Assorted links

by on October 17, 2014 at 12:00 pm in Uncategorized | Permalink

1. The drone brawl between Serbia and Albania.

2. E. Glen Weyl on the openness-equality tradeoff in global redistribution, or is there a case for the Gulf monarchies?

3. Shenzhen black swans feed pellets to carp.

4. When is martial law a tourist attraction? (the culture that is Thailand)

5. Budapest to Iran for 40k.

6. Arnold Kling on Alan MacFarlane.

7. Monetary policy with interest on reserves (speculative)

The economic value of misbehavior

by on October 17, 2014 at 3:52 am in Economics, Education | Permalink

There is a new paper by Papageorge, Ronda, and Zheng, with a very interesting thesis, namely that preparing rowdies for better schooling results may not help their long-term prospects in life:

Prevailing research argues that childhood misbehavior in the classroom is bad for schooling and, presumably, bad overall. In contrast, we argue that childhood misbehavior reflects underlying traits that are potentially valuable in the labor market. We follow work from psychology and treat measured classroom misbehavior as reflecting two underlying non-cognitive traits. Next, we estimate a model of life-cycle decisions, allowing the impact of each of the two traits to vary by economic outcome. We show the first evidence that one of the traits capturing childhood misbehavior, discussed in psychological literature as the externalizing trait (and linked, for example, to aggression), does indeed reduce educational attainment, but also increases earnings. This finding highlights a broader point: non-cognition is not well summarized as a single underlying trait that is either good or bad per se. Using the estimated model, we assess competing pedagogical policies. For males, we find that policies aimed at eliminating the externalizing trait increase schooling attainment, but also reduce earnings. In comparison, policies that decrease the schooling penalty of the externalizing trait increase both schooling and earnings.

For the pointer I thank the excellent Kevin Lewis.

This is a fascinating Scott Alexander take on tribalism and how political issues are framed, starting with Ebola.  As Robin Hanson would say, “politics isn’t about policy.”  Here is the segment on how climate change issues might be marketed to the Right:

Global warming has already gotten inextricably tied up in the Blue Tribe narrative: Global warming proves that unrestrained capitalism is destroying the planet. Global warming disproportionately affects poor countries and minorities. Global warming could have been prevented with multilateral action, but we were too dumb to participate because of stupid American cowboy diplomacy. Global warming is an important cause that activists and NGOs should be lauded for highlighting. Global warming shows that Republicans are science denialists and probably all creationists. Two lousy sentences on “patriotism” aren’t going to break through that.

If I were in charge of convincing the Red Tribe to line up behind fighting global warming, here’s what I’d say:

In the 1950s, brave American scientists shunned by the climate establishment of the day discovered that the Earth was warming as a result of greenhouse gas emissions, leading to potentially devastating natural disasters that could destroy American agriculture and flood American cities. As a result, the country mobilized against the threat. Strong government action by the Bush administration outlawed the worst of these gases, and brilliant entrepreneurs were able to discover and manufacture new cleaner energy sources. As a result of these brave decisions, our emissions stabilized and are currently declining.

Unfortunately, even as we do our part, the authoritarian governments of Russia and China continue to industralize and militarize rapidly as part of their bid to challenge American supremacy. As a result, Communist China is now by far the world’s largest greenhouse gas producer, with the Russians close behind. Many analysts believe Putin secretly welcomes global warming as a way to gain access to frozen Siberian resources and weaken the more temperate United States at the same time. These countries blow off huge disgusting globs of toxic gas, which effortlessly cross American borders and disrupt the climate of the United States. Although we have asked them to stop several times, they refuse, perhaps egged on by major oil producers like Iran and Venezuela who have the most to gain by keeping the world dependent on the fossil fuels they produce and sell to prop up their dictatorships.

We need to take immediate action. While we cannot rule out the threat of military force, we should start by using our diplomatic muscle to push for firm action at top-level summits like the Kyoto Protocol. Second, we should fight back against the liberals who are trying to hold up this important work, from big government bureaucrats trying to regulate clean energy to celebrities accusing people who believe in global warming of being ‘racist’. Third, we need to continue working with American industries to set an example for the world by decreasing our own emissions in order to protect ourselves and our allies. Finally, we need to punish people and institutions who, instead of cleaning up their own carbon, try to parasitize off the rest of us and expect the federal government to do it for them.

Please join our brave men and women in uniform in pushing for an end to climate change now.

The piece is interesting throughout, hat tip goes to MR commentator Macrojams.

As of 2004, only 16.7% of the cost of Korean higher education was picked up by government, as opposed to an OECD average of about 77% (see this paper).  That’s a relatively low level of subsidy.  And yet Korea has one of the highest degree-granting rates in the world, the status of the school you go to is all-important, tiers of quality are fairly rigid, admission is closely linked to exam performance, and doubts have been raised about how much people actually learn in those schools.  At least when it comes to surface phenomena, it appears Korean higher education has a lot to do with signaling.

In Germany they just made the universities completely free, and in the past they were quite cheap, which of course means subsidized.  Germany also sends a relatively high percentage of its population to vocational training, where presumably the students learn some concrete skills.  Could it be there is too much slacking in German universities (which I have interacted with twice, both as student and as professor) for attendance to serve as a very effective signal?

Can it be the case that a government subsidy, by limiting privately-perceived quality and returns, can lower private signaling costs?  Should advocates of the signaling model therefore be more favorably inclined toward subsidies?

Here is a very good piece by The Mitrailleuse, though I do not agree with all of it.  Here is the conclusion:

In summary, the libertarian discussion surrounding immigration shouldn’t be viewed as an all or nothing proposition and as Sanandaji has argued, it should take real world empirical patterns into account rather than assume away voting, the public sector, and social externalities. Libertarians should adopt the same skeptical economist’s view they apply to all other subjects when weighing questions about immigration to determine if we can actually affect the changes we would like to make.

It is perfectly acceptable for libertarians to disagree on such a complex subject and to hold opinions in favor of more marginal change. There are plenty of modest ways libertarians can criticize the existing immigration system without being in favor of open borders. These libertarians shouldn’t be vilified for their humility and prudence. There is no academic consensus on the subject and the issue is too complex and contextual for there to be a clear-cut libertarian position. The burden of proof lies on advocates of open borders to engage these criticisms.

For the pointer I thank Andrea Castillo.

Assorted links

by on October 16, 2014 at 11:57 am in Uncategorized | Permalink

1. HBO will be letting you watch their shows on-line without buying cable (the great unbundling).

2. The Flynn effect for raccoons.

3. The (panda) culture that is China.

4. “I don’t really know if they love me, or if they love my height.” (markets in everything, and do we need more Amazons?)

5. The politics of Ebola.

6. David Byrne doesn’t care about contemporary art any more.

California’s Water Shortage

by on October 16, 2014 at 7:30 am in Economics, Law | Permalink

In the 1970s the US faced a serious shock to the supply of oil but the shortage of oil was caused by price controls. Today, California is facing a serious water drought but the shortage of water is caused by price controls, subsidies and the lack of water markets. In an excellent column, The Risks of Cheap Water, Eduardo Porter writes:

Water is far too cheap across most American cities and towns. But what’s worse is the way the United States quenches the thirst of farmers, who account for 80 percent of the nation’s water consumption and for whom water costs virtually nothing….

Farmers in California’s Imperial Irrigation District pay $20 per acre-foot, less than a tenth of what it can cost in San Diego….This kind of arrangement helps explain why about half the 60 million acres of irrigated land in the United States use flood irrigation, just flooding the fields with water, which is about as wasteful a method as there is.

Tyler and I discuss water subsidies in Modern Principles:

Farmers use the subsidized water to transform desert into prime agricultural
land. But turning a California desert into cropland makes about as much sense
as building greenhouses in Alaska! America already has plenty of land on which
cotton can be grown cheaply. Spending billions of dollars to dam rivers and
transport water hundreds of miles to grow a crop that can be grown more cheaply
in Georgia is a waste of resources, a deadweight loss. The water used to grow California cotton, for example, has much higher value producing silicon chips in
San Jose or as drinking water in Los Angeles than it does as irrigation water.

The waste of subsidized water is compounded by over 100 years of rent-seeking and a resulting legal morass that makes trading water extremely difficult (see Aquanomics for a good analysis). A water trading system is slowly taking form in the American West but the political transaction costs are immense. Australia, however, faced similar difficulties but has managed to develop a good water trading system and Chile has long had a robust market in water. Subsidies to farmers are politically sustainable when everyone has as much water as they want but when faced with continued shortages and an ever-intrusive water Stasi consumers and industry may eventually demand a more rational, less wasteful system based on incentives, markets and prices.

Victor Mallet writes:

Amid gloom over global economic growth and uncertain prospects for emerging markets, India is beginning to stand out as uniquely well-placed to gather the windfall benefits of an international slowdown.

Unlike Brazil, Russia or South Africa, India reaps immediate advantages for its terms of trade and its domestic budget from the fall in commodity prices triggered by renewed concerns about the world economy.

And unlike China, India will not suffer much from any decline in global demand for manufactured goods because its export sector is relatively small.

Commodities – mostly oil – account for more than half of India’s imports but only 9 per cent of its exports, mainly food. The current account deficit falls by about $1bn a year for every $1 decline in the price of a barrel of oil, and the reduced cost of fuel subsidies is also easing the burden on the budget.

Another benefit of weaker commodity prices is falling inflation, long the bane of the Indian economy.

I have supported the various QEs from the beginning, while seeing them as limited in their efficacy.  At the time, and still, I feared deflationary pressures more than high inflation.  Still, recently the question has arisen whether those QEs boosted the risk of high inflation.  Ashok Rao looks at options data to pull out the best answer I have seen so far:

…did the risk of high inflation increase after the Fed engaged in QE2? (Note this establishes a correlation, not causation)…

And you see two very interesting trends: the probability of high inflation (that above 6%, which is the largest traded strike) sharply increased over the latter half of 2010 and early 2011, the time period over which the effects of QE2 were priced in. This is a general trend across all maturities. While the 3, 5, and 10 year option follow a similar path afterwards, the 1-year cap is much more volatile (largely because immediate sentiments are more acute). Still, you see the probability of high inflation pic up through 2012, as QE3 is expanded.

The takeaway message from this is hard to parse. This market doesn’t exist in the United States before 2008, and isn’t liquid till a bit after that, so it’s tough to compare this with normal times. While the sharp increase in the probability of high inflation would seem to corroborate the Hoover Institution letter, that wouldn’t mean much if it simply implied a return to normalcy. That’s just a question we’ll have to leave for a later day.

What about the probability of deflation? We’ll the interesting point is that for the three higher maturity options, the probability for high inflation and probability of deflation were increasing at the same time. This was a time of relatively anchored 5 year implied inflation, but the underlying dynamics were much more explosive, as can be seen in the above charts.

There are some very useful pictures in the post, and do note the variety of caveats which Ashok wisely (and characteristically) offers.  He notes also that for the United States deflationary risk was never seen as very likely, but the QEs lowered that risk even further.

A compact fusion reactor?

by on October 15, 2014 at 6:25 pm in Science, Uncategorized | Permalink

Here is Guy Norris:

Hidden away in the secret depths of the Skunk Works, a Lockheed Martin research team has been working quietly on a nuclear energy concept they believe has the potential to meet, if not eventually decrease, the world’s insatiable demand for power.

Dubbed the compact fusion reactor (CFR), the device is conceptually safer, cleaner and more powerful than much larger, current nuclear systems that rely on fission, the process of splitting atoms to release energy. Crucially, by being “compact,” Lockheed believes its scalable concept will also be small and practical enough for applications ranging from interplanetary spacecraft and commercial ships to city power stations. It may even revive the concept of large, nuclear-powered aircraft that virtually never require refueling—ideas of which were largely abandoned more than 50 years ago because of the dangers and complexities involved with nuclear fission reactors.

Here is another account.  It is suggested that the reactor can fit on the back of a truck.

In response to such speculative reports I usually say: “If it’s true, why isn’t the price of oil down?”  But these days the price of oil is down!  I am not suggesting this is the reason, but at least I can no longer say “If it’s true, why isn’t the price of oil down?”.  I have to say something else, so if this is true — which I cannot judge — there is no great stagnation (any more).

For the pointer I thank various MR readers.

Inequality and parenting style

by on October 15, 2014 at 1:50 pm in Data Source, Economics | Permalink

Greg Mankiw refers us to this graph (there is further explanation here), which of course can be interpreted in a variety of ways, with causation running either way or perhaps not at all:

inequality and parenting style

Assorted links

by on October 15, 2014 at 12:24 pm in Uncategorized | Permalink

1. The magical organ and musical taste.

2. Dropbox apologizes in Mission Soccergate.

3. Leonard Liggio has passed away.  Leonard’s voracious reading habits, and gentle nature, were very much a role model for me.  We will miss him.

4. There is no great cloud stagnation.

5. Austin Frakt on the new David Cutler book.  And Bill Gates reviews Piketty, very good piece.

6. Data on rebounds.

Tivo and Netflix ought to have been made other entertainment more popular and football less popular as a form of entertainment but instead more people are watching football than ever before. Gabriel Rossman asks why?

We can start with a few basic technological shifts, specifically the DVR and broadband internet. Both technologies have the effect that people are watching fewer commercials. From this we can infer that advertisers will have a pronounced preference for “DVR-proof” advertising.

….In practice getting people to watch spot advertising means programming that has to be watched live and in practice that in turn means sports. Thus it is entirely predictable that advertisers will pay a premium for sports. It is also predictable that the cable industry will pay a premium for sports because must-watch ephemera is a good insurance policy against cord-cutting. Moreover, as a straight-forward Ricardian rent type issue, we would predict that this increased demand would accrue to the owners of factor inputs: athletes, team owners, and (in the short-run) the owners of cable channels with contracts to carry sports content. Indeed this has basically all happened….

Here’s something else that is entirely predictable from these premises: we should have declining viewership for sports….If you’re the marginal viewer who ex ante finds sports and scripted equally compelling, it seems like as sports get more expensive and you keep having to watch ads, whereas scripted gets dirt cheap, ad-free, and generally more convenient, the marginal viewer would give up sports, watch last season’s episodes of Breaking Bad on Netflix, be blissfully unaware of major advertising campaigns, and pocket the $50 difference between a basic cable package and a $10 Netflix subscription.

…The weird thing is that this latter prediction didn’t happen. During exactly the same period over which sports got more expensive in absolute terms and there was declining direct cost and hassle for close substitutes, viewership for sports increased. From 2003 to 2013, sports viewership was up 27%. Or rather, baseball isn’t doing so great and basketball is holding its own, but holy moly, people love football. If you look at both the top events and top series on tv, it’s basically football, football, some other crap, and more football…. I just can’t understand how when one thing gets more expensive and something else that’s similar gets a lot cheaper and lower hassle, that you see people flocking to the thing that is absolutely more hassle and relatively more money.

It’s a good question. Demographics don’t appear to explain the change. Football skews young, male and black but none of these are undergoing rapid increase. (It’s the aged that are undergoing high growth rates but it’s baseball that appeals more to the old and that isn’t doing great). Fantasy football is big but is it cause or effect?

One possibility is that precisely because there are so few common events to coordinate on, the ones that do coordinate become more important. Why football and not baseball or basketball? Why not? It’s not hard to spin stories but it may also be that random advantages snowballed.

Other theories?

Terrence McCoy reports:

Schultz wants $150,000 for Ebola.com — a price he thinks is more than reasonable. “According to our site meter, we’re already doing 5,000 page views per day just by people typing in Ebola.com to see what’s there,” said Schultz, who monitors headlines the way brokers watch their portfolios, to gauge his domain’s worth. “We’re getting inquiries every day about the sale of it. I have a lot of experience in this sort of domain business, and my sense is that $150,000 is reasonable.”

The full story is here, and for the pointer I thank Michael Rosenwald.

From a Jean Tirole press conference:

French economist Jean Tirole advocated Scandinavian-style labour market policies and government reform as a way of preserving France’s social model.

Hours after he won the economics Nobel Prize, Tirole said he felt “sad” the French economy was experiencing difficulties despite having “a lot of assets”.

“We haven’t succeeded in France to undertake the labour market reforms that are similar to those in Germany, Scandinavia and so on,” he said in telephone interview from the French city of Toulouse, where he teaches.

France is plagued by record unemployment and Tirole described the French job market as “catastrophic” earlier on Monday, arguing that the excessive protection for employees had frozen the country’s job market.

“We haven’t succeeded also in downsizing the state, which is an issue because we have a social model that I approve of – I’m very much in favour of this social model – but it won’t be sustainable if the state is too big,” he added.

Tirole remarked that northern European countries, as well as Canada and Australia, had proven you could keep a welfare social model with smaller government. In contrast, he said France’s “big state” threatened its social policies because there will not be “enough money to pay for it in the long run”.

There is more here, hat tip goes to Alex.  And I very much liked this Appelbaum interview with Tirole,here is one bit:

There’s no easy line in summarizing my contribution and the contribution of my colleagues. It is industry-specific. The way you regulate payment cards has nothing to do with the way that you regulate intellectual property or railroads. There are lots of idiosyncratic factors. That’s what makes it all so interesting. It’s very rich.

It requires some understanding of how an industry works. And then the reasoning is very much based on game theory. Usually we don’t have a perfectly competitive market, so we use game theory, which describes situations with a small number of actors. And information economics, those are the tools. But then you go into the industries and try to think about the possible rules. It’s not a one-line thing.

I liked David Henderson’s piece, and this one too, Tirole on France and Canada.