Month: February 2019

Poor Sleep Makes People Poor: The Costs of India Standard Time

After Independence, India adopted a single time zone for the entire country. India spans as much 1,822 miles in the East-West direction or 29 degrees longitude. If India followed the convention of a new time zone every 15 degrees it would have at least two time zones. With just one zone the sun can rise two hours earlier in the East than in the far West.

In an original and surprising paper, Maulik Jagnani, argues that India’s single time zone reduces the quality of sleep, especially of poor children and this reduces the quality of their education. Why does a nominal change impact real variables? The school day starts at more or less the same clock-hour everywhere in India but children go to bed later in places where the sun sets later. Thus, children in the west get less sleep than children in the east and this shows up in their education levels and later even in their wages!

I find that later sunset causes school-age children to begin sleep later, but does not affect wake-up times. An hour (approximately two standard deviation) delay in sunset time reduces children’s sleep by 30 minutes. I also show that later sunset reduces students’ time spent on homework or studying, and time spent on formal and informal work by child laborers,while increasing time spent on indoor leisure for all children. This result is consistent with a model where sleep is productivity-enhancing and increases the marginal returns of study effort for students and work effort for child laborers.

The second part of the paper examines the consequent lifetime impacts of later sunset on stock indicators of children’s academic outcomes. I use nationally-representative data from the 2015 India Demographic and Health Survey (DHS) to estimate how children’s education outcomes co-vary with annual average sunset time across eastern and western locations within a district. I find that an hour (approximately two standard deviation)delay in annual average sunset time reduces years of education by 0.8 years, and children in geographic locations with later sunset are less likely to complete primary and middle school.

Addendum: The importance of sleep and coordination of sleep with circadian rhythms is also illustrated by the phenomena of teenagers who get more sleep and do better in school when school opening is better timed with adolescent sleep patterns. As a result, we are seeing a movement to push school opening times later for teenagers. Perhaps India will adopt a second time zone.

Why is capital so often flowing out of emerging economies?

Sam asks me:

I was struck by something that Peter Thiel has talked a bit about in recent months, namely that capital is flowing ‘uphill’ from China to the U.S., which is not what the neoclassical model would predict. I’ve read a few of the general objections to this “Lucas Paradox” (e.g. differences in human capital, credit risks etc.), but would love to know what your take on this phenomenon is.

I would cite a few factors:

1. China is a high-savings country with high political risk.  In general savings don’t have that many safe outlets, noting the third largest government debt market in the world is that of Italy.  So of course much of this money flows into the United States.  And China is hardly the only high-savings emerging economy.

2. China makes it costly or impossible for many kinds of American firms and individuals to invest directly in China, this now being a familiar story.  The Chinese stock market also is limited and unrepresentative of the Chinese economy as a whole.

3. American capital will not flow to Russia the way British capital once sopped up opportunities in Argentina and elsewhere in the late 19th and early 20th centuries.  The end of gunboat diplomacy is one but not the only reason for this.

4. State-owned industry is a bigger factor today than in earlier times.  For instance, if Aramco is privatized, plenty of private Western capital will invest in the company.  But so far it is not.

5. Savings rates are often especially high during times of rapid income growth, because preferences have not yet caught up with income (an underrated mechanism, which perhaps someday will get its own blog post).  Emerging economies in much earlier times did not have such rapid growth, and therefore they did not have comparable huge savings surpluses to dispose of.

6. The United States has issued a lot of debt, whereas the earlier Great Britain ran a balanced budget at least intertemporally.

7. America has accumulated enough wealth so that flows of household savings can be relatively low.  Plus we are irresponsible — so good at marketing and spending! — and thus we do not save enough either.

8. If you counted holdings of American dollars, as a reserve currency, as “America exporting its rule of law,” the flow of funds would look less strange.

Which other reasons?

The wealth tax and privacy — from the comments

Despite the unnecessary duplication (FATCA etc), I’m actually in favor of requiring banks to disclose how much income US taxpayers earn on ther accounts in the US and abroad. Unfortunately, if you are going to have an income tax system, you can’t simply rely on everyone voluntarily reporting. But, this also raises serious privacy concerns that need to be balanced. The wealth tax on all or most all assets would significantly alter the current balance between disclosure and privacy. As noted in the article, *everything* would need to be disclosed to the IRS *every year* much like an annual estate tax return. Expect substantial additional reporting requirements on all assets. Think that won’t apply to you? How else are they going to know you don’t have $50 million hidden somewhere? How are *taxpayers* going to know they don’t meet that (or some other) threshold ? Trust me, lawyers and accountants, (legitimately) worrying about their own potential liability, will insist that far more people undergo these audits internally just to make sure they are not above the limit.

These privacy issues also have potentially serious political implications. I suppose Bill and Hillary and Barrack and Michelle (add your own list) would be subject to these annual wealth tax returns. Annual audit by the IRS on everything? Do they really want the Trump administration (or some other) having access to all that? This sounds like a potential special prosecutor on steroids and one that is not always going to be politically neutral. I see the potential here for a lot of political abuse and not just from one side or the other.

That is from Vivian Darkbloom on MR and in the LOC, with other good points in the comment too.

Monday assorted links

1. Rare snow rollers spotted near Marlborough.

2. Billionaires can be good for democracy.

3. Amit Varma podcast Stubborn Attachments and other themes from India.

4. “We find that 35% of the decline in fertility between 2007 and 2016 can be explained by declines in births that were likely unintended, and that this is driven by drops in births to young women.

5. “Curing diseases like Alzheimer’s and dementia can lead to a compounded output increase of 5.4% while improving welfare for all agents.

6. New proposal for Honduran charter cities.

Engagement with “fake news” on Facebook is declining

In recent years, there has been widespread concern that misinformation on social media is damaging societies and democratic institutions. In response, social media platforms have announced actions to limit the spread of false content. We measure trends in the diffusion of content from 569 fake news websites and 9,540 fake news stories on Facebook and Twitter between January 2015 and July 2018. User interactions with false content rose steadily on both Facebook and Twitter through the end of 2016. Since then, however, interactions with false content have fallen sharply on Facebook while continuing to rise on Twitter, with the ratio of Facebook engagements to Twitter shares decreasing by 60 percent. In comparison, interactions with other news, business, or culture sites have followed similar trends on both platforms. Our results suggest that the relative magnitude of the misinformation problem on Facebook has declined since its peak.

That is from a new NBER working paper by Allcott, Gentzkow, and Yu.

Do tax cuts produce more Einsteins?

Bell, Chetty, Jaravel, Petkova and Van Reenen in a new working paper say not so much.  And indeed their intuitions are not surprising.  Tax cuts boost the prospects of those individuals who already exposed to the possibility of being innovators, and that is not everyone.  Talent searches — to identify and mobilize potential creators — might be more productive.  Furthermore, tax cuts could just draw in lots of marginal innovators, whereas the really important contributions come from a fairly small number of top performers.  Those top performers reap such high returns/rents that they will not so much be deterred by higher tax rates.

The key decision in their model is whether or not to enter the innovation sector, and in that setting you can see that higher marginal tax rates probably do not stop Brin and Page from creating Google and earning lots of money.  A smaller fraction of the value they created is still a huge sum.

And yet I am not convinced.  There is another way to think about and model the process.  Imagine instead that innovation is a matching process, whereby the most talented creators must be matched to the appropriate infrastructures and ecologies.  A given entrepreneur can choose to “think big” or “go small,” the latter involving less work and less risk.  Optimal marginal tax rates can be much lower in that model, because there is easier substitution into lower-valued activities, just as optimal tax rates are much lower in matching models for CEO productivity and pay.  Pushing the best CEOs to less important firms can bring big losses in output, just as pushing the best innovators to less important projects can work pretty much the same way.

You might also introduce into the model venture capitalists, namely people and firms who (among other things) help match innovators to the right projects.  If you tax innovators, might some of the incidence fall upon venture capitalists, who now must accept a lower percent of the return from the project?  And what are the secondary consequences of that?  I don’t know, but they might be quite different from what is laid out in this model.  Tax incidence should not be treated as so simple.  Innovation is not a solo endeavor (as progressives will insist on telling us in other settings), rather it is about clusters of excellence and mutual inspirations.  And when clusters matter, there is a positive externality from innovation from each innovator, which again militates in favor of a lower tax rate on innovators.  If anything, a “clusters model” would seem to favor taxes on land, not on innovation.  Furthermore, perhaps we should even subsidize top innovators.

The general point is that when matching and clusters matter, optimal rates of taxation on innovators tend to be lower.

Columbus Lowered World Temperature

European germs killed 90% of the population of the Americas in the century after 1492 causing millions of hectacres of farm land to revert to forest which increased the uptake of carbon and reduced the planetary temperature. That is the upshot of a new paper that joins together previous estimates of population decline, farm land and carbon sequestration to push the onset of the Anthropocene to before the industrial revolution.

Earth system impacts of the European arrival and Great Dying in the Americas after 1492.

Abstract: Human impacts prior to the Industrial Revolution are not well constrained. We investigate whether the decline in global atmospheric CO2 concentration by 7–10 ppm in the late 1500s and early 1600s which globally lowered surface air temperatures by 0.15C, were generated by natural forcing or were a result of the large-scale depopulation of the Americas after European arrival, subsequent land use change and secondary succession. We quantitatively review the evidence for (i) the pre-Columbian population size, (ii) their per capita land use, (iii) the post-1492 population loss, (iv) the resulting carbon uptake of the abandoned anthropogenic landscapes, and then compare these to potential natural drivers of global carbon declines of 7–10 ppm. From 119 published regional population estimates we calculate a pre-1492 CE population of 60.5 million (interquartile range, IQR 44.8–78.2 million), utilizing 1.04 ha land per capita (IQR 0.98–1.11). European epidemics removed 90% (IQR 87–92%) of the indigenous population over the next century. This resulted in secondary succession of 55.8 Mha (IQR 39.0–78.4 Mha) of abandoned land, sequestering 7.4 Pg C (IQR 4.9–10.8 Pg C), equivalent to a decline in atmospheric CO2 of 3.5 ppm (IQR 2.3–5.1 ppm CO2). Accounting for carbon cycle feedbacks plus LUC outside the Americas gives a total 5 ppm CO2 additional uptake into the land surface in the 1500s compared to the 1400s, 47–67% of the atmospheric CO2 decline. Furthermore, we show that the global carbon budget of the 1500s cannot be balanced until large-scale vegetation regeneration in the Americas is included. The Great Dying of the Indigenous Peoples of the Americas resulted in a human-driven global impact on the Earth System in the two centuries prior to the Industrial Revolution.

*Timefulness: How Thinking Like a Geologer Can Save the World*

Still more incredible is the fact that one person almost single-handedly created the first maps of two-thirds of the planet yet is unknown to the average citizen of Earth (while Amerigo Vespucci, whose cartographic credentials are suspect, has two continents named for him).  The unsung mapmaker Marie Tharp, who earned a master’s degree in geology from the University of Michigan, worked briefly for an oil company, and then in 1948 became a drafter for a new oceanographic project led by Maurice Ewing at Columbia University.  For years, Ewing’s all-male team of graduate students collected sonar soundings of the ocean floor while Tharp laboriously transformed the linear strings of depth readings into three-dimensional topography.

Here is the Wikipedia page for Marie Tharp.  Here is a biography of Marie Tharp, which I just ordered.  Timefulness is by Marcia Bjornerud and you can order it here.

How easy is it to administer a wealth tax?

A third issue is logistical. A wealth tax would be like an estate tax levied every year. Figuring out the tax owed on large estates is complicated, costly and time-consuming. The Internal Revenue Service gives estates a year to file a return, but even then, executors often have to file extensions. And on the other end, auditors go through the returns, which can take years before an estate is settled.

The process requires not just lawyers and accountants but valuation experts who assess the worth of assets like closely held family businesses.

“It would be a highly cumbersome tax return to prepare on an annual basis,” said Jeff Moes, executive vice president and chief fiduciary officer at FineMark National Bank & Trust, which serves high-net-worth clients. “Every federal estate tax goes through an audit, and presumably this would go through an audit as well. They’d have to figure out if the valuation methodology is correct.”

“A billionaire would have a return that would be literally three feet high,” he added. “Our $100 million clients own multiple closely held businesses. All of them would require an expert valuation and five-year financials.”

And then the government would need to have enough auditors to verify everything that was submitted. In 2018, for example, an estimated 4,000 estate tax returns will be filed, with tax owed on 1,900 of them. That’s a tenth the number of tax returns that would be filed under Ms. Warren’s wealth tax plan.

Here is more from Paul Sullivan at the NYT.

Saturday assorted links

1. Engineering Philosophy podcast with me, by Jeffrey Meyerson.

2. “Empörung über geplanten Umzug von Bratwurstmuseum auf früheres KZ-Gelände.”  Die Kultur that is Thüringen.

3. Are female presidents less popular?

4. French organ master Jean Guillou passes away (NYT).

5. Forbes covers Pioneer and Daniel Gross.

6. For Ayn Rand’s birthday, a redux of my old post on whether she is important.

7. Muslims in Bengal vs. in Punjab.

A MimbleWimble Explainer

TechnologyReview: In July 2016, someone using the name Tom Elvis Jedusor (the real name of Lord Voldemort, the main villain in the Harry Potter universe, in the French edition) posted a link to a text file in a chat room frequented by Bitcoin researchers. Voldemort’s document described MimbleWimble, a blockchain system that would hide the identifying information associated with Bitcoin transactions.

…The person who started Grin [one of the first new currencies built on a blockchain that implements MimbleWimble] is also pseudonymous, going by the name Ignotus Peverell (the original owner of Harry’s invisibility cloak), and has never been seen. Peverell recently used a text-to-speech program to address attendees at a Grin conference.

So to sum up, Grin is a new currency on the MimbleWimble blockchain imagined by Lord Voldemort and implemented by the invisible Ignotus Peverell.

…Eric Meltzer, an investor for crypto-focused Primitive Ventures, recently estimated that $100 million of “mostly VC money” has already been invested in Grin mining operations.

New Zealand facts of the day

All of New Zealand’s major cities were rated as “seriously” or “severely” unaffordable, with a house in the least expensive city, Palmerston North, priced at five times the median income.

Mr. Pavletich, one of the report’s authors, said smaller markets like Tauranga, a coastal city on the North Island with a population of 128,000, had seen an influx of people who had left Auckland in search of more affordable housing. Average property values in Tauranga had risen to $497,000 from $304,000 in the last five years, and Demographia now rated it among the 10 least affordable cities in the world — along with famously expensive locales such as Hong Kong, San Francisco, Sydney and Vancouver, British Columbia.

People, I have been to Palmerston North (though not Tauranga, which seemed too empty and remote, now the fifth largest urban cluster in a country of 4.8 million), way back in the 1990s, and I recall a feeling of dullness above all else.  If you had asked me whether this outcome was possible, I sooner would have thought Donald Trump would be elected president.

Here is the full NYT story by Charlotte Graham-McLay.  P.s. they haven’t built enough homes.

The politics of a wealth tax

That is the topic of my latest Bloomberg column, here is the end sequence:

Besides which — a fact that is getting too little notice — the U.S. already has what is in essence a wealth tax: Tax rates on capital gains are not indexed for inflation. With this nominal-based tax system in effect, it is harder to accumulate wealth over time, and the nominal-based tax erodes the real value of the asset base.

Whether or not you think this capital-gains policy is a good idea (I do not), it is striking how few Americans understand that it serves as a wealth tax. It is not marketed or proclaimed as such. And I don’t expect Republicans or Democrats to counter Warren by saying, “Don’t worry, we already have a wealth tax.” Isn’t this a sign that voters simply are not yearning for a wealth tax?

The other major form of wealth taxation in the U.S. is of course the property tax, which is paid by large numbers of Americans and used to finance local services, rather than being primarily directed against the wealthy. It is seen as a way of making local government accountable to those who vote and pay for it, not as an engine of wealth redistribution. If anything, by maintaining the quality of school districts in wealthy communities, its net distributive effects are anti-egalitarian. That system seems to be a permanent part of the American political landscape.

Finally, think about politics in the broadest possible terms. What Americans really want is for their lives, their jobs, and society in general to get better — an admittedly ill-defined but nonetheless instantly familiar concept. Americans also want their leaders to deliver such outcomes with the considerable resources already at their disposal. Is that so unreasonable?

Anyone promoting a wealth tax is in essence saying that there aren’t many ways of improving society within current resource constraints. That is a brand of pessimism which Americans voters have not often rewarded.

File under: the Twitter reactions are self-refuting.  But if you would like the opposing point of view, here is Eric Levitz.