Month: October 2007

The end of angst?

by  Justin Wolfers
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% “Extremely important”

 

 

1970-76

 

 

2000-05

 

 

Being successful in my line of work

 

 

55%

 

 

62%

 

 

Having a good marriage and family life

 

 

72%

 

 

76%

 

 

Having lots of money

 

 

17%

 

 

26%

 

 

Having plenty of time for recreation and hobbies

 

 

24%

 

 

33%

 

 

Having strong friendships

 

 

61%

 

 

65%

 

 

Being able to find steady work

 

 

64%

 

 

66%

 

 

Making a contribution to society

 

 

18%

 

 

22%

 

 

Being a leader in my community

 

 

7%

 

 

15%

 

 

Being able to give my children better opportunities than I’ve had

 

 

51%

 

 

66%

 

 

Living close to parents and relatives

 

 

9%

 

 

17%

 

 

Getting away from this area of the country

 

 

11%

 

 

14%

 

 

Working to correct social and economic inequalities

 

 

10%

 

 

11%

 

 

Discovering new ways to experience things

 

 

20%

 

 

23%

 

 

Finding purpose and meaning in my life

 

 

64%

 

 

58%

 

Who will win the Nobel Prize in economics this year?

by  Tyler Cowen in

Greg Mankiw asks and receives many answers. 

One guess is William Nordhaus, for his concept of "green accounting."  An environmental prize is overdue but perhaps Nordhaus is too skeptical about stringent anti-global warming measures to get the appropriate reception in Stockholm.

Another option is Eugene Fama, both for testing CAPM for securities prices and for figuring out what is wrong with it.  You can imagine pairing his prize with either Richard Thaler (behavioral finance) or Kenneth French (Fama’s co-author on many important papers).

Or how about Oliver Williamson and/or Jean Tirole for principal-agent theory as applied to the business firm?

I would offer the prize jointly to Anne Krueger, Jagdish Bhagwati, and Gordon Tullock for their work on rent-seeking, but that is not my prediction.  Readers, what do you think?

Mandatory health insurance

by  Tyler Cowen in

Glen Whitman reports:

1. According to an Urban Institute study, uncompensated care for the uninsured accounts for only three percent of U.S. health care costs.

2. 47 states require drivers to buy automobile insurance, yet the median percentage of uninsured drivers in these states is 12%.

3. States should eliminate required benefits from insurance policies and allow the poor to buy policies for (relatively) cheap catastrophic care.

Here is the full piece, from Business Week; this is a topic deserving of more attention.  I’m still wondering what — de facto — will be done against those poor people who are required to buy health insurance but don’t do so.

Here is Glen’s post on Joel Waldfogel, and here is Glen attacking restroom hand dryers.

Oomph v. Statistical Significance

by  Justin Wolfers in

For those after the full debate, see:

  1. McCloskey and Ziliak, "The Standard Error of Regressions," Journal of Economic Literature 1996.
  2. Ziliak and McCloskey, "Size Matters: The Standard Error of Regressions in the American Economic Review," Journal of Socio-Economics 2004.
  3. Hoover and Siegler, "Sound and Fury: McCloskey and Significance Testing in Economics," Journal of Economic Methodology, 2008.
  4. McCloskey and Ziliak, "Signifying Nothing: Reply to Hoover and Siegler."

McCloskey has been making this point for some time, and a longer list of papers is available here, including several shorter (yet unsurprisingly persuasive) pieces.

Can computer failure cause a bank run?

by  Justin Wolfers in

Over the past few days, something strange happened to me: My debit card simply stopped working. This caused a sticky situation when I was traveling, and I was lucky that my cabbie took $27 plus a 20 euro note for a $37 cab fare.

My problem turned out to be a widespread problem with my bank’s computer system.  This is a bank with a large internet presence and no physical branches in my state, so many customers really were stuck with a cash-free few days (which is less fun than being cash-flush, I assure you.)

So what will I do when the computer problems are solved?  I plan on withdrawing $500 so that I’m not caught short if these problems recur next week.  More generally, if account-holders fear that computer glitches tend to repeat themselves (computer failure is autocorrelated), then we will all be lining up (electronically) to make withdrawals.  Some may even be so dismayed by recent events as to close their accounts.

Why haven’t I named the Bank?  Because if enough people are aware of this situation, then these correlated withdrawals become a Bank Run.  The possibility of online withdrawals certainly sped up the the recent run on the UK-based Northern Rock bank, and website problems raised anxiety.  But my (new) fear is entirely a computer-glitch precipitated bank run.

I must admit, I’m not aware of any bank runs – to date – caused by computer problems.  But here’s a forecast: IT problems will cause a bank run within a decade.  Fortunately these sorts of runs are unlikely to cause widespread financial instability.  My advice? If you work in IT at a bank: Demand a raise – your bank’s future depends on you.

Visiting Dartmouth

by  Justin Wolfers in

I’m spending a couple of days at Dartmouth right now, visiting friends and colleagues at the economics department.  I’ll be trying to sneak in posts between meetings.  But one thing I can’t help but notice: this department is a persistent overperformer.  Click on just about anyone’s homepage, and you’ll find creative folks doing first-rate (usually empirical) research on important questions.  And worse: They are all so damn friendly.

Dartmouth have also just hired one of my favorite economists and coauthors, Eric Zitzewitz.  Look for creativity and colleagiality to continue.

How right-wing are journalists on economic issues?

by  Tyler Cowen in

Henry Farrell writes:

…there’s plenty of survey evidence (Jonathan Chait discusses this in his recent book) that journalists tend to have somewhat right-of-center views on economic issues.

From my experience:

1. Journalists are likely to be far more cosmopolitan (pro-free trade, pro-immigration) than is the general public.

2. Journalists are more likely to be suspicious of corporations and indeed more likely to be suspicious in general.  People lie to them every day, repeatedly and often without shame.

3. Journalists are more likely to think that "good government" is in fact possible, if perhaps difficult to achieve.  If they were complete cynics, they would not become underpaid journalists. 

4. If anything, it is the odd mix between cynicism and idealism that defines the journalistic political point of view.

5. Most journalists work in a declining sector — newspapers or TV — and this does not augur well for their belief in progress and the virtues of economic growth.  They are not well-positioned to enjoy "creative destruction."

6. Not many top journalists are "far left Democrats."  But most are Democrats.  I also do not think many journalists would endorse the economic proposals of the rational wing of the Republican Party, say Greg Mankiw or Martin Feldstein.  Journalists are likely to think those proposals do not show enough concern for the poor.

7. Journalists tend to favor visible stories and neglect invisible opportunity costs and invisible hand mechanisms, which often but not always puts them against the side of the market.

8. Chait cites evidence that journalists are more likely to support cuts in Medicare and Social Security.  This comes on p.142 though it does not seem to be matched to a particular footnote.  I am willing to hear more but I am not convinced.  I wouldn’t be shocked if a Pew survey showed such responses, but when push comes to shove the self-image of "defender of the downtrodden" is more important to many journalists than "advocate of fiscal responsibility."

In sum, the left-right spectrum is not the best way to understand the economic views of journalists.  But, when it comes to economic issues, it is hard for me to put journalists on the right side of that line.

Addendum: I am indebted to Russ Roberts for a useful conversation on this topic, though of course he is not responsible for these views.

Why the Left should learn to love liberalism

by  Alex Tabarrok in

Labour-market flexibility, deregulation of the service industry,
pension reforms and greater competition in university funding is not
anti-equality. Such reforms shift financing from taxpayers to the users
themselves and, as such, tend to eliminate rents. They tend to increase
productivity by basing rewards on merit rather than on being an
insider. They tend to open up opportunities for younger workers who are
not yet well-connected. Pursuing pro-market reforms does not imply
facing a trade-off between efficiency and social justice. In this
sense, pro-market policies are “left wing”, if that means reducing the
economic privileges enjoyed by “insiders”.

…If the European left wants to be able to say honestly that it fights
for the neediest members of our society, it must adopt as its battle
cry the pursuit of competition, reforms and a system based on
meritocracy.

Amen.  This is from an excellent op-ed by Alberto Alesina and Francesco Giavazzi writing in Vox.  My only complaint is that they write as if this is new.  In fact, liberalism, meaning classical liberalism, has never been conservative.  It began as a movement of the left against feudalistic, conservative insiders and it remains so today.

Tyranny of the Majority, Tyler Cowen Edition

by  Justin Wolfers

Two different Tylers talk about the Tyranny of the Majority.

Earlier today:

I like Joel’s book but I think he is far too pessimistic about the prospects for diversity in the modern world.

But when discussing the different flavors of economics:

The very existence of heterodox economics brings benefits.  A
personal anecdote will suffice.  My first two publications were both in
heterodox journals: the Journal of Post Keynesian Economics and the (institutionalist) Review of Social Economy.
These articles lifted me into a top graduate school and financial aid
(can you imagine how confused the admissions committees were to see a
GMU undergrad with an apparently leftie publication record?).  I would
not have had comparable success at Econometrica.

This tale relates to the value of diversity more generally.  We will
miss much of the value of diversity by simply listing a bunch of
diverse elements and evaluating them one-by-one.  Diversity brings
broader benefits by allowing people to use niches as ladders to further
steps, frequently into the mainstream, or in my case into another
niche.  Diversity is also a form of insurance, and of course it doesn’t
always pay off.  Finally many excellent mainstream or sometimes even
right-wing economists started with an intense interest in social
justice, often gleaned from heterodox writings.  Vernon Smith was once
a socialist, and George Stigler was early on a trust-basher.

Yes the profession is getting better but we also are losing too much
diversity in terms of schools of thought.  The diminution of the
Austrian School, as an organized and intellectually alive phenomenon
seems to me a shame, even though I don’t believe in a unique Austrian
method.  Heterodoxies encourage the mainstream to be more philosophical
and more self-reflective.

Sometimes intellectual inefficiency is efficient, and my remarks about heterodox economics should be taken in this light.

The emphasis is mine.  As is the question: Isn’t the second Tyler describing the Tyranny of the Majority?  If so, what are the Waldfogel-ian fixed costs that are preventing all the different flavors of economics from flourishing?

Optimal insults

by  Justin Wolfers

A long story leading to an interesting question: I like to keep half an eye on heterodox economics.  A lot of this work raises interesting questions about the methodology that is my bread-and-butter.  I think of this as useful intellectual discipline: those who don’t school themselves in the limitations or ethical constraints of our frameworks, are likely to mis-use them.  And that got me thinking about a particular sub-group: The Post-Autistic Economics Movement.  Reading some (but not all) of the output of these heterodox economists can be quite illuminating.

But Post-Autistic?  Really?  What kind of insult is that? 

Two answers:

  1. A pretty darn good insult.  Some of the agents in our models would in fact rightly be called autistic.  Those two words are pretty clever, and occasionally telling.
  2. A terrible insult.  Post-Autistic" is designed to shock.  It is a statement more about the insulter than the insultee.  And as the subject of the insult changes, surely it loses its force.  Based on titles alone, which critical journal would you rather read: Feminist Economics, or the Post-Autistic Economics Review?  (Aside: Feminist Economics is, in my view, an excellent and underrated journal.)

But still, it got me thinking. What does an insult communicate?  At what point does an insult switch from being an insult to a statement about the insulter?  There must be a signaling story here, but I haven’t quite figured it out.  And if signaling yields a theory of insults, what would the characteristics of the optimal insult be?

So with some trepidation, let me say, comments are open.

Thinking about Sports and Economics

by  Justin Wolfers in

I spent last Saturday at a very interesting conference on Sports Statistics, run by the Sports Stats section of the American Statistical Association.  It was a fun day, involving academics, sports journalists, and those Moneyball-inspired quants working for various sports teams.

But at some point I asked myself: Why do economists work on sports?

  1. Sports provide unique opportunities to test economic theories.  Cribbing from a New York Times article, this is the Thaler defense:

    “‘My justification for doing this is that it’s the one really
    high-stakes activity where you get to watch all of the decisions,”
    Thaler said. ”If Bill Gates invited me to watch all of his decisions,
    I’d talk more about that.”

  2. Sports shapes broader national debates.  Sports is a microcosm of our broader society and our national narrative on the important issues, from drugs, to race, to cheating, to sexual harrassment often play out on our sports pages.  In honor of a particularly compelling example, let’s
    call this the Jackie Robinson defense.
  3. Professional sports are an important part of the economy.  I call this the Dog defense, not as a dyslexo-religious statement, but simply because dogs raise an important question: aren’t pets a bigger part of the economy than professional athletics?  If so, why are there so many papers on professional sports and so few on the economics of dogs?
  4. Sports participation is an important activity.  It seems important to learn whether sports make us happier, healthier or more productive.  For instance, it is important to learn, say, what the broader effects of Title IX were.  Under this view, research on sports is part of the human capital agenda, leading me to call this the Gary Becker defense.
  5. Sports provides a useful teaching metaphor.  Many of those teaching Sabermetrics-inspired courses argue that sports provides a useful vehicle for teaching something far more important – basic quantitative reasoning.  When I teach my class on behavioral economics, I do so by analyzing anomalies in sports betting markets.
  6. Doing research on sports is fun.  It was no mistake that the conference I attended was on a Saturday.  Many of the academics in attendance were giving up leisure, not more important work. But for some, sports provides a chance to mix work with leisure; of course, if non of the above arguments holds, then it is just a chance to mix leisure with leisure.

Let me now translate this into advice, because I often hear from students wanting to write a thesis on sports.   My first response is always: Don’t.  Too often, we find our sporting heroes more interesting than other people do.  (Yes, I have been guilty of breaking this rule.)

But if you must work on sports, make sure you have a defense to this charge. I find the Thaler and Becker defenses most compelling, because they speak to the broader economic issues or yield policy implications.  The Jackie Robinson defense is also important, but not applicable often enough.  The Dog defense is often raised, but rarely compelling; neither pets, nor professional sports, are really a big part of the economy (estimates to the contrary usually turn out to be more applicable to the Becker defense).

Markets in everything, American Indian edition

by  Tyler Cowen in

I’m mystified by Joel Waldfogel’s claim — and Nike’s claim — that, until now, there have been no markets in shoes just for American Indians.

American Indian shoes have been produced and traded for centuries.  Most of all they have been produced by American Indians.  Some of them are called moccasins.  Here is a bibliography of writings on American Indian footware.  Here are native American clothing stores, which also sell shoes.  Here is a craft manual for how to make American Indian footwear.

And of course plenty of companies make extra-wide and extra-large shoes, though of course not for American Indians exclusively.  There is the Mexican market as well, which caters to many "indigenous shapes," although admittedly on the shorter side. 

I like Joel’s book but I think he is far too pessimistic about the prospects for diversity in the modern world.  It’s also worth noting that if any group has been victimized and robbed by government, and driven into partial isolation, it is the American Indian.