Month: January 2016

Saturday assorted links

1. Long profile of Richard Posner, more than just the usual.

2. Can robots be lawyers?  A serious, detailed look, goes well beyond the usual.

3. Can editors and journalists be competitors?  A serious, detailed look, with some not entirely pessimistic answers.  In the meantime it is like academia, if academia had to compete.

4. Ed Glaeser reviews Robert Gordon; my own review will be coming out in Foreign Affairs.

5. The culture that is Canada: “I analyzed N.H.L. data from 1980 to 2007 for 737 professional players born in the Canadian prairies. The players share a common environment in the ice rink, but those who were born in areas historically outside the reach of the Mounties were penalized more often — an average of about 1.4 minutes per game — than those who were not — an average of about 1 minute per game. That 0.4 minute difference actually amounts to about 100 additional penalty minutes over a player’s career.” Link here.

*The Hateful Eight* (no spoilers)

I don’t like most Tarantino movies, except for Reservoir Dogs and Kill Bill, vol.I.; I usually find his style too mannered and self-conscious.  And I read so many negative or lukewarm reviews in the American press.  But more positive evaluations started to trickle in, as the British Guardian, Telegraph, and FT all gave it five stars, and some of my friends seemed to like it.  One of my canonical views is that when critics have split views on a talented director, you should go see the movie.  I am very glad I did.

Think of the film as a retelling of John Locke’s social compact story, except the individuals are not tabula rasa in terms of history, but rather they bring ineradicable racial and historical backgrounds to the table, epistemically uncertain backgrounds as well.  The game-theoretic solution concepts unfold accordingly.  The setting and details of the story are then set up to spoof Agatha Christie and the British haunted house tradition, except with snow, guns, and the American West as props.

Recommended, even for skeptics, Straussian throughout.

Why is a falling oil price bad for many asset markets?

But there is, I believe, something else going on: there’s an important nonlinearity in the effects of oil fluctuations. A 10 or 20 percent decline in the price might work in the conventional way. But a 70 percent decline has really drastic effects on producers; they become more, not less, likely to be liquidity-constrained than consumers. Saudi Arabia is forced into drastic austerity policies; highly indebted fracking companies find themselves facing balance-sheet crises.

Or to put it differently: small oil price declines may be expansionary through usual channels, but really big declines set in motion a process of forced deleveraging among producers that can be a significant drag on the world economy, especially with the whole advanced world still in or near a liquidity trap.

That is from Paul Krugman, speculative (as I think he would admit) but worth a ponder.

Another possibility is simply that, along with China and ongoing terror attacks, investors are realizing they don’t understand the world nearly as well as they thought they did.  Or perhaps the rapidly falling price means one set of investors is learning from another just how soft the demand curve is, thus spreading bearish sentiment.

Addendum: Izabella Kaminska adds comment.

Does it matter that to some extent banks are commonly owned?

There is now a paper on this topic by Azar, Raina, and Schmalz, the main result is this:

We document a secular increase of deposit account maintenance fees and fee thresholds with a new branch-level dataset, as well as substantial cross-sectional variation in these prices and in deposit rate spreads. We then examine whether variation in bank concentration helps explain the variation in prices. The standard measure of concentration, the HHI, is not correlated with any of the outcome variables. A generalized HHI (GHHI) that captures both common ownership (the degree to which banks are commonly owned by the same investors) and cross-ownership (the extent to which banks own shares in each other) is strongly correlated with higher maintenance fees, fee thresholds, and deposit rate spreads. We use the growth of index funds as a source of exogenous variation to establish a causal link from GHHI to higher prices for banking products.

In other words, if companies are owned by the same pension and mutual funds, why should they compete against each other?  Imagine managers given financial incentives for greater stability rather than greater risk-taking, so this does not require a publicly traceable conspiracy.

The first paper on this general question was in fact written by me and Ami Glazer about twenty-five years ago, although we never managed to get it published.  Our biggest problem was perhaps the lack of clear evidence at the time.  This is the best evidence I have seen so far, although I still file this under “speculative”…

For the pointer I thank Uri Bram.

Lunch with the FT, Roland Fryer

Here is one bit:

Do they take a data-driven approach to parenting, I wonder? Fryer confesses to owning a Dropbox folder called “the science of kids”, with data to cite in arguments over sleep training. They also plotted their daughter’s weight on a spreadsheet for a couple of weeks. “But then it was too tiring. There’s nothing like your own child to make you want to throw data out of the window,” he jokes.

He admits he has slowed down from his most workaholic phase but I suspect we’re talking fine margins.

Interesting throughout, I fear it is gated for you, very sad do subscribe.  I link to it anyway as a show of expressive support for both Fryer and the FT and also John McDermott.

Being drafted during the Vietnam War also hurt your descendents

A decade after their military service, white veterans of the draft were earning about 15 percent less than their peers who didn’t serve, according to studies from MIT economist Josh Angrist.

Now, new research suggests that the draft did more than dim the prospects of that earlier generation: The children of men with unlucky draft numbers are also worse off today. They earn less and are less likely to have jobs, according to a draft of a report from Sarena F. Goodman, an economist with the Federal Reserve Board of Governors, and Adam Isen, an economist at the Treasury Department. (A copy was released by the Fed in December, but research does not reflect the opinions of the government.)

The researchers have not nailed down how, exactly, any of this is happening, nor why the disadvantage appears to be over twice as potent for sons than for daughters. But the work is valuable for showing how the circumstances of one’s parents can have lasting repercussions. This is one way that inequality persists through the generations.

That is from Jeff Guo at Wonkblog.

Friday links

1. “So when she was working on her dissertation at Waterloo in 2014, Colleen Merrifield decided to make a video that would bore most people to tears.

2. Ross Douthat summary post on immigration, very good arguments though I favor considerably more immigration than he does.

3. Demand for El Chapo shirts is high and rising:

Asked about the risks of his advertising – that people might associate Barabas clothing with the brutal murders, cartel wars and legacy of corruption and addiction that Guzmán’s name suggests – Esteghbal paused to think. “No no, we’re just making clothes.

“I cannot say anything right now on that. They can think however they want to think, but reality is reality.”

For now, he said he’s content to sell the shirt, $128 a pop. “And sales are skyrocketing.”

4. Do you have a legal right to stop a drone from hovering over your yardWould it be easy to hack the Fed? (speculative)

5. A mega-meta-list for classical music.

6. Christopher Balding update on China and the loss of confidence: “Fear seems to be gaining a foothold.”

Are conservative and libertarian law professors more productive?

A new study, forthcoming in the Harvard Journal of Law and Public Policy, suggests that conservative and libertarian professors are more productive than are their colleagues. James Cleith Phillips, a Ph.D. student at the law school at the University of California at Berkeley, compared the publication and citation records of faculty members at the 16 highest-rated law schools in the country. He found that conservative and libertarian professors at the law schools were more productive than their peers. The paper says this finding is consistent with (but does not demonstrate) the thesis that conservative and libertarian applicants face some discrimination in the hiring process.

That is from Inside Higher Ed, via Anecdotal.

Can economics change your mind?

Adam Ozimek wrote the blog post everyone else is talking about; he gives good examples there.

Where to start?  I could write a whole ongoing blog on this question (wait…).  In any case, here are just a few examples of where I have changed my mind due to economic evidence:

1. Before 1982-1984, and the Swiss experience, I thought fixed money growth rules were a good idea.  One problem (not the only problem) is that the implied interest rate volatility is too high, or exchange rate volatility in the Swiss case.

2. Before witnessing China vs. Eastern Europe, I thought more rapid privatizations were almost always better.  The correct answer depends on circumstance, and we are due to learn yet more about this as China attempts to reform its SOEs over the next five to ten years.  I don’t consider this settled in the other direction either.

3. The elasticity of investment with respect to real interest rates turns out to be fairly low in most situations and across most typical parameter values.

4. In the 1990s, I thought information technology would be a definitely liberating, democratizing, and pro-liberty force.  It seemed that more competition for resources, across borders, would improve economic policy around the entire world.  Now this is far from clear.

5. Given the greater ease of converting labor income into capital income, I no longer am so convinced that a zero rate of taxation on capital income is best.

6. The social marginal value of health care is often quite low, much lower than I used to realize.  By the way, hardly anyone takes this on consistently to guide their policy views, no matter how evidence-driven they may claim to be.

7. Mormonism, and other relatively strict religions, can have big anti-poverty effects.  I wouldn’t say I ever believed the contrary, but for a long time I simply didn’t give the question much attention.  I now think that Mormonism has a better anti-poverty agenda than does the Progressive Left.

8. There are positive excess returns to some momentum investment strategies.

Overall I find that history and theory-laden observation tend to be the forms of evidence which have convinced me the most.  #3 and #8 are examples of “sheer econometrics,” but that is not usually how minds are changed, mine included.  But I don’t intend that as an anti-econometrics remark, rather econometrics is a very useful check on our theory-laden historical observations.  If you can’t get your synthetic, empirically-driven intuitions to work out in the numbers more formally, and that is indeed sometimes the case, your views probably still need more tweaking.  And for some questions, especially in number-heavy, numbers-mean-clear-things finance, it’s sheer econometrics from top to bottom.

Here is Paul Krugman on the topic; he seems to hold a broadly similar view of econometrics.

Three Words – Any Place

Here’s an amazing new tool. what3words has identified every one of the 57 trillion 3mx3m squares on the entire planet with just three, easy to remember, words. My office, for example, not my building but my office, is token.oyster.whispering. Tyler’s office just down the hall is barons.huts.sneaky. (Especially easy to remember if you recall this is Tyrone’s office as well.)

Every location on the earth now has a fixed, easily-accessible and memorable address. Unpopulated places have addresses for the first time ever, of course, but now so do heavily populated places like favelas in Brazil where there are no roads or numbered houses. In principle, addressing could be done with latitude and longitude but that’s like trying to direct people to web sites with IP addresses–not good for humans.

Algorithms have assigned words to avoid homophones (sale & sail) and to place similar combos far from one another to aid in error detection. Simpler, more common words are used to address more populated areas and longer words are used in unpopulated areas.

Moreover the three word addresses are available not just in English but in French, Spanish, Portuguese, Swahili, Russian, German, Turkish and Swedish with more languages on the way. The addresses in other languages are not translations but unique 3 word addresses in those languages.

All of this is available in a small app so that it can be used even offline on a simple smartphone. Find your address here.

Hat tip: The Browser.

Economists on FDA Reciprocity

Daniel Klein & William Davis surveyed economists about whether it would be an improvement to reform the FDA so that “as soon as a new drug is approved by any one of five [FDA approved international] agencies, that drug automatically gains approval in the United States.” They report:

Of the 467 economists who answered the question and did not mark “Have no opinion,” 53 percent agreed that the reform would be an improvement, while 29 percent disagreed. (The remainder said they were “neutral.”) Moreover, those favoring the reform were more likely to say they held their belief “strongly.” Hence, the balance of economist judgment certainly leaned in favor of the liberalization.

Economists are not the only ones in favor of reciprocity. Others are also coming around, at least partially. In Generic Drug Regulation and Pharmaceutical Price-Jacking I argued in response to the massive increases in the price of Daraprim (generic name Pyrimethamine) that we ought to allow importation:

Pyrimethamine is also widely available in Europe. I’ve long argued for reciprocity, if a drug is approved in Europe it ought to be approved here. In this case, the logic is absurdly strong. The drug is already approved here! All that we would be doing is allowing import of any generic approved as such in Europe to be sold in the United States.

In a paper in JAMA discussing the same case, Drs Jeremy Greene, Gerard Anderson, and Joshua M. Sharfstein agree, writing:

A second option is to temporarily permit the importation of drug products reviewed by competent regulatory authorities and approved for sale outside the United States. For example, Glaxo, the original manufacturer of pyrimethamine, sells a version of the drug approved for use in the United Kingdom at less than $1 per tablet.

Dr Sharfstein by the way was Principal Deputy Commissioner of the US Food and Drug Administration from March 2009 to January 2011.

Addendum: I will be discussing/debating pharmaceutical policy with Dr. Sharfstein at on event sponsored by the Council on Foreign Relations in Washington, DC the morning of Monday January 25. Invitation only but email me if you want an invite.

Thursday assorted links

What is the financial future of the World Bank?

The Bank once comfortably earned enough to be self-sustaining. Today, it is rapidly becoming welfare-dependent. Periodic contributions from wealthy governments have propped up lending to poor countries, but these are unlikely to be increased, and some may be discontinued as donors redeploy aid budgets to refugee programs.

The problem is not that emerging economies have no desire to borrow; they desperately need funds for infrastructure and other investments. The problem is that the Bank is too slow to process loans, which has increasingly made it the last choice for many of its potential clients.

Whereas a commercial lender might take three months to prepare and disburse a loan, the Bank takes more than two years. And its efforts to speed up the process, which began in 2013, have reduced the average time only slightly, from 28 months to 25.2 months; in some regions (accounting for a third of the Bank’s lending), the wait has actually increased.

One clear indicator of the Bank’s performance is how high a premium governments are willing to pay to avoid it. A 20-year loan from the World Bank has an interest rate of about 4%, and the poorest countries can borrow for less than 1% (“International Development Association loans”). Nonetheless, many countries are choosing much more expensive commercial loans or bond issues. For example, Ghana, despite being eligible for IDA loans, recently chose to raise money from the bond market, from which it received an interest rate several times higher.

That is by Ngaire Woods.