Month: October 2013

Is the American public becoming more conservative?

Sort of, yes, as John Sides reports:

Importantly, the public has not moved in a conservative direction in all issue areas. For example, support for same-sex marriage has been increasing across all states. It is also worth noting that our findings on the 1960s and 2000s hides important shifts in policy mood between these periods, such as increased policy liberalism during the 1980s. However, when it comes to support of government programs, the net conservative shift is clear.  Considering the evidence that inequality is near an all-time high, this may seem like a surprising result. Prominent economic models, for example, expect that as the rich get richer, public support for government policies like spending more on education, infrastructure, and job creation would increase. Instead, across the country, the public’s policy mood has moved in a conservative direction.

There is more of interest here.

Will the health care exchanges lower prices over time?

Here are some interesting arguments from David Goldhill, here is one of them:

The designers of the health-care exchanges have also assumed that consumers, by shopping for the best deal, will drive down premiums. However, a major flaw in the design of insurance subsidies will insulate almost all of the initial customers — the estimated 20 million subsidized households — from concern about how much their policies cost.

Now, it’s not supposed to work this way. Only those Americans who don’t get insurance at work and who have income that puts them between 100 percent (138 percent in Medicaid expansion states) and 400 percent of the federal poverty level are eligible for exchange subsidies. As income rises within this bracket, the subsidy shrinks. But in practical terms, everyone who is subsidized has an infinite subsidy that will make them insensitive to premium levels.

How can that be? Let’s take an example. A family of four at 138 percent of the poverty level ($32,499) has its premium capped at 3.29 percent of income or $1,071. The rest is subsidy. So, if the cost of a silver plan is $10,000, the subsidy for this family is $8,929. A family at 400 percent of the poverty level ($94,200) has to pay up to 9.5 percent of its income for a plan, or $8,949. So the same $10,000 premium carries a subsidy of only $1,051.

…But now look at those two families from the insurer’s perspective. A $10,000 plan already costs more than the maximum amount either family would pay. If the insurer raises the premium to $10,001, both families get $1 in additional subsidy. If it raises premiums to $11,000, both families get $1,000 in additional subsidy. In other words, no matter how much an insurer raises rates, a subsidized household pays zero more.

The full piece is here.  Reihan adds useful commentsThis evidence does indicate that more sellers does lead to lower premiums, relative to fewer sellers.

The culture that is England

England is the only country in the developed world where the generation approaching retirement is more literate and numerate than the youngest adults, according to the first skills survey by the Organisation for Economic Co-operation and Development.

In a stark assessment of the success and failure of the 720-million-strong adult workforce across the wealthier economies, the economic thinktank warns that in England, adults aged 55 to 65 perform better than 16- to 24-year-olds at foundation levels of literacy and numeracy. The survey did not include people from Scotland or Wales.

The OECD study also finds that a quarter of adults in England have the maths skills of a 10-year-old. About 8.5 million adults, 24.1% of the population, have such basic levels of numeracy that they can manage only one-step tasks in arithmetic, sorting numbers or reading graphs. This is worse than the average in the developed world, where an average of 19% of people were found to have a similarly poor skill base.

When the results within age groups are compared across participating countries, older adults in England score higher in literacy and numeracy than the average among their peers, while younger adults show some of the lowest scores for their age group.

Here is further information, via Annie Lowrey.

Seattle markets in everything?

To understand homelessness, you could work at a social service agency. Or volunteer. Or read.

Or, if you believe a website called “Real View Tours,” you can also pay $2,000 to live undercover as a homeless person in Seattle with a tour guide for three days.

“You will gain a new respect for the folks that find themselves in this predicament,” Real View Tours says of its “Course in Applied Homelessness.”

“You will see the seedier side of Seattle in a new light and have an experience that you will never forget. Embrace the Experience!”

There is more here, and I thank Mark Thorson for the pointer.

Assorted links

1. More on rollout glitches for the insurers.

2. Rogoff responds again to Krugman.

3. On open borders, Nathan Smith responds, but I consider it a surrender.  What he calls “open borders” I call “not open borders.”  Price and quantity are dual.

4. Some further results on risk and uncertainty shocks (pdf).

5. The New York Post covers Average is Over.  And here is James Pethokoukis on the book.

The Adult Skill Gap

From the NYTimes reporting on the OECD Skills Outlook 2013, a study of adult skills.

The study, perhaps the most detailed of its kind, shows that the well-documented pattern of several other countries surging past the United States in students’ test scores and young people’s college graduation rates corresponds to a skills gap, extending far beyond school. In the United States, young adults in particular fare poorly compared with their international competitors of the same ages — not just in math and technology, but also in literacy.

More surprisingly, even middle-aged Americans — who, on paper, are among the best-educated people of their generation anywhere in the world — are barely better than middle of the pack in skills.


Ho hum, move along, nothing to see here (really)

I can’t load the image into WordPress for some reason, but check out this picture of how VIX — one measure of U.S. market volatility — is behaving in recent weeks and months.  It’s down, and staying low.

This is one reason why I am not much covering the government shutdown or debt ceiling crisis, though I view both disputes as inefficient, harmful, and tactically unwise to boot.  In fact, that graph should be plastered below most of the blog posts you read on these topics.

What are the ethics of the cyborg cockroach? (Franz Kafka edition)

At the TEDx conference in Detroit last week, RoboRoach #12 scuttled across the exhibition floor, pursued not by an exterminator but by a gaggle of fascinated onlookers. Wearing a tiny backpack of microelectronics on its shell, the cockroach—a member of the Blaptica dubiaspecies—zigzagged along the corridor in a twitchy fashion, its direction controlled by the brush of a finger against an iPhone touch screen (as seen in video above).

RoboRoach #12 and its brethren are billed as a do-it-yourself neuroscience experiment that allows students to create their own “cyborg” insects. The roach was the main feature of the TEDx talk by Greg Gage and Tim Marzullo, co-founders of an educational company calledBackyard Brains. After a summer Kickstarter campaign raised enough money to let them hone their insect creation, the pair used the Detroit presentation to show it off and announce that starting in November, the company will, for $99, begin shipping live cockroaches across the nation, accompanied by a microelectronic hardware and surgical kits geared toward students as young as 10 years old.

And what is the problem exactly?

The roaches’ movements to the right or left are controlled by electrodes that feed into their antennae and receive signals by remote control—via the Bluetooth signals emitted by smartphones. To attach the device to the insect, students are instructed to douse the insect in ice water to “anesthetize” it, sand a patch of shell on its head so that the superglue and electrodes will stick, and then insert a groundwire into the insect’s thorax. Next, they must carefully trim the insect’s antennae, and insert silver electrodes into them. Ultimately, these wires receive electrical impulses from a circuit affixed to the insect’s back.

Gage says the roaches feel little pain from the stimulation, to which they quickly adapt. But the notion that the insects aren’t seriously harmed by having body parts cut off is “disingenuous,” says animal behavior scientist Jonathan Balcombe of the Humane Society University in Washington, D.C. “If it was discovered that a teacher was having students use magnifying glasses to burn ants and then look at their tissue, how would people react?”

The full story is here, interesting throughout and with a video too.

Interregional trade is growing much more slowly than international trade

Paul Krugman writes:

…we can measure the growth of each flow from 1997 to 2011, which covers much though not all of the era of “hyperglobalization.” And here’s what I get for percentage changes from 1997-2011:

Exports: 46.5
Imports: 108.7
Total trade (exports plus imports): 81.2
Domestic shipments: 25.6
Real GDP: 36.6

I think this makes sense: the forces behind hyperglobalization — reduced transportation and communication costs leading to vertical disintegration of production — are encouraging mainly long-range trade to save a few percent on labor costs, not shipping stuff between U.S. cities. Interregional trade seems even to be lagging GDP, possibly because our cities are becoming less specialized than they used to be. (What does Atlanta do for a living, exactly?)

The labor market effects of immigration and emigration from OECD countries

Here is a new paper by Frédéric Docquier, Çaglar Ozden & Giovanni Peri, forthcoming in Economic Journal:

In this paper, we quantify the labor market effects of migration flows in OECD countries during the 1990’s based on a new global database on the bilateral stock of migrants, by education level. We simulate various outcomes using an aggregate model of labor markets, parameterized by a range of estimates from the literature. We find that immigration had a positive effect on the wages of less educated natives and it increased or left unchanged the average native wages. Emigration, instead, had a negative effect on the wages of less educated native workers and increased inequality within countries.

A gated version of the paper is here, ungated versions are here.

Yes, I am familiar with how these models and estimates work, and yes you can argue back to a “we really can’t tell” point of view, if you are so inclined.  But you cannot by any stretch of the imagination argue to some of the negative economic claims about immigration that you will find in the comments section of this blog and elsewhere.

And no I do not favor open borders even though I do favor a big increase in immigration into the United States, both high- and low-skilled.  The simplest argument against open borders is the political one.  Try to apply the idea to Cyprus, Taiwan, Israel, Switzerland, and Iceland and see how far you get.  Big countries will manage the flow better than the small ones but suddenly the burden of proof is shifted to a new question: can we find any countries big enough (or undesirable enough) where truly open immigration might actually work?

In my view the open borders advocates are doing the pro-immigration cause a disservice.  The notion of fully open borders scares people, it should scare people, and it rubs against their risk-averse tendencies the wrong way.  I am glad the United States had open borders when it did, but today there is too much global mobility and the institutions and infrastructure and social welfare policies of the United States are, unlike in 1910, already too geared toward higher per capita incomes than what truly free immigration would bring.  Plunking 500 million or a billion poor individuals in the United States most likely would destroy the goose laying the golden eggs.  (The clever will note that this problem is smaller if all wealthy countries move to free immigration at the same time, but of course that is unlikely.)

For the initial pointer I thank Kevin Lewis.

Trade, Development and Genetic Distance

Trade increases development but the main driver appears not to be comparative advantage and the standard microeconomic “gains from trade” but rather factors emphasized by Adam Smith and Paul Romer such as the increasing returns to scale that drives innovation and investment in R&D and also the ways in which trade increases exposure to and adoption of foreign ideas.

It’s much easier, however, to trade goods than ideas. The price of wheat shows strong convergence around the world by the 19th century but even simple ideas like hand-washing transmit much more slowly. Complex ideas like the rights of women, the rule of law or the corporate form transmit even more slowly. Thus, one of the barriers to development is barriers to the transmission of ideas.

Enrico Spolaore and Romain Wacziarg have done pioneering work uncovering some of the deep factors of development by using genetic distance as a measure of the difficulty of communicating ideas. Spolaore and Wacziarg have a short paper in Vox summarizing their methods and findings.

 [G]enetic distance is like a molecular clock – it measures average separation times between populations. Therefore, genetic distance can be used as a summary statistic for divergence in all the traits that are transmitted with variation from one generation to the next over the long run, including divergence in cultural traits.

Our hypothesis is that, at a later stage, when populations enter into contact with each other, differences in those traits create barriers to exchange, communication, and imitation.

…Our barriers model implies that different development patterns across societies should depend not so much on the absolute genetic distance between them, but more on their relative genetic distance from the world’s technological frontier. For example, when studying the spread of the Industrial Revolution in Europe in the 19th century, what matters is not so much the absolute distance between the Greeks and the Italians, but rather how much closer Italians were to the English than the Greeks were. Indeed, we show that the magnitude of the effect of genetic distance relative to the technological frontier is about three times as large as that of absolute genetic distance. When including both measures in the regression, genetic distance relative to the frontier remains significant while absolute genetic distance becomes insignificantly different from zero. The effects are large in magnitude – a one-standard-deviation increase in genetic distance relative to the technological frontier (the US in the 20th century) is associated with an increase in the absolute difference in log income per capita of almost 29% of that variable’s standard deviation.

Our model implies that after a major innovation, such as the Industrial Revolution, the effect of genealogical distance should be pronounced, but that it should decline as more and more societies adopt the innovations of the technological frontier (which, in the 19th century, was the UK). These predictions are supported by the historical evidence. The figure below shows the standardised effects of genetic distance relative to the frontier for a common sample of 41 countries, for which data are available at all dates. The figure is consistent with our barriers model. As predicted, the effect of genetic distance – which is initially modest in 1820 – rises by around 75% to reach a peak in 1913, and declines thereafter.

Figure 1. Standardised effect of genetic distance over time, 1820-2005

Dupor and Li on the Missing Inflation in the New-Keynesian Stimulus

That is the title of a new and very good John Cochrane blog post on fiscal stimulus.  Here is one excerpt from Cochrane:

New-Keynesian models act entirely through the real interest rate.  Higher government spending means more inflation. More inflation reduces real interest rates when the nominal rate is stuck at zero, or when the Fed chooses not to respond with higher nominal rates. A higher real interest rate depresses consumption and output today relative to the future, when they are expected to return to trend. Making the economy deliberately more inefficient also raises inflation, lowers the real rate and stimulates output today. (Bill and Rong’s introduction gives a better explanation, recommended.)

So, the key proposition of new-Keynesian multipliers is that they work by increasing expected inflation. Bill and Rong look at that mechanism: did the ARRA stimulus in 2009 increase inflation or expected inflation?  Their answer: No.

The paper itself is here.