Alex Tabarrok

Why do governments sometimes engage in mass killings? Mass killings could help governments to suppress the opposition–that seems obvious–but it’s also true that mass killings can create blowback and further stiffen the opposition’s resolve. Uzonyi and Hanania offer a simple theory and some clarification:

We argue that government mass killing during war reduces opportunities for the opposition to return to military conflict in the future. This allows for longer periods of post-conflict peace. However, government atrocities that begin after the end of a civil war create new grievances without diminishing the ability of opponents to fight. This makes a faster return to conflict more likely. Statistical analysis of all civil wars between 1946 and 2006 strongly supports our arguments, even when we account for selection effects regarding when governments are more likely to engage in mass killing. These results reveal that both during-war and post-war tactics influence civil war recurrence, but that the same tactic can produce different effects depending on the timing of its use.

Essentially the authors are arguing that civil wars sometimes end when one side decisively wins. Not surprising but how about this for an uncomfortable thought:

We stress that mass killing is a grizzly and morally appalling
tactic. But it does appear to keep a country at peace for a
longer duration once a conflict ends. If the international
community disrupts these effects of mass killing, it may be
inadvertently increasing the likelihood that civil war will recur. Thus, if the international community chooses to intervene in conflicts to protect civilians, member states must also
be willing to remain in the country over the long term to
help the government and opposition groups refrain from returning to war. Unfortunately, few states have demonstrated
an appetite for such long-term commitments

The United States has been called the OPEC of blood plasma because it exports hundreds of millions of dollars worth to other countries. Why does the US dominate the blood plasma industry? Because in the U.S. it’s legal to pay donors which increases supply. Some provinces in Canada have also allowed paid donors but 80% of the blood plasma given to Canadians is imported from the United States and, to make matters worse, some provinces have banned or are considering banning paid donation. A very good letter opposes the ban:

We are professional ethicists in the fields of medical ethics, business ethics, and/or normative ethics, and academic economists who study how incentives and other mechanisms affect individual behaviour. We all share the goal of improving social welfare.

We have strong reservations regarding any Act or legislation (hereafter: “Acts”) that would prohibit compensation for blood plasma donations…….Both the ethical and the economic arguments against a compensatory model for blood plasma for further manufacture into PDMPs are weak. Moreover, significant ethical considerations speak in favour of the compensatory model, and therefore against the Acts.

The letter carefully discusses many of the objections such as that paid donations will drive out unpaid:

The compensatory model leaves open the possibility of donors’ opting out of compensation, or the operation of a parallel non-compensatory model. The United States does just this, and has an approximately 50% higher voluntary, unpaid, per capita blood donation rate than Canada. Germany, Austria, and the Czech Republic, where plasma donors can be compensated, likewise all have higher rates of voluntary, unpaid per capita blood donation than Canada.

Is paid blood plasma less safe?

Dr. Graham Sher, the CEO of Canadian Blood Services, has said, “It is categorically untrue to say, in 2015 or 2016, that plasma-protein products from paid donors are less safe or unsafe. They are not. They are as safe as the products that are manufactured from our unremunerated or unpaid donors.”

The letter is signed by two Nobel Prize winners in economics, Alvin Roth and Vernon Smith, by philosophers like Peter Jaworski, who did most of the heavy lifting, and by experts who have studied incentives and blood donation closely like Nicola Lacetera and Mario Macis. I am also a signatory.

Modern Principles, 4th ed!

by on January 16, 2018 at 7:25 am in Books, Economics, Education | Permalink

Tyler and I are thrilled to announce the release of the 4th edition of our principles of economics textbook, Modern Principles. In the new edition we have fully integrated the microeconomics and macroeconomics videos that we have been producing for MRUniversity. No other textbook has anything like this wealth of supplementary material–putting it all together makes Modern Principles a new kind of textbook. We have also added a lot of new questions, Ask FRED questions, that use data from the FRED database, more material on health and economic welfare, more material on financial crises and fires sales and much more.

No other textbook has our super simple Solow model which for the first time makes the Solow model accessible to principles students. Modern Principles also has a balanced treatment of Keynesian and Real Business Cycle models, lots of material on modern topics like price discrimination including bundling and tying, a chapter on managing incentives (piece rates, salaries, tournaments) that’s great for MBA students and of course the best guide to understanding the marvels of the price system.

Check out the video!

Crime Imprisons and Kills

by on January 15, 2018 at 7:26 am in Economics, Law, Medicine | Permalink

…the most disadvantaged people have gained the most from the reduction in violent crime.

Though homicide is not a common cause of death for most of the United States population, for African-American men between the ages of 15 and 34 it is the leading cause, which means that any change in the homicide rate has a disproportionate impact on them. The sociologist Michael Friedson and I calculated what the life expectancy would be today for blacks and whites had the homicide rate never shifted from its level in 1991. We found that the national decline in the homicide rate since then has increased the life expectancy of black men by roughly nine months.

…The everyday lived experience of urban poverty has also been transformed. Analyzing rates of violent victimization over time, I found that the poorest Americans today are victimized at about the same rate as the richest Americans were at the start of the 1990s. That means that a poor, unemployed city resident walking the streets of an average city today has about the same chance of being robbed, beaten up, stabbed or shot as a well-off urbanite in 1993. Living in poverty used to mean living with the constant threat of violence. In most of the country, that is no longer true.

That’s Patrick Sharkey writing in the New York Times.

More police on the street is one cause, among many, of lower crime. It’s important in the debate over better policing that we not lose sight of the value of policing. Given the benefits of reduced crime and the cost of police, it’s clear that U.S. cities are under policed (e.g. here and here). We need better policing–including changes in laws–so that we can all be comfortable with more policing.

I, Pencil Revisited

by on January 14, 2018 at 12:10 pm in Economics, The Arts | Permalink

Leonard Read’s essay I, Pencil showed how even simple objects like a pencil were produced only through the cooperation and coordination of many thousands of people all over the world who often knew neither one another nor even what their actions ultimately produced. Milton Friedman made the pencil metaphor famous in Free To Choose when he said that “There’s not a single person in the world who could make this pencil.” Tyler and I illustrate the same idea with a romantic twist in our I, Rose video.

The NYTimes doesn’t seem aware of the history but, as if guided by an invisible hand, has a lovingly produced series of photos from a pencil factory showing that even the proximate steps are charmingly esoteric.

Scott Alexander at SlateStarCodex riffs off my post on how we laugh at Oregonians afraid to pump their own gas while not looking at our own absurd restrictions on cutting hair, for example, and adds a few of his own:

There are way too many discrepancies in approved medications between countries to discuss every one of them, but did you know melatonin is banned in most of Europe? (Europeans: did you know melatonin is sold like candy in the United States?) Did you know most European countries have no such thing as “medical school”, but just have college students major in medicine, and then become doctors once they graduate from college? (Europeans: did you know Americans have to major in some random subject in college, and then go to a separate place called “medical school” for four years to even start learning medicine?) Did you know that in Puerto Rico, you can just walk into a pharmacy and get any non-scheduled drug you want without a doctor’s prescription? (source: my father; I have never heard anyone else talk about this, and nobody else even seems to think it is interesting enough to be worth noting).

Scott then strikes at the heart of the issue:

So maybe the scary thing about Oregon is how strongly we rely on intuitions about absurdity. If something doesn’t immediately strike us as absurd, then we have to go through the same plodding motions of debate that we do with everything else – and over short time scales, debate is interminable and doesn’t work. Having a notion strike us as absurd short-circuits that and gets the job done – but the Oregon/everyone-else divide shows that intuitions about absurdity are artificial and don’t even survive state borders, let alone genuinely different cultures and value systems.

This is part of what I meant by collective action kills innovation. I wasn’t saying that DARPA can’t work but rather that by subjecting everything to collective action we subject it to debate. discussion and legislation and that slows down innovation, in part because our notions of what is normal are so time and culture bound.

Dolphin Capital Theory

by on January 10, 2018 at 7:27 am in Economics, Science | Permalink

The Guardian…Kelly the dolphin has built up quite a reputation. All the dolphins at the institute are trained to hold onto any litter that falls into their pools until they see a trainer, when they can trade the litter for fish. In this way, the dolphins help to keep their pools clean.

Kelly has taken this task one step further. When people drop paper into the water she hides it under a rock at the bottom of the pool. The next time a trainer passes, she goes down to the rock and tears off a piece of paper to give to the trainer. After a fish reward, she goes back down, tears off another piece of paper, gets another fish, and so on.

…Her cunning has not stopped there. One day, when a gull flew into her pool, she grabbed it, waited for the trainers and then gave it to them. It was a large bird and so the trainers gave her lots of fish. This seemed to give Kelly a new idea. The next time she was fed, instead of eating the last fish, she took it to the bottom of the pool and hid it under the rock where she had been hiding the paper. When no trainers were present, she brought the fish to the surface and used it to lure the gulls, which she would catch to get even more fish. After mastering this lucrative strategy, she taught her calf, who taught other calves, and so gull-baiting has become a hot game among the dolphins.

The dolphins are not only gaming the system they are saving and using a capital structure to increase total output.

The more we learn, the smaller appears the gap between humans and other animals. Over twenty years ago, I read When Elephants Weep: The Emotional Lives of Animals. I was convinced. But at that time it was a controversial book. Today, with thousands of youtube videos of animals clearly having fun or exhibiting other emotions, it seems obvious.

Animal consciousness is still controversial but the gap between other minds and other non-human minds appears to me to be very small. If I can believe in the first, I can easily believe in the second. As the Cambridge Declaration put it:

Convergent evidence indicates that non-human animals have the neuroanatomical, neurochemical, and neurophysiological substrates of conscious states along with the capacity to exhibit intentional behaviors. Consequently, the weight of evidence indicates that humans are not unique in possessing the neurological substrates that generate consciousness. Nonhuman animals, including all mammals and birds, and many other creatures, including octopuses, also possess these neurological substrates.

Oregon has just passed a law that gives gas stations in rural counties the option of allowing self-pumping (in some rural counties this is allowed only between 6 p.m. and 6 a.m.!) As you have probably heard, this incomplete lifting of an absurd restriction has some Oregonians upset and afraid.

“I don’t even know HOW to pump gas and I am 62, native Oregonian . . . I say NO THANKS! I don’t like to smell like gasoline!” one woman wrote.

“No! Disabled, seniors, people with young children in the car need help. Not to mention getting out of your car with transients around and not feeling safe. This is a very bad idea. Grrr,” another woman wrote.

“I’ve lived in this state all my life and I REFUSE to pump my own gas . . . This [is] a service only qualified people should perform. I will literally park at the pump and wait until someone pumps my gas.”

Most of the rest of the America–where people pump their own gas everyday without a second thought–is having a good laugh at Oregon’s expense. But I am not here to laugh because in every state but one where you can pump your own gas you can’t open a barbershop without a license. A license to cut hair! Ridiculous. I hope people in Alabama are laughing at the rest of America. Or how about a license to be a manicurist? Go ahead Connecticut, laugh at the other states while you get your nails done. Buy contact lens without a prescription? You have the right to smirk British Columbia!

All of the Oregonian complaints about non-professionals pumping gas–“only qualified people should perform this service”, “it’s dangerous” and “what about the jobs”–are familiar from every other state, only applied to different services.

Once we got familiar with self-pumping it didn’t seem like a problem, but it’s surprising we ever got self-pumping as it would have been easy to scare people into voting no. After all, the case for trained gas pumpers is far stronger than for licensed barbers. Perhaps we were less risk averse and complacent in the past. I don’t think we could build the Hoover Dam today either.

It’s easier to scare than to inform and we fear losses more than we desire gains so collective decision-making defaults toward stasis.

We have innovations like Uber and Airbnb and many others only because entrepreneurs didn’t have to ask for permission. Had we put these ideas to the vote they would have been defeated. Allow almost anyone with a car to drive customers around town? Stranger danger! Let any house be turned into a hotel? Not in my neighborhood! Once the innovations were brought into existence, the masses saw the benefits but they would not have seen those benefits if the idea had been put to a vote. Demonstration is more powerful than imagination.

More and more, however, the sphere of individual action shrinks and that of collective action grows. Thus, I do not laugh at the Oregonians and their fear of gas pumping freedom. We are all Oregonians in one form or another.

A person on Quora asks Should you accept an offer of either tea or coffee in a serious meeting or a job interview?. Most say yes. I say no. Here’s my answer:

As an encyclopedia salesperson, (yes—a long time ago), I was taught that you should decline an offer of coffee. Here’s why. Suppose you spend 20 minutes talking with someone about encyclopedias. At the end of your pitch, you have given them your time and wisdom and people feel a need to reciprocate—they feel a little bit guilty that if they don’t buy, your time was wasted—so the need to reciprocate inclines them towards buying. But, if they have given you coffee, then there was an exchange, a quid pro quo, your time for their coffee, and since an exchange was made and your time wasn’t wasted they feel less need to buy.

Most Popular MR Posts of 2017

by on December 29, 2017 at 7:25 am in Current Affairs | Permalink

The most popular post on MR for 2017 was my post, Switzerland is Prepared for Civilizational Collapse. Who can tell what will go viral? I suppose people are thinking a lot about civilizational collapse in recent times.

Next was Tyler’s post on Richard Thaler’s Nobel Prize.

There’s a lot of interest in Tyler’s religious beliefs as What is the Strongest Argument for the Existence of God? and Why I Don’t Believe in God were both widely read and commented upon.

Next came a bunch of econ posts from both Tyler and myself including:

Not surprisingly politics was also popular, including Tyler’s The Show so Far and Who Should be Shamed? and my post Authoritarians Distract Rather than Debate.

Overall, what strikes me is how normal 2017 seems. Compare with last year’s top posts, which are crazy. I don’t think 2017 was any less crazy than 2016 but–god help us–crazy has become normal.

Blogger Alon Levy first drew attention to the fact that building a subway costs far more in New York City than elsewhere in the United States or the world. In a superb investigation the NYTimes updates that finding and investigates why:

The estimated cost of the Long Island Rail Road project, known as “East Side Access,” has ballooned to $12 billion, or nearly $3.5 billion for each new mile of track — seven times the average elsewhere in the world. The recently completed Second Avenue subway on Manhattan’s Upper East Side and the 2015 extension of the No. 7 line to Hudson Yards also cost far above average, at $2.5 billion and $1.5 billion per mile, respectively.

So why are costs so high? The NYTimes concludes:

For years, The Times found, public officials have stood by as a small group of politically connected labor unions, construction companies and consulting firms have amassed large profits.

Trade unions, which have closely aligned themselves with Gov. Andrew M. Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more laborers than elsewhere in the world, documents show.

Construction companies, which have given millions of dollars in campaign donations in recent years, have increased their projected costs by up to 50 percent when bidding for work from the M.T.A., contractors say.

Consulting firms, which have hired away scores of M.T.A. employees, have persuaded the authority to spend an unusual amount on design and management, statistics indicate.

Where the Times piece goes well beyond what has been discussed before is the detail by which it supports these conclusions and the careful comparison with similar but much cheaper projects elsewhere in the world such as Paris.

It will not escape notice that New York buys subway construction the way all of America buys health care.

Read the whole thing.

In standard macroeconomic models, GDP is GDP and an industry is important only to the extent that it produces GDP. In other words, there are big industries and small industries but there are no special industries. The standard view implies that the structure of production can be ignored. It doesn’t matter, for example, whether an industry sells to final consumers or to other businesses. It doesn’t matter whether an industry sells an easy-to-substitute product or a hard-to-substitute product. And it doesn’t matter whether an industry is a weak-tie link or a strong-tie link. Thus, in the standard view, the oil industry is no more important for understanding economic fluctuations than say the retail sales industry, since they are about the same size.

The standard view isn’t arbitrary, Hulten proved that it was true under certain assumptions. Hulten’s theorem appeared to offer a very useful simplification and so it diverted the attention of economists away from trying to model the structure of production.

But I’ve always been skeptical. One reason is that rapid increases in the price of oil have preceded almost all U.S. recessions (see Hamilton’s papers) and such increases appear to be much more important than the size of the oil sector would allow. More generally, although the canonical real business cycle model emphasizes aggregate technology shocks, I’ve always looked favorably on variations with sectoral shocks–this is one reason why Modern Principles is one of the few principles of economics textbooks to devote significant attention to real shocks, including oil shocks, and the mechanisms that can transmit and amplify these shocks from one sector to the wider economy.

The sectoral approach gets new support in a recent paper, The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten’s Theorem (non-gated) by Baqaee and Farhi. The authors show that Hulten’s theorem offers a true simplification only under very restrictive conditions. Relax those conditions and what seem like second-order mechanisms can have first-order effects. The structure of production–how industries are linked to one another, elasticities of substitution, reallocation speeds and so forth–matters in theory.

In a calibration Baqaee and Farhi consider “the response of GDP to shocks to specific industries” and:

…It turns out that for a large negative shock, the “oil and gas” industry produces the largest negative response in GDP – this despite the fact that the oil and gas industry is not the largest industry in the economy.
Hulten’s simplification came at too high a price. Further progress in understanding business fluctuations will come from developing microeconomic foundations to macroeconomics–not simply by subjecting a utility-maximizing representative agent to an optimization problem but by investigating the real structure of production in all of its complexity.

Top of my list for binge-worthy over the holiday season is The Marvelous Mrs. Maisel on Amazon Prime. It’s written and directed by Amy Sherman-Palladino and like her previous show, The Gilmore Girls, it features whip-smart women spouting fast-paced dialogue but here decidedly more ribald and foul-mouthed. The show, set in 1958 New York, features Rachel Brosnahan as the eponymous Midge Maisel who, when her husband leaves her for a shiksa, finds unexpected release by explosively ripping into the situation in a public monologue that gets her arrested for indecency alongside comedian Lenny Bruce. Midge is at the center of three New York City Jewish cultures, the intellectual, represented by her father the mathematician Abe Weissman (in an excellent performance by Tony Shalhoub), the Yiddish business culture as represented by her father-in-law, Moishe Maisel played by Kevin Pollak, and the cultural critic represented by Lenny Bruce (played by Luke Kirby). I especially liked the show as a portrait of the young artist, drawing on and combining all three cultures, honing her material, working it out, mastering the process. Brosnahan as Midge is the very definition of winning. Alex Borstein as aspiring agent Susie Myerson gets some of the best lines. The children are mute and faceless, an interesting choice.

Bright, the $90 million “epic” on Netflix is watchable but ho-hum. The premise seems straight out of Hollywood mad libs: orcs+elves+buddy cop movie in modern LA. Let’s get Will Smith! The undertones of “orcs are like gang-banger blacks” was off-putting.

Godless on Netflix was a near miss. It’s a Western and has a great performance by Jeff Daniels as a spiritual, psychopath gang leader. In fact, I liked everyone in it including Michelle Dockery and Scoot McNairy (Gordon Clark from Halt and Catch Fire) but the show has no center. Is it about Dockery’s character, the single mom with an Indian son, trying to make it on the farm? Is it about the town of women who all instantly lost their husbands in a terrifying mining accident? It is about the going-blind Sheriff trying to track down the killer-gang in one last attempt to win the woman he loves? Or is it about the buffalo cowboys trying to make their way in a white man’s land after the civil war? Any of these stories could have been, indeed would have been, interesting but they are all touched upon and then dropped. Focus goes instead to the “hero,” the bad-guy orphan turned (for reasons we never learn) good. Boring. Oh, and what the hell is going on with the ghost Indian?

Speaking of Halt and Catch Fire it’s on AMC and Netflix and also makes my binge-worthy list. It’s about the rise of the personal computer and the internet. The first season was very good. The second season flagged with a bunch of unnecessary and diverting plots about sex, including a bizarre AIDS subplot. It got back on track in the third season, however, and finishes with the wonderful fourth season and the transcendent Goodwill episode.

The Punisher on Netflix. Binge-worthy! Be forewarned, however, this is the most violent of the Marvel superhero shows. Lots of homage here to Dirty Harry, Goodfellas the infamous eye-ball scene from Casino (NSFW and maybe NSFH). The surface plot, guess who the bad guy is?, was boring and predictable but there’s also lots of interesting commentary on war, the bonding of men (hints of fraternal polyandry) and the pull of amoral familism when society seems to be breaking down.

Merry Christmas!

by on December 25, 2017 at 7:20 am in Religion | Permalink

Andrea Mantegna (Italian (Paduan), about 1431 – 1506)
Adoration of the Magi, 1495 to 1505. From the Getty.

The annual job market scramble at the AEAs is about to begin. To help you through the madness, Marginal Revolution University, Planet Money and MobLab have teamed up to bring you an overview and guide, featuring Al Roth (on a treadmill), Josh Angrist, Betsey Stevenson and much more!

When you have finished the video you can find tips and links to job market advice at the bottom of this page. Good luck!