Category: Economics
Markets in everything, metals from dead bodies edition
The recycling bin behind the cremation chamber is the first tip-off that Elgin Mills Crematorium, north of Toronto, is up to something different.
The green bin is full of medical implants, including titanium hips and knees, stainless steel bone screws — even gold teeth.
The pieces gathered here were, until recently, inside the bodies of deceased people. Cremating a body incinerates nearly all biological material, but artificial materials can be collected quite literally out of the ashes.
But the Mount Pleasant Cemetery Group, which operates Elgin Mills Crematorium, has adopted a system not only to safely recover these materials but recycle them with a rather altruistic buyer — who compensates them based on what they pass on.
Here is the story, via Shaun F.
The Nanny Tax and the Miracle of Government Loaves
Before it descends into utter madness, Leslie Forde’s Slate article on Nanny pay opens with a good story:
“I’m sorry … but I can’t,” she told me over the phone. My heart sank. I was confident she’d take the job. Quickly, I went into negotiation mode, “But wait, can we talk about the pay? Do you need more to … ” She said no before I could finish. “I just can’t take a job (that pays) over the table. It’ll mess up my housing. I won’t be able to stay in my apartment. I’m sorry. I’ve already taken another job.” I ended the call. …my entire career was at risk because I couldn’t find a nanny—at least, one willing to be paid legally.
It’s estimated that less than 10 percent of 2 million domestic workers and the families who employ them pay employment taxes.
From that opening I was expecting the author to explain that nannies aren’t willing to work on the books because at the bottom of the income scale income is taxed twice–first by Federal and State direct taxes and second indirectly because higher income causes workers to lose benefits. As a result of this double taxation, in some states it’s possible for poor workers to face effective marginal tax rates above 100 percent. If you had to pay to work, would you work?
High marginal taxes rates on the poor are a problem. We ought to be able to agree on that, even if we disagree on proposals to address the problem such as a universal basic income or a negative income tax. But in Forde’s magical world, up is down and down is up and the problem is that taxes on the poor are too low. But not to worry because this presents a hidden opportunity!
There is, however, a hidden opportunity to provide help to our caregivers and the families who employ them. Right now, these under-the-table arrangements are creating a “tax gap”—billions of dollars in additional funding that would be available to support caregivers, if the majority of families and their caregivers paid into the system.
Did you get that? If nannies were taxed the government would have more money to provide nannies with benefits. Wait, it gets worse. According to Forde, we can make both families and nannies better off by giving them back the money the government takes and still have money left over!
The estimated “gap” from the lost tax revenue is a combination of the federal and state employment taxes typically paid by employees (Social Security, Medicare, and income taxes) and employers (in addition to Social Security and Medicare, they must pay federal and state unemployment taxes.) Imagine if just a portion of this revenue were used to reimburse families for more of their child care expenses and to provide caregivers access to better benefits than they get currently with their under-the-table jobs. (italics added, AT)
Indeed, wouldn’t it be nice to live in a world of pure imagination? One without tradeoffs. Where we could rely on the miracle of government loaves to solve all problems?
The real workplace issue is the elderly not the robots
That is the topic of my latest Bloomberg column. Here is one bit:
The populations of the U.S. and many other developed nations are aging, and the big surprise has been that older people want to work more than in previous generations. Against many prior expectations, the labor-force-participation rate of older Americans started rising in the 1980s and 1990s. For instance, the labor-force-participation rate for men ages 65 to 69 was 25 percent in 1985 but 37 percent in 2016. By 2020, over one-quarter of the workforce will be over 55 years of age.
And the closer:
Our willingness to banter about the robot apocalypse is yet another sign that, too often, we just don’t want to confront the issues surrounding the elderly.
Do read the whole thing.
Does demography predict inflation?
Demographic shifts, such as population ageing, have been suggested as possible explanations
for the past decade’s low inflation. We exploit cross-country variation in a long panel to identify age structure effects in inflation, controlling for standard monetary factors. A robust relationship emerges that accords with the lifecycle hypothesis. That is, inflationary pressure rises when the share of dependents increases and, conversely, subsides when the share of working age population increases. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.
That is from a new BIS paper by Mikael Juselius and Előd Takáts.
*Bull Shit Jobs: A Theory*
That is the new and entertaining book by David Graeber, probably you already have heard of it. Here is a brief summary.
Coming from academia, I am sympathetic to the view that not everyone is productive, or has a productive job. And my ongoing series “Those new service sector jobs…” is in part reflecting the wonder of the market in providing so many obscure services, but also in part a genuine moral query as to how many of these activities actually are worthwhile. You are supposed to have mixed feelings when reading those entries, just as with “Markets in Everything.”
Still, I think Graeber too often confuses “tough jobs in negative- or zero-sum games” with “bullshit jobs.” I view those as two quite distinct categories. Overall he presents the five types of bullshit jobs as flunkies, goons, duct tapers, box tickers, and taskmasters, but he spends too much time trying to lower the status of these jobs and not enough time investigating what happens when those jobs go away.
He doubts whether Oxford University needs “a dozen-plus” PR specialists. I would be surprised if they can get by with so few. Consider their numerous summer programs, their need to advertise admissions, how they talk to the media and university rating services, their relations with China, the student lawsuits they face, their need to manage relations with Oxford the political unit, and the multiple independent schools within Oxford, just for a start. Overall, I fear that Graeber’s managerial intelligence is not up to par, or at the very least he rarely convinces me that he has a superior organizational understanding, compared to people who deal with these problems every day.
A simple experiment would vastly improve this book and make for a marvelous case study chapter: let him spend a year managing a mid-size organization, say 60-80 employees, but one which does not have an adequately staffed HR department, or perhaps does not have an HR department at all. Then let him report back to us.
At that point we’ll see who really has the bullshit job.
Are more productive companies higher up?
Tall commercial buildings dominate city skylines. Nevertheless, despite decades of research on commercial real estate and horizontal patterns of urban development, vertical patterns have been largely ignored. We document that high productivity companies locate higher up, with less productive offices lower down and retail at ground level. These patterns reflect tradeoffs between street access and vertical amenities. Vertical rent gradients are non-monotonic, independent of nearby employment, and large. Doubling zipcode employment is associated with a 10.7% increase in rent, consistent with the presence of agglomeration economies. Moving up one floor has the same effect on rent as adding roughly 3,500 workers to a zipcode.
That is by Crocker H. Liu, Stuart S. Rosenthal, and William C. Strange, via the excellent Kevin Lewis. I do get why the ground floor companies would have lower productivity, because they may be walk-in service sector outlets. But otherwise, why might this relationship hold? Is it that everyone wants to better view and the power office? Is being “high up” high status per se?
Counterterrorism Spending
The Stimson group has a new report on counterterrorism spending:
In the summer of 2017, the Stimson Center convened a nonpartisan study group to provide an initial tally of total CT spending since 9/11, to examine gaps in the understanding of CT spending, and to offer recommendations for improving U.S. government efforts to account for these expenditures. Stimson’s research suggests that total spending that has been characterized as CT-related – including expenditures for government wide homeland security efforts, international programs, and the wars in Afghanistan, Iraq, and Syria – totaled $2.8 trillion during fiscal years 2002 through 2017. According to the group’s research, annual CT spending peaked at $260 billion in 2008 at the height of the wars in Afghanistan and Iraq. This represents a 16-fold increase over the 2001 total. In 2017, as war funding declined, total CT spending amounted to $175 billion, nearly an 11-fold increase from the 2001 level.
With this growth, CT spending has become a substantial component of total discretionary spending for programs across a wide range of areas, including defense, education, and medical research. Of $18 trillion in discretionary spending between fiscal years 2002-2017, CT spending made up nearly 15 percent of the whole. At its peak in 2008, CT spending amounted to 22 percent of total discretionary spending. By 2017, CT spending had fallen to 14 percent of the total. Despite this drop, the study group found no indication that CT spending is likely to continue to decline.
Counterterrorism spending is thus about $1280 per US household every year–that’s affordable but still a lot for what we get, which is very unclear.
The economics of cousin marriage
The title of the article is “Cousin Marriage Is Not Choice: Muslim Marriage and Underdevelopment,” by Lena Edlund, and here is the abstract:
According to classical Muslim marriage law, a woman needs her guardian’s (viz. father’s) consent to marry. However, the resulting marriage payment, the mahr, is hers. This split bill may lie behind the high rates of consanguineous marriage in the Muslim world, where country estimates range from 20 to 60 percent. Cousin marriage can stem from a form of barter in which fathers contribute daughters to an extended family bridal pool against sons’ right to draw from the same pool. In the resulting system, women are robbed of their mahr and sons marry by guarding their sisters’ “honor” heeding clan elders.
From the new May American Economic Review.
Who gets the gains from innovation?
In this paper we merge individual income data, firm-level data, patenting data, and IQ data in Finland over the period 1988–2012 to analyze the returns to invention for inventors and their coworkers or stakeholders within the same firm. We find that: (i) inventors collect only 8 percent of the total private return from invention; (ii) entrepreneurs get over 44 percent of the total gains; (iii) bluecollar workers get about 26 percent of the gains and the rest goes to white-collar workers. Moreover, entrepreneurs start with significant negative returns prior to the patent application, but their returns subsequently become highly positive.
That is by Philippe Aghion, Ufuk Akcigit, Ari Hyytinen, andd Otto Toivanen in the new AER. Via Ben Southwood.
*Parking and the City*, edited by Donald Shoup
This is the definitive book on the economics of parking, here is one short summary bit by Shoup from his introduction:
Remove off-street parking requirements. Developers and businesses can then decide how many parking spaces to provide for their customers.
Charge the right prices for on-street parking. The right prices are the lowest prices that will leave one or two open spaces on each block, so there will be no parking shortages. Prices will balance the demand and supply for on-street parking spaces.
Spend the parking revenue to improve public services on the metered streets. If everybody sees their meter money at work, the new public services can make demand-based prices for on-street parking politically popular.
You can order the book here. Here is my earlier NYT column on the economics of parking.
How do people actually behave when faced with trolley problems?
The poor mice!:
Scholars have been using hypothetical dilemmas to investigate moral decision making for decades. However, whether people’s responses to these dilemmas truly reflect the decisions they would make in real life is unclear. In the current study, participants had to make the real-life decision to administer an electroshock (that they did not know was bogus) to a single mouse or allow five other mice to receive the shock. Our results indicate that responses to hypothetical dilemmas are not predictive of real-life dilemma behavior, but they are predictive of affective and cognitive aspects of the real-life decision. Furthermore, participants were twice as likely to refrain from shocking the single mouse when confronted with a hypothetical versus the real version of the dilemma. We argue that hypothetical-dilemma research, while valuable for understanding moral cognition, has little predictive value for actual behavior and that future studies should investigate actual moral behavior along with the hypothetical scenarios dominating the field.
Here is the paper by Dries H. Bostyn, Sybren Sevenhant, and Arne Roets.
It seems to me that Kant lived a life in accord with his actual doctrines, as did Socrates. But most philosophers? Most economists for that matter? It would be interesting if there was an app that recorded your life, and then wrote up the corresponding moral doctrine in book form. Or in the case of the economists, it could write out your utility function and adherence to the principle of maximizing expected utility. Or not.
Hat tip goes to Dina Pomeranz.
Rooftop Solar is Expensive and Inefficient
Noted UC Berkeley energy economist Severein Borenstein writes against the proposal to make solar required on all new residential construction:
Dear Commissioner Weisenmiller:
I just became aware in the last few days of the proposal in the new building energy efficiency standards rule making to mandate rooftop solar on all new residential buildings. I want to urge you not to adopt the standard. I, along with the vast majority of energy economist, believe that residential rooftop solar is a much more expensive way to move towards renewable energy than larger solar and wind installations. The savings calculated for the households are based on residential electricity rates that are far above the actual cost of providing incremental energy, so embody a large cross subsidy from other ratepayers. This would be a very expensive way to expand renewables and would not be a cost-effective practice that other states and countries could adopt to reduce their own greenhouse gas footprints.
Because I, and most other economists studying California’s energy policy, just became aware of this proposal, we have not had time to participate in the policy process or write public documents on the subject. At the least, I would urge you to delay adopting such a rule until independent analysis from energy experts can be made part of the record.
I will add that I have no financial interest in any energy company. I am expr essing my views purely in the interestof moving forward with California’s fight against climate change in a cost-effective way that can be exported to other states and countries.
Sincerely, Severin Borenstein
I agree and would add that allowing more building near transit and other hubs as with California’s rejected SB827 would not only lower housing prices, rather than raise them as with this proposal, it would also be a much better way of reducing carbon emissions and saving energy.
My Conversation with Bryan Caplan
Bryan was in top form, I can’t recall hearing him being more interesting or persuasive. Here is the audio and text. We talked about whether any single paper is good enough, the autodidact’s curse, the philosopher who most influenced Bryan, the case against education, the Straussian reading of Bryan, effective altruism, Socrates, Larry David, where to live in 527 A.D., the charm of Richard Wagner, and much more. Here is one excerpt:
COWEN: You love Tolstoy, right?
CAPLAN: Yeah. You love Tolstoy because here’s a guy who not only has this encyclopedic knowledge of human beings — you say he knows human nature. Tolstoy knows human natures. He realizes that there are hundreds of kinds of people, and like an entomologist, he has the patience to study each kind on its own terms.
Tolstoy, you read it: “There are 17 kinds of little old ladies. This was the 13th kind. This was the kind that’s very interested in what you’re eating but doesn’t wish to hear about your romance, which will be contrasted with the seventh kind which has exactly the opposite preferences.” That’s what’s to me so great about Tolstoy.
Here is one of my questions:
What’s the fundamental feature in Bryan Caplan–think that has made you, unlike most other nerds, so much more interested in Stalin than science fiction?
Here is another exchange:
COWEN: You think, in our society in general, this action bias infests everything? Or is there some reason why it’s drawn like a magnet to education?
CAPLAN: Action bias primarily drives government. For individuals, I think even there there’s some action bias. But nevertheless, for the individual, there is the cost of just going and trying something that’s not very likely to succeed, and the connection with the failure and disappointment, and a lot of things don’t work out.
There’s a lot of people who would like to start their own business, but they don’t try because they have some sense that it’s really hard.
What I see in government is, there isn’t the same kind of filter, which is a big part of my work in general in politics. You don’t have the same kind of personal disincentives against doing things that sound good but actually don’t work out very well in practice.
Probably even bigger than action bias is actually what psychologists call social desirability bias: just doing things that sound good whether or not they actually work very well and not really asking hard questions about whether things that sound good will work out very well in practice.
I also present what I think are the three strongest arguments against Bryan’s “education is mostly signaling” argument — decide for yourself how good his answers are.
And:
COWEN: …Parenting and schooling in your take don’t matter so much. Something is changing these [norms] that is mostly not parenting and not schooling. And they are changing quite a bit, right?
CAPLAN: Yes.
COWEN: Is it like all technology? Is the secret reading of Bryan Caplan that you’re a technological determinist?
CAPLAN: I don’t think so. In general, not a determinist of any kind.
COWEN: I was teasing about that.
And last but not least:
CAPLAN: …When someone gets angry at Robin, this is what actually outrages me. I just want to say, “Look, to get angry at Robin is like getting angry at baby Jesus.” He’s just a symbol and embodiment of innocence and decency. For someone to get angry at someone who just wants to learn . . .
COWEN: And when they get mad at me?
CAPLAN: Eh, I understand that.
Hail Bryan Caplan! Again here is the link, and of course you should buy his book The Case Against Education.
Will monetary tightening halt the labor market recovery?
My latest Bloomberg column is on that topic, here is one bit:
…these days more and more economists, especially those with Keynesian sympathies, are insisting that higher legal minimum wages don’t lower employment much, if at all. If higher real wages don’t much hurt employment, we shouldn’t expect lower real wages to much boost employment. This “new wisdom” on minimum wages contradicts Keynesian labor economics and implies inflation won’t much boost employment, if at all.
And:
One thing we do know about inflation is that voters hate it. Economists sometimes treat this belief as irrational, assuming that workers in aggregate will get raises to compensate for the higher prices. This is true for many top performers, whose income growth would exceed inflation regardless. But a lot of other workers are concentrated in somewhat bureaucratic service-sector jobs, they have weak bargaining power, and their pay is not indexed to inflation. If the rate of price inflation is 4 percent rather than 2 percent, for many people that means their take-home pay is worth 2 percentage points less than it would have been under modest inflation.
And this:
Most discussions about monetary policy aren’t about economic theory (properly understood) at all. Rather they are about blaming the system, as people feel a sense of outrage that somehow someone isn’t trying hard enough to fix basic problems. Most of the claims out there, when put under the microscope of reason, dissolve into a beautiful, brilliant agnosticism.
Here is the full column. Note that Bloomberg now has a paywall, with I believe ten free articles per month. Here is information on subscription offers, I urge you all to increase the velocity of money.
Google Bans Bail Bond Ads, Invites Regulation
Google: Today, we’re announcing a new policy to prohibit ads that promote bail bond services from our platforms. Studies show that for-profit bail bond providers make most of their revenue from communities of color and low income neighborhoods when they are at their most vulnerable, including through opaque financing offers that can keep people in debt for months or years.
Google’s decision to ban ads from bail bond providers is deeply disturbing and wrongheaded. Bail bonds are a legal service. Indeed, they are a necessary service for the legal system to function. It’s not surprising that bail bonds are used in communities of color and low income neighborhoods because it is in those neighborhoods that people most need to raise bail. We need not debate whether that is due to greater rates of crime or greater discrimination or both. Whatever the cause, preventing advertising doesn’t reduce the need to pay bail it simply makes it harder to find a lender. Restrictions on advertising in the bail industry, as elsewhere, are also likely to reduce competition and raise prices. Both of these effects mean that more people will find themselves in jail for longer.
As with any industry, there are bad players in the bail bond industry but in my experience the large majority of providers go well beyond lending money to providing much needed services to help people navigate the complex, confusing and intimidating legal system. Sociologist Joshua Page worked as a bail agent:
In the course of my research, I learned that agents routinely offer various forms of assistance for low-income customers, primarily poor people of color. It’s very difficult for those with limited resources to get information, much less support, from overburdened jails, courts, or related institutions. Lacking attentive private attorneys, therefore, desperate defendants and their friends and families turn to bail companies to help them understand and navigate the opaque, confusing legal processes.
…In fact, even when people have gone through it before, the pretrial process can be murky and intimidating….[A]long with walking clients through the legal process, agents explain the differences between public and private attorneys and the relative merits of each. Discussions regularly turn to the defendant’s case: Is the alleged victim pressing charges? Will the case move forward if he or she does not? When is the next court date? If convicted, what’s the likely punishment? Any chance the charges will get dropped?
…In a classic 1975 study, sociologist Forrest Dill argued:
One of the key functions performed by attorneys in the criminal process is to direct the passage of cases through the procedural and bureaucratic mazes of the court system. For unrepresented defendants, however, the bondsman may perform the crucial institutional task of helping to negotiate court routines.
Dill’s observation still rings true: bail agents and administrative staff (at least in Rocksville) act as legal guides for defendants who do not have private attorneys—and at times they provide this help to defendants with inattentive hired counsel. They provide information about court dates and locations, check the status of warrants, contact court staff on defendants’ behalf (especially when the accused have missed court or are at risk of doing so), and, at times, drive defendants to their court dates. These activities help clients show up for court, thereby protecting the company’s investments.
The bail agents are not purely altruistic, they are in a competitive, service business and it pays to help their clients with kindness and care. When I asked one bail agent why he was so polite to his clients and their relations–even when they had jumped bail–he told me, “we rely a lot on repeat business.”
Ian Ayres and Joel Waldfogel also found that the bail bond system can (modestly) ameliorate judicial racial bias. Ayres and Waldfogel found that in New Haven in the 1990s black and Hispanic males were assigned bail amounts that were systematically higher than equally-risky whites. The bail bondpersons, however, offered lower prices to minorities–meaning equal net prices for people of equal risk–exactly what one would expect from a competitive industry.
My own research found that defendants released on commercial bail were much more likely to show up for trial than statistical doppelgangers released by other methods. Bounty hunters were also much more likely than the police to capture and bring to justice people who did jump bail. The bail bond system thus provides an important public service at no cost to the public.
In addition to being wrongheaded, Google’s decision is disturbing because it is so obviously a political decision. Google has banned legal services like bail bonding and payday lending from advertising on Google in order to curry favor with groups who have an ideological aversion to payday lending and the bail system. Google is a private company so this is their right. But every time Google acts as a lawgiver instead of an open platform it invites regulation and political control. Politicians on both sides will see that Google’s code is either a quick-step to political power without the necessity of a vote or a threat to such power. Personally, I don’t want to see greater regulation but if, for example, conservatives decide that Google doesn’t represent their values and threatens their interests, they will regulate.
Google’s decision to use its code as law is an invitation to politicization. Moreover, Google is throwing away its best defense against politicization–the promise of neutrality and openness.