Another reason why that treaty with China over climate change won’t count much
25 Mar 2015 1 Comment
in environmental economics, global warming, politics - USA Tags: China, climate alarmism, global warming
Gentlemen Reading Each Others’ Mail: A Brief History of Diplomatic Spying as a force for peace and nuclear stability
24 Mar 2015 Leave a comment
in politics - New Zealand, politics - USA, war and peace Tags: game theory, mutually assured destruction, nuclear deterrence, nuclear war, Ronald Reagan
At the 2009 G20 meetings in London, GCHQ set up fake internet cafes for delegates to use to log their keystrokes. If you are dumb enough to use an Internet cafe for official business, you deserve to be spied on.
Barack Obama, even with special encryption software, is now allowed to email only some 20 aides, family members and friends whose devices have similar protections.
All this spy v. spy stuff is a force for peace. At the 1921 Naval conference aimed to limit naval capability among the world’s powers as a way of curbing the war-ship arms race at the time, the U.S. wanted Japan to concede to having fewer ships, but Japan wanted slightly more. With code-cracking, the U.S. discovered that it was more important to the Japanese to preserve their relationship with the U.S. than to be able to spend more on their navy.
“We pressed hard, and Japan abandoned its position that it wanted to build more,” Kahn said. “We won a great victory for not just the U.S., but for the whole world because we built fewer war ships and we had more money to build roads and for other infrastructure.”
Richard Posner in a lecture some years ago talked about how useful spying was during the cold war. Each side develop a far more accurate appreciation of the other’s strengths. As a result, it did not overreact nor under react to threats. For example, it was through U-2 spying that the USA learned that there was no missile gap with Russia. In fact, Russia is very weak and much less of a threat.
In 1983, Ronald Reagan learned through secret intelligence that through a series of misinterpretations of routine military manoeuvres in Western Europe, and some bureaucrats at Russian embassies trying to inflate their own importance and knowledge of the workings of their host governments, the Soviet leadership came to the impression that they were a ruse for war and they were under the threat of imminent attack. The Russians started to prepare to counter attack.
At the same time, a Korean airline was shot down by the Russian air force. Privately, Reagan and his advisers are horrified that such a thing could happen through a comedy of errors and that could lead to something far worse through mutual alarm and tests of will.
Historians now regard 1983 as the closest time there was a possibility of a nuclear war since the Cuban missile crisis. It all arose through a series of misunderstandings of a series of routine military manoeuvres against a background of worsening relations with the Soviet union. Robert Gates, Deputy Director for Intelligence in 1983, has published thoughts on the exercise that dispute this conclusion:
Information about the peculiar and remarkably skewed frame of mind of the Soviet leaders during those times that has emerged since the collapse of the Soviet Union makes me think there is a good chance—with all of the other events in 1983—that they really felt a NATO attack was at least possible and that they took a number of measures to enhance their military readiness short of mobilization.
After going through the experience at the time, then through the post-mortems, and now through the documents, I don’t think the Soviets were crying wolf. They may not have believed a NATO attack was imminent in November 1983, but they did seem to believe that the situation was very dangerous. And US intelligence [SNIE 11–9-84 and SNIE 11–10–84] had failed to grasp the true extent of their anxiety.
This secret intelligence led Reagan to both reappraise his attitude to the Russians and put out some peace feelers and take other stabilising measures. The period is known as the Reagan reversal. In his memoirs, Reagan wrote of a 1983 realization:
Three years had taught me something surprising about the Russians: Many people at the top of the Soviet hierarchy were genuinely afraid of America and Americans. Perhaps this shouldn’t have surprised me, but it did…
During my first years in Washington, I think many of us in the administration took it for granted that the Russians, like ourselves, considered it unthinkable that the United States would launch a first strike against them.
But the more experience I had with Soviet leaders and other heads of state who knew them, the more I began to realize that many Soviet officials feared us not only as adversaries but as potential aggressors who might hurl nuclear weapons at them in a first strike…
Well, if that was the case, I was even more anxious to get a top Soviet leader in a room alone and try to convince him we had no designs on the Soviet Union and Russians had nothing to fear from us.
Reagan began seeking a rapprochement with the Kremlin fifteen months before Gorbachev took office. Reagan spoke of common concerns, the mutual desire for peace and the urgent need to address “dangerous misunderstandings” between Moscow and Washington.
via Gentlemen Reading Each Others’ Mail: A Brief History of Diplomatic Spying — The Atlantic, L. Gordon Crovitz: Gentlemen Read Each Other’s Mail – WSJ and Able Archer 83 – Wikipedia, the free encyclopedia.
How you adjust for inflation makes a big difference to long-term wages growth
24 Mar 2015 Leave a comment
in applied welfare economics, politics - USA
There are several measures of inflation. The measure that is used will have a substantial impact on reported growth in real wages.
via Where Has All the Income Gone? | Federal Reserve Bank of Minneapolis.
How conservative are the Republican presidential candidates?
24 Mar 2015 Leave a comment
in politics - USA Tags: 2016 presidential election
In Defence of Negativity in Politics – John G. Geer
24 Mar 2015 Leave a comment
in economics of information, economics of media and culture, politics - Australia, politics - New Zealand, politics - USA, Public Choice Tags: Attack Ads, expressive voting, John G. Geer, political psychology, rational ignorance, rational irrationality
John G. Geer, author of In Defense of Negativity: Attack Ads in Presidential Campaigns, argues that negative ads are positive. They focus on important political issues and give voters critical information about differences between candidates. Attack ads do not degrade, but rather enrich the democratic process. When political candidates attack each other, they raise doubts about each other’s views and qualifications. Voters—and the democratic process—benefit from this clash of opinions.
The Great Enrichment – cost of household appliances version
23 Mar 2015 Leave a comment
in politics - USA, technological progress Tags: living standards, The Great Enrichment
we find that people at all income levels now have access to many more material possessions than they did in the 1980s. Moreover, there has been a narrowing of the gap between high and low-income classes in terms of ownership of these items.
It is hard to argue against the improvement in the standard of living that has accompanied these trends. Hence, the standard narrative that rising income inequality has somehow hurt the middle and lower-income classes is not supported by data.
Kabul, 1972
23 Mar 2015 Leave a comment
in economic history, economics of religion, politics - USA Tags: Afghanistan, Islam, women's rights
The Guardian on the strength of the scientific consensus on global warming and on GMOs
22 Mar 2015 Leave a comment
in environmental economics, health economics, politics - Australia, politics - New Zealand, politics - USA
I marvel at the ability of The Guardian to launch a diatribe against science deniers on GMOs, and not mention that most of them come from the left-wing of politics and the Greens and the environmental movement.
What Percentage Of Americans Have Served In The Military? | FiveThirtyEight
22 Mar 2015 Leave a comment
in economic history, labour economics, politics - USA Tags: military
The US model does better for at least 85%, and in many cases 90%+
21 Mar 2015 Leave a comment
in politics - USA, population economics, poverty and inequality Tags: living standards, poverty and inequality
Why is it so expensive to eat in Europe as compared to America?
21 Mar 2015 Leave a comment
in applied welfare economics, economic growth, politics - USA
Sorry @WJRosenbergCTU the class war has been based on a measurement error! The real class enemy is the RMA and restricted land supply – updated again
21 Mar 2015 Leave a comment
in applied welfare economics, comparative institutional analysis, Marxist economics, politics - Australia, politics - New Zealand, politics - USA, poverty and inequality, urban economics Tags: Class war, Generation Rent, housing affordability, housing prices, land use regulation, RMA, Thomas Picketty, top 1%, wage stagnation
The other day, I replied to a rant by Bill Rosenberg about the decline in labour share of national income and its implications for income inequality and the great wage stagnation. The labour share of national income has dropped by at least 5% in most countries including New Zealand.
New data from the USA has found that the entire declining the value of the share of labour of national income is due to home ownership:
…the net capital share has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other.
The capital share is rising because of the increased value of housing in countries with widespread home ownership. The concentration of capital ownership and wealth in the top 1% was a misplaced concern based on measurement error.
https://twitter.com/EconBizFin/status/581047721836060672
Piketty assumed the returns to capital were increasing across the entire economy. Rognlie found the trend to be almost entirely isolated to the housing sector. His 23 page long conference paper at the Brookings Institution started as a comment on a blog post on Marginal Revolution.
When Rognlie adjusted for the rapid depreciation inherent to investments in capital such as computer software, most of the rest of the increase in the capital share in recent decades in the USA and six other countries has came in housing.
A single sector such as housing is not the force that is shaping past and future of inequality as Piketty and others such as Bill Rosenberg in New Zealand have assumed. They attributed a growing share of income going to capital across the board as Tyler Cowan explains.
In the simplest version of the Piketty model, wealth grows more quickly than does the economy as a whole and thus the picture changes. The relative losers are no longer low earners but rather anyone who is not a capitalist. Any disparity is due not to their shortcomings in labour markets but rather to their lack of a high initial endowment.
The main driver of inequality is the tendency of returns on capital to exceed the rate of economic growth and company shares, businesses and other capital are owned by a narrow section of the community, and in particular by the top 1% of income earners. Trends in housing prices and the comings and goings of intangible capital is not part of that story.
Investment and depreciation of software and other intellectual property is not well handed, or even well measured in current national accounting systems as Edward Prescott has shown in a long research programme dating back 10 years. Intangible capital produced and owned by businesses is known to be big part of all investment in the economy but nearly all of it is recorded as an expense and therefore most is not part of GDP as currently measured.
Source: Edward C. Prescott and Ellen R. McGrattan (2014)
Prescott estimated the value of intangible capital to be equal to about 60% of that of tangible capital in the US economy. Incorrect treatment of investment in intangible capital seriously underestimates investment, output, fluctuations in labour productivity and movements in the capital shares. The graph above shows that the recently introduced intellectual property classification in the US national accounts is both large and volatile relative to equipment and structures investments over the last 40 years. The graph below shows that including intangible capital completely changes the predictions of real business cycle models about trend US labour productivity in the 1990s.
Labor Productivity, for the Model, With and Without Intangible Investment (Real, Detrended) 1990-2003
Source: McGrattan and Prescott, 2005, “Expensed and Sweat Equity,” Research Department Working Paper 636, Federal Reserve Bank of Minneapolis.
This depreciation adjustment for software investment is important because you can’t eat depreciation, as a shrewd observer noted. The rapid depreciation of software is depreciation – it cannot be redistributed from the top 1% to the downtrodden workers as some sort of income. Others have also earlier argued that Piketty’s claims rest on the recent increase in the price of housing.
The main reason for increases in the price of housing in New Zealand and elsewhere is restrictions on the supply of land by local councils. They are the real class enemy.
The metropolitan urban limit in Auckland increases land prices by 9 fold just inside that limit. As Tim Taylor said today:
The rise in capital income as a result of a long-term rise in land and housing prices across the high-income countries is a phenomenon that isn’t easily crammed into the usual disputes over whether capital owners are exploiting wage-earners.
The role of the housing sector and restrictions on land supply driving up housing prices in recent decades in shaping the future of inequality is perhaps underplayed given the many discussions of Generation Rent.
Housing affordability is a real crisis in New Zealand and many other countries with the younger generation no longer able to buy a house. They are condemned to decades of renting a house. They may never be able to afford a house on one income and perhaps two ordinary comes.
The future of inequality is between those who can and cannot afford a dream and a right for their parents and grandparents, which was to buy a house and pay the mortgage off within a couple of decades.
Young people used to buy a house shortly after leaving university and paid it off by their middle age when I was in my 20s and 30s. Back then, which was not all that long ago, ordinary workers could aspire to take out a mortgage and buy a house in the suburbs.
Unless there is a major deregulation of the supply of land in the big cities, home ownership for most in the community will really be a dream, rather than a dream of aspiration achieved by most by their 30s, if not often earlier through working and saving. The grandchildren of the baby boomers will become and perhaps already are Generation Rent.
There is no housing bubble in US cities with a flexible land supply
21 Mar 2015 Leave a comment
in applied price theory, economics of regulation, environmental economics, politics - New Zealand, politics - USA, urban economics Tags: land supply, land use regulation, RMA, supply and demand, zoning
In areas with a readily available supply of land on which to construct new homes—either because of geography or few land-use restrictions—builders have been sensitive to increases in local demand and existing-home prices. When existing houses rise in price relative to the cost of new homes, prospective buyers are willing and able to buy new units.
Supply conditions determine how house price and construction react to shifting demand. When housing demand rises—perhaps due to rising incomes, lower mortgage interest rates or easier credit standards—the outward shift in demand produces sharply higher house prices with a small increase in the supply of newly built units in areas with less-plentiful land. By comparison, when there is a more-plentiful land supply, the amount of housing is more supply sensitive and a rise in demand results in a less-pronounced rise in house prices and a greater increase of newly constructed homes.
As a result, house prices rise less in these supply-sensitive areas during booms and they fall less in downturns. Similarly, prices swing more and homebuilding varies less in regions with less-sensitive housing supply.
Recent Comments