links for 2010-02-15
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Ten Things Worth Reading, Mostly Economics: February 15, 2010

1) Gustavo J. Bobonis and Peter M. Morrow: Export Commodity Booms, Labor Coercion, and the Historical Containment of Education:

A significant share of labor arrangements during the colonial period in the Americas involved the use of coercion. To what extent did labor coercion affect individuals’ accumulation of human capital? What was the role of primary commodity exports in influencing this relationship? We study these questions in the context of nineteenth century Puerto Rico, where unskilled laborers were forced to work for legally-titled landowners from 1849 until 1874. We develop a model of labor market coercion under an elite-controlled regime, and show that coercion depresses the effective wages of unskilled labor, inducing workers to acquire more schooling than in a case without coercion. Guided by this model, we use unique micro data from individuals and municipalities in Puerto Rico and exploit variation in the suitability of coffee cultivation across municipalities and changes in world coffee prices across time to estimate the response of schooling to coffee price changes. During the coercive period, governments in coffee growing regions allocated more public resources towards coercive labor measures and fewer resources towards primary schooling – with the latter declining 40 percent. Following the abolition of coercive measures in 1874, literacy rates declined 25 percent, consistent with a significant drop in the skilled labor wage differential. These results strongly suggest that labor market liberalization reduced the extraction of rents from unskilled laborers’ wages by local landowners.

2) Paul Krugman: The Case For Higher Inflation:

Olivier Blanchard, normally at MIT but currently the chief economist at the IMF, has released an interesting and important paper on how the crisis has changed, or should have changed, how we think about macroeconomic policy. The most surprising conclusion, presumably, is the idea that central banks have been setting their inflation targets too low: "Higher average inflation, and thus higher nominal interest rates to start with, would have made it possible to cut interest rates more, thereby probably reducing the drop in output and the deterioration of fiscal positions." To be a bit more precise, I’m not that surprised that Olivier should think that; I am, however, somewhat surprised that the IMF is letting him say that under its auspices. In any case, I very much agree. I would add, however, that there’s another case for a higher inflation rate — an argument made most forcefully by Akerlof, Dickens, and Perry (pdf). It goes like this: even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis. Or to put it a bit differently, the long-run Phillips curve isn’t vertical at very low inflation rates. I think this is especially important in the European context. As I’ve been writing in a number of posts, the period 2000-2008 saw a huge divergence in price levels between the capital-inflow nations of the European periphery and the European core.... Almost surely, that divergence now has to be reduced. Yet with a low overall inflation rate for the eurozone, that means large-scale deflation in the overvalued economies if convergence is to happen any time in, say, the next 5-10 years. (Actually, in Eurospeak I think this is cohesion rather than convergence, but never mind). The task would be a lot easier if the eurozone had 4 percent inflation instead of 2. So yes, let’s have modestly higher inflation. Alas, Ben Bernanke — at least when speaking publicly — doesn’t agree. And I can only imagine what Trichet would say.

3) Paul Krugman: Premature Exit:

Basically, the stimulus fades out fast starting in fiscal 2011, which starts in October 2010. Yet the consensus view is that unemployment will be around as high as it is now. The point is that we’re doing a 1937 — or actually worse, since unemployment had in fact fallen dramatically before FDR made his big mistake. Fiscal support for the economy will be pulled away with the economy having barely begun to recover.

4) Brad Johnson: Global warming is a ‘nightmare’ for coffee.:

Man-made global warming has “affected Kenyan coffee production through unpredictable rainfall patterns and excessive droughts, making crop management and disease control a nightmare.” Joseph Kimemia, director of research at Kenya’s Coffee Research Foundation (CRF), told reporters that hotter temperatures and unpredictable rainfall are damaging his nation’s ability to grow coffee:

We have seen climate change in intermittent rainfall patterns, extended drought and very high temperatures. Coffee operates within a very narrow temperature range of 19-25 degrees (Celsius). When you start getting temperatures above that, it affects photosynthesis and in some cases, trees wilt and dry up. We have see trees drying up in some marginal coffee areas.

Global warming-related droughts, heat waves, and climate change are also damaging coffee production in top exporters such as Uganda, Brazil, Mexico, Peru, and Nicaragua, as growers are “being forced uphill to higher altitudes, at a rate of three to four meters a year on average, as temperatures rise.”

5) Think Progress: After warmest January in history, Vancouver airlifts in snow for Winter Olympics.:

After warmest January in history, Vancouver airlifts in snow for Winter Olympics.

Record warmth is forcing the organizers of the 2010 Winter Olympics in Vancouver, British Columbia to helicopter in snow to cover mountains. The planet’s changing climate is threatening the start of the Olympics, as “sloppy, foggy weather” has canceled training runs on both Whistler and Cypress Mountains. In Vancouver, the “average temperature in January was 44.9 degrees, besting the previous warm record of 43.3 in 2006 and well above the historic average of 37.9 degrees”: After the warmest January in Vancouver history, organizers moved more than 5,000 cubic meters of snow onto Cypress by helicopter and truck from nearby mountains. Some 750 workers are bringing in snow and building courses before competition starts on Saturday.

Vancouver’s troubles are part of a broader trend of warmer winters across the Northern Hemisphere. Increased warmth and changing weather patterns have led to glacial retreat and unreliable snowfall across the globe, putting the future of alpine sports in jeopardy. Globally, we are in the warmest winter on record. Locally, the weather forecast for the Olympics “calls for more rain and warm temperatures for the next five days.”

6) GRAPH OF THE DAY: The Stagnation of Education in America:

ERP (2).pdf


Your question about whether anyone had heard the phrase "up or down vote on a jobs bill" struck a chord. It's not just the jobs bill. I can't remember the last time I've heard a Democrat use the phrase "up or down vote" on any bill held up by Republicans in the Senate. This is a shame, since a demand for an "up or down vote" is a far better message than the self-defeating complaints about "Republican obstructionism."... The current Democratic obsession with the phrase "Republican obstructionism" is a classic case of beltway Democrats failing to understand the electorate. Something like 25% (or less) of Americans know that 60 votes are necessary to overcome a filibuster in the Senate. However, when Americans are asked about specific votes, polls show that strong majorities almost always answer in favor of a holding a vote when asked questions like, "should John Roberts receive an up or down vote?" This isn't rocket science. Most Americans have no idea what a filibuster is, but if they asked whether a matter before the Senate should receive an "up or down vote", Americans nearly always says "yes". This answer cuts across party lines, even among those who oppose the issue being voted on. Conversely, when the public hears about "Republican obstructionism", even most liberals shrug their shoulders and mutter, "well, of course Republicans are obstructing the Democratic agenda. Republicans disagree with the Democratic agenda."

My point is this: Democrats can talk until they are blue in the face about how "unprecedented" this wave of Republican filibusters in historical terms, and most Americans won't have any idea what they are talking about.... When the concept of a filibuster is properly framed as a procedural roadblock employed by a small number of malcontent senators to prevent their colleagues - who won the last election - from voting, the public strongly disapproves. Why? Because even partisans agree that our democratic system should not permit a minority from grinding the government to a halt. If I had to guess, senate Democrats (whose cowardice knows no bounds) are afraid to adopt the "up or down vote" attack is because they worry they will be called hypocrites when they are back in the minority.... But the answer to this is simple: just look at the Republicans. Last I checked, the Republican senators who demanded an "up or down vote" on Roberts and Alito seem to be avoiding the "hypocrisy" label...

8) STUPIDEST THING I HAVE NOT READ TODAY: By Fouad Ajami, of whom Steve M. makes us aware, for writing in the *Wall Street Journal&:

But no sooner had the country recovered its poise, it drew a line for Mr. Obama. The "bluest" of states, Massachusetts, sent to Washington a senator who had behind him three decades of service in the National Guard, who proclaimed his pride in his "army values" and was unapologetic in his assertion that it was more urgent to hunt down terrorists than to provide for their legal defense.

Steve. M. comments:

Wow -- Massachusetts, of all states, sent a guy to the Senate who's actually worn a military uniform! What a 180! Something like that could never have happened prior to the mass disillusionment with Obama! The state also voted for Kerry for president... after... he pledged to "destroy" Osama bin Laden and his fellow terrorists, and in which he campaigned frequently with fellow Vietnam veterans -- but Kerry lost that year to two draft-dodgers who'd allowed bin Laden to escape at Tora Bora and then ignored him after that...

9) DELONG SMACKDOWN WATCH OF THE DAY: Marx on India: Michael Perelman--whose knowledge of the history of economic thought far exceeds mine--takes exception to my classifying Marx's writings on the British in India as Marx in his "prophetic mode":

I have done some work on the subject. It was not Marx the prophet. The articles [on India] were directed toward Henry Carey, who was undermining Marx's position on the New York Tribune. The story is very interesting, including others, including Frederick Law Olmstead. Marx says that Carey sent him at least one book. I have tried to locate Marx's correspondence with Carey, but have been unsuccessful...

10) HOISTED FROM THE ARCHIVES: DeLong (2004): September 11: The Threat to 'Angel':

Of all the strange parts of the government's reaction to the terror attacks on September 11, 2001, the strangest is the claim that Al Qaeda had threatened Air Force One--and that that was why it and George W. Bush were diverted to Offutt Air Force Base.... [T]here are three stories: (i) Bartlett's that somebody said, "Is there a threat to angel," and Cheney interpreted this as, "There has been a threat to 'Angel'," using that exact secret designation for Air Force One; (ii) Cheney's story number one that a Secret Service agent told him that there had been a threat to 'Angel'; (iii) Cheney story number two that a "uniformed military person" whom nobody since has ever been able to identify told him that there had been a threat to 'Angel'.

We... now have Richard Clarke's account.... "pp. 6-7: I picked up the open line to the PEOC. I got a dial tone. Somebody had hung up on the other end. I punched the PEOC button... When Major Fenzel got on the line I gave him the first three decisions we needed: 'Mike, somebody has to tell the President he can't come right back here. Cheney, Condi, somebody. Secret Service concurs. We do not want them saying where they are going when they take off'.... pp. 18-19: I moved in and squatted between Cheney and Rice. 'The President agreed to go to Offutt', Cheney informed me. His manner implied that it had been a hard sell..."

Think about (i) the focus of people inside the PEOC on the TV networks, (ii) the lack of attention paid inside the PEOC to the Situation Room information channel, and (iii) the fact that the Situation Room is the operational decision-implementation center to which information flows. Think about the sequence of events: (i) A consensus decision is reached inside the White House that George W. Bush should not return to Washington immediately. (ii) Cheney takes on the task of persuading George W. Bush to go along. (iii) Cheney calls Bush, and tells him the Secret Service and the Situation Room want him to stay away from Washington. (iv) Bush balks--he wants to be back in his proper place as fast as possible. (v) Cheney thinks about his failure, and calls again--this time with the story about 'Angel.' (vi) Bush agrees to go to Offutt.

Isn't the balance of the probabilities that Cheney decided upon a lie that he thought would scare George W. Bush into doing what he wanted him to do, and thought (correctly) that the normal Fog of War would keep him from being called on it? Is there any other way to explain why the "news" about the "threat to 'Angel'" flowed only upwards from Cheney to Bush, and not downwards from Cheney to the PEOC to the Situation Room?