Month: October 2016

Who will win the Nobel Prize in Economics this coming Monday?

I’ve never once nailed the timing, but I have two predictions.

The first is William Baumol, who is I believe ninety-four years old.  His cost-disease hypothesis is very important for understanding the productivity slowdown, see this recent empirical update.  Oddly, the hypothesis is most likely false for the sector where Baumol pushed it hardest — music and the arts.

Baumol has many other contributions, but the next most significant is probably his theory of contestable markets, plus his writings on entrepreneurship.

The other option is a joint prize for environmental economics, perhaps to William Nordhaus, Partha Dasgupta, and Martin Weitzman.  A prize in that direction is long overdue.

The “Web of Science” predicts Lazear, Blanchard, or Marc Melitz, based on citation counts.  Other reasonable possibilities include Robert Barro, Paul Romer, Banerjee and Duflo and Kremer (joint?), David Hendry, Diamond and Dybvig, and Bernanke, Woodford, and Svensson, arguably joint.  I still am of the opinion that Martin Feldstein is deserving, don’t forget he did empirical public finance, was a pioneer in health care economics, and built the NBER.  For a dark horse pick, how about Joseph Newhouse (RCTs and the Rand health care study)?

There are other options — what is your prediction?

Left Wing Governments Love the Poor

Why do left wing governments sometimes support policies which harm their constituents? In A Theory of Political Entrenchment Gilles Saint-Paul, Davide Ticchi and Andrea Vindigni offer an answer:

A partially self-interested left-wing party may implement (entrenchment) policies reducing the income of its own constituency, the lower class, in order to consolidate its future political power. Such policies increase the net gain that low-skill agents obtain from income redistribution, which only the Left (but not the Right) can credibly commit to provide, and therefore may help offsetting a potential future aggregate ideological shock averse to the left-wing party.

The basic idea may also be put this way.  A left wing government might not want to pass policies to educate the masses or open markets to small business firms because such policies are likely to be successful and in the process create a class of skilled workers and petty bourgeoisie who will vote against the left-wing party and its policies of income redistribution. By keeping its constituents poor, the left-wing party keeps its constituents beholden because only the left-wing party will support income redistribution.

The left-wing party might even pass policies that the right-wing party wants in order to build its own future power base. The authors give the example of the Democrats under Bill Clinton supporting NAFTA which may have harmed the left-wing constituency of labor. The authors show, moreover, that the effect is likely to be bigger the bigger are political rents and the more stable are political careers. In other words, Bill Clinton passed NAFTA so that Hillary Clinton could run against it. An interesting idea if not wholly convincing.

Today is Tim Harford day

And these days, that means today is a Messy day:

Messy: The Power of Disorder to Transform Our Lives celebrates the benefits that messiness has in our lives: why it’s important, why we resist it, and why we should embrace it instead. Using research from neuroscience, psychology, social science, as well as tales of inspiring people doing extraordinary things, I explain that the human qualities we value – creativity, responsiveness, resilience – are integral to the disorder, confusion, and disarray that produce them.

As I wrote the book, I grappled with the way Martin Luther King’s speechmaking style evolved from careful preparation to impromptu genius. I tried to tease out the connections between the brilliant panzer commander Erwin Rommel, Amazon boss Jeff Bezos, and the primary campaign of Donald Trump. I interviewed Stewart Brand about the world’s most creative messy building – and Brian Eno about the way David Bowie would reject perfection in favour of something flawed and interesting every time.

I loved writing this book.

As I’ve already written, it is Tim’s best and deepest book.  Here is the book’s home page.  You can order the book here, it is out today a messy day it must be.

The hygge culture that is Denmark

Jeppe Trolle Linnet, an anthropologist at the University of Southern Denmark, argues that hygge is not the great social leveller it appears. Danes dislike acknowledging class differences, but his research finds that the habits of hygge vary by income and social status. For some, hygge is a bottle of burgundy with soft jazz on the hi-fi; for others it is a can of beer while watching football on telly. Worse, different groups are uncomfortable with others’ interpretations of hygge. Mr Linnet calls it a “vehicle of social control”, involving “a negative stereotyping of social groups who are perceived as unable to create hygge”.

…A recent report on the quality of life for expatriates in 67 countries, compiled by an organisation called InterNations, bears this out. Denmark’s own natives may rank it top for happiness, but the immigrants in the survey ranked it 60th in terms of friendliness, 64th for being made to feel welcome, and 67th for the ease of finding friends. Finishing just ahead of Denmark on the finding-friends measure was Norway, the country from which the Danes imported the word hygge. If cultures are obsessed with the joys of relaxing with old friends, perhaps it is because they find it stressful to make new ones.

That is from The Economist.

I would have called it “free trade is still quite good”

Our quantitative results suggest that both corrections are nonnegligible: trade-induced increases in inequality of disposable income erode about 20% of the gains from trade, while the gains from trade would be about 15% larger if redistribution was carried out via non-distortionary means.

That is part of a new paper from Pol Antràs, Alonso de Gortari, and Oleg Itskhoki, via Justin Wolfers.

Monday assorted links

1. The dull men’s club.

2. “Jessica Adams, the astrologer for Cosmopolitan magazine in Australia, said she heard from “an avalanche of people worried that they were no longer a Leo and concerned that astrology is a fraud”.”  The political economy of zodiac realignment.

3. Some reasons why many Colombians voted no.  I am myself a Coasean, and I don’t believe in holding grudges — at all.  Yet when you consider the notion of seats in the legislature, or transitional payments that non-terrorist Colombians won’t receive, rejection of this referendum should hardly come as a surprise.  How many electorates would have voted for something comparable?  It just wasn’t a peace deal that could be sold so readily to a people who have fought against FARC for over fifty years.  It’s easy enough to blame the process of referendum (which by the way I do not in general favor), but maybe something also was wrong with the peace deal and with the peace preconditions themselves.  Would the deal actually have ended the civil war?  Is “ending the civil war” really what voters rejected?  Here is further Monkey Cage commentary.

4. Yes there are some valid outrages in the overall story, but it’s worth stressing that tax-loss carryforwards really are very common, including for HRC and the NYT.  The quality of discussion on this issue has been weak, including from some very smart people.  I’m also stunned but not surprised by how “possibly might not have paid (some kinds of) taxes for eighteen years” has morphed into “did not pay taxes for eighteen years.”  Imagine the button, people!

5. Medical marijuana increases labor supply for older adults.

6. Some results and correlations on financial markets and the elections: “In the two months prior to the conventions, the S&P 500 had a strong, positive relationship with Republican likelihood of winning the election. On the other hand, for the two months after July, the relationship shifts to a strong, positive relationship with Democrats’ likelihood of winning.”  But here is Matthew A. Winkler: “Prices of U.S. debt and equities are showing the narrowest fluctuations for any presidential election year in at least two decades…”  the Mexican peso, however, is another story.

Free trade has been good for the poor

A study by Pablo Fajgelbaum of the University of California, Los Angeles, and Amit Khandelwal, of Columbia University, suggests that in an average country, people on high incomes would lose 28% of their purchasing power if borders were closed to trade. But the poorest 10% of consumers would lose 63% of their spending power, because they buy relatively more imported goods. The authors find a bias of trade in favour of poorer people in all 40 countries in their study, which included 13 developing countries. An in-depth study of European industry by Nicholas Bloom, of Stanford University, Mirko Draca of Warwick University and John Van Reenen of the LSE found that import competition from China led to a decline in jobs and made life harder for low-tech firms in affected industries. But it also forced surviving firms to become more innovative: R&D spending, patent creation and the use of information technology all increased, as did total factor productivity.

That is from The Economist.  Here are versions of the paper.

Should Maine use Single Transferable Voting?

Lee Drutman at Vox reports:

If Maine Question 5 passes, Mainers will get to select up to five candidates in order of preference. If there is no majority in the initial tally of voting, and their first choice finishes last in the initial tally, their vote will be transferred to their second choice in the next tally. (In each tally, the last-place finisher gets eliminated). And if there is still no majority, and their second choice ranks last in the second tally, their vote will be transferred to their third choice, and so on, until one candidate has a majority.

Or, put another way: If one candidate wins a majority in the initial tally, there is no runoff. If no candidate wins a majority, candidates are eliminated from the bottom-up, with each eliminated candidate’s supporters going to their next-ranked choice for the following round, until one candidate has more than half of the votes. (For a video explanation of how this works, I recommend this short explainer.)

Versions of the Single Transferable Vote (STV) have been used in Ireland, Northern Ireland, Malta, Tasmania, and NYC City Council from 1937-1947

STV systems tend to make candidates more civil to each other, and less likely to attack each other’s character and ideology.  More generally, it induces politicians to cater more frequently to constituency whims and preferences, at the expense of drawing sharp contrasts across ideologies.  You don’t want the voters from the opposing ideology to rank you very low, so you’ll ease up on the insults and try to appear like a very useful centrist.  The resulting emphasis on constituency service has historically been the case in Ireland (most but not all of the time).  Similar tendencies have been observed in Tasmania and Malta, and the parties evolve to become less ideological.

Traditionally, I have not been a huge fan of STV systems, but this year they sound a bit better than usual.

You can start here on the literature on STV.

Sunday assorted links

1. Peter Boettke is now President of the Mont Pelerin Society.

2. Is it right to out Elena Ferrante?  And here is the story of her (possible) mother.

3. “Here is how debt parking works.

4. “Kolportiert wird, dass Daron Acemoglu vom Massachusetts Institute of Technology der erste Ökonomieprofessor sei, der ein siebenstelliges Angebot erhalten habe. Die Universität Chicago wollte ihn offenbar von Harvard abwerben.”  That is Ernst Fehr on building up the University of Zurich.

5. Omar Al Ubaydli on the privatization of Aramco.

Good Brexit sentences

The liberal Brexiters have been a bit quiet in the last few weeks.

That is from Duncan Robinson.  Of course that is a response to Theresa May’s announcement that formal Brexit talks will start this spring (NYT).  If true, that is likely to mean “hard Brexit” with no free trade treaty with the EU, no Norwegian or Swiss status, no nothing, Brexit and nothing but Brexit is Brexit is Brexit is Brexit.  I’m still hoping that a raising of the stakes leads to a different outcome, but at this point I’m not counting on it.

In the meantime, those who suggested Brexit would give the UK the best of both worlds don’t seem to have called this one very well.

When it comes to college, money isn’t the problem

The results reveal modest, increasing, and only weakly concave effects of resources: wins less than $100,000 have little influence on college-going (i.e., effects greater than 0.3 percentage point can be ruled out) while very large wins that exceed the cost of college imply a high upper bound (e.g., wins over $1,000,000 increase attendance by 10 percentage points). The effects are smaller among low-SES households. Further, while lottery wins reduce financial aid, attendance patterns are not moderated by this crowd-out. Overall, the results suggest that households derive consumption value from college and, in the current policy environment, do not generally face binding borrowing constraints.

That is from a new paper by George Bulman, Robert Fairlie, Sarena Goodman, and Adam Isen.  Here is my earlier post Free college tuition for everyone?

The perception of atheists as narcissistic

Julianna Dubendorff & Andrew Luchner

Psychology of Religion and Spirituality, forthcoming

Abstract:
Research into prejudice toward atheists has generally focused on broad characteristics. Some of these characteristics (i.e., self-centeredness, elitism, individualism, and immorality) indicate a possible prejudice of narcissism. To investigate this specific prejudice, the present study used the Narcissistic Personality Inventory (Raskin & Terry, 1988), the Hypersensitive Narcissism Scale (Hendin & Cheek, 1997), and the Interpersonal Reactivity Index (Davis, 1983), which were adjusted so that the items of each measure were changed from first-person statements to third-person statements to measure participants’ perceptions. Participants (N = 359) were given a description of a fictitious individual named Alex, portrayed to them as either male or female and atheist or religious, or male or female with no additional information (creating 6 experimental groups), and then asked to complete the measures as they thought the individual would. Participants consistently rated atheists higher on narcissism measures and lower on empathy measures, indicating a perception of greater narcissism and a lack of empathy compared with religious individuals and controls. Participants’ perceptions of Alex were affected by his or her gender in conjunction with his or her religion, and the 2 variables of gender and religion interacted to create different patterns of perception. In general, interactions indicated differences in the way religion and gender impacted the perception of individuals as narcissistic, affecting perceptions of males more than females. The results are consistent with research findings that perceptions of atheists tend to be negative and prejudicial. This study highlights the need to compare perceptions with actual personality differences between atheists and religious individuals.

That is from the excellent Kevin Lewis.  I would like to see this done cross-culturally, including for Israel and also the former Communist states.  How about Vatican City too?

Tax-loss carryforwards

This old 1987 Auerbach and Poterba paper (pdf) came immediately to mind:

The most important finding is that tax-loss carryforwards are highly persistent and significantly affect investment incentives for some firms. Nearly 15% of the firms in our sample had tax-loss carryforwards in 1984, and the fraction is much higher in some industries.
And this:
The stock of tax-loss carryforwards in the United Kingdom was nearly three times as large as the annual revenue yield of the corporation tax.
Offhand, I couldn’t say exactly how closely this result relates to recent revelations about the taxes of you-know-who.  For one thing, tax law has been changed a few times since that paper was written.