Month: November 2012

Bill Gates on Education Reform

I’m also impressed by the results in places like Western Governors University. Its low-cost online programs rely on competency-based progression, not class-time or credit hours. It uses external assessments to evaluate student proficiency. And because its students are a little older and possibly more focused in their goals, its graduation rates are high and the salaries its graduates earn are good.

Because of institutions like Tennessee Tech and WGU, I’m optimistic about the potential of innovation to help solve many of the problems with our post-secondary system. But we need more and better information. I’m reminded of a point made by Andrew Rosen of Kaplan, the for-profit education company, that colleges today know more about how many kids attend basketball games and which alumni give money than how many students showed up for economics class during the week, or which alumni are having a hard time meeting their career goals because of shortcomings in their education.

That needs to change.

From here.

What is the world’s most valuable media property?

Arguably it is ESPN, which is now valued at about $40 billion:

The reality is that there is not another media property in the world worth as much as ESPN because no media asset delivering content generates close to as much money. Wunderlich pegs the value of the Disney Channel, which is one of the most valuable channels and has the third highest affiliate fees, at $10 billion. It is even uglier in print. The current market value of the New York Times is $1.3 billion. The only media companies in the world worth more than $40 billion are News Corp. ($58 billion) and Comcast ($96 billion). The value of News Corp. is spread out among dozens of media assets, while Comcast derives most of its value from being a cable provider.

A Pakistani view on the economics of Obama’s reelection

I am not endorsing this political and economic analysis, merely reporting it:

Many Pakistanis fear President Barack Obama’s re-election will mean a surge in America’s unpopular drone campaign, but for those making and selling US flags to burn at protests this could be good news.

Demonstrations against Washington’s programme of missile strikes against suspected al Qaeda and Taliban militants are common in Pakistan, and no protest is complete without a Stars and Stripes being sent up in flames.

Nadeem Shah, the owner of a flag business in Rawalpindi, the twin city of the capital Islamabad, said he expected more drone strikes — and more protests.

“Of course Obama has become stronger now and he will push his policies harder and there will be more drone strikes because he himself is stronger now,” Shah told AFP.

“When the drone strikes increase the protests against these strikes will also increase in Pakistan and it can have an impact on the flags and poster business.” Pakistan’s flag industry enjoyed a boom in September when a US-made anti-Islam film sparked weeks of demonstrations, almost all lit up with “Old Glory” being burned.

In Rawalpindi, US flags start at around 120 rupees ($1.25) but in Shah’s shop 1,500 rupees will get you a three-square-metre number in cloth.

The article is here, and for the pointer I thank A.H.

The credibility of the gold standard

There is a new published paper from Niall Ferguson and Moritz Schularick:

We ask whether developing countries reap credibility gains from submitting policy to a strict monetary rule. We look at the gold standard era, 1880-1914, to test whether adoption of a rule-based monetary framework such as the gold standard increased policy credibility, focusing on sixty independent and colonial borrowers in the London market. We challenge the traditional view that gold standard adherence was a credible commitment mechanism rewarded by financial markets with lower borrowing costs. We demonstrate that for the poor periphery – where policy credibility is a particularly acute problem – the market looked behind “the thin film of gold”.

Here is the published version, and here, here is an earlier version, all with varying degrees of gatedness.

For the pointer I thank Rob Raffety.

The culture that was Russian math departments, part II

There is a newly published paper by George Borjas and Kirk Doran, entitled “The Collapse of the Soviet Union and the Productivity of American Mathematicians”, here is the abstract:

It has been difficult to open up the black box of knowledge production. We use unique international data on the publications, citations, and affiliations of mathematicians to examine the impact of a large, post-1992 influx of Soviet mathematicians on the productivity of their U.S. counterparts. We find a negative productivity effect on those mathematicians whose research overlapped with that of the Soviets. We also document an increased mobility rate (to lower quality institutions and out of active publishing) and a reduced likelihood of producing “home run” papers. Although the total product of the preexisting American mathematicians shrank, the Soviet contribution to American mathematics filled in the gap. However, there is no evidence that the Soviets greatly increased the size of the “mathematics pie.” Finally, we find that there are significant international differences in the productivity effects of the collapse of the Soviet Union, and these international differences can be explained by both differences in the size of the émigré flow into the various countries and in how connected each country is to the global market for mathematical publications.

The link is here, possibly gated, there are earlier and ungated versions here.

For the pointer I thank Stuart Harty.

The problem with federalism

Accountability doesn’t function so well in an ideological setting.  Here is a Princeton political science job market paper from Steven Rogers:

Theories of political accountability suggest that governing parties and their members should be electorally punished when they perform poorly in office. However, I find little evidence of this type of accountability in state legislatures. State legislative elections are not referendums on state legislators’ own performance but are instead dominated by national politics. Presidential evaluations and the national economy matter much more for state legislators’ elections than state-level economic conditions, state policy outcomes, or voters’ assessments of the legislature. Previous analyses of state legislative elections fail to consider which party controls the state legislature and whether voters know this information. When accounting for these factors, I discover that even when the legislature performs well, misinformed voters mistakenly reward the minority party. Thus, while state legislatures wield considerable policy-making power, elections are ineffective in holding state legislative parties accountable for their own performance and lawmaking.

Hat tip goes to Matt Yglesias on Twitter.

Childhood Autism and Assortative Mating

This paper (pdf) is from Hays Golden, who is currently on the economics job market from Chicago:

Diagnosed rates of autism spectrum disorders have grown tremendously over the last few decades. I find that assortative mating may have meaningfully contributed to the rise. I develop a general model of genes and assortative mating which shows that small changes in sorting could have large impacts on the extremes of genetic distributions. I apply my theory to autism, which I model as the extreme right tail of a genetic formal thinking ability distribution (systemizing). Using large sample data from the Centers for Disease Control and Prevention, I find strong support for theories that autism is connected to systemizing. My mating model shows that increases in the returns to systemizing, particularly for women, can contribute significantly to rising autism rates. I provide evidence that mating on systemizing has actually shifted, and conclude with a rough calculation suggesting that despite the increase in autism, increased sorting on systemizing has been socially beneficial.

This is an important paper, though I would stress the generality of the result; autism and systematizing may or may not be the best applications.  If you are in some way genetically “extreme,” and suddenly better at finding/pairing with similar extremists, the numbers of that type in a population can rise relatively rapidly.  We now have a very clear and useful model of how that works.  One way to interpret this is to believe that the internet will, over time, increase human genetic diversity.

The culture that was Russian math departments

Here is a new paper (pdf) by Tanya Khonanova and Alexey Radul, entitled “Jewish Problems”:

This is a special collection of problems that were given to select applicants during oral entrance exams to the math department of Moscow State University. These problems were designed to prevent Jewish people and other undesirables from getting a passing grade. Among problems that were used by the department to blackball unwanted candidate students, these problems are distinguished by having a simple solution that is difficult to find. Using problems with a simple solution protected the administration from extra complaints and appeals. This collection therefore has mathematical as well as historical value.

For the pointer I thank Rahul R, a loyal MR reader.

Marijuana Liberalization Reduces Drunk Driving Fatalities

Anderson, Hansen and Rees look at Medical Marijuana Laws, Traffic Fatalities, and Alcohol Consumption:

To date, 17 states have passed medical marijuana laws, yet very little is known about their effects. The current study examines the relationship between the legalization of medical marijuana and traffic fatalities, the leading cause of death among Americans ages 5 through 34. The first full year after coming into effect, legalization is associated with an 8 to 11 percent decrease in traffic fatalities. The impact of legalization on traffic fatalities involving alcohol is larger and estimated with more precision than its impact on traffic fatalities that do not involve alcohol. Legalization is also associated with sharp decreases in the price of marijuana and alcohol consumption, suggesting that marijuana and alcohol are substitutes. Because alternative mechanisms cannot be ruled out, the negative relationship between legalization and alcohol-related traffic fatalities does not necessarily imply that driving under the influence of marijuana is safer than driving under the influence of alcohol.

The decline in alcohol consumption is consistent with the fact that alcohol producers have opposed marijuana legalization. Hat tip: Scott Cunningham.

Fiscal multipliers at the zero bound in an open economy

Let’s continue our look at debates over UK fiscal adjustment.

Will fiscal policy work in an open economy? The standard view has
been that in a Mundell-Fleming model fiscal expansion appreciates
the exchange rate and hurts the trade balance, thus offsetting
the fiscal policy. The U.S. may be too closed an economy for this
to be a big deal, but for the UK it seems this might apply, at
least if one is operating within Keynesian frameworks.

The recent Keynesian response has cited the “lower bound” as a
reason why fiscal policy still may be effective in an open
economy. But what does this literature really show? Let’s take a
brief tour of it, starting with the August 2012 piece by Emmanuel Farhi and Ivan Werning,
brilliant Harvard and MIT guys. Their piece is clear and
excellent, and it shows what the case for fiscal policy in this
setting looks like. (I don’t read them as offering concrete
advice to current governments and thus I have no criticism of
their paper, which I am pleased to have spent time with.)

Here are a few points:

1. “…the effects of government consumption work through
inflation.” In other words, if you think the BOE has greater
influence over inflation than UK government spending, you do not
need the other results of this paper for macro policy. I get the
point of “the central bank cannot precommit to elaborate
targeting schemes over time,” but that’s not what we need here.
We just need some basic money-induced price inflation to render
monetary policy dominant over fiscal policy, even in this case.
And pretty much everyone thinks the BOE can influence the rate of
price inflation. The rates of price inflation we are getting are
not some kind of strange coincidence.

By the way, even with a so-called liquidity trap, the BOE also
can play QE with the exchange rate, as do the Swiss.

2. The zero bound open economy model predicts that fiscal
tightening leads to exchange rate appreciation (contra the usual
Mundell-Fleming case), yet here is the British pound against the

Not an obvious fit to the prediction. There are countervailing
factors, to be sure, but maybe that’s the broader story too.

3. The model in the paper suggests that “current” fiscal policy
won’t much help aggregate demand. Fiscal policy does best the
further away in time it is
, provided it does not happen
after the liquidity trap goes away. This makes sense if you view
inflation as the channel for the effectiveness of fiscal policy.
Getting the inflation over with won’t help much, but if it hangs
over people’s heads they will spend more in response. In fact
there is even a problem that the multiplier can be infinite if
fiscal policy is sufficiently well-time and back-loaded.

None of this corresponds with the advice we actually are hearing.

4. The greater the nominal stickiness of prices in the model, the
weaker the Keynesian effects and in the limiting case they
approach zero. Yet we are told (by the policy commentators) that
nominal stickiness is of the utmost importance.

Let’s consider a few other pieces and points:

5. It is common for these papers to rely on squirrely mechanisms
of intertemporal substitution, which in other contexts are mocked
by Keynesians. Consider
Fujiwara and Ueda
, a commonly cited paper on fiscal
multipliers and the zero bound:

Incomplete stabilization of marginal costs due to the existence
of the zero lower bound is a crucial factor in understanding
the effects of fiscal policy in open economies. Thanks to
this, government spending in the home country raises the
marginal costs of home-produced goods, which increases expected
inflation rates and decreases real interest rates.
Intertemporal optimization causes consumption to increase, so
that the fiscal multiplier exceeds one. While government
spending continues, the price of home-produced goods increases
more than that of foreign-produced goods. Expecting that two
countries are at symmetric equilibrium when government spending
ends, the home currency depreciates and the home terms of trade
worsen on impact when government spending begins. That shifts
demand for goods from foreign-produced goods to home-produced
ones. The fiscal spillover thus may become negative depending
on the intertemporal elasticity of substitution in consumption.

If a passage like that came from an RBC theorist it would be
mocked, but in support of activist fiscal policy it passes
without critical comment.

6. When it comes to Japan and the Japanese lower bound, the
empirical evidence seems to show that “standard theory” predicts
quite well and the stranger zero bound theories do not predict
well. Here is Braun and

We show that a prototypical New Keynesian model fit to Japanese
data exhibits orthodox dynamics during Japan’s episode with
zero interest rates. We then demonstrate that this
specification is more consistent with outcomes in Japan than
alternative specifications that have unorthodox properties….

Those same zero bound Keynesian models predict that economies
should have quite volatile responses to real shocks, yet they do

We also considered specifications of the model that have larger
government purchase multipliers and some which also exhibit
unorthodox predictions for the response of output to labor tax
and technology shocks. We found that these specifications are
difficult to square with the fact that the period of zero
interest rates in Japan between 1999 and 2006 was a period of
low economic volatility. All of the specifications predict the
opposite should have occurred. The specifications with
unorthodox properties also have other problems. They predict
large resource costs of price adjustment which are difficult to
reconcile with empirical evidence that menu costs are small and
they require that households expect the period of zero interest
rates to be counterfactually long.

Need I state the irony that proponents of the relevance of the
zero bound often insist that real shocks simply aren’t making
such a big difference in recent years? That is inconsistent with
the basic model which they otherwise are citing.

7. In these settings (and assuming away all the problems above),
a lot of the effectiveness of fiscal policy, or sometimes all of
it, comes from “beggar thy neighbor” effects. Read Cook
and Devereux
for some illustrative cases. Beggar thy neighbor
strategies are criticized and rejected when Germany (supposedly)
does them through its export prowess, but in the context of
fiscal policy they seem to be given a free pass.

8. In fact I could make further points but I believe that is

The bottom line: A look at this new and
interesting literature shows it does not support the
interpretations which the “policy commentariat” Keynesians are
putting on it and in some regards it even opposes those
interpretations. When it comes to UK fiscal policy, we are seeing
again what I described
last week
: exaggeration and a lack of transparency in