Category: Economics

Economic growth sentences to ponder, Argentina fact of the day

by  Tyler Cowen in

Why is the Biden Administration Against Fee Transparency in Education?

by  Alex Tabarrok in

President Biden has made a big deal of simplifying fees:

The FTC is proposing a rule that…would ban businesses from charging hidden and misleading fees and require them to show the full price up front. The rule would also require companies disclose up front whether fees are refundable. This would mean no more surprise resort fees at check out or unexpected service fees to buy a live event ticket.

Like everyone, I dislike these kinds of fees, although I don’t think they are a good subject for legislation. But I would certainly not prevent firms from offering a simple, up-front fee. And yet that is exactly what the Biden administration is doing in higher education.

So called Inclusive Access programs let colleges package textbooks with tuition and other fees. Students get one bill and access to textbooks on the first day of college. It’s convenient, no more hunting for textbooks or sticker shock. In addition, inclusive access programs give colleges bargaining power when negotiating prices.

Strangely, the Biden administration’s Department of Education wants to ban colleges from offering inclusive access programs. Thus, the Dept. of Education is arguing that simplified pricing is bad for consumers at the same time as the FTC is arguing that simplified pricing is good for consumers. What makes this contradiction even more baffling is that Inclusive Access was a program promoted in 2015 by the Obama-Biden Administration!

Proponents of the ban argue that letting students negotiate their own purchases lets them better tailor the outcome. Maybe, but that’s the same argument for letting airlines unbundle seat choice and baggage allowances. Hard to have it both ways. Pricing is complex.

Tyler and I are textbook authors so you might wonder where our interests lie. I actually have no idea. It’s complicated. I suspect inclusive access leads to a more winner-take-all market on textbooks. Modern Principles is a winner, thus on those grounds I would favor. More generally, however, I would get the FTC and the Dept. of Education out of pricing decisions and let colleges and firms negotiate. Pricing decisions are more complicated and contextual than simplified bans or regulations.

The Ludwig von Mises comeback

by  Tyler Cowen in

That is the subject of my latest Bloomberg column.  Here is one excerpt:

The Austrian economist Ludwig von Mises is having a moment, especially in Latin America. Argentine President Javier Milei admires Mises, and he has adopted some Misesian ideas, such as the notion that “the middle of the road leads to socialism.” Milei used to be an academic economist and knows the ideas of Mises well.

More colorfully, on Saturday the Brazilian UFC fighter Renato Moicano delivered an on-camera polemic (warning: audio in link NSFW) in praise of Mises and defending free speech and private property. His impromptu lecture pointed listeners to Mises and what he called the six lessons of the Austrian School of Economics, as well as his forthcoming podcast. Those lessons — as well as a G-rated version of Moicano’s economics lecture, and a Mises-inspired speech on business-cycle theory by President Nayib Bukele of El Salvador — are available on the website of the (US-based) Mises Institute.

And this:

Meanwhile, among free-market types, the vibes have shifted in a way that has boosted the influence of Mises. For a comparison, the ideas of Friedrich A. Hayek were ascendant in classical liberal circles during the 1990s, in part because Hayek had won a Nobel Prize. Hayek’s writing style was also more gentle, while Mises was uncompromising. As Hayek said about Mises’s book on socialism, published in 1922: “At first we all felt he was frightfully exaggerating and even offensive in tone.”

Milton Friedman was another great economic thinker of the 20th century, and he was renowned for always smiling and never losing his temper at his intellectual opponents. Friedman wrote a book called Capitalism and Freedom. Hayek’s was called The Constitution of Liberty. Mises, meanwhile, was producing books with titles such as Omnipotent Government and The Anti-Capitalist Mentality. He was the one of that troika who allied himself with Ayn Rand.

Today, however, many of Mises’s proclamations no longer sound as outdated as they might have a few decades ago. In his treatise Human Action, he was fond of stressing “Man Acts” as a fundamental principle of economic and social analysis. Whatever that might have meant at the time, these days I would not be surprised to find a comparable phrase in a Jordan Peterson book. Indeed, Peterson recently expressed his admiration for Moicano’s endorsement of Mises.

Finally:

As for Latin America, Mises may be just the kind of market-oriented thinker the region needs. Polemics do sometimes cut through the obfuscations of political discourse. Friedman and Hayek’s generosity toward their opponents is perhaps not the best strategy for the notoriously brutal politics of Latin America. And some of Mises’s more impolite notions — such as the idea that economic policy can simply become worse and worse over time — seem to be proving out in countries such as Brazil, which has been mostly stagnant for a long time now.

Worth a ponder.

The Culture that is Germany

by  Alex Tabarrok in

FT: When it launched its fully automated stores four years ago, Germany’s regional supermarket chain Tegut billed the experiment as a window into the future of shopping. But the Fulda-based retailer has since been embroiled in a legal fight over a centuries-old principle enshrined in the German constitution: Sunday rest. Be they robotic or staffed by humans, most shops in Germany are not allowed to open on the last day of the week — and courts have upheld that ban.

You are probably thinking this is a Baptists and Bootleggers story but actually it’s a Baptists, Catholics and Bootleggers story.

Both the Protestant and Catholic Churches have formed an unusual alliance with Germany’s powerful unions to defend the status quo for years, and spearheaded the campaign against the Sunday opening of automated stores. In March, the alliance encouraged pastors to criticise the shops in their weekly sermons.

No word yet on whether the 8-hour day or bathroom breaks will also apply to robots. You will note that MR has posted on Sundays for over 20 years.

Pay For Performance Increases Performance (Water Runs Downhill)

by  Alex Tabarrok in

In my 2011 book, Launching the Innovation Renaissance, I wrote:

At times, teacher pay in the United States seems more like something from Soviet-era Russia than 21st-century America. Wages for teachers are low, egalitarian and not based on performance. We pay physical education teachers about the same as math teachers despite the fact that math teachers have greater opportunities elsewhere in the economy. As a result, we have lots of excellent physical education teachers but not nearly enough excellent math teachers. The teachers unions oppose even the most modest proposals to add measures of teacher quality to selection and pay decisions.

As I wrote, however, Wisconsin passed Act 10, a bill that discontinued collective bargaining over teachers’ salary schedules. Act 10 took power away from the labor unions and gave districts full autonomy to negotiate salaries with individual teachers. In a paper that just won the Best Paper published in AEJ: Policy in the last three years, Barbara Biasi studies the effect of Act 10 on salaries, effort and student achievement.

Compensation of most US public school teachers is rigid and solely based on seniority. This paper studies the effects of a reform that gave school districts in Wisconsin full autonomy to redesign teacher pay schemes. Following the reform some districts switched to flexible compensation. Using the expiration of preexisting collective bargaining agreements as a source of exogenous variation in the timing of changes in pay, I show that the introduction of flexible pay raised salaries of high-quality teachers, increased teacher quality (due to the arrival of high-quality teachers from other districts and increased effort), and improved student achievement.

We still have a long way to go but COVID, homeschooling and universal voucher programs have put a huge dent in the power of the teacher’s unions. There is now a chance to bring teacher pay into the American model. Moreover, such a model is pro-teacher! Not every district in Wisconsin grasped the opportunity to reform teacher pay but those districts that did raised pay considerably. Appleton district, for example, instituted pay for performance, Oshkosh did not. Prior to the Act salaries were about the same in the two districts:

After the expiration of the CBAs, the same teacher could earn up to $68,000 in Appleton, and only between $39,000 and $43,000 in Oshkosh.

Thus, pay for performance is a win-win policy. Paying the best teachers more is good for teachers and great for students who see increases in achievement which pay off many years later in higher wages.

Hat tip: Josh Goodman on twitter who will surely agree about the negative effect of egalitarian pay on the relative quality of math teachers.

History of economic thought paper ideas

by  Tyler Cowen in

These topics seem underexplored to me:

Montesquieu

Economics in the Talmud

Rise of econometrics in the 19th century

The Irish economists, including Cairnes and Longfield

The last 50 years of economics are in general very poorly covered

Works in any foreign language you might read

Chinese economic thought

Economic thought in India

The funding of economics, and economists, through the ages (very underdone)

The institutionalization of economics

History of women in economics, especially recently

History of prizes and awards in economics

Economic ideas and fascism, in various eras

Economic thoughts on the arts, starting with Hume

History of finance and financial economics, considerably understudied

Economics and demographic thought, throughout the ages, for instance the 1920s

The very early history of law and economics

Economic thought in various religions

Economics and 19th century psychology

History of experimental economics

History of RCTs

History of economics and education, as a topic

History of what has been taught in economics classes, over the generations

History of textbooks

History of economists in government

History of economists in multi-lateral institutions

History of economists working in central banks

History of how various economic databases have been built

History of economists doing journalism (both Menger and Walras were first journalists)

Early history of “environmental economics”

Early history of economics/water supply issues

Earlier writings on the economics of slavery

History of economists holding public office, J.S. Mill, Einaudi, many others, or as central bankers

The Henry Geoge movement over the generations

Economic “dissidents” of various kinds

History of economists working with the military and national security

UNOS Kills

by  Alex Tabarrok in

I’ve long been an advocate of increasing the use of incentives in organ procurement for transplant; either with financial incentives or with rules such as no-give, no-take which prioritize former potential organ donors on the organ recipient list. What I and many reformers failed to realize, however, is that the current monopolized system is so corrupt, poorly run and wasteful that thousands of lives could be saved even without incentive reform. (To be clear, these issues are related since an incentivized system would never have become so monopolized and corrupt in the first place but that is a meta-issue for another day.) Here, for example, is one incredible fact:

 An astounding one out of every four kidneys that’s recovered from a generous American organ donor is thrown in the trash.

Here’s another:

Organs are literally lost and damaged in transit every single week. The OPTN contractor is 15 times more likely to lose or damage an organ in transit than an airline is a suitcase.

Organs are not GPS-tracked!

In an era when consumers can precisely monitor a FedEx package or a DoorDash dinner delivery, there are no requirements to track shipments of organs in real time — or to assess how many may be damaged or lost in transit.

“If Amazon can figure out when your paper towels and your dog food is going to arrive within 20 to 30 minutes, it certainly should be reasonable that we ought to track lifesaving organs, which are in chronic shortage,” Axelrod said.

Here’s one more astounding statistics:

Seventeen percent of kidneys are offered to at least one deceased person before they are transplanted….

Did you get that? The tracking system for patients is so dysfunctional that 17% of kidneys are offered to patients who are already dead–thus creating delays and missed opportunities.

All of this was especially brought to light by Organize, a non-profit patient advocacy group who under an innovative program embedded with the HHS and working with HHS staff produced hard data.

Many more details are provided in this excellent interview with Greg Segal and Jennifer Erickson, two of the involved principals, in the IFPs vital Substack Statecraft. 

TimeGPT-1

by  Tyler Cowen in

In this paper, we introduce TimeGPT, the first foundation model for time series, capable of generating accurate predictions for diverse datasets not seen during training. We evaluate our pre-trained model against established statistical, machine learning, and deep learning methods, demonstrating that TimeGPT zero-shot inference excels in performance, efficiency, and simplicity. Our study provides compelling evidence that insights from other domains of artificial intelligence can be effectively applied to time series analysis. We conclude that large-scale time series models offer an exciting opportunity to democratize access to precise predictions and reduce uncertainty by leveraging the capabilities of contemporary advancements in deep learning.

That is from a new paper by Azul Garza and Max Mergenthaler-Canseco.  A few of you may be needing a new job soon!

Robert Whaples reviews *GOAT*

by  Tyler Cowen in

An excellent piece, here is one excerpt I enjoyed in particular:

Cowen reads the John Maynard Keynes of The General Theory “as writing about an economy where uncertainty was much higher than usual, investment was highly unstable, fiscal policy was unable to fill in the gap, there was a risk or even reality of a downward spiral of prices and wages, monetary and exchange rate policies were out of whack, multipliers operate, the quest for savings could lower incomes overall, and the influence of liquidity factors on money demand and interest rates was especially high. All at once” (p. 72, emphasis in the original). In other words, Cowen drives home the point that this “general theory” isn’t actually general, it’s about very special, very unusual circumstances.

He considers Lord Keynes the GOAT contender whom he would most “want to hang around with” (p. 54). I had exactly the opposite reaction. The Keynes he portrays is virtually an egotistical monster. One who, for example, “kept an extended spreadsheet of his lovers and sexual encounters … each one rated by number” (p. 58). Anyone who treats other human beings this way—let alone writing it down—isn’t the kind of person I want to hang around with.

Recommended.

The $20 bill gets picked up, body parts markets in everything

by  Tyler Cowen in

At the 1815 Battle of Waterloo, Napoleon Bonaparte’s final battle, more than 10,000 men and as many horses were killed in a single day. Yet today, archaeologists often struggle to find physical evidence of the dead from that bloody time period. Plowing and construction are usually the culprits behind missing historical remains, but they can’t explain the loss here. How did so many bones up and vanish?

In a new book, an international team of historians and archaeologists argues the bones were depleted by industrial-scale grave robbing. The introduction of phosphates for fertilizer and bone char as an ingredient in beet sugar processing at the beginning of the 19th century transformed bones into a hot commodity. Skyrocketing prices prompted raids on mass graves across Europe—and beyond.

Here is the full article, via William Meller.  And, as Alex has stressed in the past, never underestimate the elasticity of supply!

Modi and investment

by  Tyler Cowen in

Yes, India is doing well but the picture could be much better:

During Modi’s tenure, GFCF [gross fixed capital formation] as a percentage of GDP declined and has remained low until the post-pandemic recovery. In fact the highest level of GFCF as a percentage of GDP during the first nine years of Modi’s leadership is lower than the lowest level in PM Singh’s tenure.

Here is more from Shruti.

A graph with a line and a red circle Description automatically generated

Cultivating Minds: The Psychological Consequences of Rice versus Wheat Farming

by  Alex Tabarrok in

It’s long been argued that the means of production influence social, cultural and psychological processes. Rice farming, for example, requires complex irrigation systems under communal management and intense, coordinated labor. Thus, it has been argued that successful rice farming communities tend to develop people with collectivist orientations, and cultural ways of thinking that emphasize group harmony and interdependence. In contrast, wheat farming, which requires less labor and coordination is associated with more individualistic cultures that value independence and personal autonomy. Implicit in Turner’s Frontier hypothesis, for example, is the idea that not only could a young man say ‘take this job and shove it’ and go west but once there they could establish a small, viable wheat farm (or other dry crop).

There is plenty of evidence for these theories. Rice cultures around the world do tend to exhibit similar cultural characteristics, including less focus on self, more relational or holistic thinking and greater in-group favoritism than wheat cultures. Similar differences exist between the rice and dry crop areas of China. The differences exist but is the explanation rice and wheat farming or are there are other genetic, historical or random factors at play?

A new paper by Talhelm and Dong in Nature Communications uses the craziness of China’s Cultural Revolution to provide causal evidence in favor of the rice and wheat farming theory of culture. After World War II ended, the communist government in China turned soldiers into farmers arbitrarily assigning them to newly created farms around the country–including two farms in Northern Ningxia province that were nearly identical in temperature, rainfall and acreage but one of the firms lay slightly above the river and one slightly below the river making the latter more suitable for rice farming and the former for wheat. During the Cultural Revolution, youth were shipped off to the farms “with very little preparation or forethought”. Thus, the two farms ended up in similar environments with similar people but different modes of production.

Talhelm and Dong measure thought style with a variety of simple experiments which have been shown in earlier work to be associated with collectivist and individualist thinking. When asked to draw circles representing themselves and friends or family, for example, people tend to self-inflate their own circle but they self-inflate more in individualist cultures.

The authors find that consistent with the differences across East and West and across rice and wheat areas in China, the people on the rice farm in Ningxia are more collectivistic in their thinking than the people on the wheat farm.

The differences are all in the same direction but somewhat moderated suggesting that the effects can be created quite quickly (a few generations) but become stronger the longer and more embedded they are in the wider culture.

I am reminded of an another great paper, this one by Leibbrandt, Gneezy, and List (LGL) that I wrote about in Learning to Compete and Cooperate. LGL look at two types of fishing villages in Brazil. The villages are close to one another but some of them are on the lake and some of them are on the sea coast. Lake fishing is individualistic but sea fishing requires a collective effort. LGL find that the lake fishermen are much more willing to engage in competition–perhaps having seen that individual effort pays off–than the sea fishermen for whom individual effort is much less efficacious. Unlike Talhelm and Dong, LGL don’t have random assignment, although I see no reason why the lake and sea fishermen should otherwise be different, but they do find that women, who neither lake nor sea fish, do not show the same differences. Thus, the differences seem to be tied quite closely to production learning rather than to broader culture.

How long does it take to imprint these styles of thinking? How long does it last? Is imprinting during child or young adulthood more effective than later imprinting? Can one find the same sorts of differences between athletes of different sports–e.g. rowing versus running? It’s telling, for example, that the only famous rowers I can think are the Winklevoss twins. Are attempts to inculcate these types of thinking successful on a more than surface level. I have difficulty believing that “you didn’t build that,” changes say relational versus holistic thinking but would styles of thinking change during a war?

350+ coauthors study reproducibility in economics

by  Tyler Cowen in

Jon Hartley is one I know, here is the abstract:

This study pushes our understanding of research reliability by reproducing and replicating claims from 110 papers in leading economic and political science journals. The analysis involves computational reproducibility checks and robustness assessments. It reveals several patterns. First, we uncover a high rate of fully computationally reproducible results (over 85%). Second, excluding minor issues like missing packages or broken pathways, we uncover coding errors for about 25% of studies, with some studies containing multiple errors. Third, we test the robustness of the results to 5,511 re-analyses. We find a robustness reproducibility of about 70%. Robustness reproducibility rates are relatively higher for re-analyses that introduce new data and lower for re-analyses that change the sample or the definition of the dependent variable. Fourth, 52% of re-analysis effect size estimates are smaller than the original published estimates and the average statistical significance of a re-analysis is 77% of the original. Lastly, we rely on six teams of researchers working independently to answer eight additional research questions on the determinants of robustness reproducibility. Most teams find a negative relationship between replicators’ experience and reproducibility, while finding no relationship between reproducibility and the provision of intermediate or even raw data combined with the necessary cleaning codes.

Here is the full paper, here are some Twitter images.  I have added the emphasis on the last sentence.