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October 22, 2014

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Posted: 22 Oct 2014 12:06 AM PDT

What Makes Cities Successful?

Posted: 21 Oct 2014 09:41 AM PDT

This is related to yesterday's post "State 'Income Migration' Claims Are Deeply Flawed":

At the intersection of real estate and urban economics: Albert Saiz uses big data to understand real estate dynamics. As a professor in the Department of Urban Studies and Planning and director of MIT's Center for Real Estate, his work is at the confluence of urban policy and city-making and the factors that drive real estate markets. An urban economist and director of the MIT Urban Economics Lab, Saiz studies the industrial composition of cities with an eye toward understanding what makes cities successful. He also creates and studies incredibly-detailed information about housing markets and how urban growth impacts real estate markets.
Immigration explains half of city growth
Saiz's focus is primarily on housing markets, with a particular view on understanding the demographic influences impacting their growth. "Immigration explains 50 percent of the differences in growth between metropolitan areas in the United States," he says. "If you want to understand real estate markets or housing markets, construction values, etc., you have to understand immigration and immigration trends."
He also studies several other key drivers of city growth and demand for housing and real estate assets. These include areas of low taxation, high levels of an educated population, and more lifestyle-oriented influences. "As recently as 20 years ago, we tended to believe that people followed jobs," Saiz explains. "It is still the case that productive areas are becoming more attractive for housing demand, but it is also true that jobs are following people. And people are moving more for lifestyle and amenities." Today, Saiz's students are more likely to indicate they want to work in a particular city than for a particular company. That means firms that want to attract young professionals have to locate in these more highly desirable areas. ...

'Why our Happiness and Satisfaction Should Replace GDP in Policy Making'

Posted: 21 Oct 2014 09:24 AM PDT

Richard Easterlin:

Why our happiness and satisfaction should replace GDP in policy making, The Conversation: Since 1990, GDP per person in China has doubled and then redoubled. With average incomes multiplying fourfold in little more than two decades, one might expect many of the Chinese people to be dancing in the streets. Yet, when asked about their satisfaction with life, they are, if anything, less satisfied than in 1990.
The disparity indicated by these two measures of human progress, Gross Domestic Product and Subjective Well Being (SWB), makes pretty plain the issue at hand. GDP, the well-being indicator commonly used in policy circles, signals an outstanding advance in China. SWB, as indicated by self-reports of overall satisfaction with life, suggests, if anything, a worsening of people's lives. Which measure is a more meaningful index of well-being? Which is a better guide for public policy?
A few decades ago, economists – the most influential social scientists shaping public policy – would have said that the SWB result for China demonstrates the meaninglessness of self-reports of well-being. Economic historian Deirdre McCloskey, writing in 1983, aptly put the typical attitude of economists this way:
Unlike other social scientists, economists are extremely hostile towards questionnaires and other self-descriptions… One can literally get an audience of economists to laugh out loud by proposing ironically to send out a questionnaire on some disputed economic point. Economists… are unthinkingly committed to the notion that only the externally observable behaviour of actors is admissible evidence in arguments concerning economics.
Culture clash
But times have changed. A commission established by the then French president, Nicolas Sarkozy in 2008 and charged with recommending alternatives to GDP as a measure of progress, stated bluntly (my emphasis):
Research has shown that it is possible to collect meaningful and reliable data on subjective as well as objective well-being … The types of questions that have proved their value within small-scale and unofficial surveys should be included in larger-scale surveys undertaken by official statistical offices.
This 25-member commission was comprised almost entirely of economists, five of whom had won the Nobel Prize in economics. Two of the five co-chaired the commission.
These days the tendency with new measures of our well-being – such as life satisfaction and happiness – is to propose that they be used as a complement to GDP. But what is one to do when confronted with such a stark difference between SWB and GDP, as in China? What should one say? People in China are better off than ever before, people are no better off than before, or "it depends"?
Commonalities
To decide this issue, we need to delve deeper into what has happened in China. When we do that, the superiority of SWB becomes apparent: it can capture the multiple dimensions of people's lives. GDP, in contrast, focuses exclusively on the output of material goods.
People everywhere in the world spend most of their time trying to earn a living and raise a healthy family. The easier it is for them to do this, the happier they are. This is the lesson of a 1965 classic, The Pattern of Human Concerns, by public opinion survey specialist Hadley Cantril. In the 12 countries – rich and poor, communist and non-communist – that Cantril surveyed, the same highly personal concerns dominated determinants of happiness: standard of living, family, health and work. Broad social issues such as inequality, discrimination and international relations, were rarely mentioned.
Urban China in 1990 was essentially a mini-welfare state. Workers had what has been called an "iron rice bowl" – they were assured of jobs, housing, medical services, pensions, childcare and jobs for their grown children.
With the coming of capitalism, and "restructuring" of state enterprises, the iron rice bowl was smashed and these assurances went out the window. Unemployment soared and the social safety net disappeared. The security that workers had enjoyed was gone and the result was that life satisfaction plummeted, especially among the less-educated, lower-income segments of the population.
Although working conditions have improved somewhat in the past decade, the shortfall from the security enjoyed in 1990 remains substantial. The positive effect on well-being of rising incomes has been negated by rapidly rising material aspirations and the emergence of urgent concerns about income and job security, family, and health.
The case to replace
Examples of the disparity between SWB and GDP as measures of well-being could easily be multiplied. Since the early 1970s real GDP per capita in the US has doubled, but SWB has, if anything, declined. In international comparisons, Costa Rica's per capita GDP is a quarter of that in the US, but Costa Ricans are as happy or happier than Americans when we look at SWB data. Clearly there is more to people's well-being that the output of goods.
There are some simple, yet powerful arguments to say that we should use SWB in preference to GDP, not just as a complement. For a start, those SWB measures like happiness or life satisfaction are more comprehensive than GDP. They take into account the effect on well-being not just of material living conditions, but of the wide range of concerns in our lives.
It is also key that with SWB, the judgement of well-being is made by the individuals affected. GDP's reliance on outside statistical "experts" to make inferences based on a measure they themselves construct looks deeply flawed when viewed in comparison. These judgements by outsiders also lie behind the growing number of multiple-item measures being put forth these days. An example is the United Nations' Human Development Index (HDI) which attempts to combine data on GDP with indexes of education and life expectancy.
But people do not identify with measures like HDI (or GDP, of course) to anywhere near the extent that they do with straightforward questions of happiness and satisfaction with life. And crucially, these SWB measures offer each adult a vote and only one vote, whether they are rich or poor, sick or well, native or foreign-born. This is not to say that, as measures of well-being go, SWB is the last word, but clearly it comes closer to capturing what is actually happening to people's lives than GDP ever will. The question is whether policy makers actually want to know.

'The Problem of Riches'

Posted: 21 Oct 2014 09:24 AM PDT

Just in case you haven't had your fill of articles reviewing Thomas Piketty's Capital in the Twenty-First Century:

The problem of riches, by Paul Segal: Capital in the Twenty-First Century is a very important book that is not really about capital, and is not really about the twenty-first century. It is predominantly a work of analytical economic history, focusing on the late nineteenth century to the present – with words of warning for the future, nestled among caveats regarding the pitfalls of economic predictions. And its subjects are the dynamics and distribution of incomes and wealth, where wealth is to capital what an hourly wage is to an hour of work: the market value, not the thing itself.
Inequality is the great challenge of our time. Still, Piketty's runaway public success was expected by no one – his publisher ran out of copies in the first few weeks – and is due in no small part to generous endorsements from uber-public intellectual Paul Krugman, Nobel Prize-winning economist and New York Times columnist (and who sportingly admitted to 'sheer, green-eyed professional jealousy' (Krugman, 2014)). Piketty's book has spawned countless reviews and commentaries. Yet this text of 577 pages plus endnotes is no easy conquest, and the public sphere is occupied by more opinions of Piketty than readers of Piketty. In addition, the combination of fame and the ideological nature of its subject has given him the status of Big Game to be hunted by ambitious economists and journalists – very publicly in a belligerent and careful-but-not-quite-careful-enough critique by the Financial Times' Chris Giles that turned out to be badly misguided (Giles and Giugliano, 2014 and Piketty, 2014). (Piketty points out that if Giles were correct it would imply that Britain today had one of the most equal distributions of wealth in modern history, which is risible).
They are the 1 per cent
Given this exposure it is ironic that one of Piketty's great contributions to the lexicon of public debate is not usually credited to him: through his unearthing of data on the incomes of the richest 1 per cent, he is ultimately responsible for the slogan 'we are the 99 per cent', for without him we would not know who does not fall into that category (1). Starting with France, Piketty used income tax data to reveal the incomes of the richest in society, which had previously been inaccessible. Following this work, Piketty and the great British economist of inequality Tony Atkinson led a project of dozens of researchers to collect top income data from around the world, which have been collated into a database that now covers 29 countries (2).
The key finding of this research is that the income share of the richest 1 per cent has risen dramatically in many countries around the world since the 1980s. In the US the richest 1 per cent received about 8 per cent of total income through the 1960s and 1970s. This share started to rise in the mid-1980s, reaching about 18 per cent in recent years. Britain followed a similar pattern, its share rising from a low of only 6 per cent in 1980 to 15 per cent. Famously egalitarian Sweden has become less so, having seen its top 1 per cent income share rising from only 4 per cent in the 1980s to 7 per cent. Still, it is important to note that major increases were not inevitable: in both France and Japan there has been only a modest rise, from about 7 per cent in the 1980s to about 9 per cent now. ...[continue reading]...

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