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Assorted links
1. China theory of the day: The Chinese save so much to compete for mates. Should I believe it?
2. Paying interest on reserves, and why it should be easy to disarm future inflationary pressures. Do I believe it? (Brad DeLong comments.)
3. Markets in everything: pirate hunting cruises; should I believe it?
4. Stores are cutting back on variety; I believe it.
5. Farrah Fawcett and Ayn Rand.
Posted by Tyler Cowen on June 27, 2009 at 08:04 AM in Web/Tech | Permalink
Comments
no do not believe it (small effect). savings compensate for a lack of healthcare options.
Posted by: rdg at Jun 27, 2009 10:41:35 AM
Will the run up in government debt doom us all?
You can check here
http://neweconomicperspectives.blogspot.com/2009/06/will-run-up-in-government-debt-doom-us_17.html
and here
Don't fear the rise in the fed's reserve balances
http://neweconomicperspectives.blogspot.com/2009/06/dont-fear-rise-in-feds-reserve-balances.html
Posted by: Economist at Jun 27, 2009 11:16:46 AM
rdg, I agree, but it's not just the lack of healthcare options, but also the lack of social safety and the lack of confidence in the government in keeping the pension (due to corruptions, or in the extreme, revolution).
Posted by: taylor at Jun 27, 2009 11:17:37 AM
I like the Assorted Links theme. More please.
Posted by: Matthew Dutton at Jun 27, 2009 1:24:51 PM
Paul McCulley says: "Thus, we can categorically say that the near-zero Fed funds rate is not, for the moment, fueling an inflationary pace of aggregate demand growth relative to the economy’s supply potential."
Ah, that pesky little "for the moment" - could not bring yourself not to hedge your bets, could you?
"Conceptually, the Fed could “soak them up,” by selling the securities outright..."
Sell to whom? The Chinese, who are doing some selling of their own? The much shrunk former mega-banks? Selling a trillion dollars worth of bonds is not the same as selling a billion worth. Yes, the Fed can always sell Treasuries (likely competing with the Treasury), but does Mr. McCulley venture a forecast of yields on Treasuries in 2012? Meanwhile, selling those agency MBS's, without embedding some put option (currency?) to sweeten them - yeah, all those folks lining up for oceanside property in Nebraska will gobble them up, for sure.
Posted by: Plamus at Jun 27, 2009 1:42:18 PM
maybe savings are a result of the one child policy -- financial savings are a substitute for investment in a child?
i don't know if there is any basis for this in the data, but it sounds right to me.
Posted by: babar at Jun 27, 2009 2:28:41 PM
How does a Chinese male demonstrate savings balances without spending?
(Are Chinese savings held in ways potential mates can observe? Or does courtship quickly reach a point where authenticated financial statements are exchanged?)
Posted by: Gordon Mohr at Jun 27, 2009 5:38:44 PM
We in the West compete for mates with consumption. So again: What do women want?
Posted by: Rob at Jun 27, 2009 6:55:59 PM
I'm going to second babar's theory about the one child policy. Franco Modigliani had a paper ("The Chinese saving puzzle and the life-cycle hypothesis" JEL 2004) explaining that since children can act as a means of old age support and so are in a sense a substitute for financial savings, the one child policy impelled a substantial increase in savings rates. One should note, by the way, that in China children are required by law to provide for their elderly parents, so the savings motivation really isn't that far-fetched.
Further, if this savings motivation is biased by gender (because males by tradition give more, or simply because males earn more and so have more to give) then this will create biased sex ratios roughly in proportion to the marginal desire for old age savings. Avi Ebenstein and Steven Leung have a working paper exploiting differences in introduction dates of pension systems in different parts of China finding that the provision of pensions does reduce the increase in the sex ratio, again suggesting the savings motive for sex biased births. (See http://people.rwj.harvard.edu/~aebenste/Ebenstein_Leung_April_2009.pdf)
Posted by: dbc at Jun 28, 2009 8:16:27 AM
(continued, cut off due to length)
If this is the case, then regions with higher unmet demand for savings will also be regions with higher sex ratios, thus producing the pattern described in the paper without any competitive savings motivation for mate selection. I think the mate theory may be an additional motive, since families with son do have to save for the brideprice (in general, Chinese marriages involve a net transfer to the female's family rather than a large dowry as is common in India), which I would not be surprised to find increasing with the sex ratio, but as an explanation for net savings I see the problem of symmetry: even if families with boys save more to pay the brideprice and this due to age profile increases savings more than spending, there's the problem that this should reduce net savings on the part of families with daughters if they expect to acquire that wealth in the future by marrying the girls off. Let alone the problem of how one would signal having high savings, though I think this is probably not as large of a concern.
Admittedly, the lifecycle savings profile for Chinese individuals is out of whack in a way that suggests savings is higher early in life, but the way I've seen this measured is with aggregate data so it may just be that due to rapid economic growth the young, being wealthier on average, save a higher percentage than the middle aged rather than the young saving a lot then drawing down on their savings in middle age. In any case, I think the relatively high economic uncertainty and the lack of social insurance (or private insurance, for that matter) do more to explain these savings rates than marriage motivation. Maybe they account for a lot of this, but I'd like to see more convincing evidence than the claims in the article. Even if they show higher savings at the individual level for males in areas with high sex ratios (and not just higher aggregate savings in these regions), that still doesn’t rule out the theory that males in these regions are disproportionately likely to come from families with high demand for savings. Unfortunately, I haven't been able to find an ungated copy of the paper, so it may have to wait until I'm back at school this fall.
Posted by: dbc at Jun 28, 2009 8:17:28 AM
On China: you could easily see it going the other way. Imbalanced sex ratios encourage Chinese boys to spend money on flashy things to attract women. It seems like sex ratios might explain the magnitude by showing how a cultural quirk becomes exaggerated, but not the direction.
Isn't there an argument that in crime-ridden poor communities, where many of the eligible males are either dead or in jail, the distorted male-female ratio encourages flashy spending over savings? Perhaps this does explain direction.
Posted by: Kyle at Jun 28, 2009 1:59:28 PM
The pirate hunting cruise would be really nifty (maybe), but I remember seeing that as a joke email several weeks ago.
http://maggiesfarm.anotherdotcom.com/archives/11581-Luxury-Pirate-Hunting-Cruise.html -- that's from 1 June.
Posted by: Brad at Jun 28, 2009 6:59:35 PM
Re: the theory on Chinese savings
There is a testable hypothesis here. There are large ethnic-Chinese communities throughout the poorer and more gender-balanced countries of Southeast Asia. If this theory is true, savings rates among ethnic-Chinese should be lower than mainland Chinese and shouldn't be very different from the savings rates of other ethnic groups. Ethnic Chinese in Southeast Asia tend to marry within the community but intermarriage isn't exactly rare.
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