Month: January 2017

The cost disease in government

That is the topic of my latest Bloomberg column, here is one excerpt:

At a further margin, government’s contribution to the health care, retirement and education sectors will also seem inadequate, because at such high prices a government really cannot pay for everything. A heated political debate will ensue. Progressives will argue that significant human needs are being neglected, and they will be able to point to numerous supportive anecdotes. Conservatives will argue that the fiscal path behind such policies is unsustainable, and they will be right, too. Because it will feel to voters that government isn’t doing a good job in these high-cost areas, the conservative view will get further traction. Libertarians may promote radical spending cuts, hoping for much higher productivity growth, but the government interventions are built in so thickly that that strategy could take a long time to pay off, and in the meantime it won’t look like a political winner.

All of the various sides may be correct in their major claims, but none will have a workable solution. This actually isn’t so far from where the health-care debate stands now, and where the retirement and nursing home debate is headed as America ages.

Do read the whole thing.

As a simple rule, reject any argument that asserts “my opponent X is leaving a health care need unfilled” because indeed that is always the case.  Within Obamacare, for instance, do you favor expanding the scope of the mandate at every margin?  Probably not.  The trick is to have a good argument for why yours is the Goldilocks position, not to note that those who subsidize health care less are…doing less.  There is always someone who wants to subsidize more than you do, so fight Parfit’s “war on two fronts.”

Wednesday assorted links

The polity that is California

From a recent UCLA email:

Dear Colleagues:

As indicated in the attached letter from UCOP, Governor Brown signed into law AB 1887 which prohibits state-funded travel to a state that has passed a law that (1) authorizes discrimination based on sexual orientation, gender identity and gender expression, or (2) voids or repeals existing state or local protections against such discrimination. The law expressly identifies the University of California as an entity covered by the law.

As of the date of this notice, the States of Kansas, Mississippi, North Carolina and Tennessee are on the prohibited travel list. The list of states may be updated on the Attorney General’s website found here: https://oag.ca.gov/ab1887.

Please note that the law does not prohibit travel that is paid for or reimbursed using non-state funds.

File under “Blue state overreach,” a growing dossier.  How about not discriminating against people — co-authors, conference organizers, etc. — on the basis of the states they live in and the polities which rule over them?

For the pointer I thank E.

*Elinor Ostrom: An Intellectual Biography*

By Vlad Tarko, order your copy here.  Here are two excerpts:

She went to Beverly Hills High School, across the street from her house.  “I’m very grateful for that opportunity,” she later recalled, “because 90 percent of the kids who went to Beverly Hills High School went on to college.  I don’t think I would have gone to college if not for that environment.”  She recalled that her “mother didn’t want me to go to college — [she] saw no reason whatsoever to do that…”

“Basically I put my husband through law school,” she recalled…Her own [first] husband objected to her getting a PhD, which led her to divorce him.

This book captures the essence of Elinor Ostrom.

*Experimental Conversations*

The editor of this truly excellent book is Timothy N. Ogden, the subtitle is Perspectives on Randomized Trials in Development Economics, and the contributors include Angus Deaton, Dean Karlan, Lant Pritchett, David McKenzie, Judy Gueron, Rachel Glennerster, Chris Blattman, and yours truly, with a focus on randomized control trials and other experiment-related methods.  Here is one bit from the interview with me:

I would say that just about every reputable RCT has shifted my priors.  Literally every one.  That’s what’s wonderful about them, but it’s also the trick.  You might ask, “why do they shift your priors?”  They shift your priors because on the questions that are chosen, and ones that ought to be chosen, theory doesn’t tell us so much.  “How good is microcredit?” or “What’s the elasticity of demand for mosquito nets?”  Because theory doesn’t tell you much about questions like that, of course an RCT should shift your priors.  But at the same time, because theory hasn’t told you much, you don’t know how generalizable the results of those studies are.  So each one should shift your priors, and that’s the great strength and weakness of the method.

Now, you asked if any of the results surprised me.  I think the same reasoning applies.  No, none of them have surprised me because I saw the main RCT topics to date as not resolvable by theory.  So they’ve altered my priors but in a sense that can’t shake you up that much.  If you offer a mother a bag of lentils to bring her child in to be vaccinated, how much will that help?  Turns out, at least in one part of India, that helps a lot.  I believe that result.  But 10 years ago did I really think that if you offered a mother in some parts of India a bag of lentils to induce them to bring in their kids to vaccination that it wouldn’t work so well?  Of course not.  So in that sense, I’m never really surprised.

And this:

One of my worries is RCTs that surprise some people.  Take the RAND study from the 1970s that healthcare doesn’t actually make people much healthier.  You replicate that, more or less, in the recent Oregon Medicaid study.  When you have something that surprises people, they often don’t want to listen to it.  So it gets dismissed.  It seems to me that’s quite wrong.  We ought to work much more carefully on the cases where RCTs are surprising many of us, but we don’t want to do that.  So we kind of go RCT-lite.  We’re willing to soak up whatever we learn about mothers and lentils and vaccinations, but when it comes to our core being under attack, we get defensive.

I very much recommend the book, which you can purchase here.  Interviews are so often so much better than just letting everyone be a blowhard, and Ogden did a great job.

Did 18th century prizes really stimulate innovation?

Maybe not, possibly patents were more effective.  Here is some new research from B. Zorina Khan, entitled “Prestige and Profit: The Royal Society of Arts and Incentives for Innovation, 1750-1850”:

Debates have long centered around the relative merits of prizes and other incentives for technological innovation. Some economists have cited the experience of the prestigious Royal Society of Arts (RSA), which offered honorary and cash awards, as proof of the efficacy of innovation prizes. The Society initially was averse to patents and prohibited the award of prizes for patented inventions. This study examines data on several thousand of these inducement prizes, matched with patent records and biographical information about the applicants. The empirical analysis shows that inventors of items that were valuable in the marketplace typically chose to obtain patents and to bypass the prize system. Owing to such adverse selection, prizes were negatively related to subsequent areas of important technological discovery. The RSA ultimately became disillusioned with the prize system, which they recognized had done little to promote technological progress and industrialization. The Society acknowledged that its efforts had been “futile” because of its hostility to patents, and switched from offering inducement prizes towards lobbying for reforms to strengthen the patent system. The findings suggest some skepticism is warranted about claims regarding the role that elites and nonmarket-oriented institutions played in generating technological innovation and long-term economic development.

I consider the origins of modern science to be a still under-studied topic.

Tuesday assorted links

The show so far, UK edition

Mrs May later said the UK would be prepared to leave the EU without an exit agreement, saying: “No deal for Britain is better than a bad deal for Britain.” The government could then strike trade deals with other countries and use “competitive tax rates” to boost the economy, she said.

The prime minister confirmed that both [sic] houses of parliament would have a vote on the final Brexit deal, expected in early 2019. She did not clarify what would happen if either house were to reject the deal.

Here is the FT article, the pound is up again.  And while I do not think the House of Lords would block a democratically-determined Brexit, might this not lead to the end of the House of Lords as we know it?  If they don’t stand up for anything, why bother with them?

The Economist has a useful explainer on why the “WTO option” for Brexit will prove tricky; I would like to see more serious analysis of this issue.  Here is the latest on Northern Ireland, the chance of a hard border with the Republic of Ireland has gone up.

In any case, I suspect this was always the equilibrium.

Authoritarians Distract Rather than Debate

It’s long been known that the Chinese government hires people to support the government with fabricated posts on social media. In China these people are known as the “50c party”, so called because the posters were rumored to be paid 50 cents (5 jiao or about $.08) to write the posts. The precise nature and extent of the 50c party has heretofore been unknown. But in an amazing new paper, Gary King, Jennifer Pan and Margaret Roberts (KPR) uncover a lot of new information using statistical sleuthing and some unusual and controversial real world sleuthing.

KPR’s data-lever is an archive of leaked emails from the Propaganda Office of Zhanggong. The archive included many 50c posters who were sending links and screenshots of their posts to the central office as evidence of their good work. Using these posts, KPR are able to trace the posters though many social media accounts and discover who the posters are and what they are posting about. Both pieces of information reveal surprises.

First, the posters are government workers paid on salary not, as the 50c phrase suggests, piece-rate workers. Second, and more importantly, it has long been assumed that propaganda posts would support the government with praise or criticize critics of the government. Not so. In fact, propaganda posts actively steer away from controversial issues. Instead, the effort appears to be to distract (especially to distract the people from organizing collective action; thus distraction campaigns peak around times and places where collective action like marches and protests might become focal). KPR write:

Distraction is a clever and useful strategy in information control in that an argument in almost any human discussion is rarely an effective way to put an end to an opposing argument. Letting an argument die, or changing the subject, usually works much better than picking an argument and getting someone’s back up…

Debate is about appealing to an individual’s reason; debate is thus implicitly individualistic, respectful of rights and epistemically egalitarian. (As I argued earlier, respect for the truth is tied to individualism because any person may have truth and reason on their side.) Authoritarians don’t care about these things and so they lie and distract with impunity and without shame. In this case, the distraction is done subtly.

From the initial archive, KPR are able to create a statistical picture of 50c posters. In one of the most remarkable parts of the paper they use this picture to identify many other plausible 50c posters not in the original archive. Then KPR test their identification with a kind of academic catfish–essentially they trick the 50c posters into self-identifying. It’s at this point that KPR’s paper begins to read more like the description of a CIA op than a standard academic paper.

We began by creating a large number of pseudonymous social media accounts. This required many research assistants and volunteers, having a presence on the ground in China at many locations across the country, among many other logistically challenging complications. We conducted the survey via “direct messaging” on Sina Weibo, which enables private communication from one account to another. With IRB permission, we do not identify ourselves as researchers and instead pose, like our respondents, as ordinary citizens.

Using their own fake accounts, KPR directly message people they think are 50c posters with a message along the lines of:

I saw your comment, it’s really inspiring, I want to ask, do you have any public opinion guidance management, or online commenting experience?

The question is phrased in a positive way and it uses the official term “public opinion guidance” rather than the 50c term which has a negative connotation. Amazingly, 59% of the people KPR identify as 50c posters answer yes, essentially outing themselves.

KPRNow, one might wonder whether such a question has evidentiary value but KPR do a clever validation exercise. First, they ask the same question to people from the original leaked archive, people whom KPR know are actual 50c posters. Second, they ask the same question of people who are very unlikely to be 50c posters. The result is that 57% of the known 50c posters answer the question, yes. Almost exactly the same percentage (59%) as in the predicted 50c sample. At the same time, only 19% of the posters known not to be 50c answer yes (that doesn’t mean that 19% are 50c but rather that 19% is a measure of the noise created by asking the question in a subtle way). What’s important is that the large 40 point difference gives good statistical grounds for validating the predicted 50c sample.

Using this kind of analysis and careful, documented, extrapolation, KPR:

…find a massive government effort, where every year the 50c party writes approximately 448 million social media posts nationwide. About 52.7% of these posts appear on government sites. The remaining 212 million posts are inserted into the stream of approximately 80 billion total posts on commercial social media sites, all in real time. If these estimates are correct, a large proportion of government web site comments, and about one of every 178 social media posts on commercial sites, are fabricated by the government. The posts are not randomly distributed but, as we show in Figure 2, are highly focused and directed, all with specific intent and content.

As if this weren’t enough, an early version of KPR’s paper leaked and when the Chinese government responded, KPR became part of the story that they had meant to observe. The government’s response is now in turn used in this paper to verify some of KPR’s arguments. Very meta.

It took courage to write this paper. I do not think any of the authors will be traveling to China any time soon.

A bit of context on Trump, NATO, and Germany

I strongly favor NATO and I don’t think you can trust the Russians with just about anything, or for that matter make much of a deal with them.  I’m with Mitt Romney on all of this, as I’ve been saying for years.

That said, I feel some of the recent discussions on Trump’s pronouncements have been a bit kontextlos.  I would suggest this wee bit of background history:

1. Not too long ago, Germany did have a national leader, Gerhard Schröder, who in essence ended up as a paid agent of Vladimir Putin.  After leaving office, he has spent much of the rest of his career working for Gazprom.  Try on this bit for size:

Mr Schroeder was Germany’s Social Democrat leader from 1998 until 2005. He is a personal friend of Vladimir Putin and once described the Russian President as a “flawless democrat”. He joined the board of the Russian energy giant Gazprom after losing Germany’s 2005 election and has defended Russia’s response to the crisis in Ukraine on several occasions.

In other words, Germany had its own Trump long before the United States did.  You could call Schröder the Ur-Trump, albeit with a different socioeconomic pose.

2. It was Schröder who made the decision to take Germany off nuclear power and also to make the country energy-dependent on Russia:

As Chancellor, Gerhard Schröder was a strong advocate of the Nord Stream pipeline project, which aims to supply Russian gas directly to Germany, thereby bypassing transit countries. The agreement to build the pipeline was signed two weeks before the German parliamentary election. On 24 October 2005, just a few weeks before Schröder stepped down as Chancellor, the German government guaranteed to cover 1 billion euros of the Nord Stream project cost, should Gazprom default on a loan…Soon after stepping down as chancellor, Schröder accepted Gazprom’s nomination for the post of the head of the shareholders’ committee of Nord Stream AG, raising questions about a potential conflict of interest.

Russia now provides 35% of Germany’s oil imports and 39% of the natural gas imports.

I say NATO as an instrument for opposing Russia (not its only purpose, however) mostly ended with the Russian gas deal, because Putin can turn off the spigot any time he wants.  Germany, the major European power, can no longer stand up to Russia in a pinch and it cannot do so because of the corruption of one of its major leaders.  (Merkel I believe would not have done the same, but it is hard for her to undo this unfortunate situation, though I applaud the toughness she has shown, which at times has been considerable.)  Furthermore, earlier U.S. presidents, most of all Bush, didn’t have the stones or the means to do anything about this.

If you’re looking for icing on the cake, try this:

3. Germans today are some of the most anti-American people in Europe, and that doesn’t help the Atlantic alliance either.  It’s not uncommon for German citizens to suggest they don’t see much difference between Putin and the United States (NYT), or even may be pro-Putin, and I mean that pre-Trump.  So when Trump equates Putin and Merkel, German citizens have been equating American presidents with Putin for a good while now.  That’s not an excuse or rationale for Trump’s behavior, but it is worth keeping in mind when thinking about how to reboot the alliance moving forward.

I don’t at all favor what Trump is saying, or how many Republicans don’t seem to be complaining, but NATO has been on the ropes for some time now.  On the Russia issue, Trumpismus is far more advanced in Germany than here in the United States.  The sorry truth is that some of what Trump is saying is true, though his current rhetoric probably will end up making it worse.

As a thinker, Donald Trump is in some ways underrated

President-elect Donald Trump criticized a cornerstone of House Republicans’ corporate-tax plan, which they had pitched as an alternative to his proposed import tariffs, creating another point of contention between the incoming president and congressional allies.

The measure, known as border adjustment, would tax imports and exempt exports as part of a broader plan to encourage companies to locate jobs and production in the U.S. But Mr. Trump, in his first comments on the subject, called it “too complicated.”

“Anytime I hear border adjustment, I don’t love it,” Mr. Trump said in an interview with The Wall Street Journal on Friday. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”

Here is the WSJ piece.  I am not suggesting, however, that I favor his preferred alternative or for that matter most of his other policy ideas.  By the way, here is Trump on heroes.  A willingness to think things through from scratch is in some ways admirable, but dangerous in matters of foreign policy and nuclear weapons, where predictability is at a premium.

And see some related remarks from Conor Sen.

Some new results on family policies and women

Most estimates of the impact of parental leave entitlement on female labor market outcomes range from negligible to weakly positive. There is stronger evidence that spending on early education and childcare increases labor force participation of women and reduces gender gaps.

That is from a new NBER paper by Claudia Olivetti and Barbara Petrongolo.  A different new paper, by Hope Corman, Dhaval Dave, Ariel Kalil, and Nancy E. Reichman, offers these results:

We find that welfare reform led to reduced youth arrests for minor crimes, by 7-9 %, with similar estimates for males and females, but that it did not affect youth arrests for serious crimes. The results from this study add to the scant literature on the effects of maternal employment on adolescent behavior by exploiting a large-scale social experiment that is still in effect to this day, and provide some support for the widely-embraced argument that welfare reform would discourage undesirable social behavior, not only of mothers, but also of the next generation.

Overall I still consider Clinton-era welfare reform to be underrated.

Monday assorted links

1. Good take on La La Land and nostalgia.

2. Does it work when the coach yells at the ref?

3. Why is the barter market for lovers so imperfect?  My view is that women compartmentalize this kind of thing better than men do, for the most part, at least above age 30.

4. “Could flashing the “peace” sign in photos lead to fingerprint data being stolen?”

5. So maybe hard Brexit it is?

6. The debate over whether it was just subprime.

7. “But the concrete Pantheon? One of the reasons it has survived for so long is because the solid concrete structure is absolutely useless for any other purpose.” Link here.

8. Some economics for Martin Luther King Day.

The economics of the circus as a traveling city

I would call the disappearance of Ringling Brothers a civilizational advance, except I am not sure we are living in a time that merits this phrase.  In any case, I found this 2013 article on circus economics interesting:

Gibson and Petrov travel with Ringling’s “gold unit” through smaller markets like Chattanooga, where the intimate one-ring circus seems more supportable than the the three-ring spectacle that tours big cities.

Gibson describes the economic impact on Chattanooga: 40 of the 120 circus employees stay at a local hotel; 24 travel in RVs that are parked in a nearby field.

Each day, truckloads of hay and produce are hauled to McKenzie Arena to feed the animals. The circus vet banned peanuts from the elephants’ diet for being too fatty but allows them an occasional loaf of unsliced bread or some marshmallows for treats. On performance days, a local caterer feeds the human employees, or they buy their meals in restaurants or grocery stores.

The circus carries its own washing machines and dryers, computers and props. It has a free day care center with two teachers for employees to use and a free, fully staffed school for K-12 students.

The gold unit hits 42 cities in an average year, which means 46 to 48 weeks on the road. Gibson said a lot of circus employees visit Ruby Falls and the Tennessee Aquarium when they get to Chattanooga.

But the schedule does not leave much time for socializing outside of the circus. Many performers are third- or fourth-generation Ringling employees who marry other Ringling staffers and raise their kids on the road. Petrov and his wife, Victoria, have a 17-year-old son who grew up attending the traveling school.

Maybe it was just a poorly run business, but might there be a more systemic read on the troubles of Ringling?  The company itself cited declining attendance and high operating costs as factors, but of course that can be made more specific.  Here are a few options:

1. It is now cheaper to bring people to spectacular events than to have the spectacular events travel around.  Maybe it makes more sense to build something more permanent into Las Vegas or Orlando.  Cirque Soleil is experiencing economic problems as well.  But note that “Monster Jam, Disney on Ice and Marvel Live,” among other endeavors, still will be up and running.

2. Kids get enough drama through social media.

3. Circus jobs stink, and it is increasingly hard to attract and retain the talent.  Might there be a visa/immigration issue as well?

4. Circuses are mostly boring, and some of the highlights can be watched, in one form or another, on YouTube.  Even as a kid I was bored by the circus I saw at Madison Square Garden, relative say to watching Fischer vs. Spassky on TV.  What’s the actual drama in a circus?

David Burge offers marketing comments: “Ringling Bros was mid-market brand killed by upscale competors like Cirque de Soleil, downscale knockoffs like Washington DC”

5. Fewer circus animals, including fewer or no elephants (none for Ringling since May 2016), hurts circus demand by a significant amount.

6. I don’t know if contemporary circuses still degrade women, the disabled, and other groups, but of course the contemporary world won’t sit still for that any more, not in any sphere of life.

Those are just speculations, what other factors might be operating?

What are the most important unsolved problems in your field?

That is a request from Christina, a loyal MR reader.  It sounds like a huge question, and maybe it is, but my answer is pretty simple, which is not to say the problem is simple to solve.

Let’s say you are in Germany.  People engage in rule-following behavior, and they become quite emotionally stressed if you suggest you might break the rules in especially inappropriate ways.

Alternatively, in Naples there is more garbage in the streets, and flexibility and rigidity across a very different set of social variables.  I call that a difference in “culture,” and I am ready to accept culture as an ill-defined, question-begging term.

Now, how do differences of culture — however defined — interact with traditional economic mechanisms involving prices, incomes, and simple comparative statics?  Are those competing explanations, namely cultural vs. economic?  Ought they to dovetail nicely in some kind of broader explanation?  Or might the cultural factors in some manner be “reduced” to questions of more traditional economics?  Some combination of the above?  Something else altogether?  And, from among these and other options, what principles of differentiation rule how “culture” and “economics” will be related in a particular problem?

That to me is the most important unsolved problem in economics and indeed in social science more broadly.

feynman