Tuesday, April 11, 2017

New-ish Country Groupings

Chapter VI in the Handbook seems out of place sometimes (someone even asked this semester if it would be tested on, since I don’t cover it much).

The thing is, when you go out and start reading the news, or researching issues, people group countries based on the similarity of their economies currently. This is a cross-sectional approach, which is why it appears before we start time series in the Handbook.

The reason for these groupings is because, while residents regard countries as similar, how different are they on the ground? For example, foreign tourists have trouble differentiating the U.S. and Canada, but not the U.S. and Mexico.

Anyway, the IMF has created some new designations that need to get in the next revision of the Handbook. Here’s a chart from Visual News:

Fossil Fuel Subsidies: Energy Subsidies by Region and Subsidy Component, 2013

Some of the grouping are obvious, some not so much:

  • LAC is Latin American Countries
  • Advanced is the 40 or so “rich” countries
  • Emerging Europe is mostly eastern European countries, most of which were dominated by the Soviet Union for 50 years or so. We now recognize that they were also held back economically.
  • E.D. Asia is Emerging and Developing Asia; pretty much everything along the south rim of Asia from India eastwards, and along the east rim from Vietnam northwards, that is not already classified as Advanced
  • Com. Of Ind. States is the former Soviet Union
  • Sub-Saharan Africa is self-explanatory, although you might want to look at a physcial map
  • MENAP is Middle Eastern and North African nations, Afghanistan and Pakistan; this is not exclusively Moslem, nor do all Moslems live there, but this is what most people think of when they visualize Islamic countries. I made the modification in red after class (and yes, the acronym probably should have two A’s, but I didn’t dream it up).

Everything above here is required.


Everything below here is optional.

The source article is about energy subsidies. There are two big issues that are glossed over: who is subsidized, and where is it subsidized.

Who is subsidized is an issue we’ve been concerned about in the U.S. because of the large subsidies given by the Obama administration to the solar and wind industries. Most developing countries are doing the same thing.

An argument is often made by those who are in favor of subsidizing these “cleaner” energies that these subsidies are OK because other energy industries are also subsidized. Yes and no.

Subsidies to clean energy industries are typically expicit and on the supply-side. They help defray some costs, essentially shifting the supply to the right, reducing price and increasing quantity. These are labeled as “Pre-tax” in the source article. The chart above shows that most countries outside of the Middle East don’t subsidize energy production at all.

Subsidies to fossil fuel industries are typically implicit and on the demand-side. In these, buying and using those fuels creates external costs that are not internalized. If they were, demand would shift to the left, reducing both price and quantity. These are labeled as “externalities” and “foregone consumption tax revenue” in the source article.

Globally, where energy is subsidized is kind of weird. A minority of countries have significant fossil fuel industries (coal is pretty common, but oil and gas are not). In most of those countries, fossil fuels are extracted by a “company” that is actually part of the government. For political reasons, often in less-developed producers, gasoline (and other fuels) are often sold below cost. This map gives you some idea:

Global Gouging: A Survey of Fuel Prices Around the World

Believe it or not, there are differences of up to 100 to 1; in 2013, gas (if you could get it) sold for 6 cents a gallon in Venezuela. That’s a huge subsidy since supply is shifted to the right. The original source article covers this extensively, but the blog post from Visual News downplays it. The chart at the top shows that the lion’s share of the subsidization of fossil fuel use goes to consumers in Asia who don’t pay for their externalities.

Wednesday, April 5, 2017

Are American (Non-Rich) Incomes Really Stagnant?

It’s a fact that no one seems to question: incomes of Americans who are not rich have stagnated. The time frame is flexible: 20 years, 40 years, whatever.

Except that you may have noticed that there’s a lot of flexibility in how we measure prices and calculate real values.

There’s new research on this:

The finding of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator …

Intermediate students know that the CPI is calculated using the Laspeyres method. This results in substitution bias that makes inflation appear higher than it is and the resulting real values appear lower than they are.

An additional twist here is the U in CPI-U. This is the most popular measure of CPI, but it applies best to urban consumers in only the largest urban areas. If you apply it elsewhere, you are adding a second source of upward bias to inflation. It’s sort of like asserting that “Gee … apartments are getting more expensive in San Francisco, that must really hurt the people living in Beaver.”. Not so.

This is just not that hard to figure out when there’s readily observable evidence like this just laying around:

The number of cars per household with below median income has doubled since 1980 …

Here’s the conclusion:

Meaningful growth in consumption for below median income families has occurred even in a prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor.

Do note that those are the big three explanations given on the campaign trail by Clinton, Sanders (and Trump) last year: income ienquality, consumption inequality, and decreasing labor share.

Saturday, April 1, 2017

Tim Worstall’s Column for Bangladeshi’s

While in Bangladesh, Worstall was asked to write a column for one of the big newspapers.

It’s pretty basic economics, that some people in the Trump administration would do better to understand. Well, pretty much all U.S. administrations, but they’ve been getting worse since Clinton.

You see, Bangladesh is worried about their trade deficit. One thirtieth the per capita GDP of the U.S., and the government is worrying about the same dang thing. Maybe the problem is the people in government, not trade.

Read the whole thing.

Thursday, March 30, 2017

The American Dream Is Alive and Well in Salt Lake (Not Required)

Libertarian-ish Bloomberg columnist and virtual acquaintance Megan McArdle came out to Salt Lake City to figure out how a red state can have the least income inequality, and at least for the last several years, the most income mobility in the country.

There’s no getting around it: For a girl raised on the Upper West Side of Manhattan, Salt Lake City is a very weird place.

I went to Utah precisely because it’s weird. More specifically, because economic data suggest that modest Salt Lake City, population 192,672, does something that the rest of us seem to be struggling with: It helps people move upward from poverty. I went to Utah in search of the American Dream.

Columnists don’t talk as much as they used to about the American Dream. They’re more likely to talk about things like income mobility, income inequality, the Gini coefficient — sanitary, clinical terms. These are easier to quantify than a dream, but also less satisfying. We want money, yes, but we hunger even more deeply for something else: for possibility. It matters to Americans that someone born poor can retire rich. That possibility increasingly seems slimmer and slimmer in most of the nation, but in Utah, it’s still achievable.

The piece is entitled “How Utah Keeps the American Dream Alive”, and it extensively quotes Josh Price’s older brother Joe.

Explaining Dropping Labor Force Participation – Opioid Abuse

Got an email from former student SF yesterday. He’s still reading this blog from the Bay area.

The post about whether the number of ex-felons in the population is affecting labor force participation had caught his eye. I mentioned that I had saved some links to a related issue, so here it is.



Let me step out of my professor role, and note that on a personal level I am not a prude or scold about recreational drug use.

But, professionally, there’s an awful lot of data showing that this time it’s different.

And, it’s Utah in 2017, so personally I have a lot of experience with adults/parents/neighbors who should know better popping these things like candy.


Labor force participation is down in the U.S. It’s been declining for decades, so there are definitely some long-run things going on. And, the baby boomers are starting to retire, so there’s more people dropping out now than, say, a generation ago. And we had women enter the labor force in large numbers (although that seems to have stabilized about a generation back). And we’re having trouble employing people with less education. And, and, and …

The bottom line is that we’ve looked at a lot of explanations, and the problem seems to be a combination of all of them.

But, even so, there’s still a residual of unexplained dropouts that economists are working on explaining. The acronym for this is NLF, short for Not in the Labor Force. There are lots of reasons to be an NLF. Heck, most of you students are probably NLF’s. What we’re really worried about is men in their prime working years, from ages 25-54, that are NLF.

One think we’re working on is opioid abuse (mostly oxycodones, and hydrocodones, but increasingly fentanyl) affecting both ability and willingness to work, but also likelihood of passing a drug test (if one is required).†

Alan Krueger, one of the best labor economists (and former Obama advisor) notes that half of prime-age male NLFs are taking pain medication daily, and 2/3 of those are taking an opioid (this is a full length academic paper that is not required reading).

Let me put some perspective on that: roughly 1 out of every 50 adult men is both not working and taking an opioid. Quinones reported that in Ohio 1 in 9 people has an opiate prescription (not required). My guess is that, to make the numbers match, a good portion of those 1 in 9 are not taking the pills themselves.

Some of those people have good reasons for not working. And some of the prescriptions are legitimate. But we all know from the accidental overdose data that many of them can’t be.

Even so it’s not unreasonable to make a ballpark estimate that this contributes to a couple of percentage points of the 4% or so drop of the labor force participation rate.

The article that everyone is talking about this past winter is “Our Miserable 21st Century” by Nick Eberstadt. He’s a conservative, and it’s in the pop conservative magazine Commentary, so it’s not unbiased. Even so, Eberstadt has been around for a long time, and most people take him seriously. He makes the point that the election of Trump surprised many people because they are in denial about how lousy life is in much of America. He’s also sympathetic to Trump’s position that “true” unemployment is much higher than what is announced.

BTW: Eberstadt’s Figure 1 does not use logged data for net worth, and his Figure 2 uses a linear deterministic trend (Case 1 from the handbook). I would label those “wrong” if it were me (or you) trying to produce some neutral analysis, but Eberstadt is making a political point so I think it’s tolerable. You should just have a mental filter that adjusts for that.

Note that Eberstadt also discusses the huge number of ex-felons mentioned in Monday’s post: roughly 23 million, or 1 in 8 adults. He adds the interesting point that the federal government doesn’t seem very interested in collecting data on the life outcomes and well-being of these people (former students may note that I mention the avoidance of data collection in the Why Is Macro So Hard? lecture I do in principles classes).

A related article from last winter that people are still talking about is Case and (and 2015 Nobel prize winner) Deaton’s “Rising Morbidity and Mortality In Midlife Among White Non-Hispanic American In the 21st Century” (again, not required). They note that there’s been an unprecedented increase in death rates for middle-aged white Americans. They attribute most of this to opioid abuse:

The CDC estimates that for each prescription painkiller death in 2008, there were 10 treatment admissions for abuse, 32 emergency department visits for misuse or abuse, 130 people who were abusers or dependent, and 825 nonmedical users …

If you tie Krueger, Quinones, Eberstadt and Case and Deaton together, you get a picture of a very unhealthy labor market for a small but sizable fraction of the population.

Half of all job applicants in the U.S. are now drug tested. Interestingly, drug testing benefits African-Americans the most. This is consistent with ex ante discrimination. In this case, ex ante means after entering the job market but before you have a job (that’s ex post). The interpretation is that potential employers are extrapolating from drug problems being more common among African-Americans to African-Americans should be rejected because they’re likely to have a drug problem. That’s a non sequitar, since it’s a small fraction of any population that has drug problems, and thus discrimination (again, it’s a full article from The Review of Economics and Statistics, and is not required).

Monday, March 27, 2017

Geographic Correlation and Well-Being

Interactive graphics showing the patterns in which we live together are becoming really common. They’re a useful way to think about our world.

This is important in macroeconomics, because we choose to live in places near others, and we agglomerate around areas where living standards are either high or growing quickly.

Today’s addition to this is that the Bureau of Transportation Statistics (part of the federal Department of Transportation) has produced a map of noise pollution. It’s interactive, so you should click through.

Obviously, most of it is related to airports and roads. But, of course, where do you want to live? Probably within an easy drive of an airport. Here’s a screen capture that readily shows the pattern of where we are living our lives and spending our days in the Great Basin:

BTS Noise Map Capture

Just about every place in the region you’ve ever spent time in is on these orange lines.

Via bookofjoe.

Declining Male Labor Force Participation – “Having a Record”

Why are so many prime age (25 to 54) men not in the labor force? This has gone from 3% to 12% over the last 50 years.

One reason may be jail time. How so?

First off, labor force participation is counting the labor force divided by population. In this case we’re just taking the prime age male subset of that.

Secondly, men in jail won’t affect this number. This is because it is “civilian non-institutional” population that is used for these calculations. Institutions includes prison.

Third, there are a bunch of factors pushing up male non-participation generally across developed countries: job-destroying technological improvements, trade, the internet, and changing life choices. The thing is, these explain why this is going up everywhere, but not why it is worse in the U.S. (click through for the interactive chart).

One factor that is different between the U.S. and other countries is that we have incarcerated a larger share of our population historically, but especially over the last few decades.

So a possibility that economists are actively studying is whether American men are not working has to do with “checking the box” that they are a convicted felon on a job application. If places won’t hire you because you’re a convicted felon, it’s probably easy to just drop out of the labor force. Some states are not waiting for evidence, and have made such checkboxes illegal.