Incentives matter, installment #1437

A US jury has found that a former Uber driver living in Virginia committed acts of torture during Somalia’s civil war in the late 1980s.

Somali citizen Farhan Tani Warfaa testified last week in the Washington DC suburbs that ex-Somali colonel Yusuf Abdi Ali shot and tortured him.

Ali was a commander in the national army and supporter of dictator Mohamed Siad Barre, say court documents.

Until this month, Ali drove for Uber, with a high 4.89 rating.

Here is the full story by Holly Honderich, via Ian Bremmer.

Raj Chetty’s empirical restructuring of Harvard’s undergraduate economics

Here is good coverage from Dylan Matthews, here is one excerpt:

[Chetty’s] Ec 1152 is an introduction to that kind of economics. There’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts introduced in classes like Ec 10. There is no textbook, only a set of empirical papers. The material is relatively cutting-edge. Of the 12 papers students are required to read, 11 were released in 2010 or after. Half of the assigned papers were released in 2017 or 2018. Chetty co-authored a third of them.

Why not excerpt the cameo of me?:

…fellow traditionalist Tyler Cowen…told me he’s excited about the class. “I am for experimentation, and more of it in academia, and for that reason I approve,” he writes. “Of course it was not what I do, which is more traditional micro, more theory, less overlap with sociology. If the instructor is great, that is really what matters.”

There is much more at the link.  And here is Daniel Simonsen, Norwegian comic.

My Conversation with Ezekiel Emanuel

Very much a fun one, here is the audio and transcript, here is part of the opening summary:

Do we overrate the importance of doctors? What’s the importance of IQ versus EQ in the practice of medicine? What are the prospect for venture capital in biotech? How should medical training be changed? Why does he think the conventional wisdom about a problem tends to be wrong? Would immortality be boring? What would happen if we let parents genetically engineer their kids?

Tyler questions Emanuel on these topics and more, including the smartest thing his parents did while raising him, whether we have right to medical self-defense, healthcare in low- versus high-trust institutions, and much more.

Here is one excerpt:

COWEN: How can we improve medical education?

EMANUEL: Cut it down. Make it shorter.

COWEN: Cut it down? Why does that make it better? Or does it just make it cheaper?

EMANUEL: No, I think it will make it better. So, we have a lot of memorization, a lot of . . . So, let’s go back to the start. The four years of medical school: two years of preclinical in the classroom learning about biochemistry, genetics, anatomy, microbiology; and the two years of clinical time in the hospital, on the wards.

That dates from 1910. We haven’t really updated it much, except in this one way: we’ve cut down the preclinical time because — less of it — and it changes so fast, by the time you learn it in medical school, get out as a doctor, it’s out of date, A; and B, it’s more or less irrelevant to managing most patients…

And then, by the way, in med school, spending your time in a hospital is not the future. The future of American medicine is out of the hospital. So we need more rotations, more experiences for students out of the hospital.

No med school has made that big shift, and those are the shifts that are going to have to happen over the next 15 or so years.

And:

COWEN: Is there a right to medical self-defense that should override FDA bans on drugs and medical devices? I want to try something that’s not approved —

EMANUEL: No. I don’t like that.

COWEN: I’m saying it’s my body. But why don’t you like it?

EMANUEL: No, no, no, no, no, no, no, no, no, Tyler.

Finally:

COWEN: Now, you’ve written a much-misunderstood article about how hard you would try yourself to live past the age of 75. Would not the suspense of world and national history always keep you wanting a bit more extra time?

So, say I’m 75. I’ve decided I agree with you, but the NBA Finals aren’t over yet. I want to see game seven. I want the Mueller report to come out. Isn’t there always something?

And then, it’s kind of intransitivity of indifference. Every day there’s something, and you just keep on hanging on, even if one accepts your arguments in the abstract. Can you talk me out of that?

EMANUEL: No, no, Tyler, I think you’re exactly right. That’s why people do hang on. It’s because . . . you know, so I talked to my father, who — he says, “Zeke, you’re absolutely right. I’ve become slower, physically slower, mentally slower. My life” . . . what ends up happening is your life cones down, and you begin to overvalue certain small things. Like the NBA Finals. Like what’s in the Mueller report.

We all know, from any cosmic standpoint — even not a cosmic standpoint, just a 2,000-foot standpoint — most of those things are not irrelevant. It’s really cool to know.

You often ask — and this happens to me all the time. I teach undergraduates. Pretty smart undergraduates. Very smart undergraduates. MBA students, nurses, doctors, right? They have no understanding of history. So, whoever finishes in the NBA Finals, in five years, people have forgotten.

Recommended, interesting throughout.

One of the Greatest Environmental Crimes of the 20th Century

It was one of the fastest decimations of an animal population in world history—and it had happened almost entirely in secret. The Soviet Union was a party to the International Convention for the Regulation of Whaling, a 1946 treaty that limited countries to a set quota of whales each year. By the time a ban on commercial whaling went into effect, in 1986, the Soviets had reported killing a total of 2,710 humpback whales in the Southern Hemisphere. In fact, the country’s fleets had killed nearly 18 times that many, along with thousands of unreported whales of other species. It had been an elaborate and audacious deception: Soviet captains had disguised ships, tampered with scientific data, and misled international authorities for decades. In the estimation of the marine biologists Yulia Ivashchenko, Phillip Clapham, and Robert Brownell, it was “arguably one of the greatest environmental crimes of the 20th century.”

That’s from an excellent piece by Charles Homans in the Pacific Standard. The Soviets killed some 180,000 whales illegally, driving several species to the brink of extinction. But why? The obvious answer Is wrong:

…the Soviet Union had little real demand for whale products. Once the blubber was cut away for conversion into oil, the rest of the animal, as often as not, was left in the sea to rot or was thrown into a furnace and reduced to bone meal—a low-value material used for agricultural fertilizer, made from the few animal byproducts that slaughterhouses and fish canneries can’t put to more profitable use….Why did a country with so little use for whales kill so many of them?

The actual answer has a lot to say about the impossibility of rational economic calculation under socialism (and also the lesser but still important problem under capitalism of mispricing in the presence of externalities and the difficulty of aligning private and social incentives.) The answer did not appear until 2008 when, long after his death, the memoir of Alfred Berzin, a Soviet-era fisheries scientist, was translated and published. Homans summarizes:

The Soviet whalers, Berzin wrote, had been sent forth to kill whales for little reason other than to say they had killed them. They were motivated by an obligation to satisfy obscure line items in the five-year plans that drove the Soviet economy, which had been set with little regard for the Soviet Union’s actual demand for whale products. “Whalers knew that no matter what, the plan must be met!” Berzin wrote. The Sovetskaya Rossiya seemed to contain in microcosm everything Berzin believed to be wrong about the Soviet system: its irrationality, its brutality, its inclination toward crime.

You can find Bezin’s memoir here. It’s bitter, sardonic, sad and funny.

Whalers knew that no matter what, the plan must be met! Looking for whales they would go farther and farther from the islands and bring rotten baleen whales to the stations, those which could not be used for food. This was not regarded as a problem by anybody. The plan—at any price! And whalers were killing everything.

Why bring in rotten whales? Without prices the Soviets had to calculate in very crude terms, most notably gross output. In the famous cartoon, the nail factory is supposed to produce X tons of nails and finds the easiest way to do this is to produce a single large nail. The cartoon illustrated a real problem in the Soviet economy which many have documented including Bezin.

Another concept—no less frightening, ugly, and absurd—was that of “gross output.” This was a typical creation of socialism and would be impossible in any other system. Gross output: this is when nobody is interested in a living object itself, and the only thing they care about is the size of the catch. It is reports giving figures in tsentner [100 kilos, AT] and metric tons, even if it is fish that were thrown out, or rotten whales.

The whalers were paid well but it wasn’t just positive incentives. The history of the industry was never far from mind. Quoting Homans again:

Whaling fleets that met or exceeded targets were rewarded handsomely, their triumphs celebrated in the Soviet press and the crews given large bonuses. But failure to meet targets came with harsh consequences. Captains would be demoted and crew members fired; reports to the fisheries ministry would sometimes identify responsible parties by name.

Soviet ships’ officers would have been familiar with the story of Aleksandr Dudnik, the captain of the Aleut, the only factory ship the Soviets owned before World War II. Dudnik was a celebrated pioneer in the Soviet whaling industry, and had received the Order of Lenin—the Communist Party’s highest honor—in 1936. The following year, however, his fleet failed to meet its production targets. When the Aleut fleet docked in Vladivostok in 1938, Dudnik was arrested by the secret police and thrown in jail, where he was interrogated on charges of being a Japanese agent. If his downfall was of a piece with the unique paranoia of the Stalin years, it was also an indelible reminder to captains in the decades that followed.

Bezin, a scientist, writes about who got to the top in the Soviet system:

..As a rule, the people who became commissars were the ones who couldn’t find another job. They were not very smart but were very conceited, self important individuals, especially after they had been given a taste of power, and especially over other people. Those who were thinking about a career in the party system, who could speak loudly and authoritatively from a podium, and who curried favor with the boss, these people could climb the party ladder quickly, and high up.

…Russian people have a good sense of humor, and even when they should be crying they laugh…Here is [a Russian joke]: On the counter of a store there are different types of brains. Among them are commissar brains, which are being sold for a price many times higher than those of farm animals. “Why are the commissar brains so expensive?” asks a customer. The assistant replies, “Do you know how many commissars we have to slaughter to get one kilo of brains?”

The whole system was built on lies and had to be built on lies:

For seventy Soviet years the industry of lies was created, shaped, and perfected in the country. Lies were encouraged and cultivated, and people were forced to lie. Lies in art, lies in movies, on TV, on the radio, and in newspapers. One of my colleagues was saying: “Why do I need Crocodile? When I go to work I buy the newspaper Pravda and all the way to the institute I am dying from laughter.” Lies in the numbers of the Central Statistics Department. And facts about Chernobyl were lies, dreadful and inhumane, deserving of damnation. Lies about the history of our country, which the leaders of the country changed to suit their needs. To the latter, people reacted with a wicked grin: “An institute of experimental history has been created!”

…People were lying whether they needed to or not, and I would say that the lying was pathological and at all levels. From the most blatant lie at the international level…to naïve but proud lies like: “Soviet means the best.” Sometimes they were self-assured but silly, as for example in this poetic sentence: “As it’s known, the earth begins with the Kremlin”; or they were absolutely idiotic: “The whole Soviet country is song and dance all day long.” Just think of the meaning of these words! You could hear on radio and at concerts singing like: “Like an owner, a person walks through the boundless native land,” or “How wonderful it is to live in the Soviet country. . .” And all of these were promulgated in the 1930’s when the country was surrounded by the barbed wire of fearful GULAG’s . . .

Hat tip: The Browser.

Addendum: See the HBO series Chernobyl, brilliant cinematography and compelling storytelling, for a closely related story.

Good news, but long overdue — the rise of personal finance economics

In April, Harvard University’s economics department for the first time led a Personal Finance workshop series for undergraduates. In May, Princeton students attended the university’s inaugural Financial Literacy Day, complete with T-shirts and consultations.

“I do think this is an environment that is very stressful for many students,” said John Y. Campbell, an economics professor at Harvard who taught the workshop. “There are long-term trends like the increase in inequality, rising student debt—they make students very mindful of the challenges they’re going to face.”

Kian Mintz-Woo, a postdoctoral research associate at Princeton who participated in the Financial Literacy Day, said he craves this kind of formalized instruction.

“We’re a generation that’s really shaped by some really poor macroeconomic decisions and it’s harder for us to think that there’s sort of exogenous progress in our lives and our livelihoods,” he said.

The Ivys are part of a growing trend to teach students about money. In the last decade, community colleges, public schools and state universities have started offering personal-finance programs to meet student demand, according to the Financial Security Project at Boston College.

More states are recognizing the importance of financial literacy at the high-school level. Nineteen states now mandate high schools to educate students on basic financial knowledge before they graduate, up from 17 states in 2018 and 13 in 2011, according to the Council for Economic Education.

That is from Julia Carpenter in the WSJ.

Women’s liberation as a financial innovation

In one of the greatest extensions of property rights in human history, common law countries began giving rights to married women in the 1850s. Before this “women’s liberation,” the doctrine of coverture strongly incentivized parents of daughters to hold real estate, rather than financial assets such as money, stocks, or bonds. We exploit the staggered nature of coverture’s demise across US states to show that women’s rights led to shifts in household portfolios; a positive shock to the supply of credit; and a reallocation of labor towards non-agriculture and capital intensive industries. Investor protection deepened financial markets aiding industrialization.

That is from a recent paper by Moshe Hazan, David Weiss, and Hosny Zoabi, via Jennifer Doleac, who again has a new podcast series on law and economics.

Tuesday assorted links

1. “Our findings indicate that the repeal of nonmedical exemptions in California was only partially effective in improving vaccination coverage, and may have led parents to substitute between medical and nonmedical exemptions, leading to a net decline in total exemptions of just 1 percentage-point.”  Link here.

2. Does price-fixing benefit corporate managers?

3. Support for freedom of the press is falling in Africa.

4. Russ Roberts interviews Mary Hirschfeld.

5. More on how Newark turned it schools around.

6. Has a ransomware attack shut down the Baltimore city government?

Do people really even know what they want(ed)?

We examine the stability of preferences over time using panel data from Kenya on fertility intentions,realizations, and recall of intentions. We find that desired fertility is very unstable, but that most people perceive their desires to be stable. Under hypothetical scenarios, few expect their desired fertility to increase over time. Moreover, when asked to recall past intentions, most respondents report previously wanting exactly as many children as they desire today. Biased recall of preferences over a major life decision could have important implications for measuring excess fertility, the evolution of norms,and the perceived need for family planning programs.

That is from a new NBER working paper by Maximilian W. Mueller, Joan Hamory Hicks, Jennifer Johnson-Hanks, and Edward Miguel.

The recent political revolution is a major shift toward the right

And when I say recent, I mean in the last few weeks.  That is the topic of my recent Bloomberg column, here is one bit:

The populist “New Right” isn’t going away anytime soon, and the rise of the “New Left” is exaggerated.

Start with Australia, where Prime Minister Scott Morrison won a surprising victory last week. Before the election, polls had almost uniformly indicated that his Liberal-National Coalition would have to step down, but voters were of another mind. With their support of Morrison, an evangelical Christian who has expressed support for President Donald Trump, Australians also showed a relative lack of interest in doing more about climate change. And this result is no fluke of low turnout: Due to compulsory voting, most Australians do turn out for elections.

Hard Brexit is alive and well, the European Parliament elections later this week could be a disaster, and Modi seems to be on the upswing in the Indian election.  But perhaps most importantly there is this:

One scarcely noticed factor in all of this has been the rising perception of China as a threat to Western interests. The American public is very aware that the U.S. is now in a trade war with China, a conflict that is likely to provoke an increase in nationalism. That is a sentiment that has not historically been very helpful to left-wing movements. China has been one of Trump’s signature causes for years, and he seems to be delighting in having it on center stage.

The Democratic Party is not well-positioned to make China a core issue. Democrats have been criticizing Trump’s tariffs for a while now, and it may be hard for them to adjust their message from “Tariffs Are Bad” to “Tariffs Are Bad But China Tariffs Are OK.” Their lukewarm support for free trade agreements — especially the Trans Pacific Partnership, which could have served as a kind of alternative China trade policy — also complicates matters. The net result is that Republicans will probably be able to use the China issue to their advantage for years to come.

Nor did Obama stand up to China on the militarization of the South China Sea.  Do read the whole thing.

The Great Reset, applied to Millennials

“Their economic fundamentals are fundamentally different,” said Christopher Kurz, an economist at the Federal Reserve.

Mr. Kurz and his colleagues last year analyzed income, debt, asset and consumption data to figure out how millennials compared at similar ages with Generation X, people born between 1965 and 1980, as well as baby boomers, those born from 1946 to 1964.

They found that millennial households had an average net worth of about $92,000 in 2016, nearly 40% less than Gen X households in 2001, adjusted for inflation, and about 20% less than baby boomer households in 1989.

Wages didn’t look much better. At the same ages, Gen X men working full time and who were heads of households earned 18% more than their millennial counterparts, and baby boomer men earned 27% more, when adjusting for inflation, age and other socioeconomic variables.

Among women, incomes were 12% higher for Gen Xers and 24% higher for baby boomers than for millennials, using the same measures.

That is from Janet Adamy and Paul Overberg at the WSJ.  Note this too:

Millennials, as a group, are better educated than any generation before them. About four in 10 ages 25 to 37 hold at least a bachelor’s degree compared with about a quarter of baby boomers, and three in 10 Gen Xers when they were the same age.

You can see the problem, yes?  Here is the original paper by Christopher Kurz, Geng Li, and Daniel J. Vine.

Assorted Monday links

New paper by Donohue and Levitt on abortion and crime

Donohue and Levitt (2001) presented evidence that the legalization of abortion in the early 1970s played an important role in the crime drop of the 1990s. That paper concluded with a strong out-of-sample prediction regarding the next two decades: “When a steady state is reached roughly twenty years from now, the impact of abortion will be roughly twice as great as the impact felt so far. Our results suggest that all else equal, legalized abortion will account for persistent declines of 1 percent a year in crime over the next two decades.” Estimating parallel specifications to the original paper, but using the seventeen years of data generated after that paper was written, we find strong support for the prediction. The estimated coefficient on legalized abortion is actually larger in the latter period than it was in the initial dataset in almost all specifications. We estimate that crime fell roughly 20% between 1997 and 2014 due to legalized abortion. The cumulative impact of legalized abortion on crime is roughly 45%, accounting for a very substantial portion of the roughly 50-55% overall decline from the peak of crime in the early 1990s.

Here is the NBER link, I have not had a chance to read this, but of course there are extensive earlier debates.  The pointer is from Dina Pomeranz.

Good art by women is cheaper

A rose painted by another name would cost more. In a new paper*, four academics show that art made by women sells for lower prices at auction than men’s, and suggest that this discount has nothing to do with talent or thematic choices. It is solely because the artists are female.

The authors used a sample of 1.9m transactions in art auctions across 49 countries in the period from 1970 to 2016. They found that art made by women sold at an average discount of 42% compared with works by men. However, auction prices can be distorted by a few famous artists whose output is perceived as extremely valuable. If transactions above $1m are excluded, then the discount falls to 19%.

…the researchers used a computer programme to generate paintings and randomly assign the results to artists with male or female names. They then asked participants to rate the paintings and ascribe a value. The experiment found that affluent individuals (those most likely to bid at auctions) attributed a lower value to works which the programme assigned to a woman. Clearly, this gap was unrelated to the artistic merit of the picture.

I don’t quite think that shows (non-statistical) discrimination, perhaps more convincing is this:

The average discount applied to the work of a given female artist was lowest in countries where women were more equal. (There are some exceptions to the rule, such as Brazil, where women’s art was highly rated.)

The good news is that the female discount has fallen over time. For transactions under $1m, the study calculated, the discount has dropped from 33% in the 1970s to 8% after 2010.

If you not wealthy and wish to collect art, buy textiles, they are much cheaper and very often the creators are women rather than men.  They are not as a whole less aesthetically valuable than paintings, except perhaps for paintings at the very very highest levels.  But within painting, prices for Gwen John vs. Augustus John have been in parity for some while now, same with Frida Kahlo and her male contemporaries, or Natalia Goncharova vs. her peers, the latter I check on a regular basis in fact I was just perusing them today.

Here is The Economist source piece.  Here is the original research., “Is gender in the eye of the beholder? Identifying cultural attitudes with art auction prices”, by Renée Adams, Roman Kräussl, Marco Navone and Patrick Verwijmeren.

Sunday assorted links