Month: January 2007

Zero discounting and global warming

In the blogosphere, anti-Stern, high discount rate advocates tend to come from the political right.  The left is more pro-Stern and pro- low discount rate.  In a forthcoming article in the University of Chicago Law Review, I argue that this distribution of opinion does not follow naturally:

Counterintuitively, a concern for the distant future sometimes will militate against some environmental investments. For instance some of the costs of global warming appear to be "one-time" in nature, such as the costs of relocating coastal and inland settlements…At the same time stopping or limiting global warming might lower permanently the rate of economic growth. When the rate of intergenerational discount is sufficiently low, maximizing the growth rate tends to take priority over avoiding one-time expenditures and one-time adjustments. Even if those one-time expenditures are large, we will earn back that value over time and more, due to the logic of investment compounding.

Alternatively, other environmental issues will become more important. For instance many scientists have argued that global warming will increase the number of virulent and persistent storms. This can limit the prospects for economic growth (this is illustrative; I am not seeking to debate the facts). [Insofar as we are utilitarians] when it comes to global warming, we should be more concerned with the growth-affecting elements of the phenomenon, and less concerned with the one-off effects.

If the costs of moving away carbon are one-time in nature, and the benefits of energy alternatives show up in the growth rate, a zero discount rate encourages global warming activism.  Alternatively, to the extent the costs of moving away from carbon lower the growth rate and the benefits are one-time, the logic flips and a zero discount rate encourages passivity.

I am aware how much a low discount rate can skew expected value calculations.  I nonetheless believe that current debates are overestimating the importance of the choice of discount rate.  I hope to soon discuss the truly important factors in reaching a policy decision.

By the way, here is some rhetoric on global warming.

How does nudeness affect human behavior?

The NYT reports that nude parties are popular at Yale and Brown.  One commentator suggests:

“The dynamic is completely different from a clothed party.  People are so conscious of how they’re coming across that conversations end up being more sophisticated.  You can’t talk about how hot that chick was the other night.”

One senior remarked that the skinny people look ugly.  A graduate "describe[d] the parties as an overload of the “liberal college environment where everyone’s talking about unfair conventions, post-structuralism, ‘boxes.’ I don’t know.”

I would expect the parties to be more socially egalitarian, given that clothing cannot be used for social signalling, or for that matter for social concealing.  I would expect less flirting, less drinking, less aggressive behavior, less lying, and more social seriousness.  These effects should also wear off over time, as people get used to nudity and develop other means of signalling and concealing.  Presumably there is informal data on such questions from nudist societies, although such groups may have greater selection biases than nude parties in the Ivy League.

My wild self gets in big trouble

My wife was not at all happy about my recent post on the wild self.

The bottom line?  If you want to please the economist in me, send me
cash.  If you want to please my wild self (you know who you are!) use
your imagination.

Her words: "Your wild self is getting socks and don’t think any different.  Thank goodness my friends don’t read your blog." Uh oh, now I am in real trouble.

Comments are not open.

Does graduate school performance predict job placement?

For economists, that is.  A superstar team of co-authors — Susan Athey, Larry Katz, Alan Krueger, Steve Levitt, and Jim Poterba — writes:

…students’ grades in required core courses are highly correlated across subjects.  The Ph.D. admissions committee’s evaluation of a student predicts first-year grades and Ph.D. completion, but not job placement.  First-year performance is a strong predictor of Ph.D. completion.  Most importantly, we find that first-year Micro and Macro grades are statistically significant predictors of student job placement, even conditional on Ph.D. completion.  Conditional on first-year grades, GRE scores, foreign citizenship, sex, and having a prior Masters degree do not predict job placement.  Students who attended elite undergraduate universities and liberal arts colleges are more likely to be placed in top ranked academic jobs.

Here is the paper.  This bit comes at the end:

Our results raise an interesting question: Why are some characteristics much stronger predictors of grades than of job placements?  Foreign-trained and male students achieve substantially higher first-year grades, on average, but do not appear to be placed into much higher ranked jobs.

In my time, twenty years ago, foreign-trained students are more likely to have already seen the core material.  It may also be that many elite, non-U.S. educational systems are better geared toward producing good grades than producing independent researchers.

Someone who sounds like Megan McArdle

If we cannot discount the interests of the fetus simply because it is not yet with us as a person, then how can one morally justify legal abortion as a coherent national policy?…I find it hard to construct a really compelling argument in favour of abortion which does not rest in some way on discounting the utility of the fetus-as-future-person.

There is much more at the link.  This is a real ouch, her barbs are directed at left-liberals but they do not stop there.  In my view we should subsidize births, keeping in mind that the long-run is the relevant time horizon.  I also believe a free and wealthy society will, at some point, have many more people than the alternatives, and on an ongoing basis.  As for what kind of restrictions on abortion are a good way to subsidize births, that is a very tricky question, especially keeping in mind I am not a pure utilitarian but rather a pluralist…I am not in Chicago to debate it with all the other economists as we are celebrating Yana’s 17th birthday in Miami…

A Culture of Corruption

Any new visitor to [Nigeria] is bound to notice the odd phenomenon that literally thousands of houses and buildings in cities and towns bear the message "THIS HOUSE IS NOT FOR SALE," painted prominently near the front door.  Ask any Nigerian the purpose of the message and they will quickly tell you that it is to prevent 419 [scamming].  Apparently, one popular method of 419 is to assume the identity of a real estate agent or simply a property owner trying to sell one’s house.  In Nigeria’s cities and towns, where the real estate market is tight, buyers can be induced to make down payments to secure a later purchase, and in some cases entire transactions have been completed before the buyer discovered that the deal was a scam.

That is from Daniel Jordan Smith’s informative and entertaining A Culture of Corruption: Everyday Deception and Popular Discontent in Nigeria.  Here is the book’s home page.

China fact of the day

Top 10 collections of translated poetry, from a single Chinese store:

  1. Paul Celan, Selected Poetry and Prose
  2. Rainer Maria Rilke, Selected Poems
  3. Dylan Thomas, Selected Poems
  4. Jorge Luis Borges, Selected Poems
  5. Emily Dickinson, Selected Poems
  6. Allen Ginsberg, Selected Poems
  7. Friedrich Hölderlin, Poems
  8. Constantine P. Cavafy, Collected Poems
  9. Federico Garcia Lorca, Selected Poetry
  10. The Eddas

Not a bad list, I would like to know more about their clientele.  The top four "General Titles in Poetry" are:

  1. Friedrich Hölderlin, Collected Prose
  2. Martin Heidegger, Elucidations of Holderlin’s Poetry
  3. Wang Zuoliang, History of English Poetry
  4. Susan Sontag, Against Interpretation

Thanks to Yan Li for the pointer.

Did the New Deal prolong the Great Depression?

Brad DeLong is overreaching when he argues "A normal person would not argue that the New Deal [TC: parts of, or "on net"] prolonged the Great Depression."  HedgeFundGuy, who may or may not be normal, responds:

A 2004 paper at the SSRN by Chari, Kehoe and McGratten argues that increased labor rigidity from the New Deal was primarily responsible for prolonging the Great Depression. Cole and Ohanian wrote a similar piece for the Minneapolis Fed in 1999.

Further, the 1937 recession was most probably due to a tax over-reach by anti-business Democrats.  Unemployment rose from 5 million to almost 12 million in early 1938.  Manufacturing output fell off by 40% from the 1937 peak; it was back to 1934 levels.  What caused the plunge in taxes was the tax on retained earnings…

I had thought that bad monetary policy in 1937-8 (arguably not "the New Deal", though we tread close to semantics) was at fault more than fiscal policy; I have never studied that question in depth.  The earlier attempted cartelization of the economy through NIRA and NRA didn’t help either.  Deposit insurance, and a move toward automatic stabilizers for aggregate demand, stand on the more positive side of the ledger.

I disagree with much of Gene Smiley’s book on the Great Depression, but he has many more reasonable arguments about the negative economic consequences of the New Deal and their connection to the magnitude and length of the Great Depression.  I do not know if he is normal.