Month: December 2018
Fewer, Bigger Entrepreneurs Explains Rising Inequality
Why has wealth inequality increased in the United States? A lot of semi-plausible but vague theories have been offered–changes in the tax code, the diminished role of unions and so forth–but there are surprisingly few fully-specified models. In an important paper, Mohsen Mohaghegh (on the job market) has a new answer.
Wealth inequality has risen considerably in the US since 1975. For instance, the wealth share of households in the top 1 percent of the distribution rose from 25 percent in 1975 to more than 37 percent in 2007. This paper builds on theories of entrepreneurship and wealth inequality to address changes in inequality in the US between 1975 and 2007.
In the data, there are two trends in entrepreneurship since 1975: the average debt-to-asset ratio among entrepreneurs has increased, and the number of entrepreneurs (the entrepreneurship rate) has fallen. I study how the distribution of wealth changes over time, when these two trends are accounted for in a model.
…[two] channels accounts for both the fall in the entrepreneurship rate and the rise in the entrepreneurs’ leverage: an increase in banks’ willingness to fund risky entrepreneurial projects and a rise in the costs of starting a business. When changes in entrepreneurship are accounted for, my model explains more than 90 percent of the rise in the share of wealth held by the top 1 percent of households, and just under half of the rise in the share of the top 0.01 percent of households in the data.
A lower rate of entrepreneurship implies that a smaller number of households can take advantage of their productive ideas. Active entrepreneurs, however, have access to more capital which allows highly productive entrepreneurs to expand their businesses. Both of these changes contribute to a rise in inequality over time.
Below are two figures from the paper showing the declining entrepreneurship rate and increasing leverage. Mohaghegh doesn’t explain these facts but he connects three literatures, declining entrepreneurship, increasing financialization and rising inequality and he shows that the first two of these well-known features of the US economy can explain a large share of the third, the rise in inequality.
Cohort effects and life expectancy and many other facts about the history of American medicine
The cohort reaching age 55 around 1982 (born around 1927) has significantly higher mortality than the cohort 10 years younger. That higher mortality continues through the cohort passing through that age range in the mid-1990s, roughly, when the cohort born in 1933 reaches age 65. That same cohort also has higher mortality when they are 65-74 and 75-84. The story is not one of selection – a handful of less healthy people who die and leave behind healthier stock. Rather, it seems that an entire generation was rendered vulnerable by being born during and just before the Great Depression (Lleras-Muney and Moreau, 2018).
That is from a new NBER history of health care paper by Maryaline Catillon, David Cutler, and Thomas Getzen. This piece is interesting on virtually every page. For instance, on the rise of American science:
Of the 18 Nobel Prizes in Physiology or Medicine awarded 1901-1920, none went to US researchers. Over the next two decades, four out of twenty-four did, then for the rest of the century, more than half.
Then:
…our analysis of Massachusetts data does not support a large impact of medical care supply on mortality in the pre-antibiotic era.
Using the best data I’ve seen to date, apart from RCTs, the authors conclude from their statistical work:
…there is little evidence that access to medical care plays a role in mortality over the entire 1965-2015 period, but it appears to have had an effect during recent years.
That is from p.33
Death rates from influenza/pneumonia and cancer seem most responsive to access to medical care. And I had not known this:
The period from 1935 to 1950 saw the most…decline in infant and child mortality of any time period since 1900. It is unclear how much of this change would have happened without antibiotics, but blood banking and advances in surgical techniques were among the host of distinct and incremental improvements that added to life expectancy while the health share of GDP increased only slightly.
Recommended.
Don’t arrest Chinese CFOs and CEOs
That is the topic of my latest Bloomberg column, here is just one short excerpt:
In the longer run, bringing charges against Meng is likely to accelerate the division of the world into two competing systems of law, technology and commerce — namely those of China and the U.S. That will encourage international relations to develop along the dimension of power — what can you get away with? — rather than law or orderly cooperation. The West’s dirty little secret is that the rule of law works well only when tempered with a high degree of discretion.
And:
At the margin, the legal reach and police power of the U.S. can always be invoked to fight another crime or resolve another corruption problem. Don’t like how FIFA — the international soccer federation — is being run? Get the U.S. in on the act. There are in fact laws that gave the U.S. jurisdiction over bad FIFA practices (wire fraud, racketeering, and money laundering), and the Department of Justice led a successful anti-corruption case starting in 2015.
That enforcement action seems to have gone fine, but where to stop? There a lot of wrongdoers who are connected, in one way or another, to the U.S. financial system. But America has more credibility as global policeman when it focuses on only the most pressing cases, such as when innocent victims are being killed.
Best yet, I offer remarks on Brexit as well.
Monday assorted links
1. Data on the growing on-line popularity of chess.
2. Econ envy? Observations from psychology.
3. New David Zetland book on water economics.
4. Scott Sumner on Chinese IP theft.
5. New Thomas Nagel paper on the nature of moral progress (pdf).
6. Buterin tweetstorm on the non-financial applications of blockchains.
The Cryptoeconomics Lab at Ivey
Ivey Business School at Western University (London Ontario, Canada) is looking for a Post doctoral Research Fellow to join our newly established CryptoEconomics Lab: http://cryptoeconomics-lab.com
The focus of the position is on conducting foundational research in the emerging discipline of cryptoeconomics, which examines the protocols and incentives that govern the production, distribution, and consumption of digital goods and services within decentralized online platforms.
The CryptoEconomics Lab at Ivey Business School is a cutting-edge initiative that is just getting started, and builds upon the school’s Scotiabank Digital Banking Lab and its interdisciplinary team of faculty members and graduate students.
The wild west era of blockchain is ending and the scams and flimflams are being revealed but the fundamental of the technology will be used to build socially useful mechanisms.
By the way, the CryptoEconomics Lab has a good bitcoin crash course ( I believe that should be read, bitcoin crash-course!).
Best movies of 2018
In the order I saw them:
Annihilation
A Quiet Place
Widows
Free Solo
Roma
You will find my reviews behind those three links. Overall, you could take this year and multiply it by 2x, and still have the worst year for movies in my adult life. If anything special comes out between now and the end of the year, as it often does, I will be sure to let you know.
I also saw 2001: A Space Odyssey for the first time on a large screen in a long time, review here, Barry Lyndon too, they are two of the best movies ever made though not on your TV.
Tom Lehrer, man ahead of his time
Ever since I was a young teenager I loved Tom Lehrer (thanks to Ken Regan, by the way), and I thought I would re-listen to some fresh. I tried the Copenhagen concert, a good overview of his work and with good visuals. I was struck by the following:
1. Lehrer represented the IDW of his day. He said (sang) things others couldn’t, and his main enemy or target was political correctness. It surprised me to hear how little many of the battle lines have changed. Yet Lehrer, while warring against hypocritical political discourse, was in his day on the Left. (Shades of Eric Weinstein!) He worried about the “decline of the liberal consensus,” following the Kennedy era. In 1982 he wrote that he considered feminism, abortion, and affirmative action “more complicated” than the older liberal causes, so perhaps he simply did not blend into the contemporary Left (the piece is interesting more generally).
2. Lehrer’s songs (repeatedly) indicate he saw nuclear weapons and nuclear proliferation as a major problem; in that regard his time probably was wiser than ours.
3. He is very interested in language and the question of how words are used in the public sphere, and how words are used to obfuscate. Might that be the central theme in his thought?
4. He often sneaks China into the cultural references, for instance: “And I’m learning Chinese, says Werner von Braun.” He seems to think it is a much more important country than Russia, although this concert was from 1967 and often was drawing on songs which were older yet.
5. He is much more interested in math and science than current comedians, for instance his “Elements” is a classic [22:54], and redone here with an Aristotle coda, mocking The Philosopher. His audience seems to take this interest in stride. This song is yet another example of inverting what should be said, or not.
6. Yes I know the tunes sound derivative, but most of them are original. And as music…they’re a lot catchier than most of the other musical theatre of his time and I think of many of them as minor classics. I still enjoy hearing them as music. And other than Sondheim and Dylan, how many better American lyricists were there?
7. When he wants to get really gory, he doubles down on mock sadism (“Poisoning Pigeons in the Park”: “…we’ll murder them all with laughter and merriment…except for the few we take home to experiment…”). He once said: “If, after hearing my songs, just one human being is inspired to say something nasty to a friend, or perhaps to strike a loved one, it will all have been worth the while.”
It would be hard to pull this off today. Yet, when I listen to Lehrer, perhaps because I know the historical context, I am not offended. Plus he is flat-out funny. He cited losing his “nasty edge,” and starting to see things in shades of grey, as one reason for what appeared to be a quite premature retirement.
8. He wore a white shirt and his tie was tightly knotted.
9. He’s one of America’s great comics, and the material is idea-rich to a remarkable extent. He hardly ever sung about social themes or person-to-person social interactions.
10. Many of the songs of his that you never hear are in fact commentaries on various folk song movements. Circa 2018, few can understand their references, but they do showcase Lehrer’s extreme idealism.
11. He was at first a math prodigy and later in the mid-1950s, as a draftee, crunched numbers for the NSA. He remains alive and turned 90 earlier this year.
Sunday assorted links
1. Buju Banton returns to Jamaica, released from prison.
2. China thread. How China does and does not want to change the rules.
3. How and why Honduras, El Salvador and Guatemala are becoming less violent (The Economist).
4. It seems there are atheists in foxholes.
5. Does adult guardianship differ from slavery? (NYT) Currently the number of Americans under guardianship may range between one and three million. And: ““It’s worse than incarceration,” she said. “At least in prison you have rights.””
6. “Researchers disagree on whether loneliness is on the rise, in part due to the difficulty in identifying who is lonely and who is socially isolated…” And here: “Why, then, all the assertions that loneliness has increased and now constitutes an epidemic?“
Increases in Inequality Have Been Overestimated
Stephen Rose of the Urban Institute (not exactly a right-wing or libertarian think tank) compares recent studies measuring changes in inequality and finds that although inequality has increased the Piketty and Saez (2003) results, which generated a tremendous amount of discussion and research, are very likely over-stated.
The results from at least four studies were compared for three measures of income change: change in median incomes, share of growth captured by the top 10 percent, and the changing income share of the top 1 percent. In all cases, Piketty and Saez (2003) were the outlier, showing the most increased inequality. And in all three measures of income change , Piketty, Saez, and Zucman (2018) found much less growth in income inequality than Piketty and Saez (2003).
This brief does a meta-analysis of different findings to estimate a “consensus” level of change…I find that instead of stagnating, real median incomes grew by just over 40 percent (1 percent a year) from 1979 to 2014; the top 10 percent of the income ladder captured 45 percent of income growth from 1979 to 2014; and the share of the top 1 percent grew 3.5 percentage points.
All studies find that income inequality rose after 1979, but common perceptions that all income gain went to the top 10 percent and middle class incomes stagnated (or even declined) are wrong.
Russ Roberts also has several good videos showing how the numbers can be cut in various ways.
*The Horn of Africa: State Formation and Decay*, by Christopher Clapham
A splendid book, why can’t the rest of you ****ers write books this good? Here is one bit:
…the dynamics of clan works in a significantly different way in Somaliland from the way it does in south-central Somalia. A single clan-family, the Isaaq, occupy the central areas of the territory, and account for by far the greater part of its population. Though the Isaaq clans, inevitably, are divided both between and within themselves, they provide a reasonably solid ethnic core, that contrasts with the far more mixed and complex composition of southern Somalia, with its two major clan-families, Darood and Hawiye, and the further problems created by the presence of the Digil-Mirifle and other minority groups. Somaliland is by no means entirely Isaaq…but its demographic structure means that other clans must either accept Isaaq hegemony and work within it, or else reject the Somaliland state altogether. They cannot expect to control it. At the same time, the fact that the Isaaq clans — characteristically of Somali clan politics — do not form a single united bloc provides other clans with the opportunity to build alliances with one or another group of the Isaaq.
Have you ever wanted to read about how ethnic groups in Ethiopia, Eritrea, and Djibouti fit into this same broad picture? Just exactly how Somalian and Ethiopian history intersect, from the 1970s onwards? This here is your book. I’m running to Amazon right now to buy more from this wonderful author. You can buy it here.
Popular music CDs from 2018
The two CDs I enjoyed the most this year were both sound worlds, and silences, from the distant past:
Brian Eno, Another Green World, and
van Morrison, Astral Weeks, fifty year anniversary for that one, and I hadn’t realized how closely the lyrics were tied to details of Belfast. Next up will be the quieter cuts on Electric Ladyland.
The Beatles’s White Album tapes were a revelation, but it is enough to hear them once or twice. I learned that the album was remarkably well-produced, no less than Sgt. Pepper, to get that under-produced sound. “I Will” came directly from “Blue Moon” (!), and “Blackbird” came from Bach’s Bourree (less surprising). Classic Beatle songs such as “Let It Be” and “Hey Jude” and many others were basically written by 1968, making 1966-68 a truly remarkable period in their songwriting output. “While My Guitar Gently Weeps” was better in its early acoustic version. Some of my best Beatles listening was to track down their most Cage-Stockhausen-influenced passages, such as Paul’s acoustic fade-out at the end of “You Never Give Me Your Money,” or the instrumental close of “Strawberry Fields Forever.”
Paul’s new album Egypt Station does not have much ear candy, but it does reveal his longstanding status as a very horny dude; listen to his much earlier Temporary Secretary for something unacceptably obscene (and creative). Then go back and re-listen to his early Beatle lyrics through this lens. The best argument for LSD I’ve heard is simply that it got Paul to stop singing about girls for a few years, so it must be pretty powerful.
I got sick of hip-hop this year, so of the new releases I’ve been most intrigued by:
Lush, Snail Mail (at least three excellent songs)
Low, Double Negative
Mitski, Be the Cowboy
But it is too early to judge their staying power. Sitting in the “I still haven’t listened to this yet pile” is:
Aphex Twin, Collapse EP (too many other CDs piled on top of the record player!)
Autechre, NTS Sessions, an 8-CD set.
Self-recommending is Desmond Dekker: Action!/Intensified
What do you all recommend?
Race discrimination in the NBA, alas I have long suspected this
Here is part of the abstract:
Weighted quantile regressions show evidence of consumer discrimination in that black players with high audience visibility (role and star players) experience a larger racial wage gap. The size of the share of the white population is shown to be positively correlated with the racial wage gap. No employee nor employer discrimination is found.
And:
Black players receive on average 20.5% less than their counterparts, all else equal.
Here is the paper by Candon Johnson and Eduardo Munici, via the excellent Kevin Lewis.
Saturday assorted links
1. Short podcast with David Gil about Stubborn Attachments.
2. What will a Chinese world order look like? (Bruno M.)
3. A remarkably good (video) debate about smart phone use and teen well-being (Jean Twenge and Nir Eyal).
4. Why angels hide.
5. 51 tips for a successful life.
6. Claims about dollar stores, probably not all correct.
Kenneth Tynan on Alec Guinness, circa 1952
He can — and this is rare — act mind, and may be the only actor alive who could play a genius convincingly: Donne, for instance, Milton, Pope, or even Shakespeare…would be comfortably within his grasp. But he is not, and never will be a star, in the sense that Coward and Olivier are stars. Olivier, one might say, ransacks the vaults of a part with blowlamp, crowbar, and gun-powder; Guinness is the nocturnal burglar, the humble Houdini who knows the combination. He does everything by stealth. Whatever he may do in the future, eh will leave no theatrical descendants, as Gielgud will. He has illumined many a hitherto blind alley of subtlety, but blazed no trails. Irving, we read, was rapt, too: but it was a weird, thunderous raptness that shook its fist at the gods. Guinness waves away awe with a witty fingertip and deflects the impending holocaust with a shrug. His stage presence is quite without amplitude, and his face, bereft of its virtuosity of make-up, is a signless zero. His special gift is to imply the presence of little fixed ideas, gambolling about behind the deferential mask of normality. The characters he plays are injected hypodermically, not tattooed all over him; the latter is the star’s way and Guinness shrinks from it. Like Buckingham in Richard III he is “deep-resolving, witty”; the clay image on whom the witches work. An innocence, as of the womb, makes his face placid even when he plays murderers.
Whether he likes it or not (and I suspect he does), his true métier will continue to be eccentrics — men reserved, blinkered, shut off from their fellows, and obsessed. Within such minority men there is a hidden glee, an inward fanatical glow; and in their souls Guinness is at ease.
That is from Kenneth Tynan, Profiles, which is in fact a remarkable and remarkably good book.
The jobs of the future, circa 1988
A syndicated article published in the September 5, 1988, edition of the Press and Sun-Bulletin newspaper in New York talked with a number of experts about what the jobs of tomorrow would look like. The article first quotes S. Norman Feingold, a clinical psychologist and career counselor who died in 2005.
From the 1988 article:
Feingold envisions a range of exotic careers: Ocean hotel manager, wellness consultant, sports law specialist, lunar astronomer and even robot trainer.
The piece also quotes the George Tech engineering professor Alan Porter who gave his opinion on the future of fast food.
He predicts such innovations as “the Autoburger,” a fast-food dispensary something like McDonald’s, but without human workers.
And the article ends with a mixed bag of good and bad predictions:
Marvin Cetron, a technological forecaster, looks at the year 2000 and predicts a 32-hour work week. “The only job a woman won’t be holding is Catholic priest,” he said.
Cetron said college students of the future will study enzyme research and genetic and robot engineering.
Here is the piece, via Tim Harford. The broad lesson I think is that bets on computers were basically right, and will be for some time to come, and other bets are either obvious or stupid, in retrospect.