Month: October 2013

Earth orbit debris: an economic model

That is a 2013 paper by Adilov, Alexander, and Cunningham, here is the abstract:

Space debris, an externality generated by expended launch vehicles and damaged satellites, reduces the expected value of space activities by increasing the probability of damaging existing satellites or other space vehicles. Unlike terrestrial pollution, debris created in the production process interacts with firms’ final products, and is, moreover, self-propagating. Collisions between debris or extant satellites creates additional debris. We construct an economic model to explore private incentives to launch satellites and to mitigate space debris. The model predicts that, relative to the social optimum, firms launch too many satellites and under-invest in debris mitigation technologies. We discuss remediation strategies and policies, and calculate a socially optimal Pigovian tax.

While we are on this topic, I very much liked the movie Gravity, which although it has some dialogue hearkens back to the silent classics of the past.  It has spectacular visuals, a “great stagnation” element, a don’t try to be Icarus, live in the mud, and be reborn and baptized in the water element, a reinterpretation of The Book of Job, and a “who builds the best infrastructure anyway?” theme.  On top of all that, it is subtle running commentary on the 1969 film *Marooned* and how much the world has, and hasn’t, changed since then.

The back end glitches in Obamacare

Very few of the individuals trying to buy health insurance are getting through to all the steps of the federal ACA website and using it successfully.  But once they register, they still may not have actual coverage plans, with successes running at what is (possibly) a one in one hundred rate:

As few as 1 in 100 applications on the federal exchange contains enough information to enroll the applicant in a plan, several insurance industry sources told CNBC on Friday. Some of the problems involve how the exchange’s software collects and verifies an applicant’s data.

“It is extraordinary that these systems weren’t ready,” said Sumit Nijhawan, CEO of Infogix, which handles data integrity issues for major insurers including WellPoint and Cigna, as well as multiple Blue Cross Blue Shield affiliates.

Experts said that if‘s success rate doesn’t improve within the next month or so, federal officials could face a situation in January in which relatively large numbers of people believe they have coverage starting that month, but whose enrollment applications are have not been processed.

There is more here, via Megan McArdle, who for years has been predicting major problems with the web sites.  By the way, these are not fundamentally problems of high usage or high demand.

Using eminent domain to halt foreclosure

Richmond, California has developed a new trick, achieving an effect similar to principal reduction:

Richmond condemns mortgages on homes that are now worth far less than what the borrower owes. The note holders — investors such as pension funds and mutual funds – are forced to settle for the current fair market value. The city pays for this with cash from a new set of investors, who now own the mortgage. The new price is set by the current market, and the homeowner settles into a more manageable loan.

From Lydia DePillis at Wonkbook, the full story is here.  This part is interesting too:

Richmond couldn’t get insurance to shield it from a crushing judgment — if it lost its bid to spare struggling homeowners, the city could find itself underwater.

In the backlash to the plan, the market boycotted the city’s most recent bond issuance, forcing it to withdraw the $34 million offer, which was supposed to refinance earlier debt.

Richmond’s leaders stared hard at the threats. In the end, it seemed to only harden their resolve.

The seizures have not yet happened, but are pending, and it is expected that Richmond will need to defend itself in court.

Assorted links

1. How did popcorn come to be associated with the movies?

2. The ascendancy of data in eight young economics stars.

3. “Hauling iron ore across Australia’s outback pays some 400 engineers about $224,000 per year, but the gravy train is coming to an end thanks to robots.”  The Ricardo effect.

4. Possibly innocent man was held in solitary confinement for 41 years, he has now passed away.

5. Does eye contact harm your case? (speculative)

6. Watson, meet your new partner, Amos.

7.  Wikipedia ist hier.

Further small steps toward designer babies

A personal-genomics company in California has been awarded a broad U.S. patent for a technique that could be used in a fertility clinic to create babies with selected traits, as the frontiers of genetic enhancement continue to advance.

The patented process from 23andMe, whose main business is collecting DNA from customers and analyzing it to provide information about health and ancestry, could be employed to match the genetic profile of a would-be parent to that of donor sperm or eggs. In theory, this could lead to the advent of “designer babies,” a controversial idea where genes would be selected to boost the chances of a child having certain physical attributes, such as a particular eye or hair color.

The technique potentially could also be used to create healthier babies, by screening out donors with genes that are predisposed to disease, either on their own, or in combination with the recipient’s genes.

The awarding of the patent “is a massive addition to what is currently being done” in fertility clinics, said Sigrid Sterckx of the Bioethics Institute Ghent in Belgium, who co-wrote a commentary on the 23andMe patent in the journal Genetics in Medicine on Thursday. “It indicates a different attitude, not just about disease-related traits, but nondisease traits.” 23andMe, based in Mountain View, Calif., says that while its new patent encompasses trait selection in babies, through a tool called the Family Traits Inheritance Calculator, it has no plans to apply it to that end.

As I understand the article, this works only when there is a sperm or egg donor, although a potential marrying couple could use it ex ante (“come on Biff, let’s just try it, I’m just curious.  I’ll always love you.”)  My view has long been that most people, if they have the chance, are willing to embrace and also use eugenics, albeit with some reframing and rebranding.  Eugenics was a very popular idea with Progressives earlier in the twentieth century, and also with economists (in particular, pdf), and ultimately the Nazi connection will be seen as a bump in the road.  Competition with the Chinese will help push Americans toward this ideological shift.  I am more skeptical myself, as I see greater value in the genetic outliers and I fear their disappearance or diminution.  I also am relatively skeptical about the quality of the processes — legal and otherwise — which are likely to govern such experiments.  In any case, you can think of this as the next step after “early intervention.”  Why don’t we call it “very early intervention”?

The story is here, and if you need to get through the gate, enter “Gautam Naik”, the author of the article, into

Will the Swiss vote in a guaranteed annual income?

Switzerland will hold a vote on whether to introduce a basic income for all adults, in a further sign of growing public activism over pay inequality since the financial crisis.

A grassroots committee is calling for all adults in Switzerland to receive an unconditional income of 2,500 Swiss francs ($2,800) per month from the state, with the aim of providing a financial safety net for the population.

Organizers submitted more than the 100,000 signatures needed to call a referendum on Friday and tipped a truckload of 8 million five-rappen coins outside the parliament building in Berne, one for each person living in Switzerland.

With that, a married couple could piece together more than 67k and simply not work, so this sum appears infeasible.  There is more information here, hat tip goes to Evan Soltas.

Measuring uncertainty, and its role in business cycles

That is a new paper by Kyle Jurado, Sydney C. Ludvigson, Serena Ng, here is the abstract:

This paper exploits a data rich environment to provide direct econometric estimates of time-varying macro uncertainty, defined as the common variation in the unforecastable component of a large number of economic indicators. Our estimates display significant independent variations from popular uncertainty proxies, suggesting that much of their variation is not driven by uncertainty. Quantitatively important uncertainty episodes appear far more infrequently than indicated by popular uncertainty proxies, but when they do occur, they have larger and more persistent correlations with real activity. Our estimates provide a benchmark to evaluate theories for which uncertainty shocks play a role in business cycles.

It is common these days to criticize “uncertainty theories” by tying them to Republican complaints about President Obama.  But in fact risk and uncertainty approaches to business cycles are increasingly popular, and they exist in much stronger forms than what you usually hear discussed.  There is an ungated version of the paper here (pdf)

Assorted links

1. Lots of links on quantum field theory and string theory.

2. An older piece on the wisdom of earmarks, more relevant than ever.

3. The Karachi stock exchange is up 44 percent this year.

4. Scott Sumner on Chinese ghost cities.

5. How much peer review is there at open access journals?  And the supply chain for dog in Vietnam.

6. David Wilezol on *Average is Over*.

7. The Blizzident (there is no great stagnation).

Competency-based education comes to Wisconsin (hi future)

From The Chronicle:

Later this year Wisconsin’s extension system will start a competency-based learning program, called the Flexible Option, in which students with professional experience and training in certain skills might be able to test out of whole courses on their way to getting a degree.

Competency-based learning is already famously used by private institutions like Southern New Hampshire University and Western Governors University, but Wisconsin will be one of the first major public universities to take on this new, controversial form of granting degrees. Among the system’s campuses, Milwaukee was first to announce bachelor’s degrees in nursing, diagnostic imaging, and information science and technology, along with a certificate in professional and business communication. UW Colleges, made up of the system’s two-year institutions, is developing liberal-arts-oriented associate degrees. The Flex Option, as it’s often called, may cost the Wisconsin system $35-million over the next few years, with half of that recovered through tuition. The system is starting with a three-month, all-you-can-learn term for $2,250.

If done right, the Flex Option could help a significant number of adults acquire marketable skills and cross the college finish line—an important goal in Wisconsin, which lags behind neighboring states in percentage of adults with college diplomas. There are some 800,000 people in the state who have some college credits but no degree—among them Wisconsin Gov. Scott Walker, who dropped out of Marquette University. He had pushed the university system to set up the Flex Option early last year, when he was considering inviting Western Governors to the state to close a statewide skills gap in high-demand fields like health care, information technology, and advanced manufacturing.

The article seems to suggest that some professors in the Wisconsin system are opposed to this innovation.  Developing…

Unemployment and Business Cycles (and a rehabilitation of matching models)

That is a new and important paper by Christiano, Eichenbaum, and Trabandt which strengthens and rehabilitates matching models of the labor market.  The abstract is this:

We develop and estimate a general equilibrium model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, wages are not subject to exogenous nominal rigidities. Instead we derive wage inertia from our specification of how firms and workers interact when negotiating wages. Our model outperforms the standard Diamond-Mortensen-Pissarides model both statistically and in terms of the plausibility of the estimated structural parameter values. Our model also outperforms an estimated sticky wage model.

A few points:

1. This model overcomes the empirical problems with matching models stressed by Shimer (2005).

2. In this model the distinction between structural and cyclical unemployment is ill-defined.  To insist that today’s unemployment is one rather than the other is to commit a category mistake.

3. This model very naturally handles the distinction between “sticky wages for workers who already have jobs” and the situation of workers who do not have a job at all.  For most traditional sticky wage theories this is an embarrassment, as quite good theories of incumbent theories cannot be stretched easily to cover sticky reservation wages for the unemployed.

4. This model does not require that any openly available, good for both sides wage bargain is left sitting on the table.

5. In this model money has a positive effect on output and employment, but only by lowering real interest rates and inducing more consumer spending.  It does not in general appear to be a large effect, but there is a real positive effect.  You will note that the underlying parameters of the labor matching model are defined in real terms.

6. This model derives wage inertia and thus matches observed data on “stickiness,” noting that “stickiness” now seems to be a misleading word.

7. It would be a mistake to think that this model (or any) captures the entirety of the U.S. labor market.  Yet if the model reflects a big chunk of our labor market, at the expense of the standard nominal wage stickiness model, that would have significant implications for how we think about monetary and fiscal policies.

8. Unlike in the Keynesian model, I believe in this model it is possible for effective stimulus policy to both improve employment and boost real wages (possibly small amounts).  That is a very common claim (“let’s get some stimulus to boost wages”), yet few people making it realize how much it conflicts with their underlying Keynesian foundations.  Perhaps this is a new way forward.  Please note, however, that is my intuition based upon reading the paper and not a result which the authors have proven formally.

It is oddly fashionable in the economics blogosphere to insist that microfoundations do not matter or are not a worthy matter of study.  Papers like this show that in fact they matter a great deal.

An (earlier?) ungated version of the paper is here.

How is this for polemic?

Here is Patrick J. Deneen on the themes of *Average is Over* and Bill Galston. Excerpt:

The Left laments the income gap, and proposes various forms of social welfare that will cushion the blow, all the while even more enthusiastically constructing the meritocratic society and populating government and leading thinkeries with Ivy League “winners.” These button-down hipsters increasingly accumulate in a select number of urban echo-chambers described most recently by Charles Murray, where they lament the rise of a growing underclass while sipping $7 lattes. These social policies are purportedly to be supported by a tax base of theoretical future citizens that are not being born, a logical outcome of an aggressively expanding and government-subsidized sexual revolution, contracepting, gay marriage, and abortion culture advanced by the very same Left.

Assorted links

1. How is Amazon art-selling working out?

2. Interview on fossil fuels.

3. Dating markets in everything.

4. Redux: Bryan Caplan on the ideological Turing test.  Ross Douthat passes the test in his why the Right fights.  Josh Barro passes the test.  Many others are failing the test.

5. Squirrels instead of birds?  And will these Korean robots stop the jellyfish invasion?

6. Caught by favoring Mises?  On-line drug dealers should be more cautious and perhaps spend more time with Hayek.