Month: September 2015

Why is the American prison population going up so much?

by  Tyler Cowen in

Slate has an interesting interview with Leon Nayfakh speaking to John Pfaff, here is the critical excerpt from Pfaff:

What appears to happen during this time—the years I look at are 1994 to 2008, just based on the data that’s available—is that the probability that a district attorney files a felony charge against an arrestee goes from about 1 in 3, to 2 in 3. So over the course of the ’90s and 2000s, district attorneys just got much more aggressive in how they filed charges. Defendants who they would not have filed felony charges against before, they now are charging with felonies. I can’t tell you why they’re doing that. No one’s really got an answer to that yet. But it does seem that the number of felony cases filed shoots up very strongly, even as the number of arrests goes down.

You will note that district attorneys are relatively politically independent at this level.  And this:

But just letting people out of prison—decarcerating drug offenders—will not reduce the prison population by as much as people think. If you released every person in prison on a drug charge today, our state prison population would drop from about 1.5 million to 1.2 million. So we’d still be the world’s largest incarcerating country; we’d still have an enormous prison population.

Keep in mind that some in prison on drug charges are actually violent offenders who did a plea bargain down to a drug charge.

The interview also offers evidence against alternative explanations of the boom in the prison population, such as putting the blame on longer sentences.  Here is Pfaff’s home page and his related papers.

How is China’s Silk Road initiative going?

by  Tyler Cowen in

Not so well:

…the time when the country was able to make economically unprofitable investments on the basis of political motives is long gone. Beijing had intended to invest more than $900 billion in infrastructure expansion in Eurasia. However, the money is now needed to stabilize its stagnating economy and nervous financial markets. China‘s currency reserves decreased drastically in August.

Due to financing difficulties a number of infrastructure projects have come to a standstill. For example, the gas pipeline known as “Power of Siberia,” the subject of an agreement signed by Russia and China in May last year, is in danger of flopping. In addition to this, the release of funds for the construction of the Altai gas pipeline to connect western Siberia and China has been delayed indefinitely.

At a more basic level, the OBOR represents an economic step backwards: instead of placing more emphasis on domestic demand, Beijing is speculating on new export markets in unstable regions such as Pakistan. The overcapacity of Chinese state-owned enterprises are not addressed but simply exported abroad. In this way the leadership is hampering its own ability to overcome the structural crisis of the Chinese growth model.

For the time being, OBOR remains a speculative bubble…

At the same time, there is a lack of partners for the OBOR initiative: China is virtually on its own. The Chinese leadership has until now only been able to reach a handful of vague cooperation agreements, such as those with Russia and Hungary. But none of those states (and maybe not even China itself) know what OBOR really means. Xi Jinping wants to promote the idea of a “community of common destiny”. He has, however, not been able to convey what this term signifies and he has failed to convince other states why the OBOR should be attractive for other countries.

The full story is here, and here is my earlier post on The New Silk Road.

Claims about cars

by  Tyler Cowen in

New high-end cars are among the most sophisticated machines on the planet, containing 100 million or more lines of code. Compare that with about 60 million lines of code in all of Facebook or 50 million in the Large Hadron Collider.

The Gelles, Tabuchi, and Dolan NYT piece is interesting throughout.  I thought of a parallel with empirical research in economics.  In the 1980s, often you could pick up a research paper and know rather quickly how good it was, if only by glancing at the basic technique and source of data.  These days the model, estimation, and data collection are so complicated and non-transparent that the errors, however large or small they be, are very difficult to find.

Helping Bryan Caplan homeschool his children

by  Tyler Cowen in

Bryan Caplan is homeschooling his twin sons, and some of that involves bringing them into Carow Hall and GMU to hang around the rest of us.  They are perhaps the only twelve year olds taking an advanced undergraduate class in labor economics; I think they can handle it.

Bryan asked if I would give them a lecture of sorts, of course I sad yes, and, oddly or not, he chose the topic of Art History for me (others around know some economics too, so perhaps that is indeed my comparative advantage).  I found it an interesting exercise to ponder what I would start telling them about, given they have virtually no background in the area, and perhaps I’ll get back to that in a future post.

In the meantime, I have two general points.  First, introducing your children to additional role models and sources of inspiration — your friends and co-workers, or so one should hope — is one of the best things you can do for them.  Most wealthy, famous, and well-educated parents under-invest in this activity.  The bottom line is that after some margin you stop influencing them, but they don’t stop looking around for sources of influence.

Second, if you are well-known, or have lots of well-known and/or talented friends, or maybe even if not, you should consider homeschooling your children for a while in this manner, if only for a month or two over the summer.  Your friends will be willing to give some form of instruction to your children, and they will be way, way better than normal teachers.

My next lecture for Bryan’s children will be History of American Popular Song, complemented with musical tracks of course, though no singing.

Addendum: Here are comments from Stationary Waves.

What should we think of the Chinese cap and trade announcement?

by  Tyler Cowen in

You’ll find a list of skeptical worries here from Chris Buckley, most of them justified.  In a nutshell, if you can’t believe their gdp numbers you also can’t believe their cap and trade plan.  I am nonetheless more optimistic about this recent development.  It signals a few things:

1. The Chinese have decided to make “doing something about carbon” a potential source of soft power in the international arena.  They are giving themselves an option on this path, and in the meantime trying to minimize the reputational deficit they face from being the world’s largest source of carbon.

2. The Chinese plan to cut pollution in at least some of their major cities soon, and they want to claim credit for that action in advance.  (In fact they are surprised how rapidly some of those days of blue skies have appeared in Beijing, whether that be the added regulation or the economic slowdown.)  “Carbon emissions” and “pollution” are hardly identical, but still the government is repositioning itself rapidly on the issue of pollution more generally.  This is one welcome part of that broader shift, so don’t worry if not all the details add up.

3. The Chinese leadership expects the domestic economy to be weak for a while, so they can announce a semi-serious carbon cap and meet it, without actually giving up any economic growth.  Of course this #3 isn’t good news on the economic front, but maybe the Chinese government first does need a period of time where such a policy has zero economic cost.

The evidence from the European Union is that their cap and trade program hasn’t worked well, mostly because of time consistency problems, namely that more and more permits are issued and the cap ends up weak over time.  That same problem may or may not apply to China.  But even a strong pessimist about cap and trade can be modestly optimistic about the new Chinese announcement.

Is this the most effective development program in history?

by  Tyler Cowen in

I will turn the mike over to Chris Blattman:

It’s a business plan competition for $50,000, and I think it’s a contender.

In 2011 the Nigerian government handed out 60 million dollars to about 1200 entrepreneurs, and three years later there are hundreds more new companies, generating tons of profit, and employing about 7000 new people.

David McKenzie did the incredible study.

24,000 Nigerians applied, the government selected about 6,000 to get some training and advice to develop their plan, the plans were scored, and about 1,200 were funded. They got an average of $50,000 each. Fifty thousand US dollars! Who the hell thought this was a good idea?

All the highest scoring plans got funded automatically, but McKenzie worked with the government to randomize among the runners up.

The results are amazing. Looking just at the people who had no firm to begin with, 54% of the control group have a firm after three years, compared to 93% of those who got the grant. And these firms are bigger. Just 11% of the control group have a firm with at least 10 employees, compared to 34% of those who got the grant. They’re more profitable too.

If you are the President of a developing country, one of the great problems that will occupy your thoughts is: how to get more people jobs? How to grow domestic businesses? Even I, Mr. Cash, did not think big grants would be the answer.

These entrepreneurs are not the deserving poor, to be sure, but the employees are more likely to be. They made $143 a month, so they probably weren’t the poorest of society. But 7000 people earning $7 a day they might not have earned otherwise—that is something. And this ignores the multiplier: the expansion of suppliers, the people employed by the 7000 employees spending that money, the taxes collected by the state, and so on.

Two other things occur to me:

  1. What if, in 10 years, we learn that after all the struggle to build infrastructure and services and other stuff was bullshit, and ALL ALONG we should have just been funneling more cash to the middle and bottom. I do not believe the cashonistas should go so far, but today I wonder.

  2. I should start responding to all the emails I get from Nigerians promising me $50,000 in cash.

*The Economist* endorses ngdp targeting

by  Tyler Cowen in

…it makes sense to look beyond inflation—and to consider targeting nominal GDP (NGDP) instead…

A target for nominal GDP (or the sum of all money earned in an economy each year, before accounting for inflation) is less radical than it sounds. It was a plausible alternative when inflation targets became common in the 1990s. A target for NGDP growth (ie, growth in cash income) copes better with cheap imports, which boost growth, but depress prices, pulling today’s central banks in two directions at once. Nominal income is also more important to debtors’ economic health than either inflation or growth, because debts are fixed in cash terms. Critics fret that NGDP is hard to measure, subject to revision, and mind-bogglingly unfamiliar to the public. Yet if NGDP sounds off-putting, growth in income does not. And although inflation can be measured easily enough, central banks now rely nearly as much on estimates of labour-market “slack”, an impossibly hazy number. Most important, an NGDP target would free central banks from the confusion caused by the broken inflation gauge. To set policy today central banks must work out how they think inflation will respond to falling unemployment, and markets must guess at their thinking. An NGDP target would not require the distinction between forecasts for growth (and hence employment) and forecasts for inflation.

There is more here, congratulations to Scott Sumner and others…

Why has deflation returned to Japan?

by  Tyler Cowen in

Japan Times reports:

Consumer prices excluding fresh food fell 0.1 percent in August from a year earlier, the first drop since April 2013, the same month Kuroda embarked on a campaign of record asset purchases to rid Japan of its “deflationary mindset.”

My goodness is economics a difficult subject.  (Scott Sumner is implicitly surprised too.)  So why is this happening?

Many of you might be tempted to utter some version of the words “liquidity trap.”  Even if this is one of the more reasonable versions of the liquidity trap arguments, there remains a problem.

Liquidity trap arguments imply that someone’s marginal utility of holding money is basically flat, whether that be the banks, the bank shareholders, the customers — someone.  And the flatness holds for a bunch of relevant someones, not just a few people.  (Or is that a flat marginal utility curve for “money plus safe short-term bonds“?  Whatever.)  With a flat marginal utility curve of money there are multiple equilibria, just as multiple equilibria more generally plague liquidity trap models.  Velocity could be something other than what it is, because at higher or lower levels of cash balance holdings the rate of return on those holdings still would be the same.

Institutional frictions may play a role in setting the equilibrium.  So why an equilibrium with falling prices?  Prices are sticky to some extent, which tends to militate against those of the multiple equilibria where prices are falling.  One might expect the equilibrium where the aggregate of prices rises, if only slowly.  But then why would a slightly higher rate of price inflation turn back down to a lower rate?

A second view is that the money supply/credit supply is endogenous, a’ la Fischer Black, Basil Moore, and others.  Until the real economy does better, the force of M times V will be weak.  This view involves no particular commitment to the slope of the marginal utility of money schedule.  Post 2013, prices went up for a while, because people thought Abenomics might work, but now that they see it doesn’t prices are sliding back down again.

Yet a third view is that the Japanese simply haven’t tried hard enough yet to debase their currency, see for instance Krugman on credibility or various Scott Sumner posts.  In this context I would myself cite gerontocracy rather than credibility issues.

My best guess is that some version of #3 makes #2 true at the relevant margin, but I don’t think such matters are well understood.

Addendum: Scott Sumner comments, for any plausible measurement I still say the rate of price inflation is relatively low in a puzzling manner, relative to asset purchases.  Large increases in money are in principle capable of offsetting relative small declines in food and energy prices, and if they do not that is simply another way of restating the puzzle.

Left-wing critique of effective altruism

by  Tyler Cowen in

I very much enjoyed the new LRB piece by Amia Srinivasan.  Here is a good “standing on one foot” statement of what effective altruism recommends:

The results of all this number-crunching are sometimes satisfyingly counterintuitive. Deworming has better educational outcomes among Kenyan schoolchildren than increasing the numbers of textbooks or teachers. If you want to improve animal welfare, it’s better to stop eating eggs than beef, since caged layer hens live worse lives than farmed cows, and because eating eggs consumes more animals than eating beef: the average American consumes 0.8 layer hens but only 0.1 beef cows per year. Buying Fairtrade goods can be worse than buying regular goods, since the extra cost goes mostly to middlemen rather than farmers, and when it doesn’t, it benefits farmers in relatively rich countries: because Fairtrade standards are hard to meet, most Fairtrade coffee production comes from Mexico and Costa Rica rather than, say, Ethiopia, where the marginal pound would go much further. The green value of buying locally grown food is overblown, too, since transport accounts for only 10 per cent of the carbon footprint of food, while 80 per cent of it is generated in production; tomatoes grown in the UK can have five times the carbon footprint of tomatoes shipped from Spain because of the energy required to hothouse them. If you’re really committed to minimising your carbon footprint, MacAskill recommends donating to the carbon offsetting charity Cool Earth; he estimates that the average American could offset all his carbon emissions by donating $105 a year. There isn’t much point in unplugging your electricals, either: leaving your mobile phone charger plugged in for a whole year contributes less to your carbon footprint than one hot bath.

And here is part of the critique:

MacAskill is evidently comfortable with ways of talking that are familiar from the exponents of global capitalism: the will to quantify, the essential comparability of all goods and all evils, the obsession with productivity and efficiency, the conviction that there is a happy convergence between self-interest and morality, the seeming confidence that there is no crisis whose solution is beyond the ingenuity of man. He repeatedly talks about philanthropy as a deal too good to pass up: ‘It’s like a 99 per cent off sale, or buy one, get 99 free. It might be the most amazing deal you’ll see in your life.’ There is a seemingly unanswerable logic, at once natural and magical, simple and totalising, to both global capitalism and effective altruism. That he speaks in the proprietary language of the illness – global inequality – whose symptoms he proposes to mop up is an irony on which he doesn’t comment. Perhaps he senses that his potential followers – privileged, ambitious millennials – don’t want to hear about the iniquities of the system that has shaped their worldview. Or perhaps he thinks there’s no irony here at all: capitalism, as always, produces the means of its own correction, and effective altruism is just the latest instance.

Not my view, but well written as a piece and definitely recommended.  Here is comment from Scott Alexander.

The culture that is America (Googling for God)

by  Tyler Cowen in

In the United States, there is more interest in heaven than in hell, at least based on searches. There are 1.5 times more searches for “heaven” than “hell,” 2.8 times as many searches asking what heaven looks like than what hell looks like, and 2.75 times as many searches asking whether heaven is real than whether hell is real.

…Relative to the rest of the country, for every search I looked at, retirement communities search more about hell. In retirement communities, there are a similar number of searches asking to see visuals of hell as visuals of heaven.

And:

There are 4.7 million searches every year for Jesus Christ. The pope gets 2.95 million. There are 49 million for Kim Kardashian.

That is from Seth Stephens-Dawidowitz.