Month: November 2015
So many questions…
What will turn out to be the exact backgrounds and personal stories of the attackers?
And how much will that matter? (Syrian refugee backgrounds are probably the worst case scenario, illegal “invaders” the best case scenario)
How much will this strengthen the French National Front?
What will the response be of the French government? The American government? (Don’t forget the NATO treaty obligation. And will this mean Obama has to back off in the South China Sea?)
How much will it weaken Merkel, or possibly split the alliance with CSU, or strengthen AfD?
How much does it weaken the position of Schengen?
Will concealed carry become a more popular idea in the United States?
So few answers…
Friday assorted links
1. Redistribution under Obamacare (NB: it seems the numbers have since turned more negative).
2. What we are learning about development economics.
3. Caplan on Caplan vs. Jones, and I will repeat and second his call for you to buy, or better yet review, Garett’s new book The Hive Mind.
4. What is happening with the number and size of nations?
5. Financial incentives to help women stop smoking seem to be effective, paper here.
Gambling Can Save Science!
Some 25 years ago, our colleague Robin Hanson published Could Gambling Save Science?, one of the first papers explaining and advocating prediction markets. Since that time prediction markets have been used to better predict political events, Hollywood movie revenues, and corporate sales but perhaps oddly little has been done in the field that Robin initially proposed, science.
That has now changed. As part of the reproducibility project economists at the Stockholm School of Economics set up a market to predict which psychology papers would fail to replicate. From Ed Yong at The Atlantic:
Dreber’s experiment was born in a bar. Over drinks with her husband Johan Almenberg and roommate Thomas Pfeiffer, she was talking about an attention-grabbing psychological study that she thought was “cute, but unlikely to be true.” When she wondered how good her instincts were, Pfeiffer brought up another paper by economist Robin Hanson at George Mason University. Titled Could Gambling Save Science?, it suggested that researchers could get a more honest consensus on scientific controversies by betting on their outcomes, in the way that traders bet on the future prices of goods.
“It blew us all away,” says Dreber. In 2012, she and her colleagues contacted Nosek, who agreed to add prediction markets to his big Reproducibility Project.
The markets worked well and, verifying the wisdom of the crowds, they worked far better than any individual in the market. The authors of the study argue that prediction markets could be used more extensively in science:
[P]rediction markets are a promising tool for assessing the reproducibility of published scientific results. The prediction markets also allow us to estimate probabilities for the hypotheses being true at different testing stages, which provides valuable information regarding the temporal dynamics of scientific discovery. We find that the hypotheses being tested in psychology typically have low prior probabilities of being true (median, 9%) and that a “statistically significant” finding needs to be confirmed in a well-powered replication to have a high probability of being true. We argue that prediction markets could be used to obtain speedy information about reproducibility at low cost and could potentially even be used to determine which studies to replicate to optimally allocate limited resources into replications.
My thoughts on recent campus fracases
This topic feels over-covered by other sources, but still I would like to see these points receive more attention:
1. I don’t trust early media reports on such matters, and so I am reluctant to offer judgment on a variety of the specifics. That includes Yale, Mizzou, and other places. For most or maybe even close to all readers, the proper context probably is missing and perhaps some of the facts are being garbled.
2. Universities have the right to regulate speech and also behavior on their premises, just as a corporation does or a hotel might do. There is no infringement of freedom of speech when a university acts in this manner. Public funding does introduce some complications, but even there residual regulatory rights exist.
3. Subtle linguistic cues, social barriers, bigotries of expectations, and segregations can in fact harm students and shape their future life prospects. That said, I am mostly skeptical about the ability of universities to undo these social mechanisms by conscious social engineering of the immediate environment. Some gain can be achieved, and some of the worst harms can and should be avoided, but it is a mistake to expect too much from universities in this regard.
4. My personal preference is to see controversial ideas discussed and debated openly on campuses,more so than is currently the case. Those ideas are going to be out there anyway, so let’s have universities contribute to shaping the broader social discourse. For instance imagine that more advanced forms of genetic engineering someday become possible, and parents can selectively abort an embryo with a higher chance of being gay. Do we really want to be in a position where universities have shied away from discussing this issue for decades? I say no, realizing that in the meantime some peoples’ feelings will indeed have ended up being hurt. If you are gay, and sitting in a classroom discussion of this topic, or maybe you just have a gay friend — whatever — I doubt if there is a fully comfortable way for this discussion to proceed. Yet the rest of the world is going to be talking about this, the internet above all, and making the university a “safe space” won’t make the broader world one, if anything the contrary.
5. The natural tendency for administrators is to want to minimize internal disruption, even if that is sometimes at the expense of having a broader world impact. I thus believe many administrators overinvest in political correctness, at least from a Benthamite, utilitarian point of view. See #4.
6. The upshot of this all is that lower tier administrators will be sending fewer all-student emails in the future. And some presidents may be less interested in improving the quality of their football teams, or starting such teams in the first place. I’m not sure that’s a bad thing.
7. Most of the world knows very, very little about the details of these events. They see there is a mess, and they think something is wrong with universities, students, parents, administrators — everyone. No matter what happens from this point, universities have messed up and lost this round rather badly.
For this post I am indebted to a discussion with Stephen Macedo and two of his students, but of course they are not to be implicated in my opinions one way or the other.
My macroeconomic framework, circa 2015
A while ago Scott Sumner laid out at least part of his framework, I thought I should lay out some key parts of mine. Here goes:
1. In world history, 99% of all business cycles are real business cycles. No criticism of RBC can change this fact. Furthermore the propagation mechanism for a “Keynesian business cycle” (arguably a misleading phrase) also relies on RBC theory.
2. In the more recent segment of world history, a lot of cycles have been caused by negative nominal shocks. I consider the Christina and David Romer “shock identification” paper (pdf, and note the name order) to be one of the very best pieces of research in all of macroeconomics. Sometimes central banks tighten when they shouldn’t, and this leads to a recession, due mainly to nominal wage stickiness.
3. Workers are laid off because employers are often (not always) afraid to cut their nominal wages, for fear of busting workplace morale, or in Europe often for legal and union-related reasons.
4. Overall I favor a nominal gdp rule for monetary policy. But most of its gains would come in a few key historical episodes, such as 1929-1932, or 2008-2009. In most periods I don’t think we know what the correct monetary policy should be, nor do we know that it matters. Still, that uncertainty does not militate against an ngdp rule.
5. Once workers are unemployed, nominal wage stickiness is no longer the main reason why they stay unemployed. In fact nominal wage stickiness is largely taken out of the equation because there is no preexisting nominal wage contract for these workers. There may, however, be some residual stickiness due to irrational reservation wages, also known as voluntary unemployment due to stupidity. (You will find a different perspective in Scott’s musical chairs model, which I may cover more soon.)
5b. Monetary stimulus to be effective needs to be applied very early in the job destruction process of a recession. It is much harder to put the pieces back together again, so urgency is of the essence.
6. The successful reemployment of workers depends upon a matching problem, a’la Pissarides, Mortensen, and others. Yet this matching problem is poorly understood, and it can involve a mix of nominal and real imperfections. Sometimes it is solved more quickly than expected, such as in the recent UK experience, and other times more slowly than expected, as in current Spain. Most of the claims you will read about this reemployment of workers are wrong, enslaved to ideology or dogmatism, or at the very least unjustified. Hardly anyone wants to admit this.
7. Really bad recessions involve deficient aggregate demand, negative shocks to intermediation, some chronic supply-side problems, negative wealth effects, and increases in the risk premium, all together. It is hard to find a quick fix. Furthermore models where AS and AD curves are independent and separable are often misleading, despite their analytic convenience.
8. Given that weak AD is only one of the problems in a bad downturn, and that confidence, risk, and supply side problems matter too, the best question to ask about fiscal policy is how well the money is being spent. The “jack up AD no matter” approach is, in the final political equilibrium, not doing good fiscal policy any favors.
9. You should neither rule out nor overstate the relevance of Hayek and Minsky. Their views have much in common, despite the difference in ideological mood affiliation and who — government or the market — gets blamed for the downturn. For really bad recessions, usually both institutions are complicit to say the least.
10. All propositions about real interest rates are wrong.
There is more, but I’ll stop there for now.
Do women face a reputational bias when they co-author?
Apparently. Heather Sarsons has a paper on this phenomenon (pdf), the abstract is this:
Within academia, men are tenured at higher rates than women are in most quantitative fields, including economics. Researchers have attempted to identify the source of this disparity but find that nearly 30% of the gap remains unexplained even after controlling for family commitments and differences in productivity. Using data from academic economists’ CVs, I test whether coauthored and solo-authored publications matter differently for tenure for men and women. While solo-authored papers send a clear signal about one’s ability, coauthored papers are noisy in that they do not provide specific information about each contributor’s skills. I find that men are tenured at roughly the same rate regardless of whether they coauthor or solo-author. Women, however, suffer a significant penalty when they coauthor. The results hold after controlling for the total number of papers published, quality of papers, field of study, tenure institution, tenure year, and the number of years it took an individual to go up for tenure. The result is most pronounced for women coauthoring with only men and is less pronounced the more women there are on a paper, suggesting that some gender bias is at play. I present a model in which bias enters when workers collaborate and test its predictions in the data.
See also this very interesting paper on “Confidence Men,” in economic science, women seem to have more epistemic modesty than men.
Hat tip goes to Dina Pomeranz.
Thursday assorted links
1. Very good Ian Leslie FT piece on how advertising works, or doesn’t.
2. Caplan-Jones immigration debate link.
3. Case-Deaton vs. Deaton-Case (NYT).
4. Uber for philosophers? And Udacity is taking the next steps, warning there is a video at the link.
6. Facebook’s Siri, namely M. And NYT feature on driverless cars, not just the usual.
In which frameworks is price deflation really bad?
Let’s say you believe in secular stagnation and you believe that the prior “short run” of macroeconomics now can stretch for ten, twenty years or more. In the meantime sufficient adjustments will not occur.
And let’s say you believe workers have lost bargaining power and are paid less than their marginal products in a systematic way, as has been argued by many Progressives.
And let’s say you believe nominal wages are quite sticky for extended periods of time, not just a year or two.
Does not a bit of price deflation help to set things right again? The resulting increase in real wages might even — heaven forbid — boost real consumption. And yet there should not be many layoffs, as employers are still earning extra profits on these workers.
Please note that I do not in general believe in the above propositions as stated, I am simply wondering how all of the pieces fit together. It seems to me that if you believe workers are significantly underpaid relative to marginal product, nominal wage stickiness should be a much smaller problem than otherwise. Deflation too.
Bueller?
The Charles Moore Margaret Thatcher biography, volume 2
I am only on p.90 but I will be reading this one all the way through. Here is one excerpt from the opening bits:
The following morning, Mrs Thatcher met Deng Xiaoping. Those present at the meeting were conscious of an air of unease and of two formidable individuals confronting one another. ‘They were mirror images,’ recalled Percy Cradock. Robin Butler remembered ‘a great diatribe’ by Deng, with Mrs Thatcher being ‘pretty equally aggressive.’ Deng started hawking, and expectorating into the spittoon which was uncomfortably near to her; ‘She moved her legs. It threw her.’
The book covers 1982 to 1987, the peak of Thatcher’s power and influence. Here is a rave review from Bruce Anderson, very much deserved. I am very glad I paid the extra shipping fee from Amazon.uk, you also might try ordering it here at elevated prices, very much worth it, one of the books of the year.
How is China doing?
From Fathom Consulting, here is the latest, based in part on momentum indicators:
Contrary to the picture painted by the official statistics, we believe that China’s economic growth rate has more than halved since the beginning of early last year, from just over 6% to less than 3%. Indeed, our preferred measure of economic activity — our China Momentum Indicator (CMI) — slipped 0.2 percentage points to 2.8% in September.
Looking at the individual components of our CMI, rail freight volumes reached a six-and-a-half year low, while electricity production also fell — down 3.1% in the twelve-months to September. The third and final component, growth in bank lending, has been broadly stable at around 15% per annum over the past four years.
In response, the PBoC has eased policy on no fewer than six occasions in the past twelve months. We see further substantial cuts in China’s policy rates of interest over the next year, not least because in real terms they remain stubbornly high.
As benchmark interest rates continue to fall in China, capital outflows are likely to rise, putting further downward pressure on the currency. Back in August, the RMB was allowed to fall by 3.0% against the USD in the space of a week – the biggest one-week move in 20 years.
Last Friday’s appreciation aside, we view further devaluations as more or less inevitable. Accordingly, we see the RMB falling at a pace of 2.0% to 3.0% a quarter over the next two years as China attempts to export some of its pain.
In my admittedly biased view, signs of “good news” coming from China, especially on the asset price side, are often bad news. They are signs that the government is not allowing markets to adjust, or does not feel politically strong enough to get certain transitions over with. Here is the FT on what is keeping the Chinese economy going at whatever growth rate it may be at:
Beijing has ramped up fiscal spending to fill the gap. Fixed-asset investment by local governments rose 10.6 per cent in the year to October.
Be careful what you wish for of course.
A key question in reading a lot of China indicators is how to think about changing prices. Imports are plunging in value terms, in part because the prices of commodities are falling, but imports in pure volume terms are rising. Which matters more? We usually count the value figure. and besides, some of those prices are falling because Chinese demand began to decline at the older prices. Measuring the value of the imports will make you much more pessimistic than merely considering the volume.
An anti-corruption plan for Indonesia
Indonesia’s anti-drugs agency has proposed building a prison on an island guarded by crocodiles to hold death row convicts, an official said, an idea that wouldn’t be out of place in a James Bond film.
The proposal is the pet project of anti-drugs chief Budi Waseso, who plans to visit various parts of the archipelago in his search for fierce reptiles to guard the jail.
“We will place as many crocodiles as we can there. I will search for the most ferocious type of crocodile,” he was quoted as saying by local news website Tempo.
Waseso said that crocodiles would be better at preventing drug traffickers from escaping prison as they could not be bribed — unlike human guards.
There is more here, via Charles Klingman and Mark Thorson, try this Bond movie clip too.
Wednesday assorted links
1. Chess players’ fame versus their merit.
2. Haggis recipe could be tweaked to beat U.S. ban.
3. Who has the edge in getting organs for transplant? (guess)
4. Sumner on Bernanke, more here. And it is scary that Bernanke feels the need to write a blog post opposing the notion that Congress raid the capital of the Fed. It gets sent to the Treasury anyway.
5. NYT obituary of Rene Girard, with lots on Peter Thiel too. It is also odd what this piece leaves out.
The Tiebout model taken to an extreme
What if the entire town moves?:
When independent traders in a small Welsh town discovered the loopholes used by multinational giants to avoid paying UK tax, they didn’t just get mad.
Now local businesses in Crickhowell are turning the tables on the likes of Google and Starbucks by employing the same accountancy practices used by the world’s biggest companies, to move their entire town “offshore”.
Advised by experts and followed by a BBC crew, family-run shops in the Brecon Beacons town have submitted their own DIY tax plan to HMRC, copying the offshore arrangements used by global brands which pay little or no corporation tax.
The Powys tax rebellion, led by traders including the town’s salmon smokery, local coffee shop, book shop, optician and bakery, could spread nationwide.
The article is here, via John Chilton. Georgists of the world unite!
Glasgow fact of the day
For 1998-2002, male life expectancy in the Calton district of Glasgow was fifty-four.
For those same years, male life expectancy in the well-off district of Lenzie, Glasgow was eighty-two, a rather large gap.
For purposes of contrast, by the way, at that time average life expectancy for men in India was sixty-two, eight years longer than for Calton.
That is all from Michael Marmot, The Health Gap: The Challenge of an Unequal World, pp.24-25.
The marginal emotional taxes on women are high
In a work context, emotional labor refers to the expectation that a worker should manipulate either her actual feelings or the appearance of her feelings in order to satisfy the perceived requirements of her job. Emotional labor also covers the requirement that a worker should modulate her feelings in order to influence the positive experience of a client or a colleague.
It also includes influencing office harmony, being pleasant, present but not too much, charming and tolerant and volunteering to do menial tasks (such as making coffee or printing documents).
That is by Rose Hackman, the piece is interesting throughout. But are the inframarginal emotional taxes for women, relative to those faced by men, higher or lower?
For the pointer I thank Hollis Robbins.