Month: February 2006

Facts about Mexican Mennonites

2. Many of them came from rural Western Canada in the 1920s.

3. They left Western Canada, as they had left Holland, Prussia, and Russia before that, for fear they would be forcibly assimilated, in this case through public education.  Mexico offered them a special (Spanish-language) contract.

4. Most of them are blond.

5. Each village has a number, not a name.

6. Unlike many of the American Amish, they use cars and electricity without hesitation.  They are quite prosperous, in a Mennonite sort of way.

7. They still make cheese using methods from centuries ago.

8. Their best cheeses, which are non-pasteurized, are illegal in the United States.

9. Many of their road signs and advertisements are written in hochdeutsch, but they speak eighteenth century plattdeutsch.  Their Spanish is sing-song and halting all at once.

10. They bake little cookies called "Galletas Menonitas," and they eat borscht and tacos.

11. The adjacent Tarahumaras make for a striking contrast.

Legal abortion lowers the gains to marriage

There were many social changes between 1970 and 1980 that could have affected the gains to marriage over the decade. A major change was the national legalization of abortion in 1973. Legal abortions were partially available in some states by 1970. If the partial legalization of abortions in a state reduced the gains to marriage in that state, we would expect to see lower gains to marriage in the early legalizing states relative to later legalizing states in 1970 but not in 1980. Moreover, this difference in difference in the gains to marriage should be concentrated among women of childbearing age. Using marriage rate regressions, Angrist and Evans (1999) showed that the marriage rates of young men and women were lower in early legalizing states relative to later legalizing states in the early 1970s.  We show that the stimates of the number of marriages affected are sensitive to whether we use male or female marriage rate regressions. We extend the benchmark model to include whether an individual resided in a state that allowed legal   abortions or not as part of the definition of the type of an individual. Methodologically, we extend the standard difference in differences estimator to estimate the effect of a policy change on bivariate distributions. Estimating this  extended model, we show that the partial legalization of abortion in some states can explain up to 20 percent of the drop in the gains to marriage among young adults in the 1970s. 

That is from "Who Marries Whom and Why," by Eugene Choo and Aloysius Chow, in the January 2006 Journal of Political Economy. Here is an earlier version of the paper.   


Is the Veterans’ Administration a good health care model?

Last week Paul Krugman defended the VHA as a model for national health care policy; Brad DeLong has some critical excerpts.  I am skeptical for a few reasons:

1. It is widely acknowledged that this system did not work well for a long time.  If we are going to cite examples, should we judge them by lifetime performance, or by performance-right-now?  In this case I view the relative efficiency of the now-moment as the exception, and not as a readily available constellation that national policy will replicate.

2. VHA saves a great deal by bargaining down prices of prescription drugs.  If done on a national level, this will cause the supply of such drugs to contract, perhaps significantly. NB: Supply elasticity can be high even with (especially with?) evil, scheming, profit-soaked monopolists.  And don’t forget "current cash-flow" models of investment, which are eagerly invoked by the left in other contexts, such as tax policy.

3. For a variety of reasons (see the excellent comments on Brad’s post), VHA pays doctors much less than usual.  I am more than willing to consider the hypothesis that doctors at the national level earn too much.  But I cannot imagine a healthy process by which a federal single-payer or nationalization plan will bargain down this sum significantly without all hell breaking loose.  Do not forget what neo-Keynesians tell us about the morale effects of nominal wage cuts, much less large real and nominal cuts bundled together.

4. In general, local or restricted health care plans can bargain down prices with less loss of quality and innovation than if that same bargaining were done at the national level.  That follows from the economic theory of high fixed costs and segregated markets.

I do think the VHA warrants further study.  But I would like to see these questions answered before regarding it as a positive model for reform.  Comments are open…

Chronicles of Narnia

OK, I missed the first thirty minutes and heard the rest in a blurry Mexican dub.  My question remains: What does scarcity mean in a fantasy film?

If you are a Queen with an ice palace and a magic sword, why do you use (hire?) two lumbering polar bears to pull your chariot?  Especially in the temperate climate of New Zealand.  If a lion can be reincarnated, is the rest of the plot all for show or a test?  Just how do resources get allocated? 

Perhaps it is faith which is scarce in fantasy stories.  As stocks of faith rise and fall, other complementary resources, including the power of your weapons, are reallocated accordingly by the principles of the imaginary world. 

That seems to imply that fantasy films cannot operate under the game-theoretic assumption of "common knowledge."  People must disagree about the true model governing the world, otherwise greater faith yields no relative advantage.

Are fantasy movies what economic models would look more like if we took the absence of common knowledge more seriously?  (Yes there are stylized models of non-common knowledge in the specialized literature but the notion is kept under check; the game-theoretic results we use typically are built on common knowledge assumptions.)  Keep in mind that, above a certain level of subsistence, much of your welfare springs from your inner stories and narratives, not from concrete goods and services.  Your real advantage in life, if you are born sufficiently wealthy, is your ability to tell yourself beneficial stories.

If the lion stands in for Christ, who stands in for Roger Douglas?

Alex once suggested to me that computer games were blurring the differences between models, novels, and films.

In other words, I enjoyed it.

Addendum: If you wish to explore these issues, I will soon put my paper on them on-line.  In the meantime, watch The Princess Bride, one of my favorite movies and a useful source of inspiration.

Does the death penalty deter murders?

Here is a new and noteworthy NBER abstract:

Does the death penalty save lives? A surge of recent interest in this question has yielded a series of papers purporting to show robust and precise estimates of a substantial deterrent effect of capital punishment. We assess the various approaches that have been used in this literature, testing the robustness of these inferences. Specifically, we start by assessing the time series evidence, comparing the history of executions and homicides in the United States and Canada, and within the United States, between executing and non-executing states. We analyze the effects of the judicial experiments provided by the Furman and Gregg decisions and assess the relationship between execution and homicide rates in state panel data since 1934. We then revisit the existing instrumental variables approaches and assess two recent state-specific execution morartoria. In each case we find that previous inferences of large deterrent effects based upon specific examples, functional forms, control variables, comparison groups, or IV strategies are extremely fragile and even small changes in the specifications yield dramatically different results. The fundamental difficulty is that the death penalty — at least as it has been implemented in the United States — is applied so rarely that the number of homicides that it can plausibly have caused or deterred cannot be reliably disentangled from the large year-to-year changes in the homicide rate caused by other factors. As such, short samples and particular specifications may yield large but spurious correlations. We conclude that existing estimates appear to reflect a small and unrepresentative sample of the estimates that arise from alternative approaches. Sampling from the broader universe of plausible approaches suggests not just "reasonable doubt" about whether there is any deterrent effect of the death penalty, but profound uncertainty — even about its sign.

Here is the paper.  I have never been a big believer in retribution per se, as opposed to restraint or deterrence motivations for punishment. 

Four sentences from Ed Glaeser

Decades of public housing projects should have taught us that the federal government is not a good real estate developer.

If this law is passed, billions will be spent on outlays that will
create only the slightest benefit to those Katrina hurt most.

…bizarrely, the report spends as much space on a light rail system as it does on levees.

and the sad topper:

…we are in danger of doing a far worse job rebuilding New Orleans than rebuilding Baghdad.

The whole thing is here if you are in the mood to be depressed.

Addendum: David Smith has another good post on the state of reconstruction in New Orleans.

Why education is productive — a parable of men and beasts

We know the paradox.  Education improves earnings but most formal schooling appears to be a waste of time.  Many economists claim that education is mostly a means of signaling quality.

I view education as a self-commitment to being a more productive kind of person.  Education is about self-acculturation.

Men are born beasts.  But education gives you a peer group, a self-image, and some skills as well.  Getting an education is like becoming a Marine.  Men need to be made into Marines.  By choosing many years of education, you are telling yourself that you stand on one side of the social divide.  The education itself drums that truth into you.

Similarly, if you become a Mormon or a Protestant in Central America, your life prospects go up.  It is not that Mormons have learned so much more, but rather they have a different sense of self.  They have a positive self-image about their destiny in life and choose a different set of peers.  They also choose not to drink. 

The beasts model differs from classic signaling theory.  If education is pure signaling, just give everyone a standardized test in seventh grade and then close up the schools.  But the process of self-image formation, at least for most people, is far from complete at that point. 

That being said, education will look like what the signaling model predicts.  It will be about subtle brainwashing, image, and learning markers of status.  What the signaling model misses is how important those features are for your subsequent productivity.

Nerds will hate education and tend to embrace the signaling model.  Their sense of self is often formed quite early, and they do not why so much time should be wasted in school.  This is one reason why the signaling model is so popular in economics.

Part of the East Asian growth miracle was that so many citizens bought into the self-acculturation model and imposed it on their children.

So how much acculturation do you need? 

If you move from Myanmar to America at age seven, you probably grow up as an American.  Age thirteen, you probably grow up as an American.  Age eighteen, it is harder to say.  If you move at age twenty-five, you probably stay fairly Burmese.  So your identity is shaped by what you are doing, and your peers, between the critical ages of thirteen to your early twenties.  Those are precisely the years covered by our educational system.

Of course apprenticeships can turn beasts into men, but apprenticeships also turn them into working-class men.  You spend your childhood hanging out with other laborers.  As society becomes wealthier, more parents are willing to spend on education rather than apprenticeships.

Comments are open.  I am especially interested in how such a theory might be tested, and what it implies for the optimal content of education.

Exporting Pollution?

Long before Larry Summers shocked the elite by suggesting that men and women might be different he signed on to a World Bank memo noting:

"I think the economic logic behind dumping a load of toxic waste in the
lowest wage country is impeccable and we should face up to it."

A number of people suggested that the US was doing just this as lower tariff barriers made it easier to export dirty manufacturing industries and import the goods.  An NBER paper, however, finds no evidence for this effect.  Quoting from the NBER Digest:

Imports overall grew by 318 percent during the period. But according to World Bank data that characterizes industries by their pollution intensity, imports of goods manufactured in highly polluting processes grew at a much slower rate. In other words, just as the U.S. manufacturing sector was growing while simultaneously shifting toward clean industries, the same thing was happening to our imports: they were rising, but the percentage of goods coming from polluting industries was going down. "The cleaner U.S. manufacturing composition is not offset by dirtier imports," the authors write. "Rather, the composition of imports has also become cleaner."

One reason pollution hasn’t been exported may be that the dirtier (older) industries have more political power and have resisted tariff reductions.  The authors find, however, that even if one eliminated all tariffs on manufactured goods pollution would still not be exported.

It’s not that this wouldn’t be a good idea, it’s just that it so happens that poor countries don’t have a comparative advantage in producing the goods that require a lot of pollution.  Of course, if we tax pollution in the United States at higher levels it will make more sense to export it – an interesting dilemma.

Good and Plenty: The Creative Successes of American Arts Funding

Princeton has set up a web page for my forthcoming book, due out March 31 or so.  Here is their summary:

Americans agree about government arts funding in the way the women in the old joke agree about the food at the wedding: it’s terrible–and such small portions! Americans typically either want to abolish the National Endowment for the Arts, or they believe that public arts funding should be dramatically increased because the arts cannot survive in the free market. It would take a lover of the arts who is also a libertarian economist to bridge such a gap. Enter Tyler Cowen. In this book he argues why the U.S. way of funding the arts, while largely indirect, results not in the terrible and the small but in Good and Plenty–and how it could result in even more and better.

Few would deny that America produces and consumes art of a quantity and quality comparable to that of any country. But is this despite or because of America’s meager direct funding of the arts relative to European countries? Overturning the conventional wisdom of this question, Cowen argues that American art thrives through an ingenious combination of small direct subsidies and immense indirect subsidies such as copyright law and tax policies that encourage nonprofits and charitable giving. This decentralized and even somewhat accidental–but decidedly not laissez-faire–system results in arts that are arguably more creative, diverse, abundant, and politically unencumbered than that of Europe.

Bringing serious attention to the neglected issue of the American way of funding the arts, Good and Plenty is essential reading for anyone concerned about the arts or their funding.

You can pre-order the book here.

Mexico fact of the day

1.2 billion tortillas are consumed each day [TC: I believe that includes the tortillas consumed by pigs; surely the counting occurs on the production end].

That is from Lonely Planet Blue List, one of the most fun books for browsing and lists I have encountered.  Imagine a travel provocateur in print form dedicated to helping you overcome your status quo biases.  Highly recommended, and did you know that Serbia is right now one of the best countries in the world to visit?