OCTOBER 26 2017

Ambrogio Cesa-Bianchi , Chris Redl,  Andrej Sokol and Gregory Thwaites, BoE: Does domestic uncertainty really matter for the economy? Volatile economic data or political events can lead to heightened uncertainty. This can then weigh on households’ and firms’ spending and investment decisions. We revisit the question of how uncertainty affects the UK economy, by constructing new measures of uncertainty and quantifying their effects on economic activity. We find that UK uncertainty depresses domestic activity only insofar as it is driven by developments overseas, and that other changes in uncertainty about the UK real economy have very little effect.

Pete Klenow, Huiyu Li, San Francisco FED: Missing Growth from Creative Destruction. When products disappear from the market with no substitutes from the same manufacturer, they may have been replaced by cheaper or better products from a different manufacturer. Official measurements typically approximate price changes from such creative destruction using price changes for products that were not replaced. This can lead to overstating inflation and, in turn, understating economic growth. A recent estimate suggests that around 0.6 percentage point of growth is missed per year. The bias has not increased over time, however, so it does not explain the slowdown in productivity growth.

Branko Milanovic, Globalinequality: Can mass mobilization wars increase income inequality? Now come two economic historians, Maria Gomez-Leon and Herman de Jong who using detailed data on social structure of England and Germany, and on the evolution of occupational wages and income from property for dozens of categories, calculate the so-called “dynamic social tables” for the two countries for the period 1900-1950. And what they find is that German inequality indeed increased during the Great War while English went down (see the graph). This could provide in part the explanation for who lost and who won the war, and thus might have political significance. But for people who deal with inequality it sends a message about contingencies and human agency: even things that appear to be very logical (that the war needs to be financed by the rich) and find strong empirical support in many cases, need not hold in all cases. That is, even a modern (20th century) mass mobilization wars may be accompanied by rising inequality—during the war years themselves.

Thomas Andersen, Jeanet Bentzen, Carl-Johan Dalgaard, Paul Sharp, VOX: Pre-reformation roots of the protestant ethic: Evidence of a nine centuries-old belief in the virtues of hard work stimulating economic growth. Examples of the interaction of religious influence and economic performance have occurred throughout history, most notable Weber’s argument of the ‘Protestant ethic’. This column uses an earlier example, of the Cistercian Catholic Order, to show that religious values did influence productivity and economic performance in England and across Europe. The effect of this historic influence has persisted to today.

Tyler Cowen, Bloomberg: The New Populism Isn't About Economics. Nationalist candidates are winning around the globe in growing economies. Another crisis is afoot. Among emerging economies, the Philippines moved from being an Asian growth laggard into some years of 8 percent growth. Voters responded by electing as president Rodrigo Duterte, one of the most aggressive and authoritarian populists around. In eastern Europe, Poland has been seeing average 4 percent growth for more than 25 years, yet the country has moved in a strongly nationalist direction, flirting with sanctions from the EU for limiting judicial independence. Hungary, Slovakia, Slovenia and now the Czech Republic all are much wealthier than 20 years ago and mostly have been booming as of late. Yet to varying degrees they too have moved in nationalist, populist and possibly even anti-democratic directions. So the next time you hear material discontent cited as driving electoral results, just remember that economic data are usually interpreted through a cultural lens.

Bert Van Landeghem, Anneleen Vandeplas, IZA: The Relationship between Status and Happiness. A large number of empirical studies have investigated the link between social status and happiness, yet in observational data identification challenges remain severe. This study exploits the fact that in India people are assigned a caste from birth. Two identical surveys of household heads (each with N=1000) in rural Punjab and Andhra Pradesh show an increasing pattern in economic welfare across the hierarchy of castes. This illustrates that at least in rural regions, one’s caste is still an important determinant for opportunities in life. Subsequently, we find that the castes at the top are clearly more satisfied than the lower and middle castes. This result, which is in line with predictions of all major social comparison theories, is robust across the two case studies. The pattern across low and middle castes, however, is less clear, reflecting the complex theoretical relationship between being of middle rank on the one hand, and behaviour, aspirations and well-being on the other hand. In the Punjab sample, we even find a significant U-shape, the middle castes being the least happy. Interestingly, these patterns resemble those found for Olympic Medalists (first documented by Medvec et al. 1995).

Erin Ross, AXIOS: Bird feeders might be changing bird beaks. Bird beaks might be evolving to better fit bird feeders. A study of great tits in the UK, where feeders are common, found the bird's beaks have grown over the last 26 years, that British birds had longer beaks than those in the Netherlands, and that birds with genes for longer beaks were more likely to visit feeders, per Science News.