Economics

That is a new and important paper by Gharad Bryan, James J. Choi, and Dean Karlan, and here are the results:

To test the causal impact of religiosity, we conducted a randomized evaluation of an evangelical Protestant Christian values and theology education program that consisted of 15 weekly half-hour sessions. We analyze outcomes for 6,276 ultra-poor Filipino house holds six months after the program ended. We find significant increases in religiosity and income, no significant changes in total labor supply, assets, consumption, food security, or life satisfaction, and a significant decrease in perceived relative economic status. Exploratory analysis suggests the program may have improved hygienic practices and increased household discord, and that the income treatment effect may operate through increasing grit.

File under “increased household discord”…

Abstract

In various cultural and behavioral respects, emerging market consumers differ significantly from their counterparts of developed markets. They may thus derive consumption utility from different aspects of product meaning and functionality. Based on this premise, we investigate whether the economic rise of emerging markets may have begun to impact the typical “one-size-fits-all” design of many international product categories. Focusing on Hollywood films, and exploiting a recent relaxation of China’s foreign film importation policy, we provide evidence suggesting that these impacts may exist and be non-negligible. In particular, we show that the Chinese society’s aesthetic preference for lighter skin can be linked to the more frequent casting of pale-skinned stars in films targeting the Chinese market. Implications for the design of international products are drawn.

That is from a new paper by Manuel Hermosilla, Fernanda Gutierrez-Navratil, and Juan Prieto-Rodriguez.

Tulip mania wasn’t

by on February 19, 2018 at 12:54 am in Economics, History | Permalink

Tulip mania wasn’t irrational. Tulips were a newish luxury product in a country rapidly expanding its wealth and trade networks. Many more people could afford luxuries – and tulips were seen as beautiful, exotic, and redolent of the good taste and learning displayed by well-educated members of the merchant class. Many of those who bought tulips also bought paintings or collected rarities like shells.

Prices rose, because tulips were hard to cultivate in a way that brought out the popular striped or speckled petals, and they were still rare. But it wasn’t irrational to pay a high price for something that was generally considered valuable, and for which the next person might pay even more.

Tulip mania wasn’t a frenzy, either. In fact, for much of the period trading was relatively calm, located in taverns and neighbourhoods rather than on the stock exchange. It also became increasingly organised, with companies set up in various towns to grow, buy, and sell, and committees of experts emerged to oversee the trade. Far from bulbs being traded hundreds of times, I never found a chain of buyers longer than five, and most were far shorter.

And what of the much-vaunted effect of the plague on tulip mania, supposedly making people with nothing to lose gamble their all? Again, this seems not to have existed.

That is from Anne Goldgar, there is much more at the link, including an explanation of how the myths about Tulip Mania spread, fake news basically.  Here is her earlier book on the topic, here is an earlier Peter Garber piece.

Spock’s Brain

by on February 18, 2018 at 7:32 am in Economics | Permalink

I take an inordinate amount of pleasure in this note from the Wikipedia entry on Spock’s Brain under Reception and Influence:

“The episode was referenced in Modern Principles: Microeconomics by Tyler Cowen and Alex Tabarrok of George Mason University as an example of how it is virtually impossible to have a command economy; in that not even Spock’s brain could run an economy.”

At left is the picture from Modern Principles; we also snuck in an oblique Simpson’s reference.

From Wikipedia I also learned that Phish has a song called Spock’s Brain, alas it is not about the difficulties of running a command economy.

It is often about time, says Diane Coyle in the FT:

In many retail industries, higher productivity means faster service. There are many routine services where getting more for less requires less time to be spent performing them. This applies to parts of many sectors of the economy. There are past examples — think of the impact of the washing machine on doing the laundry or the ATM on taking money out of the bank — but now we are seeing much more automation in new areas such as legal search, scrutiny of medical tests and buying train tickets online. There is surely much further to go as artificial intelligence advances.

Of course a lot of service sector transactions aren’t so much about product quality as simply having a barrier removed from a basic enjoyment of life.  How long did it take the CVS clerk or the DMV to serve you?

Should this point make us feel better or worse about the biases in productivity statistics?  If nothing else, traffic congestion has become worse.  On the other hand, with smart phones and iPads, waiting in line never has been better.

Bulgaria has the fastest declining population in the world. From a peak of nearly 9 million around the time of the communist fall in 1990 Bulgaria’s population is 7 million today and projected to fall to around 5 million over the next generation. Entire villages have been depopulated, especially in the poorer Northern region.

A correspondent wrote me asking what to do. I responded what’s the problem? Of course, there are plenty of things one could do to make Bulgaria a richer and better place to live, some of which Bulgaria has been doing and some of which they have not. The more fundamental question, however, is why the number of a particular type of people located in a particular geographically proscribed area should be a measure of welfare?

Instead of focusing on Bulgaria let’s focus on Bulgarians. One of the reasons the population of Bulgaria has been falling is that Bulgarians have been leaving for better lives elsewhere in the European Union. Over one million Bulgarians live abroad. It is not always easy to move nor to stay in a village that is bereft of young people. But how fortunate is that those young people could move elsewhere. Instead of thinking of them just as Bulgarians lets think of them as citizens of the European Union. Problem solved. The EU population is increasing!

Is that a facile answer? Perhaps but note that in the United States great swaths of the country have seen declining populations since the 1930s or even earlier. We tend not to regard this as a big deal. In part because many of the areas with declining populations were small to begin with but also because we regard it as a good thing that Americans can move about the country. Indeed, because people have been free to move to opportunity the people remaining have not seen big declines in their standard of living. Ghosts are better than zombies.

Addendum: Bulgaria has some great beaches and historic sites at very reasonable prices!

That is a new paper by Gjisbert Stoet and David C. Geary, here is the abstract, noting that the last sentence is perhaps the most important:

The underrepresentation of girls and women in science, technology, engineering, and mathematics (STEM) fields is a continual concern for social scientists and policymakers. Using an international database on adolescent achievement in science, mathematics, and reading (N = 472,242), we showed that girls performed similarly to or better than boys in science in two of every three countries, and in nearly all countries, more girls appeared capable of college-level STEM study than had enrolled. Paradoxically, the sex differences in the magnitude of relative academic strengths and pursuit of STEM degrees rose with increases in national gender equality. The gap between boys’ science achievement and girls’ reading achievement relative to their mean academic performance was near universal. These sex differences in academic strengths and attitudes toward science correlated with the STEM graduation gap. A mediation analysis suggested that life-quality pressures in less gender-equal countries promote girls’ and women’s engagement with STEM subjects.

So what is the implied prediction for our future?

For the pointer I thank the excellent Kevin Lewis.

This is at Bloomberg, I think this is the most interesting paragraph:

But Noah, I have a question for you. You’ve written several columns about how the American economy is becoming more monopolistic. If true (and it is not exactly my view), that implies output could be much higher with current resources, even at full employment. A boost in demand could spur firms to produce more, rather than restricting output so much. So are you now a fan of these Trumpian deficits? They may not be your preferred form of deficit spending, but do you see them still as a net positive?

But of course there is much more at the link.

That is the topic of my latest Bloomberg column, and it is not just about male wage stagnation:

The researchers Guido Matias Cortes, Nir Jaimovich and Henry E. Siu split jobs into categories, with “cognitive” occupations relying on brain power corresponding closely to what many call white-collar jobs. Their worrying result for men is this: In 1980, 66 percent of college-educated men worked in these cognitive occupations. By 2000, that had fallen to 63 percent. Those three percentage points may not sound like a major change, but that’s over a 20-year period when the American economy became wealthier and more Americans became educated. Men also grew older as a group during this time, which should have propelled them into more white-collar jobs. Relative to those expectations of improvement, the retrogression is startling.

…One possible reason for this shift is that more jobs demand good social skills. The data show that the growing demand for social skills, as measured by job characteristics and employment ads, has matched where women have gained relative to men in the workplace. The researchers suggest the scientific evidence shows that women have on average stronger skills in empathy, communication, emotion recognition and verbal expression, and corporate America is valuing those qualities all the more.

There is much more at the link.

Here is the transcript and audio, Matt was in great form.  We covered Uber, derivatives, crypto, Horace, Latin and the ancient world, neighborhoods of New York City, whether markets are volatile enough, Buffy the Vampire Slayer, whether IPOs are mispriced, Nabokov and modernist literature, Achilles and Homer, and of course the Matt Levine production function (“panic”).

Here is one excerpt:

LEVINE:

…What I’d like the story to be is that financial markets have gotten smarter and they reacted less to news. So even though the news is noisier, they react less to that noisy news because it turns out not to affect asset prices in as noisy a way as you’d think by watching TV.

I think that there is something compelling to that because we actually have seen smart people build smart things that do a good job of making investing decisions. So you’d expect over time, as people build more rational investing tools, investing would become more rational.

The good counterargument to that is that investing is not a technological problem in the world that can be solved. It’s an interpersonal fight. Trading, in particular, is an attempt to be better than someone else. You can never make trading more rational because as you get better, someone else gets better. The residue will ultimately still be your human biases.

I’m biased towards the view that we have gotten smarter at decoupling our emotional reactions to the news from financial asset prices. Part of that is — whether or not that’s true globally — there’s a local sense in which the first day of Trump’s election everyone panicked. Then he said another crazy thing, and then he said another. Eventually you tune it out. That’s a form of this thing of financial assets reacting less to human reactions to the news.

Here is another:

COWEN: Do you have a single biggest worry [about asset markets], however tiny, tiny, tiny it may be?

LEVINE: I don’t think I do. I don’t think I do. The thing that I find weirdest is the lack of volatility in the face of a very strange and volatile world, but I’ve reconciled myself to that. This is my efficient markets optimism, where I assume that if something bad is happening, it would happen.

COWEN: But efficient markets is also a pessimism, right? It’s harder to make the world better than it already is because you can’t see past what others are seeing very easily.

LEVINE: Sure, it’s an efficient markets conservatism or something.

And finally:

LEVINE: I have an idiosyncratic take on Book 9 of the Iliad. The Iliad is the story of Achilles is the great warrior on the Greek side in the Trojan War. He gets mad at some slight, and he goes back to his tent to sulk, and the Greeks start losing.

So then they send emissaries to his tent to say, “Please come back.” And he says, “No.” Then, the Greeks start losing some more.

Eventually, he comes back, and he gets killed. That’s basically the story of the Iliad. Book 9 is where they send the emissaries to say, “Please come back,” and he says, “No.”

He gives this speech, this response that is weird, where he says, effectively, “The prophecy is that if I go back to fight here, I will die here. My name will be immortal. If I don’t go back to fight, I’ll go home and live a long life and will be forgotten.” He chooses to go back and be forgotten. Then, later, he changes his mind because his friend gets killed.

I think the existential examination of this Greek warrior and this heroic culture that clearly valorizes heroism and deathless fame and everything, and who is, canonically, the most famous heroic warrior and the one with the most deathless fame, he’s the one who says, “Nah, I’d rather go back and live a long life on my farm.”

The forcing of that choice is the central point of the highest work of Greek art, sort of prefigures a lot of existentialist thought in the future, I think.

Do read and listen to the whole thing

Admissions officers are traveling hundreds of miles with a live animal to inform high-school seniors they have been accepted to a college—and to urge them to enroll. It’s not just the star athletes or scholarship winners who get the treatment. It is pretty much anyone, a tactic driven by competition to snag the declining number of college-bound high-school students.

I would have brought a schnauzer:

Trip [the bulldog] is “not generally a heavy drooler unless there is a peanut butter and jelly sandwich nearby and then he drools like crazy,” said Michael Kaltenmark, his handler and the school’s director of external relations. “Unless someone is actively making dinner in front of him he’s going to be fine.”

Trip’ silver collar is valued at $10,000, bring on the direct instruction.

That is from Douglas Belkin at the WSJ, courtesy of the excellent Samir Varma.

In today’s developed countries, cities are thus scattered across historically important agricultural areas; as a result, there is a relatively higher degree of spatial equality in the distribution of resources within these countries.  By contrast, in today’s developing countries, cities are concentrated more on the coast where transport conditions, compared to agricultural suitability, are more favorable.

That is from Henderson, Squires, Storeygard, and Weil in the January 2018 QJE, based on light data measured by satellites.  Overall, I view this regularity as a negative for the prospects for liberalism and democracy in emerging economies, as urban concentration can encourage too much rent-seeking and kleptocracy.  It also reflects the truly amazing wisdom of (some of) our Founding Fathers, who saw a connection between liberty and decentralized agrarianism.  It suggests a certain degree of pessimism about China’s One Belt, One Road initiative.  The development of the hinterland in the United States may not be a pattern that today’s emerging economies necessarily should or could be seeking to replicate.  Which makes urban economics and Henry George all the more important.

What if I told you that there is a method of education which significantly raises achievement, has been shown to work for students of a wide range of abilities, races, and socio-economic levels and has been shown to be superior to other methods of instruction in hundreds of tests? Well, the method is Direct Instruction and I first told you about it in Heroes are Not Replicable. I am reminded of this by the just-published, The Effectiveness of Direct Instruction Curricula: A Meta-Analysis of a Half Century of Research which, based on an analysis of 328 studies using 413 study designs examining outcomes in reading, math, language, other academic subjects, and affective measures (such as self-esteem), concludes:

…Our results support earlier reviews of the DI effectiveness literature. The estimated effects were consistently positive. Most estimates would be considered medium to large using the criteria generally used in the psychological literature and substantially larger than the criterion of .25 typically used in education research (Tallmadge, 1977). Using the criteria recently suggested by Lipsey et al. (2012), 6 of the 10 baseline estimates and 8 of the 10 adjusted estimates in the reduced models would be considered huge. All but one of the remaining six estimates would be considered large. Only 1 of the 20 estimates, although positive, might be seen as educationally insignificant.

…The strong positive results were similar across the 50 years of data; in articles, dissertations, and gray literature; across different types of research designs, assessments, outcome measures, and methods of calculating effects; across different types of samples and locales, student poverty status, race-ethnicity, at-risk status, and grade; across subjects and programs; after the intervention ceased; with researchers or teachers delivering the intervention; with experimental or usual comparison programs; and when other analytic methods, a broader sample, or other control variables were used.

It is very unusual to see an educational method successfully replicate across such a long period of time and across so many different margins.

Direct Instruction was pioneered by Siegfried Engelmann in the 1960s and is a scientific approach to teaching. First, a skill such as reading or subtraction is broken down into simple components, then a method to teach that component is developed and tested in lab and field. The method must be explicitly codified and when used must be free of vagueness so students are reliably led to the correct interpretation. Materials, methods and scripts are then produced for teachers to follow very closely. Students are ability not age-grouped and no student advances before mastery. The lessons are fast-paced and feedback and assessment are quick. You can get an idea of how it works in the classroom in this Thales Academy promotional video. Here is a math lesson on counting. It looks odd but it works.

Even though Direct Instruction has been shown to work in hundreds of tests it is not widely used. It’s almost as if education is not about educating.

Some people object that DI is like mass-production. This is a feature not a bug. Mass-production is one of the few ways yet discovered to produce quality on a mass scale. Any method will probably work if a heroic teacher puts in enough blood, sweat and tears but those methods don’t scale. DI scales when used by mortals which is why it consistently beats other methods in large scale tests.

Many teachers don’t like DI when first exposed to it because it requires teacher training and discipline. Teachers are not free to make up their own lesson plans. But why should they be? Lesson plans should be developed by teams of cognitive psychologists, educational researchers and other experts who test them using randomized controlled trials; not made up by amateurs who are subject to small-sample and confirmation bias. Contrary to the critics, however, DI does leave room for teachers to be creative. Actors also follow a script but some are much better than others. Instructors who use DI enjoy being effective.

Quoting the authors of the meta-analysis:

Many current curriculum recommendations, such as those included within the Common Core, promote student-led and inquiry-based approaches with substantial ambiguity in instructional practices. The strong pattern of results presented in this article, appearing across all subject matters, student populations, settings, and age levels, should, at the least, imply a need for serious examination and reconsideration of these recommendations (see also Engelmann, 2014a; Morgan, Farkas, & Maczuga, 2015; Zhang, 2016). It is clear that students make sense of and interpret the information that they are given—but their learning is enhanced only when the information presented is explicit, logically organized, and clearly sequenced. To do anything less shirks the responsibility of effective instruction.
Hat tip: Robert Pondiscio at Education Next.

Imagine giving all professional economists (and other academics) an essay test.  Determine their area of expertise, and then ask them to write a twenty-page essay on one of the most basic questions in that field.  So it might be “Why did China do so well?”  Or “what are the determinants of economic growth?”  Or “What causes business cycles?”

Some would be more specific, such as “What makes nominal prices sticky?”, or “Why are the special features of platform competition important?”  How about “How can we encourage hospitals to compete more effectively?”

They can use some numbers, but mostly they should write out the best answers they can.

Then grade the exams.

At which universities would professors do the best?  In which fields would the researchers do the best, recognizing that some face more difficult problems than do others?  In which countries?

How much should our profession be focused on being able to write good answers to such questions?

I am indebted to Chris Blattman and Arnold Kling for useful exchanges related to this topic.

Chicago fact of the day

by on February 10, 2018 at 2:42 pm in Current Affairs, Economics | Permalink

The mayhem has not spared the Cboe [Chicago Board Options Exchange], with the exchange’s share price falling by as much as 28 per cent this week. Vix futures were responsible for about 40 per cent of the exchange’s earnings growth between 2015 and 2017, according to Goldman Sachs, with ETPs accounting for roughly 20-30 per cent of the “open interest” in Vix futures in recent years.

That is from Rennison, Wigglesworth, and Johnson at the FT.