Month: May 2018

The Royal Economic Society Prize

The 2017 Royal Economic Society prize for best paper in the Economic Journal has been awarded to Robert Warren Anderson, Noel Johnson and Mark Koyama for their paper Jewish Persecutions and Weather Shocks 1100-1800 (non-gated). Noel and Mark are colleagues at George Mason and Robert is a former GMU student. Here’s the abstract:

What factors caused the persecution of minorities in pre‐modern Europe? Using panel data consisting of 1,366 persecutions of Jews from 936 European cities between 1100 and 1800, we test whether persecutions were more likely following colder growing seasons. A one standard deviation decrease in growing season temperature in the previous five‐year period increased the probability of a persecution by between 1 and 1.5 percentage points (relative to a baseline of 2%). This effect was strongest in weak states and with poor quality soil. The long‐run decline in persecutions was partly attributable to greater market integration and state capacity.

The RES is correct, this is an excellent paper with a great combination of theory and original data.

The award is another indication of the stellar quality of GMU’s economics department.

Comprehensive occupational licensing reform in Nebraska

Also known as the Occupational Board Reform Act, LB299 requires legislative committees to review 20 percent of licenses under their purview a year, in a continuous five-year cycle.

This process creates a framework for identifying less restrictive regulations than licensing, including private certification, registration, insurance or bonding requirements, inspections, open market competition, or a combination of these approaches.

Workers with conviction histories could also receive an advisory opinion from state licensing boards about their eligibility to work in a licensed profession prior to beginning a training program.

While piecemeal occupational licensing changes have passed in the Nebraska Legislature before, reforms of more burdensome licenses have had trouble advancing from committee. That motivated the Platte Institute to educate lawmakers about the need for a more comprehensive approach.

Here is the full story, via Daniel Klein.

One estimate of the rate of return on pharma

…return on investment in pharma R&D is already below the cost of capital, and projected to hit zero within just 2 or 3 years. And this despite all efforts by the industry to fix R&D and reverse the trend.

That is from Kelvin Stott.  Keep in mind this is during a time when global demand has been growing, which suggests the supply side is all the more constipated.

Why Matthew E. Kahn is optimistic about microeconomics

1.   Applied micro researchers have access to more data than ever and have access to more computing power and more easy to use and sophisticated econometric methods than ever before.   Improved canned software in Stata allows applied researchers to relax many of the statistical assumptions that researchers made in previous years.   Such “robust” estimates allow us to march towards learning the truth.

2.   Due to “natural experiments”, discontinuities, and explicit randomizations, we now have more variation in “cause variables” (the X’s) than ever before.

3.  The advent of Google and the rise of Economics in Europe and outside of Western nations means that the current set of applied micro researchers are aware in “real time” about what findings are emerging in the top 5 journals and NBER and IZA and CEPR working papers.    Now that there are so many applied micro economists working around the world, this competition fosters innovation and progress.

4.  Replication is rising as an important piece of our advance as a “science”.

5.  Leading firms such as Amazon highly value quantitative training.  Undergraduates are aware of this and they are investing in the math/computer programming and economics and stats training to have the option to pursue this.  Some of these young people will opt into doing a PHD in economics and applied micro grows stronger due to this influx of talent.

6.  Thanks to scholars such as Raj Chetty, the power of using administrative data (such as IRS tax data) are now more clearly seen all over the world. I expect that more government officials who “know that they do not know” the answers for unlocking economic development will increasingly partner with the J-PAL and other economists to help them to experiment and learn.  This is Hayek as applied microeconomist at its best.

The rest of his post lists four concerns.

Transportation speed matters

High skilled workers gain from face to face interactions. If the skilled can move at higher speeds, then knowledge diffusion and idea spillovers are likely to reach greater distances. This paper uses the construction of China’s high speed rail (HSR) network as a natural experiment to test this claim. HSR connects major cities, that feature the nation’s best universities, to secondary cities. Since bullet trains reduce cross-city commute times, they reduce the cost of face-to-face interactions between skilled workers who work in different cities. Using a data base listing research paper publication and citations, we document a complementarity effect between knowledge production and the transportation network. Co-authors’ productivity rises and more new co-author pairs emerge when secondary cities are connected by bullet train to China’s major cities.

That is from Xiaofang Dong, Siqi Zheng, and Matthew E. Kahn.  Of course, supersonic air travel should be next…

Polarization isn’t mainly about ideology

If out-group hostility is more important to party identification than support for particular policies or ideologies, we may not actually place very many ideological demands on our parties. Defeating our enemies may be more important than advancing specific liberal or conservative agendas. According to Groenendyk: “If partisans’ identities are increasingly anchored to hatred of the outparty than affection for their inparty, electoral dynamics are likely much more fluid than many accounts suggest. Thus, insurgent candidates with questionable ideological credentials (e.g., Donald Trump) may be more appealing than one might expect in the age of ideologically sorted parties.”

Here is more from George Hawley, via Philip Wallach.  Of course Amihai Glazer understood this decades ago…nor should you forget Bryan Caplan’s “simplistic theory of left and right.

Russia fact of the day

Russian military spending fell by a fifth last year, its first decline in nearly two decades, with tighter purse-strings likely to affect Moscow’s military activity ahead, a report by defense think-tank SIPRI showed on Wednesday.

Here is the full story, and for the pointer I thank J.  Oh, and there is this:

Russia dropped to fourth place in the ranking of the world’s biggest military spenders, overtaken by Saudi Arabia.

Student-Led Classrooms Waste Teacher Skill

A slew of research shows that direct instruction produces superior results compared to other instructional methods. A new study in the Journal of Labor Economics by Eric Taylor provides more information on how and why. Using a randomized controlled trial, Taylor compares a weak form of direct instruction with student led classrooms in which:

the students are expected to reason through and articulate math concepts with each other,while teachers facilitate conversationsand help students express their thoughtswith a focus on [students] understanding, rather than on students answering problems correctly

He finds that direct instruction results in greater student learning. More importantly, however, he also has data on how well teachers understand math and how to teach math and what he finds is that this knowledge is basically only productive when teachers use direct instruction. In other words, teacher skill only produces results when teachers are assigned a task that uses that skill. Student-led classrooms waste teacher skill and so are less productive.

Hat tip: Jose the (Not) Mediocre.

The effect of corporate taxation on investment

This study estimates the investment, financing, and payout responses to variation in a firm’s effective corporate income tax rate in the United States. I exploit quasi-experimental variation created by the Domestic Production Activities Deduction, a corporate tax expenditure created in 2005. A 1 percentage point reduction in tax rates increases investment by 4.7 percent of installed capital, increases payouts by 0.3 percent of sales, and decreases debt by 5.3 percent of total assets. These estimates suggest that lower corporate tax rates and faster accelerated depreciation each stimulate a similar increase in investment, per dollar in lost revenue.

That is by Eric Ohrn, in the American Economic Journal: Economic Policy.  And from Lu Wang at Bloomberg:

After months of heated debate over whether companies would hand the biggest tax break in three decades back to shareholders or reinvest it in their businesses, there’s finally some hard data.

Among the 130 companies in the S&P 500 that have reported results in this earnings season, capital spending increased by 39 percent, the fastest rate in seven years, data compiled by UBS AG show. Meanwhile, returns to shareholders are growing at a much slower pace, with net buybacks rising 16 percent. Dividends saw an 11 percent boost.

That is hardly conclusive, but…

Equality is a mediocre goal, aim for progress

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

Take this all a step further and imagine that the next 30 years brings an enormous blossoming of medical innovation, outpacing the general rate of economic growth. Government revenue then might not grow rapidly enough to cover all or even most of these new medical miracles, some of which will be quite expensive, especially in their early stages. Governments will decline to cover more and more care.

This fiscal crunch is all the more likely if people live much longer but cannot work enough longer to fund their newly extended retirement spans.

To date, so much of the health care debate has been about whom to cover. Over time, it may be more and more about what to cover. It could be that all the citizens will have nominally the same insurance coverage, whether subsidized or guaranteed, but many medical and mental-health conditions will fall outside this coverage —  leading to rampant inequalities in access.

It’s the best problem to have. It means that medical innovation has arrived at a very high rate. If we enter the future being able to cover most medical treatments with reasonable equality, that would be a sign we failed at the task of progress. In other words, successful futures are likely to be highly unequal futures, again because medical innovation will have outpaced government revenue. (Innovations that extend working years would ameliorate this effect by adding to government revenue.)

Do read the whole thing.

Conor Sen on the future of physical retail and e-commerce

…the future of the relative cost advantage between e-commerce and physical retail is looking less clear. For much of physical retail, there’s the prospect of falling rents, making running a brick-and-mortar store more viable. For e-commerce, it’s a surge in ad rates, or customer acquisition costs, plus shipping bottlenecks that will make “free shipping” more onerous to offer. And profit margins on an e-commerce sale were lower than the profit margin on an equivalent brick and mortar sale to begin with. All of this is happening when e-commerce is only around 10 percent of total retail sales. Presumably, these challenges will be even greater as that share grows.

In his view, we should look for a renewed focus on bricks and mortar.  Here is the full column.