Data Source

“Dear Tyler,

I read with obvious interest your post (and the paper itself) about the endogeneity of institutions. Leaving aside my issues with the IV literature, I decided to take the bait regarding Jeff Sachs’ challenge to, “Go back to 1960 and choose any measure of institutional quality you want. Then see how well it predicts cross-national growth since then.”

Ok, I will.

The Economic Freedom of the World (EFW) index was first published in the mid 1990s, and the first year of data is 1970. So I’ll have to start in 1970 instead of 1960.

Here is a regression with growth from 1970-2010 on the lhs, and EFW and GDP per capita in 1970 on the rhs.

Growth1970-2010 = -1.62 + 0.75*EFW1970 – 0.13* GDPPC1970 R^2=0.18
(2.90) (3.17)

This regression adds the change in EFW from 1970-1980 to the rhs.

Growth1970-2010 = -1.69 + 0.84*EFW1970 + 1.00*chEFW70-80 – 0.15*GDPPC1970 R^2=0.32
(3.54) (3.39) (3.86)

A one-unit higher EFW score in 1970 correlates to 0.84 percentage points in higher annual growth over the next 40 years. A one unit EFW score improvement during the first decade, 1970 to 1980, correlates to a 1.00 percentage point higher annual growth rate over the 40 years.

I don’t know if that satisfies Jeff Sachs’ challenge, but it works for me.

Looking forward, I’ve constructed a back-of-the-envelope indicator that combines each country’s EFW rating in 2000 and with its change from 2000-2010. The top 20 (combined highest level & most positive change) versus the bottom 20 (combine lowest level & most negative change) countries are:

Top 20 – Bottom 20
Hong Kong – Haiti
Romania – Cameroon
Rwanda – Senegal
Singapore – Guinea-Bissau
Bulgaria – Mali
Cyprus – Bolivia
Unit. Arab Em. – Algeria
Chile – Guyana
Mauritius – Gabon
Lithuania – Ecuador
Slovak Rep – Burundi
Albania – Cote d’Ivoire
Jordan – Chad
Switzerland – Togo
Bahamas – Congo, Rep. Of
Malta – Central Afr. Rep.
Taiwan – Argentina
Korea, South – Myanmar
Finland – Zimbabwe
Estonia – Venezuela

I’m willing to bet anyone $100 (up to 10 people) that the Top 20 group will outgrow the Bottom 20 group by at least 1 full percentage point per year (on average) over the the next 20 year period (2015-2035).

Bob”

“How can the Spanish or Italian prime minister tell voters that Greece has a lower interest burden than we have, but we still need to give them debt forgiveness?” said Mr Darvas.

That is from Ferdinando Giugliano at the FT, who is referring to the possibility that the Greek debt load might be sustainable.  Don’t focus on the debt to gdp ratio of 175 percent, consider that the interest rates are low and the term structure of the debt is long.  Here is your Greece fact of the day:

Mr Darvas calculates that total interest expenditure in 2014 [for Greece] was 2.6 per cent, only marginally above France’s 2.2 per cent.

Yet I do not find the Greek position to be sustainable.  As has been the case from the beginning, the real problem in the eurozone is in the politics, not the raw numbers of the economics.  It is worth noting that there are Maoist and Trotskyite factions in Syriza, so if we are going to moralize about the National Front in France, or other disreputable groups, let’s be a little more consistent here…

Quite a bit.  There is a new NBER Working Paper on this topic by Hagedorn, Manovskii, and Mitman, showing (once again) that most supply curves slope upward, here is one key part from the abstract:

In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.

There is an ungated copy here (pdf).  Like the sequester, this is another area where the Keynesian analysts simply have not proven a good guide to understanding recent macroeconomic events.

Mostly, yes, although with some caveats (the headline of the piece doesn’t exactly capture this).  That is the topic of my latest column for The Upshot.  Here is one excerpt:

Niclas Berggren…and Therese Nilsson…have produced a fascinating series of papers on these questions, sometimes writing singly, sometimes together or with the collaboration of a variety of co-authors. Their most notable study is perhaps a paper they wrote together, “Does Economic Freedom Foster Tolerance?

…One of their most striking findings is that societies characterized by greater economic freedom and greater wealth do indeed exhibit greater tolerance toward gay people, a tendency suggesting that gay rights, including gay marriage, will spread globally as national economies liberalize and develop.

Some metrics of economic freedom count more than others:

This greater tolerance is strongly associated only with certain features of what has often been defined as economic freedom. For example, a smaller government, measured as a share of gross domestic product, is often included in so-called economic freedom indexes as an objective measure of freedom. But the data show that smaller government has a slight negative correlation with tolerance of gay people by heterosexuals. One implication is that many conservatives may be overly preoccupied with the size of government as a measure of how free societies actually are.

On the other hand, the data shows that when a society has impressive scores on property rights security and low inflation — two other components of economic freedom indexes — these characteristics are strongly and positively correlated with tolerance of gays. It’s possible that low inflation, and the behavior of a central bank, are stand-ins for the general trustworthiness of a nation’s government and broader institutions, and such trustworthiness helps foster tolerance.

The results for race are not nearly as strong, namely both freedom and prosperity are less clearly associated with higher levels of racial tolerance, although the correlation is still a positive one.

And there is this:

We are often told that education is an important remedy, yet it does not register as a meaningful factor in the cross-country data in this paper. Higher levels of education simply have not correlated significantly with higher levels of tolerance across countries.

Do read the whole thing.

Here is some media coverage of a recent Facebook study of its economic impact in terms of revenue and jobs.  Facebook claims it added $227 billion to the global economy, but they approached the question the wrong way.

The correct method is to treat jobs as a cost of Facebook, not a benefit, admittedly that is not how politics works nor is it how corporate PR works.  We should measure the benefits directly by consumer time use studies, much as Austan Goolsbee and Peter J. Klenow did in their paper on the internet (pdf).

My question today is this: what is the most accurate one line back-of-the-envelope estimate you can come up with for the gross benefits of Facebook, not bothering to subtract for the costs of running the site?  Here is one (hypothetical and illustrative) example, for America only:

100 million regular users, one hour a day, time valued at $10 an hour, and multiply for $365 billion a year.

You will notice this method implicitly captures the value and disvalue of the ads on Facebook.  The better and more useful the ads are, the more time people will spend on the site.

I don’t devote time to Facebook (I can thank MR for that), so surely you can do better than I in building a plausible one-line estimate.  Please leave your answer in the comments.

Read the recent testimony of Robert E. Hall (pdf):

Most of the decline in participation occurred among teenagers and young adults. The fi nding that these e ffects tend to be larger in more prosperous families points strongly away from much of a role for rising influence of benefi t programs, because these programs, especially food stamps, are only available to families with incomes well below the median.
So what is going on here?  Could it be “culture”?  Hall cites, suggestively, time use surveys showing that sleep and personal consumption of video are up strongly.

1. Toilet paper is shrinking, the size of the individual sheets that is.  (That is probably the closest we will get to hyperinflation.)  Does the average American really use 46 sheets a day?  That sounds like an overstatement.

In contrast to this commodity, I usually want for food portion sizes — especially ice cream — to be downsized.

2. I say both men and women are understating their number of sexual partners.  Contrary to what is portrayed in this chart, I postulate an American male average of about four.  I do not agree with the common claim that American men will overstate their number of partners.

The pointer is via Rayman.

Derek Scissors reports:

Broad money M2 breached $20tn at the end of December, a staggering 70 per cent larger than in the US, where monetary policy has hardly been tight.

There’s a tremendous amount of liquidity, the problem is no one is using it. Growth in narrow money M1 has collapsed. It was a dangerously excessive 32.4 per cent in 2009. It was a dangerously anemic 3.2 per cent in 2014.

M1 is money being held ready for use in anticipated transactions. It should correlate very well with GDP, which is a sum of transaction values. But while M1 flies around over time, GDP growth barely budges in comparison. It strains credulity that the amount of money held for use could grow at one-tenth the speed in 2014 as it did in 2009, yet growth in uses of that money (GDP) drops less than 2 points.

The FT post is of more interest generally on Chinese economic statistics.

Here is the new paper by Akerman, Gaarder, and Mogstad on how Norwegian broadband access has helped the higher earners and largely hurt unskilled labor:

Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change skill biased or factor neutral? We exploit rich Norwegian data to answer these questions. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation in the availability and adoption of broadband internet in firms. Our results suggest that broadband internet improves (worsens) the labor outcomes and productivity of skilled (unskilled) workers. We explore several possible explanations for the skill complementarity of broadband internet. We find suggestive evidence that broadband adoption in firms complements skilled workers in executing nonroutine abstract tasks, and substitutes for unskilled workers in performing routine tasks. Taken together, our findings have important implications for the ongoing policy debate over government investment in broadband infrastructure to encourage productivity and wage growth.

The emphasis is added by this blogger, not from the authors.

Tom VanAntwerp looks at political donations by the staff of the top-ten think tanks. Some findings:

Think tank employees overwhelmingly give to Democratic causes. Nearly 78% of all political contributions from think tank employees went to Democrats. 208 think tank employees gave a total of  $452,589 to Democrats in 2012;

Discussions of bias via donor base don’t match actual employee partisanship.Comparing the most obviously ideological think tanks, employees of both Heritage Foundation and Center for American Progress gave vastly more to political groups than did employees of Cato Institute. While the Wikipedia discussion of Cato’s funders was over three times longer than the same discussion for either Heritage or CAP, only 3.5% of Cato’s employees made partisan donations compared to 8.7% for Heritage and 8.2% for CAP. The total amount Cato employees gave was also dwarfed by Heritage and CAP employees: $10,200 versus $76,653 and $100,747.

In another post, VanAntwerp shows that even though the staff at Cato don’t give very much to politicians and are not especially partisan by other think tank standards, media discussion’s of Cato’s funding and funders are far more common and extensive than that of any other think tank. My guess is that conservatives give Heritage a pass, liberals give Brookings, CAP, and Pew a pass but both liberals and conservatives are suspicious of Cato. Liberals think Cato is in bed with the corporations, conservatives think Cato is in bed with gays and marijuana users. Both sides think Cato is with the opposition and, as a result, Cato generates lots of media discussion about funding “bias.”

chart2

When we break out the volume of mortgage origination from 2002 to 2006 by income deciles across the US population, we see that the distribution of mortgage debt is concentrated in middle and high income borrowers, not the poor. Middle and high income borrowers also contributed most significantly to the increase in defaults after 2007.

There is also this:

Poorer areas saw an expansion of credit mostly through the extensive margin, i.e. a larger numbers of mortgages originated, but at DTI levels in line with borrower income.

That is from the new NBER working paper by Adelino, Schoar, and Severino.  In other words, poor people (or various ethnic groups, in some accounts) were not primarily at fault for the wave of mortgage defaults precipitating the financial crisis.  The biggest problems came in zip codes where home prices were having large run-ups.  Their conclusion is:

These results are consistent with an interpretation where house price expectations led lenders and buyers to buy into an unfolding bubble based on inflated asset values, rather than a change in the lending technology.

Changes in policy, of course, also for this context would count as “a change in the lending technology.”

Here is a very interesting piece by Claire Cain Miller, here is one excerpt:

The Pew and Rutgers researchers measured stress levels in a representative group of people by using a standard stress scale that ranks people’s responses to questions about their lives. Then they measured their frequency of digital technology use. They controlled for demographic factors like marital and education status.

They found no effect on stress levels among technology users over all. And women who frequently use Twitter, email and photo-sharing apps scored 21 percent lower on the stress scale than those who did not.

That could be because sharing life events enhances well-being, social scientists say, and women tend to do it more than men both online and off. Technology seems to provide “a low-demand and easily accessible coping mechanism that is not experienced or taken advantage of by men,” the report said.

Social media, particularly Facebook, increased stress in one way: by making people more aware of trauma in the lives of close friends. This effect was strongest for women. The finding bolsters the notion that stress can be contagious, the Pew and Rutgers researchers said.

But when such users of social media were exposed to stressful events in the lives of people who were not close friends, the users reported lower stress levels. Researchers said that was perhaps attributable to gratitude for their own lives being free of these stressors (the joy of missing out, offsetting the fear of missing out.)

Do read the whole thing.

The actual title is “Decision-Making under the Gambler’s Fallacy” (pdf) and the authors are daniel Chen, Tobias J. Moskowitz, and Kelly Shue.  Here is one short bit from what is more generally a very interesting paper:

We test our hypothesis in three high-stakes settings: refugee court asylum decisions in the US, a field experiment by Cole et al. (2013) in which experienced loan officers in India review real small-business loan applications in an experimentally controlled environment, and umpire calls of pitches in Major League Baseball games. In each setting, we show that the ordering of cases is likely to be conditionally random. However, decisions are significantly negatively autocorrelated. We estimate that up to 5 percent of decisions are reversed due to the gambler’s fallacy.

To make that more concrete, if a baseball umpire first calls a ball, the next pitch he is more likely to then call a strike.  Of course this may plague your paper refereeing decisions, whether or not you finish your next book, and your dating life.

The original pointer was from Cass Sunstein on Twitter.

That is a new NBER Working Paper by Angrist, Autor, Hudson, and Pallais.  Here is the sentence of interest for the recent community college initiative:

Awards offered to prospective community college students had little effect on college enrollment or the type of college attended.

Do note that some other kinds of awards appeared to be more effective, so this is not an anti-subsidy result per se.  And here is a new Bulman and Hoxby paper on federal tax credits and the demand for higher education (not just community colleges):

We assess several explanations why the credits appear to have negligible causal effects.

Making these programs work is not so easy.  Reihan Salam offers good points, so does Arnold Kling.

From this graph I concluded one of two things must be true depending on one’s definition of austerity.

Either austerity means nominal cuts and we never had any of it, or austerity means cuts relative to trend and we are still savagely in its grasp.

Relative to the 2000-2009 decade trend, total government spending is roughly 35% lower in q3 of 2014 than it should be. Hard to say austerity is over by that metric.

fredgraphexpend

The full link is here.  As I wrote in an email to an unnamed correspondent earlier today: “I gladly admit that reading me in 2006 was not a good guide for what happened in 2007-2008.  A bunch of those guys should admit the same about the current day…”