Month: April 2013

Marginal increments of military spending track gdp better than well-being or actual economic performance

Perhaps you have seen reports such as this:

The report showed gross domestic product grew at an annual rate of 2.5 percent during the first three months of the year — significantly slower than most economists had expected. The culprit? A surprising 11.5 percent annualized drop-off in military spending.

In other words, much of the “missing” gdp — whatever its long-term geopolitical value for foreigners — was not creating actual, consumer-relevant value for the United States.  Putting back that military spending would pump the gdp number back up, but that is distinct from the economy improving.  Fetishizing gdp makes the least sense when it comes to military spending, and it is remarkable how few media accounts recognize this point in even a partial fashion.

*Oblivion*

It is one of the most visually spectacular movies I have seen.  The first half is a very good movie in its own right.  The second half is mostly narcissistic trash, only periodically compelling, in which Cruise also rewrites the story of his break-up with Nicole Kidman, in what seems to me an unseemly manner.

Most of all, it is a Straussian commentary on Scientology (and Kidman), you can start your research here.  I am stunned but not surprised that very few reviews have picked on this angle at all (so far it seems that none have and even Quora fell down on the job).  Without such knowledge, the movie makes no sense whatsoever.  With such knowledge, the movie is entirely coherent but in some regards more objectionable.

There are also some nice references to other Cruise movies, such as Top Gun and Eyes Wide Shut, not to mention some of the non-Cruise classics of science fiction cinema, including Star Wars and 2001 and Solaris.

I am very glad I saw this movie, but your mileage may vary.  The Wikipedia entry is here.

Are public sector employees paid more?

Bryan Caplan has studied the literature and he quotes the summary of Philipp Bewerunge and Harvey Rosen:

The literature on wage differentials between public and private sector employees spans roughly four decades, originating with Smith’s [1976a, 1976b, 1977] seminal series of papers. The core of her analysis is the estimation of conventional human capital earnings functions. For example, in Smith [1976b] she uses 1973 Current Population Survey (CPS) data to estimate for each gender a regression of the logarithm of the wage on various worker characteristics such as years of schooling and race, including a series of dichotomous variables indicating whether each individual worked in the federal, state, or local government sectors (the private sector is the omitted category). For males, she finds wage differentials relative to the private sector of 19 percent in federal government and -4.9 percent in local government. The coefficient on the state government variable is statistically insignificant. The differentials for female workers are 31 percent in federal government, 12 percent in state government, and 3.6 percent in local government…

Papers subsequent to Smith’s have modified her approach by trying to correct for self-selection of workers into various sectors, by using panel data to estimate fixed effects models, and by estimating models on a state-by-state basis to allow for the possibility that labor market institutions, and hence public sector wage differentials, vary across states. A fair way to summarize the findings in this literature is as follows: a robust result, found in almost all the research from Smith’s early papers on, is that there is a substantial positive wage differential for federal employees, even after controlling for worker characteristics in the standard way.

I recall this characterization not receiving wide circulation during the recent disputes over Wisconsin and the like, so I thought I would pass it along.

The life of an academic con man

The key to why Stapel got away with his fabrications for so long lies in his keen understanding of the sociology of his field. “I didn’t do strange stuff, I never said let’s do an experiment to show that the earth is flat,” he said. “I always checked — this may be by a cunning manipulative mind — that the experiment was reasonable, that it followed from the research that had come before, that it was just this extra step that everybody was waiting for.” He always read the research literature extensively to generate his hypotheses. “So that it was believable and could be argued that this was the only logical thing you would find,” he said. “Everybody wants you to be novel and creative, but you also need to be truthful and likely. You need to be able to say that this is completely new and exciting, but it’s very likely given what we know so far.”

Here is more, interesting throughout.  I liked this part too:

Stapel did not deny that his deceit was driven by ambition. But it was more complicated than that, he told me. He insisted that he loved social psychology but had been frustrated by the messiness of experimental data, which rarely led to clear conclusions. His lifelong obsession with elegance and order, he said, led him to concoct sexy results that journals found attractive. “It was a quest for aesthetics, for beauty — instead of the truth,” he said. He described his behavior as an addiction that drove him to carry out acts of increasingly daring fraud, like a junkie seeking a bigger and better high.

One of the best articles I’ve read this year, the author is Yudhijit Bhattacharjee.

Judge Trims Patent Thicket

In Launching the Innovation Renaissance I wrote:

In the software, semiconductor and biotech sectors, for example, a new product can require the use of hundreds or even thousands of previous patents, giving each patent owner veto-power over innovation. Most of the owners don’t want to actually stop innovation of course, they want to use their veto-power to grab a share of the profits. So in theory patent owners could agree to a system of licenses from which everyone would benefit. In practice, however, licensing is costly, time-consuming and less likely to work the more parties are involved. It’s easy for a bargain to break down when five owners each want 25 percent of the profits. It’s almost impossible for a bargain to work when hundreds of owners each want 10 percent of the profits.

The just decided Microsoft v. Motorola decision illustrates the problem and what judges can do to help resolve the problem. The case concerned two standards-essential patents (SEPs) which must be licensed to other parties at a reasonable and non-discriminatory (RAND) rates. Motorola, however, was claiming that a reasonable fee required Microsoft to pay over $4 billion annually. The court decided, however, that a truly reasonable free was about $1.8 million a year. Quite the discount. The decision by US District Judge James Robart is admirably clear:

When the standard becomes widely used, the holder of SEPs obtain substantial leverage to demand more than the value of their specific patented technology. This is so even if there were equally good alternatives to that technology available when the original standard was adoped. After the standard is widely implemented, switching to those alternatives is either no longer viable or would be very costly….The ability of a holder of an SEP to demand more than the value of its patented technology and to attempt to capture the value of the standard itself is referred to as patent “hold-up.”…Hold-up can threaten the diffusion of valuable standards and undermine the standard-setting process.

…In the context of standards having many SEPs and products that comply with multiple standards, the risk of the use of post-adoption leverage to exact excessive royalties is compounded by the number of potential licensors and can result in cumulative royalty payments that can undermine the standards…The payment of excessive royalty to many different holders of SEPs is referred to as “royalty stacking.”…a proper methodology for determining a RAND royalty should address the risk of royalty stacking by considering the aggregate royalties that would apply if other SEP holders made royalty demands of the implementer.

Judges made patent law what it is today and they are beginning to remake it. The decision impacts not just Microsoft and Motorola but the value of future patents and the value of future patent litigation.

The thinning out of the medical middle

From Ben Casselman at the WSJ:

The health-care sector, one of the last redoubts of stable and well-paying jobs for less-educated workers, is beginning to look less secure.

A variety of factors, from technological advances to increased attention on both costs and patient outcomes, are driving hospitals and other health-care providers to demand more from both the most- and least-skilled workers, while gradually eroding opportunities for those in the middle.

The result: the gradual disappearance of semiskilled occupations that don’t require a college degree. Positions such as licensed practical nurses and medical-records clerks are being eliminated or pushed out of hospitals into lower-paying corners of the field such as nursing homes. Meanwhile, positions that were once an accessible first rung on the career ladder, such as registered nursing, increasingly require at least a bachelor’s degree.

The trend is worrisome to economists, because health care had been a relative haven from the erosion of middle-skill jobs elsewhere in the economy. Automation, outsourcing and other forces have eliminated many formerly secure jobs in manufacturing, clerical work and other fields. Now health care is following the same path with unforeseen speed.

Here is more.

Assorted links

1. Shakuntala Devi has passed away, and on video.

2. Paraguay is growing at 13 percent.

3. The prospects on Medicaid expansion look fairly iffy overall.

4. Is a service-based economy slower to recover?

5. Baby Einstein on the Beach (quite adorable, the culture that is Brooklyn, via Yana, note the production date, someone should actually produce a 40-minute version of this, no naps).

6. World Economic Forum interviews me on “digital wildfires.”

7. David Brooks on ACA.

Cousin Marriage and Democracy

In the United States consanguineous marriage (marriage between close relatives, often cousins) is frowned upon and in many states banned but it is common elsewhere in the world. Approximately 0.2% of all marriages are consanguineous in the United States but in India 26.6% marriages are consanguineous, in Saudi Arabia the figure is 38.4% and in Niger, Pakistan and Sudan a majority of marriages are consanguineous. Cousin marriage used joffreyto be more common in the West and was particularly common among royal families which gives some hints as to why it may sometimes be useful. Among families with titles or estates, cousin marriage will tend to keep the wealth intact–literally within the family–whereas wealth becomes more dilute more quickly with outside marriage. Cousin marriage may also increase cooperation within the extended family and help to fight off parasites.

A recent paper finds that consangunuity is strongly negatively correlated with democracy:

How might consanguinity affect democracy? Cousin marriages create extended families that
are much more closely related than is the case where such marriages are not practiced. To illustrate,
if a man’s daughter marries his brother’s son, the latter is then not only his nephew but also
his son-in-law, and any children born of that union are more genetically similar to the two grandfathers
than would be the case with non-consanguineous marriages. Following the principles of
kin selection (Hamilton, 1964) and genetic similarity theory (Rushton, 1989, 2005), the high
level of genetic similarity creates extended families with exceptionally close bonds. Kurtz succinctly
illustrates this idea in his description of Middle Eastern educational practices:

If, for example, a child shows a special aptitude in school, his siblings might willingly
sacrifice their personal chances for advancement simply to support his education. Yet once
that child becomes a professional, his income will help to support his siblings, while his
prestige will enhance their marriage prospects. (Kurtz, 2002, p. 37).

Such kin groupings may be extremely nepotistic and distrusting of non-family members in the
larger society. In this context, non-democratic regimes emerge as a consequence of individuals turning to reliable kinship groupings for support rather than to the state or the free market. It has
been found, for example, that societies having high levels of familism tend to have low levels of
generalized trust and civic engagement (Realo, Allik, & Greenfield, 2008), two important correlates
of democracy. Moreover, to people in closely related kin groups, individualism and the
recognition of individual rights, which are part of the cultural idiom of democracy, are perceived
as strange and counterintuitive ideological abstractions (Sailer, 2004).

By the way, cousin marriage results in an elevated risk of birth defects but on the same order as a 40 year old woman having children as opposed to a 30 year old. In other words, the risks are small relative to other accepted risks. Results do get worse when cousin marriage is prevalent over many generations.

Hat tip to Chris Blattman and Joshua Keating. FYI, Steve Sailer wrote an interesting piece on this issue.

Will trailer parks save us all?

Or are they the new shantytowns?  Or a bit of both?  There is a new article on this topic:

A healthy, inexpensive, environmentally friendly solution for housing millions of retiring baby boomers is staring us in the face. We just know it by a dirty name.

…To move into Pismodise you must meet four conditions: Be 55 or older, keep your dog under 20 pounds, be present when guests stay at your home, and be comfortable with what most Americans consider a very small house. “If you need more than 800 square feet I can’t help you,” says Louise with a shrug. There seems to be some leeway on the dog’s weight. The unofficial rules are no less definite: If you are attending the late-afternoon cocktail session on the porch of Space 329, bring your own can, bottle, or box to drink. If you are fighting with other residents, you still have to greet them when you run into them. Make your peace with the word “trailer trash.”

That is all by Lisa Margonelli, in the new Pacific Standard, which so far is turning out to be an interesting periodical.

This economization of living space is what you would expect if Henry George were right about land being an artificial monopoly.  On related matters, I was intrigued by this part of Bob Shiller’s column from last Sunday:

According to a 2007 study by Morris Davis of the University of Wisconsin and Jonathan Heathcote of the Federal Reserve Bank of Minneapolis, the share of nonfarm home value accounted for by land rose to 36.4 percent in 2000 from 15.3 percent in 1930. In an update, they put the percentage at 23.7 percent in the third quarter of 2012.

In fact, except in some densely populated areas, the value of a home has always been mostly in the structure, not the land. But because land’s fraction was rising until recently, people may have been deluded into thinking that investments in housing and land were one and the same.

By 2000, many people appeared to have forgotten that when home prices rise sharply, builders are likely to increase the supply, which tends to bring prices back down. We had such a supply response in the 2000s, and with a vengeance.

Here is more.

Spain fact of the day

According to the Spanish National Statistics Institute, population last year fell for the first time since the 1940s, declining 206,000 to 47.1 million. The number was entirely accounted for by a fall in the number of registered foreign residents. It is a turnaround from the situation in the first decade of the century when an almost forgotten housing boom caused the immigrant population in Spain to rise fivefold to 5.7 million from 924,000. The numbers also suggest that Spaniards are starting to head out of the country to look for work, a trend that seems destined to intensify over the medium term.

Here is more, via @ereguly.

Paul Collier’s *Exodus: How Migration is Changing Our World*

It comes out October 1, and here is from the back cover:

…bestselling author Paul Collier makes a powerful case for the ethical legitimacy of restricting migration in the interests of both sending and receiving societies. Drawing on original research and numerous case studies, Collier explores this volatile issue from three unique perspectives: the migrants themselves, the people they leave behind, and the host societies where they relocate. As Collier shows, those who migrate from the poorest countries, primarily though not exclusive the young, tend to be the best educated and most energetic in their cultures. And while migrants often benefit economically, the larger impacts of mass migrations remain unsettling. The danger is that both host countries and sending societies may lose their national identities– an outcome that Collier suggests would be disastrous as national identity is a powerful force for equity. Collier asserts that migration must be restricted to ensure that it helps those who remain in sending countries and also benefits host societies that make the investment on which migrant gains rely.

The comment section is open, but I’m not going to read them.

Assorted links

1. The culture that is manga Japan.

2. One look at why income inequality is growing.

3. Overview of the current economic crisis in Slovenia.

4. I met Bush once and also thought he was very smart.  No need to waste comments space with banal observations about job involvement, morality, or Woodrow Wilson.

5. Markets in everything, Rhode Island breast milk jewelry edition, I am not sure if I believe this related product.

6. How much of the health care cost slowdown is due to the slowing economy?

7. Portland has a vegan strip club.

8. The wisdom of Scott Sumner, on the UK.