In my 2008 post, Interpreting the Monetary Base Under the New Monetary Regime, I argued that the massive increase in bank reserves was neither a necessary harbinger of inflation (as people on the right feared) nor a sure sign of a liquidity trap (as people on the left claimed) but rather represented, at least in part, a sensible aspect of the new regime of paying interest on reserves. I wrote:

 When no interest was paid on reserves banks tried to hold as few as possible.  But during the day the banks needed reserves – of which there were only $40 billion or so – to fund trillions of dollars worth of intraday payments.  As a result, there was typically a daily shortage of reserves which the Fed made up for by extending hundreds of billions of dollars worth of daylight credit.  Thus, in essence, the banks used to inhale credit during the day – puffing up like a bullfrog – only to exhale at night.  (But note that our stats on the monetary base only measured the bullfrog at night.)

Today, the banks are no longer in bullfrog mode.  The Fed is paying interest on reserves and they are paying at a rate which is high enough so that the banks have plenty of reserves on hand during the day and they keep those reserves at night.  Thus, all that has really happened – as far as the monetary base statistic is concerned – is that we have replaced daylight credit with excess reserves held around the clock.

A post today at Liberty Street Economics, the blog of the New York Federal Reserve illustrates and explains how the excess reserves have reduced transaction costs in the payment system and risk to the Federal Reserve.

The last chart shows the level of intraday credit extended by the Federal Reserve to Fedwire participants, measured as the daily maximum amount extended by the Federal Reserve. There has been a dramatic decline in the amount of credit extended since the expansion of reserve balances in October 2008. The reduced level of daylight credit has the benefit of reducing the risk exposure of Federal Reserve Banks, as well as the Federal Deposit Insurance Corporation’s (FDIC) fund. Indeed, the expected losses to that fund would be greater if some of the assets of a failed bank had been pledged to a Federal Reserve Bank to collateralize a daylight overdraft, as the collateral would not be available to pay other creditors of the bank. With a greater amount of reserves in the system, banks largely “prepay” for their liquidity needs by maintaining large reserve balances with which to fund their outgoing payments.

Self-recommending, @WhyNationsFail.

The richest 70 members of China’s legislature added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices.The net worth of the 70 richest delegates in China’s National People’s Congress, which opens its annual session on March 5, rose to 565.8 billion yuan ($89.8 billion) in 2011, a gain of $11.5 billion from 2010, according to figures from the Hurun Report, which tracks the country’s wealthy. That compares to the $7.5 billion net worth of all 660 top officials in the three branches of the U.S. government.

The wealth gap between legislatures holds with statistically comparable samples. The richest 2 percent of the NPC — 60 people — had an average wealth of $1.44 billion per person. The richest 2 percent of Congress — 11 members — had an average wealth of $323 million.

The wealthiest member of the U.S. Congress is Representative Darrell Issa, the California Republican who had a maximum wealth of $700.9 million in 2010, according to the center. If he were in China’s NPC, he would be ranked 40th. Per capita income in China is about one-sixth the U.S. level when adjusted for differences in purchasing power.

That is via Shanghaiist, via @AlbertoNardelli via @AnnieLowrey.

Or do the Canadians simply do not want us?

They are a projected 335,000 job opportunities arising in British Columbia and Alberta between now and 2014, especially in construction. The biggest demand relates to carpenters, electricians, welders, plumbers, heavy equipment operators and millwrights.

Canada differs from many countries seeking workers abroad in that it encourages long term inward migration by specified groups and facilitates family settlement.

Most of all they are searching in Ireland, it seems.

1. The importance of IQ and trust for investing.

2. The new George Dyson book on the origins of the computer, I just bought mine here.

3. Alan Turing’s school reports.

4. The problem with collateral, and what could possibly go wrong?, and a Google count on Target2 searches.

5. Chris Blattman’s links.

As in most years, there is some serious competition, here is the short list of contenders:

A Century of Sand Dredging in the Bristol Channel: Volume Two by Peter Gosson (Amberley). A book that documents the sand trade from its inception in 1912 to the present day, focusing on the Welsh coast.

Cooking with Poo by Saiyuud Diwong (Urban Neighbours of Hope). Thai cookbook. “Poo” is Thai for “crab” and is Diwong’s nickname.

Estonian Sock Patterns All Around the World by Aino Praakli (Kirjastus Elmatar). Covers styles of socks and stockings found in Estonian knitting.

The Great Singapore Penis Panic: And the Future of American Mass Hysteria by Scott D Mendelson (Createspace). An analysis of the “Koro” psychiatric epidemic that hit the island of Singapore in 1967.

Mr Andoh’s Pennine Diary: Memoirs of a Japanese Chicken Sexer in 1935 Hebden Bridge by Stephen Curry and Takayoshi Andoh (Royd Press). The story of Koichi Andoh, who travelled from Japan to Yorkshire in the 1930s to train workers at a hatchery business the art of determining the sex of one-day-old chicks.

A Taxonomy of Office Chairs by Jonathan Olivares (Phaidon). Exhaustive overview of the evolution of the modern office chair.

The Mushroom in Christian Art by John A Rush (North Atlantic Books). In which the author reveals that Jesus is a personification of the Holy Mushroom, Amanita Muscaria.

The story of the prize is here, and for the pointer I thank www.artsjournal.com.  Sadly, only one of these books can be bought in digital format, can you guess which one?

I very much liked this book, which compares the histories of New Zealand and the United States, and in particular I liked:

1. The discussion of how the New Zealand government encouraged smaller land holdings through some deliberate policy decisions in the late 19th century (p.165).

2. The discussion of how New Zealand abolished its provinces in 1875 (circa p.193), and the importance of that decision (passim).

3. The near-uniformity of the crime rate throughout New Zealand (p.198).

4. The comparison between labor movements in the two countries and the possibly differing history of labor-saving devices (circa p.328).

5. The comparison between Bills of Rights; New Zealand for instance has a right not to be subjected to medical experiments and a right to refuse medical treatment, but no right to a jury trial (circa p. 464).

It is probably the best introduction to New Zealand history for an American, even though much of the book is not about New Zealand history at all.  That said, while I found this a very good book, and certainly a book to recommend and to make the year’s “best of” list, it did not for me quite live up to its full potential.  I have high standards in this particular area, so I would have liked:

6. A discussion of “cutting down tall poppies” before p.487.

7. A deeper discussion of the differences in role models in the two countries.  New Zealanders admire Sir Edmund Hillary more than a successful businessman, though this has changed somewhat.

8. A comparison between American social conformism, as outlined brilliantly by Tocqueville, with the more outwardly conformist New Zealand working class variety.

9. A discussion of why New Zealanders are less prone to extreme thought and explicit missionary dedication; can you imagine a Kiwi version of Whittaker Chambers?

10. More attention to the commodities dependence in the New Zealand economy, and the importance of the UK abolishing NZ trade preferences in 1972-3, and the ongoing struggles to suss out a coherent vision for a relationship with Asia and China.

11. More discussion of how it mattered for New Zealand as many centres of activity shifted over time from the South Island to the North Island, culminating in the centralization of so much activity in or near Auckland.

12. Much more discussion of religion, and of the extreme enthusiasms which are bred in the United States.

13. A greater understanding of how Americans would not necessarily regard their society as “less fair,” but rather that some benefits are to be portioned out in accordance with a peculiarly American notion of what a person deserves.

14. A discussion of Upper Hutt or Lower Hutt, ideally both.

15. Why are New Zealanders perhaps the most polite people in the Western world?

16. The importance of having so many people living so close to the water, and (in some parts of the country) being surrounded by relatively few trees, and the much lower productivity of hunting in New Zealand, as there is not so much to hunt.

17. A more explicit discussion of economies of scale, and of why New Zealand is sometimes accused of being boring.  There is one quotation offered from an outside visitor: “”I suppose they are happy,” she wrote in her contemptuous way. “I couldn’t bear it.”" (p.xix).

Charlie Clarke, a Finance PhD student at UConn, and a loyal MR reader, writes to me:

Hi Tyler,

I’m a grad student teaching for the first time, and I was wondering if  you had any recommendations for a book relaying evidence based advice for teaching methods.  I know Cowen’s law, “There is a literature on everything.”  Just hoping there is a good book or two synthesizing that literature so that I can use it to improve my teaching.

Love the blog.

The most important lesson is to use the right textbook.  Beyond that:

1. Give a damn.

2. Get to the point when you speak.

3. Expect something from them.

4. Teach to the students who are interested in learning.

5. At all levels, do not overestimate the attention span of your audience.

6. Do not be afraid to be idiosyncratic, provided you adhere strictly to #2.

Those are my tips.  But to be honest, I do not consider them RCT-tested and I am not sure they maximize social welfare.  They instead start from the premise that the key question is what kind of person do I want to be, and then the method asks the students to conform to that vision.  Some or all of them might prove RCT-neutral, or worse.  Nonetheless, the approach is a good way to motivate me and that is part of the problem.

Doesn’t Bryan Caplan have a post on this?  Here is John Baez on how to teach.  Peoples, what can you recommend from the literature?

25-08 37th Avenue (Crescent Avenue), Long Island City, Queens; (718) 361-0085.  Set in the middle of nowhere, these are the best burnt ends I’ve had, including Kansas City, and the best lamb sausage I’ve had, ever.  The pastrami is the other winner.  Quite possibly this is the best barbecue on the entire East Coast and it is one of the better barbecue experiences in the country.  Here is one review.

They let me sample about five other dishes, and while they were very tasty they did not compare to the absolute winners cited above.

Me: “I know this is a stupid question, but how come the food here is so good?”

The Pitmaster: “That’s how we make it.”

1. NYT profile of Jodi Ettenberg.

2. The seasteading project of Blueseed.

3. Nomad planets.

4. The grocery store of the future?

5. Kickstarter expects to provide more funding to the arts than NEA.

6. Has parenting become impossible?

Many people point out that we are in a balance sheet recession.  I agree with this view but wish to push it one step deeper.  The negative wealth and income effects on debtors are positive wealth and income effects for the creditors.  If the creditors were keener to invest that money in useful, productive activities the economy would be much stronger.  Balance sheet recessions are most problematic when the investment channel is for some reason broken or especially weak.

You might think “Ah, the weak investment channel is due to weak AD.”  And in part it is.  But, if I may quote the Austrians, production takes time and recoveries do not take forever.  Investors are often keen to invest into the swoosh of a future, not too far away, post-recession boom.  But this desire has been much weaker than in many times past.  A lot of the weakness of AD comes from the investment side, and in fact it predated the recession.

The new Bruce Bartlett book on taxes is out, I presume it is excellent.  Here is his column on the Romney and Obama plans.

David Brooks had an excellent column on tax expenditures.

Ezra Klein had a very good summary post on the OECD tax report.

Arthur Laffer is toying with the idea of a revenue-neutral carbon tax.

This is from a loyal reader named “a”:

How high are marginal rates of deductions in the UK?:

Consider an employee paid £50,000 gross who gets a £1,000 pay rise.

Let’s assume they are yet to pay off their student loan and contribute 7.5% to a (underfunded*) pension scheme and get 8% employer contributions to their pension.

Our employee’s employer will also pay the government an extra £218 pension contributions and national insurance (payroll) contributions, 8% and 13.8% of gross earnings respectively.

So the total increase in cost to the employer is £1,218.

Of their pay rise our employee pays £75 pension contributions, £90 student loan repayments, and £370 in income tax, giving total employee deductions £555.

This gives a marginal deduction rate of 63.46% (£445/£1,218).

If our employee buys goods which are liable for VAT they will lose a further 20%, resulting in a 70.77% marginal rate of deductions.

Oh and our employee must pay a local government lump sum tax of around £1,500 from their net wages.

So our employee faces a marginal rate of deductions 63.46% on non-VAT items, 70.77% on VAT items, and an average rate of deduction of 52% of pre-deduction earnings.

A similar analysis on a worker paid the minimum wage (around £12,500 a year), or £1000 above the minimum wage results in a marginal rate of deduction of 32% and an average rate of deduction of 52%. This ignores the withdrawal of means tested benefits.

Might this be the supply side explanation Scott Sumner has been looking for?

* UK private pension schemes currently have a £265bn deficit.

1. China markets in everything, fake iPhone signature.

2. Remastering music for the iPod age.

3. It appears the Slovaks will name a bridge after Chuck Norris.

4. Incorporating physiological observations into economics.

5. Via The Browser, predictions about Syria.

6. Sam Bowman reviews Daniel Klein.

Spiegel: Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union…

…Bulgaria, the EU’s poorest country, is attractive as a labor market because it is an oasis of cheap wages and low taxes. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers.

Expect to see a lot more of this in coming years.. As wealth and consumption increases, China will also begin to import more from developed countries, including more finished goods.