Don Cheadle on Inferior Goods

A friend emails me:

Entertainment Weekly asked Don Cheadle what his last splurge was.  Here is his reply:  

"I went to Giorgio Baldi restaurant [in Santa Monica]. When I was a broke student and a very poor actor, I made a deal with myself that when I started to make money, I would spend it on meals so I didn't have to just eat ramen, potatoes and Kraft mac and cheese." 

Why I hate JetBlue just now

I was supposed to be on my way to St John today, but then this happened.

Prospects of tariff increases and manufacturing employment

US manufacturing is on the decline, and the obvious reason is pressure from globalization. This is not necessarily bad as it means a better use of resources, except for some potentially large transition costs. Globalization has been encouraged by decreases in tariffs, thus one should find a strong correlation between tariff reductions and declines in US manufacturing. That does not seem to be the case, though, and a sharper decline in manufacturing since 2001 cannot be traced to any major change in tariffs.

Justin Pierce and Peter Schott find that it is not the actual tariffs that matter, but the potential for tariff increases. Indeed, there was a change in 2001 that removed potential increases especially for sectors in competition with China, and once these sectors lost this potential tool for protection, they withered. There was no such change in Europe, where no sharper decline in manufacturing occurred.

US Energy: Fracking Towns 1, Coal Towns 0

And that accent you've tried so desperately to shed: pure West Virginia. What is your father, dear? Is he a coal miner? - Sir Anthony Hopkins as mad genius "Hannibal Lecter" in the Silence of the Lambs.

The recent US energy boom due to the large-scale application of fracking has not been a boon to everyone. In a country as large as the US, some energy-producing communities were bound to benefit and others to suffer from the gales of Schumpeterian "creative destruction." In other words, capitalism often produces innovations alike natural gas fracking which render older technologies and industries based on them obsolete. In the process, the latter lose their economic viability. Although the Stateside coal mining industry has faced several challenges in the past, it has not really been decimated in the same way Europe's has. Or, until recently, that is. The advent of fracking has thus benefited communities producing natural gas at the expense of those producing coal:

Unprecedented pressures on the U.S. coal industry and nearly two years of mine closures and layoffs are reshaping the heart of the Central Appalachian coalfields in ways that many experts believe could be permanent. While the coal industry overall is losing market share to abundant natural gas, mines in Central Appalachia have become increasingly uneconomical. Natural gas is cheaper, and so is coal mined in two other big coal basins centered in Wyoming and Illinois.

A Wall Street Journal analysis of Mine Safety and Health Administration data reveals that the picture is bleakest across a swath of 26 counties in Kentucky's eastern coalfields, where coal has been the lifeblood for more than a century. The number of coal-mining and related jobs in the region remained fairly steady between 2000 through 2011, fluctuating from one quarter to the next by an average of about 400 jobs, but never dipping below 11,400.

Since 2011, the area has seen an unrelenting decline that left eastern Kentucky with just 8,000 mining jobs in the second quarter of this year. State officials say there are now fewer miners working in Kentucky than any other time in records dating to the 1920s—a decline largely driven by the eastern slice of the state.

From an international political economy perspective, the interesting question is if the US (after a rather long lag) will follow the path long since taken by European countries which no longer have substantial coal industries. Environmental concerns helped do in coal there, and the same thing may be happening in the US:

The human toll is starkly evident. In Kentucky's Harlan County, the number of mining jobs had fallen 48% from 2011 through June, according to the Journal analysis. The county's unemployment rate had risen to 16.3% as of August, the 13th highest of more than 3,000 counties in the nation, according to Bureau of Labor Statistics estimates. Some declines are sharper in neighboring counties. As of June, mining jobs were down 54% in Letcher County from 2011, and laid-off miners are the equivalent of nearly half of unemployed workers. In smaller Knott County, mining jobs are down 68% from 2011, and the number of laid-off miners roughly equals the county's unemployed population.

Analysts have started to compare Central Appalachia to other mined-out areas around the globe, such as Germany's Ruhr valley, or Great Britain, which employed 6,000 coal miners last year, compared with 150,000 in 1983, according to the British government. 

The epic battle between the UK's liberalizing Prime Minister Margaret Thatcher and the unionist coal miner Arthur Scargill is legendary in helping break the power of unions in the UK. She famously broke his balls. Even after the Iron Lady passed away last year, bad blood persists three decades later. In the US, there is neither a champion of coal mining to rally around nor a strong union to back such interests. Hence, if coal mining goes Stateside, expect it to go quicker.

If you teach high school economics...

...you will most definitely want to click here.

Political polarization and the business cycle

It is difficult for politicians to have much of an impact on economic outcomes when policy is set by consensus. Any fluctuation in power changes a policy a little, and the economy is in a rather flat portion around the optimum. In a polarized government where any power shift implies dramatic policy changes, not only are they never close to the optimum policy, they yank the economy around significantly. There are two losses here: first the average is substantially lower in the second case due to the concavity of outcomes, second there are significant fluctuations for the same reason.

This is essentially the explanation of Marina Azzimonti and Matthew Talbert why emergent economies have such wild business cycles, and I suspect this is even more so for developing economies. All they need to do to obtain such results is to take an off-the-shelf real-business-cycle model and add uncertainty to the returns of private investments. Let this be a lesson for more developed economies that are showing tendencies for political polarization.

Enlivening Naypyitaw, Myanmar's "Ghost Capital"

Where Google Earth fears to tread. Welcome to Naypyitaw

In the pantheon of vanity projects, there is none more hubristic than establishing a nation's capital in the middle of nowhere. The archetypal and best-known example is Brasilia, the erstwhile seat of Brazilian government. Lesser-known but no less the product of planning on a grand scale are Australia's capital of Canberra and Canada's capital of Ottawa. None of these so-called capitals are among these countries' liveliest cities; it is difficult to pre-plan a "happening" town, and they generally prove this point. Seen any rock albums entitled Live in [Brasilia, Canberra, or Ottawa]?

The debate between creating master-planned gateway cities and allowing them to emerge spontaneously (Le Corbusier versus Jane Jacobs) is a very interesting one with enormous policy implications. For instance, would any urban planner have allowed the emergence of megacities built on fault lines (San Francisco and Los Angeles)? Or, for that matter, megacities in arid regions alike Las Vegas and Phoenix which add insult to injury by drawing people away from ("Rust Belt") cities that do not have problems with water supplies or generating power for massive amounts of air-conditioning? People do not necessarily decide to live in places where it makes ecological sense to do so.

This all brings me to Southeast Asia's own, rather obscure Naypyitaw, the Burmese junta's own capital in the middle of rice paddies. Originally meant to seclude government from prickly opposition types in the old capital of Rangoon (today's Yangon) among other things, it has long suffered from having government and not much else. Sounds familiar, ey? However, its situation has been exacerbated by the ruling clique deciding on who can stay there, as well as the general isolation of sanction-ridden Myanmar. However, with the country now opening up to the world, things are looking up in the country and Naypyitaw is benefiting particularly:

Eight years after Naypyitaw — "Abode of the King" — was proclaimed the new government seat, it has become something more than a "ghost capital hacked out of the jungle," as it was once described. Private enterprise is staking some ground. More shops and restaurants have opened and 79 hotels are operating or under construction. Some foreign companies, notably the Japanese, have set up small branch offices.

A dozen impressive stadiums, meeting halls and hundreds of villas for visiting VIPs have been built here for the Southeast Asian Games, an 11-nation event (featuring all ASEAN members plus Timor Leste) that began Wednesday. Naypyitaw (nay-pee-thaw) will be in the spotlight again next year when Myanmar chairs the 10-member Association of Southeast Asian Nations.

The sheer scale of the project, however, makes it difficult to "fill" Naypyitaw. Remember too that this was a country lumped with North Korea not so long ago in the hermit sweepstakes:

But the capital remains far from meeting the grand expectations that built it. It's 40 times the area of Washington, D.C., dotted with enormous public buildings that seem incongruous in one of the world's poorest countries. The U.S. Capitol is positively puny compared with the equivalent here. The main conference center dwarfs the United Nations building in New York, and the airport, home to just two international airlines, is designed to handle up to 10.5 million passengers a year. Vast empty spaces dominate. Many government workers live alone because their families don't want to move here.

It will be interesting to watch whether they can make Naypyitaw something more than a curiosity; an answer to a trivia question. Certainly, it will take the buy-in of more than the generals if it is to become so. It is very much a matter of political geography.