Economics

Our estimates suggest that teacher collective bargaining worsens the future labor market outcomes of students: living in a state that has a duty-to-bargain law for all 12 grade-school years reduces earnings by $800 (or 2%) per year and decreases hours worked by 0.50 hours per week. The earnings estimate indicates that teacher collective bargaining reduces earnings by $199.6 billion in the US annually. We also find evidence of lower employment rates, which is driven by lower labor force participation, as well as reductions in the skill levels of the occupations into which workers sort. The effects are driven by men and nonwhites, who experience larger relative declines in long-run outcomes.

That is from a new paper by Michael Lovenheim and Alexander Willen, via Noah Smith.

I will be doing a Conversation with Charles (no public event), what should I ask him?  Charles is one of my favorite writers, as he is the author of 1491, 1493, and the new and excellent The Wizard and the Prophet: Two Remarkable Scientists and Their Dueling Visions to Shape Tomorrow’s World.

Here is yet another excerpt from the latter book:

Rodale died in 1971 — bizarrely, on a television talk show, suffering a heart attack minutes after declaring “I never felt better in my life!” and offering his host his special asparagus boiled in urine.

I thank you all in advance for your wisdom and inspiration.  Here is Charles’s home page, he also has many excellent magazine articles.

From Amanda Y. Agan and Michael D. Makowsky, here is an new and important approach:

For recently released prisoners, the minimum wage and the availability of state Earned Income Tax Credits (EITCs) can influence both their ability to find employment and their potential legal wages relative to illegal sources of income, in turn affecting the probability they return to prison. Using administrative prison release records from nearly six million offenders released between 2000 and 2014, we use a difference-in-differences strategy to identify the effect of over two hundred state and federal minimum wage increases, as well as 21 state EITC programs, on recidivism. We find that the average minimum wage increase of 8% reduces the probability that men and women return to prison within 1 year by 2%. This implies that on average the wage effect, drawing at least some ex-offenders into the legal labor market, dominates any reduced employment in this population due to the minimum wage. These reductions in re-convictions are observed for the potentially revenue generating crime categories of property and drug crimes; prison reentry for violent crimes are unchanged, supporting our framing that minimum wages affect crime that serves as a source of income. The availability of state EITCs also reduces recidivism, but only for women. Given that state EITCs are predominantly available to custodial parents of minor children, this asymmetry is not surprising. Framed within a simple model where earnings from criminal endeavors serve as a reservation wage for ex-offenders, our results suggest that the wages of crime are on average higher than comparable opportunities for low-skilled labor in the legal labor market.

But two days ago I ran into Amanda and family at Penang restaurant in Philadelphia…

Benjamin Zycher on solar power

by on January 5, 2018 at 12:47 am in Economics, Science | Permalink

From my email, if you would like to read a more negative than usual take:

“A couple of observations on your Bloomberg column on solar power:

  • There is nothing “clean” about solar (or wind) electricity, primarily because of its intermittent nature.  Because it is unreliable, it cannot be scheduled (it is not dispatchable), and so must be backed up with conventional (usually gas, sometimes coal) plants.  The latter units must be cycled up and down depending on whether the sun is shining or not, which means that they must be operated inefficiently (they experience rising heat rates), increasing their emissions of conventional effluents and greenhouse gases.  Engineering studies for Colorado and Texas, for example, estimate that this adverse effect becomes important when the market share in terms of capacity reaches around 10 percent (combined with the guaranteed market shares and must-take regulations enforced by many states).  I have been beating on this drum for years, but the press and many others continue to describe solar and wind power as “clean.”  No, it is not.
  • That emissions pattern is separate from the problem of solar panel disposal, vastly underpublicized in my view, in a world in which solid-waste disposal is priced inefficiently.
  • The Independent System Operators generally are forced to take renewable power when it is available, and the PUCs are forced to roll their high costs into the rate bases, spreading the costs across all consumers.  (The same is true for the high transmission costs attendant upon renewables.)  There has been some reform around the margins in a few states, as the PUCs have trimmed the net metering subsidies for rooftop solar systems, but this is a minor adjustment in a system characterized by vast inefficiency, cronyism and interest-group rent-seeking, upward transfers of income, feathering of bureaucratic nests, and increased pollution.  Such are the fruits of government wisdom.”

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.

Yes, the Matt Levine who writes for Bloomberg.  The “the only greeting you need is “Only you can do what you do!”” Matt Levine.

That one (not the other one).  I’ll be having a Conversation with him, so what should I ask?

Did you know by the way that Matt can speak Latin?

That is the topic of my latest Bloomberg column, here is one excerpt:

The first disquieting sign is that solar companies are spending only about 1 percent of their revenue on research and development, well below average for a potentially major industry. You might think that’s because things are going so great, but some major solar users may have already maxed out their technology. According to Sivaram’s estimates, four of the five most significant country users — Italy, Greece, Germany and Spain — have already seen solar energy flatten out in the range of 5 percent to 10 percent of total energy use. The fifth country, Japan, is only at 5 percent.

And:

A common view is that solar power will come into its own once batteries and other storage technologies make steady improvements. Yet Sivaram notes that lithium-ion batteries in particular are not well-designed for storage across days, weeks and months. Also note that about 95 percent of global energy storage capacity is from hydroelectric power, a discouraging sign for the notion that solar energy storage is on a satisfactory track.

And:

Solar energy has great potential for emerging economies, but some very basic preconditions are not in place. India, for instance, would need to end its kerosene and electricity subsidies. Freer trade in solar technologies is found in Tanzania and Rwanda but not always in West Africa.

My column draws heavily on Varun Sivaram’s forthcoming Taming the Sun: Innovations to Harness Solar Energy and Power the Planet, Amazon link here.  This book is full of useful information, a pleasure to read, and more generally a model for how to write about science, technology, and policy.  It will definitely make my 2018 “best books of the year” list.

The authors are Kevin Simler and Robin Hanson, and now it is out!

Robin reports:

On press coverage, back in July Publishers Weekly had a paragraph on it, the Boston Globe did an interview of me back then that they just released, Vice interviewed me recently so I expect that out soon, and I’m told that a Wall Street Journal review is forthcoming. Amazon now has 5 reviews, Goodreads has 7, and 2 reviews have appeared on blogs.

I am pleased to be doing a Conversation with Robin about the book, and other matters too.  But don’t forget — conversations aren’t about talking!

Michel Serafinelli and Guido Tabellini have a new paper on that question, here is the abstract:

Creativity is often highly concentrated in time and space, and across different domains. What explains the formation and decay of clusters of creativity? In this paper we match data on thousands of notable individuals born in Europe between the XIth and the XIXth century with historical data on city institutions and population. After documenting several stylized facts, we show that the formation of creative clusters is not preceded by increases in city size. Instead, the emergence of city institutions protecting economic and political freedoms facilitates the attraction and production of creative talent.

Recommended.

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.

In other words, why don’t they put everything into Atlanta or Los Angeles?  Paul Krugman has a good blog post on that topic, here is one of his points:

…once upon a time dispersed agriculture ensured that small cities serving rural hinterlands would survive. But for generations we have lived in an economy in which smaller cities have nothing going for them except historical luck, which eventually tends to run out.

Krugman suggests that eventually many smaller cities will indeed fade away, although the process of equilibration may be a long and slow one.  All of his points are well-founded, nonetheless I can see a few factors favoring the continuing existence of small cities on a greater scale than many might be expecting:

1. As Alex points out on Twitter, rents are permanently lower, and many people don’t value big city amenities very much.

2. Congestion is likely to be lower.  Why should the larger city have worse traffic if it has proportionately more roads?  That may require a blog post of its own, but part of the problem is geographic specialization within the larger city, which is not simply some number of smaller cities placed side by side.  In other words, sometimes you have to drive all the way across town.  Many people don’t like geographic specialization, but wish to find most everything in a small downtown or Walmart (or on Amazon).   From this point you can see that Amazon may favor larger cities more than small towns.  If it bugs you that in a large city all the shopping of a particular kind is on the other side of town, just order those goods on-line and stay within your cozy neighborhood.

3. Governance may become worse in a very large city.  Furthermore, separate and specialized lobbies, as would correspond to geographically specialized parts of a large city, may be a bad influence.  Here is a paper on the public choice of mega-city governance.

4. Very large, rich, and famous cities tend to become financial centers, or perhaps movie-making centers, and that is not in the interest of all city residents.  Some of this is a matter of rents, in other regards a matter of culture and ethos.  Anonymity also increases with size, as does (I think) sexual promiscuity.  Smaller locales will have more faux conformism and more real conformism too, which some people prefer.  People not wanting to live amongst all the specialization of major cities really is a significant and enduring factor in these comparisons.

5. If you are building a firm for eventual export success, you will prefer to put that firm in a larger city to begin with (“built to scale”).  That in turn tends to price out companies and people with less interest in exporting.  The larger city will become all that much more globally oriented, which not everyone will wish to pay for or even wish to have at zero price.

6. If I were offered an extra 50% of total salary (nominal, to make this comparison in real terms across all goods and services eliminates the very difference in locales) to move from Fairfax to Washington, D.C. (15-20 miles away), I would decline the offer.

7. The very fact that smaller cities are used to consume non-pecuniary amenities suggests their inhabitants are more diversified than it may appear at first.  The shift of gdp into services further enhances this diversification, and the new crop of semi-small cities may be more resilient than the older lot dependent on manufacturing.

8. A significant and enduring trend is the move into warmer and sunnier climates.  So while Rochester and Flint decline, Chattanooga and Birmingham are on the rise.  I predict the more time you spend in the South, the more optimistic you will be about small and mid-size cities.

9. Here is a good Duranton and Puga piece on the costs and benefits of city size.  Here is a short McKinsey piece on complexity as a limit on size.  Here is a discussion of city size in Civilization VI.

Yes, I’m talking about Downsizing, starring Matt Damon.  If Henry George is right about exorbitant rents and land scarcity, of course the solution is to shrink the people, thereby creating in real terms more land (plus solving a lot of environmental problems).  In this movie, shrinking people to a few centimeters tall raises the value of a dollar by about 1000x — how’s that for a Georgist result?  The small people live in splendid houses, massive relative to their diminutive size, and can eat all the gourmet food they want because they need only a snippet of foie gras or for that matter a very small piece of diamond.  Yet they still must interact (badly) with the larger world, thus the Swift connection.  How about Piketty?  Well, the small people have trouble mastering nature or producing for the larger outside world, so they are dependent on their preexisting wealth.  The wealth to income ratio is remarkably high, and woe unto anyone who has to rely on labor income in the “small world.”

Then the movie starts!  It’s an uneven film in a number of ways, still for economics “food for thought,” or for that matter social critique, I haven’t seen anything nearly as good for a while.

1. Fez is perhaps the place in the world with the clearest continuous connections to the time of late antiquity.  Maimonides and Ibn Khaldun worked there, and walking through the medina that is not hard to imagine — you can dine in a small restaurant in the home of Maimonides (recommended, most of all the vegetables).  Fez has the world’s oldest university, dating from the 859, and the world’s oldest continuously operating library, from 1359.

2. The country has been remarkably stable relative to the rest of the region, whether you take that to be the Middle East, MENA, or Africa.  But the nature of the associated stability lessons remains unclear, read more here.

3 Social capital is higher than it was during my last visit twenty years ago.  That said, every transaction is still a potential swindle waiting to happen.  And if any English-speaking Moroccan climbs into your train cabin, and claims his brother is the most wonderful guide in town and offers up his phone number…simply decline any further contact.  Especially if the guy has a scar on his face.

4. From the OEC:

The top exports of Morocco are Cars ($2.95B), Insulated Wire ($2.46B), Mixed Mineral or Chemical Fertilizers ($1.83B), Phosphoric Acid($1.14B) and Non-Knit Women’s Suits ($1B)…

It could be much worse, but the dangers of premature deindustrialization are real.  Their exports are too dependent on Spain and France, two countries with many other trading partners and also relatively slow growth rates.  Agriculture still accounts for 40-45% of employment.  Tourism continues to grow, but service culture in the country is not top-notch.  They export a lot of marijuana too.

5. The country has the (distant) potential to evolve into an Atlantic economy — check the map — and I don’t just mean the history of Rabat/Salé as a pirate state.  Nonetheless the actual trade of the nation paints it as a Mediterranean economy, and most Mediterranean economies have not done very well lately.

6. Moroccans do not seem very religious.  Counterintuitively, that may be why, when they are living in Europe, they are especially vulnerable to radicalization. They are not already “filled up with belief,” and experience anomie, which is then exploited by terror groups.  Arguably the same is true for Uighurs in China, by the way, who are recruited by the thousands for foreign ISIS crusades and the like.

7. More and more of the country’s gdp is concentrating in and near Casablanca, which is underrated as a visit.  The famous Grand mosque, as Yana pointed out, in fact resembles a cavernous mosque-clock tower-opera house-French railway station, with even some elements of a medieval cathedral.  Not all devout Muslims are happy with it.

8. The best bistillah is in Meknes, where it is moister and less sweet.  In Casablanca I recommend the seafood stalls in the Grand Marché, and the roast chicken joints, always with french fries.

Tax reform sentences to ponder

by on December 30, 2017 at 5:55 am in Data Source, Economics, Law | Permalink

Income categories are paying almost exactly the same share of federal taxes as before. Millionaires actually pay a tiny bit larger share in the new bill.

That is from John Cochrane, drawing on Greg Mankiw, with the source being the Joint Committee on Taxation.  I would say that media coverage of this bill — which does have many objectionable features — has been somewhat less than ideal, most of all on the issue of redistribution.  Overall, claims about redistribution — from either side — are much more likely to be wrong or misleading than claims about most other topics.

Second, that there is some pure “profit,” some pure “rent,” some “unreproducible input” (i.e. something that did not come from a past unmeasured investment), something like the classic “unimproved land” that can be taxed, without distorting any decision. It goes hand in hand with the complaints of greater monopoly.

But I find it hard to find and name a concrete source of profits that, once named, does not distort the decision to undertake some useful activity to make those profits. Starting, organizing, and improving a business, figuring out the intangible organizational capital that makes it a successful competitor, creating a product and a brand name, are all crucial activities for which no investment tax credit will successfully offset a large profits tax. “Intangible capital” is about all most companies have these days.

That is John Cochrane replying to Stephen Williamson, there is much more at the link.  I would add also that Williamson’s model seems to take “r” as constant.