Month: August 2018

Star firms are really about intangible capital

Once we re-compute the ROIC [return on invested capital] calculations to factor in estimates of intangible capital from the finance literature…we find that both the run-up by top decile of firms and the much higher mean returns in the cognitively skilled industries disappear.  Thus, the differences that we found earlier in firm differentiation between industries are likely attributable, in great part, to not accounting for intangible capital consistently.  Industries that rely heavily on complex cognitive skills are likely to have higher amounts of intellectual and organizational capital, which is not measured by ROIC prepared according to generally accepted accounting principles.

That is from Meghana Ayyagari, Asli Demirgüç-Kunt, and Vojislav Maksimovic.

The authors do not that some of the largest tech firms, such as Amazon, Facebook, and Google, are exceptions, but even for those companies the mark-ups are not especially connected to monopolizing behavior.

Japanese markets in everything

Stressed out, overworked, or just over it: Workers in Japan who want to leave their jobs — but don’t want to face the stress of quitting in person — are paying a company called Exit to tell their bosses that they won’t be back.

People hoping to never set foot in their workplace again pay Exit $450 to help them quit their full-time jobs; those who have had it with part-time work can pay around $360. And as Alex Martin reports for Japan Times, “Repeat clients get a [$90] discount.”

Here is the full NPR story, via Andrea O’Sullivan.

What I’ve been reading

1. Rob Reich, Just Giving: Why Philanthropy is Failing Democracy and How it Can Do Better.  A sustained argument that current manifestations of philanthropy are not very egalitarian or necessarily realizing democratic ideals.  My views stand “to the right” of this book, but for some of you it will serve as a very good articulation of why philanthropy might be making you nervous.

2. Edmund White, The Unpunished Vice: A Life of Reading.  An exquisitely written book, yet his reading narrative leaves me cold (too much an insider? not eccentric enough?).  I found the chapter on his husband and their relationship extraordinarily compelling.  A highly intelligent book, at the very least.

3. Jason Brennan, When All Else Fails: The Ethics of Resistance to State Injustice.  A well-argued libertarian take on exactly what the subtitle promises.

4. Robert Skidelsky, Money and Government: The Past and Future of Economics.  The history of macro and money told through its historical development, which in my view is the right approach.  The coverage ranges from the classical economists up through the present day.  I hope this book does well.

5. Nicola Gennaioli and Andrei Shleifer, A Crisis of Beliefs: Investor Psychology and Financial Fragility.  An “as smart as you would expect” take on the hypothesis that investor over-extrapolation of recent price trends can cause financial crises, including our recent financial crisis.

Kiwi cat quotas?

A regional council in New Zealand has proposed banning all domestic cats in an attempt to protect native animals.

Environment Southland’s “pest plan” calls for all domestic cats in the region to be neutered, microchipped and registered. Then, when a cat dies, residents would not be permitted to have another.

“We’re not cat haters,” John Collins, of the Omaui Landcare Trust told Newshub. “But we’d like to see responsible pet ownership and this really isn’t the place for cats.”

Ali Meade, the council’s biosecurity operations manager, said that if the move was approved the improvement for the environment and bird life would be vast…

Kapiti Island’s Kotuku Parks subdivision has a no-cat rule and Auckland council is also looking at a plan to euthanise any cat caught in an “ecologically significant site” without a microchip.

Here is the full story, via Ian Bremmer.

Government Medical Research Spending Favors Women

It is commonly believed that medical research spending is biased against women. Here are some representative headlines: Why Medical Research Often Ignores Women (Boston University Today), Gender Equality in Medical Research Long Overdue, Study Finds (Fortune), A Male Bias Reigns in Medical Research (IFL Science). Largely on the basis of claims like this the NIH set up a committee to collect data on medical research funding and gender and they discovered there was a disparity. Government funded medical research favors women.

The Report on the Advisory Committee on Research on Women’s Health used the following criteria to allocate funding by gender:

All funding for projects that focus primarily on women, such as the Nurses’ Health Study, the Mammography Quality Standards Act, and the Women’s Health Initiative, should be attributed to women. For research, studies, services, or projects that include both men and women, recommended methods to calculate the proportion of funds spent on women’s health are as follow:

a. If target or accrual enrollment data are available, multiply the expenditure by the proportion of female subjects included in the program. For example, if 50 percent of the subjects enrolled in a trial, study, service, or treatment program are women, then 50 percent of the funds spent for that program should be counted as for women’s health. On the other hand, for diseases, disorders, or conditions without enrollment data, expenditures can be calculated based on the relative prevalence of that condition in women.

b. Where both males and females are included, as may be the case for many basic science research projects, multiply the expenditure by 50 percent.

On the basis of these criteria the report finds that in almost every category there is more female-focused NIH funding than male-focused NIH spending with the totals more than two to one in favor of females ($4.5 billion to $1.5 billion). Now personally I don’t regard this as a terrible “bias” as most spending ($25.7 billion) is for human beings and I don’t see any special reason why spending on women and men should be equal. It does show, however, that the common wisdom is incorrect. The Boston University Today piece I linked to earlier, for example, motivated its claim of bias in funding with the story of a female doctor who died of lung cancer. The NIH data, however, show a large difference in favor of women–$180 million of NIH lung cancer funding was focused on women while just $318 thousand was focused on men ($135 million wasn’t gender focused).

What about clinical trials? Well for NIH-funded clinical trials the results favor women:

Enrollment of women in all NIH-funded clinical  research in FY 15 and FY 16 was 50 percent or greater. Enrollment of women in clinical  research was highest in the intramural research program at 68 percent for both FY 15 and FY 16.

In the most clinically-relevant phase III trials:

NIH-defined Phase III Clinical Trials are a subset of NIH Clinical Research studies. The proportion of female participants enrolled in NIH-defined Phase III Clinical Trial was 67 percent in in FY 15 and 66 percent in FY 2016.

Historically, one of the reasons that men have often been more prevalent in early stage clinical trials (trials which are not always meant to treat a disease) is that after the thalidomide disaster the FDA issued a guidance document which stated that women of child-bearing age should be excluded from Phase 1 and early Phase 2 research, unless the studies were testing a drug for a life-threatening illness. That guidance is no longer in effect but the point is that interpreting these results requires some subtlety.

The NIH funds more clinical trials than any other entity but overall more clinical trials are conducted by industry. FDA data indicate that in the United States overall (the country where by far the most people are enrolled in clinical trials) the ratios are close to equal, 49% female to 51% male, although across the world there are fewer women than men in clinical trials, 43% women to 57% men for the world as whole with bigger biases outside the United States.

It would be surprising if industry research was biased against women because women are bigger consumers of health care than men. The Centers for Medicare and Medicaid Services, find, for example, that:

Per capita health spending for females was $8,315 in 2012, approximately 23 percent more than for males, $6,788


Research indicates that women visit the doctor more frequently, especially as they have children, and tend to seek out more preventive care. The National Center for Health Statistics found that women made 30% more visits to physicians’ offices than men between 1995 and 2011.

Nor is it the case that physicians ignore women. In one study of time use of family physicians and thousands of patients:

After controlling for visit and patients characteristics, visits by women had a higher percent of time spent on physical examination, structuring the intervention, patient questions, screening, and emotional counseling.

Of course, you can always find some differences by gender. The study I just cited, for example, found that “More eligible men than women received exercise, diet, and substance abuse counseling.” One often quoted 2008 study found that women in an ER waited 65 minutes to men’s average of 49 minutes to receive a pain killer. Citing that study in 2013 the New York Times decried that:

women were still 13 to 25 percent less likely than men to receive high-strength “opioid” pain medication.

Today, of course, that same study might be cited as a bias against men as twice as many men as women are dying of opioid abuse. I don’t know what the “correct” numbers are which is why I am reluctant to describe differences in the treatment of something as complex as pain to bias.

Overall, spending on medical research and medical care looks to be favorable to women especially so given that men die younger than women.

Hat tip: Discussants on twitter.

Addendum: I expect lots of pushback and motte and baileying on this post. Andrew Kadar wrote an excellent piece on The Sex-Bias Myth in Medicine in The Atlantic in 1994 but great memes resist data. Also, school summer vacation is not a remnant from when America was rural and children were needed on the farm.

A note on overtourism, solve for the equilibrium

“At the end, this story is just a numbers problem,” Mr. Tourtellot said. He noted that in 1960, when the jet age began, around 25 million international trips were taken. Last year, the number was 1.3 billion.

As for the cities that are the major destinations? They are “the same size they were back in 1959, and they’ll probably stay that way,” he said.

That is from Farhad Manjoo at the NYT.

What explains America’s economic anomalies?

Apart from low productivity growth, of course.  That is the topic of my latest Bloomberg column.  Wages have been sluggish throughout the recovery, profits on capital seem to be high, there is a domestic investment drought, and the onset of the internet and globalization make many of the “monopolization” charges less than plausible.  Here is one possible route of inquiry:

Capital today can cross borders more easily than it could a few generations ago. That might keep real wages down in the U.S. If wages threaten to rise during an economic recovery, for instance, it is then profitable to invest more capital abroad, where wages usually are lower. The end result resembles what economists call a “Malthusian” equilibrium. That means there is an upper limit to returns to labor: They cannot exceed the cost of bringing more labor to market, for instance by investing abroad (or perhaps building robots). Even a long recovery won’t help wages rise above that limit.

This same hypothesis can help explain both the U.S. investment drought and supercharged growth in many emerging economies. If capital is flowing overseas, that will boost growth abroad and worsen a shortfall of investment at home. Too much foreign capital flowing into the U.S. is absorbed by Treasury securities, rather than the private sector.

What about the high rates of return measured for capital investment in the U.S.? It seems strange to have high profits but low investment. Why not invest more to earn more money, thereby leading to an investment glut until the profits are competed away?

One hypothesis is that investors now expect a higher rate of return for domestic investments, a possibility suggested by economists Loukas Karabarbounis and Brent Neiman in a recent paper. Let’s say that entrepreneurs used to be willing to make domestic investments for an expected 7 percent return but now they demand at least 10 percent.

Entrepreneurs will cut back on investment, but the remaining projects will have higher returns on average, more closely bunched around 10 percent than 7.

What accounts for this increased reluctance? Karabarbounis and Neiman consider factors such as greater risk aversion. A simpler alternative explanation, consistent with my capital mobility hypothesis, is that newly available rates of return in other countries are high, and that means competing investments in the U.S. will need to offer higher returns too.

Do read the whole thing, I also consider potential flaws in the argument, such as capital possibly not being mobile enough.

*Crazy Rich Asians*

While traveling in Eurasia, I read so many articles about how finally “there was an Asian movie for Asians,” or something like that, and none of them rang true.  Upon seeing the movie I was impressed, though it was not what I was expecting.  It is mostly a dystopia cloaked as a homage (just to be clear, personally I love Singapore, and its people, and have been numerous times).  The underlying message seems to be “Singaporeans are mostly greedy, superficial, uncultured, too brand-conscious, and somewhat unpleasant, unless redeemed by contact with America or Chinese-Americans.”  And their supposed pathologies are presented as very directly and specifically Asian and also Singaporean.  With only a slightly different framing, this film could have been dismissed as unacceptably racist.  And where are those Malays anyway?  And the only two Indian characters are the caricatured Sikh guards?  Really?

Nonetheless as cinema this works, and it is a thrill for me to see Singapore on the big screen and in a #1 movie at that.  On top of that, the female lead is an economics professor at NYU who does game theory.  Here is my earlier review of the book, which I also enjoyed.  For balance, however, you might wish to see Ilo Ilo as well, though that is not a representative sample of Singapore either.

Most Reported School Shootings Never Happened

The headline sounds like something from a right-wing whack job but this is coming from NPR!

This spring the U.S. Education Department reported that in the 2015-2016 school year, “nearly 240 schools … reported at least 1 incident involving a school-related shooting.” The number is far higher than most other estimates.

But NPR reached out to every one of those schools repeatedly over the course of three months and found that more than two-thirds of these reported incidents never happened. Child Trends, a nonpartisan nonprofit research organization, assisted NPR in analyzing data from the government’s Civil Rights Data Collection.

We were able to confirm just 11 reported incidents, either directly with schools or through media reports.

My Conversation with Claire Lehmann of Quillette

Here is the transcript and audio, definitely recommended.  Here is part of the summary:

She and Tyler explore her ideas about the stifling effect of political correctness and more, including why its dominant form may come from the political right, how higher education got screwed up, strands of thought favored by the Internet and Youtube, overrated and underrated Australian cities, Aussie blokes, and more.

Here is an excerpt:

COWEN: When did political correctness become a major issue, or become a major issue again? And why do you think it happened exactly then?

LEHMANN: That’s a good question, and I don’t know if I have the answer. I know that there were lots of debates around political correctness in the early ’90s, for example.

COWEN: Yes, and it seems to fade away and then come back.

LEHMANN: Yeah. That’s when Camille Paglia was talking about PC, and Robert Hughes had a book, The Culture of Complaint.

I’ve noticed in my own life that I started noticing political correctness around 2007. At the time, I thought it had something to do with the business model of Internet publishing.

That was when Gawker and the blog Jezebel was really popular. It was established in 2007, and then it got very popular over the next couple of years. I thought that there were a lot of clickbait kind of articles promoting these really simplistic black-and-white narratives of oppression.

Unless one had reasonable critical thinking skills, I could see how young people could be influenced by that kind of content coming out. I think there’s something to do with the Internet and the way the media has had to adapt to this new business model where you have to drive . . . You have to get lots of views, lots of hits, millions more than you would with the newspapers.

I think it’s something to do with that, but that’s probably just one variable in many other factors.

COWEN: What do you think of the hypothesis that political correctness is a kind of virus that’s hijacked the left? It’s figured out some kind of weak entry point, and it’s come in and taken over parts of it, and it will bring down many victims with it, but actually, it’s crippling the left.

LEHMANN: Yep, yeah.

COWEN: True or false?

LEHMANN: Probably true.

COWEN: If one objects to that argument, we should in a sense encourage more of it, at least if we’re being pure utilitarians, or not?


COWEN: Probably in the media? In general, intellectual life, but if you take, say, the United States as a whole, do you think it’s left-wing or right-wing political correctness that’s stronger and more destructive?

LEHMANN: Yeah, it’s probably right-wing political correctness.

A question from me:

COWEN: I’ve been speaking about the right in aggregate terms, but if you think of the effect of the Internet, which strands of the right do you think are favored, and which do you think are falling away because of Internet discourse? Because it shouldn’t favor it all equally, correct?

We also cover Australia vs. New Zealand, the masculine ethos of Australia and its origins, why PC is different in Australia, the movie Lantana (which we both strongly recommend), and yes Australian fashion.

Does New Keynesian economics fit the facts?

In the New Keynesian model, demand shocks induce deviations from flexible-price allocations, which in turn drive inflation.  It follow that our main business-cycle shock is consistent with the New Keynesian model only if the cycles it induces are characterized by a strong comovement between the real quantities and inflation.

We instead find that the main business-cycle shock is nearly orthogonal to inflation at all frequencies.  For instance, the shock that targets unemployment accounts for almost 70% of the business-cycle variation in that variable and only for 10% of the business-cycle variation in inflation.  And conversely, the shock that targets inflation explains 80% of thee business-cycle variation in inflation and only 9% of thee business-cycle variation in unemployment.

A similar disconnect is present between inflation and the labor share, an often-used proxy of the real marginal cost in the New Keynesian literature.

That is from a new working paper by George-Marios Angeletos, Fabrice Collard, and Harris Dellas.  The authors conclude that the data most likely suggest a demand-driven story, but with a lesser role for nominal rigidities and Phillips curves.