Category: Economics
Words of wisdom from Bryan Caplan
BC: Every economist who gives policy advise is implicitly relying on philosophy. Unfortunately, most economists want to rely on philosophy without really reflecting on it, so they’re usually just crude utilitarians (with a heavy bias toward the status quo and democratic fundamentalism).
And:
The Economics of Online Education
The Economist covers the economics of online education:
Alex Tabarrok…reckons the most salient feature of the online course is its rock-bottom marginal cost: teaching additional students is virtually free.
..as prices converge towards marginal cost, there will be little scope for undercutting the competition. Instead MOOCs are likely to compete on quality…Higher production costs are a small price to pay to attract much greater numbers of students. Such markets often evolve into winner-take-all, “superstar” competitions. The best courses attract the most customers and profit handsomely as a result. In this respect online education may more closely resemble information industries such as film-making than service industries such as hair-cutting.
The market for textbooks already fits this description. New textbooks are costly to write and design but can be reproduced fairly cheaply. Not surprisingly, only four introductory economic texts account for half of the American market, according to Mr Tabarrok. Indeed, says Tyler Cowen, a co-founder of Marginal Revolution University, it is possible that textbook publishers are better equipped than universities to develop MOOCs profitably.
I agree also with a point made by Caroline Hoxby:
Less selective institutions are close substitutes for MOOCs. Course content is often standardised and interaction with professors is limited in order to keep costs down.
…Elite institutions face very different circumstances, Ms Hoxby reckons. They operate like venture-capital firms, offering subsidised, labour-intensive education to highly qualified students. They aim to cultivate a sense of belonging and gratitude in students in order to recoup their investment decades later in the form of donations from successful alumni…. For top schools, the best bet may simply be to preserve their exclusivity.
More on the possible benefits of Ethereum
Robert Sams points me to this New Scientist article, here is one bit:
Ethereum allows for the creation of complex, yet decentralised, economic tools like financial derivatives, in which two parties can bet on the rise and fall of an asset, or crop insurance that pays out to a farmer according to a weather data feed. Creating decentralised versions of Dropbox or eBay should be possible too, claims Buterin.
Other developers are attempting to copy Buterin’s success by overlaying new code on the existing Bitcoin block chain. One example is the concept of “coloured” coins: with bitcoins labelled to represent other assets such as gold, cars or even houses, you transfer ownership when you trade the labelled coin.
Buterin says Ethereum is much more flexible. “Bitcoin is great as a form of digital money, but its scripting language is too weak for any kind of serious advanced applications to be built on top.”
One of the more advanced concepts being touted for a next-generation Bitcoin is the idea of decentralised autonomous corporations (DAC) – companies with no directors. These would follow a pre-programmed business model and are managed entirely by the block chain. In this case the block chain acts as a way for the DAC to store financial accounts and record shareholder votes.
In a way, Bitcoin is actually the first DAC, says Daniel Larimer, a developer in Blacksburg, Virginia. People who own bitcoins are shareholders in the company, which offers financial services, earns revenue through transaction fees and pays a salary to its employees, the miners. But no one is in charge.
Here is my previous post on Ethereum.
Altruistic Kidney Donors Favoring Financial Compensation
Dmitri Linde joins Alexander Berger and Virginia Postrel as altruistic kidney donors who advocate for lifting the ban on financial incentives. Here is Linde:
Two policies would address the shortfall of kidneys in the U.S.: instituting a priority-scoring system for donors and their kin and paying donors.
Israel pioneered the former in 2012. Prioritizing organ allocation by donor status—a system that economist Alex Tabarrok termed “no give, no take”—incentivized people to register as organ donors. It also removed a hurdle to living donation: The incentive to abstain because of a hypothetical (What if my son needs a kidney?) went away since the policy guarantees that a donor’s kin will be prioritized in the event that they need a transplant. The results? Both living and deceased donations have gone up, and the number of people who have died on the waitlist fell by 30% between 2010 and 2013.
To obviate the kidney shortage, we should heed the recommendation of Nobel Prize-winning economist Gary Becker and others by making it legal to compensate donors.
Linde donated a kidney with the aid of the excellent National Kidney Registry. The registry matched him to a recipient whose own willing but incompatible donor donated to another patient in need. Bravo Dmitri.
Here are previous MR posts on organ donation.
The economic problems of Puerto Rico
Puerto Rico is now shrinking at a 6% annual pace, and that number is probably going to get worse before it gets better. The chances of the island’s economy actually growing at any point in the foreseeable future seem remote: indeed, the country has essentially been in one long and nasty continuous recession since 2006.
Puerto Rico has $70 billion in debt outstanding, all of it needing to be repaid with interest — and the simple fact is that there’s no way it’s going to be able to do that, if its economy continues to shrink and its most talented nationals continue to decamp for the mainland, where their prospects are much brighter. Labor mobility from Puerto Rico to the rest of the US, and particularly to Florida, has never been higher, while most of the migration in the other direction comes in the form of retirees, who are not exactly going to kick-start the economy. In fact, in terms of the labor force participation rate, they’re just going to make matters worse, on an island where only 1.2 million of the 3.4 million inhabitants are employed.
Ryan McCarthy adds more.
How happy should we be about ACA supply-side responses to work less?
Following the CBO report that Obamacare will induce many people to leave the workforce or cut back on their hours, I have read numerous blog posts suggesting this is benign or possibly even favorable. After all, why should people be forced to work just to keep their health insurance? Imagine a 57-year-old man, freed from the necessity to grub for pay at a second-class retail job, which he had to take just to get insurance to cover the bills for his periodic back treatments.
Alternatively, when I read about demand-side shocks which induce unemployment, I am reminded of the work of Alan Krueger. In two papers, one of which is quite recent, and does not stem from the Heritage Foundation, Krueger shows rather convincingly that the unemployed maintain reservation wages which are simply too high. They would be better off lowering those wages, being more realistic, accepting work, and getting back on their feet again. In other settings (not considered by Krueger), other workers seem to be too slow to move to new areas for new jobs, given the costs of being unemployed long-term.
A lot of Keynesians try to maintain the communication of the feeling (if not the outright statement) that demand-driven employment shocks have very little to do with the choices of workers but that is closer to wrong than right. (By the way, sarcastic comments about soup kitchens causing the Great Depression belie an understanding of both this argument and of contemporary search models for the labor market.)
OK, given all that, when those workers, hit by negative shocks, do not rush to go back to work at lower reservation wages, we then read a portrait of hysteresis, despair, and soul-crushing joblessness, a psychic swamp so difficult to escape that even summoning up the strength to go back to work may be difficult.
In other words, would-be workers irrationally undervalue the benefits of having a job and they also underestimate the costs of remaining unemployed.
Now let’s switch settings. A benefit shock comes along, positive for many people, and it induces many of them to work less or not work at all. How happy should we be? And here I mean happy at the margin, due to their change in employment decision.
People, it is rather difficult to have it here both ways. I guess it is possible that workers are irrational in changing their employment decisions in response to changes in relative dollar wage opportunities, but rational when changing their employment decisions in response to changes in relative benefit opportunities. It really is possible. But are any of you actually arguing that or holding some deep-seated reason for believing in that difference, other than perhaps the reason this post might have induced you to come up with? No, I see one assumption about a destructive choice in one context and the opposing assumption about a beneficial choice in the other context, without much regard for the tension or contradiction between those two assumptions. A lot of you may be subbing in general feelings — “unemployment is terrible,” and “ACA is good,” and simply transferring those general feelings to feelings about the respective marginal changes in employment in each case. That is a fallacy and dare I say it is a “mood affiliation” fallacy?
And by the way, the distinction between a substitution effect and an income effect is a little tricky in this context. But providing ACA-subsidized health insurance for non-workers is in general a substitution effect which switches them out of working in a way that, if pro-ACA stories about adverse selection and uninsurability are true, a simple equivalent cash grant would not.
A simpler possibility is that people undervalue the long-term benefits of having a job and thus in both settings the contraction in employment is a quite negative outcome. That is then very bad news for ACA, if only in expected value terms.
I am reading what people write on this topic and seeing massive fog through my spectacles, a bit on both sides of the debate in fact.
Addendum: Ross Douthat made a good point:
At 500,000-800,000, I wasn’t *that* troubled: http://nyti.ms/1exzxlm At 2-2.5 million, I am. Is there a # that would trouble
@CitizenCohn?
Ross has additional comments here.
John Roemer changes his mind on a bunch of things, including socialism
He has a new published paper, in Analyse & Kritik, entitled “Thoughts on Arrangements of Property Rights in Productive Assets,” here is the abstract:
State ownership, worker ownership, and household ownership are the three main forms in which productive assets (firms) can be held. I argue that worker ownership is not wise in economies with high capital-labor rations, for it forces the worker to concentrate all her assets in one firm. I review the coupon economy that I proposed in 1994, and express reservations that it could work: greedy people would be able to circumvent its purpose of preventing the concentration of corporate wealth. Although extremely high corporate salaries are the norm today, I argue these are competitive and market determined, a consequence of the gargantuan size of firms. It would, however, be possible to tax such salaries at high rates, because the labor-supply response would be small. The social-democratic model remains the best one, to date, for producing a relatively egalitarian outcome, and it relies on solidarity, redistribution, and private ownership of firms. Whether such a solidaristic social ethos can develop without a conflagration, such as the second world war, which not only united populations in the war effort, but also wiped out substantial middle-class wealth in Europe — thus engendering the post-war movement toward social insurance — is an open question.
There are some probably gated versions here. He also explains later in the paper that socialism cannot work because a generally solidaristic social ethos will be undermined by a selfish minority, driven by greed, which will turn social institutions to their favor and evolve into a new ruling class. In other words, Hayek’s The Road to Serfdom is not yet obsolete and still holds the power to sway men’s minds.
For the pointer I thank Kevin Vallier.
The history of political economy workshop at Duke
Bruce Caldwell emails me:
The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this coming June. The program is designed for students in graduate programs in economics. Students will be competitively selected and successful applicants will receive a $2000 stipend for attending, plus free housing and reading materials. The deadline for applying is March 3. More information on the Summer Institute is available at our website,
http://hope.econ.duke.edu/I am writing to ask you if you would again promote our program on the Marginal Revolution blog. The 2012 institute, which was also aimed at grad students (the 2013 one was for faculty), attracted applicants from a host of universities, and we want to keep the momentum going. When we did follow up with previous participants to see how they had found out about the institute, a significant majority of them said that it was from reading about it on a blog.
Gangland average is over the rent is too damn high, Southland edition
So many gang members have been priced out of the neighborhood, he said, that their presence can be hard to spot during the week. But on Fridays and Saturdays, they make a pilgrimage back to their roots. They ride in from El Sereno, Eagle Rock, even the Inland Empire, to hang out. Each Monday, trash cans and stop signs wear fresh “ExP” graffiti.
“It becomes a weekend gang,” Arellano said.
The pointer is from Binyamin Applebaum.
Income volatility for top earners, especially in finance
Justin Lahart has a new article about research in the works on top earners, here is one relevant snippet:
The economists have also been looking into what’s going on with the top 0.1%, while digging more deeply into incomes for specific occupations. In a preview of this work he presented at the American Economic Association’s annual meeting last month, Mr. Guvenen showed that over the past 30 years income cyclicality for this group has risen substantially relative to the population at large.
That is largely a result of a change in the composition. It used to be that doctors — a group with very little income cyclicality — represented about a quarter of top 0.1%. Now they account for less than a tenth. Filling the gap, a bigger share of people in finance-related occupations.
The underlying research you will find here. For the pointer I thank Ray Lopez.
New estimates on ACA and employment
The Affordable Care Act will also reduce the number of fulltime workers by more than 2 million in coming years, congressional budget analysts said in the most detailed analysis of the law’s impact on jobs.
The CBO said the law’s impact on jobs would be mostly felt starting after 2016. The agency previously estimated that the economy would have 800,000 fewer jobs as a result of the law.
The impact is likely to be most felt, the CBO said, among low-wage workers. The agency said that most of the effect would come from Americans deciding not to seek work as a result of the ACA’s impact on the economy. Some workers may forgo employment, while others may reduce hours, for a equivalent of at least 2 million fulltime workers dropping out of the labor force.
That is from The Washington Post.
Addendum: Annie Lowrey adds comment.
*The Fissured Workplace*
That is a new and important book by David Weil and the subtitle is Why Work Became so Bad For So Many and What Can Be Done to Improve It. I take the author’s main thesis to be that corporations have, in the interests of efficiency, focused increasingly on “core competencies.” That has led to an outsourcing of non-core jobs and the commoditization of those jobs, outside the sphere of benefits, workplace community, investing in workers, and caring about worker morale.
Here is one excerpt from the book:
By focusing on core competencies, lead businesses in the economy have shed the employment relationship for many activities, and all that comes with it. Shedding the tasks and production activities to other businesses allows lead companies to lower their costs, since externalizing activities to other firms (particularly those operating in the more competitive markets) eliminates the need to pay the higher wages and benefits that large enterprises typically provided. It also does away with the need to establish consistency in those human resource policies, since they no longer reside inside the firm. This aspect of fissuring pushes liability for adherence to a range of workplace statutes (and other public policies) to other businesses.
I found this by no means a perfect book in terms of presentation. The argument is meandering and it is not clear where the evidence is to come and what is to count as evidence for or against the thesis. I also would have liked a clearer discussion of incidence. If every company is producing “core competencies,” cannot the resulting boost in productivity make virtually all workers better off? And cannot most workers end up in companies where they contribute to core competencies? Well, maybe not, but the upshot here is not exactly clear from reading this book and furthermore the pessimistic tone of the book will then depend on other, quite separate mechanisms for distributing the benefits of these developments to capital not labor. Still, this work presents an important idea with insight and I hope it finds its deserved readership.
Who are the most overrated economists?
I was asked that question over lunch while visiting the PPE program at UNC, and my answer was this.
In general the market in ideas and reputations of economists works fairly well, at least in the United States. Nonetheless at any point in time, the most overrated economists are the most highly rated young empirical economists at the top schools.
Think of it this way. The half-life of a good empirical result is getting progressively shorter. Good empirical papers no longer stand as definitive accounts for fifteen years and sometimes not even for fifteen months. The science is getting better, but the individual economist is becoming less important, as we might expect from a growing division of labor. That is healthy, but it has implications for the distribution of reputation.
The total amount of repute and renown accorded to individual top young economists does not decline at the same rate that individual contributions become less important. That total amount of repute and renown at say Harvard, available to be doled out to the latest hot young economist, is fixed in the short run or may even be rising, due to the high returns on the school’s endowment.
So those economists end up individually overrated, even though as a whole they become more impressive over time.
Working backwards, one might be inclined to think old theorists and economists who have invented or fleshed out general methods are the most underrated.
Bernanke joins Brookings
The press release is here.
Is tech outcompeting other forms of signaling, such as clothing expenditures?
For teenage boys, maybe:
Another factor chipping away at teenage retailers may be the shifting priorities among young people. Where clothing was once the key to signaling a teenager’s identity, other items may have become more important and now compete for their dollars.
“Probably the most important thing a teenage boy has is his smartphone,” said Richard Jaffe, an analyst at Stifel Nicolaus. “Second, is probably his sneakers. Third, maybe, we get to his jeans.”
What may trump all of those, Mr. Jaffe said, are gaming systems, especially over the last few months, because Xbox and PlayStation both released new game consoles in 2013. That may have taken a bite out of what teenagers had to spend on clothes.
The Elizabeth A. Harris article, which focuses on declining teen expenditures on retail clothing, is interesting throughout.