Month: May 2019

Tuesday assorted links

Did the zero lower bound matter?

This is an article of faith in “Twitter economics,” but Scott Sumner, myself, and many others have been insisting for years that the arguments simply are not there and that the zero lower bound is not such a big deal.  There is now a new NBER working paper by Davide Debortoli, Jordi Gali, and Luca Gambetti:

The zero lower bound (ZLB) irrelevance hypothesis implies that the economy’s performance is not affected by a binding ZLB constraint. We evaluate that hypothesis for the recent ZLB episode experienced by the U.S. economy (2009Q1-2015Q4). We focus on two dimensions of performance that were likely to have experienced the impact of a binding ZLB: (i) the volatility of macro variables and (ii) the economy’s response to shocks. Using a variety of empirical methods, we find little evidence against the irrelevance hypothesis, with our estimates suggesting that the responses of output, inflation and the long-term interest rate were hardly affected by the binding ZLB constraint, possibly as a result of the adoption and fine-tuning of unconventional monetary policies. We can reconcile our empirical findings with the predictions of a simple New Keynesian model under the assumption of a shadow interest rate rule.

In my somewhat jaded view, the zero lower bound arguments have been an excuse of sorts to move outside of “scarcity economics” and make politically convenient claims about the necessity fiscal stimulus.  It is no wonder we ended up with MMT!

In the meantime, this evidence is the (current) final word, and I hope it will be heeded as such.

Who loses most from the U.S.-China trade war?

You are hearing claims, hints, implications, or outright statements that the full burden of the trade war is falling on American consumers.  (Maybe some of the commentators are too wrapped up in the “Trump’s action have no merits whatsoever” game?)  I strongly believe that is wrong, as outlined in my latest Bloomberg column.  Here is one bit:

…there are well-done studies showing that the recent tariffs have translated into higher prices for U.S. consumers. I am not contesting that research. The question is whether those studies give sufficient weight to all relevant variables for the longer run.

To see why the full picture is more complicated, let’s say the U.S. slaps tariffs on the industrial inputs (whether materials or labor) it is buying from China. It is easy to see the immediate chain of higher costs for the U.S. businesses translating into higher prices for U.S. consumers, and that is what the afore-mentioned studies are picking up. But keep in mind China won’t be supplying those inputs forever, especially if the tariffs remain. Within a few years, a country such as Vietnam will provide the same products, perhaps at cheaper prices, because Vietnam has lower wages. So the costs to U.S. consumers are temporary, but the lost business in China will be permanent. Furthermore, the medium-term adjustment will have the effect of making China’s main competitors better exporters.

And:

China has an industrial policy whose goal is to be competitive in these [branded goods] and other areas. Tariffs will limit profits for these companies and prevent Chinese products from achieving full economies of scale. So this preemptive tariff strike will hurt the Chinese economy in the future, even if it doesn’t yet show up in the numbers.

Most generally:

In my numerous visits to China, I’ve found that the Chinese think of themselves as much more vulnerable than Americans to a trade war. I think they are basically correct, mostly because China is a much poorer country with more fragile political institutions.

I should note that I am not trying to defend Trump in this column, rather we need to get the economics right if we are to understand what is going on and why America can exert any pressure at all.  On Twitter, Christopher Balding is one who is getting these matters right.

Returning to the bigger picture, to the extent you wish to criticize Trump’s policies, focus on what China may do as a result of its vulnerability, not America’s supposed lack of bargaining power in the struggle.

Monday assorted links

1. List and ranking of economics blogs.

2. Dating in South Korea.

3. “Alex is a 43-year-old San Franciscan who works in the financial sector. He also eagerly eats uneaten and untouched leftover food off of plates if he spots it out in the open at a public dining establishment, even if it’s off a stranger’s plate…I’m very much a Libertarian and I kind of let people do whatever they want.”  Link here, hilarious throughout.

4. A short take on progress in Bangladesh.

5. Multinational offshoring was behind much of employment deindustrialization.

6. Pay transparency in Canada led to lower academic salaries.  And a smaller gender gap in salaries.

Why Do Experiments Make People Uneasy?

People were outraged in 2014 when Facebook revealed that it had run “psychological experiments” on its users. Yet Facebook changes the way it operates on a daily basis and few complain. Indeed, every change in the way that Facebook operates is an A/B test in which one arm is never run, yet people object to A/B tests but not to either A or B for everyone. Why?

In an important and sad new paper Meyer et al. show in a series of 16 tests that unease with experiments is replicable and general. The authors, for example, ask 679 people in a survey to rate the appropriateness of three interventions designed to reduce hospital infections. The three interventions are:

  • Badge (A): The director decides that all doctors who perform this procedure will have the standard safety precautions printed on the back of their hospital ID badges.

  • Poster (B): The director decides that all rooms where this procedure is done will have a poster displaying the standard safety precautions.

  • A/B: The director decides to run an experiment by randomly assigning patients to be treated by a doctor wearing the badge or in a room with the poster. After a year, the director will have all patients treated in whichever way turns out to have the highest survival rate.

It’s obvious to me that the A/B test is much better than either A or B and indeed the authors even put their thumb on the scales a bit because the A/B scenario specifically mentions the positive goal of learning. Yet, in multiple samples people consistently rate the A/B scenario as more inappropriate than either A or B (see Figure at right).

Why do people do this? One possibility is that survey respondents have some prejudgment about whether the Badge or Poster is the better approach and so those who think Badge is better rate the A/B test as inappropriate as do those who think Poster is better. To examine this possibility the authors ask about a doctor who prescribes all of his patients Drug A or all of them Drug B or who randomizes for a year between A and B and then chooses. Why anyone would think Drug A is better than Drug B or vice-versa is a mystery but once again the A/B experiment is judged more inappropriate than prescribing Drug A or Drug B to everyone.

Maybe people don’t like the idea that someone is rolling dice to decide on medical treatment. In another experiment the authors describe a situation where some Doctors prescribe Drug A and others prescribe Drug B but which drug a patient receives depends on which doctor is available at the time the patient walks into the clinic. Here no one is rolling dice and the effect is smaller but respondents continue to rate the A/B experiment as more inappropriate.

The lack of implied consent does bother people but only in the explicit A/B experiment and hardly ever in the implicit all A or all B experiments. The authors also show the effect persists in non-medical settings.

One factor which comes out of respondent comments is that the experiment forces people to reckon with the idea that even experts don’t know what the right thing to do is and that confession of ignorance bothers people. (This is also one reason why people may prefer pundits who always “know” the right thing to do even when they manifestly do not).

Surprisingly and depressingly, having a science degree does not solve the problem. In one sad experiment the authors run the test at an American HMO. Earlier surveys had found huge support for the idea that the HMO should engage in “continuous learning” and that “a learning health system is necessary to provide safe, effective, and beneficial patient-centered care”. Yet when push came to shove, exactly the same pattern of accepting A or B but not an A/B test was prevalent.

Unease with experiments appears to be general and deep. Widespread random experiments are a relatively new phenomena and the authors speculate that unease reflects lack of familiarity. But why is widespread use of random experiments new? In an earlier post, I wrote about ideas behind their time, ideas that could have come much earlier but didn’t. Random experiments could have come thousands of years earlier but didn’t. Thus, I think the authors have got the story backward. Random experiments generate unease not because they are new, they are new because they generate unease.

Our reluctance to conduct experiments burdens us with ignorance. Understanding and overcoming experiment-unease is an important area for experimental research. If we can overcome our unease.

Do Pimples Pay? Acne, Human Capital, and the Labor Market

We use data from the National Longitudinal Study of Adolescent to Adult Health to investigate the association between having acne in middle to high school and subsequent educational and labor market outcomes. We find that having acne is strongly positively associated with overall grade point average in high school, grades in high school English, history, math, and science, and the completion of a college degree. We also find evidence that acne is associated with higher personal labor market earnings for women. We further explore a possible channel through which acne may affect education and earnings.

Here is the full piece by Hugo Mialon and Erik T. Nesson.  For the pointer I thank Daniel Gross.

The cutthroat world of children’s food

It’s all about the data:

After a year-long investigation, a top California exec has been arrested by the FBI for allegedly hacking into a competitor’s website and stealing their customer data in an effort to ruin their business.

There is an unusual twist, however: this isn’t the high-stakes world of big tech or high finance, but American school lunches.

Chief financial officer of Choicelunch, Keith Wesley Cosbey, 40, was collared last month over claims that he illegally grabbed details from competitor The LunchMaster on what precisely youngsters across the San Francisco Bay Area like to eat and are allergic to.

He has been charged with unlawful computer access and fraud, and identity theft. If found guilty, Cosbey faces up to three years behind bars.

According to the criminal complaint against him, filed in San Mateo County, Cosbey stole data on hundreds of students, and then sent it anonymously to the local government department that oversees the school lunch program in an apparent effort to undermine his competitor.

Here is the full story, and here is another story, both via the estimable Chug.

We’re a Niche, We Just Didn’t Know

That is the new Medium essay by Anna Gát, it is the best attempt I know of to formulate a “new ideology” of sorts, or maybe a new manifesto, but also a post-political one.  Here are a few scattered bits:

Let’s imagine the I.I. [Inter-Intellect] as a loose-knit on/offline niche of people with similar mental energy: we seem to have roughly the same companion + kindness + information needs, activity levels and communication preferences…

We seem to prioritize open discussion and collaboration across differences, and establishing projects that can address real-world questions better…

We believe individuals are capable of acting virtuously without external intervention and judging the consequences of their own actions, and that open discussion of our life plans, decisions or progress can inspire others.

“Example over slogans” is the tldr…

Being conscious of this, the I.I. is age-agnostic and instead problem/progress focused.

Interesting throughout.

Sunday assorted links

1. An estimate of SB 50 impacts.

2. Why books don’t work, and why lectures don’t work.  Recommended.

3. China is cracking down on Hayekian economists.

4. Danielle Steel’s productivity advice: she averages seven books a year.  And she had nine children.

5. “Chinese consumers for the first time last year bought more Cadillacs than Americans did, helping drive profits at General Motors. And though the designs for those Cadillacs may have been drafted in Detroit, nearly all of the luxury automobiles were assembled in China by some of GM’s nearly 60,000 local workers.”  Link here.

6. Puffin picture.

7. “Really though who doesn’t want to watch the Air New Zealand safety video?

Roissy has been deplatformed

Or so I hear, and Google doesn’t bring it up either, not even the shut down version.

I worry about deplatforming much less than many of you do.  I remember the “good old days,” when even an anodyne blog such as Marginal Revolution, had it existed, had no platform whatsoever.  All of a sudden millions of new niches were available, and many of us moved into those spaces.

In recent times, a number of the major tech companies have dumped some contributors, due to a mix of customer and employee protest.  So we have gained say 99 instead of say 100, and of course I am personally happy to see many of the deplatformed sites go, or move to other carriers.  Most of the deplatformed sites, of course, I am not familiar with at all, but that is endogenous.  I would say don’t overreact to the endowment effect of having, for a while, felt one had literally everything.  You never did.  You still have way, way more than you did in the recent past.

You might be worried that, because of deplatforming, the remaining sites and writers and YouTube posters have to “walk the line” more than ideally would be the case.  That to me is a genuine concern, but still let’s be comparative.  Did you ever try to crack the New York publishing scene in the 1990s, or submit an Op-Ed to the New York Times before the internet was “a thing”?  Now that was deplatforming, and most of it was due to the size of the slush pile rather than to evil intentions, though undoubtedly there was bias in both settings.

Another “deplatforming” came with the shift to mobile, which vastly favored some websites (e.g., Facebook) over many of the more idiosyncratic competitors, including many blogs (MR has done just fine, I should add).

Developments such as VR, AR, 5G — or whatever — will reshuffle the deck further yet.  There will be big winners, many of which are not yet on the scene, and some considerable carnage on the downside.  Maybe you won’t be forced off, but many of you will find it worthwhile to quit rather than adapt.

There still has never, ever been a better time to be a writer.  What bugs people about deplatforming is the explicitness and potential unfairness of the decision.  It’s like prom selection time, where there is no escaping the fact that the observed choices, at least once they get past the algorithms and are reviewed by the companies, reflect very conscious decisions to bestow and to take away.  We have painful intuitions about such rank orderings…still, we are better served by the objective facts about today’s diversity and opportunity compared to that of the past.

I thank a loyal MR reader for the initial pointer.

Nick Clegg on breaking up Facebook

The first misunderstanding is about Facebook itself and the competitive dynamics in which we operate. We are a large company made up of many smaller pieces. All of our products and services fight for customers. Each one has at least three or four competitors with hundreds of millions, if not billions, of users. In photo and video-sharing, we compete against services like YouTube, Snapchat, Twitter, Pinterest and TikTok, an emerging competitor.

In messaging, we’re not even the leader in the top three markets — China, Japan and, by our estimate, the United States — where we compete with Apple’s iMessage, WeChat, Line and Microsoft’s Skype. Globally, the context in which social media must be understood, China alone has several large social media companies, including powerhouses like Tencent and Sina. It will seem perverse to people in Europe, and certainly in China, to see American policymakers talking about dismantling one of America’s biggest global players.

In this competitive environment, it is hard to sustain the claim that Facebook is a monopoly. Almost all of our revenue comes from digital advertising, and most estimates say Facebook’s share is about 20 percent of the United States online ad market, which means 80 percent of all digital ads happen off our platforms.

That is in the NYT, to be clear Clegg now works for Facebook.

U.S.A. historical facts of the day

In 1820-1821, commerce between America and Haiti accounted for 4 percent of America’s foreign trade.

“Historians agree that about one in ten slave ships experienced an attempted insurrection during the Atlantic slave trade.”

And:

“Liability for slave ship revolts was one of the maritime perils that underwriters often refused to assume.”

Those are all from Jeffrey R. Kerr-Ritchie’s Rebellious Passage: The Creole Revolt and America’s Coastal Slave Trade.

Saturday assorted links

Britain’s regional divide is smaller than you might think

In London, the median household has a disposable income before housing costs that is only 21 per cent higher than the weakest area, which is in the north-east England. After paying a lot for very small homes, Londoners have no higher incomes than the UK average. Most inequality occurs within regions not among them — the Institute for Fiscal Studies says that if average regional income differences were eradicated, 95 per cent of UK income inequality would still exist.

That is from Chris Giles at the FT.

Bhutan’s prime minister spends his weekends as a surgeon

Take that Adam Smith!:

Dr Lotay Tshering was one of Bhutan’s most highly regarded doctors before he entered politics last year, and while his prime ministerial duties occupy him during the week, on weekends he returns to the hospital as a way to let off steam.

“Some people play golf, some do archery, and I like to operate,” Tshering told AFP as he tended to patients one Saturday morning at Jigme Dorji Wangchuck national referral hospital, describing his moonlighting medical work as a “de-stresser”.

“I will continue doing this until I die and I miss not being able to be here every day,” he added. “Whenever I drive to work on weekdays, I wish I could turn left towards the hospital.”

Far from finding the two roles hard to juggle, Tshering said he had found that there was unexpected crossover between prime minister and surgeon. “At the hospital I scan and treat patients. In the government, I scan the health of policies and try to make them better,” he said. He has also put healthcare reform at the heart of his political agenda.

Here is the full story, via Anecdotal.