Category: Economics

The Old Boys’ Club

It is real, at least in one Asian data set, as these new NBER working paper results are brought to us by Zoë Cullen and Ricardo Perez-Truglia:

We use an event study analysis of manager rotation to estimate the causal effect of managers’ gender on their employees’ career progression. We find that when male employees are assigned to male managers, they are promoted faster in the following years than they would have been if they were assigned to female managers. Female employees, on the contrary, have the same career progression regardless of the manager’s gender. These differences in career progression cannot be explained by differences in effort or output. This male-to-male advantage can explain a third of the gender gap in promotions. Moreover, we provide suggestive evidence that these manager effects are due to socialization between male employees and male managers.

There is more to the abstract, including a discussion of the benefits of smoking together.  Here is an ungated copy.


The new agreement requires at least 70 percent of an automaker’s steel and aluminum to be bought in North America, which could help boost United States metal production. And 40 to 45 percent of a car’s content must be made by workers earning an average wage of $16 an hour. That $16 floor is an effort to force auto companies to either raise low wages in Mexico or hire more workers in the United States and Canada, an outcome Democrats have long supported.

It also rolls back a special system of arbitration for corporations that the Democratic presidential candidate Elizabeth Warren has criticized as allowing companies to bypass the American legal system and Trump administration officials describe as an incentive for companies to send their factories abroad.

The pact also includes, at least on paper, provisions that aim to do away with sham Mexican labor unions that have done little to help workers by requiring every company in Mexico to seek worker approval of collective bargaining agreements by secret ballot in the next four years.

That is from a week ago, supposedly the actual deal with be somewhat more interventionist and anti-trade than that.  Here is more from Ana Swanson and Emily Cochrane of the NYT.

Willful Pencil Hurling

WSJ: The man who hurled pencils at 22-year-old Richard Robb went on to become a Nobel laureate.

It was 1982. Mr. Robb, a doctoral candidate in economics at the University of Chicago, was chalking out an idea on a blackboard. He was studying under the supervision of James Heckman, a pugnacious econometrician who won the Nobel Prize in economics 18 years later.

The two men had the room to themselves. As the chalk squeaked from Mr. Robb’s scratching, Mr. Heckman grew agitated. He thought Mr. Robb’s idea was wrong, that he was making grandiose claims. He threw a pencil—then a few more.

Ducking occasionally, Mr. Robb ignored the assault and continued writing on the blackboard. “I turned out to be right after all,” Mr. Robb, now 59, tells me, “even though my explanation was confusing. And we published it in a long paper titled ‘Alternative Methods for Evaluating the Impact of Interventions.’ ” He adds that pupil and maestro never discussed the incident again—until Mr. Robb emailed Mr. Heckman to ask if I could use the story in this article.

Mr. Robb is now CEO of a $5 billion hedge fund and a professor of professional practice in international and public affairs at Columbia.

Oddly the article goes on to explain how throwing pencils wasn’t really rational or irrational but an example of something that we do, or perhaps just Heckman does, “for itself”—an act that resulted “from the exercise of will rather than the pursuit of preferences.” Doing something from will rather than from preference is the heart of the idea in Robb’s new book Willful: How We Choose What We Do. Not sure I get it either, but I haven’t read the book. Maybe I will.

Hat tip: Frank McCormick.

My debate with Žižek

It was quite something, the proceedings did not disappoint, here is the YouTube:

I can’t fully access video from this airport location, but I believe the actual debate starts at around 1:06.  After the debate proper, a particular highlight is the four video questions that were taped and sent in from humanities academics.

The Holberg people put on a great event.

Are we undermeasuring productivity gains from the internet?, part II

From my new paper with Ben Southwood on whether the rate of progress in science is diminishing:

Similarly, the tech sector of the American economy still isn’t as big as many people think. The productivity gap has meant that measured GDP is about fifteen percent lower than it would have been under earlier rates of productivity growth. But if you look say about the tech sector in 2004, it is only about 7.7 percent of GDP (since the productivity slowdown is ongoing, picking a more recent and larger number is not actually appropriate here). A mismeasurement of that tech sector just doesn’t seem nearly large enough to fill in for the productivity gap. You might argue in response that “today the whole economy is incorporating tech,” but that doesn’t seem to work either. For one thing, recent tech incorporations typically involve goods and services that are counted in GDP. Furthermore, there is a problem of timing, namely that the U.S. productivity slowdown dates back to 1973, and that is perhaps the single biggest problem for trying to attribute this gap mainly to under-measured innovations in the tech sector.

Other research looks at “worst case” scenarios from the mismeasurement of welfare adjustments in consumer price deflators and finds a similar result: a significant effect that nonetheless does not reverse the judgement that innovation has been slowing. 

The most general point of relevance here is simply that price deflator bias has been with productivity statistics since the beginning, and if anything the ability of those numbers to adjust for quality improvements may have increased with time. For instance, the research papers do not find that the mismeasurement has risen in the relevant period. You might think the introduction of the internet is still undervalued in measured GDP, but arguably the introduction of penicillin earlier in the 20th century was undervalued further yet. The market prices for those doses of penicillin probably did not reflect the value of the very large number of lives saved. So when we are comparing whether rates of progress have slowed down over time, and if we wish to salvage the performance of more recent times, we still need an argument that quality mismeasurement has increased over time. So far that case has not been made, and if you believe that the general science of statistics has made some advances, the opposite is more likely to be true, namely that mismeasurement biases are narrowing to some extent. 

You will find citations and footnotes in the original.  Here is my first post on whether the productivity gains from the internet are understated.

Claims about real rates of return

With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been “stable”, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6-1.8bps p.a. has prevailed. A consistent increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressed sovereign real rates are in fact converging “back to historical trend” – a trend that makes narratives about a “secular stagnation” environment entirely misleading, and suggests that – irrespective of particular monetary and fiscal responses – real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of “nonhuman wealth” over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the “virtual stability” of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.

That is from a new paper by Paul Schmelzing, via the excellent Kevin Lewis.

Why Don’t We Know More About the Subway Cost Disease?

Alon Levy has a good deck based on data he collected covering 205 projects in 40 countries on why subway costs are so expensive in the United States compared to much of the rest of the world.

One of the points he makes is that a significant fraction of cost varies across countries which means “the explanation should be institutional and not geologic or geographic. This is difficult and requires qualitative research, since N is about 40.”

Costs are lower in poorer countries but Levy argues that GDP per capita is not a big factor once differences in type of subways are accounted for, I find that surprising and somewhat difficult to believe.

Levy’s major factor is simply that Americans and New Yorkers in particular don’t know much about how things are done elsewhere. In Europe, when a city builds a subway it can look to ten or twelve examples in three to four nearby countries for best practices. New Yorker’s don’t look anywhere else and say things like “New York has a more built-out commuter rail network than London,” as MTA chair Pat Foye recently claimed. In one way, this is good news because Levy argues that if Americans adopted European practices such as separating design from construction and simplifying station construction they could cut costs significantly.

Levy is to be lauded for his pioneering work on this issue yet isn’t it weird that a Patreon supported blogger has done the best work on comparative construction costs mostly using data from newspapers and trade publications? New York plans to spend billions on railway and subway expansion. If better research could cut construction costs by 1%, it would be worth spending tens of millions on that research. So why doesn’t the MTA embed accountants with every major project in the world and get to the bottom of this cost disease? (See previous point). Perhaps the greatest value of Levy’s work is in drawing attention to the issue so that the public gets mad enough about excess costs to get politicians to put pressure on agencies like the MTA.

Are we undermeasuring productivity gains from the internet? part I

From my new paper with Ben Southwood on whether the rate of scientific progress is slowing down:

Third, we shouldn’t expect mismeasured GDP simply from the fact that the internet makes many goods and services cheaper. Spotify provides access to a huge range of music, and very cheaply, such that consumers can listen in a year to albums that would have cost them tens of thousands of dollars in the CD or vinyl eras. Yet this won’t lead to mismeasured GDP. For one thing, the gdp deflator already tries to capture these effects. But even if those efforts are imperfect, consider the broader economic interrelations. To the extent consumers save money on music, they have more to spend or invest elsewhere, and those alternative choices will indeed be captured by GDP. Another alternative (which does not seem to hold for music) is that the lower prices will increase the total amount of money spent on recorded music, which would mean a boost in recorded GDP for the music sector alone. Yet another alternative, more plausible, is that many artists give away their music on Spotify and YouTube to boost the demand for their live performances, and the increase in GDP  shows up there. No matter how you slice the cake, cheaper goods and services should not in general lower measured GDP in a way that will generate significant mismeasurement. 

Moving to the more formal studies, the Federal Reserve’s David Byrne, with Fed & IMF colleagues, finds a productivity adjustment worth only a few basis points when attempting to account for the gains from cheaper internet age and internet-enabled products. Work by Erik Brynjolfsson and Joo Hee Oh studies the allocation of time, and finds that people are valuing free Internet services at about $106 billion a year. That’s well under one percent of GDP, and it is not nearly large enough to close the measured productivity gap. A study by Nakamura, Samuels, and Soloveichik measures the value of free media on the internet, and concludes it is a small fraction of GDP, for instance 0.005% of measured nominal GDP growth between 1998 and 2012. 

Economist Chad Syverson probably has done the most to deflate the idea of major unmeasured productivity gains through internet technologies. For instance, countries with much smaller tech sectors than the United States usually have had comparably sized productivity slowdowns. That suggests the problem is quite general, and not belied by unmeasured productivity gains. Furthermore, and perhaps more importantly, the productivity slowdown is quite large in scale, compared to the size of the tech sector. Using a conservative estimate, the productivity slowdown implies a cumulative loss of $2.7 trillion in  GDP since the end of 2004; in other words, output would have been that much higher had the earlier rate of productivity growth been maintained. If unmeasured gains are to make up for that difference, that would have to be very large. For instance, consumer surplus would have to be five times higher in IT-related sectors than elsewhere in the economy, which seems implausibly large.

You can find footnotes and references in the original.  Here is my earlier post on the paper.

My Conversation with Daron Acemoglu

Self-recommending of course, most of all we talked about economic growth and development, and the history of liberty, with a bit on Turkey and Turkish culture (Turkish pizza!) as well.  Here is the audio and transcript.  Here is one excerpt, from the very opening:

COWEN: I have so many questions about economic growth. First, how much of the data on per capita income is explained just simply by one variable: distance from the equator? And how good a theory of the wealth of nations is that?

ACEMOGLU: I think it’s not a particularly good theory. If you look at the map of the world and color different countries according to their income per capita, you’ll see that a lot of low-income-per-capita countries are around the equator, and some of the richest countries are pretty far from the equator, in the temperate areas. So many people have jumped to conclusion that there must be a causal link.

But actually, I think geographic factors are not a great explanatory framework for understanding prosperity and poverty.

COWEN: But why does it have such a high R-squared? By one measure, the most antipodal 21 percent of the population produces 69 percent of the GDP, which is striking, right? Is that just an accident?

ACEMOGLU: Yeah, it’s a bit of an accident. Essentially, if you think of which are the countries around the equator that have such low income per capita, they are all former European colonies that have been colonized in a particular way.


COWEN: If we think about the USSR, which has terrible institutions for more than 70 years, an awful form of communism — it falls; there’s a bit of a collapse. Today, they seem to have a higher per capita income than you would expect a priori, if you, just as an economist, write about communism. Isn’t that mostly just because of what is now Russian, or Soviet, human capital?

ACEMOGLU: That’s an interesting question. I think the Russian story is complicated, and I think part of Russian income per capita today is because of natural resources. It’s always a problem for us to know exactly how natural resources should be handled because you can do a lot of things wrong and still get quite a lot of income per capita via natural resources.

COWEN: But if Russians come here, they almost immediately move into North American per capita income levels as immigrants, right? They’re not bringing any resources. They’re bringing their human capital. If people from Gabon come here, it takes them quite a while to get to the —

ACEMOGLU: No, absolutely, absolutely. There’s no doubt that Russians are bringing more human capital. If you look at the Russian educational system, especially during the Soviet time, there was a lot of emphasis on math and physics and some foundational areas.

And there’s a lot of selection among the Russians who come here…

The Conversation is Acemoglu throughout, you also get to hear me channeling Garett Jones.  Again, here is Daron’s new book The Narrow Corridor: States, Societies, and the Fate of Liberty.

Superstar firms and market concentration

A new paper by Autor, Dorn, Katz, Patterson and Van Reenen (some real heavyweights) rebuts the notion that market concentration is rising because of inadequate antitrust concentration:

The fall of labor’s share of GDP in the United States and many other countries in recent decades is we ll documented but its causes remain uncertain. Existing empirical assessments typically rely on industry or macro data obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes push sales towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value-added. We empirically assess seven predictions of this hypothesis: (i) industry sales will increasingly concentrate in a small number of firms; (ii) industries where concentration rises most will have the largest declines in the labor share; (iii) the fall in the labor share will be driven largely by reallocation rather than a fall in the unweighted mean labor share across all firms; (iv) the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; (v) the industries that are becoming more concentrated will exhibit faster growth of productivity; (vi) the aggregate markup will rise more than the typical firm’s markup; and (vii) these patterns should be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.

Here is coverage from Peter Orszag.  As I’ve said before, people are opting for Philippon’s Great Reversal story because of ideology and convenience and mood affiliation, but it is not supported by the facts.

Income Share Agreements

Mitch Daniels, former Governor of Indiana and now President of Purdue University, writes about income share agreements in the Washington Post:

In an ISA, a student borrows nothing but rather has his or her education supported by an investor, in return for a contract to pay a specified percentage of income for a fixed number of years after graduation. Rates and time vary with the discipline of the degree achieved and the amount of tuition assistance the student obtained.

An ISA is dramatically more student-friendly than a loan. All the risk shifts from the student to the investing entity; if a career starts slowly, or not at all, the student’s obligation drops or goes to zero. Think of an ISA as equity instead of debt, or as working one’s way through college — after college.

An excellent point. If you watch Shark Tank the entrepreneurs are always wary about debt because debt puts all the risk on them and requires fixed payments regardless. Yet when it comes to financing the venture of one’s own life suddenly equity becomes akin to slavery and debt bondage becomes freedom! It’s very peculiar.

Another advantage of ISAs is that they provide feedback. Is the university willing to educate you for free in return for a share of future earnings? That’s a good signal!

ISAs have emerged principally in response to the wreckage of the federal student debt system but they also represent an opportunity for higher education to address another legitimate criticism: that it accepts no accountability for its results. As the lead investor of the two funds Purdue has raised to date, our university is expressing confidence that its graduates are ready for the world of work.

Check out Lambda School. “We invest in you. Pay nothing until you get a job making over $50,000.”

At Purdue, the university I lead, hundreds of students have such contracts in place, and other colleges large and small are joining the ISA movement. Beyond traditional higher education, coding academies and other skill-specific schools are making the same offer: Study for free, and pay us back after you get the good job we are confident you’ll land.

Although the very nature of ISAs protects the participant, early adopters such as Purdue have built in safeguards. A user-friendly computer simulator provides quick, transparent comparisons with various public and private loan options. No investee pays anything for the first six months after graduation or until annual income exceeds $20,000. For those graduates who get off to fast career starts, a ceiling of 250 percent of the dollars that purchased their education limits total repayment.

I’ve been writing about income-contingent loans for years. Milton Friedman was an early advocate. It’s good to see forward movement.

*Towards an Economics of Natural Equals*

The authors are David M. Levy and Sandra J. Peart, and the subtitle is A Documentary History of the Early Virginia School.  This is the true history, told by people who know, and with extensive citations from correspondence and primary documentation.


Beginning quite early and throughout his long career, Buchanan studied, endorsed, and extended the Smithian economics of natural equals.

You will find the correspondence of Buchanan and Rawls, the dealings of Buchanan with a skeptical Ford Foundation, the real story behind the Buchanan and G. Warren Nutter “Universal Education” voucher plan, what actually happened in Buchanan’s Chile visit, Chicago vs. Virginia disputes, the anti-democratic views of Murray Rothbard, and the contested history of neoliberalism.  And much correspondence from Ronald Coase.


David Levy worked with Buchanan and Tullock from the late 1970s through their deaths, and he and Peart are extremely careful in their sourcing and quotation practices — get the picture?

Due out Februrary, leap year day, you can pre-order here.

Nonbank lending

We provide novel systematic evidence on the extent and terms of direct lending by nonbank financial institutions, and explore whether banks are still special in lending to informationally opaque firms. Analyzing hand-collected data for a random sample of publicly-traded middle-market firms during the 2010-2015 period, we show that nonbank lending is widespread, with 32% of all loans being extended by nonbanks. Nonbank borrowers are less profitable, more levered, and more volatile than bank borrowers. Firms with a small negative EBITDA are 34% more likely to borrow from a nonbank than firms with a small positive EBITDA. While nonbank lenders are less likely to monitor by including financial covenants, they are more likely to align incentives through the use of warrants. Controlling for firm and loan characteristics, nonbank loans carry 190 basis points higher interest rates. Overall, our results provide evidence of market segmentation in the commercial loan market, where bank and nonbank lenders utilize different lending techniques and cater to different types of borrowers.

That is from a new NBER working paper by Sergey Chernenko, Isil Erel, and Robert Prilmeier.