Month: July 2013

Assorted links

by  Tyler Cowen

1. Me on Italian vs. French food (in German).

2.  The culture that is England, at first I thought this was parody, I guess she won’t be friends with me.  My favorite line was “I have to.”  Killer video.

3. 44-pp. overview of some Chinese financial institutions.

4. Interview with Knausgaard.

5. Amazon is now raising the prices of many books, including university press books.

6. A profile of Warren Mosler and Modern Monetary Theory.

7. Alex posts on income-contingent loans.

8. Thai Hitler fried chicken markets in everything.

Should Oregon fund college through equity?

by  Tyler Cowen in

Here is the latest proposal, which seems to stand a chance of actually happening:

This week, the Oregon Legislature approved a plan that could allow students to attend state colleges without paying tuition or taking out traditional loans. Instead, they would commit a small percentage of their future incomes to repaying the state; those who earn very little would pay very little.

I’m all for this as an experiment, but I’m not sure how effective it will be.  Here is one more detail:

The plan’s supporters have estimated that for it to work, the state would have to take about 3 percent of a former student’s earnings for 20 years, in the case of someone who earned a bachelor’s degree.

Twenty years is a long time and I fear the implied selection mechanism embedded in that time horizon.  At the margin I would expect this to attract people who don’t have a vivid mental image of the distant future.  Furthermore the terms of the program discriminate against those who expect high earnings or for that matter those who expect to finish.  In other words, the drop out rate of the marginal students here may be relatively high.  And what are the payback terms for dropouts?  Do they get off scot free?  Pay proportionately for what they finished?  Pay much much less to reflect their lower expected wages?  The six-year graduation rate at Oregon State is only about 61%.  This is not a small question.

Funding education through debt or through family-based crowd-sourcing may serve up a better mix of students.  By the way, this source says the repayment period is over 24 years, not 20.  Again, keep in mind that “the rate of return for the marginal student” is not the same as the “rate of return for the marginal student who would be attracted by these terms.”

And is this a better or worse deal for the median student at say Oregon State?  If most students take this offer, I fear that the university’s incentive to improve the quality of education will not stay intact at the margin.  I do understand there is a version of this plan where the tuition revenue simply comes from a state program rather than from the student, but more likely than not Oregon would end up with a “complex formula” which weakens the incentives of the institutions at the relevant margin.  (On the state side of the equation, there is an incentive to conserve on cash and make the marginal tuition “free,” rather than pay the same amount of cash to the school the student would have paid.)  Alternatively, if most students do not take this offer, one has to wonder what is wrong with it and adjust one’s estimate of the adverse selection problem accordingly.

Let’s assume, for the purposes of argument, that the 3% future “tax” won’t hurt labor supply at all.  How is this program so different from moving to the European model, where higher education is free or near-free and general taxes on the population are higher?  Yet the European systems of higher education are generally worse than those in America, so why should we be trying to copy them or move toward them?  If anything, they are trying to move closer to American models.

At the end of the day, I am willing to let Oregon make a likely mistake to find out how this works.  Go ahead guys, do it, we are all watching.

I thank several loyal MR readers for the pointer.

Foreign markets encourage Hollywood sequels

by  Tyler Cowen in

Jim reviews the numbers: “The first Ice Age does $175 million domestically, $206 million internationally.  The second one does $192 million domestically, $456 internationally.  The third one does $200 million domestically and $700 million internationally.”

That is from the new Lynda Obst book, Sleepless in Hollywood: Tales from the NEW ABNORMAL in the Movie Business.  The book is poorly written but sometimes of interest for those who follow this topic.

China markets in everything

by  Tyler Cowen in

“Adult [clients] can drink it directly through breastfeeding, or they can always drink it from a breast pump if they feel embarrassed,” the report quoted company owner Lin Jun as saying.

Wet nurses serving adults are paid about 16,000 yuan (US$2,610) a month — more than four times the Chinese average — and those who are “healthy and good looking” can earn even more, the report said.

Traditional beliefs in some parts of China hold that human breast milk has the best and most easily digestible nutrition for people who are ill.

There is more to the story here, and for the pointer I thank a loyal MR reader.

Our forthcoming labor market problem, in a nutshell

by  Tyler Cowen in

It seems the Israeli Electric Corp. will offer “kosher electricity” by 2014.  That means (in addition to other factors) automation of the major power stations on Saturdays, with some non-Jewish workers to oversee the automation.  The practice eventually may spread to weekdays too.

Do note:

And of course this will all be subject to the religious supervision of the Scientific-Technological Halacha Institute.

For the pointer I thank Mark Thorson.

How bad were the Navigation Acts really?

by  Tyler Cowen in

Adam Smith supported them and he was no mercantilist.  Here is another take:

…that remains the consensus view among a broad sample of modern scholars: a recent study concluded that nearly 90 percent of the economists and historians surveyed agreed with proposition that “[t]he costs imposed on the colonists by the trade restrictions of the Navigation Acts were small.”

if the burden of the Navigation Acts was so slight — no more than one percent of GDP, according to Thomas’ calculation — why did the Americans make such a fuss over it?  The short answer is that although the burden to the American colonies as a whole was low, it did not fall evenly across the entire economy: some sectors and regions suffered disproportionately, while others were barely affected.  The regions and sectors that suffered the most from the Navigation Acts tended to be the strongest supporters of the American Revolution.

That is from the forthcoming useful book by Richard S. Grossman Wrong: Nine Economic Policy Disasters and What We Can Learn from Them.  For the two relevant Robert Paul Thomas pieces (jstor) see here and here.

To further brighten your day, here is a non-gated piece by Robert Whaples, “Where is There Consensus Among American Economic Historians?  The Results of a Survey on Forty Propositions” (pdf).

*Napoleon’s Egypt*

by  Tyler Cowen in

The author of this interesting work is Juan Cole and the subtitle is Invading the Middle East.  Here is one excerpt:

Many of the French took seriously Bonaparte’s proclamations that he intended to bring liberty to the Egyptians through institutions such as the clerically dominated divan.  The French not only interpreted Egypt in terms familiar to their eighteenth-century world, they were also capable of reinterpreting their own history in light of what they saw in Egypt.  Just as rationalist officers coded popular Islam as reactionary Catholicism, so the Republican French mapped the defeated beys as analogous to the French Old Regime and saw their overthrow and institution of municipal elections as the advent of liberty.

This book is one good place to start.  Here is the Wikipedia page on the French invasion of Egypt and Syria.

How might democracy disappear?

by  Tyler Cowen in

From my latest request for requests, anonymous asked:

It’s 2050. Democracy has ended in most countries, with a few exceptions. What happened?

Another reader, Dirk, asked:

If democracy ended in the USA, how do you think it would most likely play out?

Maybe you are thinking in terms of war or pandemic, but external conditions would have to be truly extreme to end democracy in the United States.   The poor military fortunes of the Confederacy in the South, during the Civil War, did not lead to non-democracy (for Whites, slanted source here).  Nor did siege by the Nazis make Great Britain less democratic, if anything the contrary.

If the Anglo democracies are to disappear, it will be because they will have voted themselves out of the idea, democratically of course.

As for many other parts of the world, my view is if you haven’t had democracy for one hundred years or more, it probably isn’t as stable as it may at first appear.

Assorted links

by  Tyler Cowen

1. Ross Douthat on Andrew Sullivan.

2. What are the weirdest languages in the world?

3. Cengage files for bankruptcy protection.

4. Which English language curse word does Merkel use in public without hesitation or blow back?

5. Where are the missing 90-year-olds?

6. Digital manufacturing is more important than 3-D printing.

7. Robin Hanson disagrees with me and advocates betting on beliefs.  On my side of the debate I claim a long history of successful science, corporate innovation, journalism, and also commentary of many kinds, mostly not based on personal small bets, sometimes banning them, and relying on various other forms of personal stakes in ideas, and passing various market tests repeatedly.  I don’t see comparable evidence on the other side of this debate, which I interpret as a preference for witnessing comeuppance for its own sake (read Robin’s framing or Alex’s repeated use of the mood-affiliated word “bullshit” to describe both scientific communication and reporting).  The quest for comeuppance is a misallocation of personal resources.

Differential Pricing in University Education

by  Alex Tabarrok in

Traditionally universities have charged every student the same tuition/price regardless of major. Under budget pressure, however, differential pricing is becoming more common. Differential pricing is tending to reduce the peculiar cross-subsidies that currently exist as pointed out in a new working paper by Kevin Stange (earlier version):

Higher education in the United States is heavily subsidized, both through direct support for institutions by state governments and private donors, and through federal and state support
directly to students. There are also substantial differences in the extent of subsidization across
institutions and sectors, with students at selective private institutions more heavily subsidized
than those at less selective institutions(Winston 1999). Less commonly noticed, however, is that
there are also large cross-subsidies between students within the same institutions due to the
conventional practice of charging similar tuition fees to all undergraduate students regardless of
the cost of instructing them. The cost of instruction differs tremendously between upper and
lower division coursework and across programs even within institutions. For instance, recent
analysis of cost data from four large state post-secondary systems (Florida, Illinois, New York‐
SUNY, and Ohio) indicated that upper division instruction costs approximately 40% more per
credit hour than lower division instruction, and that upper-division engineering, physical science,
and visual/performing art was approximately 40% more costly than the least costly majors
(SHEEO, 2010). In fact, an earlier but more extensive cost study found that more than three-fourths of the variance in instructional cost across institutions is explained by the disciplinary
mix within an institution (U.S. Department of Education 2003). The consequence is that lower division students subsidize upper-division students and students in costly majors are subsidized
by those in less expensive ones.

This pattern of cross-subsidization generally runs counter to differences in post-schooling
earnings and ability to pay. Lower division includes many students who eventually drop out,
while students that have advanced to upper division are more likely to graduate and earn more.
Engineering, science, and business majors tend to earn more and have higher returns than
education and humanities majors, even after controlling for differential selection of major by
ability (Arcidiacono 2004).

I have argued for targeting education subsidies to the majors that are most likely to have the greatest positive spillovers. Differential pricing moves prices closer to costs which opens up the possibility for more rational pricing but notice that it can in some cases move prices away from optimal subsidy levels.

Hat tip: Dubner at Freakonomics.

Repeal the employer mandate altogether

by  Tyler Cowen in

I agree with Ezra Klein, who writes:

Delaying Obamacare’s employer mandate is the right thing to do. Frankly, eliminating it — or at least utterly overhauling it — is probably the right thing to do. But the administration executing a regulatory end-run around Congress is not the right way to do it.

Ezra notes:

– By imposing a tax on employers for hiring people from low- and moderate-income families who would qualify for subsidies in the new health insurance exchanges, it would discourage firms from hiring such individuals and would favor the hiring — for the same jobs — of people who don’t qualify for subsidies (primarily people from families at higher income levels).

– It would provide an incentive for employers to convert full-time workers (i.e., workers employed at least 30 hours per week) to part-time workers.

– It would place significant new administrative burdens and costs on employers.

By tying the penalties to how many full-time workers an employer has, and how many of them qualify for subsidies, the mandate gives employers a reason to have fewer full-time workers, and fewer low-income workers.

We can only hope that repeal of this one part of the law is what the Obama Administration actually has in mind, though as Ezra notes Congress is not currently in a cooperative frame of mind.  Still, this way it has a chance of serious reexamination after the 2014 elections.

Evan Soltas offers relevant comment on how this will change implementation in the short-run, namely that it puts more burden on the exchanges.  Sarah Kliff comments on the politics, a very good post.  Here is one good quotation from a source: “Politically, it won’t get easier a year from now, it will get harder,” he said. “You’ve given the employer community a sense of confidence that maybe they can kill this. If I were an employer, I would smell blood in the water.”

My view is you don’t serve up a delay and PR disaster like this, on such a sensitive political issue, unless you really wish to derail the entire provision.

John Rawls was a Platonist on baseball

by  Tyler Cowen in

On most Saturdays, the shy, private Rawls would spend hours typing letters recalling past events in astounding detail. One such letter, republished by Boston Review, recalled a conversation he had some twenty years earlier—you probably had conversations with sentient beings today who have lived shorter than that—about why baseball is the best sport. In the letter, Rawls credits his interlocutor, Harry Kalven, for coming up with six reasons why baseball is “the best of all games.”

That is from Aaron Gordon (via BookForum), who also dissects the fallacies of Rawls on baseball.