Month: August 2014
Good news from India
U.S.-based economist Arvind Subramanian is poised to be named as chief economic adviser to Prime Minister Narendra Modi’s government, two sources at the finance ministry said on Friday.
There is more here, via David Wessel. Here are previous MR posts on Subramanian.
How much does poverty drive crime?
Maybe less than you thought, at least after adjusting for other variables. The Economist reports:
In Sweden the age of criminal responsibility is 15, so Mr Sariaslan tracked his subjects from the dates of their 15th birthdays onwards, for an average of three-and-a-half years. He found, to no one’s surprise, that teenagers who had grown up in families whose earnings were among the bottom fifth were seven times more likely to be convicted of violent crimes, and twice as likely to be convicted of drug offences, as those whose family incomes were in the top fifth.
What did surprise him was that when he looked at families which had started poor and got richer, the younger children—those born into relative affluence—were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.
That suggests two, not mutually exclusive, possibilities. One is that a family’s culture, once established, is “sticky”—that you can, to put it crudely, take the kid out of the neighbourhood, but not the neighbourhood out of the kid. Given, for example, children’s propensity to emulate elder siblings whom they admire, that sounds perfectly plausible. The other possibility is that genes which predispose to criminal behaviour (several studies suggest such genes exist) are more common at the bottom of society than at the top, perhaps because the lack of impulse-control they engender also tends to reduce someone’s earning capacity.
The original research, by Amir Sariaslan, Henrik Larsson, Brian D’Onofrio, Niklas Långström and Paul Lichtenstein is here, here is how the authors report the conclusion:
There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors.
The worst part of one of this year’s best pieces
I loved the Michael Hofmann review of Stephen Parker’s Bertolt Brecht: A Literary Life in the 15 August 2014 Times Literary Supplement. Every paragraph of that review is a gem and Hofmann calls the book perhaps the greatest literary biography he has read. I’ve ordered my copy.
Here is one part of that review, toward the end, which caught my eye:
I’m not really sure what the case against Brecht is. That he treated women and co-workers badly? That he played fast and loose with the intellectual property of others, but was litigiously possessive of his own? That he wrote no more hit shows after The Threepenny Opera? That he failed to crack America? That he wouldn’t denounce the Soviet Union? That he was drab and a killjoy? That he had it cushy after settling back in East Germany in 1949? That he was consumed with his own importance?
Perhaps the Parker book will change my mind, but for now file under “All of the Above.”
Addendum: Here is another superb Michael Hofmann review.
Finland fact of the day
Finnish students stay in college longer than in any other developed country save Austria, the Netherlands and Denmark, getting their first university degree on average at 29, according to a 2013 report by the Organization for Economic Cooperation and Development. That compares with 24 years for Britons, 26 for Germans and the OECD average of 27 years. Most Finns who graduate from college get a master’s degree.
There is more here. Of course that undoes a lot of the benefits from their excellent primary education system.
Department of Uh-Oh
When it opened in 1990, the McDonald’s on Moscow’s Pushkin Square was a symbol of thawing relations with the U.S., attracting long lines and later becoming the fast-food chain’s most visited outlet world-wide.
On Wednesday evening, it stood empty, closed by Russia’s consumer-safety regulator amid the Kremlin’s most-serious confrontation with the West since the Cold War. The agency cited sanitary violations as it said that it had closed four McDonald’s Corp.’s restaurants in Moscow.
Analysts said the move was more likely the latest shot by Russia in response to U.S. and European sanctions over Moscow’s role in the armed conflict with its former Soviet neighbor, Ukraine.
Food inspectors “have been instruments of Russian foreign policy for years,” said Stephen Sestanovich, a senior fellow at the Council on Foreign Relations. He cited earlier bans on Moldovan wine and U.S. chicken.
Ferguson and the Modern Debtor’s Prison
How does a stop for jaywalking turn into a homicide and how does that turn into an American town essentially coming under military control with snipers, tear gas, and a no-fly zone? We don’t yet know exactly what happened between the two individuals on the day in question but events like this don’t happen without a deeper context. Part of the context is the return of debtor’s prisons that I wrote about in 2012:
Debtor’s prisons are supposed to be illegal in the United States but today poor people who fail to pay even small criminal justice fees are routinely being imprisoned. The problem has gotten worse recently because strapped states have dramatically increased the number of criminal justice fees….Failure to pay criminal justice fees can result in revocation of an individual’s drivers license, arrest and imprisonment. Individuals with revoked licenses who drive (say to work to earn money to pay their fees) and are apprehended can be further fined and imprisoned. Unpaid criminal justice debt also results in damaged credit reports and reduced housing and employment prospects. Furthermore, failure to pay fees can mean a violation of probation and parole terms which makes an individual ineligible for Federal programs such as food stamps, Temporary Assistance to Needy Family funds and Social Security Income for the elderly and disabled.
A new report from Arch City Defenders, a non-profit legal defense organization, shows that the Ferguson municipal courts are a stunning example of these problems:
Ferguson is a city located in northern St. Louis County with 21,203 residents living in 8,192 households. The majority (67%) of
residents are African-American…22% of residents live below the poverty level.…Despite Ferguson’s relative poverty, fines and court fees comprise the second largest source of revenue for the city, a total of $2,635,400. In 2013, the Ferguson Municipal Court disposed of 24,532 warrants and 12,018 cases, or about 3 warrants and 1.5 cases per household.
You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant “low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay.”
If you have money, for example, you can easily get a speeding ticket converted to a non-moving violation. But if you don’t have money it’s often the start of a downward spiral that is hard to pull out of:
For a simple speeding ticket, an attorney is paid $50-$100,
the municipality is paid $150-$200 in fines and court costs, and the
defendant avoids points on his or her license as well as a possible
increase in insurance costs. For simple cases, neither the attorney nor
the defendant must appear in court.However, if you do not have the ability to hire an attorney or pay
fines, you do not get the benefit of the amendment, you are assessed
points, your license risks suspension and you still owe the municipality
money you cannot afford….If you cannot pay the amount in full, you must appear in court on that night to explain why. If you miss court, a warrant will likely be
issued for your arrest.People who are arrested on a warrant for failure to appear in court
to pay the fines frequently sit in jail for an extended period. None of the
municipalities has court on a daily basis and some courts meet only
once per month. If you are arrested on a warrant in one of these
jurisdictions and are unable to pay the bond, you may spend as much as
three weeks in jail waiting to see a judge.
Of course, if you are arrested and jailed you will probably lose your job and perhaps also your apartment–all because of a speeding ticket.
As a final outrage, consider this story which ties together Ferguson, the courts, and the arrest of parents, often minority parents, for leaving their kids to play in parks (just as my parents did).
According to local judge Frank Vatterott, 37% of the courts responding to his survey unconstitutionally closed the courts to non-defendants. Defendants are then faced with
the choice of leaving their kids on the parking lot or going into court. As Antonio Morgan described after being denied entry to the court with his children, the decision to leave his kids with a friend resulted in a charge of child endangerment.
When do economists matter?
Christopher D. Johnston and Andrew Ballard have a new paper on this neglected topic, the abstract is this:
Given an increasing presence in the public sphere, what role do economic experts play in shaping public opinion on economic issues? In this paper, we examine the responsiveness of American public opinion on five economic policy issues to real information regarding the distribution of opinion on these issues among economists. We also examine the extent and role of trust in economists within the public. On average, we find meaningful changes in public opinion in the direction of expert consensus when citizens are given explicit information about expert opinion. However, we also find heterogeneity in citizen responsiveness across issues, such that aggregate opinion change is smaller on symbolic policy issues relative to technical ones. Further, on symbolic (but not technical) issues we find that citizens use judgments of the trustworthiness of economic experts in a motivated fashion, as a means of reinforcing prior opinions.
That is a little bloodless and the paper is also poorly written and organized but nonetheless it is important work. Here is one very interesting bit:
…strongly left-leaning citizens are about 12 percentage points more trusting of economists than strongly right-leaning citizens.
This part of (sort of) encouraging:
…all three groups of respondents show greater trust than predicted after exposure to consensus information. This pattern is consistent with the notion that exposure to highly technical, means-oriented issues makes one’s lack of knowledge salient, and perhaps engenders greater respect for experts…
The full paper is here, I would say start reading on p.16 and return to the beginning later on if you wish.
Acemoglu and Robinson on Piketty
There is a new paper out by them:
Thomas Piketty’s recent book, Capital in the Twenty First Century, follows in the tradition of the great classical economists, Malthus, Ricardo and Marx, in formulating “general” laws to diagnose and predict the dynamics of inequality. We argue that all of these general laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions in shaping the evolution of technology and the distribution of resources in a society. Using the economic and political histories of South Africa and Sweden, we illustrate not only that the focus on the share of top incomes gives a misleading characterization of the key determinants of societal inequality, but also that inequality dynamics are closely linked to institutional factors and their endogenous evolution, much more than the forces emphasized in Piketty’s book, such as the gap between the interest rate and the growth rate.
For the pointer I thank Nathaniel Bechhofer.
Is Europe’s problem not enough government spending? (EU fact of the day)
Here is an update from Leonid Bershidsky:
Among the 28 EU members, public spending reached 49 percent of gross domestic product in 2013, 3.5 percentage points more than in 2007.
There is more detail at the link, via Garett Jones, Humanist by way of Walt Whitman, Civilizationist by way of Jane Jacobs.
Assorted links
1. Ferguson on Facebook vs. Ferguson on Twitter.
2. Brief survey of the literature on police brutality and use of excessive force.
3. Obamacare attacks are losing potency as a campaign weapon.
4. The advantages of dyslexia (very good).
5. “RegData is an innovative new way of measuring the size and scope of US federal regulation. It is currently in beta. We welcome your feedback.”
6. Excellent Francis Fukuyama piece on American political decay.
7. Brad DeLong identifies The Great Reset, although he does not name it. Falling AD and hysteresis are important, but we need more tools in the current toolbox.
Should Only Winners Get Trophies?
A Reason-Rupee poll asked
Do you think all kids who play sports should receive a trophy for their participation, or should only the winning players be awarded trophies?
Overall, an estimated 57% Americans said that only the winning players should be awarded trophies but there were big differences according to gender, race, politics, education and income. 62% of men, for example, said that only the winning players should be awarded trophies compared to 52% of women. These results are consistent with experiments in which women tend to shy away from competition (perhaps with long-run consequences in the workforce). Whites opt for trophies to the winners-only at 63% compared to African Americans at just 44% and Hispanics at 39%. A whopping 80% of libertarians say that trophies should go only to the winners compared to conservatives at 63% and liberals and progressives both at 53%. More educated respondents were more likely to opt for trophies for only the winners. Trophies for the winners also increased strongly in income which could be because people with high income feel that they are winners or perhaps because people with high incomes are the types of people who enjoy competition.
Note that these are raw differences not betas from a statistical regression and since income, race, education etc. aren’t independent we don’t know which are the most controlling although the results point in directions consistent with other evidence. The data can be found here.
Do readers absorb less from a Kindle than from paper?
From Alison Flood at The Guardian:
A new study which found that readers using a Kindle were “significantly” worse than paperback readers at recalling when events occurred in a mystery story is part of major new Europe-wide research looking at the impact of digitisation on the reading experience.
The study, presented in Italy at a conference last month and set to be published as a paper, gave 50 readers the same short story by Elizabeth George to read. Half read the 28-page story on a Kindle, and half in a paperback, with readers then tested on aspects of the story including objects, characters and settings.
Anne Mangen of Norway’s Stavanger University, a lead researcher on the study, thought academics might “find differences in the immersion facilitated by the device, in emotional responses” to the story. Her predictions were based on an earlier study comparing reading an upsetting short story on paper and on iPad. “In this study, we found that paper readers did report higher on measures having to do with empathy and transportation and immersion, and narrative coherence, than iPad readers,” said Mangen.
But instead, the performance was largely similar, except when it came to the timing of events in the story. “The Kindle readers performed significantly worse on the plot reconstruction measure, ie, when they were asked to place 14 events in the correct order.”
The researchers suggest that “the haptic and tactile feedback of a Kindle does not provide the same support for mental reconstruction of a story as a print pocket book does”.
That is speculative, but consistent with my own intuition, and my own tendency to (sometimes) organize information by remembering physically where it was in the book.
From the comments, on Bob Shiller and CAPE
For context, CAPE is the cyclically adjusted price-earnings ratio. On that topic, 3rdMoment writes:
While I have great respect for Shiller, I don’t understand his confidence that the CAPE is likely to return to it’s historical average of around 16. There are several reasons why we might expect the average CAPE going forward to be higher than in the past:
1. The average levels of CAPE in most of the last century appear, with hindsight, to have been puzzlingly low. This is the well-known “equity premium puzzle.”
2. There has been a large shift in corporate payout mix, from virtually all dividends in the past, to a roughly equal mix of dividends and share repurchases today. This by itself will add a couple of points to CAPE even if nothing else changes, (as shown in this post by the anonymous blogger who tweets as “Jesse Livermore”): http://www.philosophicaleconomics.com/2013/12/Shiller/
3. Some other accounting changes to the definition of profits might raise the CAPE as well, again see the linked blog post above.
4. Lower information and transaction costs and the rise of index investing have dramatically lowered the cost of maintaining a globally diversified portfolio. This decreases the raw rate of return for any given required rate of realized returns. For example if the costs of investing in equities fall by just 50 basis points, this would allow the required raw earnings yield to fall from 5% to 4.5%, corresponding to a rise in CAPE from 20 to 22, without changing realized returns for investors.
5. The real “risk free” return on treasuries seems to be very low by historic standards. Real returns on other forms of debt also appear low. This lowers the return stocks need to be attractive by comparison.
6. Large corporate cash balances, a “global savings glut,” lower rates of real economic growth, possible “secular stagnation,” all seem to point to the idea that real returns are somewhat harder to get than the past.
Some of these reasons are more certain than others, but taken together they seem to show that we have good reason to expect CAPE levels significantly above the historical average going forward.
Are there any countervailing reasons offsetting the list above, factors that would tend to make CAPE lower than in the past? I can’t really think of any. And I haven’t seen anybody else offering any.
Clay Shirky on the economics of the demise of print
He brings new life to a much-covered topic, here is one good bit of many:
Inserts are one of the last sources of advertising to resist digitization. They are also the next to go. Businesses like Cellfire and Find & Save are working on digital coupons; stores like Kroger’s and Safeway already offer online coupons direct to customers. This digitization is progressing as print circulation decays. Back in Roanoke, the Times was on the market for 5 years before it was bought; in that time the paper lost a quarter of its Sunday readers — 106,000 to 85,000 — and a third of its weekday readers — 96,000 to 65,000. This story too is being repeated all over the country. The print audience continues to defect to mobile, abandon the local paper, or die.
As digital alternatives become attractive while print circulation withers, business will start to shift their money away from inserts. When the inserts go, Sundays won’t prop up the rest of the week. When Sundays turn bad, the presses will become unprofitable.
The full piece is here, and for the pointer I thank Hugo Lindgren.
Stephen Williamson on secular stagnation
Well, Eggertsson and Mehrotra have fleshed out a theory that they think captures what Summers and Krugman are trying to get at. The Eggertsson and Mehrotra chapter in this volume is a summary of a formal academic paper that I discussed in this post. The gist of that blog post is that Eggertsson and Mehrotra – as with Eggertsson/Krugman, which is closely related – focus on the wrong problem. The key inefficiency in their model arises from a credit friction, but they are focusing their attention on the secondary zero-lower-bound inefficiency that the credit friction creates. Basically, the problem is insufficient government debt, and the solution is straightforward.
There is more here, interesting throughout, for those who find this interesting that is.
Addendum: Scott Sumner has some more practical comments.