Though online technology has generated excitement about its potential to increase access to education, most research has focused on comparing student performance across online and in-person formats. We provide the first evidence that online education affects the number of people pursuing formal education. We study the Georgia Institute of Technology’s Online M.S. in Computer Science, the earliest model to combine the inexpensive nature of online education with a highly-ranked degree program. Regression discontinuity estimates exploiting an admissions threshold unknown to applicants show that access to this online option substantially increases overall enrollment in formal education, expanding the pool of students rather than substituting for existing educational options. Demand for the online option is driven by mid-career Americans. By satisfying large, previously unmet demand for mid-career training, this single program will boost annual production of American computer science master’s degrees by about seven percent. More generally, these results suggest that low-cost, high-quality online options may open opportunities for populations who would not otherwise pursue education.

That is from a new NBER paper by Joshua Goodman, Julia Melkers, and Amanda Pallais.  And here is a new NBER paper by Deming, Lovenheim, and Patterson: “Our results suggest that by increasing competitive pressure on local schools, online education can be an important driver of innovation and productivity in U.S. higher education.”

Tuesday assorted links

by on October 25, 2016 at 11:31 am in Uncategorized | Permalink

Prior to 1968, membership in the Cleveland Orchestra was a part-time job. When he joined the orchestra, the regular season was just 30 weeks long, with lower pay for summer concerts. In 1952, the base salary was $3,240—$29,231 in today’s dollars. By 1967, it had only gone up to $11,700. (The current base salary is $120,000.) The U.S. median household income in 1967, by contrast, was $7,970. According to a 1952 survey, 60% of the players moonlighted in nonmusical jobs, and many of them did so until 1968, when Cleveland, in keeping with other top-tier American orchestras, finally lengthened its season to 52 weeks.

Here is Terry Teachout on today’s orchestral strikes. How much are the striking musicians paid, and are they as good as the former Cleveland players?:

Suffice it to say that the annual base salary is $107,000 in Pittsburgh and $128,000 in Philadelphia. (At the New York Philharmonic, it’s $146,848.) In Fort Worth, the average salary is $61,000. The music directors of those orchestras may make 10 to 20 times what players do, and managerial salaries are also higher. Allison Vulgamore, president and CEO of the Philadelphia Orchestra, is said to be paid roughly $725,000 a year.

Something fundamental has changed about social expectations, yes?

Renminbi vs. yuan

by on October 25, 2016 at 12:44 am in Economics, History, Uncategorized | Permalink

The style guide of The Economist magazine, after explaining the difference between the two terms, leaves no ambiguity about what its reporters should use: “Renminbi, which means the people’s currency, is the description of the yuan, as sterling is the description of the pound.  Use yuan.”  The Financial Times favors the use of renminbi over yuan by a six-to-one ratio.  But Financial Times reporters seem to believe its readers are sophisticated enough to be able to shift back and forth between the two terms without further explanation.

That is from new and useful Gaining Currency: The Rise of the Renminbi, by Eswar S. Prasad.

And here is the BBC:

“Renminbi” is the official name of the currency introduced by the Communist People’s Republic of China at the time of its foundation in 1949. It means “the people’s currency”.

“Yuan” is the name of a unit of the renminbi currency. Something may cost one yuan or 10 yuan. It would not be correct to say that it cost 10 renminbi.

I did not know this:

The word “yuan” goes back further than “renminbi”. It is the Chinese word for dollar – the silver coin, mostly minted in the Spanish empire, used by foreign merchants in China for some four centuries.

If you wish to pursue it further:

As it happens, Chinese people rarely talk about renminbi or yuan.

The word they use is “kuai”, which literally means “piece”, and is the word used historically for coins made of silver or copper.

And so on…

Robert D. Tollison, RIP

by on October 24, 2016 at 3:13 pm in Current Affairs, Economics | Permalink

tollisionThe great Robert Tollison has passed. No one was better than him at seeing the implications of a theory and finding a way to test it. He always had ideas, many adopted by GMU graduate students. A pioneer of sportometrics, public choice, public choice and antitrust, economics and religion, the economic analysis of economists and many other areas.

Bob was an immensely productive scholar with at least 12 books as author or co-author, 22 edited collections, 7 editions of a textbook, 110 articles in books, 220 journal articles, 44 journal notes/comments…and more. He was also senior editor at Public Choice for 17 years and he held positions in government as a Senior Staff Economist on the President’s Council of Economic Advisers (1971-72) and Director of the Bureau of Economics at the Federal Trade Commission (1981-83).

Bob had many, many students.

I will post links to remembrances here.

Don Boudreaux at Cafe Hayek.

Mark Thornton.

Bryan Caplan.

Ed Lopez.

Adam Ozimek raises that question.  You might think a growing population is obviously better for business, but it’s actually not so clear:

It’s true bigger places have advantages in terms of being able to offer a greater variety of consumer options and niches. But marginal population growth doesn’t do all that much to change the relative size of a place. A small city growing fast takes a long time to become a mid-sized city, and so forth.

Yes, a growing population means greater demand, but it also means greater supply. So if you are a lawyer, and you care about the relative scarcity of lawyers then it doesn’t really matter if the overall population is growing. It’s really about the population of lawyers relative to the rest of the population, eg customers.

If a growing population brings growing supply and demand in equal proportion, then a business person should be indifferent between growing and shrinking. Given that land prices will be falling in shrinking places, you might even think they have an advantage.

He suggests that competing for new customers may be easier than competing for already-attached customers, and thus entrepreneurs should prefer a growing population.

I say it is fixed costs and minimum scale.  If population is shrinking, the marginal costs of your company typically are rising (the higher cost of competing for already-attached customers can be one example of this).  With a rising population, marginal cost is falling and for sectors with reproducible outputs marginal cost will be zero or near-zero.

Of course these effects will vary across sector.  In New Zealand, a small country, the lamb meat is of high quality.  It is not only the proximity of the source, but this is not an increasing returns to scale sector;  if you wish to sell more lamb meat, you have to raise another sheep.  In contrast, a newspaper fares much better with a larger population, as does a bookstore or movie and television production.

As population shrinks in many countries, reproducible cultural enjoyments are more likely to come from abroad.  The shrinking countries however will offer relatively favorable conditions for innovating domestically with high-quality raw materials, or in other words you have to visit small/shrinking countries to really enjoy what they have to offer.  Like lamb meat in New Zealand.  Lower land prices in shrinking countries will further boost this tendency to focus on quality raw materials production and manipulation.  In other words, Italian food in Italy might stay good for a long time to come.

I’ve already argued that you should visit small countries and territories now, because their special cultures will be overwhelmed and expire more rapidly than is the case for larger units.  This mechanism, outlined above, is another reason for why you really need to be there.  In other words, your trip to Africa can wait, Naples beckons.

Even though William Baumol didn’t win the Nobel prize this year it got me to thinking about the cost disease, as did the death last week of William Bowen, the co-author of Performing Arts – The Economic Dilemma which brought the cost disease to public attention. The cost disease says that if two sectors have unequal levels of productivity growth then the sector with lower growth will increase in relative price. If in 1900, for example, it took 1 day of labor to produce one A good and 1 day of labor to produce one B good then the goods will trade 1:1. Now suppose that by 2000 1 unit of labor can produce 10 units of A but still only one unit of B. Now the goods trade 10:1. In other words, in 1900 the price or opportunity cost of one B was one A but in 2000 to get one B you must give up 10 A. B goods have become much more expensive.

The cost disease says only that the relative price of the low productivity good increases, it doesn’t say that the low productivity good becomes absolutely more expensive. The economy in 2000 is much wealthier than in 1900 so relative to income B has become cheaper. Anyone who could consume x units of B in 1900 can still consume x units of B in 2000, the only difference is that in 2000 they will be giving up more A than in 1900 so the tradeoff has become steeper even though still affordable.

Stated generically the cost disease is indisputable. But it becomes more contentious when we try to identify the A and B good. Baumol and Baumol and Bowen initially pointed to labor intensive goods, the service sector, as the low-productivity B sector. The performing arts were the key example–it took four quartet players 40 minutes to perform a Mozart composition in 1900 (or 1800) and it took four quartet players 40 minutes to perform a Mozart composition in 2000, hence no productivity improvements in Mozart performances, hence a rising cost over time since those four players could produce many more goods in say the manufacturing sector in 2000 than 1900. Health care and education are other stock examples.

Tyler offers one response to the cost disease namely that it’s true if you define the good narrowly (listening to a live performance of a 40 minute Mozart composition) but why should we define the good narrowly? If instead we define the good as “listen to music for 40 minutes” then it’s clear that costs have fallen dramatically. Not only has the cost of listening fallen, variety has increased. Costs have fallen even further since Tyler wrote. In a similar way, Tyler and I have argued that online education greater lowers costs and increases quality.

robot-playerHere, however, I offer a different and more fundamental response. Baumol pointed to labor and the service sector as the low productivity, low growth, sector. But robots and artificial intelligence mean that there is no longer a pure “labor” sector. Robots are labor made of capital. Whether we are talking about robot vacuum cleaners, AI answering machines or Dr. Watson there is much more capital in the service sector than ever before. K has become L. And when K becomes L, the productivity of L increases with the productivity of K. If manufacturing productivity improves and we are manufacturing robots then any sector that uses robots increases in productivity. If software productivity improves–if AI becomes more intelligent, for example–then any sector that uses AI increases in productivity. Any service that uses information technology inherits all the productivity growth of information technology.

At any moment there will always be some sectors that are increasing in productivity at a faster rate than other sectors–that is the nature of progress, uneven and episodic–but the time when one could distinguish a manufacturing sector and a service sector and argue that as a general rule the latter increases in productivity at a slower rate than the former is rapidly coming to a close. K has become L.

Addendum: Timothy Lee also has a piece today on the cost-disease.

Fewer people are watching:

Revenue is up, but audiences are down in New York City’s dance industry, a new study of the field finds.

A 20% decrease in the number of paid attendees at live performances emerged in the study, to be released Friday by the advocacy group Dance/NYC. The study looked at 172 dance organizations over a six-year period.

The audience decline appears to have been led by drops at the largest organizations, those with budgets of more than $5 million.

That is from Pia Catton at the WSJ.

What I’ve been reading

by on October 24, 2016 at 12:09 am in Books, Uncategorized | Permalink

1. Peter Ames Carlin, Homeward Bound: The Life of Paul Simon.  I hadn’t known that Simon originally recorded the Hearts and Bones album with Garfunkel, but later erased his partner’s contributions to the songs.  Nor had I known that Simon produced a stripped-down, acoustic guitar version of “Surfer Girl.”  For fans, the book is interesting throughout, and most of all the story is of an ongoing rivalry — with Art — that never became functional again once it collapsed.

2. Antonio Di Benedetto, Zama.  A 1950s Argentinean novel set in colonial times, and beloved by Roberto Bolaño; the introduction describes the author as “a would-be magical realist who can’t quite detach himself from reality.”  For fans of the disjointed tragic.  I very much liked it, but had to read the first half twice in a row to grab hold of what was going on.

3. Elizabeth Brown Pryor, Six Encounters with Lincoln: A President Confronts Democracy and its Demons.  Fresh and stimulating throughout, I found most interesting the parts of how the Commander in Chief role of the president evolved under Lincoln, and Lincoln as the first “media president.”  Highly relevant for current politics too.

Forthcoming is Joe Quirk, with Patri Friedman, Seasteading: How Ocean Cities Will Change the World.  Comprehensive and readable, though I am not a convert.

William Mellor and Dick M. Carpenter II, Bottleneckers: Gaming the Government for Power and Private Profit, is a very useful look at how laws and regulation block progress and create barriers to advancement.

I have only browsed Milan Vaishnav, When Crime Pays: Money and Muscle in Indian Politics, but it appears to be a quite interesting political economy take on the (non-optimal) transactional economies from having criminals so deeply involved in Indian politics.

Minxin Pei, China’s Crony Capitalism: The Dynamics of Regime Decay, takes a close look at Chinese corruption, based on a detailed study of two hundred cases.

Even more inventive computer crooks have used online pornography as a reward for human web surfers who break the Captcha…

Here is the John Markoff NYT piece, very interesting throughout.  Imagine an evil AI agent that can mimic your voice and call your loved ones and…

Sunday assorted links

by on October 23, 2016 at 1:17 pm in Uncategorized | Permalink

The deal may “feel wrong” to a lot of people, but for the regulators it ought not to be a big deal:

AT&T’s proposed acquisition of Time Warner…is considered “vertical” because the two companies largely do not compete against each other but operate on the same supply chain.

This is the bottom line:

“By standard antitrust metrics, this deal should be O.K. in Washington,” said Paul Gallant, a technology, media and telecommunications policy analyst with Cowen & Company. “But the Democratic Party is moving left, and if Clinton wins, this could become an early test for her ‘tougher on business’ rhetoric.”

The negative arguments are speculative or quite a stretch:

AT&T could make it more expensive for its competitors to gain access to Time Warner’s content or give preferential treatment to its own programming, said John Bergmayer, senior counsel at Public Knowledge, a digital rights advocacy group.

That is all from Leslie Picker and Cecilia Kang at the NYT.  I would stress that “entertainment” and “content” are sectors where choices have exploded more or less without precedent.  If the goal is to stop Time-Warner content from spreading to multiple sectors of the consumer media universe, I don’t see this one as a winner.

More generally, it is hard to see where the efficiencies from the deal are supposed to come from.  About the recent Bayer and Monsanto proposed merger I wrote:

There is a well-known academic literature, dating to the early 1990s, showing that acquiring firms usually decline in value after tender offers, especially after the biggest deals. Mergers do not seem to make companies more valuable or efficient.

Why then do so many mergers and acquisitions happen? Well, some of them do pay off (Google buying YouTube), but also many managers engage in empire-building by increasing the size of their companies, even at the expense of the shareholders. Another possibility is what economists call “winner’s curse,” namely that the winner of an auction or contest or bidding war tends to be the person or institution most optimistic, and in fact overly optimistic, about the value at stake.

So from a social point of view, I doubt if there is so much at stake here.

Addendum: Matt Yglesias comments.  And here is FT coverage.

The author is Julian Gewirtz and the subtitle is Chinese Reformers, Western Economists, and the Making of Global China.  I loved this book.  It is a tour de force on China, the theory of policy advising, and the history of economic thought, all rolled into one.  Here is one bit:

The Chinese side, meanwhile, had learned the hard way about Friedman’s dual persona and that his expertise on inflation could not be separated from his ideological intensity [TC: circa 1980]…Yang Peixin remembered Friedman as “extraordinarily stubborn,” someone who “thinks the world socialist experiment has failed,” and “would not speak politely no matter how high your position.”

It turns out that Wlodzimierz Brus and Ota Šik were two of the most important economists of the twentieth century, mostly because of their influence on China.  Both came from Eastern Europe and centrally planned economies, but urged China to find a workable mixed model.  Šik was a proponent of the ideas of Oskar Lange.

From this book you also will learn about the significant roles of Gregory Chow, James Tobin, and Janos Kornai, all explained with intelligence and lucidity.  I enjoyed this bit:

To the Chinese participants [in the seminar], Tobin’s presentation had an almost theatrical power — after all, they had never before seen an economist in action in this way.  One participant recalled that Tobin’s seemingly magical ability to make policy recommendations from quickly looking at a set of high-level data astonished him and his peers.

At one point during Tobin’s talk, the interpreter burst into tears.  The more influential Kornai instead said this:

“I had in a sense two different faces, one face for Hungary and one face for China.”

More concretely, he was recommending shock therapy for Hungary but not for China.  Friedman, by the way, had more influence when he returned to China for a Cato conference in 1988.  But still the Chinese thought Friedman did not sufficiently understand the special characteristics of the Chinese economy.

Strongly recommended, due out early next year.  Gewirtz, by the way, is a Rhodes Scholar and still has not finished his Ph.d.  I eagerly await his next work.  You can follow him on Twitter here.  He is also well-known as a poet.

Democrats are already looking beyond ObamaCare’s slow-motion failure, and Colorado is showing where many want to go next: Premiums across the state are set to rise 20.4% on average next year, and some have concluded that the solution is more central planning and taxation. Voters will decide on Nov. 8 whether to try the single-payer scheme that blew up in Vermont.

Amendment 69 would alter the state’s constitution to create a single-payer health system known as ColoradoCare. The idea is to replace premiums with tax dollars, and coverage for residents will allegedly include prescription drugs, hospitalization and more. Paying for this entitlement requires a cool $25 billion tax increase, which is about equal to the state’s $27 billion budget. Colorado would introduce a 10% payroll tax and also hit investment income, and that’s for starters.

So far the ballot initiative is not popular, and it is also opposed by the state’s Democratic governor.  Still, it would write ColoradoCare into the state’s constitution, and if you run referenda enough times, etc.  The broader point is that single-payer plans, whatever their virtues and flaws in toto, cannot work at the state level in the United States.  The single state is not big enough to bargain down health care prices very much, and furthermore the state government has to run a balanced budget and, because of competition with other states, has only highly imperfect control over its own feasible level of taxation and expenditure.  A single state cannot simply decide to “go Denmark,” for instance.

Here are further details on ColoradoCare, eventually the link will become noisy.  Here is a Denver Post Op-Ed against ColoradoCare, again a noisy link.

Hat tip goes to Christopher Balding.

Saturday assorted links

by on October 22, 2016 at 2:40 am in Uncategorized | Permalink

1. My life as a Whole Foods DJ booker those new service sector jobs.

2. The political power of black women.

3. Antiprioritarianism (pdf), by Hilary Greaves.

4. Was the internet hack driven by commandeered Internet of Things?  I cannot verify what is in there, but it is potentially a very important and also disturbing post, via Binyamin Appelbaum.

5. The evidence for universe acceleration may be flimsier than we had thought.  And do you think this is a bigger story than #4 in this list?

6. No one bid for John Nash’s Nobel Prize — was that the Nash equilibrium?

7. Chemical bike lock causes vomiting in thieves.