Month: February 2008

Book Forum: Harford and Kevin Grier on Cities

Kevin Grier at Kids Prefer Cheese continues our book forum on the Logic of Life with a discussion of The World is Spiky.

Here is my summary of Tim’s argument. Cities are expensive, and that
expense is above and beyond paying the necessary rents to gain access
to their unique amenities. Cities are marked by knowledge spillovers, a
positive externality (don’t get mad Bryan)
where human capital grows faster when one is around more humans. And
the internet, rather than reducing the positive effects of cities on
productivity, actually enhances them. Thus, rather than subsidizing
rural areas, perhaps we should consider subsidizing cities.

for Tim and his prospective book sales, he tells this story in a much
more entertaining way than I just did. But I still have some questions,
suggestions, and quibbles.

The claim is made that salary
differences don’t match up with cost of living differences and the
reason for this is knowledge spillovers, but it is not spelled out
exactly how that would work. An alternative seems to me that zoning
restrictions create these big rents and pre-existing property owners
are sucking a lot of the consumer surplus out of people with high
valuations on cool experiences…..

Tim discusses
“failing cities” and describes (correctly I think) why people still
live there, but gives no explanation for why they failed if indeed
cities produce these positive externalities. There is no discussion of
some of the very biggest cities in the world; Mexico City, Lagos,
Jakarta. It would be nice to know where the argument works, where it
doesn’t and how to know which is which…

More here.

The Power of Vouchers

Many studies of education vouchers have looked at the achievement of children who are given vouchers and who transfer to private schools.  Generally these studies have found small but meaningful improvements (e.g. here and here).  A voucher program, however, is about much more than transferring students from lousy public schools to better private schools it’s about creating incentives to improve the public schools.

Florida’s Opportunity Scholarship Program rated schools.  Students at schools that received an F in multiple years became eligible for a voucher that allowed them to attend a private or higher-rated public school.  In Feeling the Florida Heat? (ungated version) a paper sponsored by the Urban Institute Rouse et al. look at what happened at failing schools.

…we find that schools that received a grade of “F” in summer 2002 immediately improved the test scores of the next cohort of students, and that these test score improvements were not transitory, but rather remained in the longer term. We also find that “F”-graded schools engaged in systematically different changes in instructional policies and practices as a consequence of school accountability pressure, and that these policy changes may explain a significant share of the test score improvements (in some subject areas) associated with “F”-grade receipt.

Thus, this paper shows two things.  First, that the test scores of the students in the public schools improved when vouchers gave the schools better incentives to perform.  Second, at least some of the improvement comes from changes in how students are taught.  The author’s note, for example:

…we find that schools receiving an “F” grade are more likely to focus on low-performing students, lengthen the amount of time devoted to instruction, adopt different ways to organize the day and learning environment of the students and teachers, increase resources available to teachers…

It is not true that "nothing can be done to improve the schools."  Incentives matter.

Notice that Florida’s program worked even though the program was very weak.  It offered vouchers only to students in the worst schools and only after those schools received F grades in multiple years.  The vouchers were relatively small and could not be topped up.  In addition, the program lasted only a few years before it was declared unconstitutional by Florida’s supreme court.

A true voucher program would be national, would not discriminate among students, would offer funding equal to that spent on students in public schools and would be permanent. Competition in such a system would be more intense and even more productive than in Florida’s program.

It’s an Election, not a Revolution

That’s the title they gave my latest NYT column.  Excerpt:

To put it simply, the public this year will probably not vote itself
into a much better or even much different economic policy. To be sure,
the next president – whoever he or she may be – may well extend health
care coverage to more Americans. But most of the country’s economic
problems won’t be solved at the voting booth. It is already too late to
stop an economic downturn. Health care costs will keep rising, no
matter who becomes president or which party controls Congress. China is
now a bigger carbon polluter than the United States, so don’t expect a
tax or cap-and-trade rules to solve global warming,
even if American measures are very stringent – and they probably won’t
be, because higher home heating bills are not a vote winner. A
Democratic president may propose more spending on social services, but
most of the federal budget
is on automatic pilot. Furthermore, even if a Republican president
wanted to cut back on such mandates, the bulk of them are here to stay.

Yes, the election does matter. Even small differences on
economic issues affect millions of Americans. But the record of the
Bush administration should prove sobering to all those who expect the
American political economy to turn around in the next four years.

conservative and libertarian economists supported President Bush,
thinking they would be getting policy drawn from the work of Milton Friedman
and Martin Feldstein, two respected market-oriented economists.
Instead, in economics, the Bush years have brought an increase in
domestic government spending, and some poorly-thought-out privatization
plans. For all the talk of an extreme right-wing revolution, government
transfer programs like Social Security and Medicare have continued to grow. And despite big mistakes involving the Iraq war, Mr. Bush wasn’t punished by voters in 2004.

There is much more, and it is a more political column than I usually write.  My final conclusions:

And if you’re still worrying about how to vote, I have two pieces of
advice. First, spend your time studying foreign policy, where the
president has more direct power, and the choice of a candidate makes a
much bigger difference. Second, stop worrying and get back to work.

And there are points I could not cover for reasons of space, such as the constraining need to provide an AMT fix, or the ability of a party to sound more intelligent when it is out of power.

Addendum: Here is coverage from Mark Thoma and commentators; do they support or contradict Mark’s last sentence?  And here is commentary from John V.

China fact of the day

It’s not quite a fact, but here goes:

According to China Mobile, there were already 400,000 cracked iPhones using its cellular network by the end of 2007.
That number, if accurate, is astonishing. It would mean that there
are more unauthorized iPhones in China than there are authorized
iPhones in Europe. It would account for the largest part of the
so-called “missing” iPhones.

It’s a fact if you believe China Mobile, which I do.

Claims my Russian wife won’t even deign to laugh at

If you get up late in the morning on weekends, you must think sleep is very valuable.  And if sleep is very valuable, that means we should go to bed early.  Because if you go to bed early, you always have the option of sleeping later — that is sleeping more — and getting even more sleep than if you had gone to bed late.  (You can’t just shift your sleep into any hours block you want, given the coordination issues.)  And if sleep is very valuable, the option to sleep more must be valuable as well.  Therefore it’s time to go to bed.  Now.  Early.

No response was forthcoming.  The argument, of course, gets at whether "sleep" or "postponement" enters the utility function as the final good.  There are some economic papers on procrastination, but overall postponement, or for that matter its closely allied cousin "preemption," is an understudied topic in economics.

Don’t burn it

Tom Stoppard weighs in on the burn it/don’t burn it debate about Nabokov’s unfinished work: "It’s perfectly straightforward: Nabokov wanted it burnt, so burn it."

That is from Bookslut, but Stoppard is wrong.  Dead people don’t count in the social welfare function. (If they did, how many of them would prefer non-democratic or racist outcomes?  And would we count that?  We shoudn’t and we don’t.)

Don’t destroy the output.  Nor is there an incentive problem.  If we release Nabokov’s papers as a book, maybe the next Nabokov will burn the manuscript in the first place.  We’re no worse off, compared to not releasing such manuscripts.  Kafka told Max Brod to burn his works, but we’re all glad Brod didn’t.  Think of the current generation as a player in the multiple selves game of the author (he could have burnt it himself long ago) and then the right answer is obvious.

Johannes Fedderke and the importance of good governance

File him in the category underappreciated economists.  Does good governance matter for growth?  Could there be a more important question for economists? The standard cross-sectional growth tests do not show much of a robust effect.  But Johannes, along with co-authors Robert Klitgaard and Kamil Akramov, has a 150-page paper showing that if you take all the relevant heterogeneities into account yes, Adam Smith and Doug North were right after all.

Or do you prefer simple regressions which meet the eyeball test?

Here is the full paper.  Here is Johannes’s long paper on South African economic history.

What I’ve been reading

Descubre al Economista que llevas dentro.  That’s the Spanish language translation of my Discover Your Inner Economist, due out in Spain February 19.

You can order copies through some of these sources.

The translation is very well done and accurate, though it is odd to read myself sounding like a Spaniard instead of a colloquial Mexican.  Whenever I go to Spain I am in fact shocked to discover that there is an entire European country in which the people speak Spanish.  And they speak it well.

If you want to come to my talk in Madrid next week, here is the link.

Simple theories of the business cycle

…during a period of pretty stagnant incomes, people have been ratcheting up consumption based on increased wealth derived from their homes. People weren’t, however, actually selling their homes to get money and buy stuff. Instead, they borrowed. But with home values plummeting, now there’s big trouble.

That is from Matt Yglesias.  If you’re looking to apply "Austrian business cycle theory" to the current crisis, this point is a better place to start than by blaming Greenspan’s admittedly over-loose monetary policy.  No one made homeowners treat rising asset values to be the same in value as accumulated monetary savings.  But many of them did.  And the mechanism may be this: in private terms people treat accumulated money and rising asset values as the same.  But in social and macroeconomic terms the implications of those two forms of savings are very different.  In particular the social risk of saving through asset values is higher, given the correlation of market values and returns.  Nor are their liquidity properties the same if everyone needs to "rush for the exits."

Insofar as you think people are tricked by "savings that aren’t really there," asset values are the most likely the relevant mechanism.  This idea has played a surprisingly small role in business cycle thinking over the last century, although it has been floating around since at least the 1930s.

Right now everyone in London is wondering if a real estate bubble is about to pop.  Or does UK tax law, combined with greater international mobility, mean the new prices are more or less permanently high?

Strange Bloggingheads episodes

It is a cook off: on one side was Megan McArdle and Will Wilkinson, on the other side was Ezra Klein and Spencer Ackerman.  The five-person panel of judges includes Natasha and yours truly.  I deliver the final verdict at the end, citing Benthamite, Perfectionist, and Rawlsian standards for the food.  If there is one lesson, it is taken from the cooking of Megan: for most of you frozen cherries will, for cooking, be tastier than non-frozen cherries which in fact are not so fresh at all.

Cryonics: both sides of the story

As one cryonicist puts it: "We didn’t evolve to be frozen."


"It’s pretty well accepted that at the point at which the usual human
being gets pronounced dead, all their cells are alive. It’s a very
eerie question: if all their cells are alive, what is death?" says
Becker. Besides, if all the patient’s cells are alive, why can’t the
patient recover and walk out of the hospital?"

Here is the full article, which covers recent advances in cryonics.

Addendum: Or try YouTube on related issues, hat tip to Robin Hanson.  Maybe that is the right way to do philosophy, namely by cartoon.  Definitely recommended.  It also presents a solution to the current subprime crisis.