Category: Economics
The role of ideological change in India’s economic liberalization
In an interesting paper, Nimish Adhia argues that in the 1980s Bollywood films began to shift from emphasizing collectivist duty towards individual happiness.
The injunction of performing one’s duty without regard to outcomes has been the basis of much of the Indian philosophical and religious discourse.
The dilemma is recurrent in Indian films…. From the 1950s to the 1980s, the dilemmas invariably resolve in favor of duty. The mother in Mother India (1956) shoots and kills her wayward son as he attempts to kidnap a woman—an action that would have been shameful for the village. “I am the mother of the entire village,” she says as she picks up the gun. As the son collapses to the ground, she wails and rushes to his side, and is shown to lament his death for the rest of her life, but the film valorizes her as “Mother India.”
… But then starting with Ram Teri Ganga Maili (1986) there is a spate of films that celebrate the assertion of one’s desire. The assertion commonly takes the form of falling in love—an audacious act in a society where the sexual mores are conservative and a majority of marriages are arranged on basis of familial and community criteria. The young lovers in the big hit Qayamat se Qayamat tak (Doomsday to Doomsday, 1988) elope and endure enormous hardships on account of their families’ opposition. The families had a falling out in the past when they were neighboring landlords in the country. The demands of familial loyalty, shown to arise in this way from a feudal setup and concluding in the death of the young lovers, are condemned by the film as savage and outdated. “We are not the property of our parents,” the young man once counsels his beloved. “We need not be carriers of their legacy of hate.”
At the same time, the treatment of businessmen becomes more positive, wealth is shown as being earned rather than simply given, and the pursuit and achievement of wealth is shown to lead to happiness and pride rather than misery and spiritual death. Adhia argues that these changes helped to cause the liberalization reform beginning in the 1990s.
the ideological change is visible in the films of the 1980s, preceding the wave of liberalization starting in 1991. It lends support to the notion that the ideological change, reflected in the films as early as 1980, was a cause rather than a consequence of liberalization.
Guru, which I have called the most important free market film ever made, comes after liberalization but can be understood as in many ways the apex of these trends.
Hat tip: Prateek Raj.
Defensive Gun Use and the Difficult Statistics of Rare Events
In the mid-1990s, Kleck and Gertz (1995) estimated that in a typical year about 1.3% of US adults used a gun for self-defense against another person. Kleck and Gertz’s estimate, which came from a survey of nearly 5000 people, implied that there were millions of defensive gun uses every year.
Following Kleck and Gertz’s 1995 paper, the CDC added a question about defensive gun use to their Behavioral Risk Factor Surveillance System (BRFSS). In 1996, 1997, and 1998 the CDC asked:
“During the last 12 months, have you confronted another person with a fire arm, even if you did not fire it, to protect yourself, your property, or someone else?”
But here is the surprise. The CDC buried the question and the results. Only recently was the data discovered and made public by Kleck in a new paper.*(see addendum) So what were the results? You will perhaps now not be too surprised that the CDC’s survey supports Kleck and Gertz’s original finding, about 1% of survey respondents reported a defensive gun use, implying millions of such uses over a year.
The case isn’t closed on defensive gun use, however, because of a statistical conundrum.
The CDC asked 12,870 individuals about defensive gun use over the three samples.That’s a relatively large sample but note that this means that just 117 people reported a defensive gun use, i.e. ~1%. In comparison, 12,656 people (98.33%) reported no use, 11 people (0.09%) said they didn’t know and 86 people (0.67%) refused to answer. People answering surveys can be mistaken and some lie and the reasons go both ways. Some people might be unwilling to answer because a defensive gun use might have been illegal (Would these people refuse to answer?). On the other hand, mischievous responders might report a defensive gun use just because that makes them sound cool.
The deep problem, however, is not miscodings per se but that miscodings of rare events are likely to be asymmetric. Since defensive gun use is relatively uncommon under any reasonable scenario there are many more opportunities to miscode in a way that inflates defensive gun use than there are ways to miscode in a way that deflates defensive gun use.
Imagine, for example, that the true rate of defensive gun use is not 1% but .1%. At the same time, imagine that 1% of all people are liars. Thus, in a survey of 10,000 people, there will be 100 liars. On average, 99.9 (~100) of the liars will say that they used a gun defensively when they did not and .1 of the liars will say that they did not use a gun defensively when they did. Of the 9900 people who report truthfully, approximately 10 will report a defensive gun use and 9890 will report no defensive gun use. Adding it up, the survey will find a defensive gun use rate of approximately (100+10)/10000=1.1%, i.e. more than ten times higher than the actual rate of .1%! Those numbers are, of course, approximately what the CDC survey found which doesn’t prove that Kleck’s interpretation is wrong only that very different interpretations are also plausible.
The bottom line is that it’s good to know that the original Kleck and Gertz survey replicated–approximately 1% of adult Americans did report a defensive gun use in the 1990s–but the real issue is the interpretation of the survey and for that a replication doesn’t help.
Addendum: The paper has since been taken down perhaps because in addition to the issue of interpretation that I raised the survey may not have been national. Robert VerBruggen has further details.
Superstars in the NBA playoffs, and the heightening of income inequality
Perhaps you have noticed that the sixth-seeded New Orleans Pelicans swept the third-seeded Portland Trail Blazers in four games straight. A month or two ago, it was not entirely obvious that the Pelicans would make the playoffs at all. And all 22 ESPN analysts picked the Pelicans to lose the series.
The simplest theory about the Pelicans performance is that they have two superstars, Anthony Davis and Jrue Holiday. But while Portland was thought of as the superior team, they don’t have any player with the power and dynamism of Anthony Davis, whom I and many others consider to be a transcendent superstar.
One possible theory is this: an NBA series today is very well scouted and analyzed, and the players watch lots of tape. Adjustments are made each game or even each quarter, based on a quantitative analysis of what is working and what is not. This neutralizes many of the strategies of the lesser players, and furthermore having a good bench is worth less when it is easier to concentrate more of the minutes in the very best players. It is not however possible to neutralize the impact of a transcendental superstar, even with lots of advance planning. Those truly top players can improvise around any defenses thrown at them, or on the defensive end they can rapidly adjust to counter a new offensive attack.
Furthermore, in the playoffs effort is more or less equalized, as suddenly everyone is trying, even the bench players on the road. That too raises the relative return to top talent.
In the playoffs, it is thus plausible that the quality and value of the transcendent superstars goes up.
As more and more of contemporary business becomes regularized and measured and motivated and based on well-ordered cooperating teams, might the same be true for the transcendent superstars of that world as well? In essence, we’re always in the business “playoffs” these days, at least in Manhattan and Silicon Valley, and their transcendent superstars also become the difference-makers.
I do not seek to argue that is the main cause behind rising income inequaliity, but might it be one factor?
Of course my dream series for the finals is New Orleans vs. Philadelphia (Ben Simmons, Joel “built for…playoff basketball” Embiid. That is hardly the most likely outcome, but it is now looking a lot more possible than one might have thought. Philly, by the way, is the “all time hottest team entering the NBA playoffs,” at least by one measure.
Economists don’t like admitting to publishing in lower-quality outlets
https://twitter.com/kjhealy/status/987727620484796416
The symphony orchestra and the Industrial Revolution
I heard Mozart’s 39th symphony in concert last night, and it occurred to me (once again) that I also was witnessing one of mankind’s greatest technological achievements. Think about what went into the activity: each instrument, developed eventually to perfection and coordinated with the other instruments. The system of tuning and the underlying principles of the music. The acoustics of the music hall. The sheet music on paper and the musical notation. All of those features extremely well coordinated with the kind of compositional talent being produced in Central and Western Europe from say 1710 to 1920. And by the mid-18th century most of the key features of this system were in place and by the early 19th century they were more or less perfected.
Sometimes I think of the Industrial Revolution as fundamentally a Cultural Revolution. The first instantiation of this Cultural Revolution maybe was the rise of early Renaissance Art in Italy and in the Low Countries. That too was based on a series of technological developments, including improved quality tempera paint, the development of oil painting, the resumption of bronze and marble techniques for sculpture, and the reintroduction of paper into Europe, which enabled artists’ sketches and drawings.
As with classical music, this unfolding of quality production was all based on extreme experimentation, a kind of scientific method, urbanization, and competing city-states. There was also the rediscovery of knowledge from antiquity, and the importation or reimportation of science from China and the Arabic world, including the afore-mentioned knowledge of paper-making.
The creation of a book culture, and a culture of experimental science, could be cited as well.
Perhaps the only [sic] difference with the Industrial Revolution proper is that it came to sectors — energy, transport, and textiles — that boosted living standards immensely. But arguably it was just another of a series of Cultural Revolutions that had their roots in late medieval times, with even classical music deriving ultimately from Franco-Flemish polyphony. One of these Cultural Revolutions just happened to be Industrial.
Of course the earliest parts of Revolutions are often the best, as we’ve surpassed the steam engines of the 19th century but Mozart and Leonardo are still with us.
A Fine Theorem on Parag Pathak, the recent Clark winner
This award strikes me as the last remaining award, at least in the near term, from the matching/market design boom of the past 20 years. As Becker took economics out of pure market transactions and into a wider world of rational choice under constraints, the work of Al Roth and his descendants, including Parag Pathak, has greatly expanded our ability to take advantage of choice and local knowledge in situations like education and health where, for many reasons, we do not use the price mechanism. That said, there remains quite a bit to do on understanding how to get the benefits of decentralization without price – I am deeply interested in this question when it comes to innovation policy – and I don’t doubt that two decades from now, continued inquiry along these lines will have fruitfully exploited the methods and careful technique that Parag Pathak embodies.
The post is excellent throughout.
Parag Pathak wins the John Bates Clark Award
Parag Pathak, a Massachusetts Institute of Technology professor whose research suggests that school choice can lead to improved student performance, won the John Bates Clark award for contributions from a young economist.
Pathak, 37, was honored for his work on market design and education policy, the Nashville, Tennessee-based American Economic Association said Friday in a statement on its website. It said his work “blends institutional knowledge, theoretical sophistication, and careful empirical analysis to provide insights that are of immediate value to important public-policy issues.”
That is from Bloomberg. Here is scholar.google.com. There is lots on his home page. Only 808 Twitter followers! His Wikipedia page is good. He is a protege of Al Roth, and overall this prize is a victory for the notion of market design.
The value of Facebook and other digital services
Women seem to value Facebook more than men do.
Older consumers value Facebook more.
Education and US region do not seem to be significant.
The median compensation for giving up Facebook is in the range of $40 to $50 a month, based mostly on surveys, though some people do actually have to give up Facebook.
I find it hard to believe the survey-based estimate that search engines are worth over 17k a year.
Email is worth 8.4k, and digital maps 3.6k, and video streaming at 1.1k, again all at the median and based on surveys. Personally, I value digital maps at close to zero, mostly because I do not know how to use them.
That is all from a new NBER paper by Erik Brynjolfsson, Felix Eggers, and Avinash Gannamaneni.
Models as indexing, and the value of Google
There are many arguments for the use of models in economics, including notions of rigor and transparency, or that models can help you to see relationships you otherwise might not have expected. I don’t wish to gainsay those, but I thought of another argument yesterday. Models are a way of indexing your thoughts. A model can tell you which are the core features of your argument and force you to give them names. You then can use those names to find what others have written about your topic and your mechanisms. In essence, you are expanding the division of labor in science more effectively by using models.
This mechanism of course requires that models are a more efficient means of indexing thoughts than pure words or propositions alone. In this view, it is often topic names or book indexes or card catalogs that models are competing with, not verbal economics per se.
The existence of Google therefore may have lowered the relative return to models. First, Google searches by words best of all. Second and relatedly, if you have written only words Google will help you find the related work you need, scholar.google.com kicks in too. In essence, there is a new and very powerful way of finding related ideas, and you need not rely on the communities that get built around particular models (though those communities largely will continue).
It is notable that open access, on-line economics writing doesn’t use models very much and is mostly content to rely on words and propositions. There are several reasons for this, but this productivity shock to differing methods of indexing may be one factor.
Still, it is not always easy to search by words. Many phrases — consider say “free will” — do not through search engines discriminate very well on the basis of IQ or rigor.
How big are the buyer and renter gains from SB 827?
This article considers a counterfactual thought experiment: how would California’s housing market be different today if a policy currently under consideration in the California Senate—SB 827, which would allow new residential building along public transit corridors—had been implemented six years ago? I estimate that rent would be 5.8 percent lower in San Francisco, a savings of $266 per month on the median home, and 4.2 percent lower in Los Angeles County, savings of $124 per month.
That is from Salim Furth at Mercatus, here is much more. You will note those numbers do not include the higher output and innovation from a more efficient allocation of talent.
Here is Salim’s podcast with Matt Yglesias and Emily Hamilton.
The impact of the Dodd-Frank Act on small business
There are concerns that the Dodd-Frank Act (DFA) has impeded small business lending. By increasing the fixed regulatory compliance requirements needed to make business loans and operate a bank, the DFA disproportionately reduced the incentives for all banks to make very modest loans and reduced the viability of small banks, whose small-business share of C&I loans is generally much higher than that of larger banks. Despite an economic recovery, the small loan share of C&I loans at large banks and banks with $300 or more million in assets has fallen by 9 percentage points since the DFA was passed in 2010, with the magnitude of the decline twice as large at small banks. Controlling for cyclical effects and bank size, we find that these declines in the small loan share of C&I loans are almost all statistically attributed to the change in regulatory regime. Examining Federal Reserve survey data, we find evidence that the DFA prompted a relative tightening of bank credit standards on C&I loans to small versus large firms, consistent with the DFA inducing a decline in small business lending through loan supply effects. We also empirically model the pace of business formation, finding that it had downshifted around the time when the DFA and the Sarbanes-Oxley Act were announced. Timing patterns suggest that business formation has more recently ticked higher, coinciding with efforts to provide regulatory relief to smaller banks via modifying rules implementing the DFA. The upturn contrasts with the impact of the Sarbanes-Oxley Act, which appears to persistently restrain business formation.
The Facebook Trials: It’s Not “Our” Data
Facebook, Google and other tech companies are accused of stealing our data or at least of using it without our permission to become extraordinarily rich. Now is the time, say the critics, to stand up and take back our data. Ours, ours, ours.
In this way of thinking, our data is like our lawnmower and Facebook is a pushy neighbor who saw that our garage door was open, took our lawnmower, made a quick buck mowing people’s lawns, and now refuses to give our lawnmower back. Take back our lawnmower!
The reality is far different.
What could be more ours than our friends? Yet I have hundreds of friends on Facebook, most of whom I don’t know well and have never met. But my Facebook friends are friends. We share common interests and, most of the time, I’m happy to see what they are thinking and doing and I’m pleased when they show interest in what I’m up to. If, before Facebook existed, I had been asked to list “my friends,” I would have had a hard time naming ten friends, let alone hundreds. My Facebook friends didn’t exist before Facebook. My Facebook friendships are not simply my data—they are a unique co-creation of myself, my friends, and, yes, Facebook.
Some of my Facebook friends are family, but even here the relationships are not simply mine but a product of myself and Facebook. My cousin who lives in Dubai, for example, is my cousin whether Facebook exists or not, but I haven’t seen him in over twenty years, have never written him a letter, have never in that time shared a phone call. Nevertheless, I can tell you about the bike accident, the broken arm, the X-ray with more than a dozen screws—I know about all of this only because of Facebook. The relationship with my cousin, therefore, isn’t simply mine, it’s a joint creation of myself, my cousin and Facebook.
Facebook hasn’t taken our data—they have created it.
Facebook and Google have made billions in profits, but it’s utterly false to think that we, the users, have not been compensated. Have you checked the price of a Facebook post or a Google search recently? More than 2 billion people use Facebook every month, none are charged. Google performs more than 3.5 billion searches every day, all for free. The total surplus created by Facebook and Google far exceeds their profits.
Moreover, it’s the prospect of profits that has led Facebook and Google to invest in the technology and tools that have created “our data.” The more difficult it is to profit from data, the less data there will be. Proposals to require data to be “portable” miss this important point. Try making your Facebook graph portable before joining Facebook.
None of this means that we should not be concerned with how data, ours, theirs, or otherwise, is used. I don’t worry too much about what Facebook and Google know about me. Mostly the tech companies want to figure out what I want to buy. Not such a bad deal even if the way that ads follow me around the world is at times a bit disconcerting. I do worry that they have not adequately enforced contractual restrictions on third-party users of our data. Ironically, it was letting non-profits use Facebook’s data that caused problems.
I also worry about big brother’s use of big data. Sooner or later, what Facebook and Google know, the government will know. That alone is good reason to think carefully about how much information we allow the tech companies to know and to store. But let’s get over the idea that it’s “our data.” Not only isn’t it our data, it never was.
Why is eurozone growth slowing down?
According to the Fulcrum activity nowcasts, which identified the surge in growth very early last year, the eurozone was still growing at a rate of 3.5 per cent late in 2017. Each of the largest economies in the bloc was doing well: Germany 4 per cent, France 3 per cent, Italy 2 per cent and Spain 3.5 per cent. Economic forecasters and the central bank had become confident that this strong recovery phase would persist throughout 2018. But that has not happened so far.
The latest nowcast results for the eurozone suggest that activity growth has dropped to only 1.2 per cent in early April, with each of the major economies experiencing a sharp decline in growth. Even Germany, which was relatively immune from previous European downturns has recorded a very sharp dip, with growth now down to only around 1 per cent.
That is from Gavyn Davies at the FT.
Those new service sector jobs
In North America the modern undertaker’s job is increasingly one of event-planning, says Sherri Tovell, an undertaker in Windsor, Canada. Among the requirements at her recent funerals have been a tiki hut, margaritas, karaoke and pizza delivery. Some people want to hire an officiant to lead a “life celebration”, others to shoot ashes into the skies with fireworks. Old-fashioned undertakers are hard put to find their place in such antics. Another trend—known as “direct cremation”—has no role for them at all.
Besides having to offer more diverse services, the trade also faces increased competition in its products. Its roots are in carpentry. “You’d buy an expensive casket and the funeral would be included in the price,” remembers Dan Isard, a funeral consultant in Phoenix, Arizona. The unwritten agreement was that the dead would be treated with dignity and that families would not ask if there was an alternative to the $1,000 or $2,000 coffin, or whether embalming was really needed. The business has something in common with prostitution, reflects Dominic Akyel of the University of Cologne. It is legal (as prostitution is in some places) but taboo, “and certainly not to be discussed or haggled over”.
The undertaker used to be able to rely on a steady stream of customers who asked few questions and of whom he (and it was usually a he) would ask few in return. Protestant or Catholic? Open coffin or closed? And, in some parts of the world, burial or cremation? A new generation of customers, though, no longer unthinkingly hands over its dead to the nearest funeral director. They are looking elsewhere, be it to a new breed of undertaker, to hotel chains that “do” funerals, or—for their coffin or urn—to Amazon or Walmart.
Here is more from The Economist, interesting throughout
Thwarted markets in everything
Stephen A. Schwarzman, the Wall Street billionaire, was prepared to cut a $25 million check to the high school he attended here in the 1960s, to help it pay for a huge renovation project.
He wanted only a few things in return.
For starters, the public school should be renamed in his honor. A portrait of him should be displayed prominently in the building. Spaces at the school should be named for his twin brothers. He should have the right to review the project’s contractors and to sign off on a new school logo.
The school district’s officials accepted the deal.
So it was that this Philadelphia bedroom community of 55,000, not normally a hotbed of civic unrest, exploded into a populist fury.
That is from Kate Kelly at the NYT.