's work on macro/finance. Pity since UNCTAD reports are far more value-for-money than World Bank WDRs. -- Dani Rodrik (@rodrikdani)

Accessing World Bank Data in Stata

Via Vox.LACEA via facebook:

In stata window type:

"ssc install wbopendata"

then,

"db wbopendata"

 A box like this should appear:

And you're set! More here.

Reviews of "Why Nations Fail"

Still wondering whether reading "Why nations fail" by Acemoglu and Robinson will be worth the time. Here are three good reviews:

Fukuyama in The American Interest: "A theory of development that can’t really explain the most remarkable growth story of our time [China] is not, it seems to me, much of a theory."

Easterly in the Wall Street Journal: ""Why Nations Fail" also offers this crucial insight: Experts cannot engineer prosperity with the right advice to rulers on policies and institutions. Rulers "get it wrong not by mistake or ignorance but on purpose.""

Paul Collier in The Guardian: "The foundations of prosperity are political struggle against privilege."

Book Review: Scorecasting by Moskowitz and Wertheim

Scorecasting is one of these books like Nudge and Freakonomics that is just pure pleasure to go through, page after page. The focus here is on sports. The academic author is professor of finance at U of Chicago, the journalist works for Sports Illustrated. What a great duo. The number crunching is brilliantly merged with anecdotes to make derangingly-convincing arguments. The longest chapter debunks the reasons behind the home-field advantage, i.e. the fact that in every sport, from basketball to international cricket, the home team wins more than 50% of the games. Most would guess this comes from players playing better at home as they have the backing of fans, they know their field, and they’re not tired from travelling. The authors rule against these explanations one by one, for example by analyzing all kinds of player-performance indicators, and finding no difference between home and away.  They then argue referee bias is actually the main reason behind the advantage. That is because referees are in essence human, and they unconsciously wanna please the crowd. Using baseball data, they show that umpires are more likely to favor the home team on tough calls, where the line between a ball and a strike is very thin. When there are no fans, such as in 21 games in Italian soccer in 2007, they show that players at home play as well as away, as usual. However, the home bias in favorable calls drops by 23%. They explain these phenomena using insights from behavioral economics, such as loss aversion, the endowment effect, or the omission bias. The latter may explain why referees often swallow the whistle so as not to decide the outcome of a game, like when a foot fault was called on Serena Williams in the last game of her semi-final at the US Open… the call was right, but fans would rather have seen an everlasting rally. Serena let the line judge understand that it was a bad idea. Squeezing the ball in her hand, she gently told her: “If I could, I would take this fucking ball and shove it down your fucking throat”.

How Facebook connections mirror old empires

Greece facts of the day

• It costs less to transport agricultural products from Central America to Greece by ship than it costs to transport them within Greece by truck
• Greece’s railroad company has more employees than passengers
• you offer the printing press to this political system, it will just go back to business as usual. It is by cutting off their access to cash, by remaining in the euro, that you can force political change along with economic change

These are from a new Vox column by Miranda Xafa.    

Ruling Uzbekistan like in a James Bond movie

Acemoglu and Robinson just started a blog to accompany the launch of their new book, Why Nations Fail (reviewed by The Economist here). A recent post focuses on extractive institutions in Uzbekistan and stars none other than the repressive president's daughter, Gulnara (pictured below and more pics here) (Karimov has been President since 1991). Here's an anecdote:

Part of Uzbekistan is also ideal for growing tea. Interspan, a US company, invested heavily. But by 2006, Karimov’s daughter, Harvard graduate and international jet setter, Gulnara Karimova, had taken an interest in this market. Gulnara is a woman of many talents as you can see from her web page. For example she hangs out with rock stars like Sting and even duets with Julio Iglesias. Gulnara’s interest meant taking over Interspan’s assets and business. And this was not going to be by making an attractive offer. The company reports that men with machine guns, allegedly working for the Uzbek intelligence services, entered its offices and warehouses, and seized its assets and inventory. Its personnel were arrested and tortured. By August 2006, the company pulled out of Uzbekistan, and tea was now a Karimov family monopoly. The tea market is not the only one which Gulnara Karimova is said to have used coercion and expropriation to have taken control of. She has allegedly acquired shares in the Coca-Cola bottling franchise and in the oil sector through similar means, and controls the largest mobile phone operator, and has major interests in several other sectors, including cement and nightclubs. (Ironically, one of Karimov’s other daughters, Lola, is a “campaigner for the rights of children”!).

Two questions. Do people actually still wonder why Uzbekistan is poor? And second, who would've thought the line between perfection and insanity was so thin indeed?

Latex vs. powerpoint: Distribution across quality levels (wonkish)

In other words, all very bad presentations are powerpoint, and all very good ones are powerpoint. If you wanna signal you are not a 'very bad' candidate, using latex is a good idea.

A new boss for the World Bank

Given his usual lack of bold moves, it is highly unlikely that Obama will end the shameful practice of the US designating the World Bank boss in June when Zoellick steps down. So who is the US gonna pick? Here are some contenders: Larry Summers, Bill or Hilary Clinton, Susan Rice blah blah blah... Jeffrey Sachs writes in the Washington Post that he wants the job. Is this an important decision? Yes.

Clive Crook, from The Atlantic, puts it best:

If you need convincing about what's at stake, read Nancy Birdsall of the Center for Global Development. The World Bank's chief has enormous power within the institution, and the Bank needs to follow a substantially new course in future. The returns to choosing the right person to lead it would therefore be huge. Should it be an another American? Not in my view. The indefensible pact which gives this job to the US and the IMF job to Europe should be abrogated, and should be seen to be abrogated. If not now, when? If not by Obama, by whom? This requires a non-American to get the post. In a separate post, Birdsall disagrees. She thinks what matters is that the open, merit-based competitive process that's already supposed to be in place should be allowed to work. Then, if an American is chosen, fine. "Should an American end up as president, he or she would benefit tremendously from the legitimacy that only an open selection process can bestow." No doubt. But in that case how do you convince people that the process is what it claims to be? I'm willing to bet that neither of us will get our way.

Tracking flows of people in Geneva

Suggested reading

Why DSGE models have a conservative bias

Why political reforms are so hard in the wake of crises

Your right arm for a publication in the AER? (ht: Antonio Mele)

Book review: Treasure Islands by Nicholas Shaxson

Treasure Islands is a book about tax havens by a journalist who’s written for the FT and The Economist. It claims that tax havens and the whole offshore finance system is the reason behind all of the world’s ills including rising inequalities (the rich don’t pay taxes), the financial crisis, and poverty in Africa (oil, mineral and foreign aid money is welcomed with open arms in Geneva and the City of London which can hide it using its web of offshore satellites (Jersey, Cayman Islands, Bahamas etc…)). While the book can sometimes be vague and repetitive, it is full of interesting anecdotes, historical facts, and is a fresh reminder that something is rotten with the world economy. We no longer live in democracies but rather in plutocracies where money determines policies. This explains why offshore finance is “legal” and rich people pay no taxes while governments try to suck as much as possible out of the average joe. Tackling tax havens should be a priority, and it’s a much better idea than cutting pensions to reduce the debt burden of Greece. According to the book, 99% of deposits from Greece in Switzerland are undeclared to tax authorities.

Stand Up Economist

Many of our beloved colleagues are currently going through the hideous job market process......if all else fails (which I'm sure it won't!!!!!!!!!!!!), they could follow in the footsteps of this guy and become a stand up comedian.

I'm working my way through the vids, but my favourite so far is his take on the age old phenomenon of 's***t happens'.

How to express your love

Fourteen ways to express your love.

Spending Cuts In Greece

In all the drama about the Greece debt mess, here is something that I'm really surprised hasn't been well publicised. According to this article, apparently austerity cuts don't apply to the Greek defence sector. That is is, in the current talks, Germany and France are forcing Greece to continue to shell out billions of Euros on fighter jets, tanks and other defence related materiel as a condition of receiving further bailout funds.

A couple of questions come to mind:

1. Why does Greece even need to buy so much weaponry in the first place? It doesn't really face any potential aggressors in the region, and even if it did, NATO's collective action clauses mean they are shielded by the security umbrella of the rest of Europe and the USA in any case.

2. Why force the Greek people to bear the full costs of cuts, while meanwhile fully shielding the defence sector? If you have to make cuts as Greece does, everyone should be affected. Moreover, you should try and trim the fat in places you can while doing the least harm that you possibly can to people. Seems to me that the defence sector should be a prime candidate to cut in this fashion, since buying guns and tanks is not even productive investment, while cutting social expenditures is certainly harmful for welfare.

Whilst the motive for French and German authorities is obvious - it is to protect the bottom line of companies in the German and French defence industries and by extension the jobs of people in these companies - for me there is something sickening about forcing Greece to buy these (totally unecessary) machines of death and therefore forcing ordinary Greeks to bear the full brunt (and an unfair portion) of austerity cuts.

If US cities were countries

OK this map is old and it's the second post I steal from Richard Florida in 2 days. But still, I thought it was interesting enough. New York produces as much as Canada, San Francisco as Thailand, Chicago as Switzerland, and LA as the Netherlands.

Where are the good music groups from?

Last year I became interested in identifying the determinants of good music. Why were some years better than others, why were some countries better than others at producing good recording artists? So far I only managed to examine the time dimension, as the data I had covered mostly the US and the UK. I found that music was better in high-growth years and in high- (but not too high) inflation years.

Now Patrick Adler, a grad student in Urban Planning at UCLA, gathered locational data on the 2012 Coachella acts (Coachella is now one of the biggest music festivals in the US).

Unsurprisingly, most acts are from London, LA, and New York. What is more surprising is the performance of Stockholm and Austin. If we control for population size, these cities now rank first and second as the biggest suppliers of bands.

It would be interesting to gather a dataset covering all festivals and then check what are the city-level determinants of good music. For sure, population matters. And so does agglomeration. As Richard Florida, writing for The Atlantic, from which I have taken these graphs, writes, "the world of popular music is spiky. More than two-thirds of Coachella’s international roster of acts (71 percent) hail from just 14 metros.  And four in 10 (43 percent) come from the “big three” of London, LA, or New York."

Book Review: Borderless Economics by Robert Guest

Last November The Economist had a special report on the magic of diasporas (discussed on this blog). Most of it was based on Borderless Economics, a new book by Robert Guest, the magazine's business editor. His main arguments are that migrants matter much more than politicians realize, mostly because they help the flow of information between countries and thus create many business opportunities. He argues that the US is well-positioned as it welcomes people from everywhere and makes them feel at home, whatever their background and tastes. He actually devotes a chapter to explain how great the US is. That was unexpected!

While I didn't feel dazzled by this book, I devoured it effortlessly. The stories it tells are quite entertaining and help us understand how migration helps innovation and commerce. What he doesn't discuss is that sometimes network are a bad thing, not because they exist in organized crime (which he discusses), but because they exclude outsiders who could bring new ideas, and because they favour friends over talent.

At the end of his book he suggests citizens from rich countries should be allowed to go live and work everywhere, mostly because that is much more likely to happen any time soon than the opening of borders to citizens from poor countries.

By the way, this is the first book I read on my kindle and I am now a convinced adept.

Why is Swiss unemployment so low?

Tyler Cowen wonders. Any other ideas?

Extra virgin Italian?

Seems like some of the extra virgin Italian olive oil we've been buying may not be Italian after all, nor extra virgin for that matter. Italian olive oil, deemed to be the best, sells at a premium. But very few consumers can tell the difference between a cheap Spanish olive oil and a top Italian one. Hence, the Mafia had an opportunity to make money buying cheap oil from Spain, Greece, Tunisia and Morocco, and re-exporting it as Italian extra virgin olive oil. As the Guardian reports, a "prominent importer, Leonardo Marseglia – appropriately based in a town called Monopoli – has variously been accused of selling cheap non-European oils as Italian ones, fudging documents to shirk import tariffs and forming a criminal network to smuggle contraband."

Apparently, this is an old story. But according to the Guardian, it's still going on. I had a quick look at the data to see if anything weird was going on. First I checked whether there were missing imports of olive oil in Italy, i.e. whether oil from Greece, Spain, Tunisia and Morocco was imported illegally in Italy. As seen below, it doesn't seem to be the case, as Italy imports more from these countries than they actually export (in kg). Where these extra kg come from is a mystery, but it could be that exports are not reported properly in North Africa.

I then checked whether imports from Spain, Greece, Tunisia and Morocco actually predicted Italian exports. I find little co-movement in quantities, suggesting the illegal transshipment may not be so important as to appear in aggregate figures. However, Italy imports much more olive oil than it exports. And if we look at trade values, imports and exports seem to move together. I guess this is because Italians consume more olive oil than they produce while their exports almost pay for it all. Nice gains from trade?