Month: September 2016

One reason why the press doesn’t give you-know-who the benefit of the doubt

Somehow — I can’t imagine why — this financial matter has fallen down the memory hole as of late.  Here are a few paragraphs from Wikipedia:

In 1978 and 1979, lawyer and First Lady of Arkansas Hillary Rodham engaged in a series of trades of cattle futures contracts. Her initial $1,000 investment had generated nearly $100,000 when she stopped trading after ten months…

Various publications sought to analyze the likelihood of Rodham’s successful results. The editor of the Journal of Futures Markets said in April 1994, “This is like buying ice skates one day and entering the Olympics a day later. She took some extraordinary risks.”[3] USA Today concluded in April 1994 after a four-week study that “Hillary Rodham Clinton had some special treatment while winning a small fortune in commodities.”[9] According to The Washington Post‘s May 1994 analysis, “while Clinton’s account was wildly successful to an outsider, it was small compared to what others were making in the cattle futures market in the 1978–79 period.” However, the Post’s comparison was of absolute profits, not the percentage rate of return.[14] In a Fall 1994 paper for the Journal of Economics and Finance, economists from the University of North Florida and Auburn University investigated the odds of gaining a hundred-fold return in the cattle futures market during the period in question. Using a model that was stated to give the hypothetical investor the benefit of the doubt, they concluded that the odds of such a return happening were at best 1 in 31 trillion.[15]

Financial writer Edward Chancellor noted in 1999 that Clinton made her money by betting “on the short side at a time when cattle prices doubled.”[16] Bloomberg News columnist Caroline Baum and hedge fund manager Victor Niederhoffer published a detailed 1995 analysis in National Review that found typical patterns and behaviors in commodities trading not met and concluded that her explanations for her results were highly implausible.[17] Possibilities were raised that broker actions such as front running of trades, or a long straddle with the winning positions thereof assigned to a favored client, had taken place.[14][17]

That said, I fully grant such matters are not closely correlated with ultimate political performance.  But I am seeing so, so much apologia, selective event citation, and wishful thinking these days…

What is also interesting is that this is another case where — relative to actual legal priorities — one can correctly suggest that an actual prosecution was not warranted.

Please do note I regard it as my first priority to try to understand and also explain the (rather dire) situation we are in, rather than to put maximum thumb weight on the outcome I would most like to see happen.

Monday assorted links

1. More Zorn.

2. Many corporations can vote in Hong Kong’s next election.

3. Slave prices and malaria-immune slaves.

4. “Among their stranger attributes, armadillos can float down a river rolled in a ball, walk small distances underwater and can carry leprosy—though less than 1% of the population in the U.S. carries the disease, biologists say.” — armadillo nationalism is on the rise.  Now I know who is going to pay for that wall…

5. “Second Labor MP aligns with Beijing over South China Sea” — the polity that is Australia.

6. More experienced Uber drivers adhere more closely to the substitution effect (NYT).

Spanish politeness price discrimination markets in everything

A café in Spain has begun charging its customers more for their coffees and pastries if they are rude when ordering.

Restaurant Blau Grifeu in Llanca charges rude customers €5 for their morning pick-me-up while those who behave more graciously pay just €3.

Saying ‘please’ and wishing the barista a good morning will get you a coffee for as little as €1.30.

Here is the full story, via Minakowski.  And the back story is this:

The 41-year-old [owner] from Colombia added that she finds it strange that Spaniards are less inclined to say ‘please’ and ‘thank you’ than customers in her native country, who are typically more well-mannered.

Does economic freedom lower happiness inequality?

There should be a whole category of “results that aren’t true as stated but are interesting nonetheless.”  Here is a new paper by Daniel L. Bennett and Boris Nikolaev:

This article examines the relationship between economic freedom and happiness inequality for a large sample of countries. We find that economic freedom is negatively associated with happiness inequality and robust to several alternative measures of happiness inequality, including the standard deviation, mean absolute difference, coefficient of variation, and Gini coefficient. Among the economic freedom areas, legal system and sound money are negatively correlated with happiness inequality. Drawing on the Engerman-Sokoloff hypothesis, we use a measure of factor endowments as an instrument for economic freedom to provide a further robustness test, finding a negative association between economic freedom and happiness inequality.

Two points.  First, the influence of economic freedom often diminishes once you control for the quality of government in a particular locale.  This is perhaps more of an “all good things go together” result than any particular causal story.  Second, many of these results are mediated by the “hard money” component of economic freedom.  But hard money is not economic freedom per se, but rather it may be proxying for some successful cultural attitudes.

For the pointer I thank the excellent Kevin Lewis.  Also via Kevin, here is another published result you shouldn’t quite believe as stated: “…the combination of feeling tired and happy may enhance acceptance of atypical or unusual ideas, which could potentially help creative thought.”

NYT Sam Roberts obituary of Reinhard Selten

Lovely as always, here is one bit:

He married Elisabeth Langreiner, whom he had met through the movement to spread Esperanto, a language developed in the 19th century to encourage global communication. Like Professor Selten, she had diabetes; both her legs were amputated below the knee.

And the close:

…Professor Selten’s research topics “seem often strongly risk-seeking and sometimes almost contrarian,” Abdolkarim Sadrieh, a former student of his and now a teacher himself, wrote in 2010. But he said that the professor could be cautious in his personal life. For one thing, Dr. Sadrieh noted, he always carried an umbrella.

Here is the full obituary.

Mike Rowe on Charles Koch

I agree wholeheartedly with Mike Rowe that college has been oversold and that we need a greater focus on and respect for vocational education. I’ve also been impressed with Rowe’s honesty and intelligence as is evident in this recent post discussing his work with Charles Koch on vocational education.

If you haven’t seen it, my name appeared a few weeks ago in a headline next to Koch Industries. What could possibly go wrong?

Well, let’s have a look.

Pablo Elvira says…Mike – I’ve never written a “protest” email before now, but I’m compelled. Your association with The Koch Brothers has obliterated my trust in you.

Steven Stahl writes… I have lost a huge amount of respect for you. Mike, you are better than this.

Mande Smogor says…Charles Koch promotes fear mongering on climate change, and basically destroy minorities, the elderly, anyone who isn’t rich, and unions. Morally and ethically I am profoundly disconnected from Mike Rowe right now. #SoLongDecadeLongCelebrityCrush…etc, etc.

You can set your watch by it. Whenever my name appears next to an individual on someone’s “List of Known Enemies,” people line up to tell me why they can no longer be my friend, or watch my shows, or support my foundation. From Glenn Beck to Bill Maher, my proximity over the years to the “wrong guy” has prompted hundreds of Facebook friends to scoop up their marbles and stomp off in a huff….

Like most of you, my opinion of public figures is influenced by what I read in the press, and what I read about The Brothers Koch leaves little doubt they they ride with The Four Horsemen of The Apocalypse. Over the last few years though, my opinion has changed. Partly, because I took it upon myself to read beyond the headlines, and partly because I came to learn that our foundations are aligned on a number of issues important to me.

…We met a few years ago in California. I had just given a speech about the disastrous consequences of removing vocational education from high schools, and Charles was in the audience. One of his people invited me to lunch, and I said sure. I was eager to see the horns and smell the sulphur for myself. Surprisingly, I found neither. What I found, was a 78-year-old man with more energy and enthusiasm than I could match. We spoke at length, and I learned a number of surprising things.

I learned for instance, about his passion for criminal justice reform. He’s frustrated by the fact that punishments no longer fit the crime, and angered that minor drug offenders and rapists often serve comparable sentences. He’s proud that Koch Industries does not ask those applying for employment to “check the box” with regard to previous incarceration. He told me that once a debt is paid, the balance sheet should be clear. I was surprised, because the man I had read about seemed very much at odds with a crusader for the formerly incarcerated.

We then talked at length about the dangers of a two-tiered economic system, and his belief that cronyism was at the heart of so much unfairness in today’s society. Charles told me about a documentary his foundation funded that exposed the obscene policy of charging people (black women, primarily) thousands of dollars for a license that allows them to legally braid hair in their communities. I watched it later, and it made me angry. It also made me think about the hundreds of entrepreneurs I’d met over the years who expressed similar frustrations in their own industries. Again, I was surprised. I had read nothing from anyone about Koch’s concern for the little guy. Not what I expected.

But I was most surprised by his commitment to reinvigorate the skilled trades. I knew his foundation focused on many forms of higher education, but I had no idea we shared a common view regarding the skills gap. He pointed out that countless small businesses begin with a tradesperson who learned a skill that was in demand. I shared my belief that a chronic skills gap was more troubling than chronic unemployment, because the existence of opportunity that people don’t care about is more alarming than a lack of opportunity overall.

In short, we found ourselves in violent agreement on a number of things important to us both, and after lunch, he told me to let him know if mikeroweWORKS could ever use his help. (In hindsight, it’s entirely possible he was just being polite, but he would soon learn just how literal I can be.)

When I got involved with Project Jumpstart in Baltimore, I called Charles and told him about their incredible track record preparing inner city kids and non-violent offenders for a career in the trades. At base, Jumpstart is a pre-apprenticeship program for the construction trades. The placement rate is an astonishing 80%. Jumpstart not only trains people for the job at hand, it helps them solve problems that often prevent people in their position from succeeding. They pay a stipend, for instance, while being trained. They help with transportation to the job site, and provide extraordinary mentorship and follow up. But there are also consequences. Trainees can lose their stipends if they don’t comply with the rules. I spoke with many of the graduates, and they all talked about how important the “real world training” was to their success. When I told Charles about the program, his foundation stepped up.

When SkillsUSA came around this year, I told him I was speaking at their opening ceremony. He wasn’t familiar with the program. When I explained its impact on the next generation of skilled tradespeople, he was once again intrigued. He wanted to know how an organization that did so much good, and consisted of nearly 400,000 kids, was unknown to so many. I told him the challenge facing SkillsUSA was not so different than the challenge facing many companies looking to recruit skilled labor – basic awareness. I told him my foundation made sure that kids who qualified for the National Finals had their transportation and lodging covered, if they couldn’t afford to get there on their own. Charles liked that, and he doubled the resources we had allocated for this year’s event.

Most recently, The Koch Foundation allowed mikeroweWORKS to help more people than ever before through our Work Ethic Scholarship Program….

So – to Pablo, Steven, Mande, and anyone else compelled to share their disappointment – I get it. But look – if I only associate with “approved people,” or limit my relationships to those who see the world exactly as I do, then I might as well build a church and preach only to the choir. Where is the fun in that? The truth is, progress only happens when people find common ground and build something on it. And when it comes to closing the skills gap, we need progress.

Good for Rowe! It’s well known, of course, but my own institution, George Mason, has also benefited from Charles Koch’s investments in education.

Do we need low interest rates or “more room to cut rates in the next recession”?

I periodically see claims that if another recession comes along the Fed would not have much room to cut rates further because of the zero lower bound.  Yet rates are still low, in nominal terms near zero and in real terms the short rates are negative.

True, if we ratcheted everything up in nominal terms with a four percent inflation target, maybe during the next recession the Fed could, by moving to a near-zero nominal rate, make short-term real rates negative three or negative four instead of a mere negative 1.5, or however the numbers would work out exactly.

Is that going to prove so beneficial?  I wonder.  I get that raising rates in bad times is harmful because of its contractionary impact.  I am far more skeptical that a short-term real rate of negative four is much more useful than a real rate of negative two.  How many investors have said “I won’t borrow at negative two but I will at negative four!”  Maybe some, but I wonder.  Just try to square that with a rational theory of private sector hurdle rates.

Keep in mind also that the Fisher effect does not work with any kind of one-to-one offset.  So raising the inflation target by two percentage points probably would not mean that nominal interest rates go up by two percentage points.  Nominal rates for instance might go up by only one percentage point.  And so when the next recession would come, there would still be room for a greater cut in nominal rates, but not by nearly as much as the boost in the inflation target.

So overall I am not so impressed by the “greater room to cut interest rates” argument for a higher inflation target.  That said, there are still other reasons why we might wish to have a more expansionary monetary policy in a recession.  But they are probably not interest rate arguments.

The growing tech company demand for economists

Here is one bit from Steve Lohr’s longer article at the NYT:

For the moment, Amazon seems to be the most aggressive recruiter of economists. It even has an Amazon Economists website for soliciting résumés. In a video on the site, Patrick Bajari, the company’s chief economist, says the economics team has contributed to decisions that have had “multibillion-dollar impacts” for the company.

Another Amazon jobs site lists openings for economists. As of Friday, there were 34.

Seeing this emerging job market, the National Association for Business Economics held its first meeting for technology company economists in April in San Francisco. Another is set for October in Silicon Valley.

The article has many other interesting segments.

Internet comments, before the internet

In the four years that Ayanna Chisholm has worked collecting tolls out of tiny glass booths at the Holland Tunnel and elsewhere in New Jersey, there have been several constants. There are familiar commuters, malfunctioning toll arms, occasional scofflaws — and an incessant barrage of come-ons, sexual comments, lecherous stares and crude gestures from male motorists.

Some of Ms. Chisholm’s colleagues say they have been subjected to drivers exposing themselves. The fusillade is especially menacing because it is inescapable, the workers confined to small hutches on the highway.

Like other women in her profession, Ms. Chisholm, who works for the Port Authority of New York and New Jersey, has learned to wear little makeup, crack her booth’s window open as little as possible, and drop change into waiting hands to avoid drivers who try to stroke her palm.

That is from the NYT, and of course the same was true decades ago.  No one from New Jersey should be surprised at how most internet comments have turned out.

New results on common ownership

If firms are commonly owned by the same mutual funds and pension funds, why should they compete with each other?  This question won’t quite die.  There is a new paper by Miguel Anton, Florian Ederer, Mireia Gine, and Martin C. Schmalz on this question, and they actually find some serious evidence that a lot of jointly owned firms don’t compete against each other so vigorously.

Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don’t diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals’ performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals’ performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over the past decades.

Here is a related paper on the same topic.  I still don’t believe it, but I can’t tell you what is wrong with these claims either…

Signaling and the evolution of female wages

How do partisans of the signaling model of education explain female wage growth over the last few decades?  It’s easy for the human capital theory: female education went up and so did female productivity (plus discrimination fell, but let’s put that aside for now).

But if those women were just signaling, their productivities are about the same and yet their wages are way higher.  Are they now massively overpaid?  That hardly seems possible — when will the en masse firing begin?

Alternatively, perhaps the women were considerably underpaid in 1963, because their lack of interest in educational signaling branded them as lower quality workers.  (Again, this has to be an effect net of discrimination.)  But why would that have been a rational inference for employers to make?  If a woman didn’t go to college or graduate school back in 1963, there were plenty of obvious sociological reasons why not, and it didn’t much signal low intelligence or low conscientiousness.  It shouldn’t have lowered wages, not in the signaling model.  So in 1963 there was a discrimination-based underpayment, but it is hard to argue for a signaling-based underpayment to women as a class.

You also might think that female wages have gone up since 1963 because women have been socialized to desire work and money more.  But if that socialization raises productivity, it still won’t support a signaling story, which treats productivity as fixed due to type.  Furthermore then the door is open for socialization theories of education, even if college is not the only source of socialization.

So why then have net-of-discrimination female wages gone up so much, if not for the human capital story?

You will note that the signaling theory seems most plausible as an explanation of what happens right after people get out of college, and thus it appeals to many students and also to some academics.  Signaling theories of wages are least plausible as they try to explain broad patterns of wage movements over time, and then you must bring in human capital considerations.  In similar fashion, signaling theories won’t explain the relative wage stagnation since 1999 and many other longer-term puzzles; they just don’t play in this arena.

Here are some data on female wages and labor supply over this period.

Addendum: Bryan Caplan refers me to this piece of his on related issues.  And here is my Econ Duel with Alex on education and signaling.

Why are movie stars paid more than firefighters?

Here’s an excellent letter from Don Boudreaux. I admit he had me at the title, Thinking At the Margin: It’s Revolutionary:

…I agree that most people are troubled that the likes of Tom Brady and Jennifer Lawrence earn far higher pay than does any firefighter or school teacher.  But this reality reflects not people’s correct understanding of a failing economy but people’s incorrect understanding of a successful economy.  It reflects also a failure of economists to better teach basic economics to the general public.  So let me ask: would you prefer to live in a world in which the number of people who can skillfully fight fires and teach children is large but the number of people who can skillfully play sports and act is very tiny, or in a world in which the number of people who can skillfully fight fires and teach children is very tiny but the number of people who can skillfully play sports and act is large?

I’m sure that you’d much prefer to live in a world in which skills at fighting fires and teaching children are more abundant than are skills at playing sports and acting.  Precisely because saving lives and teaching children are indeed far more important on the whole than is entertainment, we are extraordinarily fortunate that the numbers of our fellow human beings who possess the skills and willingness to save lives and to teach children are much greater than are the numbers who can skillfully play sports and act.

The lower pay of fire fighters and school teachers simply reflects the happy reality that we’re blessed with a much larger supply of superb first-responders and educators than we are of superb jocks and thespians.  Were it the other way around, then while we’d be better entertained with more top-flight sporting events and movies, all but the richest amongst us would suffer significantly greater risks of being unable to educate our children and of dying in house fires and from other mishaps.