If global fund managers were asked to name their No. 1 bogeyman, it would probably be a housing crash in China. A lost decade for the Middle Kingdom, like the one that followed the end of Japan's great property craze in the 1980s, would hammer the world economy.
But how likely is such a catastrophe? A new study by Hanming Fang of the University of Pennsylvania, Quanlin Gu of Peking University, Wei Xiong of Princeton University and Li-An Zhou of Peking University confirms the enormous price gains between 2003 and 2013 in China's four biggest cities. In Beijing, Shanghai, Guangzhou and Shenzhen, home prices shot up by an average of 13.1 per cent a year, the researchers figure. However, they also note that the crazy market wasn't quite as insane as many skeptics believe.
For instance, down payments of more than 30 per cent were typical. In addition, gains in home prices were accompanied by spectacular gains in household's disposable incomes.
So long as incomes continue to rise, Chinese families are likely to see their real estate investments pay off, the researchers say. "Our analysis suggests that China's housing market is unlikely to be the direct trigger of the next financial crisis, even though it may amplify the impact of a sudden stop in the Chinese economy."
Would you like to supersize that law? How bills can deter binges
Politicians might not be able to legislate skinniness, but they can at least give big eaters more reason to avoid regular burger-and-fry blowouts. Christopher Carpenter and Sebastian Tello-Trillo of Vanderbilt University explore the connection between lard and litigation in a paper entitled "Do 'cheeseburger bills' work? Effects of tort reform for fast food."
The economists examine cases in which American state legislatures have passed so-called cheeseburger bills to protect fast-food chains from lawsuits brought by obese customers. In theory, such laws should throw more responsibility on consumers to police their own food habits, since they can no longer count on suing the purveyors of mega-calorie meals. And that is exactly what appears to have happened: Bills that limit fast-food companies' liability also seem to prod heavy people toward a significant increase in attempts to lose weight and consume more fruits and vegetables, the researchers say.
Now if legislators can just pass a law that makes salad taste good.
What reduces crime? Therapy is good, but money is even better
One of the most promising ways to reduce crime doesn't involve more police. Instead, it emphasizes changing how violence-prone people think – in particular, teaching them self-control and encouraging them to develop a better self-image.
A study of nearly 1,000 high-risk men in Liberia suggests that this approach can work even when the criminals are adults. It also demonstrates that therapy is most effective when it's accompanied by cash.
The project asked some of the men to take part in an eight-week program of cognitive behaviour therapy aimed at teaching them how to control their impulses. In addition, it randomly rewarded some of the men with the equivalent of three weeks wages.
The researchers – Christopher Blattman of Columbia University, Margaret Sheridan of Harvard Medical School and Julian Jamison of the Consumer Financial Protection Bureau – found that cash without therapy reduced crime in the short run but had no lasting effect.
In contrast, therapy was highly successful, reducing acts of crime and violence by up to half. But therapy with money worked even better, perhaps because it allowed participants more time to internalize what they had learned in therapy. "With therapy alone, those non-cognitive changes diminished after a year. When therapy was followed by cash, however, the effects were lasting."
I'll drink to that: The rise of the craft beer industry
The surging popularity of craft breweries in both Canada and the United States is a bit of a puzzle. These small beer makers seem out of their league in an industry dominated by multinational giants. But nevertheless they now account for 11 per cent of the beer sold in the United States, a level that has doubled over the past five years.
In an fascinating survey, the Federal Reserve Bank of Richmond examines the economic reasons for the recent success of craft brewing. Among other things, the bank credits it to so-called resource partitioning.
The resource partitioning model highlights the surprising and counterintuitive tendency of highly concentrated industries to open up room for extremely specialized firms. It predicts that when an industry becomes the domain of a few large players, those giants tend to compete for the most popular sectors.
In the case of the beer industry, that has resulted in a cut-throat battle among gigantic brewers for the vast numbers of lager drinkers. "This leaves room for small firms – the craft brewers – to create a product that satisfied the demand in smaller segments without directly competing with the large firms," the Richmond Fed says.
It has also resulted in what some term a "hyper-differentiated" market for craft brews. In plain English, that translates to legions of small brewers producing endless variations on a theme: "During the first quarter of 2014, for instance, more than 1,524 different India pale ales (IPA) were on sale nationally, a 37-per-cent increase from the first quarter of 2013."
That sounds like a topic that needs even more study. Count us in.
Ian McGugan