Month: February 2018

Wednesday assorted links

1. Swedish summer seminar in classical liberalism.  And Bryan Caplan says something nice about me (I am not suggesting this is rare, though).

2. Personal bests act as reference points.

3. “In the inner London borough of Wandsworth, a home measuring just 91 inches across is on the market for about $1.4 million (£1 million).”  Link here.

4. Who will be the next PM of Singapore?

5. Jerry Z. Muller on the tyranny of metrics.

6. Vincent Geloso’s nominations for the best economic history papers of 2017.

The signaling start-up culture that is Finland

Intrepid entrepreneurs have plunged into icy Finnish water in an eccentric contest to win funding for their business ideas.

Polar Bear Pitching allows start-up firms to put forward their projects to investors for as long as they can stand in the freezing temperatures.

The final of the Dragon’s Den-style competition will see a dozen companies put their plans under the noses of investors.

The winner of the two-day contest — which takes place in frozen sea near Oulu on February 6 and 7 — will receive €10,000.

Start-ups who have secured funding say standing in such cold water helps convince investors they are serious.

Here is the article and photo, via Danica Porobic.

The Uber Pay Gap

Using data on over one million Uber drivers and millions of trips, Cody Cook, Rebecca Diamond, Jonathan Hall, John A. List, and Paul Oyer show that female Uber drivers earn 7% less than male drivers. What makes this paper new, however, is that UBER’s extensive data lets the authors understand in great detail why the pay gap exists. It’s not discrimination:

Uber uses a gender-blind algorithm and drivers earn according to a transparent formula based on the time and distance of trips. There are no negotiated pay rates or convex returns to long hours worked, factors that have been shown to open a gender earnings gap in other settings. Our research also finds that both average rider ratings of drivers and cancellation rates are roughly equivalent between genders and we find no evidence that outright discrimination, either by the app or by riders, is driving the gender earnings gap.

The authors find that three factors explain the gap; driving speed, experience, and choices about where to drive.

First, driving speed alone can explain nearly half of the gender pay gap. Second, over a third of the gap
can be explained by returns to experience, a factor which is often almost impossible to evaluate
in other contexts that lack high frequency data on pay, labor supply, and output. The remaining
20% of the gender pay gap can be explained by choices over where to drive.

Male Uber drivers, like other males, drive a bit faster than female drivers, about 2.2% faster after controlling for experience and location. Since Uber pays by time as well as by distance the returns to speed are not very high and the difference in speed is small but overall this results in an increase in pay for males of about 50 cents an hour.

Drivers learn by doing and more men than women have driven for Uber for years:

A driver with more than 2,500 lifetime trips completed earns 14% more per hour than a driver who
has completed fewer than 100 trips in her time on the platform, in part because she learn where
to drive, when to drive, and how to strategically cancel and accept trips. Male drivers accumulate
more experience than women by driving more each week and being less likely to stop driving with

Overall, female and male Uber drivers behave remarkably similarly but small differences aggregated over large samples produce a small but systematic gender gap in wages of about 7%. The gap, however, is an artifact, a social construct that has no implications for “social justice,” drivers are treated equally.

The author’s conclude:

Overall, our results suggest that, even in the gender-blind, transactional, flexible environment
of the gig economy, gender-based preferences (especially the value of time not spent at paid work
and, for drivers, preferences for driving speed) can open gender earnings gaps. The preference
differences that contribute to pay differences in professional markets for lawyers and MBA’s also
lead to earnings gaps for drivers on Uber, suggesting they are pervasive across the skill distribution
and whether in the traditional or gig workplace.

Valentine’s Day and Understanding the Price System

Valentine’s Day is coming up so here’s a reminder to get your loved one a present! Valentine’s is also a great time to teach your students about globalization, the signaling and incentive role of prices, and the power of the price system–all key aspects of Chapter 7 in our textbook Modern Principles of Economics. We have two superb videos to encourage understanding and discussion of the price system, I, Rose and A Price is a Signal Wrapped up in an Incentive (see below).

In addition, we have created a lesson plan with discussion prompts, exercises, practice questions, and pre- and post-class assignments. Finally, we provide supplementary resources such as additional data sources, relevant news articles and blog posts, and an episode of Planet Money. You can find all of this material in one convenient location here. Enjoy!

What I’ve been reading and what has arrived in my pile

Jeremy Bailenson, Experience on Demand: What Virtual Reality Is, How It Works, and What It Can Do. Usually I am allergic to “general summary about some new topic in tech” books, but this one is quite good.

Michela Wrong, I Didn’t Do It For You: How the World Betrayed a Small African Nation, is in fact, as a number of you had suggested, probably the best book on Eritrea.

Matthew Engelke, How to Think Like an Anthropologist, is a very good introduction to exactly what the title promises.

Robert Wuthnow tries his hand at The Left Behind: Decline and Rage in Rural America.

Benn Steil, The Marshall Plan: Dawn of the Cold War.

Carl Zimmer, She Has Her Mother’s Laugh: The Powers, Perversions, and Potential of Heredity.

Title length


We document strong and robust negative correlations between the length of the title of an economics article and different measures of scientific quality. Analyzing all articles published between 1970 and 2011 and referenced in EconLit, we find that articles with shorter titles tend to be published in better journals, to be more cited and to be more innovative. These correlations hold controlling for unobserved time-invariant and observed time-varying characteristics of teams of authors.

That is by Yann Bramoullé and Lorenzo Ductor at JEBO, via Michelle Dawson.

Bitcoin and covariance

Bitcoin and stocks bottomed at almost exactly the same moment.  This is bad for Bitcoin.  Part of Bitcoin’s appeal is that it is weird, and perhaps does not covary with  standard financial assets in traditional ways.  But at least yesterday it did, and that should be a force pushing Bitcoin lower.

Addendum from DB in the comments:

Matt Levine from yesterday: “Bloomberg tells me that Bitcoin’s daily correlation with the S&P 500 Index was 0.047 in 2017, -0.049 in 2016, 0.07 in 2015 and -0.081 in 2014. That is about as uncorrelated an asset as you could ask for — and a lot of Bitcoin buyers were asking for uncorrelated assets. So far in 2018 the correlation is 0.286. Still pretty uncorrelated! But … less so. When Bitcoin was a weird alternate-currency dream of anarchists, there was no reason for it to be correlated with stocks. When it is just an asset class that regular people trade, buying when they feel confident and selling when they feel nervous, that correlation ticks up.”

Why have some asset prices been so high?

Do they have to be bubbles? And is it so terrible if they fall?  I cover those topics in my latest Bloomberg column, here is one bit:

In a volatile and uncertain time politically, we have observed sky-high prices for blue-chip U.S. equities. Other asset prices also seem to be remarkably high: home values and rentals in many of the world’s top-tier cities, negative real rates and sometimes negative nominal rates on the safest government securities, and the formerly skyrocketing and still quite high price of Bitcoin and other crypto-assets.

Might all of those somewhat unusual asset prices be part of a common pattern? Consider that over the past few decades there has been a remarkable increase of wealth in the world, most of all in the emerging economies. Say you hold enough wealth to invest: What are your options? Well, the stock markets of China and Russia are unsafe and not well developed, and many other emerging economies, such as Turkey and Brazil, have been wracked with uncertainty and political turmoil. So you might take a disproportionate share of your money and put it into high-quality, highly liquid assets. That might include the stocks of the Dow Jones Industrial Average and real estate in London, to name two possibilities.

In relative terms, the high-quality, highly liquid blue-chip assets will become expensive. So we end up with especially high price-to-earnings ratios and consistently negative real yields on safe government securities. Those price patterns don’t have to be bubbles. If this state of affairs persists, with a shortage of safe investment opportunities, those prices can stay high for a long time. They may go up further yet.

These high asset prices do reflect a reality of wealth creation. They are broadly bullish at the global scale, but they don’t have to demonstrate much if any good news about those assets per se. Rather there is an imbalance between world wealth and safe ways of transferring that wealth into the future…

To sum this all up in a single nerdy finance sentence, in a world where wealth creation has outraced the evolution of good institutions, the risk premium may be more important than you think.

In this “model,” price declines do not have to be disastrous, but rather can reflect a kind of normalization.  Do read the whole thing.  The theory also predicts that bond, equity, and Bitcoin prices should all decline at the same time, which is indeed what happened yesterday.

How much are illegal activities behind the demand for crypto-currency?

Cryptocurrencies are among the largest unregulated markets in the world. We find that approximately one-quarter of bitcoin users and one-half of bitcoin transactions are associated with illegal activity. Around $72 billion of illegal activity per year involves bitcoin, which is close to the scale of the US and European markets for illegal drugs. The illegal share of bitcoin activity declines with mainstream interest in bitcoin and with the emergence of more opaque cryptocurrencies. The techniques developed in this paper have applications in cryptocurrency surveillance. Our findings suggest that cryptocurrencies are transforming the way black markets operate by enabling “black e-commerce.”

Here is the paper, by Foley, Karlsen, and Putniņš, via the excellent Kevin Lewis.

The return of Nigeria’s kidnapped girls

Joe Parkinson and Drew Hinshaw at the WSJ follow up on what was a super dramatic story that turned into a neglected and under-reported tale.  What is life like for the Boko Harum kidnap victims after their liberation?

The women had acclimated to the forest camps where Boko Haram insurgents threatened them at gunpoint to either convert to Islam and marry a fighter or be a slave.

About half chose slavery, which cost them access to food and shelter.

Here is another bit:

Psychologists who specialize in kidnap victims say they are unsure about the best way to simultaneously treat and educate such a large group of women—ages 18 to 27—after years of collective captivity and abuse.

The spelling bee contests, one healing piece of the curriculum, arrived as something of a surprise. It was the Chibok girls who came up with the idea.


One night, plopped on couches, they watched “Akeelah and the Bee,” a movie about an 11-year-old African-American girl in Los Angeles who finds her confidence after her father’s death by winning the Scripps National Spelling Bee.

The students watched the movie again and again over bowls of popcorn. They went to their teachers with a demand: They wanted to hold their own spelling bees. The teachers agreed.

The young women began memorizing vocabulary lists and testing each others’ lexicographic skills. Their wordplay escalated into late-night spelling battles. “It was unbelievably competitive,” Mr. Braggs said.

Spelling employs a skill many of the women honed while captive: mnemonic memory. Some spent much of their time memorizing lengthy prayers and hymns. Others composed diary entries in their heads—their thoughts, injustices they suffered—they would later log in journals they kept hidden. In secret, they retold the story of Job, the biblical figure who was punished in a test of his faith.

By the way, 112 girls remain missing and 13 are presumed dead.

Federal Regulation Is Not the Cause of Declining Dynamism

My paper with the excellent Nathan Goldschlag, Is regulation to blame for the decline in American entrepreneurship? has finally been published. Our paper tests the plausible theory that regulation reduces dynamism as it builds up over time. Michael Mandel explains:

…it’s possible for every individual regulation to pass a cost-benefit test, while
the total accumulation of regulation creates a heavy burden on Americans. The number of
regulations matter, even if individually all are worthwhile.

I call this the ‘pebble in the stream’ effect. Thrown one pebble in the stream, nothing happens.
Throw two pebbles in the stream, nothing happens. Throw one hundred pebbles in the stream,
and you have dammed up the stream. Which pebble did the damage? It’s not any single pebble,
it’s the accumulation.

This is also the theory of regulation and declining dynamism that Mancur Olson puts forward in his classic, The Rise and Decline of Nations. We find, however, that declining dynamism cannot be explained by growing federal regulation. The reason turns out to be simple: the decline in dynamism is widespread across many different industries and, in particular, it is widespread across heavily and lightly regulated industries. Our finding does not imply that regulation is necessarily good–regulations could fail a cost-benefit test and yet not have much of an effect on dynamism–nor does it imply that no regulation could explain declining dynamism only that we should probably look elsewhere for an explanation of declining dynamism than the cumulative growth of federal regulation. See the paper for some suggestions.

Frankly, it’s difficult to publish a paper that fails to reject the null hypothesis. A positive or negative effect is a natural stopping point–ok, they got it, let’s move on–but a zero-effect always leads to complaints that you didn’t run the regression in such and such a way or you could have done such and such a test. The asymmetry in paper evaluation leads to the file drawer problem where published results tend to reject the null even when a random sample of all results would find that the null is supported. We know the file drawer problem is serious because it predicts that studies with small sample sizes should have larger effect sizes–an effect that has often been found.

I can’t complain too much, however, because our paper was published in Economic Policy, a highly-ranked journal, and is the Editor’s Choice paper for that issue. The referees certainly made the paper better.

One of the things we did in the paper to counter the claim that our methods or data were defective was to look for entirely independent tests of the regulation hypothesis. If regulation is the main cause of declining U.S. dynamism, for example, then we ought to find that declining dynamism is associated with declining industry size. But when we look at dynamism, as measured by excess job reallocation rates, and industry employment what we see is that dynamism is declining in both shrinking and growing industries (see above). The paper has many additional tests.

The data and tools in our paper have other applications. Our methods, for example, can be used to distinguish between special-interest and general-interest regulation and could be used to test many other theories in political economy.

Chicago’s land tax and how the city survives being such a fiscal mess

But wait, isn’t Chicago a fiscal mess? How about the state of Illinois?  It remains the case that living in Chicago is still remarkably affordable, and many of the neighborhoods have wonderful food, buildings, and offer a relatively safe (not always) and walkable environment.  You may even hope to find a parking spot.

I would put it this way: there are many ways to impose a Georgist land tax, fiscal insolvency being one of them.  Very wealthy people and institutions know that if they relocate to Chicago, they will be required to ante up for the final bill.  And so they stay away.  For a city of its size and import, Chicago just doesn’t have that many billionaires, nor do I think a rational billionaire should consider moving there.

In other words, there is a pending wealth tax.  Either directly or indirectly, this will place fiscal burdens on Chicago land, the immobile factor.  And this keeps down rents in Chicago now.

Overall, I do not recommend this fiscal course of action, and Chicago may well become a worse city due to eventual insolvency at the local and state levels.  Still, if you are wondering how it is that Chicago is so affordable — and wonderful — right now, this is part of the answer.

I also should note that not every neighborhood in Chicago benefits from this equilibrium, as in some parts gentrification is difficult to come by.