Monday, August 12, 2013

Low Paying Job Nonsense (and Sense)

The story that people tell is that most new jobs are low paying:


That much is true.

But, the other implication you’re supposed to get from this, given that it uses only the last 3 years of data, is that this is a new phenomenon.

That is nonsense. The truth is that most job have always been low paying:


What is a new phenomenon is the widening gap between the average pay in low wage industries and high wage industries. For this, I recommend that you go to the source article at the Federal Reserve Bank of Atlanta’s Macroblog, and click on the bottom image.

Via Marginal Revolution.

Saturday, August 10, 2013

There Are People Who Argue that Well-Being In the U.S. Has Not Improved In Their Lifetime

Take a look at this photo set from the early 1940’s – when the U.S. was by far the richest country in the world.

Respectfully, I think large fractions of people who voice the opinion in the title are either lying or mentally ill.

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What Makes Macro So Hard: Busybody Politics

This is actually a combination of two ideas that already run in this series: 1) people with control issues are attracted to politics, and 2) everyone suffers from the activist’s fallacy.

Thomas Sowell calls the combination “Busybody Politics”:

… The key to busybody politics, and its endlessly imposed "solutions," is that third parties pay no price for being wrong.

This not only presents opportunities for the busybodies to engage in moral preening, but also to flatter themselves that they know better what is good for other people than these other people know for themselves.

I experienced this just the other day at Bryce Canyon National Park:

Right now, there are people inside and outside of government who are proposing new restrictions on how you may or may not visit the national parks that your taxes support. Among their proposals is doing away with trash cans in these parks, so that visitors have to take their trash out with them.

I am not sure to what extent this policy is in effect. I do know that you can buy packaged food at the general store near the rim, walk to the rim to enjoy the view, and then be unable to find a garbage can.

Bear with me here … I don’t think the next point it flippant. No doubt part of the plan with the removal of garbage cans is to increase the amount of “pack it in, pack it back out” behavior amongst visitors. Except think about this: how is that different from what we already do? People already pack in potential garbage. And the National Parks Service already packs out garbage put in cans. So the only difference is who’s packing the garbage out. Now ask yourself: what sort of mentality do you need to think that who’s packing the garbage out matters?

Sowell follows with an interesting and provocative point:

What could lead anyone to believe that they have either the right or the omniscience to dictate to hundreds of millions of other people? Our educational system may have something to do with that, with their constant promotion of "self-esteem" and especially their emphasis on developing "leaders."

Our schools and colleges are turning out people who cannot feel fulfilled unless they are telling other people what to do.

Sunday, August 4, 2013

What (Macroeconomic Development) Success Looks Like

It’s been a summer of unrest: riots in Turkey, Chile and Brazil, and a coup to support the protests in Egypt. There are also apparently daily riots scattered around China, although the Chinese are much better at suppressing this news than other countries.

Why is this so?

Non-economists will point to all sorts of causes. But to economists these are signs of countries that are getting rich enough that people have time to notice things that aren’t improving as fast as they’d like.

Think about it: there are rarely protests in the developed world (the top quintile of 40 or so rich countries), and there are rarely protests in the bottom quintile (think Haiti, Bolivia, Laos, Myanmar, Nepal, Zimbabwe, Chad or Burkina Faso).

Here’s one thesis:

… The answer may be found in a book that the late Harvard political scientist Samuel Huntington published in 1968, Political Order in Changing Societies. His thesis is that in societies experiencing rapid change, the public’s demand for public services grows at a faster clip than the government’s ability to satisfy it. His more general point is that institutions cannot develop at the pace required by the fast-growing expectations of a population recently empowered by prosperity, literacy, more information, and a newfound expectation—indeed hunger—to shape its own better future. In Huntington’s words, “The primary problem of politics is the lag in the development of political institutions behind social economic change.”

This is also exemplified in the American crisis of the summer: the fact that the NSA is eavesdropping on everyone’s digital communication.

The overriding, but understated, issue here is: OMFG, why would you bother? Cheap communication has led to a proliferation of … kitten videos. And yet our government has put together a surveillance apparatus worthy of the middle of the 20th century. It’s yet another example of “the lag in the development of political institutions behind social and economic change.”

Big GDP Update

GDP gets revised continuously. But it gets updated more rarely.

Updating is what happens when they decide they’ve got the data and technique to measure something they couldn’t measure before. So, they go back and figure out that component for all the officially tracked quarters (back to 1947) or years (back to 1929) and add it in.

They just did one of these updates. On July 31, 2013, they added a component to GDP. This component better measures how intellectual property contributes to the economy. More specifically, R&D will be treated as an investment rather than an expense. Also to be treated as investment are long-lived assets like movies, music, TV shows and books.

The effect on the data is that the levels of real GDP will be marked up by about 3% for the entire period. The old data will be taken down, and the new data will go up, so this will be seamless.

The effect on growth rates in the future will be about a 0.1% increase each year.

Note that no one is claiming that any of this means that we are richer than we were before. Instead, they’re saying what we know is more accurate. So this is analogous to having a mental account of how much money is in your checking account, and then balancing your account and finding out that there was always a little more there than you thought.

This is a very good thing for getting our politicians focused on what’s important:

It’s a great idea, if late. The BEA has the 20th century economy down cold. It can tell you about personal income trends in Anchorage, Alaska, or America’s annual output of rubber products and plastics.

Thanks in part to the power of ideas, the nine or 10 most valuable companies in the world are headquartered in the U.S. (It’s nine on days when PetroChina edges ahead of Wells Fargo (WFC).) Only three—General Electric (GE), ExxonMobil (XOM), and Chevron (CVX)—are in the world’s top 10 for tangible fixed capital …

Here’s a chart:

In many ways, this is telling you something you should already know. No one goes to school to “learn to make things” any more (the black line). We go to school to learn to make ideas and concepts (the orange line).

Egypt’s Coup

Egypt had a revolution in 2011 (which was covered here, here, and here, on SUU Macroblog). At the time, I remarked to the class that a population has to achieve a certain level of real GDP per capita before people start to care much about their government. Egypt was at the low end of the range for this.

They had elections in Egypt in 2012. An Islamist party won. In July they were overthrown by the military (which, I think, gave them pretty ample warning to start running things better).

The thing is, this isn’t really about politics. Instead, it’s macroeconomics:

… Egypt’s economy has been one of the major grievances propelling the masses into the streets. Although the economic structure Mursi inherited was dysfunctional, for many his inability to stabilize the situation was the last straw. As foreign reserves dwindled, the currency dropped, inflation rose, and shortages spread, the government was nowhere to be found. Mursi was the one person visible enough to blame.

Ahmed el-Hawary, a founding member of the Dostour Party, which collected signatures in a campaign that called for the June 30 protest, says the economy was all anyone talked about in the weeks preceding the demonstrations. “The substantial part [of conversations] was not revolutionary rhetoric. The substantial part was people are barely able to feed themselves, with how the currency is devalued every day and all the groceries are getting more and more expensive,” el-Hawary says. Blackouts and water shortages in the early summer “made everybody feel they’re going to go into hunger and strife and won’t even have water to drink.” A steady supply of electricity “was one of the things we really enjoyed in Egypt for 30 years. We didn’t have blackouts, especially in the cities.” Collecting signatures against Mursi was a breeze.

One thing to keep in mind is that less-developed countries (and Egypt is one of the least developed Arab countries) is that important parts of the economy must be imported, so exchange rates are a critical part of daily life for the masses. In particular, most Americans think all Arab countries have oil, but Egypt has almost none.