It seems culture and training matter a great deal.  T.M. Luhrmann reports:

Recently, a team of anthropologists and psychologists at the Max Planck Institute for Psycholinguistics and Radboud University, both in Nijmegen, the Netherlands, set out to discover how language and culture affected sensory awareness. Under the leadership of Asifa Majid and Stephen C. Levinson, they made up a kit of systematic stimuli for the traditional five senses: for sight, color chips and geometric forms; for hearing, pitch, amplitude and rhythm variations; for smell, a set of scratch-and-sniff cards; and so forth. They took these kits to over 20 cultural groups around the world. Their results upend some of our basic assumptions.

For example, it’s fairly common, in scientific literature, to find the view that “humans are astonishingly bad at odor identification and naming,” as a recent review of 30 years of experiments concluded. When ordinary people are presented with the smell of ordinary substances (coffee, peanut butter, chocolate), they correctly identify about half of them. That’s why we think of scent as a trigger for personal memory — leading to the recall of something specific, particular, uniquely our own.

It turns out that the subjects of those 30 years of experiments were mostly English-speaking. Indeed, English speakers find it easy to identify the common color in milk and jasmine flowers (“white”) but not the common scent in, say, bat droppings and the leaf of ginger root. When the research team presented what should have been familiar scents to Americans — cinnamon, turpentine, lemon, rose and so forth — they were terrible at naming them. Americans, they wrote, said things like this when presented with the cinnamon scratch-and-sniff card: “I don’t know how to say that, sweet, yeah; I have tasted that gum like Big Red or something tastes like, what do I want to say? I can’t get the word. Jesus it’s like that gum smell like something like Big Red. Can I say that? O.K. Big Red, Big Red gum.”

When the research team visited the Jahai, rain-forest foragers on the Malay Peninsula, they found that the Jahai were succinct and more accurate with the scratch-and-sniff cards. In fact, they were about as good at naming what they smelled as what they saw. They do, in fact, have an abstract term for the shared odor in bat droppings and the leaf of ginger root. Abstract odor terms are common among people on the Malay Peninsula.

I am good at smelling curries.

Luigi Zingales has a relatively new paper on that and related questions:

The very same forces that induce economists to conclude that regulators are captured should lead us to conclude that the economic profession is captured as well. As evidence of this capture, I show that papers whose conclusions are pro-management are more likely to be published in economic journals and more likely to be cited. I also show that business schools’ faculty write papers that are more pro management. I highlight possible remedies to reduce the extent of this capture: from a reform of the publication process, to an enhanced data disclosure, from a stronger theoretical foundation to a mechanism of peer pressure. Ultimately, the most important remedy, however, is awareness, an awareness most economists still do not have.

The paper is here, via the excellent Kevin Lewis.  And here is another new Zingales paper (pdf, with Guiso and Sapienza) on time-varying risk-aversion, here is the tail end of the abstract:

Consistent with a fear-based explanation, we find that subjects who watched a horror movie exhibit a higher risk aversion than subjects who did not. The size of the increase in risk aversion caused by the horror movie is similar to the one experienced by our bank’s clients during the crisis.

Our new class on international finance is up here.  The class description reads as follows:

International finance covers some of the most complex but also important topics in economics. How are exchange rates determined? When if ever are ongoing trade deficits harmful? Are fixed or floating exchange rates better? What are the roots of the euro crisis and what resolution can we expect? Does China manipulate its exchange rate and if so how does that matter? We cover all of these topics and more, with an eye toward what a person really might want to know. There is no use of mathematics in this course beyond the very basic.

The interesting thing about international finance is that even a lot of professional economists don’t understand it very well, unless they have specialized in the area. If you complete this course, you’ll probably know a lot which they don’t!

You will find particular videos on capital controls, the classical gold standard, “dark matter,” “the Dutch disease,” the Asian financial crisis of 1997, and are devaluations contractionary?, among many other topics.

Again, here is Guinevere Liberty Nell’s recent class on the Soviet Union (still relevant alas!) and our Principios de Microeconomía, by Andres Marroquin, is growing as well.  There is more on the way!

College Admission Secrets

by on September 2, 2014 at 7:38 am in Economics, Education | Permalink

Most colleges are non-profits with unclear ownership status so their incentives do not lead to simple profit-maximization. Don’t be fooled, however, neither do colleges maximize student welfare or the public good. Instead colleges pursue some index of free cash flow, prestige, and administrative and faculty independence. The result is some peculiar outcomes. Most businesses, for example, don’t want to reject customers but colleges often encourage students to apply so that they can reject them. The Washington Monthly’s college issue has an excellent primer, Ten Ways Colleges Work You Over, that explains:

education moneyThe aim of the game for colleges is to boost the number of students who apply and can be rejected. By doing this, the schools see their acceptance rates fall, making them appear to be more selective—which helps them rise up the U.S. News & World Report rankings.

Take Northeastern University in Boston… [which] sends nearly 200,000 personalized letters to high school students each year. The institution then follows up these letters with emails, making it seem that the school is wooing these individuals.

… Nearly 50,000 students applied to Northeastern this year for 2,800 spots in the fall 2014 class…

Lowering its acceptance rates is at least one factor in why Northeastern has catapulted up the U.S. News rankings, rising more than 100 spots since 2002.

Profit-maximization (or maximization of free cash flow) is also not absent from the process. Many schools, for example, say they are need blind but that just means that admission officers don’t know the student’s income. Admissions officers, however, do know lots of information that is highly correlated with income including where applicants live, what high school they attended and the occupations of the applicants parents–not exactly what I would call blind.

Schools even use seemingly arbitrary bits of information to increase their revenues. The  Free Application for Federal Student Aid (FAFSA) form, for example, has students list the colleges that they are interested in applying to. Although the order is irrelevant, students often list in preferential order and the colleges see this information. As a result, colleges have an incentive to offer students who list their college first less financial aid simply because that is an indication that the student has a high demand for that college.

1. Bolivia became a semi-stable democracy in the early 1980s and it has stayed that way.

2. For all the rhetoric to the contrary, the current regime is a mix of 1990s-era market-oriented reforms and Evo Morales.  Probably you like one of these, though perhaps not both.

3. Many more Bolivian children go to school than before, and the incidence of malnutrition has been plummeting, with longer-run benefits for IQ.  You will read many fabricated or non-causally-backed claims about the connection between inequality and growth, but for Bolivia I believe these arguments.

4. Bolivia has done so many things wrong in the past, there is a lot of low-hanging fruit through purely internal improvements.  For instance the country is a fantastic tourist destination, but would not at this moment be experienced that way by mainstream American tourists, due to language, hotel, and infrastructure shortcomings.  Eventually those problems can be and will be solved.  Eventually.

5. Bolivia does not have much export exposure to China, and does not face much geopolitical risk.

6. Of all commodities, hydrocarbons may be relatively protected in price through the forthcoming global turmoil, because the Middle East implosion will make Bolivia’s current main resource more valuable.

7. Bolivia’s fiscal situation is surprisingly sound.

The three main reasons to be pessimistic about Bolivia are:

1. Most of their economic policy is quite bad, especially when it concerns the nationalization of foreign direct investment.  The FDI future of Bolivia will be extremely unfavorable.  The rhetoric and indeed the behavior of the government sometimes is like a villain from an Ayn Rand novel.

2. Their main trading partner is Brazil, a country which will have gone from eight percent growth to near-zero growth in but a few years time.  Argentina is either the number two or number three trade partner, along with the U.S., depending on the year in question.

3. Bolivia hasn’t done that well in the past.

Of those three reasons, #1 probably matters a bit less than you might think, and #3 a bit more.

It is much debated in Bolivia whether corruption is going up or down.  I believe it is going up, but partially for good reasons.  For instance the construction sector is doing well, and construction tends to be corrupt in many countries, for reasons intrinsic to the activity itself (e.g., lots of big contracts, easy to claim invisible expenses, etc.).  That means higher corruption but also a better corruption than the penny ante bribes of a shrinking economy.

Right now Bolivia is growing at a rate of above six percent.

It is potent:

If people married each other more randomly, poverty levels would be considerably lower than they are now.  If we abandoned all current family arrangements and randomly grouped all Bolivians into new families of 5 persons, poverty levels would fall by about 15 percentage points (from the current level of 55% of all households to about 40% of all households).  The Gini coefficient measuring inequality would also fall from about 0.70 to 0.55.

But Bolivians do not mix much in marriage.  The correlation between partners’ education levels is extremely high at about 0.77, with no signs of falling.  For comparison, the corresponding number for Germany is 0.52 and for Britain it is 0.41.

But not all Bolivians are equally restricted in their marriage choices.  In the department of Santa Cruz the correlation is only 0.69 while in Potosi it is 0.82, with a corresponding difference in poverty rates.

That is from Lykke E. Andersen, Development from Within, an interesting and well-written collection of essays on Bolivian development, and sometimes on development policy more generally.  The cited piece was written in 2008.

Here is a good sentence from that book:

Just one little road block can disrupt an entire vacation.

Here is the author on Twitter.  Here is her blog.

Here is a new paper by Steve Brito, Ana Corbacho, and Rene Osorio Rivas, it seems the answer is yes:

This working paper studies the effect of remittances from the United States on crime rates in Mexico. The topic is examined using municipal-level data on the percent of household receiving remittances and homicides per 100,000 inhabitants. Remittances are found to be associated with a decrease in homicide rates. Every 1 percent increase in the number of households receiving remittances reduces the homicide rate by 0.05 percent. Other types of crimes are analyzed, revealing a reduction in street robbery of 0.19 percent for every 1 percent increase in households receiving remittances. This decrease is also observed using a state-level panel in another specification. The mechanisms of transmission could be related to an income effect or an incapacitation effect of remittances increasing education, opening job opportunities, and/or reducing the amount of time available to engage in criminal activities.

For the pointer I thank Axayacatl Maqueda.  Here is a Spanish-language discussion of the work.

From David Cay Johnson:

From 2000 to 2012, American workers as a whole had a tough time, as population grew much faster than new jobs and many people gave up looking for work. There was one major exception: jobs paying $100,000 to $400,000 (in 2012 dollars).

This is what I call America’s new prosperous class. Many of these workers have an advanced degree. They no longer struggle, but they continue to work because their wealth is far from adequate to support their lifestyles.

The number of prosperous-class jobs soared to 10.8 million, an increase of 2.1 million since 2000. That is almost 10 times the growth rate of jobs paying either more or less.

Most astonishing is how much of the overall increase in wages earned by the 153.6 million people with a job in 2012 went to this narrow band of very well paid workers: Just 7 percent of all jobs pay in this range, but those workers collected 76.9 percent of the total real wage increase.

For the pointer I thank Mary Ray.  (p.s.: the paperback edition of Average is Over is out today).

David M. Levy and Sandra J. Peart have unearthed some very valuable, hitherto undiscovered material in the history of economic and political thought, as well as the history of American philanthropy.  I have followed this paper through several drafts, with great enthusiasm, and am pleased to report it is now on-line.  The abstract is here:

In 1960 the Thomas Jefferson Center [TJC] of the University of Virginia applied for a “massive” grant from the Ford Foundation. Although James Buchanan, Warren Nutter and Ronald Coase had all received grants from Ford, Ford turned down their proposal because of the Center’s unified “point of view.” We report on correspondence and private discussions of the events. Following the submission of their proposal, Buchanan, Nutter and then President of UVA, Edgar Shannon met with representatives of the Ford Foundation, Tom Carroll and Kermit Gordon. Buchanan concluded that the “reaction of the Ford representatives must be considered to have been almost wholly negative.” The crux of the matter, in Gordon’s assessment was the TJC reflected “a single ‘point of view’.” As the conversation unfolded, it became clear to the UVA representatives that by this the Foundation officials meant a narrow ideological perspective, one in line with Chicago-style economics. Buchanan attempted to dispel this conclusion, arguing that the program was “sufficiently broad” to “encompass wide and divergent points of view.” Coase was particularly incensed by allegation of ideological narrowness since, as he explained, he had close ties to the Fabian Society. Despite the attempts of both Coase and Buchanan to defend their proposal, Ford officials turned down the application and the TJC never fully recovered.

This is what they call “real history.”  In my version of this story, of course, the Virginia School, Coase, Buchanan, and Tullock were the good guys, as was demonstrated by their subsequent research record.

How much does poverty drive crime?

by on August 22, 2014 at 7:25 am in Economics, Education, Law | Permalink

Maybe less than you thought, at least after adjusting for other variables.  The Economist reports:

In Sweden the age of criminal responsibility is 15, so Mr Sariaslan tracked his subjects from the dates of their 15th birthdays onwards, for an average of three-and-a-half years. He found, to no one’s surprise, that teenagers who had grown up in families whose earnings were among the bottom fifth were seven times more likely to be convicted of violent crimes, and twice as likely to be convicted of drug offences, as those whose family incomes were in the top fifth.

What did surprise him was that when he looked at families which had started poor and got richer, the younger children—those born into relative affluence—were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.

That suggests two, not mutually exclusive, possibilities. One is that a family’s culture, once established, is “sticky”—that you can, to put it crudely, take the kid out of the neighbourhood, but not the neighbourhood out of the kid. Given, for example, children’s propensity to emulate elder siblings whom they admire, that sounds perfectly plausible. The other possibility is that genes which predispose to criminal behaviour (several studies suggest such genes exist) are more common at the bottom of society than at the top, perhaps because the lack of impulse-control they engender also tends to reduce someone’s earning capacity.

The original research, by Amir Sariaslan, Henrik Larsson, Brian D’Onofrio, Niklas Långström and Paul Lichtenstein is here, here is how the authors report the conclusion:

There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors.

Finland fact of the day

by on August 21, 2014 at 2:19 pm in Economics, Education, Uncategorized | Permalink

Finnish students stay in college longer than in any other developed country save Austria, the Netherlands and Denmark, getting their first university degree on average at 29, according to a 2013 report by the Organization for Economic Cooperation and Development. That compares with 24 years for Britons, 26 for Germans and the OECD average of 27 years. Most Finns who graduate from college get a master’s degree.

There is more here.  Of course that undoes a lot of the benefits from their excellent primary education system.

I did not know this idea was under consideration:

Los Angeles city leaders are considering a lottery system to reward citizens for casting a ballot in local elections, in a measure to combat low voter turnout that officials and outside observers say could be a first for any U.S. municipality.

The Los Angeles Ethics Commission voted 3-0 on Thursday to recommend that members of the City Council move forward with the lottery idea, either by putting it before voters as a local initiative or by adopting it on their own, said commission president Nathan Hochman.

The commission discussed a number of possible ways for the lottery to work, including the use of $100,000 to be split into four prizes of $25,000, or 100 pots of $1,000 for lucky voters who win the drawing, Hochman said.

The story is here, hat tip goes to long-time MR correspondent Daniel Lippman, who now is working for Politico.

File under The Polity that is California.

Sentences to ponder

by on August 18, 2014 at 3:21 pm in Education, History, Philosophy | Permalink

“Always assume that there is one silent student in your class who is by far superior to you in head and in heart.” This is the counsel Leo Strauss, among the most consequential teachers and scholars of political philosophy in the 20th century, offered an advanced graduate student who had asked for a general rule about teaching.

In a short essay published in the early 1960s, “Liberal Education and Responsibility” (based on a public lecture he gave), Strauss elaborated on his exquisite advice. “Do not have too high an opinion of your importance,” he said, “and have the highest opinion of your duty, your responsibility.”

There is more here, by Peter Berkowitz, via Andrea Castillo.

There is a semi-new paper (pdf) by Youjin Hahn, Liang Choon Wang, and Hee-Seung Yang, the abstract is this:

We show that private high school students outperform public high school students in Seoul, South Korea, where secondary school students are randomly assigned into schools within school districts. Both private and public schools in Seoul must admit students randomly assigned to them, charge the same fees, and use the same curricula under the so-called equalization policy’, but private schools enjoy greater autonomy in hiring and other staffing decisions and their principals and teachers face stronger incentives to deliver good students’ performance. Our findings suggest that providing schools greater autonomy in their personnel and resource allocation decisions while keeping school principals accountable can be effective in improving students’ outcomes.

That is from G Heller Sahlgren, who has numerous tweets of interest on Korean schooling.

Joni Hersch of Vanderbilt has a new paper on this topic.  Given the multiple dimensions of unobserved quality, I wonder if there is any method which can convince me on such questions.  Still, I am glad to see someone putting the effort in.  Here is what the author came up with:

Income disparities arise not only from differences in the level of education but also from differences in status associated with an individual’s degree-granting college or university. While higher ability among those who graduate from elite undergraduate institutions may account for much of the earnings premium associated with elite education, ability should be largely equalized among those who graduate from similarly selective graduate programs. Few graduates of nonselective institutions earn post-baccalaureate degrees from elite institutions, and even when they do, undergraduate institutional prestige continues to influence earnings overall and among those with law, medical, graduate business and doctoral degrees.

For the pointer I thank the excellent Kevin Lewis.  Kevin also refers us to this unorthodox paper on the Finns, namely why are they so smart yet win so few Nobel Prizes.