Category: Economics

Why so many women in public affairs schools?

This paper presents on three new styled facts: first, schools of public affairs hire many economists; second, those economists are disproportionately female; and third, salaries in schools of public affairs are, on average, lower than salaries in mainline departments of economics. We seek to understand the linkage, if any, among these facts. We assembled a unique database of over 2,150 faculty salary profiles from the top 50 Schools of Public Affairs in the United States as well as the corresponding Economics and Political Science departments. For each faculty member we obtained salary data to analyze the relationship between scholarly discipline, department placement, gender, and annual salary compensation. We found substantial pay differences based on departmental affiliation, significant differences in citation records between male and female faculty in schools of public affairs, and no evidence that the public affairs discount could be explained by compositional differences with respect to gender, experience or scholarly citations.

That is the abstract of a new NBER working paper by Lori L. Taylor, Kalena E. Cortes, and Travis C. Hearn.  I have a vague sense that the same might be true of public policy schools as well.  Why?

Is Democracy Doomed?

Democracies are much richer than non-democracies and their wealth has made them the envy of the world. The close correlation between democracy, high GDP per capita, and economic, military, and cultural power has made modernity appear to be a package deal. When people look at rich, powerful countries they typically see a democracy and they think, “I want that.”

At the same time, however, the academic literature on the causal effect of democracy on growth has shown at best weak results. Here is the all-star team of Acemoglu, Naidu, Restrepo, and Robinson (ungated) in the JPE summarizing:

With the spectacular economic growth under nondemocracy in China, the eclipse of the Arab Spring, and the recent rise of populist politics in Europe and the United States, the view that democratic institutions are at best irrelevant and at worst a hindrance for economic growth has become increasingly popular in both academia and policy discourse. For example, the prominent New York Times columnist Tom Friedman (2009) argues that “one-party non democracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. ”Robert Barro (1997, 1) states this view even more boldly: “More political rights do not have an effect on growth.”

Although some recent contributions estimate a positive effect of democracy on growth, the pessimistic view of the economic implications of democracy is still widely shared. From their review of the academic literature until the mid-2000s, Gerring et al. (2005, 323) conclude that “the net effect of democracy on growth performance cross-nationally over the last five decades is negative or null.”

Acemoglu et al. continue, “In this paper, we challenge this view.” Indeed, using a multitude of sophisticated econometric strategies, Acemoglu et al. conclude “Democracy Does Cause Growth.” In their sample of 175 countries from 1960 to 2010, Acemoglu et al. find that democracies have a GDP per-capita about four times higher than nondemocracies ($2074 v. $8149). (This is uncorrected for time or other factors.) But how much of this difference is explained by democracy? Hardly any. Acemoglu et al. write:

Our estimates imply that a country that transitions from nondemocracy to democracy achieves about 20 percent higher GDP per capita in the next 25 years than a country that remains a nondemocracy.

In other words, if the average nondemocracy in their sample had transitioned to a democracy its GDP per capita would have increased from $2074 to $2489 in 25 years (i.e. this is the causal effect of democracy, ignoring other factors changing over time). Twenty percent is better than nothing and better than dictatorship but it’s weak tea. GDP per capita in the United States is about 20% higher than in Sweden, Denmark or Germany and 40% higher than in France but I don’t see a big demand in those countries to adopt US practices. Indeed, quite the opposite! If we want countries to adopt democracy, twenty percent higher GDP in 25 years is not a big carrot.

As someone who favors democracy as a limit on government abuse, I find this worrying. One optimistic response is that the nondemocracies that adopt the policies necessary to make a nation rich, such as support for property rights, open markets and the free exchange of ideas, may not be such bad places. These beasts, however, appear to be rare. But if they are truly rare there must be more to the democracy-GDP per capita correlation than Acemoglu et al. estimate. So what are they missing? I am uncertain.

If democracies don’t substantially increase growth, why are they rich? Acemoglu et al. don’t spend time on this question but the answer appears to be reverse causality (from wealth to democracy) and the fact that today’s rich democracies adopted capitalism early. But don’t expect the wealth to democracy link to be everywhere and always true, it’s culturally and historically bound. And catch-up is eliminating the benefits of the head start.

If much of the allure of democracy has been higher GDP per capita then the allure has been a mistake of confusing correlation for causation. A fortunate mistake but a mistake. The literature on democracy and growth implies that there is no reason to reject an alternative history in which the world’s leading industrial economy was a nondemocracy. Nor why we could not see some very rich nondemocracies in the future–nondemocracies that would be as on par with the United States as say Sweden, Denmark and Germany are today. If that happens, the case for democracy will look very much weaker than it does now as the correlation between democracy and wealth will be broken and the causal effect more evident even to those without sophisticated econometrics.

Hat tip: Garett Jones for discussion.

Libra’s unresolved puzzles

That is a long blog post from my colleague Lawrence H. White, who has thought about these matters for many years.  Here is one excerpt:

If we take the white papers’ talk of “backing” seriously, it suggests that the value of Libra coins in circulation is matched by the value of assets held in the Reserve, ready to buy back or redeem the coins. The papers say that Libra will be backed by a portfolio of $-denominated, €-denominated, and other fiat-denominated securities. But is a coin in the hands of a Reseller a debt claim or an equity claim on the Reserve? In particular, when a Reseller bring Libra 1 to the Reserve, she might either have an IOU, entitling her to a specified medium of redemption, like a Paypal account balance or a Hong Kong Dollar note redeemable in US Dollars. Or she might have a share claim on the Libra Reserve portfolio, like a mutual fund share. For the Reserve portfolio to provide full backing, the share claim will have to be redeemable in a bundle of currencies whose composition mirrors the composition of the portfolio.

The official papers ambiguously suggest both debt and equity characteristics. in places, they liken the Libra Reserve to a currency board. An orthodox currency board note issues debt claims (local currency notes), each redeemable for a fixed amount of the anchor currency (HK$7.8 = US$1), and holds at least 100 per cent reserves in the anchor currency. If that is the Libra arrangement, then there is a fixed exchange rate between Libra and a pre-specified fiat currency basket. The proportions of fiat currencies in the medium-of-redemption basket would be pre-specified. To provide full backing the proportions would have to correspond exactly to the proportions of currency-denominated assets in the Reserve’s portfolio. Otherwise adverse exchange rate movements could reduce the portfolio value below 100 percent of the par value of Libra in circulation.

On the other hand, the Resellers are not described as redeeming Libra at the Reserve. A different backing arrangement would provide that returning Libra 1 always gives the Reseller a fixed-proportions fiat currency basket equal in value to 1/N, where the portfolio’s market value is Libra N. The Reserve is then a kind of mutual fund, and Libra 1 in the hands of a Reseller is a mutual fund share (a possibility Williamson identifies). This would be novel arrangement – a mutual fund redeemable in a multi-fiat medium of redemption, with shares used as a medium of exchange. The value of the Libra 1 share would not be perfectly steady in terms of the defined currency basket, but would be as steady as the nominal net asset value of the portfolio in currency baskets.

There is much more detail at the link.

Phonics Based Direct Instruction

Linguist John McWhorter strongly supports phonics and direct instruction:

Now that it’s summer, I have a suggestion for how parents can grant their wee kiddies the magic of reading by Labor Day: Pick up Siegfried Engelmann’s Teach Your Child to Read in 100 Easy Lessons. My wife and I used it a while ago with our then-4-year-old daughter, and after a mere 20 cozy minutes a night, a little girl who on Memorial Day could recognize on paper only the words no and stop and the names of herself and her family members could, by the time the leaves turned, read simple books.

…Engelmann’s book, which he co-wrote with Phyllis Haddox and Elaine Bruner, was first published in the early 1980s, but it was based on work from the late 1960s. That’s when Engelmann was involved in the government-sponsored Project Follow Through, whose summary report compared nine methods for how to teach reading and tracked results on 75,000 children from kindergarten through third grade. The results, though some critics over the years have rejected them on methodological grounds, were clear: The approach that proved most effective was based on phonics—teaching children how to sound words out, letter by letter, rather than encouraging students to recognize words as single chunks, also called the whole-word system. Specifically, the most successful approach supplemented basic phonics with a tightly scripted format emphasizing repetition and student participation, often dubbed “direct instruction.” As I have previously explained for NPR, the results were especially impressive among poor children, including black ones.

…And yet in the education world, Engelmann’s technique is considered controversial.

Here are previous MR posts on Direct Instruction, the teaching method that works even though many teachers don’t like it.

Bryan Caplan, against populism

My point: If your overall reaction to business progress over the last fifteen years is even mildly negative, no sensible person will try to please you, because you are impossible to please.  Yet our new anti-tech populists have managed to make themselves a center of pseudo-intellectual attention.

Angry lamentation about the effects of new tech on privacy has flabbergasted me the most.  For practical purposes, we have more privacy than ever before in human history.  You can now buy embarrassing products in secret.  You can read or view virtually anything you like in secret.  You can interact with over a billion people in secret.

Then what privacy have we lost?  The privacy to not be part of a Big Data Set.  The privacy to not have firms try to sell us stuff based on our previous purchases.  In short, we have lost the kinds of privacy that no prudent person loses sleep over.

There is more good material at the link.

Robin Hanson on coercion and feedback

But the concept of coercion isn’t very central to my presumption. At a basic level, I embrace the usual economists’ market failure analysis, preferring interventions that fix large market failures, relative to obvious to-be-expected government failures.

But at a meta level, I care more about having good feedback/learning/innovation processes. The main reason that I tend to be wary of government intervention is that it more often creates processes with low levels of adaptation and innovation regarding technology and individual preferences. Yes, in principle dissatisfied voters can elect politicians who promise particular reforms. But voters have quite limited spotlights of attention and must navigate long chains of accountability to detect and induce real lasting gains.

Yes, low-government mechanisms often also have big problems with adaptation and innovation, especially when customers mainly care about signaling things like loyalty, conformity, wealth, etc. Even so, the track record I see, at least for now, is that these failures have been less severe than comparable government failures. In this case, the devil we know more does in fact tend to be better that the devil we know less.

So when I try to design better social institutions, and to support the proposals of others, I’m less focused than many on assuring zero government invention, or on minimizing “coercion” however conceived, and more concerned to ensure healthy competition overall.

Here is the full post.

California’s regulatory code for housing is too strict

The sponsors of SB 50 seem to recognize that the state’s housing problems are at least partially man-made. Indeed, California is a leader in regulating just about everything — including insurance carriers, public utilities and housing construction. If California’s regulatory code underwent some serious spring cleaning, it could help the state at least make a dent in its housing affordability crisis.

The California Code of Regulations — the compilation of the state’s administrative rules — contains more than 21 million words. If reading it was a 40-hour-a-week job, it would take more than six months to get through it, and understanding all that legalese is another matter entirely.

Included in the code are more than 395,000 restrictive terms such as “shall,” “must” and “required,” a good gauge of how many actual requirements exist. This is by far the most regulation of any state in the country, according to a new database maintained by the Mercatus Center, a research institute at George Mason University. The average state has about 137,000 restrictive terms in its code, or roughly one-third as many as California. Alaska and Montana are among the states with as few as 60,000.

That is from James Broughel and Emily Hamilton at Mercatus, in The Los Angeles Times.

The decline in American infrastructure proficiency

That is the concern of a new paper by Ray Fair, here is the abstract:

This paper examines the history of U.S. infrastructure since 1929 and in the process reports an interesting fact about the U.S. economy. Infrastructure as a percent of GDP began a steady decline around 1970, and the government budget deficit became positive and large at roughly the same time. The infrastructure pattern in other countries does not mirror that in the United States, so the United States appears to be a special case. The overall results suggest that the United States became less future oriented beginning around 1970. This change has persisted. This is the interesting fact. Whether it can be explained is doubtful.

Is it not the rise of interest in spending more money on medical care?

*The Narrow Corridor: States, Societies, and the Fate of Liberty*, the new Acemoglu and Robinson book

Due out in September, by Daron Acemoglu and James Robinson, here is an excerpt from the Amazon summary:

State institutions have to evolve continuously as the nature of conflicts and needs of society change, and thus society’s ability to keep state and rulers accountable must intensify in tandem with the capabilities of the state. This struggle between state and society becomes self-reinforcing, inducing both to develop a richer array of capacities just to keep moving forward along the corridor. Yet this struggle also underscores the fragile nature of liberty. It is built on a fragile balance between state and society, between economic, political, and social elites and citizens, between institutions and norms. One side of the balance gets too strong, and as has often happened in history, liberty begins to wane. Liberty depends on the vigilant mobilization of society. But it also needs state institutions to continuously reinvent themselves in order to meet new economic and social challenges that can close off the corridor to liberty.

You can pre-order here.

Allegedly Unique Events

One common response to yesterday’s post, What is the Probability of a Nuclear War?, was to claim that probability cannot be assigned to “unique” events. That’s an odd response. Do such respondents really believe that the probability of a nuclear war was not higher during the Cuban Missile Crisis than immediately afterwards when a hotline was established and the Partial Nuclear Test Ban Treaty signed?

Claiming that probability cannot be assigned to unique events seems more like an excuse to ignore best estimates than a credible epistemic position. Moreover, the claim that probability cannot be assigned to “unique” events is testable, as Phillip Tetlock points out in an excellent 80,000 Hours Podcast with Robert Wiblin.

I mean, you take that objection, which you hear repeatedly from extremely smart people that these events are unique and you can’t put probabilities on them, you take that objection and you say, “Okay, let’s take all the events that the smart people say are unique and let’s put them in a set and let’s call that set allegedly unique events. Now let’s see if people can make forecasts within that set of allegedly unique events and if they can, if they can make meaningful probability judgments of these allegedly unique events, maybe the allegedly unique events aren’t so unique after all, maybe there is some recurrence component.” And that is indeed the finding that when you take the set of allegedly unique events, hundreds of allegedly unique events, you find that the best forecasters make pretty well calibrated forecasts fairly reliably over time and don’t regress too much toward the mean.

In other words, since an allegedly unique event either happens or it doesn’t it is difficult to claim that any probability estimate was better than another but when we look at many forecasts each of an allegedly unique event what you find is that some people get more of them right than others. Moreover, the individuals who get more events right approach these questions using a set of techniques and tools that can be replicated and used to improve other forecasters. Here’s a summary from Mellers, Tetlock, Baker, Friedman and Zeckhauser:

In recent years, IARPA (the Intelligence Advanced Research Project Activity), the research wing of the U.S. Intelligence Community, has attempted to learn how to better predict the likelihoods of unique events. From 2011 to 2015, IARPA sponsored a project called ACE, comprising four massive geopolitical forecasting tournaments conducted over the span of four years. The goal of ACE was to discover the best possible ways of eliciting beliefs from crowds and optimally aggregating them. Questions ranged from pandemics and global leadership changes to international negotiations and economic shifts. An example question ,released on September 9, 2011, asked, “Who will be inaugurated as President of Russia in 2012?”…The Good Judgment Project studied over a million forecasts provided by thousands of volunteers who attached numerical probabilities to such events (Mellers, Ungar, Baron, Ramos, Gurcay, et al., 2014; Tetlock, Mellers, Rohrbaugh, & Chen, 2014).

In the ACE tournaments, IARPA defined predictive success using a metric called the Brier scoring rule (the squared deviation between forecasts and outcomes,where outcomes are 0 and 1 for the non-occurrence and occurrence of events, respectively; Brier, 1950). Consider the question, “Will Bashar al-Assad be ousted from Syria’s presidency by the end of 2016?” Outcomes were binary; Assad either stays or he is ousted. Suppose a forecaster predicts that Assad has a 60% chance of staying and a 40% chance of being ousted. If, at the end of 2016, Assad remains in power, the participant’s Brier score would be [(1-.60)^2 + (0-.40)^2] = 0.16. If Assad is ousted, the forecaster’s score is [(0 -.60)^2 + (1 -.40)^2] = 0.36. With Brier scores, lower values are better, and zero is a perfect score.

…The Good Judgment Project won the ACE tournaments by a wide margin each year by being faster than the competition at finding ways to push probabilities toward 0 for things that did not happen and toward 1 for things that did happen. Five drivers of accuracy accounted for Good Judgment’s success.They were identifying, training, teaming, and tracking good forecasters, as well as optimally aggregating predictions. (Mellers, et al., 2014; Mellers, Mellers, Stone, Atanasov, Rohrbaugh, Metz, et al., 2015a; Mellers, Stone, Murray, Minster, Rohrbaugh, et al., 2015b).

People like working with their friends, but it makes them less productive

From Sangyoon Park:

Through a field experiment at a seafood-processing plant, I examine how working alongside friends affects employee productivity and how this effect is heterogeneous with respect to an employee’s personality. This paper presents two main findings. First, worker productivity declines when a friend is close enough to socialize with. Second, workers who are higher on the conscientiousness scale show smaller productivity declines when working alongside a friend. Estimates suggest that a median worker is willing to pay 4.5 percent of her wage to work next to friends.

That is from American Economic Journal: Applied Economics, via Adam Ozimek.

Crypto is here to stay?

That is the theme of my latest Bloomberg column, here is one excerpt:

One reason for the rise in Bitcoin’s price may have to do with the U.S. and China and the trade war. It no longer seems that China will join the international economic order as that term might have been understood 15 years ago. Instead, there will be an ongoing cold war; China will not liberalize, and capital controls may persist. In that world, Bitcoin will continue to prove a useful way of getting funds out of China. The Chinese Communist government may or may not crack down on that practice, but outright liberalization would have ended this use of Bitcoin altogether.

For related reasons, a China that does not liberalize may influence the broader tenor of the global economy away from freedom, again giving Bitcoin additional uses around the world for evading central authorities.

A second development is that the Democratic Party in the U.S. continues to shift to the left, including on the possibility of a wealth tax. As America’s fiscal deficits grow (due often to the Republicans, I might add), there will be a long-term need to restore fiscal sanity. Presidential candidate Elizabeth Warren, for one, advocates a 2% wealth tax (over $50 million) toward this end.

No matter what you think of this idea, it likely would boost the demand for Bitcoin and other crypto assets, as cryptocurrencies are potentially a way to store assets out of reach of many tax authorities. And the U.S. is hardly the only nation that may be looking to a wealth tax in the future to balance the books. In essence, the new and higher price of Bitcoin is telling us that fiscal solvency will be hard to come by, and the wealthy will not give up their assets without a fight.

Do read the whole thing.

Gender and competition

From American Economic Journal, Applied Economics:

“Do Women Give Up Competing More Easily? Evidence from the Lab and the Dutch Math Olympiad,” by Thomas Buser and Huaiping Yuan.

We use lab experiments and field data from the Dutch Math Olympiad to show that women are more likely than men to stop competing if they lose. In a math competition in the lab, women are much less likely than men to choose competition again after losing in the first round. In the Math Olympiad, girls, but not boys, who fail to make the second round are less likely to compete again one year later. This gender difference in the reaction to competition outcomes may help to explain why fewer women make it to the top in business and academia.

Here is the link to the paper.  Here are earlier, ungated versions.

Is Bitcoin Halal?

Press TV: A report by Iran’s Mehr news agency last week showed that bitcoin miners were using power in buildings and properties that enjoy a lower price for electricity, including factories, greenhouses, government offices and mosques.

…A spokesman of Iran’s Ministry of Energy said on Monday that the country’s power grid had become unstable as a result of increased mining of cryptocurrencies.

Bitcoin mining in a mosque may seem outré but at least it’s not money lenders in the mosque. In fact, Bitcoin is halal, at least according to one source (quoted here):

As a payment network, Bitcoin is halal. In fact, Bitcoin goes beyond what more conventional closed banking networks offer. Unlike conventional bank networks which use private ledgers where there’s no guarantee that the originator actually owns the underlying assets, Bitcoin guarantees with mathematical certainty that the originator of the transfer owns the underlying assets. Conventional banks operate using the principle of fractional reserve, which is prohibited in Islam.

Muhammad was a merchant and much more open to business than some traditional Christian interpretations. For example, compare Jesus, “it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God” with one of Muhammad’s sayings:

Abu Said related that the Prophet said: The truthful and trustworthy businessman will be in the company of Prophets, saints and martyrs on the Day of Judgment. (Darimi, Tirmidhi)