Month: August 2016

*American Heiress*

What an excellent title, the subtitle is The Wild Saga of the Kidnapping, Crimes and Trial of Patty Hearst, and the author is Jeffrey Toobin.  Our age is actually not that crazy by historical standards.  Yet here are the last four sentences:

In the end, notwithstanding a surreal detour in the 1970s, Patricia led the life for which she was destined back in Hillsborough.  The story of Patty Hearst, as extraordinary as it once was, had a familiar, even predictable ending.  She did not turn into a revolutionary.  She turned into her mother.

Recommended.

Sunday assorted links

1. The culture that is Bethesda, Maryland.

2. Chile’s pension scheme under fire.

3. Child abuse in China: a neglected issue.  The statute of limitations should be longer than two years.  That’s two from The Economist, the current issue is their best of the year to my mind.  Of course you should subscribe.

4. The Mayan-language Ixcanul is perhaps the best movie of the year so far, trailer here, the full movie is here but without subtitles, so brush up on your Mayan or see it on the big screen.

5. This piece illustrates Cowen’s Second Law, yes I know that is a refereed journal and the paper is based on real data but still it is best forgotten or better yet never viewed in the first place.  They needed eleven (!) authors for that one, three of them women it would seem, and four on the team chanted that correlation is not causation.  I wonder how the IRB discussion went.  Less sexually charged is the game of “Diving chess.

6. “Most of the world’s mathematicians fall into just 24 scientific ‘families’, one of which dates back to the fifteenth century. The insight comes from an analysis of the Mathematics Genealogy Project (MGP), which aims to connect all mathematicians, living and dead, into family trees on the basis of teacher–pupil lineages, in particular who an individual’s doctoral adviser was.”  Link here.

Two “The Rest of the Story” Stories

The rest of the story” stories have a punch line that twists everything that came before into an entirely new and deeper perspective. My favorite such story is about John Nestor.

Nestor became a minor if hated celebrity in the mid-1980s in Washington, DC for his policy of driving on the beltway in the left hand lane at 55 mph, not a mile faster, the rest of the traffic be damned. Nestor believed that the 55 mph speed limit saved lives and he was going to help other people by slowing them down regardless of the exasperation, raised fingers, or honking. He knew better than other people.

The truth, of course, is that it’s actually variance in speed that kills so by driving more slowly than everyone else Nestor was increasing risk not lowering it. But that’s not the punch line. The punch line? John Nestor was an FDA bureaucrat so obstinate that even the overly cautious FDA thought he was a menace and they pulled him from his job in the renal section for not approving a single new drug in more than four years. On the roads or at the FDA, John Nestor illustrated why I say caution can be deadly.

My second favorite story like this comes from a recent article on land use policy by Mark Gimein at the New Yorker:

In 1948, a federal housing bureaucrat named Paul Oppermann, trying to come to terms with the perils of the nuclear age, proposed a solution to the problem of protecting America’s cities from the bomb: empty them out preëmptively by encouraging the population to move to suburbs and small towns of fifty thousand or fewer. “No power in the world could afford to drop an atomic bomb on a city of 50,000 or less” is how the San Francisco Chronicle summarized the talk that Oppermann gave to a local planning organization. Plus, Oppermann explained, you get slum clearance into the bargain.

The punch line? “The next year, Oppermann assumed office as San Francisco’s planning director.” As Gimein notes Oppermann wasn’t able to move people out of San Francisco but he was able to “[cripple] growth with arcane lot-size rules and off-street-parking-space minimums.”

So now you know the rest of the stories.

Interview with Erik Hurst

From the Richmond Fed, it is excellent and interesting throughout, here is one good bit of many:

EF: Given the wage premium associated with a four-year degree and the availability of education financing, it seems like a real puzzle why more people are not obtaining degrees.

Hurst: I have been thinking a lot about that. What is it that’s causing so many young people, particularly young males, to not obtain skills required to be successful in today’s workforce? I have been working with Mark Aguiar and Kerwin Charles and Mark Bils to try to understand what these people’s lives look like. There’s a budget constraint that still has to hold. They have to eat. What you’re finding is that a lot of them are living in their parents’ basements or their cousin’s basement. So many are relying on family support. And a lot of them just aren’t even working at all. So when you go and take a look at the fraction of people in their 20s who haven’t worked in the prior 12 months in 2015, it’s 20 percent for men with less than a four-year college degree. In 1990, that number was 4 percent. So the first thing we are doing is documenting these facts and trying to find out what their lives look like: how they’re eating, what their living situations are like, what attachment they have to the labor force.

The second part we’re trying to think about is why. What we are considering is whether it’s possible that a leisure lifestyle is easier now in your 20s than it was in the past. In 1980, if you were in your 20s and you weren’t working, you were pretty isolated. You were sitting by yourself. You could watch a few channels on TV but no one else was out there. Now if you’re not working, you could be online on social media or you could be playing videogames in an interactive way, things that make not working more attractive than before. And those videogames and leisure goods generally are relatively cheap compared to what they were in 1980. So when you’re making your choice of working relative to your reservation wage, your reservation wage has gone up some because the outside option of not working is a lot more attractive. So that’s what we’re thinking but I don’t know how we’re going to test it.

Also, eventually these people will get older, of course, and many will have a spouse or kids. When that happens, their income requirements go up and they need jobs, but they probably haven’t been building the type of skills required to get a job. So that’s hard to understand. I have never written a paper before where people were myopic, but the behavior of a lot of people in their 20s now seems myopic.

I wish to suggest a related observation.  If one argues that some percentage of unemployment is “voluntary” in this manner, one is often met with scorn, and with a not entirely accurate redescription of the view, based on a rebuttal that a sudden outbreak of laziness is unlikely.  However if the return to higher education goes up, and the elasticity response is mediocre, sociological explanations are somehow entirely acceptable and perhaps even mandatory.  You might call this Quantity Stickiness for Me But Not For Thee.  It’s a bit like how wage stickiness is an acceptable behavioral postulate but employers’ “firing aversion” is not.

Hat tip goes to Justin Wolfers.

Paper Pushers

Excellent piece by Tim Carney:

Five years ago, a new quirky-sounding consumer-rights group set up shop in a sleepy corner of Capitol Hill. “Consumers for Paper Options is a group of individuals and organizations who believe paper-based communications are critically important for millions of Americans,” the group explained in a press release, “especially those who are not yet part of the online community.”

This week, Consumers for Paper Options scored a big win, according to the Wall Street Journal. Securities and Exchange Commission chairman Mary Jo White has abandoned her plan to loosen rules about the need to mail paper documents to investors in mutual funds.

Mutual funds were lobbying for more freedom when it came to mailing prospectuses — those exhaustive, bulky, trash-can-bound explanations of the contents of your fund. In short, the funds wanted to be free to make electronic delivery the default, while allowing investors to insist on paper delivery. This is an obvious common-sense reform which would save whole forests of trees.

You won’t be surprised to lean that Consumers for Paper Options is funded by paper mills, timber firms and the Envelope Manufacturers Association.

What bothers me about these stories is not the rent-seeking–that is to be expected. What bothers me is that there is a law that prescribes how mutual funds must inform their customers. Why must every aspect of commercial life be governed by a gun? And this is where I expect pushback–the mutual funds will rip us off if we don’t have these laws, blah, blah, blah. Fine, believe that if you must, but then you have no cause to complain about rent seeking. You created the conditions for its existence.

Why are bug bounties failing for Apple?

At the prices they are offering, a lot of bugs in their software are going undetected.  Yet the company has the funds to pay more, and you might think for Coasean reasons the value to Apple of maintaining the franchise is pretty high.  So why don’t they pay more?  From Russell Brandom, this may be the reason:

If Apple really did put its enormous cash reserves behind catching every bug, the result might have unintended consequences for its own security workforce. Building and deploying patches is hard work, every bit as delicate and creative as finding vulnerabilities. Companies need dedicated teams to do that work — but with skyrocketing prices for iOS vulnerabilities, why not put in a few months to find an exploit, turn it in for the bounty, and then spend the rest of the year working on your tan? “If Apple or other defense bounties tried to outbid or even match offense bug prices, they may lose the employees they need most to fix the issues,” Moussouris says.

The article is of interest more generally.

A simple parable of crowding out

Think tank X decides to expand its policy output on urban economics, so it hires some new scholars in the area.  That means fewer people teaching urban economics in academia, or maybe fewer people driving Uber.

It also means more computers in the think tank sector and fewer computers elsewhere.

Or make the example corporate.  Microsoft hires more economists, so fewer economists work for banks.

None of this has to involve higher interest rates, whether on government securities or corporate bonds, yet still there is an opportunity cost from the new decisions.  Do interest rates have to go up every time resources are switched across sectors?  No.  Will there in general be a significant “multiplier” from these sectoral shifts?  I say that question is a category mistake, but if you insist the multiplier could easily be negative rather than positive.

There is some upward wage pressure from these labor reallocations, and you could consider such wage changes as evidence for this crowding out.  Note three points.  First, real wages have been rising as of late.  Second, the sectoral shift also could cause some wages to fall.  Third, a lot of wage groups have seen falling real wages since 1999-2000, at least as we measure wages by traditional means.  The “rising wage” pressure therefore may take the form of “wages fell less than otherwise.”  Pointing at stagnant wages for an economic group therefore is not, in the recent environment, evidence for no crowding out of labor.

These are all simple points, but they are being forgotten in today’s discussion.  A good rule of thumb is to start by viewing the problem in real terms rather than focusing on “finance capital.”  As the point applies to labor, so does it apply to tractors.

Here is an earlier post on related topics.

Friday assorted links

Should everyone crowd into New York and San Francisco?

A recent piece from the excellent Conor Sen has attracted some disputation.  The main claim is that building restrictions aren’t as bad as they might at first seem.  If you keep people out of Manhattan they move to Atlanta, and that produces synergies too:

Here in Atlanta, as in the rest of the Sun Belt, job migration is the driving force of the economy. Corporate relocations and expansions are celebrated here the way billion-dollar tech startups are celebrated in Silicon Valley. The “New South” would not have developed were it not for people looking to flee the crowded and expensive cities of the Northeast.

…Housing constraints in some cities accelerate economic development in emerging parts of the country. They decrease economic inequality between metro areas and lead to economic interdependence that drives civil rights. And they offer some promise to ease the pain of waning communities in the Rust Belt, Appalachia and beyond. A country where the vast majority of talented people move to one or two cities might be an economist’s idea of utopia, but a nightmare to those of us concerned about equality of economic opportunity.

Analytically, the first question is whether the biggest cities would attract too many people in the absence of building restrictions.  To answer that, you have to balance crowding costs vs. synergy benefits.  It can be said that average social returns to living in cities will equalize, even if marginal social returns do not.  Cross-city migration equates the average returns, even in the presence of externalities, just as in the classic “two roads” problem.  If one road is going faster than the other, people will switch, although the “final driver” still is not taking his entire social impact into account.

Note that if urban synergies are constant across scale, equality of the average across two cities will in turn imply equality of the marginal, and an efficient allocation of population across the larger and smaller cities will result.  Building restrictions won’t change that, although they do shift where the equalization margin will be at.

(Building restrictions also may mean NYC space is used inefficiently, even if the distribution of population across cities is more or less optimal.  Building restrictions are not identical to urban entry fees, but rather they shift space allocations at various margins of construction, though to potential movers their “entry fee” aspect may seem most important.  These marginal distortions may interact with the “entry fee” aspects of building restrictions in various ways, muddying the analysis.  Complicated!)

Now maybe synergies aren’t constant across urban scale, but suddenly the costs of building restrictions in Manhattan look lower.  They are defined by the differences in synergies across scale, which may not be such a huge number.  Furthermore synergies might be more important for the Atlantas than for the Manhattan, in which case the building restrictions in Manhattan could be welfare-improving.

(Note that if a city or region has really big firms, the chances that interpersonal synergies will be internalized into initial wage offers will be higher.  And there is a time horizon issue.  Circa the 1920s, Los Angeles synergies may have appeared much lower than those for NYC, but it probably ended up better for the nation as a whole that the racist “entry fee” for movie-making in NYC led to the creation of Hollywood on the West Coast.  Similarly, was it not also a good thing that NYC blew its chances of being the center of the American venture capital market?  If Peter Thiel were here, and communing with Kenneth Arrow, he might see too many risk-averse, conformist entrants into New York and look for a remedy, just as New York was itself once a respite from an overcrowded, restrictionist, religiously conforming Europe.)

OK, that’s scale but what about congestion costs?  They do seem to go up in a non-linear manner with scale, and that lowers the costs of building restrictions in Manhattan.  Manhattan is more likely to be too crowded than is Atlanta, as a first-order approximation.  Of course differential endowments across regions can complicate this, for instance NYC has better mass transit.

Now, to push this all one step further, is Peoria just a smaller Atlanta?  Does it too have synergy benefits?  (Or can we say that too many people stay in Peoria and too few go to NYC + Atlanta?)  Don’t we observe the very largest synergy benefits at small scales, namely going from households of one to two, two to three, etc.?  Might Peoria have the highest synergy gains of them all?  At least in utility terms if not in dollar terms?  Or do we need an ongoing risk of “Peoria brain drain” to induce Peoria residents to acquire the skills that they may or may not end up taking out of Peoria?

In any case, worth a ponder.

Cultural vouchers for Italian 18-year-olds

Thanks to a government initiative, all teen residents who reach that milestone this year will be given a “Cultural Bonus”—a cool €500 to spend on movies, books, theater and concert tickets, museums, and national parks, reports The Local.

From an economic point of view, such vouchers can make good sense, as Alan Peacock used to stress.  Nonetheless they take away two of the big reasons why arts funding is politically popular.  The vouchers do not offer well-defined benefits to specific suppliers (read: interest groups), and the government cannot affiliate very directly with specific popular or prestigious projects.

In terms of stimulus, this is less likely to boost employment than many public works projects.  A lot of cultural goods are local public or club goods, supplied beyond the point of congestion.  In other words, just let one more person sit in the movie theater.  That does, however, mean lots of pure profit for suppliers of reproducible popular culture.

Here is the Cara Giamo article at Atlas Obscura.

The Economics of Building Art to Last

City_ArtMichael Heizer, the large-scale sculpture artist, has been building City, a sculpture in the Nevada desert since 1972. City is reputedly on the scale of the Washington, DC’s National Mall and something like Teotihuacan but no one knows for sure since “Visitors are explicitly not welcome, and due to its orientation away from the road and system of earthen berms no part of “City” can be viewed from the ground without trespassing on posted property.” A few photos have been smuggled out.

The New Yorker has an interesting article on Heizer. Naturally I appreciated his thoughtful consideration of the economics of building something for the ages:

“City” is made almost entirely from rocks, sand, and concrete that Heizer has mined and mixed on site. The use of valueless materials is strategic, a hedge against what he sees as inevitable future social unrest. “My good friend Richard Serra is building out of military-grade steel,” he says. “That stuff will all get melted down. Why do I think that? Incans, Olmecs, Aztecs—their finest works of art were all pillaged, razed, broken apart, and their gold was melted down. When they come out here to fuck my ‘City’ sculpture up, they’ll realize it takes more energy to wreck it than it’s worth.”