Month: November 2016

Monday assorted links

1. Economic and financial themes in the films of Charlie Chaplin, podcast.

2. New evidence and modelling of immigrant assimilation, from James Marrone, who is on the job market from University of Chicago this year.  Unlike many such theories, he also provides data and theory on “un-assimilation.”  Marrone also has interesting work on the economics of cultural antiquities.

3. Is EM drive for real and what does it mean for Newton’s Third Law?  Quantum mechanics?

4. Abu Dhabi numbered car plate markets in everything.

5. Paul Krugman calls off the fake alien invasion.

6. Jiro the slave?  An interesting piece on the nature and meaning of work.

Teach math in the morning

Having a morning instead of afternoon math or English class increases a student’s GPA by 0.072 (0.006) and 0.032 (0.006), respectively. A morning math class increases state test scores by an amount equivalent to increasing teacher quality by one-fourth standard deviation or half of the gender gap. Rearranging school schedules can lead to increased academic performance.

That is from a new paper by Nolan G. Pope, who is on the job market this year from the University of Chicago.   Here is his overall profile.  His job market paper (pdf), with Nathan Petek, suggests that evaluating teachers by multi-dimensional metrics, and not just test scores, can bring big gains to educational quality.

Safety Transformation and the Structure of the Financial System

That is the job market paper from William Diamond, who is on the market this year from Harvard University.  I think of this paper as trying to explain some of the financial market puzzles about divergent asset returns, and the financial crisis, in one unified framework.  That is a tall order, but I think he actually makes some progress on creating a coherent story about segmented asset markets, ultimately driven by agency problems.  Here is the abstract:

This paper develops a model of how the financial system is organized to most effectively create safe assets and analyzes its implications for asset prices, capital structure, and macroeconomic policy.  In the model, financial intermediaries choose to invest in the lowest risk assets available in order to issue safe securities while minimizing their reliance on equity financing.  Although households and intermediaries can trade the same assets, in equilibrium all debt securities are owned by intermediaries since they are low risk, while riskier equities are owned by households.  The resulting market segmentation explains the low risk anomaly in equity markets and the credit spread puzzle in debt markets and determines the optimal leverage of the non-financial sector.  An increase in the demand for safe assets causes an expansion of the financial sector and extension of riskier credit to the non-financial sector- a subprime boom. Quantitative easing increases the supply of safe assets, leading to a compression of risk premia in debt markets, a deleveraging of the non-financial sector, and an increase in output when monetary policy is constrained.  In a quantitative calibration, the segmentation of debt and equity markets is considerably more severe when intermediaries are poorly capitalized.

His degree is in Business Economics, a program that combines the economics Ph.d with some features of the Harvard MBA.

What if foreign countries could just bribe the American president?

Here is a Washington Post look at a related issue.  I know bribing a president is illegal and it just…sounds so wrong…but what exactly does the equilibrium look like?


Here are a few points:

1. Presumably the wealthier countries would be willing to pay more for American security guarantees.

2. Countries whose wealth can be easily captured and controlled by hostile forces — oil exporters? — would be willing to pay more for protection.

3. Human rights would not matter so much for American security guarantees.

So far this is not sounding so different from the status quo.  Let’s continue:

4. A selfish president might capture income from hard-to-defend countries, not internalizing the higher costs for the U.S. taxpayer.  So American guarantees could extend too far and wide from an American perspective, although it is not obvious they will do so from a cosmopolitan perspective.

5. Presumably the president also could accept funds not to defend various nations.  So large, wealthy foreign aggressors could “buy out” the United States from defending say Georgia or Taiwan.  That sounds terrible, and perhaps it is from a cosmopolitan standpoint.  But is it contrary to the U.S. national interest?  Keep in mind if the United States becomes non-credible altogether, it would be less able to extract payments from Israel, South Korea, and other nations.  That means a bribed president may not “fold his hand” so quickly on all of these endangered small countries.  Alternatively, a bribed president may decide to let one of “the little ones” go just to prove a point to the others.

You’ll notice that #4 and #5 counteract each other.  I suspect this balance would be worse than the status quo, but that doesn’t follow a priori.

6. You could imagine an American president who allows foreign countries to fall into especially precarious situations to increase his budgetary intake from bribes.  The return to pre-emptive peace initiatives might be strongly negative.

7. An alternative perspective is that the American government already collects such bribes in the form of trade agreements, use of military bases, and so on.  The real problem is not bribery per se, but rather concentrating so many of the returns in the hands of the president.  Tariffs on American exports might go up, for instance, if the president is pocketing the bribes himself.

8. A worry is that bribes collected by a president would not lead to as much stability of policy as what might be generated by the decisions of “the foreign policy establishment.”  Perhaps commercial arrangements are intrinsically less stable than bureaucratically-generated policies.  A president’s utility function and game-theoretic behavior is probably harder to forecast than the wishes of the bureaucracy.  The resulting uncertainty would limit global trade and investment and also probably increase nuclear proliferation.  This strikes me as a major concern.

9. A related worry is that nations are so very large relative to the avaricious desires of the president.  After a small number of payments, the president might act fairly arbitrarily, as extra bribes wouldn’t matter much and the foreign policy establishment already has been cut out of the picture.  (Oddly it becomes less important if America has a truly greedy and rapacious president where the MU for money doesn’t much decline with presidential wealth.)

It is worth thinking through the dynamics on all this a little more clearly than what I am seeing so far.

Sunday assorted links


The YIMBY (yes in my back yard) movement is a small but growing movement of people who are tired of ever increasing housing prices and entrenched rent-seekers who abrogate property rights and prevent development. Here is the YIMBY Party in San Francisco:

We strongly support building new housing. We have a severe housing shortage. Increasing supply will lower prices for all and expand the number of people who can live in the Bay Area.

YIMBY Party joins New York YIMBY and other YIMBY Town people from across North America and elsewhere.

By the way, McKinsey has a good report on housing in California. Key points:

California ranks 49th among the 50 US states for housing units per capita. Benchmarked against other states on a housing units per capita basis, California is short about two million units.

The report does a detailed analysis of housing patterns and finds that a large fraction of the deficit could be met by increased density around transit stations:

California could add more than five million new housing units in “housing hot spots”—which is more than enough to close the state’s housing gap. [Including]…1.2 million to three million housing units within a half mile of major transit hubs.

They also have good suggestions on streamlining the permitting process.

Why has regional convergence stopped in the United States?

It does seem it is skill-based technical change, which rewards high-talent urban clusters, and in the broader equilibrium, also lowers geographic mobility.  That is the theme of the job market paper of Elisa Giannone from the University of Chicago, here is the abstract:

Skilled-Biased Technical Change and Regional Convergence,” (Job Market Paper)

Poorer US cities were catching up with richer ones at an annual rate of roughly 1.4% between 1940 and 1980. However, wage convergence across US cities went from 1.4% a year between 1940 and 1980 to 0% a year between 1980 and 2010. This paper quantifies the contributions of skill-biased technical change (SBTC) and agglomeration economies to the end of cross-cities wage convergence within the US between 1980 and 2010. I develop and estimate a dynamic spatial equilibrium model that looks at the causes of the decline in spatial wage convergence. The model choice is motivated by novel empirical regularities regarding the evolution of the skill premium and migration patterns over time and across space. The model successfully matches the quantitative features of the decline in US regional wage convergence, as well as other stylized facts on US economic growth. Moreover, the model also reproduces the convergence and the divergence in the skill ratio across US cities and other features on quantities, such as the secular decline in within US migration after 1980. Finally, the counterfactual analysis suggests that SBTC explains the approximately the 80% of the decline of regional convergence between 1980 and 2010 among high skill workers.

Here are her other papers.

*Nudge Theory in Action*

That is a new and excellent volume edited by Sherzod Abdukadirov, with contributions by Mario Rizzo, Adam Thierer, Jodi Beggs, and others.  I wrote a short introduction, here is an excerpt from that:

Private sector nudge is highly problematic, and I would say it is often worst in those areas we tend to feel best about: health care, education, and charity.  In those cases, our guard is most likely to be let down, even if we are highly educated.  Or should I say because we are educated?

What about public sector nudge?  Well, the good news is that a lot of what government does is simply send money around through transfer programs.  In this regard, its potential for manipulating us is fairly limited.  Furthermore, government is extremely bureaucratic and usually it does not have top tier marketing talent.  Most of the time I just don’t find my government very persuasive.  Is there really anything the DMV can talk me into that I wouldn’t otherwise want to do?

But can I then relax?  Can I stop worrying about public sector nudge?

I am not so sure.

The biggest costs in human history come from wars, and very often the public sector — especially the executive branches in various countries — nudges us into wars.  I don’t hear enough discussion of this topic in the nudge literature.

Government also has nudged us into believing that more government regulation is the answer to many of our problems…

Finally, I worry about how private sector and public sector nudge interact.  Nudges from the television news, and its coverage of crime stories, convince many Americans that rates of crime are rising when in fact they are falling.  That’s a private sector nudge to be sure, and the private sector is doing the marketing, with great skill I might add.  But how does it interact with the public sector?  Well, prosecutors send more people to jail and for longer periods of time.

You can order the book here.

Saturday assorted links

The little virtues

As far as the education of children is concerned I think they should be taught not the little virtues but the great ones.  Not thrift but generosity and an indifference to money; not caution but courage and a contempt of danger; nor shrewdness but frankness and a love of truth; not tact but love for one’s neighbour and self-denial; not a desire for success but a desire to be and to know.

Usually we do just the opposite; we rush to teach them a respect for the little virtues, on which we build our whole system of education.  In doing this we are choosing the easiest way, because the little virtues do not involve any actual dangers, indeed they provide shelter from Fortune’s blows.

That is from Nathalie Ginzburg, from her book The Little Virtues.  Here is a copy of the essay (pdf).  Discovering Ginzburg over the last few weeks has been a revelation for me; she is surely one of the more underrated writers.  Here is Bookslut on Ginzburg.

The world championship chess match so far

Magnus Carlsen was heavily favored, but after six games with Karjakin — half the match — they are all draws.  The first noteworthy feature of play is that Karjakin has matched what is usually a big stamina advantage for Carlsen.  If Carlsen were playing against Anand again, and creating similar positions, he probably would be two points up, as he was pressing strong endgame advantages for hours in two of the games.  Yet Karjakin held firm and found the necessary defensive resources in both cases and victories fell from Carlsen’s grasp.  Overall we have seen few obvious mistakes in the play.

The second noteworthy feature of the first half of the match is that Carlsen has shown no inferiority of opening preparation, unlike what is usually the case; if anything Carlsen has had slightly better prep.  (And note that Karjakin has Putin and thus an army of seconds on his side; Karjakin has a connection to Crimea and used to play for Ukraine but now plays for Russia and basically endorsed the territory transfer, get the picture?)

I believe one should root for Carlsen.  Yet this is 2016, and I suppose anything could happen at this point…

Bravo to Janet Yellen

Speaking on Capitol Hill Thursday, Federal Reserve Board Chair Janet Yellen warned lawmakers that as they consider such spending, they should keep an eye on the national debt. Yellen also said that while the economy needed a big boost with fiscal stimulus after the financial crisis, that’s not the case now.

“The economy is operating relatively close to full employment at this point,” she said, “so in contrast to where the economy was after the financial crisis when a large demand boost was needed to lower unemployment, we’re no longer in that state.”

Yellen cautioned lawmakers that if they spend a lot on infrastructure and run up the debt, and then down the road the economy gets into trouble, “there is not a lot of fiscal space should a shock to the economy occur, an adverse shock, that should require fiscal stimulus.”

In other words, lawmakers should consider keeping their powder dry so they have more options whenever the next economic downturn comes along.

Here is the full story.  Here is my earlier post on which macroeconomic theories will rise and fall in status because of Donald Trump.  She and the Fed were less wise but a mere month ago.

The optimal tax theory haven that is Iceland

Tourists are expected to outnumber the local population of 330,000 by seven to one next year, according to official data. By comparison, last year visitors to France outnumbered the French by two to one

…The number of tourists has risen by as much as 30 percent every year for the last four years, according to Iceland’s Tourist Board. They brought in revenues of $3.2 billion in 2015, a third of the country’s export earnings. Tourism is the single biggest employer, and many Icelanders are pouring money into services and new construction.

…“It’s like the city is not my city anymore,” Birgitta Jonsdottir, the leader of the Pirate Party, complained last month. “It’s like Disneyland downtown.”

A poll in October conducted by the national broadcaster RUV reported that 87 percent of Icelanders want the government to raise fees or taxes on tourists.

Think of that as Iceland’s version of Trumpism.  Here is the full NYT story.

Friday assorted links