Monday, 31 December 2012

Various links.

1.  Interesting article on Short Selling from the New York Fed, suggesting that it does not work.

2.  Interesting links from the FT

Apple: Innovator’s dilemma
Fast-evolving technologies provide a typical context for disruptive innovations. In this type of environment, diagnosing a company on being just an incremental innovator should unveil a red light.

A case remains for economic liberalism
Unethical economic liberalism in an unequal market structure might be as bad as social democracy without a culture of effort and a work ethic.

3. lots of fascinating ideas here on whether one should consume locally 

4. Marginal tax rates in the UK

I dont know if these graphs are true, there is no citation other than internal government sources

A quick look at the IFS website finds this

p.29 a selection of marginal particicipation and in work tax rates of near 53% on average. 

And more detail is here on page 15ff

A quote sum up participation tax rates. 

Figure 2.4 shows the cumulative distribution of PTRs for the whole adult
population below state pension age, including non-workers using
predicted earnings in work as described above. Reading across, we can see
that around 20% of adults under the state pension age have PTRs below
40%, and 30% have PTRs above 60%. This means that around half of
adults below the state pension age have PTRs in a relatively narrow band
from 40% to 60% – their earnings can buy them about half of what they
cost their employer. It is also clear that one of the reasons non-workers do
not work is that the incentive for them to work at all is, on average, weaker
– around 30% of non-workers have PTRs above 70%, compared to only
10% of workers.
Indeed, of those who have PTRs greater than 70%, 60%
do not work.

And effective marginal tax rates
There is a small but significant group of around 10% of workers who
would only keep between 17p and 27p of each additional pound they
earned. This is because they face steep withdrawal of tax credits or
housing benefit if they increased their earnings a little.

My reading of the graph is that 20% of workers face >60% marginal tax rates.

Remarkably, these burdens have hardly changed over time.

Friday, 28 December 2012

Various links

From cafe Hayek a marvellous and hostile review of Sandel. I liked this in particular in response to those who say "markets are not just let's find another way".

Sandel worries properly that the market can crowd out the sacred. A corporate market in, say, instruction in elementary classrooms can crowd out unbiased teaching about capitalism. Yet Sandel does not tell his own classroom that state schools can crowd out unbiased teaching about, say, the environment.
And what about crowding in? A society in which goods are allocated by race or gender or Party membership is not obviously superior in moral terms to one in which prices rule. Sandel declares that "we must also ask whether market norms will crowd out non-market norms" (p. 78). But he provides no philosophical analysis of how we would answer the opposite crowding, as when non-market norms of Jim Crow in the Sandelian golden age crowded out the market norm that a black person's money is as good at a lunch counter as a white person's. A market society is by no means contemptible ethically, if one actually looks into the ethical effects and thinks about them. The French spoke in the eighteenth century of doux commerce, the civilizing effect of markets introduced into societies of status or isolation.

Sunday, 23 December 2012

What sets economists and non-economists apart? Tax incidence.

An old post from the excellent Chris Dillow.

I say it merely to emphasise the importance of the idea of tax incidence - that taxes don’t necessarily fall upon the people that they are formally levied upon. An inability to grasp this point is one of the features that distinguishes economists from non-economists.

The full post is here.
Here's the key point. "
92% of any rise in corporation tax falls upon wages"

Various links

Fascinating links via Tyler Cowan.

  1. The power of arbitrage. 
  2.  More on bootleggers and baptists. Politics without the romance.
  1. Bob Gordon on slow growth.
  2. And from Chris Dillon, girls at science
  3. Raj chatty on public economics. Fantastic series of lectures

Wednesday, 12 December 2012

Why are there so many miners in Kensington and Chelsea?

It's partly Imperial College's fault according to the BBC who have a lovely piece on odd facts from the 2011 Census.  For data geeks like me, this is a cautionary tale about interpreting data....

More people in London's Kensington and Chelsea describe themselves as working in mining and quarrying than in Gateshead, according to the census. The figures - 207 and 151 individuals respectively - are not large.
 The decline of the coal industry in England and Wales has been well documented. About 2,000 people now work in coal mines, according to the National Union of Mineworkers, compared with the more than a million at the industry's height in the early 1900s.
 The mining and quarrying industry as a whole employs 46,478, according to the 2011 Census, down 12,913 on 2001.
The area with the highest concentration of workers - 2% (and 3.8% of men) - is Redcar and Cleveland, home of the giant Boulby Potash Mine.
 But there are surprising numbers of people in smart central London districts, such as Westminster or Kensington and Chelsea, who describe themselves as working in mining and quarrying.

They may work in management or for large international mining conglomerates such as Rio Tinto, which has its headquarters in London, says Paul Hardman of the NUM.
Another contributory factor may be the Royal School of Mines, part of Imperial College London. It is situated on the university's South Kensington campus and numbers about 350 undergraduates, 200 postgraduates, as well as lecturers. The majority live nearby, and some may class themselves as miners, a spokeswoman says.

Sunday, 9 December 2012

How to really think like an economist

Via Tyler Cowan here's Greg Ip economics editor of the economist

You need to think like an economist. Any time anyone says something is bad, the immediate question you should ask is: Relative to what? It’s very important, for example, in assessing the President’s economic program. So someone says, “The economy is bad.” Well, relative to what? Relative to what it would have been? Relative to another country? These are important questions to ask because they help you think through the implications of what you’re saying. Just to give another example: The President says, “Oil and gas production are at record highs.” Well, relative to what? Relative to what they would have been if you weren’t President? Then you realize it is mostly driven by private exploration and development on private land. If you look at production on federal land, it’s down. But then President Obama could himself say, “Relative to what?” Because as it turns out, some of the deposits on federal land are very old and are being tapped out. Also, because of the Macondo oil spill in 2010, there was a drilling moratorium. So, whenever someone asserts something – especially a partisan – the question is “Relative to what?” That is why when people say, “The debt is at a record level!”, you should ask that question. Economists know that you do not just look at the debt and say, “Well, it was $100 last year and it’s at $102 this year. It’s at a record level –that’s terrible!” That’s up 2 percent. If GDP grew 3 percent over the same period, then debt relative to GDP went down. And that is the metric we should be looking at.

Tuesday, 4 December 2012

Various links

  1.  The OECD Economic outlook is out. Pretty depressing stuff.  Here's what they say about the UK
 The government has committed to implementing a number of
reforms which, if implemented fully, will boost both short and long-term
growth. Increasing the state pension age in line with longevity will foster
long-term fiscal sustainability. Implementing the recommendations of
the Independent Commission on Banking will strengthen the financial
system. The Universal Credit will reduce disincentives to work, and government training and apprenticeship programmes will contribute to a better integration of young people into the labour market and enhance the availability of skilled workers. The planning reform and further support to the housing market and infrastructure should allow construction to grow.
    1.  I found this interesting. House price/rental ratios are not as low as I would have thought, note Ireland is very different.

     2. Tim Taylor has a great piece reviewing McKinsey's report on manufacturing.
    He has an interesting quote:

    "As economies mature, manufacturing becomes more important for other attributes, such as its ability to drive productivity growth, innovation, and trade. Manufacturing also plays a critical role in tackling societal challenges, such as reducing energy and resource consumption and limiting greenhouse gas emissions. ...Manufacturing continues to make outsize contributions to research and development, accounting for up to 90 percent of private R&D spending in major manufacturing nations. The sector contributes twice as much to productivity growth as its employment share, and it typically accounts for the largest share of an economy’s foreign trade; across major advanced and developing economies, manufacturing generates 70 percent of exports."
    3. Pharmaceutical innovation arguments

    Friday, 30 November 2012

    What was the effect of increasing the top rate of income tax?

    From John Cochrane's site, I only just came across this, The Exchequer effect of the 50 per cent additional rate of income tax

    From the executive summary:

    1. The 50 per cent additional rate of income tax was introduced on 6 April 2010. It was the first increase in the highest rate of tax in the UK for over 30 years, and was expected to yield around £2.5 billion.
    2. This report provides the first comprehensive ex-post assessment of the additional rate yield using a range of evidence including the 2010-11 Self Assessment returns.
    3.  This analysis shows that there was a considerable behavioural response to the rate change, including a substantial amount of forestalling: between £16 billion and £18 billion of income is estimated to have been brought forward to 2009-10 to avoid the additional rate of tax. This behavioural response is entirely legitimate, and difficult to prevent using anti-avoidance legislation.
    4. The modelling suggests the underlying behavioural response was greater than estimated previously in Budget 2009 and in March Budget 2010, decreasing the pre-behavioural yield by at least 83 per cent. This result is also consistent with that contained in the Mirrlees review, and suggests the additional rate is a highly distortionary form of taxation. Although there is uncertainty around these estimates, sensitivity testing demonstrates that is difficult to construct a plausible outcome consistent with a yield estimate as high as those original forecasts. The conclusion that can be drawn from the Self Assessment data is therefore that the underlying yield from the additional rate is much lower than originally forecast (yielding around £1 billion or less), and that it is quite possible that it could be negative. 
    Eek.  Dani Rodrik's Has Globalisation Gone Too Far book predicted years ago that we cannot tax corporations or highly skilled individuals.  It looks like he is right.

    Wednesday, 21 November 2012

    Is there a relation between growth and R&D? And why it doesn’t matter


    A lot of interesting tweets last night from the Royal Society Innovation Debate. (Twitter mark: #innovationdebate). I couldn't go, so I am relying on the tweets I received that raised some interesting points on R&D and innovation. (There were some annoying and, IMHO opinion wrong, comments about economists which I shall return to at the end of this post).



    One point raised was by @JackStilgoe "Annoyingly, national R&D spending does not correlate with economic growth. See Edgerton, To which I replied "well yes, but growth is determined by other things than R&D. Taking those into account there is a correlation IMHO". And @GordonBrianR chimed in with "R&D also needed for absorptive capacity - to stay on the knowledge frontier. There is a Red Queen effect here too.".


    So what do economists know about all this?


    The assertion of the non-relation between growth and R&D refers to the article by David Edgerton. Now, I consider myself a friend of David and his books and expertise in this area are unmatched. On this issue however, I beg slightly to differ. Actually, I think he's mostly talking about the correlation between growth and public R&D. So let's break it down.


    There is of course no simple bivariate correlation between growth and R&D since, as mentioned above, one has to control for other things, R&D takes time to come through etc. etc. One very thorough study on this at the company level is Foray, Hall and Mairesse, Cemi-Working paper-2007-003. They criticize the assertion of no relationship made by Booz Allen Hamilton, Winter 2006, issue 45, "Strategy and Business" and show there is just such a relation at firm level as long as one is careful with data construction, accounts for the correct lags etc. An study at the country level is Griffith, Redding and van Reenen.


    But let me put out another thought. Who cares if there is no relation?


    To be fair, many economists are interested in the correlation between R&D in country/industry/firm A and growth in country/industry/firm A. But most are interested in an even more interesting correlation: the relation between R&D in country/industry/firm A and growth in firm B. That is to say, one might not find any correlation at all between one entity's R&D and its growth, for it might all be relying on using R&D from another place. Indeed, part of the Royal Society's honourable tradition is to foster that very information flow, by encouraging open science and communication. And if there is such a relation then we are off to the races, for the free market might under-provide research, there might be role for subsidies and public provision, mobility of scientists and absorbtive capacity might affect such transfer etc. etc. So the lack of a relation actually makes the policy issues more urgent and not less.


    So, I shouldn't really say that the lack of relation does not matter, but that its not right to cite that lack of relation as an indication that policy is impotent.


    If interested, here are some additional comments from an earlier post, "Innovation: A guide for the Perplexed".
    Additional comment
    There were some rather negative tweets about economics which may or may not have accurately recorded what the participants said. I can only say economists never sit around at Economics conferences and complain that scientists just spend their time watching apples fall from trees. Let's base criticism of other disciplines on what they actually do, not what people seem to think they do.


    Saturday, 17 November 2012

    Fiscal policy, multipliers and austerity in the UK again

    Gavyn Davies suggests that fiscal policy has not contributed that much to why the US has recovered fater than the UK (the US has had looser fiscal policy).  Here's the puzzle:


    and here's comparative fisscal stance, the US is looser:


    As he says, these estimates depend heavily on the multiplier. Higher multipliers give more weight on fiscal tightening. But there's a catch to higher multipliers if you want to assume them that I think is interesting: 

    The assumption of higher multipliers also creates another problem. If fiscal and export multipliers are higher than we have assumed, then the implication is that the output gap in the UK economy is also very high. This can only have occurred if the growth in potential GDP was also very high. For example, a fiscal multiplier of 1.3 would imply that UK potential GDP growth has averaged 3.2% per annum in the years of austerity, significantly above its 1950- 2007 average of 2.4%, and also significantly above the recorded growth of productivity over the period.

    BTW, he says the problem is that we are not exporting relative to the US

    our exports being concentrated to the Eurozone that is so weak.