Year: 2016
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
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.
Son of Zorn on Online Education
https://youtube.com/watch?v=YVF2r_KwQS8%3Fautoplay%3D1%26start%3D16%26end%3D80%26controls%3D1%26version%3D3
Hat tip: Nicholas Tabarrok
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.
Thailand fact of the day
The World Bank reckons that over 70% of Thailand’s public expenditure in 2010 benefited Greater Bangkok, home to 17% of the country’s population.
That is from The Economist.
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.
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.
Saturday assorted links
1. The case for the Clinton Foundation, by Dylan Matthews. And a look from The Economist.
2. Larry Summers on Shimon Peres.
5. Which states are sung about the most? (hint: not Connecticut)
New issue of Econ Journal Watch
In this issue (.pdf):
Instrument found flat: Stan Liebowitz criticizes an influential Journal of Political Economy article about music piracy’s impact on the sound recording industry.
You get what you measure: Daniel Schwekendiek explainshow South Korea followed a proven template of incentivizing exports to boost Web of Science publications and raise the rankings of its academic institutions.
Now entering a Republican-free zone: Mitchell Langbert, Anthony J. Quain, and Daniel Klein report on the voter registration of faculty at 40 leading U.S. universities in Economics, History, Journalism, Law, and Psychology.
Whither science in gender sociology? Charlotta Stern investigates whether gender sociologists blinker themselves from scientific findings about sex differences.
Carl Menger on classical political economy in relation to the politics of his day: A first-ever English translation of Menger’s 1891 article calling for a recovery of the Smithian tradition, with an introduction by the translators Erwin Dekker and Stefan Kolev.
How to Do Well by Doing Good! In this 1984 essay,Gordon Tullock counsels young economists that doing well and doing good go together. Some elements of the essay, if accurate once, are dated now, but others are timeless.
EJW Audio
Erwin Dekker on Carl Menger on Adam Smith
Frank Machovec on Perfect Competition
Call for papers
EJW fosters open exchange. We welcome proposals and submissions of diverse viewpoints, and also submissions ‘beyond Econ,’ from contiguous social sciences.
Download entire September 2016 issue (.pdf)
How much energy do building codes save?
Not that much, or so it seems from the latest study of California, just published by Arik Levinson in the AER. This seems to be the bottom line:
1. In 1978 California started to enact some of the world’s most ambitious residential building energy codes. These building codes have been updated 13 times since.
2. The promise was for 80% savings for new buildings constructed after 1990. These assumptions assumed everything would go according to plan and there would be no behavioral adjustments.
3. The actual results?: “For electricity, post-1978 houses in California may be using up to 15 percent less than pre-1978 houses, but do not use less per degree-day when the weather gets hot, and do not use relatively less than similar post-1978 houses in other states with less strict building codes.” For natural gas there is a 25% savings, noting that this trend and the electricity trend both predate the 1978 legislation.
4. Levinson conjectures that most of the savings are coming from natural turnover in the housing stock disfavoring the least energy efficient units.
Here are earlier versions of the paper. Of course most regulations never receive a study anything near this thorough.
Trump and the stock market: what was the debate about?
The two people (Wolfers and Ozimek) who did the empirical work did a great job, but much of the rest of the exchange from other commentators has missed the point.
If you approach the debate as an emotional referendum on how good or bad Trump (Clinton) would be, you’re probably going to get it wrong. You will view yesterday’s exchange as being about choosing the Wolfers estimation or the Ozimek one, the latter showing that increases in Trump’s odds didn’t seem to hurt the stock market up through a particular date. If then you sided with Wolfers, you could keep a very negative view of what Trump would be like, or if you sided with Adam’s investigation you could still wonder to a greater extent.
The better way to think about the exchange is that Adam (and I) raised a puzzle. Given that economists as a whole don’t like Trump (look at endorsements), why haven’t the regular fluctuations in his odds had more of an impact on the stock market?
Now comes the Justin Wolfers study, showing the stock market went up a lot as Hillary Clinton was winning the debate. That makes the puzzle bigger not smaller. It adds to the preexisting prior about what correlations we should find in those earlier data points. Why for instance didn’t Trump’s fairly rapid pneumonia-inspired, pre-debate rise from 30 to 36 spook the markets in a big way? Why didn’t Trump’s longer-term rise from near zero to 36 bring a lot of market turmoil? And since a strong economy should help the incumbent Party, the puzzle is all the stronger; you can’t expect a strong economy to boost both the stock market and Trump’s odds as a confounding third factor. And note of course that Justin himself, in other contexts including on Twitter, will assign weight to the churning movements in the prediction markets, even if he doesn’t consider them any kind of decisive test.
A few of the options on the table are to say gridlock is stronger than we had thought, prediction markets less reliable, other candidates less reliable, or that Trump cutting taxes on capital relative to HRC will for the stock market outweigh some of the costs of his presidency. I’m not pushing any one of those, I am suggesting that at least one from this and a broader list ought to be true.
Many many of you have responded to such conundrums with answers starting with but not ending with the concept of noise and low-powered tests. That is a perfectly fine set of responses but then you must apply the resulting beliefs consistently to all other spheres. You could say for instance: “So much noise comes along in our economy. I do prefer Clinton to Trump, but because of all this noise I’m really not so sure Clinton will work out better for the economy. All of the other intervening economic events is what the prediction market and stock market data were picking up and that is why Adam’s test was imperfect. My judgments are imperfect too.”
That is an entirely permissible answer, if you really believe it and embrace it. The error is to segment your belief space. If you say “Wolfers beats Ozimek because Ozimek doesn’t consider noise enough, therefore I stick with my belief that Trump is really bad for the economy,” well that kind of mistake belongs in a Jonathan Haidt novel. I find few people are willing to embrace the more consistent statistical preference plus agnosticism, rather they play the game of “statistical noise for thee but not for me.”
Plenty of statistical tests have low power, including, believe it or not, the ones you run with your political intuitions.
Most generally, don’t look to throw out information, or see one study as trumping another, rather seek to use and interpret all of the information available.
By the way, one possible answer that fully reconciles the data of both Wolfers and Ozimek is to suggest stock markets started seeing Trump as “incurably terrible” only during the debate itself. That is hardly a confirmed hypothesis (we’ll see going forward), but it is another way of recognizing why Wolfers and Ozimek have not produced competing hypotheses, rather two pieces of information for revising a broader Bayesian mosaic.