Month: May 2023
Acemoglu on the Turkish polity and economy
Preliminary but fairly clear results from the runoff of the Turkish elections show that President Erdogan will have a historic third term. This has implications for democracy and the economy.
— Daron Acemoglu (@DAcemogluMIT) May 28, 2023
Sunday assorted links
The debt ceiling deal
Ho hum. Political bargaining, so what else is new? Kicking fiscal problems down the road, so what else is new? True permitting reform? We’ll see how much they end up doing away with judicial review.
As I stated long ago, I don’t favor either having a debt ceiling or using such a debt ceiling for strategic purposes. But this deal is not very different from what would have resulted from the normal appropriations process, is it? All in all, not worth monkeying with the Constitution for, with such dubious elements as minting the coin, invoking the amendment, and so on. The influence of Donald Trump really is spreading, isn’t it? There may yet be a final round of drama, but the people who treated this event as the nothing burger it is were on the right track the whole way through.
Identify a Market Failure and Win Prizes!
The University of Chicago’s Market Shaping Accelerator, led by Rachel Glennerster, Michael Kremer, and Chris Snyder (Dartmouth), is offering up to two million dollars in prizes for new pull mechanisms and applications.
Our inaugural MSA Innovation Challenge 2023 will award up to $2,000,000 in total prizes for ideas that identify areas where a pull mechanism would help spur innovation in biosecurity, pandemic preparedness, and climate change, and for teams to design that incentive mechanism from ideation to contract signing.
Participating teams will have access to the world’s leading experts in market shaping and technical support from domain specialists to compete for their part of up to $2 million prize during multiple phases. Top ideas will also gain the MSA’s support in fundraising for the multi-millions or billions of dollars needed to back their pull mechanism.
…Pull mechanisms are policy tools that create incentives for private sector entities to invest in research and development (R&D) and bring solutions to market. Whereas “push” funding pays for inputs (e.g. research grants), “pull” funding pays for outputs and outcomes (i.e. prizes and milestone contracts). These mechanisms “pull” innovation by creating a demand for a specific product or service, which drives private sector investment and efforts towards developing and delivering that product or technological solution.
One example of a pull mechanism is an Advance Market Commitment (AMC), which is a type of contract where a buyer, such as a government or philanthropic organization, commits to purchasing (or subsidizing) a product or service at a certain price and quantity once it becomes available. This commitment creates a market for the product or service, providing a financial incentive for innovators to invest in R&D and develop solutions to meet that demand.
The first round of prizes are $4,000 for an idea!
The submission template asks applicants to identify a market failure where the social value exceeds private incentives and where we know the measurable outcome we want to encourage (e.g. the development of a vaccine, capturing carbon out of the air, etc.). Submissions are accepted from individuals 18 years and older and organizations around the globe whose participation and receipt of funding will not violate applicable law.
See here for more.
Do tax increases tame inflation?
Here is a new AER article by James Cloyne, Joseba Martinez, Haroon Mumtax, and Paolo Surico. After an extensive data analysis, they arrive at this conclusion:
Based on US federal tax changes post–World War II, our answer is “yes” if personal income taxes are increased but “no” if corporate income taxes are increased.
Of course this is consistent with the view — no longer so commonly admitted — that higher corporate tax rates do have negative supply side effects. There is an ungated version of the paper here.
Selective reporting of placebo tests in top economics journals
Placebo tests, where a null result is used to support the validity of the research design, is common in economics. Such tests provide an incentive to underreport statistically significant tests, a form of reversed p-hacking. Based on a pre-registered analysis plan, we test for such underreporting in all papers meeting our inclusion criteria (n=377) published in 11 top economics journals between 2009-2021. If the null hypothesis is true in all tests, 2.5% of them should be statistically significant at the 5% level with an effect in the same direction as the main test (and 5% in total). The actual fraction of statistically significant placebo tests with an effect in the same direction is 1.29% (95% CI [0.83, 1.63]), and the overall fraction of statistically significant placebo tests is 3.10% (95% CI [2.2, 4.0]). Our results provide strong evidence of selective underreporting of statistically significant placebo tests in top economics journals.
That is from a new paper by Anna Dreber, Magnus Johannesson, and Yifan Yang.
That was then, this is now
Florida Gov. Ron DeSantis will subject passengers on flights from New York, New Jersey and Connecticut to to mandatory isolation for two weeks after efforts to curb gatherings in those states prompted residents to leave and head to Florida.
DeSantis made the announcement Monday during a hastily called news conference a day after Florida’s number of confirmed coronavirus cases surged past 1,000…
“We wish our friends in New York well, they have a tough fight,” he said, “but we also have to protect our folks here in the state of Florida.”
The order, beginning Tuesday, requires people arriving by air from any location with “substantial community spread” to isolate themselves for 14 days or the duration of their stay, whichever is shorter. Airline employees and professionals responding to the coronavirus emergency are exempt, including military and health officials.
A violation of the mandatory quarantine will be a criminal misdemeanor punishable by up to 60 days in jail and a $500 fine.
Here is the Politico article from March 23, 2020. Via Matt Y.
Saturday assorted links
Can the Shingles Vaccine Prevent Dementia?
A new paper provides good evidence that the shingles vaccine can prevent dementia, which strongly suggests that some forms of dementia are caused by the varicella zoster virus (VZV), the virus that on initial infection causes chickenpox. The data come from Wales where the herpes zoster vaccine (Zostavax) first became available on September 1 2013 and was rolled out by age. At that time, however, it was decided that the vaccine would only be available to people born on or after September 2 1933. In other words, the vaccine was not made available to 80 year olds but it was made available to 79 year and 364-day olds. (I gather the reasoning was that the benefits of the vaccine decline with age and an arbitrary cut point was chosen.)
The cutoff date for vaccine eligibility means that people born within a week of one another have very different vaccine uptakes. Indeed, the authors show that only 0.01% of patients who were just one week too old to be eligible were vaccinated compared to 47.2% among those who were just one week younger. The two groups of otherwise similar individuals who were born around September 2 1933 are then tracked for up to seven years, 2013-2020. The individuals who were just “young” enough to be vaccinated are less likely to get shingles compared to the individuals who were slightly too old to be vaccinated (as one would expect if the vaccine is doing it’s job). But, the authors also show that the individuals who were just young enough to be vaccinated are less likely to get dementia compared to the individuals who were slightly too old to be vaccinated, especially among women. A number of robustness tests finds no other sharp discontinuities in treatments or outcomes around the Sept 2, 1933 cut point.
The following graph summarizes. The top left panel shows that the cutoff led to big differences in vaccine uptake, the top right panel shows that there was a smaller but sharp decline in dementia in the vaccinated group. The bottom panel shows that was no discontinuity in a variety of other factors.
Read the whole thing.
I have had my shingles vaccine. As I have said before, vaccination is the gift of a superpower.
Are we evolving toward narrow banking?
That is the topic of my latest Bloomberg column, here is one excerpt:
…the narrow banking model has long been plagued by two major problems. First, there have never been enough safe assets to satisfy the demands of depositors. Second, excessive investment in government securities tends to crowd out private investment. The rise of narrow banking can in part be explained by the mitigation of both these issues.
Alas government debt has gone up! But those new safe assets do have some advantages. And:
The shifting of private funds into Treasury bills could be problematic if that meant credit to the private sector was shrinking. But the rise of private equity and other forms of non-bank finance has made that less of a concern. While private equity growth has slowed since the second half of 2022, it has been on a steady rise since the financial crisis.
Private equity allows many new ventures to be financed, and a run on private equity firms is difficult to pull off, since they are not funding themselves by issuing liquid demand deposits. A private equity venture has a much greater ability to withstand swings in the market. By one metric, private equity measures at almost $12 trillion in value as of mid-2022 — another sign of the US economy advancing in its tools of financial intermediation.
These are not pure market developments, as they are partly a response to the growing regulatory burden on banks, most of all capital requirements. Again, the current regulatory dynamic is not entirely stable. Unstable banks do create trouble, and in return higher legal and regulatory burdens are placed on them, thereby diminishing their profitability. The cycle continues, and implementing tougher regulations hastens the changes rather than halting them.
New York state fact of the day
Federal individual income tax revenue is down a lot since last summer but is still 15% higher in real terms than before the pandemic. New York’s personal income tax revenue is almost 17% lower.
Here is more from Justin Fox at Bloomberg.
Friday assorted links
Rising markups, rising prices?
Sad to see this issue is still being debated so much. If you need an empirical antidote, you can find one from Christopher Conlon, Nathan H. Miller, Tsolmon Otgon, and Yi Yao in the May issue of the AER. Ungated here. Here is one bit:
Our exercise does not provide empirical support for a strong correlation between markup and price changes…
Therefore, our interpretation is that the results do not support a hypothesis that the increase in the DLEU markups is driven primarily by reductions in competition, keeping in mind that a “false negative” is possible.
DLEU stands for this well-known piece. This result would seem to lower the chance that the rising mark-ups came from diminished competition, as opposed to higher costs, better service, or other features of the market, such as changing scale elasticities.
Gender Roles and the Misallocation of Labour Across Countries
This paper asks whether the gendered division of work inside and outside the home leads to the misallocation of labor. Using personnel data of a multinational firm covering 100K employees in 101 countries over 5 years together with labor force participation data we show that women are more positively selected than men: the productivity of the average female worker is higher than that of the average male worker, and this gap is decreasing in women’s participation in the labor force. Structural estimates indicate that equalising barriers to labor force participation would increase firm productivity by 32% keeping employment and the wage bill constant.
That is from a recent paper by Nava Ashraf, Oriana Bandiera, Virginia Minni, and Víctor Quintas-Martínez.
I remain puzzled, but more are flirting with this idea…
If I truly believed the average of GDP + GDI (and I mostly do believe it) then one could reasonably describe the economy as having been in recession for some time, but a very very strange recession with strong employment gains and low unemployment–so a productivity decline.
— Jason Furman (@jasonfurman) May 25, 2023