Month: December 2017

Why are black incarceration rates falling?

So it may come as a surprise to learn that for the last 15 years, racial disparities in the American prison system have actually been on the decline, according to a Marshall Project analysis of yearly reports by the federal Bureau of Justice Statistics and the FBI’s Uniform Crime Reporting system.

This story was published in collaboration with Washington Post’s Wonkblog

Between 2000 and 2015, the imprisonment rate of black men dropped by more than 24 percent. At the same time, the white male rate increased slightly, the BJS numbers indicate.

Among women, the trend is even more dramatic. From 2000 to 2015, the black female imprisonment rate dropped by nearly 50 percent; during the same period, the white female rate shot upward by 53 percent. As the nonprofit Sentencing Project has pointed out, the racial disparity between black and white women’s incarceration was once 6 to 1. Now it’s 2 to 1.

As for potential answers:

1) Crime, arrests and incarceration are declining overall.

Those decreases benefit the most incarcerated group: African Americans. Crime rates have been on the decline since just after 1990, as have arrests. Given that both measures disproportionately affect the black community, one theory goes, the overall drop should shrink the racial gap in incarceration, too…

2) The war on drugs has shifted its focus from crack and marijuana to meth and opioids…

3) White people have also faced declining socioeconomic prospects, leading to more criminal justice involvement…

4) Criminal justice reform has been happening in cities, where more black people live, but not in rural areas.

Here is the full piece by Eli Hager, via Anecdotal.

Sunday assorted links

Do High School Sports Build or Reveal Character?

Michael R. Ransom and Tyler Ransom have a new paper on this question:

We examine the extent to which participation in high school athletics has beneficial effects on future education, labor market, and health outcomes. Due to the absence of plausible instruments in observational data, we use recently developed methods that relate selection on observables with selection on unobservables to estimate bounds on the causal effect of athletics participation. We analyze these effects in the US separately for men and women using three different nationally representative longitudinal data sets that each link high school athletics participation with later-life outcomes. We do not find consistent evidence of individual benefits reported in many previous studies – once we have accounted for selection, high school athletes are no more likely to attend college, earn higher wages, or participate in the labor force. However, we do find that men (but not women) who participated in high school athletics are more likely to exercise regularly as adults. Nevertheless, athletes are no less likely to be obese.

The pointer is from the excellent Kevin Lewis.  Kevin also refers us to this paper: “…the large portion of the variance in a four-item economic egalitarianism scale can be attributed to genetic factor[s].”

“How can Bitcoin be a good store of value if its price is so volatile?”

I am oh so reluctant to repost old material, which is how bloggers fall from grace.  Nonetheless I don’t think I can do better than to repeat my take from 2013:

“What a day:

Bitcoin is now 44 percent off its intraday high of $266.

Maybe it’s in the nature of Bitcoin to have volatile prices (and Megan comments here).

But that’s part of the point, isn’t it?  (Have we ever posted on the two envelopes problem?  I think so but I can’t find it through search.)  Imagine you hold a currency which, over the next period will either double or halve in value.  The expected return of such a Bitcoin is in fact (0.5 x .5) + (0.5 x 2) = 1.25.

What a good deal that is!  Holding a single Bitcoin — a very volatile Bitcoin that is — seems like a lot of fun.  It’s unlikely that simple risk aversion will take away the expected gain there.

Does this not mean that exchange rate variability is desirable per se, a kind of automatic utility machine?  The party holding the other currency reaps a comparable gain from the ex ante volatility.

Fischer Black was obsessed with this problem for a few years, though I don’t think he ever quite nailed it.  The mathematics behind Jensen’s Inequality are relevant here, but again that’s not the same as an explanation of the puzzle.  My preferred path is to start with the Sumnerian “never reason from a price change” insight, but in any case this is a good brain teaser for your evening.”

Volatility is a feature of Bitcoin, not a bug, and that is in part for reasons that have nothing to do with speculation or bubbliness, but rather follow from the contours of the utility function.  It’s that latter point that hardly anyone understands.

The seven forbidden words?

Policy analysts at the Centers for Disease Control and Prevention in Atlanta were told of the list of forbidden words at a meeting Thursday with senior CDC officials who oversee the budget, according to an analyst who took part in the 90-minute briefing. The forbidden words are “vulnerable,” “entitlement,” “diversity,” “transgender,” “fetus,” “evidence-based” and “science-based.”

That’s the WaPo piece everyone is abuzz about.  A few observations:

1. This story may well be true, but I’d like more than “…according to an analyst who took part in the 90-minute briefing.”  Here is another account of what exactly is known.  Wasn’t “not publishing the article until it is better sourced” the evidence-based thing to do?

2. I don’t have a great fondness for the terms “evidence-based” or “science-based.”  When they are used on MR, it is often as a form of third-person reference or with a slight mock or ironic touch.  When I see the words used by others, my immediate reaction is to think someone is deploying it selectively, without complete self-awareness, or as a bullying tactic, in lieu of an actual argument, or as a way of denying how much their own argument depends on values rather than science.  I wouldn’t ban the words for anyone working for me, but seeing them often prompts my editor’s red pen, so to speak.  The most er…evidence-based people I know don’t use the term so much, least of all with reference to themselves.

3. In any case, the suggested replacement phrase — “CDC bases its recommendations on science in consideration with community standards and wishes” — I do not find offensive or anti-science, and I can imagine a plausible case that it is an actual improvement.  Science is (ought to be) value-free, yet CDC and more broadly federal policy should embody values too.  It should not think of itself as “the handmaiden of science.”

4. There is a fine line between “censorship” and “a bureaucratic organization which can be badly damaged by individual freelancing deciding to adopt uniform terminologies.”  I don’t doubt both might be going on here, but I’d like to see the extant Twitter takes show a little more subtlety on the broader point.  Don’t forget that the executive branch of government reports to the…executive, it is not a freestanding committee for debate, however much it might sometimes like to imagine otherwise.

5. The word “diversity” usually isn’t specific enough, or is channeling unstated preconceptions about how diversity should be interpreted.  We should improve our use of this word.  I have similar feelings about “vulnerable.”

6. People react to changes rather than levels.

7. “Fetus” — look, it is fine to disagree with the “pro-life view” (I’m not even sure what is the most neutral way of labeling it).  But is banning the use of the word “fetus” in institutional documents censorship?  What if an employee, during the Obama years, in an official CDC release had referred to a “fetus” as a “child”?  Would that have been changed back to fetus?  I am inclined to say yes.  Is it censorship in only one direction, or are both decisions censorship?  Or is this better seen as a disagreement over matters of fact?  A disagreement over values?  I am genuinely unsure, and I am unsure what a majority of the American public would think.  But I would say this is sooner worth a ponder than a rant.

8. If nothing else, Sam Altman can show up in China, post “here is my vulnerable entitlement diversity transgender fetus, who is evidence-based and science-based” on his Weibo account, and then go order some Chairman Mao’s braised pork belly.

9. What are the forbidden words in other parts of the federal government, whether de jure or de facto?  Will anyone be showing us a list?  Or is that list censored too?

Model this for Sri Lanka Indian Coasean spite value

  • India is buying Sri Lanka’s second-largest airport, despite it only handling a dozen passengers a day.
  • China recently took control of a nearby port that opens up significant trade routes, and India is worried about China’s growing role in the Indian Ocean.
  • Experts say the $300 million investment by India is an attempt to limit China’s ability to operate its port as a naval site.

Here is the story, via the excellent Samir Varma.  India/China remains one of the world’s big stories…

Sam Altman and the fear of political correctness

Many are abuzz over Sam Altman’s short and politically incorrect blog post:

Earlier this year, I noticed something in China that really surprised me.  I realized I felt more comfortable discussing controversial ideas in Beijing than in San Francisco.  I didn’t feel completely comfortable—this was China, after all—just more comfortable than at home.

That showed me just how bad things have become, and how much things have changed since I first got started here in 2005.

It seems easier to accidentally speak heresies in San Francisco every year.  Debating a controversial idea, even if you 95% agree with the consensus side, seems ill-advised.

Nerd that I am, I am immediately reminded of the theory of price indices.  If you go to a new country with the same goods and prices as your home town, you won’t buy very much.  Alternatively, if your port of call has radically remixed relative prices, you will do lots of shopping and go home pretty happy.

And so it runs with shadow prices for speech, including rights to say things and to ask questions.  Whatever you are free to say in America, you have said many times already, and the marginal value of exercising that freedom yet again doesn’t seem so high.  But you show up in China, and wow, your pent-up urges are not forbidden topics any more.  Just do be careful with your mentions of Uncle Xi, Taiwan, Tibet, Uighur terrorists, and disappearing generals.  That said, in downtown Berkeley you can speculate rather freely on whether China will someday end up as a Christian nation, and hardly anybody will be offended.

For this reason, where we live typically seems especially unfree when it comes to speech.  And when I am in China, I usually have so, so many new dishes I want to sample, including chestnuts and pumpkin.

All of this will seem all the more true, the longer you have lived in your home base.  You will note also that price variability increases consumer surplus, so it is no wonder that Sam enjoys China so much.

Oumuamua and the Fermi paradox

“Where are they?”, cried out Enrico Fermi in anguish.  We have wondered ever since.  In spite of some subsequent refinements, I still find the Fermi paradox a…paradox.  Where are they?

Now, Oumuamua comes along…

And furthermore:

The object’s trajectory is so strange and its speeds are so blistering that it probably did not originate from within our solar system. Its discoverers concluded that the object is a rare interstellar traveler from beyond our solar system, the first object of its kind observed by humans.

So what do the academics say?

“The possibility that this object is, in fact, an artificial object — that it is a spaceship, essentially — is a remote possibility,” Andrew Siemion, director of the Berkeley Search for Extraterrestrial Intelligence Research Center, told The Washington Post on Monday.

Given the Fermi paradox, shouldn’t we assume a fairly high probability this is in fact some form of alien contact or display?  It’s like when you are expecting a package from UPS and then finally the doorbell rings…

So I’m excited, even though I don’t see much of a chance of a visit.  p = 0.3?  I need to crack open those old Arthur C. Clarke novels.

Friday assorted links

Is there a glass ceiling for female artists?

Using a unique data set consisting of the population of fine art auctions from 2000 to 2017 for Western artists, we provide strong empirical evidence for a glass ceiling for female artists. First, we show that female artists are less likely to transition from the primary (gallery) into the secondary (auction) market. This glass ceiling results in a selection mechanism which is manifested in an average premium of 6% for artworks by female artists. Second, this premium is driven by a small number of women located at the top of the market and turns into a discount when we account for the number of artworks sold. The superstar effect, where a small number of individuals absorbs the majority of industry revenues, is amplified for the group of female artists. Third, at the top 0.1% of the market artworks by female artists are traded at a discount of 9%. Moreover, the very top 0.03% of the market, where 41% of the revenues are concentrated, are still entirely off limits for women. Overall, we find two glass ceilings for women pursuing an artistic career. While the first one is located at the starting point of a female artist’s career, the second one can be found at the transition into the superstar league of the market and remains yet impermeable. Our study has wide-reaching implications for industries characterized by a superstar effect and a strong concentration of men relative to women.

That is the abstract of a new paper by Fabian Y.R.P. Bocart, Marina Gertsberg, and Rachel A. J. Pownal, via the excellent Kevin Lewis.

Recently I’ve been enjoying @womensart1, a good way to see interesting artworks that otherwise don’t get so much attention.  And here is my older essay “Why Women Succeed, and Fail, in the Arts.”

Have cryptoassets created $0.5 trillion in social value?

Vitalik Buterin poses that question, do read his whole storm. Here are the last three tweets:

How many Venezuelans have actually been protected by us from hyperinflation?

How much actual usage of micropayment channels is there actually in reality?

The answer to all of these questions is definitely not zero, and in some cases it’s quite significant. But not enough to say it’s $0.5T levels of significant. Not enough.

Let me set aside the question of enabling grey or black market activities, and let us put aside the bubbly component of these assets, which may or may not be real.  I’d like to focus on the underlying fundamentals.

Furthermore, crypto-assets have not consumed half a trillion in social costs, though I’d like to see the electricity bill.  So mine is the concrete question: insofar as crypto-assets have served as hedges and stores of value, is that social value or just a private return at some offsetting rent-seeking-based social cost?

Stores of value

Let’s say I build a warehouse and store some furniture in it, because I am moving and I don’t want to throw out the sofa but need to keep it somewhere for a month.  The gains from storing that furniture can be captured by standard cost-benefit methods, and few would doubt that is a legitimate private and also social efficiency.  I am carrying “sitting capacity” into the future.

With crypto-assets, I am carrying wealth more generally into the future.  The person who most wants that payoff structure for the wealth carry will end up owning the crypto-asset.

Do I hold and carry forward that wealth at the expense of other people?  Is creating a crypto-asset, in welfare terms, a bit like being a counterfeiter and thus rent-transferring and wasteful?  Or is it more like storing a sofa while moving house?

Or is the crypto-asset more like an insurance contract, and thus again wealth-enhancing?  I see it as performing a mix of the store of value and insurance functions.

If the crypto-asset is rent-seeking (the electricity cost aside), exactly whose purchasing power is diminished?  Presumably the Bitcoin and Ether millionaires spend more of their money and drive prices up for others.  But it seems that is a pecuniary externality, not a real social cost of the kind that would justify a judgment of socially wasteful rent-seeking.

Maybe it makes more sense to view the crypto-assets as a new kind of insurance contract: “if some of my other assets go bust, Ether will keep me afloat.”

But who am I buying insurance from?

Dare I sneak the electricity back into the argument, and claim I am buying a form of implicit insurance from the electricity company?  In this view of the world, electricity companies, without knowing it, and in conjunction with some basic crypto facts publicized first by Satoshi, started offering new assets for sale/construction.  Some people wanted to buy those assets, and the process of doing so created these new carry-able “things,” namely crypto-assets.  In essence, a bunch of people agreed to make cryptographic skill something to be rewarded and that created some new Arrow-Hahn-Debreu securities, the value being contingent on both electricity abilities and crypto abilities.

As the purchases of electricity proceeded, and the new ADS securities fell into the market, both consumer and producer surplus went up.  In this view, the electricity costs are no more rent-seeking costs than are the bricks in the building of the insurance company.

Think of crypto-assets as assets whose value depends upon the reliability of “a particular kind of cryptography plus surrounding technologies including electricity.”  That value really does seem to vary with the market portfolio in strange, non-traditional ways, validating its use as a hedge.

Now, let’s say that quantum computing made many crypto problems much easier to crack?  Crypto-assets probably would decline in value or at least they would become riskier (given that forks and governance changes might result, exact predictions are a little tricky).

In other words, crypto-assets are bets on the future progress of crypto technologies, with a corresponding beta of the sort found in traditional finance theory.

Why have crypto-assets risen in value so sharply?  Well, at first few people realized they wanted assets with that risk profile, or even that such assets existed (they were too busy thinking of Bitcoin as an alternate form of currency).  As more people saw the potential here, the price rose rapidly.  Of course there may be bubbly components of the price too.

In the longer run, insurance-useful crypto-assets should yield sub-par returns, precisely because of their insurance and storage values.

Getting back to Buterin’s point

So what then are the major social gains from current crypto-assets?  Buterin misses a big but non-glamorous gain: by serving as efficient stores of value and by providing a new kind of insurance, they help people spend more money.  And indeed that is what so much of finance is about, namely enabling higher levels of consumption.  Is that going to account for half a trillion worth of social value?  Likely not.  Is it higher than electricity bill?  We don’t know, but so far the presumption — the bubbly part of the price aside — ought to be yes.  After all, the value of storing your sofa is higher than the electricity bill of the warehouse, otherwise the storage would not happen.

Possibly significant factors I have not considered: Benefits specific to the Ethereum platform, whether hedging itself is always socially valuable, the welfare economics of the bubbly part of an asset price.

Thursday assorted links

1. Crowdfunding markets in everything: a Romanian jazz album with plants used as the musical instruments.  Dandelion sample here.  It grows on you.

2. Mongolian Neo-Nazis? The lesson here is simply, but neglected nonetheless.  And grammar Nazis.

3. Interview with Anne Case.  And Ezra Klein interviews Paul Krugman.

4. Volokh Conspiracy moves to Reason.

5. Bach and Indian classical music.

6. And “My pants don’t seem particularly stylish.”  And Hungary (!) will be naming a “Milton Friedman University” [the article is in Hungarian].

Are younger societies more innovative?

François Derrien, Ambrus Kecskes, and Phuong-Anh Nguyen have a new paper on this topic, and basically the answer is yes, because of labor supply effects:

We argue that a younger labor force produces more innovation. Using the native born labor force projected based on local historical births, we find that a younger age structure causes a significant increase in innovation. We use three levels of analysis in succession – commuting zones, firms, and inventors – to examine or eliminate various effects such as firm and inventor life cycles. We also find that innovation activities reflect the innovative characteristics of younger labor forces. Our results indicate that demographics increase innovation through the labor supply channel rather than through a financing supply or consumer demand channel.

Here is the SSRN link.