Month: July 2018

Are there more spies than you think?

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

We tend to focus on the cloak and dagger side of the KGB and successor institutions, but they’re also just government agencies trying to boost their budgets and achieve higher status in their home country. In other words, spy agencies play the typical bureaucratic games.

To maintain their status and privileged perch, spy agencies may try to take credit for as many activities as possible. This emphasis of quantity over quality is a typical bureaucratic response to a political system based on imperfect information. It is hard for national leaders to judge how effective their spy agencies are, so the spy agencies want to pass along good numbers, much as a corporation might try to slant its quarterly earnings report.

And:

John Negroponte, former director of national intelligence, admitted in 2006 that the U.S. was deploying about 100,000 spies around the world. Given that the U.S. is the world’s technology and military leader, and yet has a relatively small share of global population, is it so crazy to think the number of people spying on us is larger than that?

Do read the whole thing.

Tuesday assorted links

The Minimum Wage in an Online Job Market

John Horton has written a novel paper that uses an experiment and a policy change in an online job market to understand the effects of the minimum wage. The job market in question is something like the Upwork platform where firms can post jobs and workers from anywhere in the world can post offers to work at an hourly wage to do tasks such as computer programming, data entry, design and transcription. Typically workers are hired for a week or two.

Horton was able to implement a minimum wage by simply not allowing a worker to offer to work at less than the minimum wage for a randomly chosen set of jobs.

During the experimental period, firms posting an hourly job opening were immediately assigned to an experimental cell. The experiment consisted of four experimental cells: a control group with the platform status quo of no minimum wage, which received 75% of the sample (n = 121, 704), and three active treatment cells, which split the remaining 25% of the sample. A total of 159,656 job openings were assigned. Neither employers nor workers were told they were in an experiment. The active treatments had minimum wages of $2/hour in MW2 (n = 12, 442), $3/hour in MW3 (n = 12, 705), and $4/hour in MW4 (n = 12, 805).

Horton found that the minimum wage did reduce hiring, especially in low-wage job categories when the minimum wage was high relative to the median wage. The hiring reduction was measurable but, consistent with previous research, not large. All the work on the platform, however, is logged through the software so Horton also has very good data on hours worked and here the story is quite different. The minimum wage substantially reduced hours worked.

A higher minimum wage likely causes firms to scale back projects but that seems somewhat inconsistent with the small effect on hiring (fixed costs of hiring would suggest fewer hires and fewer hours but perhaps more hours per hire.) Horton finds another factor explains the reduction in hours worked. At a higher minimum wage, firms are careful to hire more productive workers. He finds that about half of the decline in hours can be explained by substitution towards higher productivity workers. Previous studies have found suggestive effects along these lines. For example, Giuliano 2013 found that the higher minimum wages could shift teenage employment to teenagers from more affluent regions who were likely more skilled and less likely to quit. Horton finds similar demographic effects as hiring shifts away from Bangladeshi workers and towards US workers but since his data on productivity is much cleaner than in previous studies there is less need to rely on demographic correlates of productivity.

In part (it seems) due to the experiment, the job-platform later instituted a $3 per hour minimum wage for all jobs. Horton is thus able to supplement his experimental results with analysis of a policy change in the same environment. Consistent with the experimental result, the imposition of the minimum wage across the board caused substantial declines in hours worked with little effect on hiring overall but a big effect on the lowest-wage workers who found that their probability of being hired dropped substantially after the minimum wage was imposed.

Noah Smith on the Gennaioli and Shleifer theory of the great recession

Gennaioli and Shleifer explain these patterns by turning to their own preferred theory of human irrationality — the theory of extrapolative expectations. Basically, this theory holds that when asset prices rise — home values, stocks and so on — without a break, investors start to believe that this trend represents a new normal. They pile into the asset, pumping up the price even more, and seeming to confirm the idea that the trend will never end. But when the extrapolators’ money runs out, reality sets in and a crash ensues. Gennaioli, Shleifer, and their coauthors have been only one of several teams of researchers to investigate this idea and its implications in recent years.

When extrapolative expectations are combined with an inherently fragile financial system, a predictable cycle of booms and busts is the result. At some point during good economic times, irrational exuberance takes hold, pushing stock prices, house values, or both into the stratosphere. When they inevitably come down, banks collapse, taking the rest of the economy with them.

Here is his full Bloomberg column.  Here slides from the authors.

What does the pessimistic scenario look like?

That is the topic of my latest Bloomberg column.  No, these are not forecasts, but which of them are so far from the current reality?:

In recent years, the underlying rate of productivity growth often has been about 1 percent, and rates of economic growth are not even half of what they used to be. Meanwhile, America will have to increase taxes or reduce spending by about $2,200 per taxpayer per year to keep the national debt-to-GDP ratio from rising ever higher, and that figure predates the Trump tax cuts. To fund that shortfall, the U.S. will cut back on infrastructure maintenance. At least one-third of this country will end up looking like — forgive the colloquial phrase — “a dump.” The racial wealth gap will not be narrowed.

And:

Other technologies will indeed provide a bounty, but not all of it will be positive. Artificial intelligence and facial and gait surveillance will lead to unprecedented invasions of privacy, causing another 1 or 2 percent of Americans to decide to “live off the grid.” The impact of assassin drones will be curbed — by filling the skies with police drones. Public crimes will plummet, but public spaces in major cities will have a depressing sameness, due to the near-total absence of spontaneous behavior. Advances in recording technologies will make most conversations in public, and many in private, remarkably bland.

Do read the whole thing, which includes a discussion of “my own petty gripes.”  Consider it your pick-me-up for this morning.

Hiring is becoming less discriminating

In the first half of 2018, the share of job postings requesting a college degree fell to 30% from 32% in 2017, according to an analysis by labor-market research firm Burning Glass Technologies of 15 million ads on websites such as Indeed and Craigslist. Minimum qualifications have been drifting lower since 2012, when companies sought college graduates for 34% of those positions.

Long work-history requirements have also relaxed: Only 23% of entry-level jobs now ask applicants for three or more years of experience, compared with 29% back in 2012, putting an additional 1.2 million jobs in closer reach of more applicants, Burning Glass data show. Through the end of last year, a further one million new jobs were opened up to candidates with “no experience necessary,” making occupations such as e-commerce analyst, purchasing assistant and preschool teacher available to novices and those without a degree.

That is from Kelsey Gee at the WSJ.  One neglected benefit of an economic recovery is simply that it lowers signaling costs.

Bob Luddy and the Thales Academy

Scott Alexander reports:

Bloom’s Two Sigma Problem: children given private tutoring will do two sigmas better than average (ie the average tutored student will be in the 98th percentile of nontutored students). But see here for some argument that the real value is lower, maybe more like 0.4 sigma. Some further discussion on the subreddit asks the right question – can we simulate this with some kind of clever computer-guided learning? – and gives the right answer – apparently no. TracingWoodgrains has a great comment. Especially interested in their discussion of Direct Instruction: “One of the few schools to use it as the basis of their program for math and English, a libertarian private school in North Carolina called Thales Academy, is reporting results exactly in line with the two-sigma bar: 98-99th percentile average accomplishment on the IOWA test. Their admissions process requires an interview at the elementary level, but no sorting other than that, so it’s not a case of only selecting the highest-level students.” (though note that IOWA is nationally normed, and Thales is in the well-off Research Triangle area). On the other hand, it costs half of what public schools do, so file this under “cost disease” too.

By the way, I have been enjoying my read of Robert L. Luddy’s Entrepreneurial Life: The Path from Startup to Market Leader.  Luddy is founder of Thales Academy, and the final chapter of his memoir covers his thoughts and praxis on education.

Arguments against tipping

A right-wing argument:

“If you want more money get a better job,” reads one comment on a thread asking the bad tippers of the internet to explain themselves.

A left-wing argument:

James, 22, who lives in midwestern Canada, where it’s customary to tip between 15 and 20 percent, is against tipping on principle. “I feel no pressure to give a tip because I think customers supporting the ridiculous low wages are preposterous,” he says. “The establishment should be paying a living wage for a professional server, and I am of the opinion that when this happens service will go up rather than down.”

A rebel argument:

“I don’t tip because society says I have to,” says Mr. Pink, the crook played by Steve Buscemi in the 1992 Quentin Tarantino film Reservoir Dogs.

A preference-based argument:

“I just don’t feel the need to tip that much,” explains Sam, a 29-year-old woman living in New York City. “I spend a lot on food and alcohol and travel because I enjoy those things. I’ll tip a little bit but I don’t feel like I need to tip a lot.”

…Sam says her friends all tell her that she should tip at least 18 percent, but she just doesn’t care that much. “I’m not going to be rude and say I don’t care, but I actually really don’t care,” she says. “That’s not my concern. I don’t know you. You chose that profession.”

Here is the full Monica Burton article at Eater.com

Is Ben Carson underrated?

For his part, Mr. Carson publicly acknowledges the [housing affordability] crisis in most of his speeches. “Alarmingly high numbers of Americans continue to pay more than half of their incomes toward rent,” he told a House panel in October. “Many millions remain mired in poverty, rather than being guided on a path out of it.”

But he is focused less on federal solutions than on prodding local governments to ease barriers to construction. He has ordered his policy staff to come up with proposals to push local governments to reduce zoning restrictions on new projects, especially low-cost manufactured housing. HUD will also begin working with landlords around the country to come up with ways to make housing vouchers more attractive and more inclusive, aides said.

“Subsidies are a piece of the puzzle,” said Raffi Williams, a spokesman for Mr. Carson, “but we must also address the regulatory barriers relative to zoning and land use in higher-cost markets that are preventing the construction of new affordable housing. This is not just a federal problem — it’s everybody’s problem.”

Here is the full NYT story by Glenn Thrush.

Sunday assorted links

1. New interview with Peter Thiel.  Interesting throughout.

2. “Roundworms Just Came Back to Life After 40,000 Years Frozen in Siberian Permafrost.

3. Do you have a “right to repair”?

4. “The Four Thieves Vinegar Collective is a network of tech-fueled anarchists taking on Big Pharma with DIY medicines.

5. The culture that is Florida: “A man in Jacksonville, Fla., brandishing a live gator chased people in a convenience store where he was purchasing beer, video of the strange episode shows.”

Envy and status in politics

2. People will oppose policies that benefit themselves and their community if they think it will lower their within-group status. 

McClendon uses survey data from South Africa and the United States to show that status motivations change the way that people think about redistributive economic policies. This is even true within ethnic groups, including marginalized ethnic groups like African Americans. As McClendon notes:

“The worse off people are than their coethnic neighbors, the more supportive they are of greater redistribution (regardless of how personally costly this support is); the better off people are than their coethnic neighbors, the less supportive they are of redistribution.”

In other words, even when a policy might make someone materially better off (by, say, improving their housing conditions), they are likely to oppose it if the government doing so for everyone in their community would harm their relative status position.

That is from Laura Seay at The Washington Post, drawing on work from the new Envy in Politics, by Gwyneth H. McClendon.  I have just ordered that book.

Do you have reciprocity anxiety?

Namely the fear of owing other people, or institutions, a favor, or maybe just the possible perception of such?:

The researchers believe reciprocity anxiety is likely to be greater the bigger a favour and the more public its receipt. They think it’s a trait that companies should take an interest in – while loyalty schemes, vouchers and other freebies have obvious appeal to many customers, results from two initial studies suggested that these marketing strategies are actually likely to deter others…

In a follow-up study, volunteers imagined a shop attendant offering them a free drink and plate full of snacks. Afterwards, high scorers in reciprocity anxiety scored lower for customer satisfaction and they said they would be less willing to visit the store again and less willing to spread a good word about the shop.

“Reciprocity works to establish a psychological bond” between customer and firm, the researchers said, but the discomfort it causes can backfire among those high in reciprocity anxiety, especially if they feel the benefits reflect badly on them or that they will struggle to reciprocate (around 18 per cent of people tested in these new studies scored highly in the trait; age and gender were unrelated).

Here is the full article, and the pointer is from Michelle Dawson.  Finally:

…I wonder how it might impact the ways that people manage their friendships and other relationships – perhaps high scorers in reciprocity anxiety are inclined to turn down invitations, seek help or receive other friendly favours, putting them at risk of loneliness and isolation.

Saturday assorted links

1. The world we have lost: 1960s space motels.  Recommended.

2. The origins of liberal institutions in the North American colonies.

3. Behavioral economics isn’t just about biases.

4. Albertan gender arbitrage.

5. Do presidents simply have bad taste in ice cream?

6. “Lonely deaths account for around 30 percent of the total clean-out market, according to Hideto Kone, vice president of the Association of Cleanout Professionals.”  Link here.

Robert Wiblin interviews Yew-Kwang Ng

The podcast is here.  And from Wiblin’s email:

“Hi Tyler,

…I spoke with Professor Yew-Kwang Ng, a 75 year old Chinese-Australian economist in Singapore who was impressively ahead of his time and I would never have expected to exist. He:

  • Was an active columnist in Chinese newspapers in favour of Deng Xiaoping’s economic reforms in the 80s.
  • Was perhaps the first to write an analytical paper on wild animal welfare/suffering, in 1995!
  • Wrote about the great importance of investing to prevent human extinction in 1991, well before this became a mainstream view. He also tried to tackle resulting infinitarian paralysis before this issue was widely appreciated.
  • Is an advocate of direct brain stimulation, as a drug-alternative which humans don’t abuse or develop tolerance to.
  • Advocated over 50 years for utilitarianism, philosophical hedonism and cardinality in welfare economics and made major theoretical contributions to welfare economics.
  • Developed a theoretical basis for interpersonal utility comparisons.
  • Since forever has been promoting the correct reading of Harsanyi’s Social Aggregation Theorem rather than Rawls’ bastardisation of it.
  • Was a communist revolutionary in colonial Malaysia, but then studied economics and deconverted.
  • Figured out about half of what’s distinctive about ‘effective altruist’ thinking, totally independently and on his own well before most people got to the questions.
  • Was the first to introduce non-perfect competition in macroeconomics by combining microeconomics, macroeconomics, and general equilibrium analysis into ‘mesoeconomics’, showing that Keynesianism and Monetarism are special cases.”

It made me sad that he isn’t more widely appreciated already, even by people building on his work today, so I made a guide to his most pioneering or influential publications to go along with the episode.

It would be great if you could post on MR and Twitter! :)”