Category: Economics
Opioids for the masses?
This has long seemed to me an understudied topic, so I was interested to read the job market paper of Angela E. Kilby, who is on the market this year from MIT. And she does what I like to see in a paper, namely try to figure out whether some practice or institution is actually worth it.
The background is this: “…In the face of concerns that undertreatment of pain was a “serious public health issue,” medically indicated use of these drugs over the past 15 years has increased dramatically, and attitudes have liberalized towards the use of opioids for chronic non-cancer pain.”
When it comes to the increased use of opioids, she finds the following trade-offs:
1. Since 1999, there has been a fourfold increase in drug overdose deaths linked to opiod pain relievers. In 2013, the number of opiate-linked overdose deaths was 25,117, a higher number than I was expecting. (But note that most of these can no longer be reduced by the feasible interventions under consideration.)
2. The increased use of opioids seems to pass a cost-benefit test, compared to the passage of a tougher Prescription Monitoring Plan. With a host of caveats and qualifiers, she measures the pain reduction and other benefits from looser regulation at $12.1 billion a year and the costs of higher addiction rates, again from looser regulation, at $7.3 billion per year.
There is much more to it than what I am reporting, and in general I believe economists do not devote enough attention to studying the topic of pain.
*The Midas Paradox*
That is the forthcoming book by Scott Sumner, and the subtitle is Financial Markets, Government Policy Shocks, and the Great Depression. Here is one of Scott’s brief capsule descriptions of the book:
I will show that if we take the gold market seriously we can explain much more about the Great Depression than anyone had thought possible. Three types of gold market shocks generated much of the variation shown in Table 1.1: changes in central bank demand for gold, private sector gold hoarding, and changes in the price of gold. The remaining output shocks are linked to five wage shocks that resulted from the New Deal. This is the first study to provide a comprehensive and detailed look at all high frequency macro shocks during the Great Depression.
I would stress that Scott devotes far more attention to asset price reactions than do many other studies of economic history; that is perhaps his main methodological innovation, in addition to the economics.
Scott also insists — correctly in my view — that the artificially engineered real wage increases of the New Deal were a true disaster. This point is underemphasized in most competing accounts, or perhaps even actively denied by many Keynesians. Yet the evidence here is overwhelming.
This is a very good book, one of the best on the economics of the Great Depression ever written.
Against a financial transactions tax
Maria Coelho, job market candidate at UC Berkeley, studied this topic and came up with this:
This paper analyzes the effect of the introduction of financial transaction taxes in equity markets in France and Italy in 2012 and 2013, respectively, on asset returns, trading volume and market volatility. Using two natural experiments in a difference-in-differences design, I identify bounds on elasticity estimates for three categories of avoidance channels: real substitution away from taxed assets, retiming (anticipation of transaction realizations and portfolio lock-in), and tax arbitrage (cross-platform and financial instrument shifting). I find large responses on all margins, that account for significantly lower revenues than projected. By far the strongest behavioral response comes from high-frequency trading lock-in on regulated exchanges, with a high tax elasticity of this type of turnover in the order of -9. The results shed light on overlooked features of optimal FTT design, suggesting they may be poor instruments for both revenue-raising and Pigouvian objectives.
The paper is called “Dodging Robin Hood.” This is consistent with earlier findings on Sweden’s transactions tax, and that proposal continues to be one of the more overrated ideas in American Progressive political discourse.
New Course: Principles of Macroeconomics!
Principles of Macroeconomics, the new course by Tyler and myself, has just launched at MRUniversity. We will be covering unemployment, inflation, business cycles, growth and much more. The first section which is up now covers GDP including
- What is GDP?
- Nominal versus Real GDP
- Real GDP per capita and the Standard of Living
- and the many ways of Splitting GDP (such as the spending and factor income approaches).
As usual, all the videos are free and will work with any textbook although of course they go best with the best textbook, Modern Principles.
Here is the introduction to GDP:
What can be named after whom?
There is an ongoing controversy at Princeton over whether it should still be called the Woodrow Wilson School of Public Policy. Wilson was a notorious racist and segregationist, bad even by the standards of his time, plus he was a terrible President to boot. At Yale there are murmurings about a house named after John Calhoun.
Of course there is a slippery slope. There are plenty of American institutions named after slaveholders, and for that matter was Amerigo Vespucci such a great guy? For one thing, he helped Columbus commit genocide by provisioning one of his voyages.
Should George Washington stay on the dollar bill? If you’ve decided that no university or other positive-sum institution should be named “School of Simon LeGree Satan,” it seems hard to draw a line in a meaningful, non-arbitrary manner. Most famous people, especially in politics, have some pretty significant blemishes. Yet we cannot open every can of worms in this regard, or so it seems.
No one seems to mind that the Nazi Party is called…the Nazi Party. No one says “we can’t call the party that, those Nazis were the people who killed the Jews. Can’t name anything after them. Not even their own party.” In fact calling them Nazis is designed to remind people of what they did, appropriately I would add.
I don’t mind if an institution names itself after a person of mixed moral quality, or allows such a name to persist, provided the institution, in both its framing of the name and its pursuit of its broader mission, is self-conscious about that person’s drawbacks and invests resources toward that self-consciousness beyond the usual rhetorical statements. That said, others may mind more than I do, so it would be nice if we had a graceful way out of a slightly complicated situation.
I also would not be disturbed if they had kept the city names at Leningrad and Stalingrad. Lenin and Stalin were evil guys, but it seems appropriate to remind people what a big role they played in the histories of those cities. (At least for another hundred years, probably not forever.) Of course if the citizens of the cities don’t want those names, I would not force the matter.
Perhaps in the longer run everything, including the Woodrow Wilson School, will be named after donors.
Why do we name things after people at all?
When I look at countries which are periodically renaming buildings, cities, and institutions, I get a little uncomfortable. The renaming probably isn’t causing their bad or unstable qualities, but pushing for a world of constant renaming does not strike me as a useful goal. It is not governed by a desirable feedback process, too much voice and not enough exit and competitive constraints.
There should be some kind of intermediate process where institutions can indicate that they take very seriously the moral failings of their namesakes, and publicize that message. And then over time they can try to raise enough money so as to have a convenient excuse to rename the Wilson School after a wealthy donor, taking constructive action but not ending up in an endless game of renaming.
A simple concrete step would be to cut the price of the naming rights on the Wilson School by fifty percent.
That also could prove an efficient form of price discrimination, by selling the naming rights to one school for less, yet with a special circumstance so donors do not feel that every naming right now should sell for less.
Perusing job market papers
GMU isn’t hiring this year, but I still enjoy going through the job market candidates to see what is new in the profession. I’ll be blogging a few of the more interesting pieces I found, in the meantime here are some summary remarks from my investigations. Keep in mind these are highly subjective impressions for the most part:
1. MIT students had the most interesting papers overall, Harvard second.
2. Job market papers seem to be getting longer. I was surprised how many 60-90 pp. papers I saw.
3. The concentrated distribution of students among a few advisors, within a department, seems to be increasing.
4. There are plenty of good but not interesting to me papers on economic development going around. The “dairy farmers in Kenya” sort of paper, fine work of high quality, but I look for something more general to read and report on.
5. Industrial Organization continues to be a mostly boring field. Development economics and health care economics are still “in.” There are a variety of good papers on financial intermediation.
6. There are hardly any theory papers coming out of the top schools.
7. The differences in student quality, within a department, seem to be narrowing.
8. Harvard economics has the best and easiest to use web site for their job market candidates, some other very good schools still have very low quality web sites.
Skill mismatch unemployment is real and significant
Even during demand-driven recessions. Part of the problem is that cyclical and structural causes of unemployment interact and magnify each other. Here is the job market paper of Pascual Restrepo, one of the stars from MIT currently on the job market. I turn the floor over to him:
To study the effect of structural change on labor markets, I build a model in which structural change creates a mismatch between novel jobs skill requirements and workers’ current skills. When the mismatch is severe, labor markets go through a prolonged adjustment process wherein unemployment is amplified and job creation is low. Due to matching frictions, firms find less workers with the requisite skills for novel jobs and they respond by creating fewer jobs. The paucity of novel jobs creates an external amplification effect that increases unemployment for all workers—including those who already hold the requisite skills—and discourages rapid skill acquisition by workers. Structural change is not only a secular process; it also interacts with the business cycle, causing a large and long-lasting increase in unemployment that concentrates in recessions. I demonstrate that the decline in routine-cognitive jobs outside manufacturing—a pervasive structural change that has affected U.S. labor markets since 2000—caused a severe skill mismatch that contributed to the long-lasting increase in unemployment observed during the Great Recession. My evidence suggests that this external amplification effect is important. Moreover, I find that the skill mismatch amplified and propagated demand shocks at the local labor market level.
How many times during the last five years have I read or heard critiques of structural theories which neglect their more sophisticated forms? (“What, did everyone in 2008 simply forget…?” etc. Be very suspicious of the structure of that argument.)
Here are two other interesting papers by Restrepo, including one on how to share income with the robots, co-authored with Acemoglu. I agree with their conclusion: “We find that inequality increases during transitions, but the self-correcting forces of the economy limit the increase in inequality over longer periods.”
Larry Summers on technological unemployment in history
This bit is from the Q&A session:
LS: So, I guess I think there is both a, you know, Keynes as usual I think was pretty smart and you know, Keynes began his essay on economic possibilities for our grandchildren by saying that there was this really pressing cyclical problem that had to do with demand which was really important but not all that profoundly fundamental. And there was this more fundamental thing which was that technology was marching on and he thought the dis-employment effects would show up as everybody working 15 hour weeks. And it doesn’t look like that’s quite what they’re showing up as. But the basic idea that technological progress comes with reduced labor input, sometimes it’s early retirement, sometimes it’s people who aren’t able to get themselves employed, sometimes, it’s lower hours, but that is basically the story of the last 150 years.
So, I would not back off of my putting a lot of weight on technology as something important here.
The talk and dialogue (pdf) are on macro more generally, interesting throughout. In general I believe there should be more transcribed and summarized dialogues, both the NBER and Brookings have had intellectual success with that format.
China prediction of the day
While the total amount of debt issued to pay interest is projected by Hua Chuang Securities to increase, it’s taking up a smaller portion of overall new credit. The firm predicts such borrowing will account for 45 percent of new total social financing — which includes bank loans, shadow banking credit and corporate bonds — down from 50 percent last year, according to a Nov. 4 report.
Well…it’s falling. I guess that’s good news…sort of…
That is from Bloomberg News, via HaidiLun and Christopher Balding.
Further wounds for Obamacare
UnitedHealth may exit the provision of ACA plans:
The nation’s largest health insurance provider, UnitedHealth Group, dealt a blow to the Affordable Care Act on Thursday when it warned it may stop offering coverage to individuals through public exchanges after taking a big hit to the bottom line from disappointing enrollment and the law’s unexpected effects.
The insurer’s withdrawal from the Obamacare exchanges would force some 540,000 Americans to find coverage from another provider.
UnitedHealth (UNH) downgraded its earnings forecast, bemoaning low growth projections for Obamacare enrollment and blaming the federal health care law for giving individuals too much flexibility to change plans.
People who purchase insurance through the public exchanges are typically heavy users of their plans, draining insurers’ profits, analysts say.
In a sharp reversal of its previously optimistic projections, UnitedHealth suspended marketing of its Obamacare exchange plans for 2016 — which the company has already committed to offer — to limit its exposure to additional losses.
“We see no data pointing to improvement” in the financial performance of public-exchange plans, UnitedHealth CEO Stephen Hemsley said on a conference call, though he added that “we remain hopeful” the market will recover.
The move comes amid indications that insurers are absorbing steeper costs than they expected from plans offered to individuals through the public exchanges, which are purchased online.
The average premium for medium-benefit plans offered to 40-year-old non-smokers is set to rise 10.1% in 2016, according to the Kaiser Family Foundation.
…Even though UnitedHealth wasn’t a major player yet on the ACA exchanges, the fact that it priced plans conservatively and entered cautiously made its statements more significant, said Katherine Hempstead, who heads the insurance coverage team at the Robert Wood Johnson Foundation.
“If they can’t make money on the exchanges, it seems it would be hard for anyone,” Hempstead said.
But that is not all the news. There is also:
In many Obamacare markets, renewal is not an option
Shopping for health insurance is the new seasonal stress for many
Health care law forces business to consider growth’s costs
Many say their high deductibles make their health insurance all but useless
and my own Obamacare not as egalitarian as it appears
All five are from the NYT, the first three being from the last two or three days, the other two from last week. They are not articles from The Weekly Standard…
To put it bluntly, I don’t think the mandate part of the bill is working. These are mostly problems which decay and get worse, not problems which self-correct.
On UnitedHealth, here is commentary from Megan McArdle. Here is Bob Laszewski. Here is Vox.
Can this be true?
Between 1989 and 2010, U.S. attorneys seized an estimated $12.6 billion in asset forfeiture cases. The growth rate during that time averaged +19.4% annually. In 2010 alone, the value of assets seized grew by +52.8% from 2009 and was six times greater than the total for 1989. Then by 2014, that number had ballooned to roughly $4.5 billion for the year, making this 35% of the entire number of assets collected from 1989 to 2010 in a single year. According to the FBI, the total amount of goods stolen by criminals in 2014 burglary offenses suffered an estimated $3.9 billion in property losses. This means that the police are now taking more assets than the criminals [emphasis added].
That is from Martin Armstrong, via Noah Smith and Michael Hendrix. While private sector robberies are underreported by a considerable amount, this is nonetheless a startling contrast.
Can this be true?
My conversation with Cliff Asness
Here is the full transcript, video, and podcast of the chat. Cliff was great from beginning to end. The first thirty minutes or so were an overview of “momentum” and “value” trading strategies, and to what extent they violate an efficient markets hypothesis. Much of the rest covered:
…disagreeing with Eugene Fama, Marvel vs. DC, the inscrutability of risk, high frequency trading, the economics of Ayn Rand, bubble logic, and why never to share a gym with Cirque du Soleil.
Here is one excerpt:
COWEN: I think of you as doing a kind of metaphysics of human nature. On one side, there’s behavioral economics. They put people in the lab, one-off situations, untrained people. But here it’s repeated data, it’s over long periods of time, it’s out of sample. There’s real money on the line, and this still seems to work.
When you back out, what’s the actual vision of human nature? What’s the underlying human imperfection that allows it to be the case, that trading on momentum across say a 3 to 12 month time window, sorry, investing on momentum, will work? What’s with us as people? What’s the core human imperfection?
ASNESS: This is going to be embarrassing because we don’t have a problem of no explanation. We have a problem with too many explanations. Of course, we can observe the data. The explanations you have to fight over and argue over. I will give you the two most prominent explanations for the efficacy of momentum.
The first is called underreaction. Simple idea that comes from behavioral psychology, the phenomenon there called anchoring and adjustment. News comes out. Price moves but not all the way. People update their priors but not fully efficiently. Therefore, just observing the price move is not going to move the same amount again but there’s some statistical tendency to continue.
Take a wild guess what our second best, in my opinion, explanation for momentum’s efficacy is? It’s called overreaction. When your two best explanations are over- and underreaction, you have somewhat of an issue, I admit. Overreaction is much more of a positive feedback. It works over time because people in fact do chase prices. So if you do it somewhat systematically and before them you make some money.
One of the hard things you find out in many fields but I found out in empirical finance is those might be the right explanations but they’re not mutually exclusive.
And here is from the overrated/underrated part of the chat:
COWEN: …In science fiction, the author Robert Heinlein.
ASNESS: Early stuff, underrated. Later stuff, overrated.
COWEN: What’s your favorite?
ASNESS: That is a really — Methuselah’s Children.
COWEN: Ah, good pick.
ASNESS: I could have gone with the obvious. I’m a bit of a libertarian. I could have gone with, The Moon Is A Harsh Mistress. It’s his most famously libertarian book.
COWEN: But it doesn’t age so well.
ASNESS: No, no. I like Methuselah’s Children.
This was the funniest segment:
ASNESS: I live in Greenwich, Connecticut. In some parts of the world, if you said, “my daddy runs a hedge fund,” I’d say, “what’s a hedge fund?” In Greenwich, Connecticut, the kids say, “what kind of hedge fund is your daddy running? Is he event arbitrage? Trend following? What does dad do?”
Interesting throughout, as they are known to say…
The global reach of the Fed, and why it is time to discard Mundell-Fleming
Miranda-Agrippino and Rey have an important new paper out on global transmission of money shocks. I find the abstract poorly presented, but here are the key sentences from the body of the paper:
…US monetary policy has a significant effect on the leverage of US and European investors (particularly continental European and UK banks who have large capital market operations and are classified as systemically important banks), on cross-border credit flows and on credit growth worldwide…Our results are not driven by the crisis period…
I am not sure if I should feel better or worse about all that, in the meantime beware of purely domestic monetary policy arguments for a particular policy.
Note also that the Mundell-Fleming model is looking rather weak these days. Not long ago Olivier Blanchard and co-authors told us that capital inflows are expansionary, now there is more work from Cambridge telling us that floating exchange rates do not insulate a country from the monetary policy of its neighbors.
Isn’t it time to conclude that the Mundell-Fleming is mostly wrong? You know wrong, as in…not correct. Incorrect, in fact.
How much is unified control of a state government worth?
That is the subject of a new paper by Devin Caughey, Christopher Warshaw, and Yiqing Xu (pdf). It turns out that before the 1980s it hardly mattered at all which party controlled a state government. These days it matters much more, but how much?
Even today, for example, electing a Democratic rather than Republican governor should be expected to increase monthly welfare payments by only $1-2 per recipient, and to increase by just half a percentage point the proportion of policies on which a state has the liberal policy option. These eff ects are small relative to policy diff erences across states. They are also small relative to the partisan divergence in legislative voting records. These results thus partially assuage the normative concern that partisan polarization has led to extreme policy swings, degrading the congruence between policy outcomes and citizens’ preferences.
OK, you can all go home and relax now…and just to be clear, these estimates are adjusting for what is already the ideology of the state.
Some other things to note from this paper:
1. The effect of having a Democratic governor seems to be rising.
2. Whatever Democratic governors accomplish, they accomplish in their first two years in office. Policy effects do not seem to cumulate over time.
3. “The estimated policy effect of a switch in unified party control is one-twentieth the size of the typical difference between states…”
The bottom line? Worry about the culture people, not about the election.
Herb Scarf has passed away
There is one account here, another here. And from Timothy Taylor.
For the pointer I thank John Chilton.