Month: May 2014

How eager is China to limit environmental damage from climate change?

by  Tyler Cowen in

They already have ruined the environment here, beyond what most people are willing to believe.  And for a long time to come.  Preventing further environmental damage by limiting climate change seems to the Chinese leadership like a small gain in comparison to the losses which already have been incurred.  Furthermore as Chinese environmental damage accumulates, in relative terms the climate change issue may loom smaller rather than larger.

This simple point is not well understood.  Consult the framework from Charles Karelis’s The Persistence of Poverty.

People here talk about the environment more than any place I have been — ever — but they are not talking about climate change.

Are home pages dying? And what is the value of a shadow reader?

by  Tyler Cowen in

Ezra Klein has a very good post on this topic.  He notes that for The New York Times:

…home page traffic has fallen by half over the last two years. This is true even though the NYT’s home page has been beautifully redesigned, and the NYT’s overall traffic is up.

The value of the company is up as well.  And then:

This is the conventional wisdom across the industry now: the new home page is Facebook and Twitter. The old home page — which is the actual home page — is dying a slow, painful death.

I’m skeptical. The thing about “push media” is someone needs to do the pushing. Someone has to post an article to Twitter or Facebook. That can be the media brand. It can even be the journalists. But when articles work it’s really coming from the readers.

Those readers of course are often the dedicated ones who find the article on your home page.  Ezra makes this additional point in passing, which I think is a neat example of how counterintuitive microeconomics can hold in the world of the internet:

Some of the most committed users are still clicking through the RSS feed (which is one reason Vox maintains a full-text RSS feed).

I would put it this way: the fewer people use RSS, the better content providers can allow RSS to be.  There is less fear of cannibalization, and more hope that easy RSS access will help a post go viral through Facebook and other social media.

When a blog is linked to the reputations of its producers, rather than to advertising revenue, the home page remains all the more important.  That is who you are, and many people realize that, even if they are not reading you at the moment.  I call those “shadow readers.”  For MR, I have long thought that the value of shadow readers is quite high.  (“Tyler and Alex are still writing that blog — great stuff, right?  I don’t get to look at it every day [read: hardly at all].  Why don’t we have them in for a talk?”)  In other words, a shadow reader is someone who hardly reads the blog at all, but has a not totally inaccurate model of what the blog is about.  For Vox or the NYT the value of a shadow reader is lower, although shadow readers still may talk up those sites to potential real readers.  For companies which run lots of events, such as The Atlantic, the value of shadow readers may be high because it helps make them focal even without the daily eyeballs.

What if everyone were a shadow reader?  What is the MRS between real readers and shadow readers?  And which are you?  Can a shadow reader sometimes be better to have?  After shadow readers don’t get so upset with you and don’t so much expect that you will write to please them!

Can you trust Chinese government statistics?

by  Tyler Cowen in

Political scientist Jeremy Wallace has a recent paper on this topic:

Economic statistics dominate policy analyses, political discussions, and the study of political economy. Such statistics inform citizens on general conditions while central leaders also use them to evaluate local officials. Are economic data systematically manipulated? After establishing discrepancies in economic data series across regime types cross-nationally, I dive into sub-national growth data in China. This paper leverages variation in the likelihood of manipulation over two dimensions, arguing that politically sensitive data are more likely to be manipulated at politically sensitive times. GDP releases generate headlines, while highly correlated electricity production and consumption data are less closely watched. At the sub-national level in China, the difference between GDP and electricity growth increases in years with leadership turnover, consistent with juking the stats for political reasons. The analysis points to the political role of information and the limits of non-electoral accountability mechanisms in authoritarian regimes as well as suggesting caution in the use of politically sensitive official economic statistics.

All good points.  I would stress, however, that Chinese statistics have many problems in them and so they are not simple overestimates of how the economy is doing, at least not over the last thirty years as a whole.  In some ways Chinese growth statistics have been, until 2008-2009, probably underestimating the actual progress on the ground.  In general, growth figures underestimate progress when changes are large, and overestimate progress when changes are small.  (One reason for this is that extreme progress brings a lot of new goods to the market and their marginal value is underestimated by their price ex post, since it is hard to adjust for the fact that the price ex ante was infinite or very high.)  In Western history for instance, our most significant period of growth was probably the late 19th through early 20th century, when the foundations for the modern world were laid, yet estimated growth rates for this period are not astonishingly high.  We’re missing out on the values of the new goods, for one thing.

For the pointer I thank Henry Farrell.

Against against commodification (markets in everything)

by  Tyler Cowen in

Jason Brennan reports:

Commodification is a hot topic in recent philosophy. There’s a limitless market for books about the limits of markets. The question: Are there some things which you permissibly may possess, use, and give away, but which are wrong to buy and sell? Most authors who write about this say yes. Peter Jaworski and I say no. There are no inherent limits to markets. Everything you may give away you may sell, and everything you may take for free you may buy. We defend that thesis in our book Markets without Limits, which will be published by Routledge Press, most likely in late 2015 or early 2016. As of now, we have a completed first draft.

We plan to commodify the book itself. We will sell acknowledgements in the preface of the book.

There is more information here.  I thank Michael Wiebe for a relevant pointer.

Academia as a bastion of free speech?

by  Tyler Cowen in

I was not aware how many of these cancellations have been piling up:

Haverford College on Tuesday joined a growing list of schools to lose commencement speakers to protests from the left, when Robert J. Birgeneau, a former chancellor at the University of California, Berkeley, withdrew from this weekend’s event.

Some students and faculty members at Haverford, a liberal arts college near Philadelphia, objected to the invitation to Mr. Birgeneau to speak and receive an honorary degree because, under him, the University of California police used batons to break up an Occupy protest in 2011. He first stated his support for the police, and then a few days later, saying that he was disturbed by videos of the confrontation, ordered an investigation.

Those at Haverford who objected to his being honored asked Mr. Birgeneau to apologize and to meet a list of demands, including leading an effort to train campus security forces in handling protests better; he refused.

Mr. Birgeneau bowed out a day after Smith College said that Christine Lagarde, head of the International Monetary Fund, had withdrawn from its commencement because of protests. Condoleezza Rice, the former secretary of state, said this month she would not deliver the address at Rutgers University after the invitation drew objections. Last month, Brandeis University rescinded an invitation to Ayaan Hirsi Ali, the Somali-born activist, over her criticism of Islam.

The story is here.  I have nothing to add to the obvious points here, but this is nonetheless worth emphasizing.

So how is the economy of Chengdu doing anyway?

by  Tyler Cowen in

If you ask people here in Chengdu they will say it is doing fine, even professional economists will say that.  In fact they are surprised and unprepared to respond if you raise concerns.  Yet their answers do not fully convince me.  One said after a pause:

The economy is fine, the government said it will grow over seven percent this year.

Another said:

The economy here is great, last year we held an international congress in Chengdu.

When I raised the typical worries, they were more or less shrugged off.  There is an attitude out here – in China’s “west” – that of course these problems exist, the people from Beijing and Shanghai have been screwed up for a long time, but we fine folk of Chengdu have known about that pretty much forever don’t let it bother you now.  As a point of comparison, I spoke to a number of highly informed people in Shanghai and they were much more pessimistic about the Chinese economy.

Could it be Chengdu’s rise to prosperity is so recent — considerably postdating that of Shanghai or Beijing or the South — that such a growth experience is still the dominant emotional memory and thus it cannot be dislodged from people’s minds?  If that were the case, people out here are truly unprepared for the Chinese economic squeeze in progress and that will make it much worse.

I have seen quite a good number of empty apartment buildings along various roads and the most common sight in town is the sign “Louis Vuitton — coming soon.”

Or shall we side with the simple null hypothesis that the residents of Chengdu are right and this foreigner — and much of the foreign press along with him — is simply misguided altogether?

In any case, this visit has increased the variance of my estimate for how China will do over the next few years.

Why do we respond to charismatic leaders?

by  Tyler Cowen in

There is a new paper by Benjamin Hermalin, with the intriguing title “At the Helm, Kirk or Spock? Why Even Wholly Rational Actors May Favor and Respond to Charismatic Leaders.”  The abstract runs like this:

When a leader makes a purely emotional appeal, rational followers realize she is hiding bad news. Despite such pessimism and even though not directly influenced by emotional appeals, rational followers’ efforts are nonetheless greater when an emotional appeal is made by a more rather than less charismatic leader. Further, they tend to prefer more charismatic leaders. Although organizations can do better with more charismatic leaders, charisma is a two-edged sword: more charismatic leaders will tend to substitute charm for real action, to the organization’s detriment. This helps explain the literature’s “mixed report card” on charisma.

Here is what actually drives the argument:

As shown below, a savvy leader makes an emotional appeal when “just the facts” provide followers too little incentive and, conversely, makes a rational appeal when the facts “speak for themselves.” Followers (at least rational ones) will, of course, understand this is how she behaves. In particular, the rational ones—called “sober responders”—will form pessimistic beliefs about the productivity state upon hearing an emotional appeal. But how pessimistic depends on how charismatic the leader is. Because a more charismatic leader is more inclined to make an emotional appeal ceteris paribus, sober responders are less pessimistic about the state when a more charismatic leader makes an emotional appeal than when a less charismatic leader does [emphasis added]. So, even though not directly influenced by emotional appeals, sober (rational) responders work harder in equilibrium in response to an emotional appeal from a more charismatic leader than in response to such an appeal from a less charismatic leader.

Would this same reasoning also imply we should choose intrinsically panicky leaders, because then, if we see them panic, we would think the real underlying situation isn’t so bad after all and we are simply witnessing their innate propensity to panic? Yet no one would buy that version of the argument.

I will instead suggest that we (sometimes) follow charismatic leaders because they have high social intelligence, and most of all because other people are inclined to follow them.  Some of those followers of course do not have rational expectations but rather they are touched by the charisma directly.  Given that, why not follow the focal leader, even if you yourself are not touched by the charisma?

A related question is to ask how many recent world leaders are in fact charismatic.  Obama and Clinton yes, but how about David Cameron?  How about most Prime Ministers of Japan, Abe being a possible exception?  Arguably Merkel has become charismatic through a sort of extreme, cultivated anti-charisma, but I would not cite her in favor of the theory.  Any Canadian since Trudeau?  Helmut Kohl?

Putin?  Well, he’s not charismatic to me but now we’re getting somewhere.  And what does Putin have that say Prime Ministers of Japan do not?  Could it be a citizenry that gets excited relatively easily by the brutish?  Come to think of it, the USA has a wee bit of excitability of its own, though more about national pride and foreign policy than anything like Putin.  Hint: does your theory predict that Argentina will have charismatic leaders relative to Denmark?  Yes or no?

In which business sectors are the CEOs most likely to be charismatic?

For the pointer I thank the excellent Kevin Lewis.

Addendum: Hermalin responds here.

Who benefits from drug testing?

by  Tyler Cowen in

Black males, overall.  Abigail K. Wozniak has a new NBER paper on this topic:

Nearly half of U.S. employers test job applicants and workers for drugs. A common assumption is that the rise of drug testing must have had negative consequences for black employment. However, the rise of employer drug testing may have benefited African-Americans by enabling non-using blacks to prove their status to employers. I use variation in the timing and nature of drug testing regulation to identify the impacts of testing on black hiring. Black employment in the testing sector is suppressed in the absence of testing, a finding which is consistent with ex ante discrimination on the basis of drug use perceptions. Adoption of pro-testing legislation increases black employment in the testing sector by 7-30% and relative wages by 1.4-13.0%, with the largest shifts among low skilled black men. Results further suggest that employers substitute white women for blacks in the absence of testing.

There is an earlier ungated version here.

Wednesday assorted links

by  Tyler Cowen

1. The new empirical economics of management.

2. Is entering adulthood in a recession linked to lower narcissism later in life? (speculative)

3. Talk of inequality is not a political winner for Democrats.

4. Felix Salmon’s inaugural money podcast for Slate, iTunes subscription here.

5. The robot car of tomorrow will be programmed to hit you.

6. 1987 NYT editorial calls for a minimum wage of zero.

7. Mervyn King on Piketty.

The wisdom of Larry Summers

by  Tyler Cowen in

Already there are more American men on disability insurance than doing production work in manufacturing.

There is also this:

The determinants of levels of consumer spending have been much studied by macroeconomists. The general conclusion of the research is that an increase of $1 in wealth leads to an additional $.05 in spending. This is just enough to offset the accumulation of returns that is central to Piketty’s analysis.

That is from this very good Summers review of Piketty.

Economies of scope in Shanghai massage parlors

by  Tyler Cowen in

The same outlets appear to offer both “foot massage” and “the other kind of massage.”  Rather than doing field work, I confirmed my intuition by asking a native of Shanghai, who estimated that in eighty percent of the storefronts both of the two services are for sale.

What economic model could generate this economy of scope?  We don’t for instance see prostitution and Wonder Bread offered together in the same store.  If anything, the presence of the prostitution would create a stigma for customers who wanted Wonder Bread only.  You might, however, see prostitution and cocaine offered together, if there are economies of scope in breaking the law, such as might arise from having a longstanding relationship with the local police.

One option is that men aren’t at first sure which of the two services they want, foot massage or the other massage.  You then attract more customers by offering both and maybe they will buy one and then the other.  At the very least they are more likely to visit the massage parlor in the first place.

A second hypothesis is that the foot massage workers do not mind being affiliated with a house of prostitution or perhaps also do not mind performing acts of prostitution, at least not any more than they mind doing foot massage.  That will limit the costs of this joint supply.  There may then be an economy of scope in recruiting young female workers for both tasks.

Perhaps both factors are at play.

Dynamic effects of microcredit in Bangladesh

by  Tyler Cowen in

By Khandker and Samad, there is now a new study of microcredit and it has a much longer time horizon — twenty years — than the previous “gold standard” studies.  It also finds more positive effects than many of the other treatments:

This paper uses long panel survey data spanning over 20 years to study the effects of microcredit programs in Bangladesh. It uses a dynamic panel model to address a number of issues, such as whether credit effects are declining over time, whether market saturation and village diseconomies are taking place, and whether multiple program membership, which is rising as a consequence of microcredit expansion, is harming or benefiting the borrowers. The paper makes the following observations:

  • Group-based credit programs have significant positive effects in raising household welfare including per capita consumption, household non-land assets and net worth;
  • Microfinance increases income and expenditure, the labor supply of males and females, non-land asset and net worth as well as boys’ and girls’ schooling;
  • Microfinance, especially female credit, reduces poverty;
  • Past credit has a higher impact on income and expenditure than current credit;
  • With higher village-level aggregate current male borrowing, the marginal effect of male borrowing on per capita income gets lower.

The paper concludes that the current microfinance policy of credit expansion alone may not be enough to boost income and productivity, and, hence, sustained poverty reduction.

There is a useful write-up of the paper from The Economist.  In sum, we should up our estimate of the efficacy of microcredit.