Month: July 2019

Wednesday assorted links

My Conversation with Kwame Anthony Appiah

Here is the audio and transcript.  We covered Ghana, Africa more generally, cosmopolitanism and the resurgence of nationalism, philosophy and Karl Popper, Lee Kuan Yew, the repatriation of cultural objects, Paul Simon, the smarts of Jodie Foster, sheep farming in New Jersey, and the value of giving personal advice.

Here is one excerpt:

COWEN: Take Pan-Africanism. Do you think, in the broader course of history, this will go down as merely a 20th-century idea? Or is Pan-Africanism alive and well today?

APPIAH: Pan-Africanism involves two different big strands. One is the diasporic strand. The word Pan-Africanism and the Pan-African Congresses were invented in the diaspora by people like Sylvester Williams in Jamaica and W. E. B. Du Bois from the United States and Padmore.

That idea of a diasporic African identity seems pretty lively in the world today, though it doesn’t produce much actual politics or policy, but the sense of solidarity of people of African descent, of the African diaspora seems pretty strong to me.

COWEN: But strongest outside of Africa in a way, right?

APPIAH: Yes, where it began. In Africa, I think, on the one hand, that most contemporary sub-Saharan Africans do have a sense of themselves as belonging to a kind of Black African world. But if you ask them to do something practical about it, like take down borders or do more political integration, I don’t know that that is going to go anywhere anytime soon, which I regret because I think, for lots of reasons, it would be . . .

My sister and her husband live in Lagos. If they want to go to Accra by road, they have to cross the border between Nigeria and Benin, the border between Benin and Togo, the border between Togo and Ghana. And at each of those borders, they probably have to interact with people who are going to try and extract an illegal tax on them.

COWEN: Easier to fly to London, right?

APPIAH: Much easier to fly to London and back to Accra. That’s crazy. And we’ve had these weird things. On the one hand, there’s probably a million Ghanaians in Nigeria, living Ghanaian citizens.

And:

COWEN: Is cosmopolitanism not only compatible with nationalism, but in a way quite parasitic upon it? And in a sense, the parasite is being ejected a bit? Think back to your boyhood in Kumasi. You have all these different groups, and you’re trading with them. You see them every day, and that works great, but there’s some central coherence to Ghana underlying that.

You go to Lebanon today — that central coherence seems to have been gone for some time. You could call Lebanon a cosmopolitan place, but it’s not really an advertisement for Lebanon the way it’s worked out. Are we just moving to a new equilibrium, where the parasitism of cosmopolitanism is now being recognized for what it really is?

APPIAH: I don’t like the metaphor of the parasite.

[laughter]

APPIAH: But yes, I do want to insist that cosmopolitanism . . . Look, cosmopolitanism, as I said, does not only require, or the right kind of cosmopolitan requires a kind of rootedness, but its point, precisely, is that we are celebrating connections among different places, each of which is rooted in its own something, each of which has its distinctive virtues and interest, each of which has its own history. And we’re making connections with people for whom that place is their first place, just as I am in a place which is my first place.

So yes, cosmopolitanism requires, I think, a national sense of solidarities that are not global. That’s why, as I say, you can be a cosmopolitan patriot. Now, if the nationalist says, “Okay, but why do we need anything beyond national citizenship?” The answer is, we have a world to manage. The economy works better if we integrate.

There is much, much more at the link, self-recommending…

We need a new science of progress

That is the title of my Atlantic piece with Patrick Collison, excerpt:

Progress itself is understudied. By “progress,” we mean the combination of economic, technological, scientific, cultural, and organizational advancement that has transformed our lives and raised standards of living over the past couple of centuries. For a number of reasons, there is no broad-based intellectual movement focused on understanding the dynamics of progress, or targeting the deeper goal of speeding it up. We believe that it deserves a dedicated field of study. We suggest inaugurating the discipline of “Progress Studies.”

And:

Plenty of existing scholarship touches on these topics, but it takes place in a highly fragmented fashion and fails to directly confront some of the most important practical questions.

Imagine you want to know how to most effectively select and train the most talented students. While this is an important challenge facing educators, policy makers, and philanthropists, knowledge about how best to do so is dispersed across a very long list of different fields. Psychometrics literature investigates which tests predict success. Sociologists consider how networks are used to find talent. Anthropologists investigate how talent depends on circumstances, and a historiometric literature studies clusters of artistic creativity. There’s a lively debate about when and whether “10,000 hours of practice” are required for truly excellent performance. The education literature studies talent-search programs such as the Center for Talented Youth. Personality psychologists investigate the extent to which openness or conscientiousness affect earnings. More recently, there’s work in sportometrics, looking at which numerical variables predict athletic success. In economics, Raj Chetty and his co-authors have examined the backgrounds and communities liable to best encourage innovators. Thinkers in these disciplines don’t necessarily attend the same conferences, publish in the same journals, or work together to solve shared problems.

You may have seen there is a small cottage industry on Twitter suggesting that we ignore antecedents to Progress Studies, but of course that is not the case, as evidenced by the paragraph above, not to mention claims like: “Progress Studies has antecedents, both within fields and institutions. The economics of innovation is a critical topic and should assume a much larger place within economics.”  In fact we consider antecedents in at least nine different paragraphs of a relatively short piece.

The piece is interesting throughout, and I can assure you that Patrick is a very productive and diligent co-author.

Rational discourse about the federal budget has become virtually impossible

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

The conservative and fiscal conservative response has been no more coherent. On one hand, conservatives like to boast of the power of economic growth. But if, as they often assume, the economy is going to keep growing strongly, a widening budget deficit may well prove manageable. Interest rates have been low, and even falling over the past year, while economic growth has been running over 2%. If it continues to exceed the government’s inflation-adjusted borrowing rate (currently negative for T-Bills and close to zero for longer maturities), the U.S. will be able to grow out of its debt. Under this scenario Trump will look like a genius, and the fiscal conservatives will continue their slide into irrelevance.

You might argue that the problem is government spending, rather than budget deficits per se. But the U.S. can in essence pull in more resources from abroad, finance greater spending and consumption with additional borrowing, and still pay off its bills in orderly fashion without bankrupting the future. Our grandchildren can inherit both the debt and the government bonds.

In my experience, fiscal conservatives hate this argument. But through the term structure of interest rates, markets are forecasting low rates for at least the next 10 years, and conservatives tend to respect market prices. To be against the budget deal is also to go against the markets’ current message that debt service costs will remain low.

There are twists and turns in the piece, and just about everyone gets whacked, so don’t judge the final message by that excerpt alone.

Air Genius Gary Leff on market power for airlines

Read the whole post, but are is an excerpt:

With oil hovering around $100 a barrel we did see airfares rise 2011-2014 but then return to long run trend, and indeed real airfares inclusive of fees were lower 2016-2018 than in 2010…

Indeed the drivers of increased airline profits are:

  • lower fuel prices
  • richer co-brand credit card deals.

As I’ve pointed out in many recent quarters the entirety of American Airlines profit has been accounted for by its co-brand credit card deals and not flying. The richness of these deals for airlines has grown markedly. This may be partly attributable to industry consolidation (fewer airlines for banks to negotiate with) and partly due to American Express losing its deal with Costco which set off a chain of renegotiations at higher price points.

Consolidation has improved airlines’ bargaining position vis-a-vis banks more so than consumers. And indeed with fuel prices up from three and four years ago profits are down…

Moreover it’s the ultra low cost carriers – Spirit, Frontier, and to a lesser extent Allegiant – that have been the driving forces in the U.S. airline industry.

Do read the whole thing.

Tuesday assorted links

1. Very good science educational channel on YouTube — Primer.

2. Joe Weisenthal on negative interest rates.

3. “The results provide evidence that referees favor home teams, teams losing during games, and teams losing in playoff series. All three biases are likely to increase consumer demand.

4. “This country does not rest on socialism and secularism. It rests on a bedrock of Jewish identity that has a lot to do with people who came here from Baghdad, Aleppo and Casablanca, and understand things that are deeply important about being Jewish in the Middle East and the Arab world.”  Link here.

5. ““In these fights between criminal factions, I root for the machete,” said Gilson Cardoso Fahur, a congressman from Parana state…

6. “Thanks to Hewlett and a few other people like him, I calculate that about 3% of billionaire philanthropy goes to climate change, compared to 0.01% of the federal budget.”  Or try this: “…the government recently admitted that its California high-speed rail project was going to be $40 billion over budget (it may also never get built). The cost overruns alone on a single government project equal four years of all the charity spending by all the billionaires in the country.”

The Online Tipping Outrage

The latest outrage cycle was started by April Glaser in Slate who is outraged that some online delivery companies apply tips to a worker’s base pay:

My first DoorDash order is probably my last because, as journalist Louise Matsakis put it on Twitter, “I don’t believe that a single person intends to give a tip to a multibillion dollar venture-backed startup. They are trying to tip the person who delivered their order.”

You will probably not be surprised, however, that Slate is also outraged at tipping.

Tipping is a repugnant custom. It’s bad for consumers and terrible for workers. It perpetuates racism.

But one way for a firm to get rid of tipping is to guarantee a payment per delivery. Many delivery workers may prefer such a system because tips are often perfunctory and therefore from the point of view of the worker random or they vary based on factors over which the delivery person has little control (e.g. worker race but also the customer’s online experience and whether other workers got the pizza into the oven on time). In other words, the no-tip system reduces the variance of pay. Moreover, it won’t reduce pay on average. Delivery workers will earn what similarly skilled workers earn elsewhere in the economy whether they get to keep “their” tips or not. The outrage over who gets the tip is similar to complaining about who pays the tax, the supplier or the demander.

There are exceptions. In some industries, such as bartending, the quality of the service can vary dramatically by worker and tips help to reward that extra quality when it is difficult to observe by the firm. In these industries, however, both the workers, at least the high quality workers, and the firms want tips. If the firms themselves are removing tips that is a sign that they think that the worker has little control over quality and thus tips serve no purpose other than to more or less randomly reward workers. Since random pay is less valuable than certain pay and firms are less risk averse than workers it makes sense for the firm to take on the risk of tips and instead pay a higher base (again, with the net being in line with what similar workers earn elsewhere).

In short, a job is a package of work characteristics and benefits and it’s better to let firms and workers choose those characteristics and benefits to reach efficient solutions than it is to try to move one characteristic on the incorrect assumption that all other characteristics will then remain the same, to do so is the happy meal fallacy in another guise.

A test of Marginal Revolution political bias

Here is an email from Daniel Stone at Bowdoin, I am not imposing a double-formatting on it for ease of reading and formatting:

“Dear Tyler (if I may),

I’m a big fan of your work in general, and MR in particular, and think that you do as good a job as anyone at exploring a variety of political perspectives, and sharing related (diverse) research.

Still, you’re human after all J. I’ve always been curious if there are systematic patterns in your writing or links you post.

It occurred to me a couple weeks ago that you sometimes describe research as speculative or imply this by adding a question mark to the end of the link (the example that made me notice this was: “Minimum wage effects and monopsony?”https://marginalrevolution.com/marginalrevolution/2019/07/thursday-assorted-links-215.html). At other times your link simply states the main research finding or directly quotes from the paper or its title.

So, while it might be hard to identify a general bias in your links – even if the majority were, say, “pro-liberal”, this wouldn’t necessarily mean *you* were biased, since the majority of good research out there could be pro-liberal, using the added “?”s provides an identification strategy: if you were more likely to add a ? for research that leans one political direction or the other, that would suggest a bias on your part.

As a fun side project, that I thought might also have some value given the importance of MR and understanding bias more generally, I had my RA (Maggie Hanson, cc’d) grab all your links from Assorted Links posts to social science research this year (as of a few days ago). Together we coded the ‘slant’ of each as L, R or N (neutral) – depending on whether the research supports regulation, indicates market failure, etc (admittedly our process here was not extremely scientific). She also recorded whether your link text is phrased as a question (or notes that the finding is speculative, which you did a couple times and seems similar). In addition, for link text phrased as a question, we also noted whether this text is a direct reference to the research paper’s title, as this means you didn’t actually add the “?”.

We did a bit of very basic analysis, here are results:

The distribution of slant across links is quite balanced, but leans left:

. tab sla

Slant |

(L/N/R) |      Freq.     Percent        Cum.

————+———————————–

L |         35       29.17       29.17

N |         58       48.33       77.50

R |         27       22.50      100.00

————+———————————–

Total |        120      100.00

 

But you were slightly more likely to phrase your link as a question for “L” links vs for Rs (9/35 for Ls vs 5/27 for Rs):

.   tab slant endswith

Slant |      Ends with ?

(L/N/R) |         n          y |     Total

———–+———————-+———-

L |        26          9 |        35

N |        48         10 |        58

R |        22          5 |        27

———–+———————-+———-

Total |        96         24 |       120

 

And you were a bit more likely to do this for links that were not direct quotes of article titles that were questions (7/33 = 0.21 for Ls vs 2/24=0.083 for Rs):

tab slant endswith if linktex==”n”

Slant |      Ends with ?

(L/N/R) |         n          y |     Total

———–+———————-+———-

L |        26          7 |        33

N |        48          8 |        56

R |        22          2 |        24

———–+———————-+———-

Total |        96         17 |       113

 

But the magnitude of this difference is not large (and I bet not statistically significant), and the large majority of both L and R links were presented by you without questions marks.

Bottom line: you do present a quite balanced set of research findings, the general distribution leans left but it is hard to interpret this (without knowing the slants of research in general or the slant of research you post elsewhere, aside from Assorted Links). And there is suggestive evidence of a small tendency for you to be more questioning of research supportive of liberal/leftist policies.

Here’s a link to the data:

https://docs.google.com/spreadsheets/d/1CrPqezV51SCwAwuwjdRqBy4jUlX76Iti0X4P1nKPMpM/edit?usp=sharing

This includes a sheet with all the links that end in ?, that aren’t quotes of article titles, and their slants.

I wanted to share this with you before sharing with others. Please feel free to let me know any questions or comments!

Thanks, and thanks again for all your work. All the best – Dan”

Falling prices for generic pharmaceuticals

We find the chained direct-out-of-pocket CPI for generic prescription drugs declines by about 50% between 2007 and 2016, while the total CPI [what the dispensing pharmacy receives, the difference being generated by co-pay rates] falls by nearly 80% over the same time period. The smaller decline in the direct out-of-pocket CPI than in the total CPI is due in part to consumers’ increasingly moving away from fixed copayment benefit plans to pure coinsurance or a mixed package of coinsurance and copayments. While consumers are experiencing more cost sharing that in fact shifts more of the drug cost burden on to them, on balance in the US consumers have experienced substantial price declines for generic drugs.

That is from a new NBER working paper by Richard G. Frank, Andrew Hicks, and Ernst R. Berndt.

How hard is it to stimulate demand?

Recent studies have shown prices in some sectors—such as housing—do indeed rise faster when growth is in full swing, unemployment low and markets frothy. But a large chunk of the economy, from health care to durable goods, appears insensitive to rising or falling demand.

paper published last month by economists James Stock of Harvard University and Mark Watson of Princeton University found prices accounting for nearly half of the Fed’s preferred inflation gauge, the personal-consumption-expenditures price index, don’t respond to changes in economic activity. In 2017 economists at the Federal Reserve Bank of San Francisco found such “acyclical” goods and services made up a whopping 58% of that index.

And:

The cyclically sensitive components of core inflation, which excludes food and energy, have accelerated to 2.33% in the 12 months through May from 0.41% in mid-2010, according to the San Francisco Fed, just as falling unemployment would predict. But that has been offset by falling inflation in acyclical categories—such as health care, financial services and most goods—which has slowed to 1.04% from 2.26% in the same period.

Of course, this also casts doubt on the whole meaning of a single “real” interest rate.  And it seems to imply that monopoly power in the American economy is not so universal.

Here is the whole story from Paul Kiernan at the WSJ.

*The Great Reversal: How America Gave Up on Free Markets*

That is the new book by Thomas Philippon, and perhaps the title is a bit misleading, as the book covers both regulatory barriers and natural economic forces behind higher concentration levels.  I am a big fan of Philippon’s work, but I am not so convinced by his arguments in this book.  Most of all, he is trying to argue for systematically greater monopoly power in the American economy, but he is reluctant to provide much evidence for output restriction, the sine qua non of market power.

First note that market power does not seem to be up at the level of actual market competition.  And capital’s share of income does not seem to be rising in a manner consistent with the monopoly theory, see here and here.

I agree with him about health care, and also (highly regulated) cable television and thus internet connections.  I agree with all of his suggestions for removing regulatory barriers to entry, for instance by allowing foreign airlines to serve domestic U.S. markets.  From a policy point of view, I am quite close to his perspective.

But when it comes to monopoly power too much of his evidence is circumstantial. OK, there is greater stability for market leaders in many sectors, and weak investment aggregates, but all the time antitrust suits find evidence for output restrictions — so why doesn’t this book offer more of such evidence?  Here is one passage (p.39) that caught my attention:

…we see a sharp increase in concentration in the airline industry after 2010.  That is enough to trigger our interest, but not enough to conclude that competition has weakened.  We must first check that concentration has also increased at the route level.  We find that it has.  We can further show that it came together with higher prices and higher profits.

I have only a pre-publication copy, and perhaps some of the book is missing in my edition, but I don’t see the cited evidence presented, nor is it in the airlines section starting on p.137 (which does document increasing concentration at the national level).  To consider the contrary evidence, here is an excerpt from an earlier MR post:

As for output restrictions, here is the DOT series on aggregate miles flown.  No doubt, there are problems around the time of 9/11 and also the Great Recession, with 2008-2012 being a period of slight quantity contraction.  But in 1985 there were 275,864 [million] total miles flown, in 2006 it was 588,471, and 641, 905 in 2015.  I’ll ask again: if there is so much extra monopoly, where are the output restrictions?

Or look at the price index.  Overall prices are down considerably since 2008, and from about 2000 to 2016 they run from about 250 (eyeballing) to about 270, noting 1998-2010 saw a huge run-up in oil prices.

Since I wrote that post there is clearer evidence for a steady price decline since 2012 (he is claiming higher concentration since 2010), just look at the price index, which is FRED channeling BLS.  Now maybe those are the wrong numbers for some reason, but I don’t see anything in the Philipson book to counter them.  I don’t see output restriction considered at all.  I don’t see a price series presented at all.

That is only one sector, but it reflects my deeper worries about the book.  I just don’t see the evidence for output restrictions, or, in many cases I don’t see the evidence for higher prices.

The most sustained discussion of prices comes on pp.114-122, where it is shown that PPP-adjusted prices are higher in America than in Europe, and furthermore the gap is growing.  That is far too much aggregation for my tastes (“Europe”), PPP adjustments are not exactly scientific, it is not very direct evidence for market concentration being the culprit, and furthermore if I understand him correctly, the Big Mac index also has the United States becoming relatively more expensive, even though McDonald’s clearly has faced massive competition in recent years.

To be sure, if you believe in a productivity slowdown, as I do, you also have to feel that America’s economic sectors, in some counterfactual sense, could be much more dynamic, more prone to disruption, and yes more competitive.  It is a great disappointment to me that is not the case.  But that is far from the view that monopoly power is increasing in the American economy in an economically significant manner, across a wide variety of sectors (health care caveat noted, and even that is selective, as there has been a significant cost slowdown).

So I remain skeptical about the main claims in this book.

*Because Internet: Understanding the New Rules of Language*

That is the new book by Gretchen McCulloch, here is one excerpt:

The passive-aggressive potential of the single period started being reported in thinkpieces in 2013…The string of dots got a thinkpiece in 2018, though it has been popping up in comment threads since at least 2006, while it cousins, the hyphen and string of commas, have been less extensively reported but have occasioned long comment threads on blogs and internet forums.  Despite the fears mongered by headlines, it’s not the case that the passive-aggressive meaning has killed all other uses of the period.  The linguist Tyler Schnoebelen, who’s definitely younger than the peak dot-dot-dot generation, did a study of periods in his own 157,305 text messages.  He found that, true, periods were rare in short, informal messages — ones less than seventeen characters or containing lol, u, haha, yup, ok, or gonna.  But they were still often found in messages longer than seventy-two characters or containing words like told, feels, feel, felt, feelings, date, sad, seems, and talk.  The added weight of the period is a natural way to talk about weight matters.

Most books on the internet I find vacuous, this one had some material of interest, though perhaps for some people it is too navel-gazing.  But if you are going to spent that much time staring at a screen, and typing text into little boxes, surely you might wish to understand it better.  Most of all, I enjoyed the discussion of how different generations have learned to use the internet somewhat differently, depending on when they started.

Sunday assorted links

1. What is it like being a Freemason?

2. Why so few annuities?

3. Jennifer Doleac’s list of advice threads for economists and academics.

4. Steve Pearlstein on Elizabeth Warren and private equity.

5. “When thinking about whether new generations can or cannot afford housing keep in mind that the currently existing stock of houses will all be sold to a new generation.” — That’s Alex T. on Twitter!