Month: June 2016
Dave Weigel profiles Gary Johnson
In his hunt for a libertarian center, he comes off as less angry about the state than many Republicans.
The piece is interesting throughout. Yesterday Nate Silver tweeted:
Could very easily wind up with an outcome like Clinton 47%, Trump 41%, Johnson 10%, Stein/others 2%, or something in that vicinity.
Wednesday assorted links
1. Do you wish to keep Freddie “…cranky and independent for a little while longer”?
2. Curb Your Enthusiasm is returning to HBO.
3. “This history indicates that Congress has already made an exception for itself by not adopting the 2004 overtime-pay rule update. That inaction raises the question of what Congress will do if the board recommends that both chambers adopt rules conforming to the DOL’s recent overtime-pay rule.” Link here.
4. ““The truest Sichuanese food has only about a century or so of history behind it…” — is Sichuan food in decline? (NYT) And how Beijing is turning Koreans into Chinese.
5. David Henderson on what to do about London housing.
6. How European women shifted away from the right and toward the left.
Regulation and Rents
Here’s James Bessen writing in the Harvard Business Review:
…in 1992 Congress passed the Cable Television Consumer Protection and Competition Act in response to high cable TV rates. Regulators expected cable prices to fall by 10%. Instead, however, cable companies changed their programming bundles, prices did not fall, and corporate valuations increased. The chart below shows that the aggregate market value of cable companies relative to assets (Tobin’s Q) rose following the Act, compared to valuations of other firms.
Regulation doesn’t seem to have reduced profits in the cable industry and may have increased profits. Is there a general lesson here? In a new paper, Bessen finds that the answer is yes:
The pattern around the 1992 Cable Act is representative: I find that firms experiencing major regulatory change see their valuations rise 12% compared to closely matched control groups. Smaller regulatory changes are also associated with a subsequent rise in firm market values and profits.
This research supports the view that political rent seeking is responsible for a significant portion of the rise in profits. Firms influence the legislative and regulatory process and they engage in a wide range of activity to profit from regulatory changes, with significant success. Without further research, we cannot say for sure whether this activity is making the economy less dynamic and more unequal, but the magnitude of this effect certainly heightens those concerns.
Addendum: Reed Hundt, chairman of the FCC from 1993 to 1997, discusses cable TV regulation during this period in the comments.
China sentences of the day
With less than 1% of China’s GDP, it [Wenzhou] has accounted for nearly a tenth of bankruptcy cases nationwide over the past three years. It established one of China’s first courts dedicated to handling such cases. “Other cities hear ‘bankruptcy’ and get scared. Here, we are tasting how sweet it can be,” says Zhou Guang, who heads the Wenzhou Lawyers’ Association.
Here is the full story.
Is economics a house divided?
That is a recent paper by Onder and Terviö (pdf), publisher version here, here is the abstract:
We investigate divisions within the citation network in economics using citation data between 1990 and 2010. We consider all partitions of top institutions into two equal-sized clusters, and pick the one that minimizes cross-cluster citations. The strongest division is much stronger than could be expected to be found under idiosyncratic citation patterns, and is consistent with the reputed freshwater/saltwater division in macroeconomics. The division is stable over time, but varies across the fields of economics.
Or put it this way:
The likelihood of citing a paper by an author from another university in the same cluster is about 16% higher than the likelihood of citing a paper by an author from the other cluster.
Oddly, Northwestern and Penn are in the freshwater cluster of citations. Yale and Michigan are the only two schools whose cluster changes with the specification.
Berkeley and MIT have the saltiest taste, while Minnesota and Rochester are the freshest of the fresh. Chicago has a more neutral set of citation practices than many economists (not I) might think. Chicago cites saltwater school papers at a higher rate than the general average, nonetheless Chicago ends up strongly in the freshwater camp because it is cited so much by other freshwater schools, and not so much by the saltwater schools. A cynic might wonder if the Chicago economists are more open-minded than their critics, and I must confess that is consistent with my own anecdotal experience.
By the way, all this corresponds to hiring placement data. Sadly, academic hiring is more clustered across camps of schools than is the case for…comparative literature. If you are wondering, the saltiest Fed branch is in Boston, the least salty in Richmond.
Addendum: Bob Hall directs my attention to his posting: “In a 1976 paper, I introduced the distinction between fresh-water and salt-water economists. Bloggers using these terms are asked to contribute $1 to a fund that sends graduate students to MIT for one year and to the University of Minnesota for a second year.”
Did the Medicaid expansion limit labor force participation?
I study the effect that expanding Medicaid eligibility has on labor force participation of childless adults. The Affordable Care Act provided federal funding for states to expand public health insurance to populations that had never before been eligible for the benefit on a large scale, among those are adults without dependent children. A 2012 Supreme Court decision allowed states to choose whether or not they wanted to accept federal funds to expand Medicaid eligibility, resulting in a situation where roughly half of the population resided in states that had expanded Medicaid eligibility in 2014 and half did not. I exploit this variation by conducting a series of difference-in-differences and triple differences analyses both at a local level within one labor market, and nationwide to determine the relationship between Medicaid expansion and labor force participation. I find a significant negative relationship between Medicaid expansion and labor force participation, in which expanding Medicaid is associated with 1.5 to 3 percentage point drop in labor force participation.
That is from a Georgetown thesis by Tomas Wind, via Ben Southwood. Given the possibility of paternalistic judgments in health care policy, the simplest question here is whether this class of individuals is better off as a whole, as a result of some of them choosing this trade-off. Work is good for most people, and it is even better for their future selves, and their future children too.
*Specialization and Trade: A Re-introduction to Economics*
That is the new Arnold Kling book, I very much liked the earlier draft I read. Think of it as Fischer Black macro for 2016. Here is Arnold:
The main point of the book is that you need to keep in mind the overwhelming complexity of specialization in a modern economy. Non-economists miss it when they use simple intuition. And academic economists tend to miss it when they build their “models,” particularly of the GDP factory.
Any reader of this blog will be able to follow the book. But what I really want is for everyone who is about to start graduate school in economics to read this book. I want to say to such students, “Don’t get too suckered in by what your professors are going to be showing you about how to do economics. Don’t let them lead you to forget about specialization and trade.”
Tuesday assorted links
1. Does the Canadian trade deal with the EU provide a good model for the UK?
2. How to teach the teachers, believe me they need it. And the movement for data analytics on students is considered promising but dangerous.
3. China nude pictures as IOU and collateral, link is safe for work…”…the lender would send the photo and her naked video footage to her family members if she could not pay back her 10,000 yuan borrowed on an annual interest rate of 24 percent within a week.”
4. “This is the sound of Britain breaking.”
5. “Man finds 22-pound chunk of butter estimated to be more than 2,000 years old in Irish bog.” I enjoyed this paragraph:
In her article “Bog Butter: A Two Thousand Year History” in The Journal of Irish Archaeology, Caroline Earwood wrote, “It is usually found as a whitish, solid mass of fatty material with a distinctive, pungent and slightly offensive smell. It is found either as a lump, or in containers which are most often made of wood but include baskets and skins.”
Then there is this:
Given that level of preservation, most of the butter is actually edible. Irish celebrity chef Kevin Thornton, who owns the Michelin-starred Thornton’s Restaurant in Dublin, claimed to have tasted a 4,000-year-old sample of bog butter.
Some of you may recall James Farewell’s 1689 poem “The Irish Hudibras” — “butter to eat with their hog, was seven years buried in a bog”.
WTF™ Citibank?
I had to verify this on several websites because it seemed like an April Fool’s joke but it checks out:
Citigroup Inc sued AT&T Inc on Friday, saying the phone company’s use of “thanks” and “AT&T thanks” in a new customer loyalty program infringed its trademark rights to the phrase “thankyou.”
Yes, Citi trademarked thankyou. No space! What an innovation! Now they are suing because AT&T has a similar customer loyalty program using “thanks” and “AT&T thanks”.
The IP system is out of control.
Hat tip: Mark Thorson.
What3Words Mongolia
Earlier this year I wrote that every 3m*3m place on the face of the planet can now been addressed by just three words:
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.
The post office of Mongolia has just announced that they will use the system.
Mongolians will be the first to use the system for government mail delivery, but organizations including the United Nations, courier companies, and mapping firms like Navmii already use What3Words’ system.
Mongol Post is switching to the What3Words system because there are too few named streets in its territory. The mail network provides service over 1.5 million square km (580,000 square miles), an area that’s three times the size of Spain, though much of that area is uninhabited. Mongolia is among the world’s most sparsely populated countries, and about a quarter of its population is nomadic, according to the World Bank.
Even in the capital city of Ulaanbataar, not all streets are named. When people don’t have a street address, the current solution is for them to travel to a collection point to pick up their post, says Chris Sheldrick, the co-founder and chief executive of What3Words. People have to write a series of detailed directions, in addition to the address, so that mail-delivery people know where to drop off letters, Sheldrick say.
Murders per gun, which countries have the most and least
This is a lengthy email from an MR reader who wishes to remain anonymous. These are his words, not mine, everything which follows:
Back in December I asked you knew of any naive measures of “gun murders / # of civilian guns” per country, and seeing where the US falls in this distribution.
Some time after I found this WaPo data set compiled in 2012 from the UN, Small Arms Survey, and others. (There is a “data caveat” I’ll point out after the plots below.)
Here’s what I did: dropped all data into a spreadsheet and calculated the number of homicides per 100,000 guns — simply (homicide by gun) / (total guns) * 100000. Call this “H” for simplicity.
This produces numbers in a ~0-20 range for “western countries. So “H = 2.5” –> 2.5 gun-caused homicides per 100,000 guns for the year in question (2005 I believe), by country.
Here are three very quick, ugly kernel density plots from R.
The raw data plots is pasted in the end of the email (apologies for messyness!)
The vertical lines are: mean=green, median=blue, USA=red.
Total world, as a limiting case:
US is below mean and median: US = 3.7, mean = 91.0, median = 6.0
EU countries (density excludes US):
US is just above mean, above median: US = 3.7, mean = 3.1, median = 1.9
“Post-WWII westernized” countries:
US is just above mean, above median: US = 3.7, mean = 3.1, median = 1.5
The “westernized” countries were somewhat arbitrarily those with a long “westernizing” history post-WWII. Chosen quite ad-hoc and off-the-cuff; largely it means Eastern European countries were replaced by Canada, Australia, Japan, etc.
Immediate data caveat: My earlier spot-checking against the cited sources turned up a number of discrepancies, which I couldn’t quickly figure out — mostly small, some large. Eg. I recall that some EU countries saw order-of-magnitude differences when I put in “direct from source” numbers, which is worrisome. Unfortunately I never had time to examine these further (hence the delay in reply), but perhaps some enterprising undergraduate student would be interested!
The broad strokes are still interesting. Here are some quick ‘surprises’ for me:
– The US is no longer a massive outlier, although still above average for “westernized” plots.
– Japan’s H-score is much higher I expected, ~10x the number in Norway (and higher than England, Northern Ireland, Czech Republic – the later has much less strict control and lower H).
– The Netherlands came out ~6-7x higher than median (of EU/”westernized”); ~3x the US
– Taiwan seems quite high: ~11x median of “westernized,” ~5x US. Was not expecting this (but not sure why).
– Ireland is ~4.5x higher than Northern Ireland
– Belgium is closest to the US in the EU states, Belgium=3.9 vs US=3.7
– All surprises, perhaps all data size related: Denmark, Netherlands, Japan, Taiwan, Ireland, Italy (higher than US, was not expecting that), Belgium, Luxembourg
There are many possible data concerns. Sample size is very important (the few data I spot-checked varied significantly over time). Measurement is almost certainly an issue, and I dread looking into differences in the definition of “homicide” for these countries. I suspect, however, that clever methods and data collection could still provide useful information about ranges of these values (an enterprising undergrad could probably make quite the impact with careful data examination/collection and some Bayesian “Locomotive Problem“-style work).
Because of data issues, I don’t think of this as “the final word” but rather an interesting first pass.
Monday assorted links
1. Which brands of automobile are most expensive to maintain?
2. Paul Krugman on Brexit. This morning the Betfair odds on Remain were down to 64 percent. Dani Rodrik on Brexit. Ambrose Evans-Pritchard on Brexit, by far the best case for it, well worth reading.
Good sentences about mergers and acquisitions
An all-cash deal where the combined entity is trading down on the news is basically the exact opposite of bubble behavior.
That is from Conor Sen. Grodaeu remarked:
Microsoft had to move quickly before the ECB bought it
Drop the Ban on Supersonic Aircraft
WSJ: In the 1960s the future of aviation seemed bright. In 1958 Boeing had built its first jetliner, the 707, which cruised at speeds of up to 600 mph. The Concorde came along in 1969, flying at Mach 2—more than 1,500 mph. An age of affordable supersonic flight seemed inevitable, promising U.S. coast-to-coast travel in just 90 minutes.
Today, neither the Concorde nor any other supersonic passenger jet operates. And the 707, still in limited use, remains one of the fastest commercial jets operating in the world. What happened?
Regulation happened. In 1973, shortly after Boeing abandoned the 2707, its Mach 3 government-funded competitor to the British- and French-made Concorde, the Federal Aviation Administration issued a rule banning supersonic transport over the U.S.
And why did we ban supersonic transport? It seems almost like a joke–because we were worried about noise. What would Chuck Yeager say? (He’s still alive and re-enacted his 1947 supersonic flight in 2012 at the age of 89).
Moreover, the noise scare was overblown. Incredibly, it was only after the FAA banned supersonic transport over the US that a careful study was done at Heathrow airport and that study found that the Concorde taking off and landing was only modestly louder than a regular jet. Moreover, as the study reported:
Whenever there was a Concorde departure from Heathrow, subsonic jets recorded a higher or equal noise level at the relevant fixed monitoring sites on 2 days out of 3.
The technology to produce quieter supersonic aircraft exists today but we won’t see really big investment in the industry until the outright ban on supersonic aircraft is lifted. As Dourado and Hammond write:
If the original ban was an overreaction, today it’s an outright absurdity—and remains in place due more to regulatory inertia and the FAA’s deeply precautionary culture than a sober accounting of costs and benefits.
I suspect that we will eventually lift the ban and get quieter and faster supersonic aircraft. But when we do so don’t make the mistake of thinking that it was wise to wait. As I pointed out in my earlier piece on Uber of the Sky, technological development is endogenous. If you ban supersonic aircraft, the money, experience and learning by doing needed to develop quieter supersonic aircraft won’t exist. A ban will make technological developments in the industry much slower and dependent upon exogeneous progress in other industries.
When we ban a new technology we have to think not just about the costs and benefits of a ban today but about the costs and benefits on the entire glide path of the technology.
How bad is rent control when housing supply is artificially restricted by law?
Many of you have been asking me about this NYT article on the pressures for rent control in Silicon Valley. If no (or few) new apartment blocks will be built anyway, what is wrong with rent control in that setting?
One effect is that rent control will limit the incentive for prospective builders to fight to overturn current building restrictions.
A second effect of rent control is that it will lower the quality of the apartment stock. This outcome has some second best properties, since a lower-quality, lower-price selection of apartments is probably what the market would have delivered under freer conditions. Still, quality will fall in inefficient ways. For instance sizes of apartments already are given, so landlords will cut back on maintenance. Rather than well-maintained but smaller apartments, we will see overly large but run-down abodes.
At rent-controlled prices there will be excess demand for apartments. The “plums” will go to those who bribe, those who are well-connected, those who are skilled at breaking the law, and, to some extent, those who have low search costs. The latter category may include well-off people who hire others to search for them.
So overall I still don’t think this is a good idea. Even if the current housing stock is fixed, rent control probably will create costs in excess of its benefits, and without significantly desirable distributional consequences.
Addendum: In the comments, Kommenterlein adds: “The rental housing stock isn’t fixed – it will decline rapidly with rent control as rental apartments are converted into Condos and sold at market prices.”