Two notes on liquidity traps and decreases in wages
1) A fall in wages
increases the incentive to hire (call this the substitution effect) but it
decreases the income of people who already have jobs and this in turn
decreases their spending and other people’s income (call this the macro income effect). In essence, Krugman and others are arguing that the macro
income effect can dominate under certain situations. See Tyler (here and here) and Scott Sumner (Whom I cannot resist quoting–"no respected macroeconomic theory has ever been so decisively refuted
by the data as the theory that high wage policies can actually help the
economy during a Depression") on this point. I, however, will ignore this debate and take it as given that this is possible.
Now one reason that people are talking about
a cut in the minimum wage in this context is that it follows exactly the two-part logic given above. But bear in mind that the real policy choice
we have is to cut the payroll tax and cutting the payroll tax increases the
incentive to hire and increases the income of people who already have jobs.
2) The idea of the
liquidity trap with its notion of lack of movement, inactivity and firms which "just aren't hiring" is hard to reconcile
with the fact that millions of new jobs are being created every month. I have said this before but I should have shouted it from the rooftops because this error is very common.
More on Charter Schools
Charter schools are publicly funded but operate outside the regulatory
framework and collective bargaining agreements characteristic of
traditional public schools. In return for this freedom, charter schools
are subject to heightened accountability. This paper estimates the
impact of charter school attendance on student achievement using data
from Boston, where charter schools enroll a growing share of students.
We also evaluate an alternative to the charter model, Boston's pilot
schools. These schools have some of the independence of charter
schools, but operate within the school district, face little risk of
closure, and are covered by many of same collective bargaining
provisions as traditional public schools. Estimates using student
assignment lotteries show large and significant test score gains for
charter lottery winners in middle and high school. In contrast,
lottery-based estimates for pilot schools are small and mostly
insignificant. The large positive lottery-based estimates for charter
schools are similar to estimates constructed using statistical controls
in the same sample, but larger than those using statistical controls in
a wider sample of schools. The latter are still substantial, however.
The estimates for pilot schools are smaller and more variable than
those for charters, with some significant negative effects.
Did the authors control for other factors and parse the statistics carefully? One of the authors is Joshua Angrist, nuff said.
Tie CO2 Tax to Temperature
John Tierney relays today what seems like a very sensible idea from economist Ross McKitrick, tie a carbon tax to the temperature. If the temperature rises the tax goes up, if the temperature does not rise (as McKitrick, a climate change skeptic thinks) the tax will stay at a low level. Temperature of the troposphere would be measured by satellite at the equator and averaged over a period of time. (More here and a more detailed version here).
In theory, both climate change proponents and skeptics ought to agree to this proposal, but I predict the proponents will object.
Addendum: As predicted most of the objections (in the comments) are from climate change proponents. In essence, they argue that the problem is so serious that we must act before the evidence is in. Aside from the obvious epistemic problems with such a position do note that a) this is a way of getting agreement where otherwise there might be none b) the tax can be non-linear so it rises (in Bayesian fashion) with the strength of the evidence, i.e. the tax need not always lag.
Bad Design Within Reach
Warning: this post is about furniture. Fast Company has an article on the decline of the furniture company Design Within Reach. The article focuses on how in an effort to cut costs DWR "copied" designs it had earlier sold as a distributor. A look at the before and after, however, shows that the real problem is that the copies are nowhere near as aesthetically pleasing as the originals.
Take a look at these credenzas. In the DWR version where is your eye first drawn?
Is the eye not drawn first to the stodgy feet? The thick and heavy feet of the DWR version combined with the shorter width give it a weighted down, stolid feel. The original in contrast is light and airy, it almost floats above the floor, an effect which is aided by the shading with its subtle look of fluffy clouds.
Now take a look at the bookshelfs.
The DWR version has a clean look but it's boring–you see it once and you are done. Now look at the original. Does it not draw your attention? In the original the middle shelves do not align vertically with the side shelves and the top and bottom middle shelves are open, not closed. I think the result is a much more interesting and entertaining piece of furniture.
We now return you to your regularly scheduled dose of economics.
Asteroid Deflection as a Public Good
I wrote this post over the weekend but given Paul Samuelson's classic contribution to public goods theory and to economic textbooks it seems to also fit today.
In Modern Principles we use asteroid deflection as our example of a public good. Aside from memorability, the example has two virtues as a teaching tool. First, asteroid deflection is a true public good for all of humanity which raises free riding issues on a worldwide scale. Second, asteroid deflection is an example of a public good that is currently provided neither by the market nor by government. Thus the example underlines the fact that public goods are defined by their characteristics–nonexcludability and nonrivalry–and not by whether they are publicly provided, a point of confusion for many students.
The example may seem fanciful but Tyler and I are quite serious about the
importance of asteroid deflection. Large asteroid hits are rare but if
a large asteroid does hit, billions will be killed. As a result, sober calculations suggest that the lifetime risk of dying from an asteroid strike is about the same as the risk of dying in a commercial airplane crash. Yet we spend far less on avoiding the former risk than the latter.
A new report from the National Academy of Sciences discusses efforts to detect near earth objects (NEOs). Progress is mixed:
The United States is currently the only country with an active, government-sponsored effort to
detect and track potentially hazardous near-Earth objects (NEOs)…
Congress has mandated that NASA detect and track 90 percent of NEOs that are 1 kilometer in diameter
or larger. These objects represent a great potential hazard to life on Earth and could cause global
destruction. NASA is close to accomplishing this goal.Congress has more recently mandated that by
2020 NASA should detect and track 90 percent of NEOs that are 140 meters in diameter or larger, a
category of objects that is generally recognized to represent a very significant threat to life on Earth if
they strike in or near urban areas….The administration has not requested and Congress has not
appropriated new funds to meet this objective….[Thus] the current near-Earth object surveys cannot meet the goals of the 2005 NASA
Authorization Act…
Moreover, detection is only the first step towards deflection.
As a classroom discussion starter I like the video embedded below. The jovial attitude of the announcers contrasts amusingly with the topic while subtly illustrating some of our biases in perception yet the video does cover the main points about the worldwide risk, the fact that asteroid deflection is a public good and it hints at the free rider problem. I do doubt the bit about the riches available from asteroid mining. Enjoy.
99 10 Red Balloons
Earlier this week DARPA, the Defense Advanced Research Projects Agency, moored ten, 8 ft red, weather balloons in undisclosed locations across the United States.
The DARPA Network Challenge offered a prize of $40,000 to the person or group who first identified all the locations.
The MIT Group which won the challenge used a clever pyramid incentive scheme. Each balloon was worth $4000. The person to identify the location earned $2000. The person who invited that person to join the MIT group got $1000, the person who invited the person who invited the person who located the balloon got $500 and so forth (any money not distributed in this way was given to charity.)
The incentive scheme meant that contestants not only had an incentive to find balloons they had an incentive to find someone who could find balloons (or find someone who could find someone who could find balloons and so forth).
Incredibly, the MIT team located all ten balloons in just under 9 hours! The challenge may seem frivolous but in fact is a great example
of how prizes and network technologies can combine to collect and use
highly dispersed information–a problem of very general interest and relevance.
Falsified Research
Addendum: The Daily Show beat me to it last night. Hat tip J-Walk Blog and Daniel Lippman.
Condom Law: NSFW
The AIDS Healthcare Foundation is lobbying California to require the use of condoms in porn movies. Their argument is that this is an employee safety issue–like requiring workers to wear hard hats–and so should fall under the Cal/OSHA laws.
But in an op-ed at Forbes.com Alex Padilla points out that to fall under the law will require classifying porn stars as employees rather than as performers and that has surprising consequences.
…the adult film industry would have to make every performer an employee to satisfy the California's Division of Occupational Safety and Health, better known as Cal/OSHA, laws. This would be detrimental: California's anti-discrimination laws prohibit requiring an HIV test as a condition of employment; therefore the adult film industry's current testing process, in which every performer is tested for HIV monthly, would be illegal. Nor would adult film producers be allowed to "discriminate" by refusing employment to HIV-positive performers. As a result, untested and HIV-positive performers would be able to work in the industry, raising the risks of HIV outbreaks–particularly since condom breakage or slippage can occur.
My suspicion is that the AIDS lobbyists are not really so concerned with the performers but they do want to increase condom use by the general public and they think seeing more condoms in porn movies will help with that goal. A legitimate goal perhaps, but more likely the industry will move to Nevada or will further go online amateur.
Hat tip to Ed Lopez at Division of Labor.
Online Education and the Market for Superstar Teachers
I have argued that universities will move to a superstar market for teachers in which the very best teachers use on-line instruction and TAs to teach thousands of students at many different universities. The full online model is not here yet but I see an increasing amount of evidence for the superstar model of teaching. At GMU some of our best teachers are being recruited by other universities with very attractive offers and some of our most highly placed students have earned their positions through excellence in teaching rather than through the more traditional route of research.
I do not think GMU is unique in this regard–my anecdotal evidence is that the market for professors is rewarding great teachers with higher wages and higher placements than in earlier years.
The online aspect, which enhances the market for superstars, is also growing. Here from a piece on online education in Fast Company are a few nuggets on for-profit colleges which have moved online more quickly than the non-profits.
Today, for-profit colleges enroll 9% of all students, many of them in online programs. It's safe to assume they'll soon have many more….for-profits are the only sector significantly expanding enrollment — up 17% since the start of the recession in 2008….the University of Phoenix, which with 420,000 students is the largest university in North America.
Interesting explanation for why for-profits still lag:
Since there are no generally accepted measurements of learning in traditional higher education, the proxy for the value of a diploma on the job market is prestige. Rankings like those of U.S. News & World Report depend on reputation; spending per student, including spending on research; and selectivity — a measure of inputs, not outputs. On all these measures, for-profits come up short.
But how long can we expect the inability to measure to protect academia when there are big profits to be made? Robin Hanson would argue that most of what is going on is signaling, i.e. that prestige is what is being bought and sold and not prestige as a proxy for some other measure of quality. No doubt there is some truth to that but there are plenty of fields, dentistry, engineering, computer science where measurable quality matters as well.
It's true that the university equilibrium has lasted a long time but that doesn't mean it can't break down very quickly.
Addendum: Bryan Caplan laughs but Arnold Kling has the right idea.
Project Cybersyn
Cybersyn was a project of the socialist government of Salvador Allende (1970-1973) and British cybernetic visionary Stafford Beer; its goal was to control the Chilean economy in real-time using computers and “cybernetic principles.” The military regime that overthrew Allende dropped the project and probably for this reason when the project is periodically rediscovered it is often written about in a romantic tone as a revolutionary “socialist internet,” decades ahead of its time that was “destroyed” by the military because it was “too egalitarian” or because they didn’t understand it.
Although some sources at the time said the Chilean economy was “run by computer,” the project was in reality a bit of a joke especially in retrospect, albeit a rather expensive one, and about the only thing about it that worked were the ordinary Western Union telex machines spread around the country. The
two computers supposedly used to run the Chilean economy were IBM 360s (or machines on that order). These machines were no doubt very impressive to politicians and visionaries eager to use their technological might to control an economy (see picture at right.) Today, our perspective will perhaps be somewhat different when we realize that these behemoths were far less powerful than an iPhone. Run an economy with an iPhone? Sorry, there is no app for that.
Indeed, you don’t have to read far between the lines of Andy “socialist internet” Beckett’s account to get a flavor of what was really going on:
Beer’s original band of disciples had been diluted by other, less idealistic scientists. There was constant friction between the two groups. Meanwhile, Beer himself started to focus on other schemes: using painters and folk singers to publicise the principles of high-tech socialism; testing his son’s electrical public-opinion meters, which never actually saw service; and even organising anchovy-fishing expeditions to earn the government some desperately needed foreign currency.
(Note the classic, ‘the visionary failed because others lacked idealism’ story. Meanwhile the visionary is off on an anchovy-fishing expedition.)
Recently, Jeremiah Axelrod and Greg Borenstein have put together an excellent video essay (fyi, 25 minutes) which gets to the heart (perhaps head would be a better word) of Cybersyn by focusing on the legendary “control room,” which they delightfully call the “inverted panopticon.”
It is no accident, say Axelrod and Borenstein, that the control room looks like the bridge of the Starship Enterprise because the whole purpose of the room was to exude a science-fiction fantasy of omniscience and omnipotence. The fantasy naturally appealed to Allende who had the control room moved to the presidential palace just days before the coup.
The control room is like the bridge of the Starship Enterprise in another respect–both are stage sets. Nothing about the room is real, even the computer displays on the wall are simply hand drawn slides projected from the other side with Kodak carousels.
Ironically, when rumors of the project began to circulate, the illusion of omniscience and omnipotence that Beer had created, the same illusion that so appealed to Allende and that had funded Beer’s visions and experiments, this illusion caused fear that an all-knowing big brother was on the way–and such fear may even have encouraged the coup.
After the coup, rather than destroying the project because of its “egalitarian” nature, the military regime was more likely to have been disillusioned and disappointed to discover project Cybersyn’s impotence.
Hat tip to Boing Boing.
Least Convincing Argument of the Day
Here is James Caruso, the chief commercial officer for drug maker Allos, defending the price of cancer drug Foltyn:
Mr. Caruso also said the price of Folotyn was not out of line with that of other drugs for rare cancers. Patients, moreover, are likely to use the drug for only a couple of months because the tumor worsens so quickly, he said.
In other words, our drug isn't so expensive given how poorly it works.
FRED on your home page
The FRED database at the St.Louis Federal Reserve is an indispensable tool for quickly finding macro data and generating graphs. Now a FRED gadget is available which automatically updates graphs every time you visit your home page. If you have an iGoogle account just click on add stuff and search FredGraphs.
Hat tip to Mike Fladlien.
Time Travel with Doctor Who
When I was a young boy of ten or eleven I lived in a small town in England. I remember eating the black berries on the country lane on my way home from school and I remember my father and I watching Doctor Who. Each week the Doctor would venture into mystery and danger and as the tension rose I would boil with greater and greater excitement until suddenly the Doctor would confront the Cybermen or even worse the Daleks! Just then, of course, the episode would end. Total agony! I could not wait for the week to pass and I was a devil to tuck into bed those nights as I trembled with speculation and trepidation about whether the Doctor would survive.
“My Doctor,” was primarily the fourth, played by Tom Baker. His unique signature was a very long scarf–so enthralled was I that I asked my grandmother to knit me a similar scarf which I then wore everywhere I went… even when I returned to Canada and nobody understood the reference.
Recently I have been watching Doctor Who again, now with David Tennant playing the tenth doctor–the best since Baker in my view.
Only now, more than a quarter century past my childhood, I have been watching Doctor Who with my son. My eldest is a young boy of ten or eleven and he boils with greater and greater excitement as the Doctor ventures deeper into mystery and danger. He too jumps out of his chair in total agony when an episode ends with a cliffhanger and calming him after such an episode isn’t easy!
In the last episodes of the latest season the Doctor teams up with his old companion, Sarah Jane. The very same Sarah Jane played by the very same actress as accompanied “my Doctor” some thirty years ago–now aged and older just like me. As I watch Doctor Who with my son, just as I watched with my father, I reflect on time and age and how a dream of my childhood has been fulfilled–my living room darkened and flickering with light has transformed and become my own TARDIS…my own time machine.
State licensed hypnotists
Kevin Carey has a sadly amusing post on occupational licensing:
Back when I was working for the Indiana General Assembly, one member…became convinced that it was crucially important for the state to address, via statute, the problem of rogue hypnotists traveling the land, preying upon unsuspecting Hoosiers. He wasn’t anti-hypnotist, mind you–he thought the government needed to protect people from unqualified hypnotists…
So the state passed a hypnotist licensing law, complete with the requisite boards, professional standards, forms to fill out, fees to pay, and so on….Then, after the law was enacted, a funny thing started happening: The state began receiving license applications from people who didn’t live in Indiana….It turns out they were doing it so they could advertise in the yellow pages and on bus-stop billboards as “state-licensed.”
Hat tip to Matt Yglesias.
Brain Slicing
See a man's brain sliced to pieces live over the internet. Weird.
Addendum: Background here.