Month: October 2017
Tyler and I are thrilled to announce the next great course at MRUniversity, Understanding Data. Understanding Data is taught by our well-known and accomplished colleague Thomas Stratmann and is our most ambitious course to date.
In addition to lectures, Understanding Data features a fantastic interactive data tool, a built-in version of DataSplash, which was designed by Thomas Stratmann and Lorens Helmchen specifically to run small regressions and to teach econometrics. Students can pause the video, run regressions, make predictions, compute correlations look at summary statistics and more–all on the same page! Furthermore, as the video progresses students are asked to answer questions and they receive immediate feedback on their answers.
A lot of work went into producing this course. Not only from Thomas and Lorens but also from our superb team at MRU led by Roman Hardgrave. This is a quantum leap for MRU and what you are seeing is version 1. If you notice some bugs or things that can be improved do email [email protected]. Thanks.
The first lecture featuring the interactive data tool is Interpreting the Regression Line.
There is a new paper on that topic by Bert Van Landeghem at Sheffield, here are the main results:
A large number of empirical studies have investigated the link between social status and happiness, yet in observational data identification challenges remain severe. This study exploits the fact that in India people are assigned a caste from birth. Two identical surveys of household heads (each with N=1000) in rural Punjab and Andhra Pradesh show an increasing pattern in economic welfare across the hierarchy of castes. This illustrates that at least in rural regions, one’s caste is still an important determinant for opportunities in life. Subsequently, we find that the castes at the top are clearly more satisfied than the lower and middle castes. This result, which is in line with predictions of all major social comparison theories, is robust across the two case studies. The pattern across low and middle castes, however, is less clear, reflecting the complex theoretical relationship between being of middle rank on the one hand, and behaviour, aspirations and well-being on the other hand. In the Punjab sample, we even find a significant U-shape, the middle castes being the least happy. Interestingly, these patterns resemble those found for Olympic Medalists (first documented by Medvec et al. 1995).
I am looking forward to my conversation with Sujatha Gidla.
That is a reader request, here goes:
I sometimes describe L.A. as the world’s best city to live in, but one of the worst to visit. Nonetheless you have some pretty good options. With half a day, make sure you have a rental car with the appropriate soundtrack(s). If you start from LAX, pick one road to drive east on, another to head back east to west — how about Sunset and Pico? Wilshire? Stop and walk as you can, convenient parking is often available. Use Jonathan Gold to pick the right eating places, perhaps Thai and Mexican? Veer off a wee bit and visit the La Brea Tar Pits, or for a longer trek Watts Towers. Time the sunset for Griffith Park. Deemphasize “Downtown” but consider the new Broad Museum for contemporary art. Work in a beach walk at Santa Monica or Venice, preferably the former. See a movie. See another movie. Avoid Beverly Hills. The truly ambitious can drive all the way down Western Ave. and stop for Belizean food along the way to that chapel at the very bottom of the road.
We use a machine learning algorithm to identify potential social capital measures that best predict neighborhood-level variation in labor market networks. We find evidence suggesting that smaller and less centralized schools, and schools with fewer poor students, foster social capital that builds labor market networks, as does a larger Republican vote share. The presence of establishments in a number of non-profit oriented industries are identified as predictive of strong labor market networks, likely because they either provide public goods or facilitate social contacts. These industries include, for example, churches and other religious institutions, schools, country clubs, and amateur or recreational sports teams or clubs.
That is from a new NBER working paper by Brian J. Asquith, Judith K. Hellerstein, Mark J. Kutzbach, and David Neumark.
David Evans on the economics of attention:
In 2016, 437 billion hours, worth $7.1 trillion dollars, were exchanged in the
attention market in the US based on conservative estimates reported above. Attention
platforms paid for that time with content and then sold advertisers access to portions of that
time. As a result, advertisers were able to deliver messages to consumers that those
consumers would probably not have accepted in the absence of the barter of content for
their time. Consumers often don’t like getting these messages. But by agreeing to receive
them they make markets more competitive.
The economics of attention markets focuses on three features. First it focuses on
time as the key dimension of competition since it is what is being bought and sold. Second,
it focuses on content since it plays a central role in acquiring time, embedding advertising
messages, and operating efficient attention platforms. And third it focuses on the scarcity of
time and the implications of that for competition among attention platforms.
The $7.1 trillion estimate for the value of content seems too high. The high value comes from Evans assuming that the marginal wage is higher than the average so the average wage which he uses to calculate the value of time is, if anything, an underestimate while for most people I think the marginal wage is lower than the average (many people don’t even have jobs) so the average is an over-estimate. Brynjolfsson and Oh, however, using somewhat different methods estimate the consumer surplus from television as 10% of GDP and from the internet of 6% GDP or combined about $3 trillion at current levels. Either way the attention economy is very large and understudied relative to its importance.
Eric Posner and Glen Weyl recommend a version of this idea in their recent paper “Property is Only Another Name for Monopoly.”
The core proposal is you announce how much each piece of your property is worth, and you are then taxed as a percentage of that value (say 2.5%). At the same time, you have to sell your property for that same value, if someone bids for it, thereby lowering or eliminating the incentive to under-report true values. If you think this through, you can see it minimizes holdout problems.
I think of the proposal as trying to force “willingness to be paid” people to live at “willingness to pay” valuations. Microfoundations as to why WTBP and WTP so diverge would be useful!
In the meantime, my main worry concerns complementarity. Say I own eighty pieces of property, and together they constitute a life plan. The value of any one piece of property depends on the others. For instance, if I lived in a more distant house, the car would be of higher value. The ping pong table would be worth less in Minnesota, and having a good slow cooker enhances the refrigerator. Don’t get me started on the CDs, but of course they boost the value of the stereo system and for that matter all the books. I’ll leave aside purely “replaceable” commodities that can be replenished at will, and with no loss of value, through a click on Amazon (Posner and Weyl in any case think those replaceables should be taxed at much lower rates).
So how do I announce the value of any single piece of that property, knowing I might have to end up selling its complements?
In essence, I have to calculate how much the rest of the economy values each piece of my property, for me to know how much any single piece is worth. That recreates a version of the socialist calculation problem, not for the planner, but for every single taxpayer. And you can’t rely on the status quo ex ante as a readily available default, because that status quo can be purchased away from you.
The authors do consider related issues on pp.76-78 and 89-90. For instance, they allow individuals to announce valuations for entire bundles when complementarity is strong. You choose the bundle: “My house and all its items for three million tokens.”
But your human capital and your personal plans are non-marketable, non-transferable assets that can’t be put in this bundle. So the incentive is to assemble highly idiosyncratic assets that no one else can quite fit together, and so no one else will wish to buy from you, and then you can announce a low valuation.
If that strategy works, the tax system doesn’t yield enough revenue and furthermore you’ve had to distort your consumption patterns. If that strategy doesn’t work, someone might buy your life’s belongings/plans from you anyway, leaving you without your beloved customized snowmobile, your assiduously assembled music collection, and what about all those shoes you thought fit only you?
Ex ante, individuals are forced to assume huge, non-diversifiable risk, namely that someone will snatch away their whole “commodity life” from them. So many of us, even if we could bear the asset loss, just don’t have the time to rebuild that formerly perfect mesh of plans and possessions, the one that took decades to create (think about risk-aversion in terms of time). Furthermore, what if a wealthy villain or personal enemy wished to threaten to denude you in this manner? Or what if you simply make a big mistake reporting the value of your bundle? Isn’t this much much harder than just doing your income taxes?
To protect against these risks, ex ante, people will value their wealth bundles at quite high levels, and the result will be that wealth taxation will be too high. Since I don’t favor most forms of wealth taxation in the first place, why push for a method that also will tax people on the risk of losing most of their carefully assembled personal wealth and plans? Is “planning plus complementarity” really something we wish to tax so hard?
Don’t forget the “planning plus complementarity” process as a whole tends to elevate the value of assets, not reduce them. Posner and Weyl boast that their scheme lowers the value of assets (p.88: “Under our system, the prices of assets would be only a quarter to a half of their current level.”). Lower asset values may boost turnover, but is it not prima facie evidence that the value of aggregate wealth has gone down? (I am not convinced by the way, that once lower rates of income taxation are taken into account, that asset prices would in fact be lower in their system.) Why is that good?
So I wish to announce a high valuation for keeping the current system in lieu of this reform. My personal plans depend on it.
Addendum: I consider several of Glen’s ideas too much along the lines of what Hayek labeled “rationalist constructivism.” Here is my earlier post on quadratic voting.
Second addendum: You might instead prefer this method for only a limited set of issues, such as eminent domain. But then you have to end up taxing wealth values, if only for credibility and future reporting incentives, even when efficiency may dictate simply transferring the resources with compensation. There just aren’t that many situations where a wealth tax is what you optimally should be seeking to do. And keep in mind, so often the real preference revelation problem is not for the homeowners, but whether the government really needs your asset or wealth! Or maybe they are just taking it because they can.
That is the title of my latest Bloomberg column, here is one pithy excerpt:
Among emerging economies, the Philippines moved from being an Asian growth laggard into some years of 8 percent growth. Voters responded by electing as president Rodrigo Duterte, one of the most aggressive and authoritarian populists around. In eastern Europe, Poland has been seeing average 4 percent growth for more than 25 years, yet the country has moved in a strongly nationalist direction, flirting with sanctions from the EU for limiting judicial independence. Hungary, Slovakia, Slovenia and now the Czech Republic all are much wealthier than 20 years ago and mostly have been booming as of late. Yet to varying degrees they too have moved in nationalist, populist and possibly even anti-democratic directions.
And the closer:
So the next time you hear material discontent cited as driving electoral results, just remember that economic data are usually interpreted through a cultural lens.
And yes, I cover New Zealand and the Czech elections too.
Ray Bradbury’s Fahrenheit 451 tells the story of a dystopian future where books have been outlawed and are destroyed by firemen who set them ablaze. But in an ironic twist, Super Terrain, a publisher in France, has created a new edition of Bradbury’s classic that actually requires extreme heat in order to be read.
Jo Frenken shared this video to Instagram showing a prototype copy of the book, which was developed by the Charles Nypels Lab at the Netherlands-based Jan van Eyck Academie—a research institute known for its experiments in materials and media. The pages of the book appear completely blacked-out—like a redacted CIA file—as you flip through them. But when heat is applied, using a flame from a lighter, in this case, the heat-activated ink disappears and the underlying text is revealed.
Replication is critical for scientific progress and integrity but incentives for replication have been low. It’s good news, therefore, that a new journal will be devoted solely to replication research:
The International Journal for Re-Views in Empirical Economics (IREE) is the first journal dedicated to the publication of replication studies based on economic micro-data. Furthermore, IREE publishes synthesizing reviews, micro-data sets and descriptions thereof, and articles dealing with replication methods and the development of standards for replications.
As yet, authors of replication studies, data sets and descriptions had a hard time gaining recognition for their work by citable publications and incentives for conducting these important kinds of work were immensely reduced….IREE provides the platform to authors to be given credit for serious empirical research in economics.
The publication of replication studies often depends on their result….replications usually need to reject the original study to get published whereas a scientific impact is denied for replications confirming original findings. This induces a severe publication bias….Therefore, IREE publishes research independent of the result of the study. The selection of published articles is based on technical and formal criteria but not with regards to the qualitative and quantitative results.
Deaton, Wooldridge, and Easterlin are all involved.
Hat tip: David Roodman on twitter.
Addendum: Also check out the the inaugural Empirical Legal Studies Replication Conference which will publish papers, independent of result, in an edition of the International Review of Law and Economics.
Not just the usual, we focus on theories of learning and theories of travel. Self-recommending!
By the way, here is David’s home page. Here is David on Twitter. Here is a podcast excerpt on how to learn things by looking for angular entry points. Here is the podcast on iTunes.
That is a reader request. I used to think the ideal tax rate on corporations should be zero, but that is no longer my view. For one thing, too many individuals would find ways to self-incorporate, thereby avoiding personal income taxes on labor income. Note that a small corporation controlled by you can return real income to you in a variety of non-taxable or less-taxed ways.
Furthermore, tax-exempt institutions such as non-profits and pension fund would end up owning too many corporations, to the detriment of (non-tax) efficiency. While pension funds eventually must pay out that income in the form of pensions, those often go to high-wealth, low income elderly individuals, and thus would never end up taxed at such a high rate.
I now think that for the United States the tax rate on corporate income should be in the range of 18-25 percent, depending of course on what other decisions we make with our budget and tax systems. It also would work to simply target the OECD average of the corporate rate.
A further question is whether the case for a zero corporate rate would be stronger if we shifted from income to consumption taxation. That depends how easy it might be to partially evade the consumption tax, say by spending money abroad. In general, to the extent evasion is possible that favors lower marginal tax rates but levied on a greater number of distinct points in the system, including in this case on the corporate veil.
I thank Megan McArdle for a useful conversation related to these points.
1. Building the Intentional University: Minerva and the Future of Higher Education, edited by Stephen M. Kosslyn and Ben Nelson. The new university Minerva explains its educational philosophy, imagining redesigning higher ed from scratch. I would do something very similar to what they did, and this book explains the curricular philosophy and practice in great detail.
2. Olivier Roy, In Search of the Lost Orient: An Interview. There should be a book like this for every substantive thinker, namely a very long, book-length interview with frank rather than perfunctory answers. The dialog covers Afghanistan, Yemen, 1968 Paris and radicalism, China, “political Islam,” and women (ahem), among other topics. Recommended.
3. Aaron Carroll, The Bad Food Bible: How and Why to Eat Sinfully. Yes, that is the Aaron Carroll, the one who writes about health care policy. What does the evidence actually say about which foods are good and bad for you? I’ll just say my diet is healthier than I had thought, and beware added sugar.
I have only browsed Abbas Amanat’s Iran: A Modern History, but it appears to be a very readable and highly useful 908 pp. overview of Persian/Iranian history, though less theoretical and conceptual than what an economist might be looking for.
Harvey Sachs, Toscanini: A Musician of Conscience, is a very high quality book, I would have read more of it except I can’t stand listening to Toscanini.
Eric A. Posner has the forthcoming Last Resort: The Financial Crisis and the Future of Bailouts. He argues that much of what was done was not fully legal.
Dani Rodrik’s Straight Talk on Trade: Ideas for a Sane World Economy is a very good introduction to Rodrik’s basic ideas on trade.
[John] Wall shed light on an underrated issue when he said: “The toughest thing you have is two young players that want to be great. Sometimes it might work, and sometimes it might not work.”
Think about that. Here’s what Wall is saying: It’s easier for stars to coexist when there is more separation of age and aspiration and an understanding of the hierarchy. Wall and Beal figured it out. The Sixers have three young potential all-stars trying to mix individual accolades and team success at once.
Wizards center Marcin Gortat cited asymmetric information:
“You know what the hardest thing for the young man is?” Gortat said during a recent interview. “We all enjoy diamonds. We all enjoy women. We all enjoy cars and beautiful houses, trips, the best parties and the life. The hardest thing is to come at 6 o’clock in the morning to the gym when nobody watches you. It’s easy to play when you have 20,000 people in the stands — women, cheerleaders, actresses, models, front-row celebrities — but it’s really hard to wake up at 6 o’clock in the morning and go to the gym and work on your left hand. This is the hardest part, when nobody’s watching.”
Here is the full Jerry Bewer story. I watched two games with Philadelphia and Milwaukee, to update my knowledge of the NBA a bit, and now I’ll return to my rabbit hole for a while.