Economics

Is education overrated?  Or did the real industrial revolution not come until the latter part of the nineteenth century?  Or maybe a bit of both?  Here is new research by B. Zorina Khan (pdf):

Endogenous growth models raise fundamental questions about the nature of human creativity, and the sorts of resources, skills, and knowledge inputs that shift the frontier of technology and production possibilities. Many argue that the nature of early British industrialization supports the thesis that economic advances depend on specialized scientific training, the acquisition of costly human capital, and the role of elites. This paper examines the contributions of different types of knowledge to British industrialization, by assessing the backgrounds, education and inventive activity of the major contributors to technological advances in Britain during the crucial period between 1750 and 1930. The results indicate that scientists, engineers or technicians were not well-represented among the British great inventors, and their contributions remained unspecialized until very late in the nineteenth century. For developing countries today, the implications are that costly investments in specialized human capital resources might be less important than incentives for creativity, flexibility, and the ability to make incremental adjustments that can transform existing technologies into inventions that are appropriate for prevailing domestic conditions.

For the pointer I thank David Levey.

Results Free Review

by on July 20, 2016 at 7:28 am in Economics, Education | Permalink

If researchers test a hundred hypotheses, 5% will come up “statistically significant” even when the true effect in every case is zero. Unfortunately, the 5% of papers with statistically signficant results are more likely to be published, especially as these results may seem novel, surprising or unexpected–this is the problem of publication bias.

A potentially simple and yet powerful way to mitigate publication bias is for journals to commit to publish manuscripts without any knowledge of the actual findings. Authors might submit sophisticated research designs that serve as a registration of what they intend to do. Or they might submit already completed studies for which any mention of results is expunged from the submitted manuscript. Reviewers would carefully analyze the theory and research design of the article. If they found that the theoretical contribution was justifiably large and the design an appropriate test of the theoretical logic, then reviewers could recommend publication regardless of the final outcome of the research.

In a new paper (from which the above is quoted) the editors of a special issue of Comparative Political Studies report on an experiment using results-free review. Results-free review worked well. The referees spent a lot of time and effort thinking about theory and research design and the type of institutional and area-specific knowledge that would be necessary to make the results compelling. The quality of the submitted papers was high.

What the editors found, however, was that the demand for “significant” results was very strong and difficult to shake.

It seems especially difficult for referees and authors alike to accept that null findings might mean that a theory has been proved to be unhelpful for explaining some phenomenon, as opposed to being the result of mechanical problems with how the hypothesis was tested (low power, poor measures, etc.). Making this distinction, of course, is exactly the main benefit of results free peer review. Perhaps the single most compelling argument in favor of results-free peer review is that it allows for findings of non-relationships. Yet, our reviewers pushed back against making such calls. They appeared reluctant to endorse manuscripts in which null findings were possible, or if so, to interpret those null results as evidence against the existence of a hypothesized relationship. For some reviewers, this was a source of some consternation: Reviewing manuscripts without results made them aware of how they were making decisions based on the strength of findings, and also how much easier it was to feel “excited” by strong findings This question even led to debate among the special issue editors on what are the standards for publishing a null finding?

I’ve seen this aversion to null results. In my paper with Goldschlag on regulation and dynamism, we find that regulation does not much influence standard measures of dynamism. It’s been very hard for reviewers to accept this result and I don’t think it’s simply because some referees believe strongly that regulation reduces dynamism. I think referees would be more likely to accept the exact same paper if the results were either negative or positive. That’s unscientific–indeed, we should expect that most results are null results so this should give us, if anything, even more confidence in the paper!–but as the above indicates, it’s a very common reaction that null results indicate something is amiss.

Here, by the way, are the three papers reviewed before the results were tabulated. I suspect that some of these papers would not have been accepted at this journal under a standard refereeing system but that all of these papers are of above average quality.

The Effects of Authoritarian Iconography: An Experimental Test finds “no meaningful evidence that authoritarian iconography increases political compliance or support for the Emirati regime.”

Can Politicians Police Themselves? “Taking advantage of a randomized natural experiment embedded in Brazil’s State Audit Courts, we study how variation in the appointment mechanisms for choosing auditors affects political accountability. We show that auditors appointed under few constraints by elected officials punish lawbreaking politicians—particularly co-partisans—at lower rates than bureaucrats insulated from political influence. In addition, we find that even when executives are heavily constrained in their appointment of auditors by meritocratic and professional requirements, auditors still exhibit a pro-politician bias in decision making. Our results suggest that removing bias requires a level of insulation from politics rare among institutions of horizontal accountability.”

Banners, Barricades, and Bombs tests “competing theories about how we should expect the use of tactics with varying degrees of extremeness—including demonstrations, occupations, and bombings—to influence public opinion. We find that respondents are less likely to think the government should negotiate with organizations that use the tactic of bombing when compared with demonstrations or occupations. However, depending on the outcome variable and baseline category used in the analysis, we find mixed support for whether respondents think organizations that use bombings should receive less once negotiations begin. The results of this article are generally consistent with the theoretical and policy-based arguments centering around how governments should not negotiate with organizations that engage in violent activity commonly associated with terrorist organizations.”

Addendum: See also Robin Hanson’s earlier post on conclusion free review.

Justin Winkler has a new thesis from Haverford (pdf):

This paper analyzes the impact that the influx of foreign players has had on the salaries and labor market outcomes of domestic players in the National Basketball Association (NBA). The study builds on previous literature in the field of labor economics by examining this research question in a highly specialized labor market with a rigid salary structure. First, an unbalanced panel data set at the player-year level from 1990-2008 is used in combination with a log-linear regression model to estimate the impact that the number of foreign players in the NBA has on the wages of domestic players. Results are insignificant. A handcrafted dataset tracking the careers of Chad Ford’s top 50 American prospects from 2001 through 2015 is used with a series of ordered logistic regressions to examine foreign players’ impact on the career length and outcomes of American players. Additional ordinary least squares regressions are used to estimate the career quality of American prospects by the quality of the leagues in which they played. Results of all regressions investigating the career outcomes of American prospects are also insignificant.

The initial pointer is from Ben Southwood, see his older and broadly similar paper on soccer.

Yes, globalization, immigration, and wage stagnation are all factors, not to mention the cultural issues.  But there is another culprit: inadequate savings.  This, by the way, helps explain why so much of the Trump support comes from relatively old people.  Here is one bit from my Bloomberg View column today:

Social Security is already the primary source of income for retired Americans, yet Social Security benefits for the elderly average only $16,000 a year, and traditional private-sector pensions have dwindled in importance.

When it comes to comparative retirement security, in an international comparison the United States finished 19th for three years in a row. Even relatively optimistic assessments suggest that only about 28 percent of American households will be able to maintain their pre-retirement living standards.

…As for today’s 45-to-69-year-olds, only 36 percent claim to be engaging in net savings. And only 45 percent of all people earning $75,000 to $100,000 a year claim to have net positive savings, as measured in 2012. That helps explain why the typical Trump voter in the Republican primaries earned a relatively high income of about $72,000 a year and still worried about his or her economic future.

We all know that falling incomes often have more political salience than low incomes.  Furthermore this weakness of the American economy does not show up in either gdp or unemployment statistics.  My conclusion is this:

Trump is himself often portrayed as impetuous. It is less commonly remarked that he may be in part the result of a broader and larger impatience that has plagued American society for decades.

Do read the whole thing.

Addendum: Here is commentary from Kevin Drum but I do not think he rebuts the estimates that consumption levels will be declining, often significantly, for a big chunk of this population.

Households making $25,000-$35,000 a year spend ninety-two more minutes a week online than households making $100,000 or more a year in income, and differences vary monotonically over intermediate income levels.

That is from a new NBER paper by Boik, Greenstein, and Prince.  Do note that the authors adjust for age and other demographic variables.

The upshot is that the real “undervalued” services from the internet come from its risk-sharing properties, not from the supposed lack of pricing of internet services.  If something bad happens to you, well…there is always the internet to fall back upon, at least provided you still can afford the connection.  This also means that business cycles are not quite as painful as before, but also that labor markets will be slower to adjust.

Some also may find in this fact an optimistic statement that “real life” (ha ha) has more to offer than the internet, with the caveat that real life is expensive.

The data in this very interesting paper also indicate that Chat has largely collapsed since 2008 as a way of spending time on the internet, internet time devoted to news sites has fallen from 10% to 5%, and social media and video are on the rise.

Here is my previous post “Let them eat ideology!”

It seems Millennarian cults really mean it, at least in the experimental context:

We model religious faith as a “demand for beliefs,” following the logic of the Pascalian wager. We show how standard experimental interventions linking financial consequences to falsifiable religious statements can elicit and characterize beliefs. We implemented this approach with members of a group that expected the “End of the World” to occur on May 21, 2011 by varying monetary prizes payable before and after May 21st. To our knowledge, this is the first incentivized elicitation of religious beliefs ever conducted. The results suggest that the members held extreme, sincere beliefs that were unresponsive to experimental manipulations in price.

That is from Ned Augenblick, et.al., forthcoming in the Journal of Public Economics.  Here are ungated copies.

The original pointer was from Robin Hanson.

Here is my next column from Bloomberg View, here is one excerpt:

The broader and more disturbing implication is that the entire global economy may be more vulnerable to mood swings. Our peers influence our moods, but today’s peers are more global than ever because of social media and the spread of satellite and cable television. That could make a given mood swing in one nation or region more potent and further-reaching than before.

Insofar as pessimistic moods spread across borders more readily, the notion of safe havens will weaken. There is a longstanding result in financial research that in bad times national stock markets move together more closely, and in ways that may not be justified fully by fundamentals. It is now common for some cross-country stock indices to have correlations as high as 0.8, which was unprecedented several decades ago. In the 1970s those same correlations might have been 0.4 or lower yet.

Unfortunately, contagion may be more dangerous than in the past, because right now the world is not in such an ideal place…

As for finance and investment, higher contagion rates will mean that many assets have higher systemic risk and lower diversification value, because they are not well insulated from the travails of the global economy. “Decoupling” is now recognized to be largely a myth. That may be one reason why negative nominal yield securities are so popular and seem to be sustainable, contrary to expectations but a few years ago.

The growing contagion of mood swings also may be a factor behind the slowdown in economic globalization. Why go to the trouble of investing abroad, for instance, if those assets do not yield much risk protection compared to one’s home market?

The most disturbing possibility may be that in today’s world, bad moods spread across borders more readily than good moods. The most nefarious sign of this is the apparent effectiveness of social media in radicalizing some people at a distance and turning them into violent perpetrators.

Do read the whole thing.

Bryan Caplan writes:

The fact that Londoners showed little sympathy for Brexit is telling: People who experience true mass immigration first-hand tend to stop seeing it as a problem.  “Backlash,” as Tyler Cowen calls it, is a symptom of insufficient migration – the zone where immigrants are noticeable but not ubiquitous.  I know he disagrees, but I honestly can’t figure out why.

The post makes many other different and interesting points, but I’ll stick with this one.  Here goes:

1. Had the UK had much freer immigration, London would be much more crowded.  With truly open borders, people would be sleeping on the sidewalks in large numbers.  London itself would have turned against such a high level of immigration, which quickly would have turned into a perceived occupation.

2. Changes often have different effects than levels: “Where foreign-born populations increased by more than 200% between 2001 and 2014, a Leave vote followed in 94% of cases. The proportion of migrants may be relatively low in Leave strongholds such as Boston, Lincolnshire, but it has soared in a short period of time. High numbers of migrants don’t bother Britons; high rates of change do.”

In other words, had there been higher levels of immigration into non-London parts of the UK, the backlash may well have been stronger yet.  For a careful reader of the Caplanian corpus, that is in fact a Caplanian point and I am surprised it did not occur to Bryan.

3. The highest quality and most easily assimilating immigrants will be attracted to London and the greater London area.  Packing Birmingham with London-style levels of immigration won’t give you London-style immigrants, nor will it turn Birmingham into London.

4. London already has a population pre-selected to like immigration.  Spreading London-like levels of immigration to the rest of England wouldn’t make immigration as popular elsewhere as it is currently in London, even if that immigration went as well elsewhere (which would not be the case, see #3).

5. Post 1980s, England underwent a very rapid and significant change with respect to the number of immigrants it allowed to stay in the country.  If that wasn’t fast enough for the open borders idea to avoid a backlash along the way, then perhaps the new saying ought to be “Only whiplash avoids backlash.”  But that won’t exactly be popular either.

There is a very simple interpretation of current events, including of course the Trump movement in the United States.  It is “the backlash effect against immigration is stronger than we used to think, and we need to adjust our expectations accordingly.”  When Bryan writes “I know he disagrees, but I honestly can’t figure out why”, I think he is simply afraid to stare that rather obvious truth in the eye.  In any case, it’s staring rather directly at him.

Here is Erik Hurst, from an excellent piece profiling Erik Hurst:

Right now, I’m gathering facts about the possible mechanisms at play, beginning with a hard look at time-use by young men with less than a four-year degree. In the 2000s, employment rates for this group dropped sharply – more than in any other group. We have determined that, in general, they are not going back to school or switching careers, so what are they doing with their time? The hours that they are not working have been replaced almost one for one with leisure time. Seventy-five percent of this new leisure time falls into one category: video games. The average low-skilled, unemployed man in this group plays video games an average of 12, and sometimes upwards of 30 hours per week. This change marks a relatively major shift that makes me question its effect on their attachment to the labor market.

To answer that question, I researched what fraction of these unemployed gamers from 2000 were also idle the previous year. A staggering 22% – almost one quarter – of unemployed young men did not work the previous year either. These individuals are living with parents or relatives, and happiness surveys actually indicate that they quite content compared to their peers, making it hard to argue that some sort of constraint, like they are miserable because they can’t find a job, is causing them to play video games.

This problem, if that is the right word for it, will not be easily solved.

From Istanbul, follow him here.  Here is my 2010 post “Why Timur Kuran is one of our most important thinkers.”  Timur’s work has held up very well since then, to say the least.

Addendum: Here are remarks from Turkish economist Dani Rodrik.

The FDA versus the Tooth

by on July 15, 2016 at 7:20 am in Economics, Law, Medicine | Permalink

The NYTimes has an incredible story on a simple, paint-on liquid that stops tooth decay and prevents further cavities:

Nobody looks forward to having a cavity drilled and filled by a dentist. Now there’s an alternative: an antimicrobial liquid that can be brushed on cavities to stop tooth decay — painlessly.

The liquid is called silver diamine fluoride, or S.D.F. It’s been used for decades in Japan, but it’s been available in the United States, under the brand name Advantage Arrest, for just about a year.

The Food and Drug Administration cleared silver diamine fluoride for use as a tooth desensitizer for adults 21 and older. But studies show it can halt the progression of cavities and prevent them, and dentists are increasingly using it off-label for those purposes.

Ari Armstrong has the right reaction:

So the Japanese have been using this drill-free treatment for “decades,” yet we in the United States have had to wait until last year to get it. And the only reason we can get it now to treat cavities is that it happens to be allowed as on “off-label” use for what the FDA officially approved it for.

The NYTimes continues:

Silver diamine fluoride is already used in hundreds of dental offices. Medicaid patients in Oregon are receiving the treatment, and at least 18 dental schools have started teaching the next generation of pediatric dentists how to use it.

…The main downside is aesthetic: Silver diamine fluoride blackens the brownish decay on a tooth. That may not matter on a back molar or a baby tooth that will fall out, but some patients are likely to be deterred by the prospect of a dark spot on a visible tooth.

…[But] “S.D.F. reduces the incidence of new caries and progression of current caries by about 80 percent,” said Dr. Niederman, who is updating an evidence review of silver diamine fluoride published in 2009.

Fillings, by contrast, do not cure an oral infection.

But as Armstrong writes the craziest part of the story is this:

American dentists first started using similar silver-based treatments in the early 1900s. The FDA is literally over a century behind the times.

It seems that the future of dental treatment has been here all along but a combination of dentists wanting to be surgeons, lost knowledge, and FDA cost and delay prevented it from being distributed. Incredible.

This is tentative, and I still will make further changes, so by all means please leave your suggestions in the comments.  The list is long, so I am putting it under the fold… Read More →

The explosive growth of a mass market for chocolate from the 1880s transformed the world cocoa economy more radically than at any other time in history.  The consumption of chocolate increased more rapidly than that of either coffee or tea in the West, and prices held up better…World imports of cocoa beans grew ninefold between 1870 and 1897, whereas those of tea doubled, and those of coffee rose only by about half…Consumption of cocoa per head rose by a factor of nearly six in Britain between 1870 and 1910, while that o f tea did not even double, and that of coffee actually fell by half.

That is William G. Clarence-Smith in the new, excellent, and self-recommending The Economics of Chocolate, edited by Mara P. Squicciarini and Johan Swinnen.

A Timbro study by Alexander Fritz Englund showed that E.U. membership for the 28 countries resulted in a statistically significant increase in economic freedom in all of the sub-categories in The Economic Freedom of the World index. The biggest improvement comes in the year of membership, but it increases afterwards as well.

That is from Reason, here is the Swedish-language study.