Category: Economics
The “Deaths of Despair” narrative is somewhat wrong
Matt Yglesias does an excellent job laying out the case against the “deaths of despair” narrative and putting it bluntly.
Over the past few years, Anne Case and Angus Deaton have unleashed upon the world a powerful meme that seems to link together America’s troublingly bad life expectancy outcomes with a number of salient social and political trends like the unexpected rise of Donald Trump.
Their “deaths of despair” narrative linking declining life expectancy to populist-right politics and to profound social and economic decay has proven to be extremely powerful. But their analysis suffers from fundamental statistical flaws that critics have been pointing out for years and that Case and Deaton just keep blustering through as if the objections don’t matter. Beyond that, they are operating within the confines of a construct — “despair” — that has little evidentiary basis.
…Novosad, Rafkin, and Asher have provided a compelling analysis of a very concentrated problem of worsening health outcomes for the worst-off Americans. Case and Deaton, by contrast, have delivered a very misleading portrait of worsening health outcomes for the majority of Americans that (because they mistakenly think it’s a majority) they attribute to broad economic forces that exist internationally but which for some reason only cause “despair” in the United States.
…The point is that we face a set of discrete public health challenges that we need to think about both as policy matters and in terms of politics and public opinion. But there is no “despair” construct driving any of this, and the linkage to big picture political trends is simply that Republicans are more hostile to regulation. Case and Deaton, meanwhile, have sent us on the equivalent of a years-long wild goose chase away from well-known ideas like “smoking is unhealthy” or “it would be good to find a way to get fewer people to use heroin.”
I tend to agree with Matt but I would offer a few cautions. Case and Deaton have been too broad in identifying the at-risk population. Identifying more carefully the at-risk group(s) is important so that we can target different problems with different solutions. Indeed, part of what makes the very important opioid crisis so bedeviling is precisely that it is not limited to “despairing” populations but cuts across many groups.
I wouldn’t, however, throw out despair as an organizing principle. The evidence on “despair” goes beyond death to include a host of co-morbidities such as mental stress, marriage rates, labor force participation rates and other measures of well being. Regardless of the precise population to which these problems attach they are co-morbidities and I suspect not by accident. Education is a proxy for the underlying problem but likely not causal. Matt’s cheeky suggestion to promote ideas like “smoking is unhealthy” illustrates part of the issue. Education and information will not solve that problem. Smokers know that smoking is unhealthy but they do it anyway–perhaps because it’s one of the few easily available pleasures if you are unmarried, out of work and stressed.
Nevertheless, do read the whole thing.
The costs of short-termism?
R&D investment reduces current profits, so short-term pressure to hit profit targets may distort R&D. In the data, firms just meeting Wall Street forecasts have lower R&D growth and subsequent innovation, while managers just missing receive lower pay. But short-termist distortions might not quantitatively matter if aggregation or equilibrium dampen their impact. So I build and estimate a quantitative endogenous growth model in which short-termism arises naturally as discipline on conflicted managers and boosts firm value by about 1%. But short-termism reduces R&D, and the social return to R&D is higher than the private return due to standard channels including knowledge spillovers and imperfect competition. So at the macro level, short-termist distortions slow growth by 5 basis points yearly and lower social welfare by about 1%.
That is from Stephen J. Terry, recently published in Econometrica. Via the excellent Kevin Lewis.
Legacy Admissions
I admire but do not necessarily approve of the genius at UVA admissions who slyly inserted legacies into the essay prompt, yet shrewdly combined it with race, slavery and history to make the package defensible.
If you have a personal or historic connection with UVA, and if you’d like to share how your experience of this connection has prepared you to contribute to the University, please share your thoughts here. Such relationships might include, but are not limited to, being a child of someone who graduated from or works for UVA, a descendant of ancestors who labored at UVA, or a participant in UVA programs.
Claudia Goldin Wins Nobel
Claudia Goldin wins the Nobel! Goldin is an economic historian, she was inspired to go into economics by Alfred Kahn (later the architect of airline deregulation) and became a student of Robert Fogel at the University of Chicago. Goldin pioneered the historical analysis of the labor market and gender. If you want to read a single Goldin piece then very fortuitously and appropriately her NBER paper called…Why Women Won just appeared as an NBER working paper! The Nobel Prize committee’s Scientific Background is a good summary of her work including her important work on education with Larry Katz.
Goldin is well known at MR which makes covering this year’s Nobel easy as I can point to our MRU videos on Goldin and her podcast with Conversations with Tyler.
First, an overview of Goldin and her work, especially interesting on her archival work. Goldin wasn’t just downloading datasets she discovered and developed them!
Next is my video on one of Goldin’s key papers (with Katz) about how the development of the pill vastly accelerated women entering the workforce especially in the professions (we also cover Goldin’s paper in Modern Principles.)
Women working: What’s the Pill Got To Do With It?
Then there is Tyler’s Conversations with Tyler podcast with Goldin. I am struck by how little Goldin is willing to speculate, pontificate or advocate in that conversation and instead sticks to the data.
Finally, here are many other MR posts on Goldin.
“Why Women Won”
That is the title of a new NBER working paper, published today, by…Claudia Goldin. Here is the abstract:
How, when, and why did women in the US obtain legal rights equal to men’s regarding the workplace, marriage, family, Social Security, criminal justice, credit markets, and other parts of the economy and society, decades after they gained the right to vote? The story begins with the civil rights movement and the somewhat fortuitous nature of the early and key women’s rights legislation. The women’s movement formed and pressed for further rights. Of the 155 critical moments in women’s rights history I’ve compiled from 1905 to 2023, 45% occurred between 1963 and 1973. The greatly increased employment of women, the formation of women’s rights associations, the belief that women’s votes mattered, and the unstinting efforts of various members of Congress were behind the advances. But women soon became splintered by marital status, employment, region, and religion far more than men. A substantial group of women emerged in the 1970s to oppose various rights for women, just as they did during the suffrage movement. They remain a potent force today.
I will read it soon…
Do looks matter for an academic career in economics?
We show that physical appearance plays a role in the success of economics PhD graduates and investigate the underlying mechanisms driving this relationship. Leveraging a unique dataset of career and research productivity trajectories of PhD graduates from leading economics departments in the United States, we provide robust evidence that appearance is a predictive factor for both research productivity and job placement. Our analysis goes beyond establishing the association between attractiveness and success within the profession. By jointly examining appearance, job outcome, and research productivity, as well as the longitudinal development of the latter two over time, we show that the effect of appearance can be partially, but not fully, attributed to its role as a predictor of research productivity, with the remainder of the effect reflecting an intrinsic demand for attractiveness.
That is forthcoming in the Journal of Economic Behavior and Organization, by Galina Hale, Tali Regev, and Yona Rubinstein. Via Rolf Degen. And here is a recent piece on lookism and fund managers.
Who will win the next Nobel Prize in economics?
My prediction is a joint prize for Tim Bresnahan and Ariel Pakes, for Industrial Organization, a mix of game theory and empirical methods. Usually I am wrong (sorry guys!).
What are your predictions?
Note that for reasons of time zone and travel, I might not be around to cover the Prize this coming Monday, apologies! We will see. I believe that Alex in any case will be here…
What I’ve been reading
Naomi Klein, Doppelganger: A Trip into the Mirror World. Have you ever been confused by Naomi Klein vs. Naomi Wolf? Intellectually they are both pretty crazy. And they are both named Naomi. Some might think they bear some resemblance to each other. Well, here is a whole book on that confusion! And it is written by Naomi Klein. How much insight and self-awareness can one intellectually crazy person have about being confused for another intellectually crazy person? Quite a bit, it turns out. Recommended, though with the provision that I understand you never felt you needed to read a whole book about such a topic.
Benjamin Labutut, The Maniac. Chilean author, he has penned the story of von Neumann but in the latter part of the book switches to contemporary AI and AlphaGO, semi-fictionalized. Feels vital and not tired, mostly pretty good, thoiiugh for some MR readers the material may be excessively familiar.
J.M. Coetzee, The Pole. Short, compelling, self-contained, again deals with older men who have not resolved their issues concerning sex. Good but not great Coetzee.
Gary S. Becker, The Economic Approach: Unpublished Writings of Gary S. Becker. I am honored to have blurbed this book.
Richard Campanella, Bienville’s Dilemma: A Historical Geography of New Orleans is one mighty fine book.
Shuchen Xiang, Chinese Cosmopolitanism: The History and Philosophy of an Idea. Chinese cosmopolitanism, there was more of it than you might have thought. Should we be asking “Where did it go?” Or is it there more than ever?
Union Busted
The International Longshore and Warehouse Union (ILWU) just filed for bankruptcy because it lost a case with a port operator in Portland. The back story is amazing.
The ILWU is one of the most powerful unions in the United States. Since bloody riots in 1934 it has controlled all 29 seaports on the west coast of the United States, giving them monopoly power. The ILWU’s 22 thousand workers are known as the “lords of the dock” and they earn an average of just over $200,000 in salary and another $100,000 in benefits, a bit more than the typical CEO. Some ILWU foremen take home half a million a year.
The ILWU has a lock on dockworkers but there are other rival unions. In Portland, for example, there were two jobs for reefers–electrical workers who handle special refrigerated containers–that since 1974 had been held by members of the International Brotherhood of Electrical Workers. The ILWU, however, wanted control of these jobs and in 2012 one of the heavies of the union, Leal Sundet, threatened the manager of the port operator that if he didn’t help him to take these jobs from the Brotherhood and give them to the Longshoremen he would create havoc. When the port operator didn’t comply–it wasn’t clear even that they could comply as the jobs were not under the port operator’s control–the ILWU followed through on its threat. Repeated shutdowns, slowdowns and discovered “safety violations” disrupted port operations so badly that the entire port closed.
The port operator, however, took the ILWU to court, arguing that the labor actions were illegal. The jury agreed giving the port operator an award of $93.6 million for its losses, later reduced to $19 million. The Union doesn’t have the $19 million, hence the bankruptcy.
Thus, the union has been bankrupted, the port closed, hundreds of millions of dollars lost and shipments slowed all because of a dispute over 2 jobs.
In related news, the just approved ILWU contract raises wages for ILWU workers and ensures that there will be no serious automation of the ports for at least another six years, again putting the United States behind the rest of the world in efficient shipping and logistics.
I am reminded of the day Ronald Reagan fired the air traffic controllers for their illegal strike.
History of Economic Thought syllabus bleg
I am teaching graduate-level history of economic thought next spring, for the first time. What do you all recommend I put on the syllabus? I thank you all in advance for you sage counsel and wisdom.
Speeding Up Pharmaceutical Approvals by Recognizing Other Stringent Regulators
New Zealand’s ACT party has proposed that New Zealand speed up pharmaceutical approvals by recognizing the decisions of other stringent regulators, an idea I have long promoted .
The average time for Medsafe to consent an application for a high risk medicine is 630 days. For intermediate risk, it is 661 days and for lower risk it is 830 days8. The average time taken just for processing some lower risk categories is 176-210 days. This is an unacceptable length of time, given there other regulatory bodies replicating that exact same work overseas.
ACT says if a drug or medical device has been approved by any two reputable foreign regulatory bodies (such as Australia, United States, United Kingdom), it should be automatically approved in NZ as well within one week unless Medsafe can show extraordinary reason why it shouldn’t be.
This simple change would significantly improve access to medicines that have already been subject to rigorous testing and analysis through other regulatory regimes.
The ACT party is small but it has some seats and surprisingly the much larger National party is proposing a similar rule:
New Zealand’s slow approval process for medicines means Kiwis wait much longer than people in other countries to access potentially life-saving treatments. While it is essential that medicines and other treatments are subject to stringent scrutiny to ensure they are safe, there is no reason why New Zealanders should have to wait for our domestic medicines regulatory body, Medsafe, to conduct its own cumbersome process from scratch, when countries with health systems we trust have already gone through this exercise.
National will:…• Require Medsafe to implement even faster approvals processes for any medicines for use in New Zealand that have already been approved by at least two regulatory bodies that we currently recognise, including Australia, the EU, Singapore, the UK, Switzerland and the US.
New Zealand, by the way, already has a reciprocity agreement with the United States for food and it’s mutual–the FDA also recognizes New Zealand as a stringent food regulator–so the idea is not unprecedented.
Moreover, all of this comes on the tail of the UK actually adopting the idea via the “reliance procedure” which recognizes the EU as a stringent regulator and guarantees approval in the UK within 67 days for ay drug approved in the EU.
In the United States, even AOC has flirted with the idea, at least for sunscreens!
Thus, the reciprocity or recognition idea is starting to be adopted.
Hat tip: Eric Crampton who has some further comments.
Obsolescence Rents
The subtitle of this new NBER working paper is: Teamsters, Truckers, and Impending Innovations. Here is the abstract:
We consider large, permanent shocks to individual occupations whose arrival date is uncertain. We are motivated by the advent of self-driving trucks, which will dramatically reduce demand for truck drivers. Using a bare-bones overlapping generations model, we examine an occupation facing obsolescence. We show that workers must be compensated to enter the occupation – receiving what we dub obsolescence rents – with fewer and older workers remaining in the occupation. We investigate the market for teamsters at the dawn of the automotive truck as an á propos parallel to truckers themselves, as self-driving trucks crest the horizon. As widespread adoption of trucks drew nearer, the number of teamsters fell, the occupation became ‘grayer’, and teamster wages rose, as predicted by the model.
That is by Costas Cavounidis, Qingyuan Chai, Kevin Lang, and Raghav Malhotra.
The Labor Market Returns of Being An Artist
The labor market penalty to choosing the arts seems to be rising:
Using individual-level data from the Census Bureau’s American Community Survey (ACS) between 2006 and 2021, I study the labor market experiences of artists. First, I find a decline in the relative earnings of artists to non-artists from zero to a 15% disadvantage. After controlling for demographic differences, the decline is sharper, declining from a 15% earnings disadvantage to 30%. That the inclusion of demographic controls raises the earnings gap suggests there is positive selection into the arts. Second, these differences decline in magnitude to 4.4%, but remain statistically significant, after exploiting variation among artists and non-artists in the same industry-year and major occupation. Third, when restricting the set of individuals to those with at least a college degree, those with a fine arts degree also incur an earnings and employment penalty even if they work in the arts. These results highlight the increasing financial precariousness of artists over the past decade.
That is a new paper by Christos Makridis, via the excellent Kevin Lewis. Overall this result makes sense to me. Success in the arts requires extreme talent of some kind in most (not all) cases. Those individuals can earn increasingly more in other endeavors. But if the arts are trapped in a “Malthusian equilibrium,” with intense entry competing down returns because it is fun, artistic earnings may not keep pace.
New issue of Econ Journal Watch
This is now twenty years of Econ Journal Watch, congratulations to Dan Klein! Here is the table of contents:
Volume 20, Number 2, September 2023
Screening the 1915 film The Birth of a Nation: In an article in the American Economic Review, Desmond Ang purports to show causal impact of screenings of the film between 1915 and 1919 on lynchings, on the formation and growth of Ku Klux Klan chapters between 1920 and 1925, and on hate crimes in the early 2000s. Here, concurring that the film itself reeks of racism, Robert Kaestner scrutinizes Ang’s data and analyses, and challenges the claims of causal evidence of effects from 1915–1919 screenings of the film. (Note: Professor Ang was not invited to reply for concurrent publication because Kaestner’s piece was finalized at too late a date. Professor Ang is invited to reply in a future issue.)
Temperature-economic growth claims tested again: Having tested temperature-economic growth claims previously in this journal (here and here), David Barker now reports on his investigation into much-cited articles by Melissa Dell, Benjamin Jones, and Benjamin Olken, published in the American Economic Review in 2009 and the American Economic Journal: Macroeconomics in 2012. As with the two previous pieces by Barker, the commented-on authors have declined to reply (the invitation remains open).
Debating the causes of the Ukraine famine of the early 1930s: Two scholars interpret the complex causes of a tragedy that caused the loss of perhaps three million souls. Natalya Naumenko’s research on the causes of the Ukraine famine is discussed by Mark Tauger, and Naumenko replies.
Ergodicity economics, debated: A number of scholars have advanced an approach to decision making under uncertainty called ergodicity economics. A critique is provided here by Matthew Ford and John Kay, who maintain that psychology is fundamental to any general theory of decision making under uncertainty. Eleven proponents of ergodicity economics have coauthored a reply. They suggest that the critique is based on an incomplete understanding of ergodicity economics, and point to two sources of misunderstanding. The replying authors are Oliver Hulme, Arne Vanhoyweghen, Colm Connaughton, Ole Peters, Simon Steinkamp, Alexander Adamou, Dominik Baumann, Vincent Ginis, Bert Verbruggen, James Price, and Benjamin Skjold.
Dispute resolution on hospitals, communication, and dispute resolution? Previously, Florence R. LeCraw, Daniel Montanera, and Thomas A. Mroz (LMM) criticized the statistical methods of a 2018 article in Health Affairs. Here, Maayan Yitshak-Sade, Allen Kachalia, Victor Novack, and Michelle M. Mello provide a reply to LMM, and LMM provide a rejoinder to them.
Aaron Gamino rejoins on health insurance mandates and the marriage of young adults: Previously, Aaron Gamino commented on the statistical modeling in a 2022 Journal of Human Resources article, whose authors, Scott Barkowski and Joanne Song McLaughlin, replied. Here now Gamino provides a rejoinder.
A History of Classical Liberalism in the Netherlands: Edwin van de Haar narrates the classical liberal movements in the Netherlands, from the Dutch Golden Age, through the 18th, 19th, and 20th centuries, and down to today. The article extends the series on Classical Liberalism in Econ, by Country.
To Russia with love: The conservative liberal Boris Chicherin (1828–1904) addressed his fellow Russians in an 1857 essay “Contemporary Tasks of Russian Life.” Here, the essay is republished by permission of Yale University Press, with a Foreword by the translator Gary Hamburg.
Pierre de Boisguilbert: Prime Extracts and Some Correspondence: The first great exponent of liberal economics in France was Pierre de Boisguilbert (1646–1714). Here, Benoît Malbranque provides English-language readers with a taste of Boisguilbert, and for the first time.
SSRN and medRxiv Censor Counter-narrative Science: Jay Bhattacharya and Steve Hanke detail the experience of three research teams being censored by SSRN and medRxiv. The article also points to a website (link) where scholars can report their experiences of being censored by SSRN, medRxiv, or other preprint servers.
Journal of Accounting Research’s Report on Its Own Research-Misconduct Investigation of an Article It Published: Dan Klein reports and rebukes the journal.
What are your most underappreciated works? Previously, 18 scholars with 4k+ Google Scholar cites pointed to a decade-or-more old paper with cite count below his or her h-index. Now, they are joined by Andrew Gelman, Robert Kaestner, Robert A. Lawson, George Selgin, Ilya Somin, and Alex Tabarrok.
EJW Audio:
Edwin van de Haar on Classical Liberalism in the Netherlands
Paul Robinson on Russian Liberalism
Vlad Tarko and Radu Nechita on Liberalism in Romania, 1829 to 2023
Work From Home Works
It took firms decades to adjust to electricity by redesigning factories, products, and workflows to take full advantage of the new possibilities. Similarly, the benefits of work from home start to come most profoundly when expensive offices can be shrunk, employers can draw from a much larger pool of workers and workers can adjust when and where they work, including the location of their homes. It’s not surprising, therefore, that with little time for either the workers or the firms to adjust and with few options to choose how much to work from home, productivity fell when COVID sent workers home. But, with more time to plan and more options for hybrid but extensive work from home (e.g. work from home Mondays and Fridays), work from home has large benefits. We are also seeing management redesign to take advantage of work from home in the same way we saw factory redesign to take advantage of electricity. Management, for example, is shifting from input metrics–do you show up?–to output metrics–did the work get done? Designing and validating new metrics takes time, but these changes are helping to increase the benefits of work from home.
Nick Bloom reviews the evidence (slides here).
Looking at micro economic studies on working from home productivity, the classic is “The Stanford Study” I helped oversee in 2010-2012. We randomized 250 employees in a large multinational firm into those who would work from home and those who would report to the office. The expectation, of course, was that home-based employees would goof-off, sleeping or watching TV rather than working.
So, we were shocked to find a massive 13 percent increase in productivity.
The productivity boost came from two sources. First, remote employees worked 9 percent more in minutes per day. They were rarely late to work, spent less time gossiping and chatting with colleagues, and took shorter lunch breaks and fewer sick days. Remote employees also had 4 percent more output per minute. They told us it’s quieter at home. The office was so noisy many of them struggled to concentrate.
The macro evidence also suggests or at least is consistent with work from home working:
In the five years before the pandemic, U.S. labor productivity growth was 1.2 percent; since 2020, this picked up to 1.5 percent. Given the state of the world, that acceleration was miraculous.
What could have caused this? Perhaps rising government expenditure and easy monetary policy? Possibly, but greater government activity traditionally is associated with lower, not higher, productivity growth. Perhaps an acceleration in technology and computerization? Possibly, but the pandemic did not witness any pickup in technological progress. Perhaps the five-fold surge in working from home post-pandemic. Maybe cutting billions of commuting hours, replacing millions of business trips with Zoom meetings, increasing the labor supply of Americans with disabilities or child-care commitments, and saving millions of square feet of office space increased productivity? It is honestly hard to say.
Revealed preference is the most telling piece of evidence. Workers value the option to work from home and many firms now advertise the options for hybrid work as a benefit:
…millions of firms around the world are adopting hybrid and remote work, there has to be something there. I have spoken to many hundreds of managers and firms over the last three years and I repeatedly hear they use home working as a key part of their recruitment and retention strategy. Indeed, another recent experiment on 1600 employees found hybrid reduced employee quit rates by 35 percent. \
Despite a rocky start, work from home appears to have stabilized at around 25% of work days overall and stunningly, nearly 40% of work days for college educated workers! Work from home thus appears to be a permanent and beneficial change in how work is structured.
