Peter Orszag reports:

During roughly the same period, the return on invested capital — that is, how much profit is generated for each dollar of investment — also grew more unequal between companies. While the typical return was roughly constant, at about 10 percent, returns became more dispersed over time.

In particular, from 1965 to 1967, only 1 percent of non-financial firms earned returns of 50 percent or more, but from 2005 to 2007, 14 percent did. In other words, 50 years ago, one out of 100 firms earned 50 percent returns. More recently, one out of seven did.

These data suggest three things: First, the typical return to capital hasn’t changed much, which is what you would expect, given that the capital-output ratio excluding land and housing has been stable.

Second, from company to company, that return has become much more unequal, as has productivity. Some of this inequality between companies in returns and productivity tends to spill over into wages. And this is precisely what we’ve seen. It explains more of the rise in overall earnings inequality than does the increased gaps between the pay of higher earners and rank-and-file workers within a given company.

The full article is here.

“What jumped out for me was the survey that revealed that in some cases as many as 39 percent of our learners are teachers,”

There are two ways to view this.  One is that educators are simply talking to each other.  The alternative — more likely in my view — is that on-line and face-to-face education are in fact complements, but also that our educators know much less than they sometimes let on.  They need MOOCs to learn the material, or more optimistically to improve their presentations of it.

And how is this for the law of demand?:

Across 12 courses, participants who paid for “ID-verified” certificates (with costs ranging from $50 to $250) earned certifications at a higher rate than other participants: 59 percent, on average, compared with 5 percent. Students opting for the ID-verified track appear to have stronger intentions to complete courses, and the monetary stake may add an extra form of motivation.

I’ve long thought the standard meme “Only [small number goes here] percent of starters complete free MOOCS” was a weak argument.  This shows you why.

The piece discusses other interesting results as well.

Assorted links

by on April 1, 2015 at 12:37 pm in Uncategorized | Permalink

1. Soda taxes don’t seem to work.

2. Can a health care company actually satisfy the customer?

3. How hard is it to become really good at table tennis?  And the common law origins of the infield fly rule.

4. Summers responds to Bernanke.  And Robert Moses responds to Robert Caro.  And Bernanke on the global savings glut.

5. John von Neumann documentary.

6. The original markets in everything.

Vox reports on a study comparing taking notes by hand versus using a laptop

For the first study, the students watched a 15-minute TED talk and took notes on it, then took a test on it half an hour afterward. Some of the test questions were straightforward, asking for a particular figure or fact, while others were conceptual, and asked students to compare or analyze ideas.

The two groups of students — laptop users and hand-writers — did pretty similarly on the factual questions. But the laptop users did significantly worse on the conceptual ones:


The problem appears to be that the laptop turns students into stenographers, people who write down everything they hear as quickly as they can. Students who take handwritten notes, however, try to process the material as they are writing it down so that they only have to write down the key ideas. Forcing the brain to extract the most vital information is actually when the learning happens.

The laptops resulted in worse learning even under the study conditions when they were actually used to take notes. In the real world, the laptops are a tempting distraction. I am reminded of the day my son came to my class. He sat in the back and afterwards he said “Dad, I can see why you are so interested in online education. Half of your students are online during your class already.”

It used to be that airliners broke up in the sky because of small cracks in the window frames. So we fixed that. It used to be that aircraft crashed because of outward opening doors. So we fixed that. Aircraft used to fall out of the sky from urine corrosion, so we fixed that with encapsulated plastic lavatories. The list goes on and on. And we fixed them all.

So what are we left with?

Sadly, we all know the answer to that question.

…And so, with more rules we have solved most of the problems in the world. That just leaves the weird events left like disappearing 777’s, freak storms and ISIS. It used to be that even minor storms would be a problem but we have building codes now (rules). Free of rules, we’d probably have dealt with ISIS by now too.

Ultimately, this is why the world is getting weirder, and will continue to do so. Now with global media you get to hear about it all.

That is from a very interesting mini-essay by Steve Coast, hat tip goes to The Browser.

Gary Solon, in a new survey paper, takes issue with the earlier results of Greg Clark, which had suggested social mobility was roughly constant across a wide spectrum of cases.  Solon writes:

…the results reported by Clark do not reflect a universal law of social mobility.  Quite to the contrary, other studies based on group-average data, even surnames data, frequently produce intergenerational coefficient estimates much smaller than Clark’s.

A second testable prediction of Clark’s hypothesis…is that instrumental variables (IV) estimation of the regression of son’s log earnings on father’s log earnings should yield a coefficient estimate in the 0.7-0.8 range if father’s long earnings are instrumented with grandfather’s log earnings.  When Lindahl et al, estimated that regression with their data from Malmo, Sweden, the IV coefficient estimate was 0.15, considerably higher than their ordinary least squares (OLS) estimate of 0.303.  They obtained a remarkably similar comparison of IV and OLS estimates when they used years of education instead of log earnings as the status measure.  The pattern of IV estimates exceeding OLS estimates is consistent with Clark’s general story about measurement error in particular indicators as proxies for social status.  It is equally consistent with all the alternative stories listed in section II for why grandparental status may not be “excludable” from a multigenerational regression.  What the results are not consistent with is a universal law of social mobility in which the intergenerational coefficient is always 0.7 or more…

A third testable prediction…is that using an omnibus index that combines multiple indicators of social status should make the intergenerational coefficient estimate “much closer to that of the underlying latent variable.”  [But]…The resulting estimate was not “much closer” to the 0.7-0.8 range.

In sum, when Clark’s hypothesis is subjected to empirical tests, it does not fare so well.

Here is an ungated version.

Here is his second real blog post.  Excerpt:

My greatest concern about Larry’s formulation, however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home. The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports. (For intuition about the link between foreign investment and exports, think of the simple case in which the foreign investment takes the form of exporting, piece by piece, a domestically produced factory for assembly abroad. In that simple case, the foreign investment and the exports are equal and simultaneous.) Increased exports would raise production and employment at home, helping the economy reach full employment. In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy. Of course, all else is not equal; financial capital does not flow as freely across borders as within countries, for example. But this line of thought opens up interesting alternatives to the secular stagnation hypothesis, as I’ll elaborate in my next post.

Keep ‘em coming Ben, but you’re not a real blogger until you’ve covered the infield fly rule…

New brokerage accounts have surged since China’s bull market got running mid-2014. The number of new trading accounts hit a five-year high in early March. But as you can see in the chart above, a lot of those new investors probably aren’t the savviest.

Some 67.6% of households that opened new accounts in the past quarter haven’t graduated from high school, according Orlik’s chart, which comes from a large-scale quarterly national survey of household assets and income conducted by Gan Li of the Southwestern University of Finance and Economics. Only 12% have a college education. Among existing investors surveyed, only 25.5% lack a high school diploma; 40.3% have finished college.

From Gwynn Guilford, there is more here.

*Genealogy of American Finance*

by on March 31, 2015 at 1:12 pm in Books, Economics | Permalink

By Robert E. Wright and Richard Sylla, Columbia Business School Publishing, this is both a beautiful picture book, coffee table style, and also a history of America’s “Big 50″ financial institutions.  It appears to be a very impressive creation, full of useful information.

File under “Arrived in my Pile”!  You can order it on Amazon here.

Tuesday assorted links

by on March 31, 2015 at 12:03 pm in Uncategorized | Permalink

1. A good review of Ishiguro.

2. Against a 100% value land tax.

3. Top ten largest cruise ships in the world.  And why India’s Flipkart abandoned its mobile website.

4. Faster peer review markets in everything?

5. Median salaries in higher education.

6. Sadly, John Makin has passed away.  And the comments on Bernanke’s blog post.

Timothy Hicks has a new and recently published paper:

It is argued in this article that the marketisation of schools policy has a tendency to produce twin effects: an increase in educational inequality, and an increase in general satisfaction with the schooling system. However, the effect on educational inequality is very much stronger where prevailing societal inequality is higher. The result is that cross-party political agreement on the desirability of such reforms is much more likely where societal inequality is lower (as the inequality effects are also lower). Counterintuitively, then, countries that are more egalitarian – and so typically thought of as being more left-wing – will have a higher likelihood of adopting marketisation than more unequal countries. Evidence is drawn from a paired comparison of English and Swedish schools policies from the 1980s to the present. Both the policy history and elite interviews lend considerable support for the theory in terms of both outcomes and mechanisms.

There are less gated versions here, and for the pointer I thank the excellent Kevin Lewis.

Colin M. MacLachlan, in his splendid Imperialism and the Origins of Mexican Culture, reports:

1. Corn gruel and tamales were reinforced with fish, seeds of various kinds, fruit, and honey.

2. Beans were supplemented with meat from iguanas, armadillos, and rabbits.

3. The calcium content of corn was (and still is) increased by alkaline cooking with lime (“nixtamalization,” duh).

4. “Pulque” has “substantial food value,” “whether fermented or fresh.”

5. Dried red maguey worms have 71 percent protein.

6. Axayacatl (a species of aquatic insect sometimes called “water boatmen“) have 68.7% protein.

7. Mesquite pods and seeds have high caloric value.

8.”Tecuitlatl (spirulina), the green scum collected from lakes with high saltwater content, was sold in the market to be eaten with chilies and tomatoes and has been shown to be a modern wonder food.”

As you can see, the world of food really could have evolved along very different lines.

I also enjoyed this line from the book:

The fundamental belief that the gods sacrificed themselves to create the Earth and continued to do so to sustain it locked the gods and humans into a circular dependency — a relationship characterized by fearful respect coupled with regulated violence.

Definitely recommended, and oh yes that reminds me, here is the livestream for my chat later today with Peter Thiel.

Headlines to ponder

by on March 30, 2015 at 2:36 pm in Current Affairs, Economics, Law, Religion | Permalink

Bank of Bird-in-Hand is the only new bank to open in the U.S. since 2010, when the Dodd-Frank law was passed

The WSJ story is here, via Binyamin Appelbaum.

What would you like him to cover?  Please don’t be rude, serious inquiries only.  On Twitter Ben claims he will cover “economics, finances, and sometimes baseball.”

It is a busy morning, here is part of an email from Cato:

The Cato Institute welcomes Peter Goettler, a former managing director at Barclays Capital, as its new President and CEO, effective April 1. Current CEO John Allison is retiring after more than two exemplary years on the job.

Goettler retired in 2008 as a managing director and head of Investment Banking and Debt Capital Markets, Americas, at Barclays Capital, the investment banking division of Barclays Bank, PLC. He also served as chief executive officer for the firm’s businesses in Latin America and head of Global Loans and Global Leveraged Finance. He has been a member of the Cato Institute’s board since last year and a supporter of the Institute for 15 years.

Perhaps more information will pop up on their web site soon.