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Economic Currents

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UHERO Fellow Interview Series: Tim Halliday

Posted September 4, 2014 | Categories: Q&A, Blog

Sumner La Croix interviewed UHERO Fellow Tim Halliday about his Social Science and Medicine paper in July 2014. For more on this paper, see Tim's blog post here.

1. Tell us something about yourself ...

I earned my PhD from Princeton in 2004. I have been at UH-Mānoa since then. I am also a fellow at the Institute for the Study of Labor Economics (IZA) in Bonn, Germany. My research lies in the field of human resource economics, which encompasses labor, population and health economics and tends to be very data intensive. These days I have been working a lot on inequality in various guises. One recent project is on the evolution of wage distributions in the United States and Mexico since the latter part of the 1980's. Another uses Bayesian econometric techniques to estimate the inter-generational transmission of health status.

 2. Is this a good summary of your results: Unemployment kills!

More-or-less. This work seems to be suggesting that poor macroeconomic conditions do increase mortality risks but only for working-aged men. There is no such association for the elderly or for women. In some way, this makes sense since working-age men have the strongest attachment to the labor force. One important point is that this is one of the few studies that uses individual level data; others typically use aggregate state-level mortality rates which can be hard to measure. These studies actually show the opposite, namely, that poor macroeconomic conditions are associated with lower mortality, even, for the elderly. While we do not understand why there is this difference between the results at the differing levels of aggregation, we can say two things for sure. First, mortality is very easy to measure at the individual level; you are either alive or dead and that is easy to verify. On the other hand, a mortality rate for a given state is actually hard to measure because it is defined as the number of deaths in that state during a given period of time divided by the states population at a point-in-time. The fact that the denominator is moving is what makes this a challenge. Second, related work has shown that job displacement kills you. This work also uses microdata. It is a lot easier to reconcile my findings with this literature than the "recessions are good for you" literature with it.

3. Were you surprised to find such a big effect?

Yes, but there really isn't another study out there that does exactly what I did, so there is not a comparison that we can make. I find that a one percentage point increase in the unemployment rate results in about 24 more deaths per 100,000 workers which in epidemiological terms is quite large. However, the US economy has business cycles which means that the unemployment rate goes up and then comes down. So, over a prolonged period, on net, my estimates would indicate a smaller number of deaths since some years would be good, but that it is so responsive was surprising. Bottom line is that more work needs to be done using other large individual level data sets from the US to see what we get in other contexts.

4. How did you get interested in this topic?

When I was starting out in graduate school, I had initially wanted to work in development and much of my work is in developing countries. However, at that time, many of my advisers who had been working on savings and consumption started to think about health and how it fits into life-cycle economic behavior. This actually seemed like a natural progression since health is probably the most important component of human welfare. So, during one meeting with my adviser, Chris Paxson, she had mentioned Chris Ruhm's work on recessions and health tangentially. This work is pretty much the consequence of that specific interaction.

5. Are there policy implications?

Yes. In fact, Harvey Brenner of Johns Hopkins who is probably the godfather of this literature has testified before the US Congress on numerous occasions. Although I am not sure if knowing that recessions increase mortality risks makes good stewardship of the macro-economy any more of a moral imperative; perhaps it does but it would be important even without these mortality effects. These results would possibly affect other cost-benefit calculations. For example, environmental regulations will confer long-term benefits down the pike but one immediate cost that might be ignored could be these mortality effects if the regulations increase unemployment.

Actually, I presented this paper once and Edward Lazear, who was the second George Bush's chief economic adviser, was in the audience. He told me that the auto bailout, of which he was the chief architect, probably prevented the unemployment rate from going up a full percentage point. He said that my work tells how many lives this policy saved.

Decline in Pacific Currencies: Crisis or More Adjustment to Come? : Pacific Beat Interview

Posted September 17, 2013 | Categories: Q&A, Blog
1. The last few months have seen 10-20 percent declines in the exchange rates of many Pacific countries against the US dollar. The decline in the value of Indonesia’s currency has been particularly notable. Why is this happening?

Each country has its own story, but the driving force behind the decline of Indonesia’s currency—the rupiah—stems mostly from anticipated changes in U.S. monetary policy. The US Central Bank—the Federal Reserve System has for the last 4 years been engaged in a huge bond-buying program. This has lowered interest rates in the United States and pushed a lot of liquidity into money markets. Investors, disappointed with the low U.S. interest rates, have moved much of the extra liquidity overseas to emerging markets with higher interest rates.

The surge in short-term investment was one factor that helped emerging economies to boom over the last few years. But investors are now anticipating that the Fed Reserve System will start to wind down its bond-buying program. This has caused interest rates in the U.S. to rise even before the Fed starts to taper its bond-buying program. The rise in U.S. rates has caused investors to unwind their overseas investments in emerging economies, returning their funds home to the safer U.S. market. The movement of funds has led emerging exchange rates to decline against the dollar. This has sparked some fears that Asia-Pacific emerging markets may experience a financial crisis, as firms, individuals, and governments adjust to the lower purchasing power of their currencies.


2. Is a financial crisis likely or are these fears overblown?

Let’s look at both sides of this question. For a crisis to be avoided, Pacific central bankers need to make sure that they don’t make big mistakes in trying to shield their economies from crisis. Other circumstances are also important. Rising oil prices or instability in financial markets due to the political crises in the Middle East could spark a flight to the dollar and push emerging market exchange rates down even further, making the central bankers’ jobs more difficult.

But there are many good reasons to believe that Pacific emerging economies such as Indonesia are in better shape than they were in 1998 when the Asian Financial Crisis hit and that they will be more resilient to the exchange rate shock. Consider that exchange rate systems are more flexible, central banks tend to be better managed than they were in the late 1990s, bank regulation in emerging economies has improved, and emerging countries in the Asia-Pacific region have accumulated much bigger stocks of foreign exchange to buffer their currencies and economies against an outflow of foreign money. All of these factors make it less likely that we will see a financial crisis.

3. What should the United States be doing to minimize the chance of a crisis?

The Federal Reserve System needs to do a good job of winding down its bond purchases at the right time and in a gradual manner. It needs to communicate well with U.S. and international financial markets even as the leadership of the Federal Reserve System changes hands, from Ben Bernanke to his yet unnamed successor.

The bottom line is that with good leadership at both the Fed and at Pacific central banks, a crisis is unlikely. That said, it is a situation that needs to be monitored carefully. Good leadership can never be taken for granted.

---Professor Sumner La Croix

US Marines Moving From Okinawa - Pacific Beat Interview

The United States announced plans on June 20 to move about a quarter of the ~20,000 US marines based in Okinawa to Guam, Hawaii, the US mainland, the Philippines, and Australia over the next 13 years. Are those plans still moving forward?

Yes, they are, but an editorial in last week’s People’s Daily, a leading Chinese newspaper, added some uncertainty to the situation.  In the editorial, the legitimacy of Japan’s rule over the entire Ryukyu Island chain was questioned.  Okinawa is part of the Ryukyu island chain and it is certain that this Chinese government-sanctioned editorial did not go over well in Tokyo or Washington. If this type of rhetoric continues, Tokyo may well want the Marines to stay in Okinawa.

What do we know about the relocation to Hawaii?

Between 1,000 and 2,700 of the 4,700 marines being moved will likely end up on the island of Oahu.  The U.S. Dept. of Defense has commissioned three separate studies to evaluate several potential locations to house the marines.

They include the already crowded Marine Corp Air Station in Kaneohe Bay.  It currently houses 7,500+ marines.  Considerable new construction would be needed.  There could also be stress on training facilities in the vicinity.

Camp Smith, near Pearl Harbor, houses 1,700+ marines but they are mostly associated with the Pacific Command.  Housing relocated marines there is unlikely.


What about the other two locations?

Two other possible locations are the decommissioned Naval Air Station Barbers Point and Pearl City Peninsula.

Pearl City Peninsula is a lightly developed residential peninsula that pushes out into the center of Pearl Harbor.  It’s a good location but environmental and cost considerations could make it an expensive choice.

The decommissioned Naval Air Station Barbers Point is more intriguing.  At the end of the cold war, the Base Realignment and Closure Commission (BRAC) recommended its closure in a 1993 report and the base closed in 1999.  Since then efforts to redevelop the closed base have been a total failure.  

This location certainly has a lot of potential, but also would require major investment.  It does have an airstrip that could be brought back into use, but almost all other facilities would need to be built from scratch.  Whether Congress would want to spend the kind of money needed to bring this closed base back to life is unclear.


Where’s the marine relocation on the Hawaii political radar?

The story has not been extensively covered in Hawaii’s newspapers and media and so there has been little public discussion of the topic. Hawaii’s governor, congressional delegation, policymakers and legislators must surely be talking about it, as it has considerable potential to generate more medium-term construction spending. That’s important, as the Hawaii construction industry has been slow to recover from the 2008-2009 downturn and still has large numbers of unemployed or underemployed workers.  

On the other hand, Oahu already hosts several military bases, and it would not be surprising to see a backlash develop against the relocation if the new housing and facilities are located on lands not currently being used by the military.

--Sumner La Croix




Q & A: New Zealand’s big subsidies for the newest Hobbit film

Posted December 13, 2012 | Categories: Q&A
 1. It’s a big weekend coming for the film business, with the newest film in the Hobbit trilogy opening worldwide today and tomorrow.
Yes, the film is called The Hobbit: An Unexpected Journey and once again the esteemed New Zealand film director, Peter Jackson, is the creative genius behind this film. I watched the film’s trailer and thought that it looked really great. The film uses pioneering technology that doubles the number of frames per second. And, like the three Lord of the Rings films, this film was made in New Zealand. And just seeing New Zealand’s stunning landscapes once again in a fantasy film about hobbits is a good enough reason for me to go see it! .


2. Why did the film's producers choose New Zealand?
Over the course of two sets of negotiation in 2009 and 2010, the New Zealand government agreed to three key demands made by Warner Brothers, the Hobbit trilogy’s producers. First, it agreed to limit collective bargaining rights of workers on film projects. Second, it agreed to tighten its copyright laws related to downloading material from the internet. And third, it agreed to provide subsidies to the film’s producers (Warner Brother) estimated by some observers at up to $120 million. The subsidies go far beyond those that were offered to any other film being made in New Zealand.


3. So why is New Zealand offering such large subsidies? Wouldn’t New Zealand have been a natural place to film another film about hobbits?  

New Zealand is offering the subsidies partly because it expects new waves of tourists to visit to see the locations featured in the film. The subsidies were also partly a response to demonstrations by workers on the film project who wanted the government to do something to keep the films’ production in New Zealand. And, very importantly, big movie studios have become very skilled in extracting such concessions from governments.
Were the subsidies to the Hobbit film necessary to keep its production in New Zealand? That’s unclear. New Zealand would have had to reject Warner’s Brothers demand for us to know. But what is clear is that much of the gain from making the film in New Zealand was transferred to the film’s producers.


4. So is there anything wrong with individual countries offering subsidies to attract film projects?.
Yes, two things in particular.
First, it reduces taxation of the film industry to levels lower than those in other industries. There’s no particular reason for this. Other industries also generate jobs and spending.
Second, these tax-payer-provided subsidies are beggar-thy-neighbor policies. At the end of the day, they just tend to cancel each other out and essentially transfer taxpayer money to corporations and industries skilled in extracting such concessions.


5. Are they consistent with World Trade Organization rules?
 Probably not. The new Hobbit film is a New Zealand export; almost all of its revenues will be earned outside New Zealand. And WTO rules on export subsidies are clear: They are illegal, whether directed at a particular firm or a whole industry.
Other countries whose film production businesses are hurt by the subsidy could bring a complaint to the WTO and ask that it be resolved by the WTO’s dispute resolution process. To date, however, there have been no complaints to the WTO regarding film subsidies by a national, regional, or local government.
Film subsidies may appear to benefit the countries that win the battle to attract the film, but this type of competition between countries often just serves to transfer most of the benefits from the project to film studios. Countries would be much better off if they used the money spent on tax credits to improve their business environments, their infrastructure, and their public education systems.


6. Can subsidies to particular industries and projects ever be justified?

Yes, if they generate substantial “spillover” benefits that are captured by other industries and projects. And under certain circumstances, subsidies can also be justified for start-up firms and industries.


-- Sumner Lacroix

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Q & A: Walking the Tightropes in Europe and the United States

Posted November 27, 2012 | Categories: Q&A
1. Last night European finance ministers and representatives of the International Monetary Fund met in Brussels but couldn’t reach agreement about releasing some already promised financial aid to Greece. What’s going on in Europe?
That’s correct and what made the lack of agreement even more bewildering was that when the ministers entered the negotiations that evening, they promised that they would come to an agreement … and they couldn’t reach one. So they’re returning in a week to try again.
Much of the failure stemmed from an ongoing dispute between the IMF and European leaders. The IMF wants to make sure that Greece is provided with enough assistance that it will be able to get its economy going again and reduce its debt down to manageable levels—thought to be about 120 percent of one year’s national income. But the European ministers didn’t have authority from their governments to make additional concessions, so the negotiations failed.
Last night’s failure to agree may not be such a bad outcome. Europe’s leaders have a very difficult time reaching agreement on these kinds of issues because they are representing 27 different states, each with its own culture, economic predicament, and politics. Sometimes external pressure is needed to force parties to put aside some of their parochial differences and to focus directly on the problem at hand. In this case, the Managing Director of the IMF, Christine LaGarde, is playing a productive role by forcing the European leaders to consider whether the European and IMF aid package provided to Greece is sufficient to put Greece back on a sustainable growth path.


2. So the U.S. President and U.S. Congressional leaders are also facing negotiations regarding the approaching fiscal cliff. Would a failure to reach agreement be OK in the United States?

 If a good agreement on U.S. budget policy is not enacted by the U.S. Congress, this would likely trigger big negative economic effects. But in many ways the political environment has been changed by the simple fact that the U.S. elections are over and there is still divided government, with the Democrats controlling the Presidency and the Senate and the Republicans controlling the House of Representatives. However, now that there is no immediate election to contest, the two parties have much stronger incentives to compromise and actually reach an agreement that will improve the fiscal health of the U.S. government. There’s a second factor that has also come into play in the last few weeks: Big businesses and their industry associations are starting to lobby political leaders to come to a compromise solution. And their decision to finally engage more forcefully could well be a game changer, as they are now actively warning of dire economic consequences without such an agreement.


3. Is the fiscal cliff real? Will there be dire consequences? 

In some ways, the fiscal cliff is a problem created by Congress when the Senate and the House could not reach an earlier agreement on a budget deal. Instead they agreed that if they couldn’t reach a budget agreement by the end of 2012, huge undesirable cuts in defense spending and health spending would be triggered. And the House and the Senate haven’t come to an agreement so far.

Imagine that a couple is trying to decide whether to have green beans or asparagus for dinner and they agree to send a $50,000 gift to a politician who they particularly dislike if they can not agree … one would guess that they would come to an agreement … and one would guess that U.S. politicians will, given that U.S. elections are now in the rearview mirror and organized interest groups are exerting more pressure on them to reach a compromise on tax reform and spending cuts.


-- Sumner Lacroix

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