Month: February 2014

*The Son Also Rises* and social mobility in India

That is the new Greg Clark book and yes it is an event and yes you should buy it. Here is one passage I found of interest:

There are surprisingly few studies of social mobility in India.  Thus the two recent international surveys of social mobility…do not include India.  However, a recent study estimated the Indian intergeneration income correlation to be 0.58, making social mobility rates in India among the world’s lowest.

The estimated persistence rate for income in India of 0.58, however, is not much higher than those for the United Kingdom (0.5) or the United States (0.47).  The share of income variance in the next generation attributable to inheritance from parents in India is still only (0.58)squared, or 0.34.  This suggests that even in India, an individual’s position in the income ranks is not primarily derived from inheritance.  Thus, by conventional estimates, modern India has become a society of rapid social mobility, where three to four generations might see the elimination of all traces of millennia-old patterns of inequality.

You can buy the book here.  Here is a previous MR post on the book, there will be more to come.

*The Fissured Workplace*

That is a new and important book by David Weil and the subtitle is Why Work Became so Bad For So Many and What Can Be Done to Improve It.  I take the author’s main thesis to be that corporations have, in the interests of efficiency, focused increasingly on “core competencies.”  That has led to an outsourcing of non-core jobs and the commoditization of those jobs, outside the sphere of benefits, workplace community, investing in workers, and caring about worker morale.

Here is one excerpt from the book:

By focusing on core competencies, lead businesses in the economy have shed the employment relationship for many activities, and all that comes with it.  Shedding the tasks and production activities to other businesses allows lead companies to lower their costs, since externalizing activities to other firms (particularly those operating in the more competitive markets) eliminates the need to pay the higher wages and benefits that large enterprises typically provided.  It also does away with the need to establish consistency in those human resource policies, since they no longer reside inside the firm.  This aspect of fissuring pushes liability for adherence to a range of workplace statutes (and other public policies) to other businesses.

I found this by no means a perfect book in terms of presentation.  The argument is meandering and it is not clear where the evidence is to come and what is to count as evidence for or against the thesis.  I also would have liked a clearer discussion of incidence.  If every company is producing “core competencies,” cannot the resulting boost in productivity make virtually all workers better off?  And cannot most workers end up in companies where they contribute to core competencies?  Well, maybe not, but the upshot here is not exactly clear from reading this book and furthermore the pessimistic tone of the book will then depend on other, quite separate mechanisms for distributing the benefits of these developments to capital not labor.  Still, this work presents an important idea with insight and I hope it finds its deserved readership.

Who are the most overrated economists?

I was asked that question over lunch while visiting the PPE program at UNC, and my answer was this.

In general the market in ideas and reputations of economists works fairly well, at least in the United States.  Nonetheless at any point in time, the most overrated economists are the most highly rated young empirical economists at the top schools.

Think of it this way.  The half-life of a good empirical result is getting progressively shorter.  Good empirical papers no longer stand as definitive accounts for fifteen years and sometimes not even for fifteen months.  The science is getting better, but the individual economist is becoming less important, as we might expect from a growing division of labor.  That is healthy, but it has implications for the distribution of reputation.

The total amount of repute and renown accorded to individual top young economists does not decline at the same rate that individual contributions become less important.  That total amount of repute and renown at say Harvard, available to be doled out to the latest hot young economist, is fixed in the short run or may even be rising, due to the high returns on the school’s endowment.

So those economists end up individually overrated, even though as a whole they become more impressive over time.

Working backwards, one might be inclined to think old theorists and economists who have invented or fleshed out general methods are the most underrated.

Charter High Schools Increase Earnings and Educational Achievement

Private and charter schools appear to have significant but modest effects on test scores but much larger effects on educational attainment and even on long-run earnings. A new working paper from Booker, Sass, Gill and Zimmer and associated brief from Mathematica Policy Research finds that charter schools raise high school graduation, college enrollment and college persistence rates by ~7 to 13%. Moreover, the income of former charter school students when measured at 23-25 years old is 12.7% higher than similar students. Similar in this context is measured by students who were in charter schools in grade 8 but who then switched to a traditional high school–in many ways this is a conservative comparison group since any non-random switchers would presumably switch to a better school (other controls are also included).

The effect of charters on graduation rates is consistent with a larger literature finding that Catholic schools increase graduation rates (e.g. here and here). I am also not surprised that charters increase earnings but the earnings gain is surprisingly large; especially so when we consider that the gain appears just as large among charter and non-charter students both of whom attended college (i.e. the gain is not just through the college attendance effect).

I wouldn’t bet on the size of the earnings effect just yet but what we are learning from this and related research, such as Chetty et al. on teachers, is that better schools and better teachers appear to have a significant and beneficial long-run impact that is not fully captured by higher test scores.

As I said in Launching, one of the factors that makes me optimistic about education in the United States is that it remains relatively decentralized and open to experimentation and evolution.


Very good Ezra Klein profile

You can read it here, by Benjamin Wallace, excerpt:

One evening last January, I sat with Klein at the MSNBC studio near American University in Washington, D.C., as he was getting ready to guest-host The Last Word With Lawrence O’Donnell. It was clearly part of an ongoing audition for his own show. But even though Klein has a pleasant TV persona, you could see the tension between his desire to be good at hosting and the sense that it wasn’t the most comfortable fit. When a producer suggested that Klein ask Barney Frank about supposed anti-gay remarks made by Chuck Hagel, the nominee for secretary of Defense, Klein deflected: “I just don’t think that attack on Hagel is very interesting.” Later, he anguished over his opening line about Obama’s choice of Hagel. “I kind of want to write, ‘It was the worst day for neoconservatives since the day Vice-President Cheney shot a dude in the face,’ ” he said to me. “Which is a funny way to open the show. But I feel like, Do I need to poke Dick Cheney? This is the thing about TV that I do find hard: It rewards a sharpness that I wouldn’t use in my writing.”

This is the piece on Ezra which captures him pretty well and I found it interesting the whole way through.

I recall, by the way, the last time I mentioned Ezra on this blog there were — as any time I mention a well-known blogger, columnist, commentator, or Wonkblog creator — rude comments.  The same happens for say Thomas Friedman or David Brooks or a variety of others and I am reminded of Jonathan Swift’s remark that “Censure is the tax a man pays to the public for being eminent.”  Try doing their jobs for a week or two.

More generally, I wish to make a few points.

First, a lot of us out there who write, or who do economics, or who blog, know each other.  We get on together, or not, based on a lot of factors but not mainly whether we agree on a bunch of political questions.  Personally, I find taste in food, music, and movies to be better predictors of a sense of mutuality than politics.  Those are ideologies too!  (Should we not discuss Krugman’s taste in music a bit more and his views on fiscal policy a bit less?  It’s OK enough stuff, but why can’t he listen to Bach more?  Why can’t he promote this?  Does he not yearn for a fugue or a complex raga in lieu of Arcade Fire, at the appropriate margin that is?  Or some early Brian Eno?  On science fiction I have kinship with him, though not exactly the same tastes.)

Second, when it comes to the category “working hard continually to improve what he does,” in the very top tier of people I have met — ever — is Ezra.  Also Paul Krugman.  Also Alex.  These people deserve special appreciation, no matter what else you might disagree with them on.  And furthermore these people should never be underestimated.

No, I cannot explain to you how Ezra’s new venture might make money (or not), but in its broadest terms think of it as a platform for measuring value and then adjusting.  Successful ventures almost always evolve into something other than their exact origins.  That doesn’t mean it will succeed financially but it is an important piece of perspective.  Furthermore financial success is only one kind of success and it is not always the one most worth pursuing.

Third, if we are going to play the ideology game, why not do it on a global scale?  What’s so special about the national level for politics?  Virtually all Americans share so many preconceptions about the world it is a mix of embarrassing and disconcerting.  If you, as an American, are getting too bent out of shape about the other Americans you disagree with, I say you need to spend more time in Russia, Haiti, and India, for a start.

End of sermon people, thanks for listening.

First monkeys with customized mutations born

The ultimate potential of precision gene-editing techniques is beginning to be realised. Today, researchers in China report the first monkeys engineered with targeted mutations, an achievement that could be a stepping stone to making more realistic research models of human diseases.

Xingxu Huang, a geneticist at the Model Animal Research Center of Nanjing University in China, and his colleagues successfully engineered twin cynomolgus monkeys (Macaca fascicularis) with two targeted mutations using the CRISPR/Cas9 system — a technology that has taken the field of genetic engineering by storm in the past year. Researchers have leveraged the technique to disrupt genes in mice and rats, but until now none had succeeded in primates.

The article is here.  Now solve for the equilibrium, as they like to say…

For the pointer I thank @autismcrisis.

Is tech outcompeting other forms of signaling, such as clothing expenditures?

For teenage boys, maybe:

Another factor chipping away at teenage retailers may be the shifting priorities among young people. Where clothing was once the key to signaling a teenager’s identity, other items may have become more important and now compete for their dollars.

“Probably the most important thing a teenage boy has is his smartphone,” said Richard Jaffe, an analyst at Stifel Nicolaus. “Second, is probably his sneakers. Third, maybe, we get to his jeans.”

What may trump all of those, Mr. Jaffe said, are gaming systems, especially over the last few months, because Xbox and PlayStation both released new game consoles in 2013. That may have taken a bite out of what teenagers had to spend on clothes.

The Elizabeth A. Harris article, which focuses on declining teen expenditures on retail clothing, is interesting throughout.

What was the scope for British Keynesian policies in the 1930s?

There is a new paper by Nicholas Crafts & Terence Mills in the December 2013 Journal of Economic History, entitled Rearmament to the Rescue? New Estimates of the Impact of “Keynesian” Policies in 1930s’ Britain.  The abstract is here:

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and “defense news.” We find that the government expenditure multiplier was in the range 0.3 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may, however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending.

You will note that previous estimates of the multiplier for this period are much higher, but this conclusion is based on a new quarterly gdp series for the UK and also on identified “defense shocks,” drawn from The Economist magazine.  At this time, by the way, Great Britain was very close to the zero lower bound and had significant unemployed resources.  I am not sure I would push this as “the correct answer,” but rather as a more general lesson about the fragility of our knowledge in this area.

The published (gated) version of the paper is here.  There are ungated versions here.

What is wrong with the Russian economy?

The Economist had a very good feature-long piece on that question this week, here is one good excerpt:

In today’s Russia, oil and gas account for 75% of all exports, compared with 67% in 1980. Although Russia no longer buys grain from America, as it did in the 1980s, 45% of what Russians buy today is imported. Walk around a department store in central Moscow, and it is hard to find anything that is produced locally. The state remains the single largest employer, while its corporations—controlling natural resources, infrastructure, banking and media—dominate the economy.

As Clifford Gaddy and Barry Ickes, two American economists, have argued, the highly inefficient industrial structure of the old Soviet economy, based on misallocation of both resources and people, remains intact. The oil rent reinforced and perpetuated it: it has bought political stability and the loyalty of the population, but has slowed down modernisation. Inevitably, the result is stagnation.

…The state is one of the chief obstacles to Russia’s modernisation. During the 2000s the number of bureaucrats almost doubled. A quarter of the workforce is employed in the public sector. The total number of people who depend on the state is between 35% and 40%, says Boris Grozovsky, a Russian economic observer. This, he says, points to the share of the electorate that benefits from the status quo. At election time municipal workers are bused in to show support for Mr Putin. Meanwhile, the main purpose of Russia’s civil service is to shuffle papers around and extract administrative revenue from firms and private citizens. The bureaucrats have little interest in fostering competition that might cost them their jobs.

The piece is interesting (and depressing) throughout.

How does democracy affect inequality?

Acemoglu and Robinson have a good post on this and some related issues, excerpt:

…there is a much more limited effect of democracy on inequality. Democracy just doesn’t seem to affect inequality much. Though this might reflect the poorer quality of inequality data, there is likely more to this lack of correlation between democracy and inequality. In fact, we do find heterogeneous effects of democracy on inequality consistent with the theories mentioned above, which would not have been possible if the poor quality of inequality data made it hard to find any empirical relationship.

Overall, our results suggest that democracy does represent a real shift in political power away from elites and has first-order consequences for redistribution and government policy. But the impact of democracy on inequality may be more limited than one might have expected.

The pointer is from Samir Varma.  Here is an earlier post on democracy and inequality, broadly consistent with the claims of Acemoglu and Robinson.

Assorted links

1. Arnold Kling has a question for Thomas Piketty.

2. Suzanne Scotchmer has passed away.  In addition to her research achievements, during her time at Harvard she was one of the most popular professors with the graduate students and also one of the most helpful.

3. “Al-Qaida is obsessed with documenting the most minute expenses.

4. “(There is in fact no bowl.)” — how would we cover the Super Bowl if it were an event in another country?  Recommended.

5. California students sue teachers over the existence of tenure.

One salvo in the fight against driverless cars

The group that stalked Anthony Levandowski, an engineer at Google X, the company’s clandestine research laboratory, calls itself the Counterforce, after a Thomas Pynchon novel. About a dozen members, all dressed in black, gathered outside the Berkeley house where Mr. Levandowski lives with his partner and two young children.

They unfurled a banner and handed out fliers detailing the engineer’s work on Google’s driverless car technology, Street View and Google Maps. The flier read: “Anthony Levandowski is building an unconscionable world of surveillance, control and automation. He is also your neighbor.”

This is still just a small and fragmented movement, as the article makes clear.  I predict it will vanish, but I wouldn’t have predicted its existence in the first place.