On NPR today I heard an editor from The Atlantic named Derek Thompson discussing Jeb Bush’s statement about working more hours.  The discussion turned to Europe, and Thompson pointed out that the Europeans had chosen to take growing productivity in the form of more leisure, not more output and income.  For a moment the devil in me contemplated a post pointing to evidence of this “extra leisure” in Europe:

Spanish unemployment = 23.8%, Greek unemployment = 25.6%, Italian Unemployment = 12.4%, French unemployment = 10.3%, Portuguese unemployment = 13.7%, Finnish unemployment = 11.8%, Irish unemployment = 9.7% etc., etc.

But then I decided not to take the cheap shot, as Thompson was clearly referring to the longer vacations taken by European workers.  “Gotcha” posts reflect poorly on the perpetrator, not the victim.

Similarly, Bush was clearly referring to the big drop in the LFPR in recent years, as well as the big rise in part-timers who want to work full time.  These two factors explain much of the growth slowdown since 2007, and need to be reversed if we are to achieve 4% RGDP growth for a period of years.

Then I decided to check Paul Krugman’s response to Bush, to see whether he took the high road and had a serious discussion of our employment problems, or demagogued the issue.  Here’s what I found:

Maybe we were unfair to Mitt Romney; Jeb “people should work longer hours” Bush is making him look like a model of empathy for the less fortunate. All the obvious points apply: longer hours would mean more GDP (if and when the economy ever gets back to full employment), but not necessarily better lives, especially if the increase in GDP doesn’t trickle down.

But I think it’s also important to understand where this is coming from. Partly it’s Bush trying to defend his foolish 4 percent growth claim; but it’s also, I’m almost certain, coming out of the “nation of takers” dogma that completely dominates America’s right wing.

Hmmm, I don’t think I like that.  So then I thought of retaliating by doing a post entitled, “Krugman suddenly claims that unemployment and underemployment are not a problem in America.  Shows no empathy for the jobless.”  But that would be wrong.  That would be willfully misinterpreting Krugman’s post to score cheap political points.

PS.  I was interviewed on Aljazeera, and it will be broadcast at 11:30pm EDT.  I’m not sure if it’s the American or international version of the station, I heard different things from different people.  Angel Ubide of the Peterson Institute was also interviewed, and he’s actually much more on top of this issue than I am–he did a great job.

We American are simpletons; completely unable to comprehend the dizzying series of twists and turns in this Greek drama. The latest twist is Germany treating Greece like a naughty child, suggesting that maybe they need a 5-year “timeout” from the euro.  And so we arrive at a German/Krugman alliance trying to get Greece out of the euro.  Germany to punish Greece and restore order to the euro, while Paul Krugman sees it as a way of avoiding punishing Greece, of sparking an Argentine-style recovery.

On the other side is the Sumner/Syriza alliance, taking the high road.  Agreeing with the Financial Times that:

Tsipras has capitulated. His antagonists must show magnanimity

Syriza sees Grexit as an economic disaster for Greece and a political disaster for Syriza.  I actually think Syriza would do worse politically if they stayed in the euro.  Even Greece might to worse (it’s unclear, and depends on what else they do). Instead I fear that a Greece pushed out of the euro by Germany would nudge Greece in a radical leftward direction.  A letter writer to the FT reminded readers of the dark side of the “Argentine miracle”:

“One can learn a lot about photography by studying excellent pictures and looking at bad ones. We can emulate the good and try not to duplicate the bad. Argentinian politicians raided bank accounts and absorbed pension plans in the collapse. People who saved for retirement were taken advantage of by populist politicians. Keep that in mind when your country goes down.”

And I also worry that the markets are clearly signaling that Grexit would be a deflationary shock to the other PIIGS, and indeed to the entire global economy. (Yes a modest one, but still unwelcome.)  But I am a bit conflicted, as also I see the euro itself as a huge mistake, a sort of doomsday machine.

And so we await the dramatic climax that I am certain will occur today, because the Europeans told me so.  Oh wait, I forget that we Americans are gullible simpletons like the cartoon character Charlie Brown.  Darn, fooled again.

PS.  Lars Christensen has a really nice post on how the entire euro project exemplifies Hayek’s Fatal Conceit.

Work is finishing up on the tallest residential building in the Western hemisphere, 432 Park Ave. The penthouse apartments will go for around $100 million each. Here’s how the building compares to the total property values in some well-known American cities:

That’s a pretty valuable piece of property.

As you know, I’ve often advocated a policy that progressive economists used to love, replacing income taxes with progressive consumption taxes.  In some cases it is hard to actually enact progressive consumption taxes (although not as hard as many assume). But in other cases it’s fairly easy.  I’ve often been dismayed to find out that progressive politicians like Ted Kennedy opposed luxury taxes on yachts, expensive cars, and fancy jets.

Real estate is one of the easiest forms of consumption to hit with a progressive tax. We already have property taxes, and we already estimate the value of properties. Just do it!

Unfortunately, liberal cities like New York do exactly the opposite, taxing the most expensive properties at far lower rates than average properties.  Those penthouse units may end being appraised at closer to $6 million, barely 6% of the actual market value:

Because of an odd idiosyncrasy in the New York City property tax system, the “market values” that the City assigns to real estate are not market values at all. For condos and coops, these values are generated by an antiquated pricing model, which underestimates true property values by as much as 95%.

An extreme example is this $100m penthouse, the most expensive sale ever in NYC. Despite having been purchased just six months ago, its official “market value” is reported as only $6m.

Here’s the ratio of appraised value to actual value by borough:

Notice that wealthy Manhattan is especially under-taxed.  And we see the same thing if we look at the ratio by price range:

I would find it much easier to accept the current progressive obsession over inequality if I saw more interest in progressive consumption taxes.  The rich can do one of three things with their money; invest it, donate it to charity, or consume it. If you aren’t taxing luxury consumption, you aren’t taxing the rich.  A billionaire trust fund baby, non-smoker, non-lottery player, can put all their wealth into muni’s and live in a $100 million penthouse paying an absurdly low tax rate. Meanwhile a working class guy in Queens who plays the lottery and smokes and has an average house gets hammered by NYC taxes. That’s not fair!  (And let’s not even talk about carbon footprints.)

PS.  432 Park is one of the few modern tall buildings with pleasant architecture. The interiors are very minimalistic, if that’s your thing. Pencil thin and about 100 floors tall, with six perfectly square windows on each side, all the way up.  Lots of white marble:

I don’t generally envy the rich, as I have little interest in their lifestyle. But even I have a tinge of envy when I think about how happy I’d be if I owned that bathroom. All that white makes me want to put on the Beatles White album (You say you want a revolution . . . )

And I’m in the top (global) 1%!   🙂

Don’t care for that chandelier.  Hopefully the tasteful monochrome interior will never be messed up with colorful children’s toys.

(This post is pure speculation, but let’s have some fun with it anyway.)

During the campaign for the recent Greek referendum, something inexplicable happened. The Greek leader Tsipras suddenly offered a compromise proposal that he said was very close to the proposal of the creditors.  Tsipras was campaigning for a no vote, but this move seemed to support the yes position.  Very odd.  His supporters were very upset. In email correspondence with Tyler Cowen, I mentioned my confusion.  He suggested that there might be nested games being played, perhaps Tsipras secretly prefers a yes vote.  Then on Tuesday Ambrose Evans-Pritchard reported this bombshell:

Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium.

This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

I’ve been asked to discuss something that I don’t know much about, the Chinese stock market.  So here goes:

1.  Stock crashes are often predictions of bad times ahead.  Sometimes they are correct (the US in 1929, 2008) and sometimes they are incorrect (1987).  We know from 1987 that stock crashes don’t actually cause economic problems. Roosters don’t cause dawn.  Chinese stocks are still much higher than a year ago, and the Chinese people won’t decide to stop working just because stocks crash.  Indeed they may work even harder.

2.  It’s possible that the Chinese crash is not a prediction of economic distress, but rather just a sort of mass panic.  But the Australian dollar has been falling in sympathy with Chinese equities, which means that in this case it’s not just panic; it’s actual worry about a slowing economy.  (Unless Australian mass hysteria is correlated with Chinese mass hysteria, which I doubt.)

3.  Tyler Cowen often (wisely) points out that lots of things that superficially look stupid actually have good reasons if you look deeper.  Here he speculates as to why the Chinese government might have wanted to prevent a stock market crash.

4.  However even if Tyler is right, in this case the Chinese government probably is being stupid.  The techniques they are using (such as banning the sale of many types of stock) will actually create more panic, and will lead to more sales from that part of the investment community that is still free to sell.  Just as European governments that make it hard to fire workers end up causing higher unemployment, as people are afraid to hire them.

5.  There’s a lesson here for “bubbles.”  Even if you disagree with my view that bubbles are not a useful concept, there is very little evidence that governments can do anything about them.  The Chinese government tried to stop the bubble on the upside, and then more recently tried to stop the price collapse. It tried hard.  It failed miserably.  China will learn from this lesson.

6.  One reason why bubbles are not a useful concept is that it’s hard to tell what the right price should be in any “fundamental” sense.  Some people thought 1987 was a bubble.  After the huge price collapse of late 1987 they said, “I told you so.”  At that point there seemed to be a consensus among experts that prices had gone way too high, and that a correction was inevitable.  In fact, we now know that prices at the peak of the 1987 “bubble” (Dow 2700) were quite reasonable.  (The Dow was 1700 after the crash.)  If you bought at the peak and held stocks for 10 years, or 20 years, or 28 years (up to today) you did fine.  So the experts were wrong.  Thus even after an apparent bubble collapses, it’s really hard to know which price was right, the peak level or the later trough.  In 20 years we’ll have a better idea whether the Shanghai market should now be at 5000 or 3500 3400 (down 100 since I started typing).  Right now no one has a clue, just as no one in 1987 had any idea that the Dow would be at 17,000 today.

7.  I’d rather the Chinese government stay out of the stock market, but this intervention is of trivial importance compared to the bigger changes occurring in China.  I wouldn’t want the US government to spend a trillion dollars on Vanguard index funds, but if they did so it wouldn’t cause much of a problem.  The tiny Norwegian government has almost a trillion dollars in stocks, and it doesn’t seem to have hurt Norway.  There’s a lot of ruin in a nation as big as China, and China should be far more worried that the PBoC will fail to keep NGDP growing at 5% or more, and/or that Premier Li stops the economic reform process that’s been underway for 35 years, than about whether the Chinese government purchases some stocks.

8.  When I first visited China in 1994 almost no one had cars or owned stocks.  I was fascinated by the country, by the urgent moral issue of raising hundreds of millions of people out of abject poverty and misery.  Quite frankly, I find the modern problems of pollution, traffic congestion and stock market crashes to be rather boring.  Even today poverty is a much more urgent problem for China, but overall the situation is dramatically improved.

PS.  Fascinating story from Ambrose Evans-Pritchard, maybe even true.  If so, is a deal still possible?  (This link is better.)