Month: December 2011

Tabarrok the Statist

Stephan Kinsella in reviewing Launching the Innovation Renaissance (Amzn link, B&N for Nook, also iTunes) for The Libertarian Standard says I am a liberty-hating statist! (Kinsella is upset that I did not come out as a patent abolitionist.) Bryan Caplan, however, says it is a gem that pushed him to extreme patent skepticism. In other mini-reviews, Aretae gives it “three thumbs up” (must be a transhumanist), Robin Hanson thinks I am too rational and Peter Gordon says “Read the book. Spread the word.”

Don’t Check Asian

USA Today: Lanya Olmstead was born in Florida to a mother who immigrated from Taiwan and an American father of Norwegian ancestry. Ethnically, she considers herself half Taiwanese and half Norwegian. But when applying to Harvard, Olmstead checked only one box for her race: white.

“I didn’t want to put ‘Asian’ down,” Olmstead says, “because my mom told me there’s discrimination against Asians in the application process.”

Her Mom is correct:

Asian students have higher average SAT scores than any other group, including whites. A study by Princeton sociologist Thomas Espenshade examined applicants to top colleges from 1997, when the maximum SAT score was 1600 (today it’s 2400). Espenshade found that Asian-Americans needed a 1550 SAT to have an equal chance of getting into an elite college as white students with a 1410 or black students with an 1100.

Note that this is true even though there is a history of discrimination against Asians in the U.S., Asian children also do well on extra-curricular activities and many have poor, immigrant backgrounds.

Comparing schools which can and cannot legally discriminate suggests a lot of discrimination. At Yale the class of 2013 is 15.5 percent Asian-American, at Dartmouth 16.1 percent, at Harvard 19.1 percent, and at Princeton 17.6 percent. These figures are above the Asian share of the population but compare:

The California Institute of Technology, a private school that chooses not to consider race, is about one-third Asian. (Thirteen percent of California residents have Asian heritage.) The University of California-Berkeley, which is forbidden by state law to consider race in admissions, is more than 40 percent Asian — up from about 20 percent before the law was passed.

Interestingly, the Obama administration has recently reversed Bush era rules and interpretations in order to promote race-based admissions:

Bush guidelines: “Before using race, there must be a serious good faith consideration of workable race-neutral alternatives.”

Obama guidelines: “Institutions are not required to implement race-neutral approaches if, in their judgment, the approaches would be unworkable.”

Governor Jerry Brown would also like to repeal or limit CA’s ban on race-based admissions.

Does going public affect innovation?

From Shai Bernstein, on the job market from Harvard:

Abstract: This paper investigates the effects of going public on innovation. Using a novel data set consisting of innovative firms that filed for an initial public offering (IPO), I compare the long-run innovation of firms that completed their filing and went public with that of firms that withdrew their filing and remained private. I use NASDAQ fluctuations during the book-building period as a source of exogenous variation that affects IPO completion but is unlikely to affect long-run innovation. Using this instrumental variables strategy, I find that going public leads to a 50 percent decline in innovation novelty relative to firms that remained private, measured by standard patent-based metrics. The decline in innovation is driven by both an exodus of skilled inventors and a decline in productivity among remaining inventors. However, access to public equity markets allows firms to partially offset the decline in internally generated innovation by attracting new human capital and purchasing externally generated innovations through mergers and acquisitions. I find suggestive evidence that changes in firm governance and managerial incentives play an important role in explaining the results.

Has the Tea Party movement been electorally effective?

There is a new paper (pdf) from Harvard, by Andreas Madestam, Daniel Shoag, Stan Veuger, and David Yanagizawa-Drott, and it seems the answer is yes, the Tea Party has been effective in electoral terms:

This paper examines the impact of political protests on citizens’ political behavior and policy. We study the effect of the Tea Party movement protests in the United States on voting in elections and on legislation by representatives. To identify the causal effect of protests, we use an instrumental variables approach that exploits variation in weather on the rally day. We find that the protests increase turnout in favor of the Republicans in congressional elections, and decreases the likelihood that incumbent Democratic representatives run for reelection. Incumbent policymaking is also affected: representatives respond to large protests in their district by voting more conservatively in Congress. In addition, we provide evidence that these effects are driven by a persistent increase in the movement’s strength. Protests lead to subsequent protests, as well as an increase in membership, monetary contributions, and media coverage. Finally, the estimates imply significant multiplier effects: for every protester Republican votes increase by at least eight votes. Together our results show that political protests can build political movements that ultimately affect policy.

How this translates into policy outcomes, of course, is another story.  And this is effectiveness at a very micro level.  It is entirely possible to believe these results about local mobilization, and think that the Tea Party overall makes Republicans less electable or less effective once in office.

Addendum: A revised and improved version of the paper is here.

Words of wisdom

From Karl Smith:

…my concern is that when we think about the labor market failing to clear we mean to say that there are people looking for jobs who cannot find them.

If they stop looking this is not obviously a market failure. If it is in fact the case that the real wage is not enough to entice them to work, then they should not work.

If we were seeing a great stagnation, a supply shock, or even certain forms of hangover, this is how it should manifest itself and from a business cycle perspective does not represent any malfunctioning of the market system.

We might feel that this result is unfortunate but then what is truly unfortunate is that the marginal product of labor is too low.

Will the new eurodeal work?

Sarkozy and Merkel are already prepping their electorates for a pending deal, the usual media sources give some varying summaries of what is up, plus it will evolve anyway.  A few of you have written in and asked me if it will work.

I have a simple formula for assessing euro-deals, and it goes as follows:

1. Can Italy grow at two percent a year, more or less sustainably?

2. Will/can the market regard the actions of the seventeen eurozone nations as more or less unified?

If you can add up those two questions to about 1.7 worth of “yes,” then the deal can work.  Otherwise not.

You might also wonder, if the answers to those two questions come in at 1.8, is the deal needed in the first place?  Probably, to get #2 up to a quasi-yes.  (By the way, the Irish seem to think a treaty change and thus a referendum is on the way.)

It is my best judgment — and I stress that word — that the sum answer to those two questions, even with an announced deal by Dec.9, and looser monetary policy, comes in at about 1.16.  Which isn’t enough.

Asking for 1.7 worth of yes seems quite modest, doesn’t it?

Addendum: Do not think that Germany has merely to waive a magic wand, or incur a one-time cost, to set things right in the eurozone.  Any “set things right” action on Germany’s part is, one way or another, a form of doubling down.  If it fails it means a bigger eurozone implosion in the future than would happen now, including much higher costs for Germany.  The choice is not “German action vs. doom now,” it is “German action and some chance of even bigger doom later on vs. doom now.”  That’s a tough call.  The Germans understand that one better than do most of the bloggers I’ve been reading on the topic.

By the way, here is an interesting article on German geopolitics, though I don’t agree with much of it I recommend giving it a read.

*Reading my Father*

The author is Alexandra Styron, daughter of William, who is portrayed as manic depressive.  I found this memoir compelling, and it has been making many “best of” lists.  Here is one excerpt:

By all accounts, my sister was a cheerful baby, smart and pretty, with an easy manner.  In short, an ideal firstborn.  Daddy was enthralled.  “Take a lesson from me and don’t get too interested in the child,” Irwin Shaw wrote in a congratulatory letter.  “Since Adam’s first birthday, I’ve barely written a word, as it is much more interesting to watch all the subtle and terrible currents that run through a complex human being than to sit at a typewriter and battle with the comparatively flat and lifeless material of art.  Dole the child out to yourself in small doses, for your career’s sake.”

You can buy it here.

Seth Roberts on Diversity, Education and Innovation

Wonderful post from Seth Roberts. Not sure if I even agree but Seth makes me think about how I can better serve my students:

People can do great things in dozens of ways, but somehow student work is almost never judged by how beautiful, courageous, practical, good-tasting, astonishing, vivid, funny, moving, comfortable, and so on it is. Because that’s not what professors are good at….To fail to grasp that students can excel in dozens of ways is to seriously shortchange them. To value them at much less than they are worth — and, above all, to fail to help them grow and find their place in the world after college.

At Berkeley, I figured this out in a way that a libertarian should appreciate: I gave my students much more choice. For a term project, I said they could do almost anything so long as it was off-campus and didn’t involve library work. What they chose to do revealed a lot. I began to see not just how different they were from me but how different they were from each other. One of my students chose to give a talk to a high-school class. This was astonishing because she has severe stage fright. Every step was hard. But she did it. “I learned that if I really wanted to, I could conquer my fear,” she wrote.

One of my Tsinghua students recently asked me: “Are you a brave man?” (She wanted to give me a gift of stinky tofu.) I said no. She said she thought I was brave for coming to China. Perhaps. I have never done anything as brave as what my student with stage fright did. I have never done something that terrified me — much less chosen to do such a thing. Her homework hadn’t been very good. When I read about her term project — conquering stage fright — I realized how badly I had misjudged her. How badly I had failed to appreciate her strengths. I saw that it wasn’t just her and it wasn’t just me. By imposing just one narrow way to excel, the whole system badly undervalued almost everyone. Almost everyone had strengths the system ignored. And it’s a system almost everyone must go through to reach a position of power!

…The glorification of IQ has had a solipsistic aspect and has ignored what should be obvious, that diversity of talents and skills promotes innovation. Without a diverse talent pool, any society will do a poor job of solving the problems that inevitably arise.

Hat tip to Bryan Caplan who is less of a romantic than Seth, or I.

How much do unions matter?

Brigham Frandsen, on the job market from MIT, serves up the latest word:

This paper estimates the causal effect of unionization on the distribution of employee earnings using a regression discontinuity design that links administrative records on individual earnings to union certification election results. The results suggest unions raise the lower end of the distribution by around 30 log points, with a much smaller effect on the upper tail, and a modest effect on average earnings. Estimates of average effects by baseline earnings quantile suggest the distributional effects correspond to individual-level earnings effects that vary by skill. Unionization also appears to reduce employment of the lowest skilled workers. These results are consistent with a model of union wage setting in which unions set wages so as to maximize the probability of certification, subject to a minimum profit constraint for the employer. The optimal union wage schedule pays low-skilled union members above marginal product but reduces the return to skill. The estimates suggest that about one quarter of the increase in the variance of log earnings from 1979 to 2009 can be accounted for by falling U.S. private sector unionization rates, a larger fraction than earlier studies have found.

Compensation Now Legal for Bone Marrow Donation

Excellent news; yesterday the Ninth U.S. Circuit Court of Appeals issued a unanimous opinion stating that compensation for bone marrow donation, specifically peripheral blood stem cell apheresis, is legal because such donation does not fall under the National Organ Transplant Act (NOTA).

The case was simple and it’s outrageous that the government fought. In brief, a bone marrow donation used to require inserting a very big needle into the donor’s hip bone, a painful hospital-procedure often requiring general anesthesia. Today, however, donors typically do not donate marrow but hematopoietic stem cells which can be harvested directly from blood in a procedure that takes a little longer but is essentially similar to a standard blood donation. Compensation for blood is legal (blood is excluded as an organ under NOTA). The plaintiffs, led by the Institute for Justice, argued and the court agreed that there is no rational basis for outlawing one type of blood donation when a similar donation is legal.

I was shocked by the utter boneheadedness of one of the government’s arguments:

…the government argues that because it is much harder to find a match for patients who need bone marrow transplants than for patients who need blood transfusions, exploitative market forces could be triggered if bone marrow could be bought.

In other words, markets are forbidden just when they are most useful. It was in fact the patients with rare matches who brought this case. As the court noted:

…a physician and medical school professor…says that at least one out of five of his patients dies because no matching bone marrow donor can be found, and many others have complications when scarcity of matching donors compels him to use imperfectly matched donors. One plaintiff is a parent of mixed race children, for whom sufficiently matched donors are especially scarce, because mixed race persons typically have the rarest marrow cell types.

The patients with the most common cell types can afford to rely on the kindness of strangers. You don’t need a lot of kindness when there are a lot of strangers. The patients who are most difficult to match need to leverage altruism with incentive. It’s a lesson with many applications.