Month: July 2019

Divorce and higher education

by  Tyler Cowen in

The social conservatives are turning out to be right about many things:

In this paper we evaluate the degree to which the adverse parental divorce effect on university education operates through deprivation of economic resources. Using one million siblings from Taiwan, we first find that parental divorce occurring at ages 13-18 led to a 10.6 percent decrease in the likelihood of university admission at age 18. We then use the same sample to estimate the effect of parental job loss occurring at the same ages, and use the job-loss effect as a benchmark to indicate the potential parental divorce effect due to family income loss. We find the job-loss effect very little. Combined, these results imply a minor role played by reduced income in driving the parental divorce effect on the child’s higher education outcome. Non-economic mechanisms, such as psychological and mental shocks, are more likely to dominate. Our further examinations show that boys and girls are equally susceptible, and younger teenagers are more vulnerable than the more mature ones, to parental divorce.

That is from a recent NBER Working Paper by Yen-Chien Chen, Elliott Fan, and Jin-Tan Liu.

Nonetheless, I suspect there is more to it than this.  I can’t speak to the circumstances of Taiwan, but on average I think of women as suffering the most from non-divorce, not men.  It is not sufficiently discussed how much the higher growth rates of earlier times might have been achieved at the expense of women, at least in the short run.  It might in some ways boost economic growth to, through discrimination, allocate more very smart women to the teaching of grade school, and to keep them in unhappy marriages, “for the sake of the children.”  And yet those outcomes are entirely unjust, and the contemporary world has decided it will not accept them.

More on street-by-street zoning

by  Tyler Cowen in

A number of commentators on my recent column have suggested that allowing street-by-street zoning would lead to more restrictionist outcomes than under the status quo.  It might well be true that the improvement will be zero, but if new construction already is constrained at zero perhaps matters won’t get much worse.  I see two reasons, however, for believing a number of streets would be willing to make bold or at least modest experiments in the direction of more development.

First, if you are considering more development for a larger area, say half of a county, you might worry that traffic problems will become much worse and thus the veto rights will prevail.  In contrast, if a street of say thirty homes decides to add three homes more, they probably are less worried about the net traffic impact of that very small decision (unless running kids over in that very street is the main worry).  Of course, if every street makes a matching decision, aggregate traffic still will go up a lot.  But in essence, by breaking the problem down street by street, the traffic veto motives are weakened in prisoner’s dilemma-like fashion.

Of course you might think all that extra traffic and development is a bad thing, but that is a different and indeed opposite critique from fearing excess restrictionism.

Second, a lot of streets just aren’t up to making these decisions across a long series of legally complex variables.  I can well imagine that generalized holding companies spring up to represent individual streets in their negotiations with the municipality/county/developer — whatever.  Imagine negotiating companies funded by the developers, whether directly or indirectly, which in turn fund additional amenities for the street whenever new revenue is generated by a micro-local decision.  Coase!  “Well…if you will accept these five new homes, the developer will donate some money to park maintenance and a scholarship at the K-12 school.”  It might not even amount to illegal bribery.

I don’t think street-by-street zoning is “the answer” to NIMBY, rather it is one idea worth experimenting with on a limited basis.  If it works well, it can spread.  If you start trying it in already NIMBY-dysfunctional areas, I just don’t see the downside.

Saturday assorted link

by  Tyler Cowen in

1. And yet so few people are celebrating: “Labor share being higher and corporate profit share being lower as a % of GDP than previously thought”.

You don’t need any other link for today, that explains so much of our intellectual and policy world.

Addendum: On the new Robert Barro gdp double-counting hypothesis, which lies behind all of this, here is a good MR comment:

The algebra is fine as it is, but I take strong issue with the idea that GDP “mismeasures” something. As any decent intro macro course will tells its students, “GDP is not a measure of welfare.” Indeed, the Kuznets quotes that Barro points to are exactly of this nature; we have this high profile GDP number, but it doesn’t do what you want it to do – or at least not ALL the things you want it to.

What Barro does here is construct a new measure – present discounted value of consumption – and shown how it relates to GDP (and GDP’s present discounted value). In addition, he provides a capital income / labor income decomposition for both measures (GDP having such an exact decomposition because of constant returns to scale, Euler’s identity for homogenous functions, and marginal-value input prices). He then says present discounted value of consumption, and its associated decompositions, are “right” while the other the construction GDP is “wrong” and thus gives “misstated” decompositions. Of course, “right/wrong” and “correct/incorrect” begs the question – right about WHAT? Correct for WHAT?

Barro says that in present discounted value terms GDP “double counts” investment. The “double counting” is only relative to how things are calculated for the present discounted value of consumption. This just reflects the fact that GDP counts production, while consumption only counts consumption. Market clearing, saving, and no storage imply that in every period consumption will be less than production. Specifically, looking at present values, future consumption in part reflects past savings i.e. past investments. GDP counts the production from the investment part (e.g. making the car) and the consumption part (e.g. driving the car), while consumption only counts the consumption part. If what you’re after is welfare – sure only count consumption. If what you’re after is production, well then you count production. Absolutely, GDP is higher than consumption. All Barro has done is given a more precise statement of how much bigger, in a PDV sense, GDP will be than consumption.

Noting that the “capital” share of GDP and the “capital” share of consumption are different is more word games. Indeed, assigning similar names to decompositions of different constructs is completely arbitrary. Barro doesn’t explain why the “capital share” of one thing is more important than the “capital share” of some other thing. In practice, we care about the “capital share” because it tells us something about the structure of the economy – i.e. with Cobb Douglas the capital share of GDP is used to calibrate the alpha parameter. Skimming the paper, its not immediately obvious what the structural parameter linked to the “capital share” of PDV consumption is, but I wouldn’t be surprised if its just alpha/2. Ok, the “capital share” of something different concept spits out a different number. For an RBC/neoclassical type, not thinking about the structural parameters is an obvious mistake…

More interesting than the LEVEL of any value is how these values change over time, and what this implies for the changing structure of the economy. Barro’s attempt to say the level of the capital share is “wrong” misses the point – we aren’t after the capital share per say, we’re after alpha. And since the two “capital shares” are proportional, a rising GDP capital share is the same as a rising PDV consumption capital share. The mystery continues, just with scaled down numbers…

But I think that means Barro is basically correct.

Jacob Rees-Mogg issues style guide to staff

by  Tyler Cowen in

1. Organizations are SINGULAR

2. All non-titled males — Esq.

3. There is no . after Miss or Ms

4. M.P.s — There is no need to write M.P. after their name in body of text

5. Male M.P.s (non-privy councillors) — in the address they should have Esq. before M.P. (e.g., Tobias Ellwood, Esq., M.P.)

6. Double space after fullstops

7. No comma after ‘and’

8. CHECK your work

9. Use imperial measurements

And:

Among the list of bizarre rules, he asks staff not to use the words “got”, “very” or “equal”.

Here is the full story, don’t even ask about “Hopefully,” and for the pointer I thank Esq. Kevin Lewis.

*Our Man: Richard Holbrooke and the End of the American Century*

by  Tyler Cowen in

By George Packer, I thought this book would be dull, but in fact it is interesting throughout.  Holbrooke, if you don’t already know, was a lifetime American diplomat, but much more than that too.  Here is one excerpt:

After the evacuation of dependents and the arrival of ground troops in 1965, South Vietnam became a vast brothel.  But even before there were half a million Americans, sex was an elemental part of the war.  “I have the theory that if the women of Vietnam had big copper spoons through their noses and looked like Ubangis,” a reporter once said, “this war wouldn’t have lasted half as long, and maybe wouldn’t have even started.”  The whole scene repelled the Boston Puritan Henry Cabot Lodge.  “I not only don’t wanna,” he said, “I don’t wanna wanna.”

A vivid passage to be sure, but two points.  First, why call the one sensible guy a “Puritan”?  (Yes, the Puritans in fact were great, but I don’t think the remark is to be taken in that spirit.)  Second, it seems to me that many Ubangi women are likely quite beautiful, and probably I saw some of them while in Ethiopia.  Furthermore, at least these days, it is optional whether they wish to take on the famed “lip plate.”

In any case, I would describe the book as “rollicking.”  You can order it here.

For the recommendation I thank Mr. C. Weber.

Friday assorted links

by  Tyler Cowen

1. Watch the Pioneer presentations!  Wednesday, 2 p.m. (EST), register by Tuesday evening.  All sorts of stars and budding stars will participate.  Here is basic information on Pioneer.

2. The evils of motion-smoothing.

3. “The finals of the Fortnite World Cup are taking place in a stadium in New York, with the winner set to earn more prize money than Simona Halep and Novak Djokovic won as Wimbledon champions.”

4. MbS plans for Neom, the new Saudi city.  Here is the full WSJ piece, recommended, and this: “Building Neom will require money Saudi Arabia doesn’t have. The country has recently run budget deficits, and MBS has committed to bets like a $45 billion investment in a Softbank Group Corp. fund. The kingdom has used money borrowed from abroad to fund Neom’s first stages, according to people familiar with the matter.”

5. Who supports animal rights?

6. “In Hong Kong protests, faces become weapons” (NYT).  “The police officers wrestled with Colin Cheung in an unmarked car. They needed his face.

They grabbed his jaw to force his head in front of his iPhone. They slapped his face. They shouted, “Wake up!” They pried open his eyes. It all failed: Mr. Cheung had disabled his phone’s facial-recognition login with a quick button mash as soon as they grabbed him.”

7. When animals interrupt sports (photo gallery).

Street-by-street zoning

by  Tyler Cowen in

That is the theme of my latest Bloomberg column, think of it as a new way to push for YIMBY.  Here is one excerpt:

I call this idea “street by street zoning,” and it has been outlined in a recent paper by John Myers, co-founder of London YIMBY. The basic idea is simple: Let each street decide on its own how it wants to zone commercial activity, including construction. Of course, in some contexts the deciding entity won’t be a street but rather a block or some other very small neighborhood area.

That might sound a little crazy, like a 1960s hippie commune dream. Yet the idea has hidden potential. If streets chose their own zoning, city-level zoning rules could be quite general and open-ended, opening up the possibilities for more construction and also for more mixed-use neighborhoods. With that liberalizing backdrop, residents on any given street always have the option of more restrictive zoning.

The upside is that street-by-street zoning would allow so much room for experimentation. Some zoning reforms might increase home values; a street might decide to allow for multiple dwellings on a lot (an in-law apartment in a backyard barn?), or make it easier to “upzone” by making it easier to rebuild. And what about allowing, say, a small Sichuan restaurant on each residential street — would that boost home values? Maybe not, but at least there’d be a way to find out.

And:

Some of these problems may be a feature rather than a bug. If outside developers find local communities easier to manipulate than a city-wide board, it may actually result in more new construction. If neighbors on some streets really are not sure what they want, maybe it’s not a bad thing if they are nudged toward approving more new construction.

Imagine dealing with the developers on Coasean terms.  There is much more analysis at the link.

Robert Barro says we double-count investment

by  Tyler Cowen in

Here is the VoxEu piece, excerpt:

Gross or net product includes gross or net investment when it occurs, and includes the corresponding present value a second time when additional rental income results from the enhanced stock of capital. Thus, from the standpoint of the intertemporal budget constraint for consumption, aggregates such as GDP and national income overstate the resources available for consumption.

I quantify the double-counting problem within a standard model used by economists, the steady state of the neoclassical growth model (Barro 2019). With reasonable parameters, GDP overstates the potential for consumption by 28%, while national income exaggerates this potential by 9%. Thus, for example, in international comparisons, countries that invest and save larger fractions of their incomes artificially appear to be too rich when gauged by per capita GDP.

And:

Using typical parameter values, the capital income share based on GDP is around 40%. With the conventional adjustment to allow for depreciation, the computed capital income share for national income is reduced to 24%. With the additional adjustment to calculate permanent income, the share falls further, to 16%. Hence, the proper accounting treatment of investment makes a major difference in calculating the division of aggregate income between capital and labour.

I wish I knew this area of national accounting better than I do — opinions?

Here is the full NBER working paper.  All via Ilya Novak.

Thursday assorted links

by  Tyler Cowen

1. The politics of CEOs.

2. My BBS comment with Michelle Dawson on social motivation and autism, full set of comments here.

3. Spain’s economic success.

4. Lama’s questions to ask people (“Skip the small talk”).

5. “Privatization of public goods can cause population decline“: but it’s about microbials.

6. More Magnus.

7. Many academics give advice to their younger selves — many sad, pathetic and whiny, self-pitying answers, really an indictment of sorts.  Why did so few of the respondents say: “I had one of the most remarkable guaranteed jobs in history, and I used it somewhat to help the world, but I wish I had used it so much more”?

Markets in everything, Russian science edition

by  Tyler Cowen in

Our team in Russia received a tip from the local research community to a new form of publication fraud. The tip led to a website, [redacted] set up by unscrupulous operators to serve as a virtual marketplace where authors can buy or sell authorship in academic manuscripts accepted for publication. This kind of peer-to-peer sharing, in “broad daylight” is not something we’ve seen before – so we conducted a quick analysis of the site, and its data, before taking swift action to alert our friends and colleagues in the scientific community.

There are no author names, or journal names indicated on the site – the journal name is available to buyers only. Sometimes as many as five authorships in a single article are offered for sale, with prices varying depending on place in the list of authors.

Here is the full story, via Brandon.

John Maynard Keynes, “National Self-Sufficiency,” 1933

by  Tyler Cowen in

That was then, this is now:

There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations among men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation.

I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction.

For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. At any rate, the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort, that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years.

And here is Keynes anticipating Dani Rodrik:

But I am not persuaded that the economic advantages of the international division of labor to-day are at all comparable with what they were. I must not be understood to carry my argument beyond a certain point. A considerable degree of international specialization is necessary in a rational world in all cases where it is dictated by wide differences of climate, natural resources, native aptitudes, level of culture and density of population. But over an increasingly wide range of industrial products, and perhaps of agricultural products also, I have become doubtful whether the economic loss of national self-sufficiency is great enough to outweigh the other advantages of gradually bringing the product and the consumer within the ambit of the same national, economic, and financial organization. Experience accumulates to prove that most modem processes of mass production can be performed in most countries and climates with almost equal efficiency. Moreover, with greater wealth, both primary and manufactured products play a smaller relative part in the national economy compared with houses, personal services, and local amenities, which are not equally available for international exchange; with the result that a moderate increase in the real cost of primary and manufactured products consequent on greater national self-sufficiency may cease to be of serious consequence when weighed in the balance against advantages of a different kind. National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford, if we happen to want it.

Here is the full text, whether or not you agree this is interesting throughout, and the prose is lovely too.