Month: July 2008
Markets in everything China fact of the day
Mr. Yu’s daughter had died in a cascade of concrete and bricks, one
of at least 240 students at a high school here who lost their lives in
the May 12 earthquake.
Mr. Yu became a leader of grieving parents demanding to know if the
school, like so many others, had crumbled because of poor construction.The
contract had been thrust in Mr. Yu’s face during a long police
interrogation the day before. In exchange for his silence and for
affirming that the ruling Communist Party “mobilized society to help
us,” he would get a cash payment and a pension.…Officials have come knocking on parents’ doors day and night. They
are so intent on getting parents to comply that in one case, a mayor
offered to pay the airfare of a mother who left the province so she
could return to sign the contract, the mother said.The payment
amounts vary by school but are roughly the same. Parents in Hanwang, a
river town at the foot of mist-shrouded mountains, said they were being
offered the equivalent of $8,800 in cash and a per-parent pension of
nearly $5,600.
Here is the full story.
Immigration and wages: the latest
From Ottaviano and Peri:
This paper estimates the effects of immigration on wages of native
workers at the national U.S. level. Following Borjas (2003) we focus on
national labor markets for workers of different skills and we enrich
his methodology and refine previous estimates. We emphasize that a
production function framework is needed to combine workers of different
skills in order to evaluate the competition as well as cross-skill
complementary effects of immigrants on wages. We also emphasize the
importance (and estimate the value) of the elasticity of substitution
between workers with at most a high school degree and those without
one. Since the two groups turn out to be close substitutes, this
strongly dilutes the effects of competition between immigrants and
workers with no degree. We then estimate the substitutability between
natives and immigrants and we find a small but significant degree of
imperfect substitution which further decreases the competitive effect
of immigrants. Finally, we account for the short run and long run
adjustment of capital in response to immigration. Using our estimates
and Census data we find that immigration (1990-2006) had small negative
effects in the short run on native workers with no high school degree
(-0.7%) and on average wages (-0.4%) while it had small positive
effects on native workers with no high school degree (+0.3%) and on
average native wages (+0.6%) in the long run. These results are
perfectly in line with the estimated aggregate elasticities in the
labor literature since Katz and Murphy (1992). We also find a wage
effect of new immigrants on previous immigrants in the order of
negative 6%.
I have yet to read the paper. Here is an ungated version.
Tyler Cowen lecturing on globalization and music
This Georgetown talk is now on-line; the entire talk is structured around commentary on the economics behind particular musical tracks, including Desmond Dekker, Tarika, some doo-wop, and other favorites of mine.
More Inflation
First oil, then rice and wheat, and now the cost of hiring low-skilled labor is up by 12% in just one day. Shocking.
Hat tip to Don Boudreaux.
New constitutional amendments?
Travis, a loyal MR reader, writes to me:
Given our culture and the political environment, both now and in the foreseeable future, what do you predict will be the next constitutional amendment and in what year do you think it will be passed (plus or minus five years)?…If forced to make a prediction, I would argue that between the years 2020 to 2025 there is a p=.25 that there will be some sort of constitutional amendment liberalizing same-sex marriage — at least giving same-sex couples equal rights and benefits that married couples currently receive but not necessarily allowing them to be officially "married".
I do not expect further amendments anytime soon but please tell me why I am wrong. Due to greater political competitiveness, it is harder to overcome the relevant hurdles than before, as there is always someone to fight on the other side or ask for a different version of the amendment. And the so-called "low-hanging fruit," such as repeal of Prohibition, seems to be gone. If I had to pick, I’ll predict some version of a recast Equal Rights Amendment but "nothing anytime soon" still remains a better prediction in my eyes.
Group Theory in the Bedroom
I had never thought of this:
In a sense, base 3 is the best of the integer bases because 3 is the integer closest to e…Suppose you are creating one of those dreaded telephone menu systems — press 1 to be inconvenienced, press 2 to be condescended to, and so forth. If there are many choices, what is the best way to organize them? Should you build a deep hierarchy with lots of little menus that each offer just a few options? Or is it better to flatten teh structure into a few long menus? In this situation a reasonable goal is to minimize the number of options that the wretched caller must listen to before finally reaching his or her destination. The problem is analogous to that of representing an integer in positional notation: the number of items per menu corresponds to the radix r, and the number of menus is analogous to the width w. The average number of choices to be endured is minimized when there are three items per menu.
I have no idea if it is correct. It is from the often quite interesting Group Theory in the Bedroom, and Other Mathematical Diversions, by Brian Hayes.
Calorie counts on the menu
Yes I saw the counts today on the breakfast menu in New York City. Being a silly man, who is easily prone to violating the independence of irrelevant alternatives, I immediately searched for the item with the highest calorie count (it involved butter and lobster, for breakfast). I thought "no way will I get that" and ordered a bagel with lox and cream cheese. Yes, I know about anchoring and behavioral economics. Is not one equilibrium that every restaurant puts an especially high calorie item on its menu, so that people feel virtuous in ordering something else?
The Eureka Hunt
This stimulating New Yorker essay (right now gated, but worth buying the issue for) focuses on where creative moments come from. Excerpt:
Many stimulants, like caffeine, Adderall, and Ritalin, are taken to increase focus — one recent poll found that nearly twenty percent of scientists and researchers regularly took prescription drugs to "enhance concentration" — but, accordingly to Jung-Beeman and Kounios, drugs may actually make insights less likely, by sharpening the spotlight of attention and discouraging mental rambles. Concentration, it seems, comes with the hidden cost of diminished creativity. "There’s a good reason Google puts Ping-Pong tables in their headquarters," Kounios said. "If you want to encourage insights, then you’ve got to also encourage people to relax." Jung-Beeman’s latest paper investigates why people who are in a good mood are so much better at solving insight puzzles. (On average, they solve nearly twenty percent more C.R.A. problems.)
My talk at Jane St. Capital
For this splendid audience, I considered six scenarios for how the long-run might drastically differ from the world we see before our eyes:
1. A return to Malthus, noting that wages cannot forever exceed the marginal cost of producing labor. Perhaps we are in for a massive population increase, if only of robots.
2. Robin Hanson’s exponential growth, which means a huge burst of growth sometime "soon" — maybe really good drugs, uploads, or nanotechnology?
3. Most of the economy becomes health care costs.
4. Energy becomes very cheap, destruction is easy, deterrence is difficult, power decentralizes, and we retreat to medieval-style fortresses.
5. People become more and more interested in "vivid" experiences, such as they obtain in museums, going to date movies, or spending lots on higher education. This sounds so lame, but it’s pretty close to reality now.
6. Wealthier economies boost human optimism and thus asset markets become increasingly vulnerable to bubbles.
#4 is pessimistic, I am not sure the others are, at least not in the proper "all things considered" sense. If #1 is on its way, make sure you own some capital (as Robin Hanson points out), you will be very wealthy then. Your evaluation of #1 may depend on your view of Derek Parfit’s population conundrums. There will be lots of rich people and also lots of poor people.
Over dinner I pressed the claim that very few people or organizations are capable of stating what they are actually good at.
Means testing by any other name
Hardly anyone wants to endorse means-testing but almost everyone is for it. Of course Medicaid, food stamps, HUD housing assistance, and many other programs are already means-tested.
Furthermore most people want to extend the scope of the principle.
A few days ago Greg Mankiw described means testing (negatively) as "an income tax surcharge on old, sick people." But last year Greg seemed to endorse a proposal for means-tested subsidies for the purchase of health insurance, involving a corresponding limitation on the tax break for the relatively wealthy.
Paul Krugman writes:
If we’re serious about controlling Medicare costs, Peter Orszag and his staff at CBO have had a lot to say about this. Means-testing isn’t the answer; setting priorities for care is.
Of course the big health care priorities — most of all in Krugman’s eyes — involve greater access for poor people. The prioritization process, if it is to save money, will in some way discriminate against higher-income users, even if the changes are not labeled as such. The people with "too many doctor visits" or "too much wasteful use of capital equipment" are not in general the poor.
The real question is means-testing at which margin and in which manner. In the meantime, beware of arguments which insist that means-testing is good or bad per se.
Regulatory arbitrage
Most of the town of Baarle-Hertog is in Belgium but some spots are in the Netherlands, sprinkled into the Belgian majority like chocolate chips, not divided neatly by a line.
The border is so complicated that there are some houses that are
divided between the two countries. There was a time when according to
Dutch laws restaurants had to close earlier. For some restaurants on
the border it meant that the clients simply had to change their tables
to the Belgian side.
The link is from Jason Kottke.
Reading the OED
atechny (n.) A lack of skill; a lack of knowledge of art.
Reading through the dictionary, I am struck again and again by the fact that many words that describe common things are obscure, while many words that describe obscure things are widely known. For example, everyone knows that word dinosaur, even though no one has ever seen or met one. Yet, even though we are faced each and every day with artistic ignorance and lack of skill, very few of us know the word atechny.
That’s from Ammon Shea’s superb Reading the OED: One Man, One Year, 21,730 Pages.
Astorgy is the lack of natural affection when it would normally be present.
Accismus is an insincere refusal of a thing that is desired.
Agathokakological means made up of both good and evil.
And those are just some of the A words.
Happiness interview with Gretchen Rubin
You’ll find it here; she is my BlogLand friend and her writings are always interesting.
Health savings accounts
A few readers have written me or asked in the comments why I am not so crazy about HSAs. From the past, read here and here, and here, or here is an index of previous MR posts on the topic; in any case my take is relatively straightforward:
1. I favor tax-free savings (albeit with some fiscal qualifications), so you can make a case for HSAs on this ground, noting that we do already have other tax-free savings vehicles.
2. HSAs take one market segment — usually a relatively wealthy and health care-satisfied segment — and introduce one marginal improvement of incentives. This doesn’t seem to help much in terms of lowering aggregate costs.
3. HSAs introduce greater care into any single medical expenditure by creating a direct private opportunity cost for the spender. I am less sure it will limit medical expenditures in general; that depends on how people frame withdrawals, once funds are committed to an HSA account, and to what extent they use HSAs for what would have been cash payments anyway.
4. As Paul Krugman says, "too much health insurance" is not the fundamental problem in the health care market. (Unlike Krugman, I don’t see single-payer plans as the solution; I see the incentives of producers, combined with the fear and unreasonableness of buyers, as the key problem on the cost side.)
5. Re Bryan Caplan on Singapore, HSAs might work much better in another setting, noting that the other features of Singapore also might account the difference in performance in health care systems.
6. Given #1 and #2, it is easy for me to believe that HSAs bring net social benefit. It is much harder for me to see HSAs as "the one health care idea we would promote if we had one shot at health care reform." The main beneficiaries are the healthy and the wealthy, and, while I am all for helping those people, surely that is odd, no?
7. I will profess my agnosticism on many health care policy issues, but one of the better plans is Jason Furman’s and/or spending more on medical R&D and some public health programs and lots of cost-lowering deregulation while in the meantime getting expenditures and costs under control. I also recommend Arnold Kling’s work.
Bad News, Good News
Yesterday, I was supposed to be on Street Signs with Erin Burnett to talk about the effect of the Iraq war on the state of the economy. Sadly, they canceled me at the last minute. Bummer. Then when I got home, there it was, waiting, mocking, the Tivo recording of "my show." I felt bad but… I had to watch.
Heh, they got Joe Stiglitz to replace me! Well, anything less than a Nobel prize and I would have been insulted but I feel much better now! Amusingly, Stiglitz and I are good substitutes on this issue. In case you are wondering, we both think that at the present time the net effect of the Iraq war is (modestly) contractionary rather than stimulative due to higher oil prices, higher interest rates and less wealth.