Month: March 2011

How bad is the state pension funding mess?

Dean Baker says not so bad; Kevin Drum, Paul Krugman, and others seem to take his side.  Josh Barro says it's bad.  I side with Barro.  Here is one Baker passage:

The total shortfall for the pension funds is less than 0.2 percent of projected gross state product over the next 30 years for most states. Even in the cases of the states with the largest shortfalls, the gap is less than 0.5 percent of projected state product.

Beware of the 30-year comparison I say.  A lot of sums look small compared to thirty years' worth of output.  I worry when I read sentences such as this:

The major reason that shortfalls exist at all was the downturn in the stock market following the collapse of the housing bubble, not inadequate contributions to pension funds.

In my house, that's what inadequate means.  I also see Baker relying on a dangerous version of an equity premium argument, when I'd rather see a probability distribution of scenarios.  I don't see Baker — not once — analyzing the public choice considerations of how state governments actually behave and treat their finances.  Or how about how state voters hate tax increases, reasonably or not, and think their governments should be forced to actually solve their mismanagement problems?  A crisis usually is an institutional crisis.

Here is a typical passage from the Barro piece:

New York taxpayers have learned about these dangers the hard way. There is a reason that the pension fixes enacted in 2009 were called “Tier V” and not “Tier II”: There had been three previous attempts to rein in the excessive cost of New York’s public-employee pensions by creating less generous pension “tiers” for newly hired employees. These reforms date back to the fiscal crisis of the 1970s, when unsustainably generous contracts with public-employee unions threatened to throw New York City into bankruptcy. Since then, though, New York’s public-worker unions have been highly successful in unwinding previously enacted pension reforms. The new Tier V is nearly identical to what Tier IV was at the time of its enactment in 1983–but Tier IV has been repeatedly, and retroactively, sweetened through increases in benefit formulas, cuts to employee contributions, and reductions in the retirement age. Similarly, by the time substantial numbers of workers actually start retiring under Tier V around 2040, this plan, too, will probably bear little resemblance to its current form.

Most of Barro's piece focuses on public choice considerations — of how state and local government institutions actually work — and thus it is the better analysis.  Here is a related piece by Eileen Norcross, closer to Barro than to Baker.

The Science Paparazzi

From The Onion, via James Boyle:

Members of the paparazzi say they are merely responding to public demand, providing a service to the millions of Americans who closely follow the careers of the world's top physicists, mathematicians, and botanists.

"In this country, people want to know about scientific discoveries the minute they happen," said New Haven-based freelance photographer Lance Evans. "It's only natural that the public would be interested in the personal lives of the men and women behind these discoveries."

Gould insisted that the adoring public is not the problem.

"The paparazzi are far more forceful and disruptive than they need to be," said Gould, who on Aug. 5 pleaded no-contest to a March incident in which he attacked an intrusive paparazzo with a broken graduated cylinder. "I realize they have a job to do, but there is such a thing as taking it too far."

According to Gould, paparazzi often use illegal means to secure photos for such notoriously disreputable tabloids as Science World Weekly and Starz, which bills itself as "your most trusted source for astronomy celebrity news."

The article is humorous throughout.  The closer is this:

"These scientists are the most important people in America," Krause said. "Our very future depends on them. They are enabling us to live longer and better, discovering the history of the planet we live on, and unraveling the mysteries of the universe. There's no way we'd ever let them work in obscurity. It's laughable."

Profile of John List

Although List is one of my favorite current economists, somehow I missed this one when it appeared a few days ago.  Here is an excerpt:

With $10 million from hedge-fund billionaire Kenneth Griffin, List will track the results of more than 600 students– including 150 at this school. His goal is to find out whether investing in teachers or, alternatively, in parents, leads to more gains in kids’ educational performance, Bloomberg Markets magazine reports in its April issue.


He says he turned down an offer last year to become chief economist at Inc., the Seattle-based online retailer, partly because the company wouldn’t have let him publish the results of research.

There is much more at the link.  For the pointer I thank Michelle Dawson.

The culture that was Washington, D.C.

D.C. Council member and former mayor Marion Barry has racked up so many parking tickets that his car has been booted. reports that a boot was placed on Barry's Jaguar while it was parked on the street outside his Southeast Washington home.

Records show that Barry has nine unpaid parking tickets, with cumulative fines of $705.

The story is here, but note that Washington is a much-improved city these days.  We now have a Congressman who can beat Watson at Jeopardy!

Assorted links

1. The economics of principal write-downs.

2. Saturn's Hyperion: a moon with odd craters, more astronomy photos here, via GH.

3. Different ways supermarkets increase their profit margins.

4. What economists know about open source software.

5. Peto's paradox: why is there no correlation between animal body size and cancer?, plus a meditation on blue whales.

6. The new Banerjee-Duflo book.

7. Reihan on Brink Lindsey and TGS.

Globalization and the Expanding Moral Circle

In 1869 the Irish historian William Lecky (1838-1903) wrote that moral progress is about extending the moral circle.

At one time the benevolent affections embrace merely the family, soon the circle expanding includes first a class, then a nation, then a coalition of nations, then all humanity…

What is the effect of globalization on the moral circle? Does trade melt barriers and expand the moral circle or does globalization make "the other" a more salient division allowing politicians to demonize and control through xenophobia?

Two pieces of evidence, one anecdotal the other experimental, suggests that globalization expands the moral circle. The anecdotal evidence is the cover story of this month's Wired titled "1 Million Workers. 90 Million iPhones. 17 Suicides. This is where your gadgets come from? Should you care?"

Now from a rational point of view this is absurd. Put aside that the suicide rate is higher among American college students than Chinese workers at Foxconn, even odder is that the writer cares about 17 suicides but not say the million plus deaths in China due to lung disease. But no one said that the moral circle grows for rational reasons. In this case, the writer, Joel Johnson, found that the purchase of the cell phone extended his moral circle to workers who assembled the phone half a world away: 

I was burdened by what felt like an outsize provision of guilt–an existential buyer’s remorse for civilization itself. I am here because I want to know: Did my iPhone kill 17 people?

What about the experimental evidence? In an excellent paper, Buchan et al. discuss results from a public good dilemma game that they ran on thousands of people in six countries around the world: Iran, South Africa, Argentina, Russia, Italy and the United States.

In each country the players could contribute to themselves, to a local group or to a world group. Local contributions were doubled and world contributions were tripled such that the world-group maximizing strategy would be for all contributions to go to the world account, the local-group maximizing strategy would be for all contributions to go to the local account and (as usual) the dominant strategy was to contribute to self only. (Local contributions also paid more to self than did contributions to the world account). 

The authors find two strong effects. First, the rate of donation to the world account increased significantly with the extent of a country's globalization, as measured by a globalization index. Second, within countries the rate of donation to the world acount increased with an individual's globalization index (based on measures such as whether the individual worked for an international firm, watched foreign movies, called people abroad etc.) Thus, globalization increases the potential for global cooperation.

The authors conclude:

…not only is living in a more globalized country associated with more cooperation at the world level, but the same relationship holds as the degree of individual global connectedness increases as well. The cosmopolitan hypothesis receives clear support from our experiments.

… our findings suggest that humans' basic “tribal social instincts” may be highly malleable to the influence of the processes of connectedness embedded in globalization. 

Endogenous parenting and twin adoption studies

I'm not sure how convincing I find this piece, by Alessandro Lizzeri and Marciano Siniscalchi, but it's worth a read if you've been following the debates over twin adoption studies.  In the model, parents both expose their children to learning and protect them.  Parents also judge a successful child by how much that child has their abilities, so in equilibrium the more a child differs from a parent, the more the parent intervenes to direct the path of the child's development.

Again, in the model children of "better" parents have better outcomes on average, above and beyond genetic transmission as a mechanism.  When it comes to adopted children, parents intervene more and parents also bring more similar interventions to bear on identical twins than on fraternal twins.

In twin adoption studies it will appear that parenting does not matter when in fact it does. Here is a neat passage from the paper:

Thus, differential sheltering by biological and adoptive parents provides a countervailing force to common rearing…We can also reinterpret this countervailing force…Differential sheltering by biological and adoptive parents implies that, despite being reared apart, adopted twins are in fact subject to a shared environmental influence–namely, adoption itself. This intuitively leads to greater phenotypic correlation by compensating for the lack of the direct commonrearing effect.

The piece ended up being published in the QJE 2008.

For the pointer I thank a loyal MR writer.