Category: Data Source

Trading on terror

by  Tyler Cowen in

Recent scholarship shows that informed traders increasingly disguise trades in economically linked securities such as exchange-traded funds (ETFs). Linking that work to longstanding literature on financial markets’ reactions to military conflict, we document a significant spike in short selling in the principal Israeli-company ETF days before the October 7 Hamas attack. The short selling that day far exceeded the short selling that occurred during numerous other periods of crisis, including the recession following the financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic. Similarly, we identify increases in short selling before the attack in dozens of Israeli companies traded in Tel Aviv. For one Israeli company alone, 4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or avoided losses) of 3.2 billion NIS on that additional short selling. Although we see no aggregate increase in shorting of Israeli companies on U.S. exchanges, we do identify a sharp and unusual increase, just before the attacks, in trading in risky short-dated options on these companies expiring just after the attacks. We identify similar patterns in the Israeli ETF at times when it was reported that Hamas was planning to execute a similar attack as in October. Our findings suggest that traders informed about the coming attacks profited from these tragic events, and consistent with prior literature we show that trading of this kind occurs in gaps in U.S. and international enforcement of legal prohibitions on informed trading. We contribute to the growing literature on trading related to geopolitical events and offer suggestions for policymakers concerned about profitable trading on the basis of information about coming military conflict.

That is from a new paper by Robert J. Jackson, Jr. and Joshua Mitts.  Via the excellent Jordan Schneider.

Debunked?: Possibly the study is quite wrong.

Who is responsible for grade inflation at Yale? (economists are meanies?)

by  Tyler Cowen in

If you click on the tweet you can see the full lists, as it gets much worse than what makes it on the screen here.  Via T. Greer.

South American economic growth

by  Tyler Cowen in

While there are varying sources, I did check a few of the numbers and they were confirmed. At first they seemed a little high to me.

Addendum: Note there is some kind of data problem with the 1980 numbers, but the latter-day numbers seem fine.

Perhaps intergenerational mobility has not declined in the United States after all

by  Tyler Cowen in

From the latest American Economic Review:

A large body of evidence finds that relative mobility in the US has declined over the past 150 years. However, long-run mobility estimates are usually based on White samples and therefore do not account for the limited opportunities available for nonwhite families. Moreover, historical data measure the father’s status with error, which biases estimates toward greater mobility. Using linked census data from 1850 to 1940, I show that accounting for race and measurement error can double estimates of intergenerational persistence. Updated estimates imply that there is greater equality of opportunity today than in the past, mostly because opportunity was never that equal. (JEL J15, J62, N31, N32)

That is from Zachary Ward of Baylor University.  If that is true, and it may be, how many popular economics books from the last twenty years need to be tossed out?  How many “intergenerational mobility is declining” newspaper columns and magazine articles?  Ouch.  No single article settles a question, but for now this seems to be the best, most up to date word on the matter.

Here are earlier, less gated copies of the research.

Reassessing China’s Rural Reforms: The View from Outer Space

by  Tyler Cowen in

We study one of the central reforms in China’s economic miracle, the Household Responsibility System (HRS), which decollectivized agriculture starting in 1978. The HRS is commonly seen as having significantly boosted agricultural productivity—but this conclusion rests on unreliable official data. We use historical satellite imagery to generate new measurements of grain yield, independent of official Chinese statistics. Using two separate empirical designs that exploit the staggered rollout of the HRS across provinces and counties, we find no causal evidence that areas that adopted the HRS sooner experienced faster grain yield growth. These results challenge our conventional understanding of decollectivization, land reform, and the origins of the Chinese miracle.

That is a new paper by Joel Ferguson and Oliver Kim, with Kim being on the job market from Berkeley this year.  Here is Kim’s thread on Twitter.  Intriguing results, which have won praise from Pseudoerasmus…

Carrying opioids in legal imports?

by  Tyler Cowen in

The U.S. opioid crisis is now driven by fentanyl, a powerful synthetic opioid that currently accounts for 90% of all opioid deaths. Fentanyl is smuggled from abroad, with little evidence on how this happens. We show that a substantial amount of fentanyl smuggling occurs via legal trade flows, with a positive relationship between state-level imports and drug overdoses that accounts for 15,000-20,000 deaths per year. This relationship is not explained by geographic differences in “deaths of despair,” general demand for opioids, or job losses from import competition. Our results suggest that fentanyl smuggling via imports is pervasive and a key determinant of opioid problems

That is from a new NBER working paper by Timothy J. Moore, William W. Olney, and Benjamin Hansen.  One core lesson seems to be that interdiction is largely a futile endeavor.

Does studying economics make you more selfish?

by  Tyler Cowen in

Maybe not:

It is widely held that studying economics makes you more selfish and politically conservative. We use a difference-in-differences strategy to disentangle the causal impact of economics education from selection effects. We estimate the effect of four different intermediate microeconomics courses on students’ experimentally elicited social preferences and beliefs about others, and policy opinions. We find no discernible effect of studying economics (whatever the course content) on self-interest or beliefs about others’ self-interest. Results on policy preferences also point to little effect, except that economics may make students somewhat less opposed to highly restrictive immigration policies.

That is from a newly published paper by Daniele Girardi, Sai Madhurika Mamunuru, Simon D. Halliday, and Samuel Bowles.  This is a good example of a myth that got started with relatively little basis in fact.  At the very least it now has to be filed under “unconfirmed, likely false.”  Via Stefan Schubert.

Those who graduate from college late in life

by  Tyler Cowen in

It is generally agreed upon that most individuals who acquire a college degree do so in their early 20s. Despite this consensus, we show that in the US from the 1930 birth cohort onwards a large fraction – around 20% – of college graduates obtained their degree after age 30. We explore the implications of this phenomenon. First, we show that these so-called late bloomers have significantly contributed to the narrowing of gender and racial gaps in the college share, despite the general widening of the racial gap. Second, late bloomers are responsible for more than half of the increase in the aggregate college share from 1960 onwards. Finally, we show that the returns to having a college degree vary depending on the age at graduation. Ignoring the existence of late bloomers therefore leads to a significant underestimation of the returns to college education for those finishing college in their early 20s.

That is from a new NBER paper by Zsófia L. Bárány, Moshe Buchinsky, and Pauline Corblet.

The Indian Challenge to Blockchains: Digital Public Goods

by  Alex Tabarrok in

In my post, Blockchains and the Opportunity of the Commons, I explored the potential of blockchains to create new commons:

Blockchains and tokenization are a way to incentivize the creation of a commons. A commons is an unowned place, platform, or protocol that helps people to meet, communicate and transact. Commons underlying modern life include TCP/IP, SMTP, HTTP, GPS and the English language. We don’t see these commons clearly because they are free, ubiquitous and, like air, taken for granted. What we do see are platforms like Airbnb, Uber and the NYSE and places to meet and communicate like OkCupid, Twitter, Facebook and YouTube. What blockchain and tokenization offer is the possibility of creating commons to replace all of these services and much more.

For the most part, the potential has not been realized. But the core idea of substituting a protocol for a firm has been taken in a different direction in India. Instead of blockchains, India has been experimenting with digital public goods. A digital public good is open source software with open data and open standards–available for use or even modification and adaption by anyone. The blockchain community, for example, has long aspired to develop a blockchain-based Uber, connecting drivers and riders without a corporate intermediary. India has achieved this through digital public goods instead.

Namma Yatri is an open-source, open-data Uber-like protocol with 100% of the commission flowing directly from rider to driver. Namma Yatri is built on the Beckn Protocol, a product of the Beckn Foundation which is backed by Infosys co-founder Nandan Nilekani (Tyler and I had the opportunity to talk with many people behind the project including Nandan on a recent trip to India). Namma Yatri has booked over 15 million trips in just one year of operation, mostly in one city, Bangalore. I expect it will expand rapidly.

Namma Yatri is only one example of a digital public good in the India Stack, a collection that includes identity (Aadhaar), payments (UPI) and digital data sharing (e.g. digital lockers). Since its launch in 2008, for example, India’s Aadhaar system has created a digital identity for over 1.2 billion people allowing them to open some 650 million bank accounts. This has enhanced financial inclusion and facilitated direct government payments of pensions and rations, reducing corruption. Likewise, the UPI system built modern payment rails which are then leveraged by banks and firms such as Google Pay and WhatsApp. The resulting payments system does some 10 billion transactions a month and is one of the fastest and lowest cost in the world.

Challenges remain. The development of digital public goods relies on funding from non-profits, governments, and private consortiums, raising questions about long-term sustainability. These goods need regular maintenance and updates, and some require backend support. Namma Yatri began as a completely free app for drivers and users but if there is a problem who do you call? To support the back-end office, and to pay for updated inputs (such as maps) the service has started to use a subscription fee. Nothing wrong with that but it’s a reminder that firms are not so easily dispensed with. Privacy is another concern. While blockchains offer privacy at the technology layer, privacy for digital public goods depend on legal and normative frameworks. For instance, India’s Aadhaar system is legally restricted from police use, a smart balance that needs to be maintained in changing times.

Despite these challenges, there is no denying that India has built digital public goods at scale in a way that demonstrates an alternative pathway for digital infrastructure and a challenge to blockchains.

Labor market evidence from ChatGPT

by  Tyler Cowen in

So far some of the main effects are quite egalitarian:

Generative Artificial Intelligence (AI) holds the potential to either complement knowledge workers by increasing their productivity or substitute them entirely. We examine the short-term effects of the recent release of the large language model (LLM), ChatGPT, on the employment outcomes of freelancers on a large online platform. We find that freelancers in highly affected occupations suffer from the introduction of generative AI, experiencing reductions in both employment and earnings. We find similar effects studying the release of other image-based, generative AI models. Exploring the heterogeneity by freelancers’ employment history, we do not find evidence that high-quality service, measured by their past performance and employment, moderates the adverse effects on employment. In fact, we find suggestive evidence that top freelancers are disproportionately affected by AI. These results suggest that in the short term generative AI reduces overall demand for knowledge workers of all types, and may have the potential to narrow gaps among workers.

That is from a new paper by Xiang Hui, Oren Reshef, and Luofeng Zhou, via Fernand Pajot.  And here is an FT summary of some key results.

I would stress this point, however.  As more ordinary life and commerce structures itself around AI, more and more AI-driven or AI-enable projects will become possible.  That will favor those who are good at conceiving of projects and executing them, and those longer-run effects may well be less egalitarian.

Ken Opalo is more optimistic about Africa (from my email)

by  Tyler Cowen in

Just a quick note that the story isn’t a straightforward “lost decade.”

Human development indicators (health, education, housing) are up. Lots of infrastructure is being built all over the place. The real challenges behind the growth slowdown are:

1) productivity increases have stalled since about 2014 (and was higher than India’s for a while
2) delayed fertility transition continues to depress the per capita income measure.

More on this here: https://kenopalo.substack.com/p/there-is-an-urgent-need-to-unlock

Best,

Ken

America’s top one percent has not been seeing a rising income share

by  Tyler Cowen in

That is the topic of my latest Bloomberg column.  The opener is this:

Can a single self-published paper really refute decades of work by three famous economists? If the paper is the modestly titled “Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends,” then the answer — with qualifications — is yes.

And this:

Now, in their latest study, they arrive at a conclusion that will be startling to a lot of people: “Increasing government transfers and tax progressivity have resulted in rising real incomes for all income groups and little change in after-tax top income shares.”

More concretely, looking at pre-tax income, the share of the top 1% has gone up only 2.6 percentage points since the early 1960s. For after-tax income, top income shares haven’t changed much at all.

Auten and Splinter have a methodological explanation for why their results differ. The share of true income missing in tax data has increased over time, and they attempt to adjust for that discrepancy, as well as for how income is sheltered in corporations has changed. Auten and Splinter also include cash and in-kind transfers for the lower income groups, to better measure their true incomes.

Recommended.

Freer Indian reservations prosper more

by  Tyler Cowen in

Several disciplines in social sciences have shown that institutions that promote cooperation facilitate mutually beneficial exchanges and generate prosperity. Drawing on these insights, this paper develops a Reservation Economic Freedom Index that classifies institutions on a sample of Indian reservations concerning whether these intuitions will enhance the prosperity of Indians residing on these reservations. The development of this index is guided by the research of political scientists, economists, other social science disciplines, and research in law. When correlating this index with Indian incomes, the evidence shows a statistically significant positive correlation between reservations with prosperity-enhancing institutions and their economic prosperity.

That is from a recent article by my colleague Thomas Stratmann, recently published in Public Choice.  Here is the SSRN version.  Here is the index itself.  Here is a related Op-Ed.

Unraveling the female thinness premium

by  Tyler Cowen in

That is a paper by Shasha Wang, who is on the job market from the University of Pennsylvania.  Here is the abstract:

This paper studies two mechanisms that jointly contribute to thinness premium in the marriage market: the economic mechanism and the non-economic mechanism. My empirical findings from the Panel Study of Income Dynamics (PSID) reveal that all else being equal, thinner females are more likely to marry richer males. A one-unit increase in BMI (Body Mass Index), roughly equivalent to a six-pound increase for a 5’6″ figure, is associated with a 3.9% decrease in the husband’s annual labor income for noncollege wives and a 4.3% decrease for college-educated wives. Using the Simulated Method of Moments to estimate a two-stage static matching equilibrium model, this paper determines whether the observed preference for thinner female partners in the marriage market is a result of assortative mating due to the thinness premium in the labor market or is driven by non-economic factors such as a preference for smaller body sizes or other traits associated with smaller body sizes, such as self-discipline, active social interactions, and positive social image. The estimation results indicate that the positive correlation between a husband’s income and his wife’s thinness is primarily attributed to a male preference for thinner spouses. Women with a BMI below 25 only earn 4% more income than those with a BMI above 25 (assuming all other factors are equal), but having a wife with a BMI below 25 significantly enhances a husband’s utility, akin to a 1.15 times increase in his consumption.

Please note that is not her job market paper.  Her main paper is a very interesting piece on when/where STEM gaps arise across men and women.