Month: January 2008

Results I do not believe

…an analysis of strike outs (failing to hit the ball three times in a
row) in American baseball from 1913 to 2006 showed that players whose
first or last names began with K suffered significantly more strikeouts
than other players. Why? Because in baseball scoring, K is used to
denote a strikeout – "For players with this initial, the explicitly
negative performance outcome may feel implicitly less aversive," the
researchers said.

Next, an analysis of 15 years of MBA students’
grades at a large American University showed that students with the
initials C or D achieved significantly lower grades than students whose
initials were unrelated to grade scores, and students with the initials
A or B.

Was this due to the students’ self-preference for their
initials or was it the examiners showing the bias? To test this, Nelson
and Simmons, asked hundreds of other undergrads to report their liking
for the different letters of the alphabet. A subsequent analysis of
their exam scores again showed that students with the initials C or D
performed less well, but only if they had previously shown a preference
for these letters. This shows that affection for one’s own initials
really is playing a role in the patterns being observed here.

study showed how far-reaching these effects can be. An analysis of
392,458 lawyers who studied at 170 law schools showed that as the
quality of law schools declined, so too did the proportion of lawyers
with the initials A or B who had attended.

Here is more.  When I think of the letter K, I think of Ted Kluszewski, Harmon Killebrew, and brawny Poles who swing for the fences.  Maybe that’s lame, but I don’t see that names with "S" strike out more often, or that names with "H" hit more home runs.  Maybe "K" has special power, just ask Franz Kafka.  The A and B stuff puzzles me too, but it also doesn’t seem consistent with other parameters on the power of suggestion.  I also would expect the C and D names to do better than average, given all the names lower in the alphabet, at least if there is going to be an effect at all.  Are people whose names start with the letter "B" more likely to be bloggers?

I’m not contesting the raw tabulations but my gut feeling is that the letters in your name correlate with physique or education or IQ in some other way.  One paper is here, I don’t see a lot of controls.

Addendum: Andrew Belman seems puzzled too.  Alex has a related post, he doesn’t feel totally puzzled.

Tax rebates don’t always work

Matt Shapiro and Joel Slemrod report:

Many households received income tax rebates in 2001 of $300 or $600. These rebates represented advance payments of the tax cut from the new 10 percent tax bracket. Based on a survey of a representative sample of households, this paper finds that only 22 percent of households receiving the rebate would spent it. Instead, they would either save it or use it to pay off debt. This very low rate of spending represents a striking break with past behavior, which would have suggested a much higher rate of spending. The low spending rate implies that the tax rebate provided a very limited stimulus to aggregate demand.

The pointer is from Angus.  Purely coincidentally, a moment later I read the following:

…both the White House and Congressional Democrats are leaning heavily
toward a combination similar to the one the administration turned to in
2001 as a recession-fighting tool. It would include a one-time tax
rebate for individuals and an immediate expansion in the deductions
that businesses take for investment in equipment. If Congress acts
quickly, checks could be in the hands of American taxpayers as early as

Hmm….By the way, here is the Elmendorf and Furman paper on fiscal stimulus.

Addendum: Don’t forget Alex’s post on this.  Mark Thoma and Bruce Bartlett are here, and as you might expect Greg Mankiw asks the correct pointed question.

In defense of (some) neuroeconomics

Andrew Samwick at Vox Baby reports on the neuroeconomics sessions at the AEAs.  He is justifiably impressed with the work of David Laibson.  Laibson has pioneered the theory and implications of hyperbolic discounting.

But a clever economist can always come up with a rational (time-consistent) model to explain what appears to be irrational hyperbolic discounting.  Laibson, however, uses fMRI scans to show that different parts of the brain are activated when making decisions at different time-scales.  As Andrew notes, the isolation of the different decisions to different parts of the brain gives Laibson’s argument significant credibility against more standard neo-classical explanations for the same phenomena.

How would tighter regulation affect mortgage origination?

Here’s one paper suggesting that regulation doesn’t necessarily solve current problems:

We find that most aspects of mortgage broker licensing systems, such as mandatory professional education, do not have a significant and consistent statistical association with market outcomes. However, one component — the requirement in many states that mortgage brokers maintain a surety bond or minimum net worth — does have a significant and fairly consistent statistical relationship with both labor and consumer market outcomes. In particular, we find that tighter bonding/net worth requirements are associated with fewer brokers, fewer subprime mortgages, higher foreclosure rates, and a greater percentage of high-interest-rate mortgages. Although we do not provide a full causal interpretation of these results, we take seriously the possibility that restrictive bonding requirements for mortgage brokers have unintended negative consequences for many consumers. On balance, our results also seem to support theories of occupational licensing that stress the importance of pure entry and exit barriers over those that focus more on the human capital effects of licensing.

Get that?  Tighter regulation does mean fewer subprime mortgages, but also higher foreclosure rates and higher interest rates on the mortgages.  This paper is hardly the final word, if only because broker licensing is not the only possible means of regulation.  But in the meantime caution is in order; don’t be attracted to the idea of tighter regulation simply because you feel we haven’t had good enough regulation so far.  Regulators are famous for fighting the last war, not preventing the crisis to come.

So far I’m not finding an ungated copy of this paper.

Markets in Markets in Everything

The awesome Michael Cleverly has compiled a website for all the "Markets in Everything" posts.  Visit it here.  Today is the fourth anniversary of the series, which has 285 different entries.  That’s not quite markets in *everything*, but we’re getting there!

Michael did not request anything in return, but I am sending him a copy of my book Creative Destruction: How Globalization is Changing the World’s Cultures.

What do you owe the world, and what does the world owe you?

Steven Landsburg writes:

Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?

Progressive taxation, some would say in response!

Tim Harford, however, nails it:

…people lose their jobs all the time for reasons that have nothing to do
with foreign trade. I’d argue that they deserve some help. Why are jobs
lost to foreign competition so privileged?

I am most interested in Dani Rodrik on the same, most of all when writes:

The question of how we should respond to a trade-induced
change in income distribution is not one on which economists can offer
any expertise.  This is a question about ethics, values, and norms,
none of which is part of an economist’s training.  Landsburg’s take on
this is as good as mine–which is as good as that of any person on the

Every now and then I feel a deep responsibility to rebut an argument.  In my view anyone doing policy economics has an obligation to learn more about ethics — much more — than the guy in the street would know.  Would someone doing experimental economics feel free of the obligation to learn some empirical psychology?  Would someone doing trade feel free of the obligation to learn some trade law, some history, and some political science?  No.  What’s the difference?  Economists like to separate the "positive" and "normative" aspects of what they do, but this distinction has not much impressed the moral philosophers who have looked at it nor has it impressed Amartya Sen.  The very decision to use economic tools emphasizes some considerations and excludes others.  The final policy analysis is not just pure prediction but rather it is also an implicit presentation and weighting of both different kinds of information and different values.  So if you are doing policy economics, it is imperative that you think about ethics at a very deep level, and read widely in ethics.  You are doing ethics whether you like it or not!  Furthermore I don’t doubt that Dani already has a deeper understanding of ethics than the (often very crude) man in the street.

That said, I don’t agree with the ethics Dani does discuss, noting that he must have felt he had some good reason to put forward the concerns he did and not others.  (As a rule of thumb I’ll note that those who profess the impassability of ethical terrain have just in fact traversed it.)  I don’t worry much about the procedural fairness if a poor country trades at better prices by paying its labor less or by polluting.  Low wages are precisely the wages we want to see bid up, and if there is a concern for the losers I would not call the issue a procedural one but rather one of outcomes.  And pollution can be a moral crime but attacking trade is not usually a good way to go after it.  Tax the pollution, not the trade.

China fact of the day

…the annual expansion in China’s trade has been larger than India’s total annual trade during last several years.

Here is more, interesting points throughout.  And here is the upshot:

The most important factor that still holds back large [Indian] firms from
entering these products is a set of draconian labour laws in India.
Under these laws, it is virtually impossible for a firm with 100 or
more employees to fire the workers even in the face of bankruptcy. It
is equally difficult for the firms to reassign the workers from one
task to another. These provisions impose very low worker productivity
or a high real cost of labour. Large-scale capital-intensive sectors
such as automobiles, where labour costs are a tiny proportion of the
total costs, can profitably operate in such an environment. But the
same is not true of large-scale labour-intensive sectors labour. Few
foreign manufacturers are willing to enter India outside of a small
subset of capital- and skilled-labour intensive sectors.

Review of John Gray’s *Black Mass*

There’s lots of piling on in this one.  Fifteen years ago I predicted to Jim Buchanan that Gray would end up a Catholic; I stand by that claim, as he doesn’t have anywhere else to go.  The final step is when you challenge whether man is any better than nature at all, and that’s what happened in his previous book Straw Dogs.  I’ve long enjoyed Gray’s anti-utopianism, his ability to challenge conventional views, and his willingness to change his mind, but this review does score some telling points.

Football games make us angry

Some people at least.  Daniel Rees writes to me:

…we find that college football games are associated with sharp increases in crime.  For instance, assaults increase by about 9% when a community hosts a college football game, vandalism increases by about 18%, and DUIs increase by about 13%.  We also find evidence that upsets result in larger increases in crime than games that do not produce an upset.  For instance, an upset loss at home is associated with a 112% increase in assaults and a 61% increase in vandalism.  We discuss these results in the context of psychological theories of fan aggression.

Here is the paper.  I guess those people should have gone to see a violent movie instead!

Addendum: Here is some outside coverage, see also Justin Wolfers at Freakonomics blog as well.

Larry Kotlikoff defends the Fair Tax

Here is the link, via Greg Mankiw.  If we are comparing the Fair Tax to the traditional VAT, compliance is issue number one and I’m not convinced by Kotlikoff’s defense:

This [compliance] is a reasonable concern, and one I share.  In examining the real revenue-neutral FairTax rate, my co-authors and I ignored compliance issues, not because they are unimportant, but rather because we had no firm basis for estimating their impact…

…it’s clear that the incentive to cheat will be significant. But it’s also clear that the incentive to evade income taxes is greater than would be the incentive to evade the FairTax.  Moreover, much of the evasion under the FairTax would come in the same form and done by the same actors as evasion under the income tax; for example, a waitress who fails to collect FairTax on tips is also, presumably, not paying income taxes on those tips under the current system….   

The reasons I’m not overly worried about evasions number five.  First, the vast majority of retail sales occur in major retail outlets, like WalMart.  Second, we’ll have vastly fewer taxpaying entities (14 million rather than more than 100 million) on which to focus our enforcement efforts.  Third, we’ll have hundreds of thousands of otherwise unemployed IRS agents, accountants, and tax attorneys to enlist to enforce a single tax.  Fourth, we can always compel firms to report, via 1099-type forms, their sales to other firms.  This will provide the same records that arise under a VAT.  Fifth, the government can stipulate that all retail sellers provide buyers with a written receipt, regardless of whether the transaction is or is not in cash, specifying that the FairTax has been paid. Thus if sellers don’t mail in the taxes, there will be a paper trail of the evasion. Sellers who try to bribe buyers to forgo receipts and split the FairTax among themselves run the risk of having the buyer turn them in.   

I would say this: push for a Fair Tax and if you’re lucky you’ll get something like a VAT, if only for reasons of enforcement.  Plus you’ll also get the same income tax we have now, which isn’t going away anytime soon.  New Zealand, of course, did something like this.  "Fair Tax = Tax Increase"; it’s a pretty good and simple slogan.

On most of Kotkiloff’s other points, he’s simply "fighting for a draw," as they say.  Think through federalism with no federal income tax as a base for state and local taxes.  The transition issues are a monster.  If encouraging savings is the main goal, why not just eliminate the taxation of capital income under the current scheme?

My email to Don Boudreaux and David Henderson

Take 1900 to 2008, minus the few years of deflation near the Great Depression [and a few others] and of course wartime is odd so cut that out too.

Any single year there has been inflation, from one year to the next.

From 1900 to 2008 there has been radical *deflation*, for instance in the Sears catalog.  You’d rather spend 10K in the modern catalog than in the old catalog.

If you are spending a million dollars (in either 1900 or 2008), there is very radical deflation.  If you are spending $5, you might prefer the Sears catalog of 1900, at least get a few good white shirts.

I don’t think it all quite adds up.

The Education of Ben Bernanke

Here is a long NYT piece on the Bernanke regime; here is Anna Schwartz complaining about Bernanke as Fed chair.  In the comments, I am taking nominations for the following: given perfect hindsight, what should the Fed have done and when?  Keep two things in mind: a) looser money sooner probably would not have helped the credit problems (and might have tied the Fed’s hands later on), and b) your recommendations cannot refer to actions which predate the Bernanke regime.