Why do wages grow faster for educated workers?
The U.S. college wage premium doubles over the life cycle, from 27 percent at age 25 to 60 percent at age 55. Using a panel survey of workers followed through age 60, I show that growth in the college wage premium is primarily explained by occupational sorting. Shortly after graduating, workers with college degrees shift into professional, nonroutine occupations with much greater returns to tenure. Nearly 90 percent of life cycle wage growth occurs within rather than between jobs. To understand these patterns, I develop a model of human capital investment where workers differ in learning ability and jobs vary in complexity. Faster learners complete more education and sort into complex jobs with greater returns to investment. College acts as a gateway to professional occupations, which offer more opportunity for wage growth through on-the-job learning.
That is from a new paper by David J. Deming. You will note how this relates to the signaling vs. human capital debates over education. Signaling your quality may put you in a position to learn more over time, as your initial offer likely will be better if you come out of Harvard. But over the longer haul, the wages you earn are the result of what you have learned, not just your initial level of quality. So most of the return to education is that you learn more over time, and thus most of the return is learning-related rather than initial quality-related. Overall, signaling models behave rather awkwardly in dynamic rather than purely static settings.
Will Kenya take the lead in carbon removal?
Because the earth’s crust is thinner than usual along the rift, it has vast geothermal potential. The American government reckons Kenya alone could generate 10,000mw of geothermal power, more than ten times the amount it currently produces. A by-product of such power stations is plenty of waste steam, which can then be used to heat dac machines. Moreover, since close to 90% of Kenya’s power is renewable, the electricity these machines consume does not contribute to more global warming.
Capturing carbon dioxide is just part of the process. Next it has to be safely locked away. The rift’s geology is particularly good for this, too. It has bands of porous basalt (a volcanic rock) that stretch across thousands of square kilometres. This makes the region “ideal” for carbon capture and storage, according to a paper published in 2021 by George Otieno Okoko and Lydia Olaka, both of the University of Nairobi. After carbon dioxide has been sucked from the air it is dissolved in water (in the same way one would make sparkling water). This slightly acidic and bubbly liquid is then injected into the rock. There it reacts with the basalt to form carbon-rich minerals—in essence, rocks—which means the gas will not leak back into the atmosphere…
Martin Freimüller, the founder of Octavia Carbon, a Kenyan startup, is working to build the world’s second-biggest dac plant in the Rift Valley. He hopes it will be able to sequester carbon dioxide far more cheaply than Climeworks can, in part thanks to cheap renewable electricity and geothermal steam, and in part because hiring skilled engineers and chemists costs less in Kenya than in the rich world.
Octavia’s pilot plant, scheduled for completion next year, is forecast to have costs of well below $500 a tonne. Mr Freimüller aims to cut this to below $100 within five years. That is far cheaper than industry-wide forecasts of $300-400 by bcg, a consulting firm.
Here is more from The Economist. Kenya is insufficiently known as a green energy pioneer.
Wednesday assorted links
1. Progress against cancer? (NYT)
2. Bern may experiment with a version of cocaine legalization.
3. Is Africa (very slowly) splitting into two continents?
4. Kiwi culture uh-oh the culture that is Kiwi?
5. WSJ Deirdre review of Acemoglu and Johnson.
6. Is it bad to prefer attractive partners?
7. Yes, have been telling you people that crypto is now underrated.
High Fructose Corn Syrup and the Sugar Quota
A viral tik-tok video compares the ingredients in American Heinz ketchup with those in Canadian Heinz ketchup. The American version contains high fructose corn syrup (HFCS) while the Canadian one contains sugar. An an economist I can’t tell you whether, “this is why America makes you sick” but I can tell you why the American version doesn’t contain sugar. It’s the sugar quota!
The American sugar quota taxes any imports above a small amount at a very high rate. As a result, the US price of sugar is typically about twice the world price of sugar. The higher price of sugar means that US consumers spend billions more for candy, soda and other products and American sugar farmers increase their sales and profits. But the high price also incentivizes producers of goods that need a sweet kick, including Heinz, to substitute with high fructose corn syrup. Americans are the biggest consumers of HFCS in the world.
The two effects of the higher price–raising the price of domestic sugar and causing substitution towards high fructose corn syrup–illustrate the peculiar political economy of the sugar quota. Most obviously, the sugar quota is supported by domestic sugar producers, including the infamous Fanjul brothers, but it’s also supported and indeed was lobbied for by Archer Daniels Midland the inventors of HFCS! Even though the two sides sit together uneasily, there has apparently been enough profits to go around.
Update on the War on Poverty
We evaluate progress in the War on Poverty, as President Johnson defined it, which established a 20 percent baseline poverty rate and adopted an absolute standard. While the official poverty rate fell from 19.5 percent in 1963 to 10.5 percent in 2019, our absolute Full-income Poverty Measure, which uses a fuller income measures and updates poverty thresholds only for inflation, fell from 19.5 to 1.6 percent. However, we also show that relative poverty reductions have been modest. Additionally, government dependence increased over this time, with the share of working-age adults receiving under half their income from market sources more than doubling.
That is from a newly published Richard V. Burkhauser, Kevin Corinth, James Elwell, and Jeff Larrimore piece in the JPE. Here are ungated versions of the paper.
Masai village
It has about fifty people, and when you enter all the women come out and shake your hand, saying “Sopa!”. The children bend their heads down, expecting to be patted on top.
A typical dwelling is about 18 by 15 feet, and it is made out of mud, cow dung, and sticks, the latter material is in place to hold it together when it rains. In one half of the dwelling, the young sheep come and sleep at night, so that the predators cannot kill them. In the other half of the dwelling, ten (!) people sleep, at least for the house I visited.
Polygamy is the norm, with two or three wives being typical. Someone from the previous generation might have had ten wives or more. When you ask them about the “adding-up constraint” — what about the men who can’t get wives? — it is difficult to get a straight answer.
I very much enjoyed the hocking, polyphonal vocal music I heard.
I asked the women what they most want from their government, and their answers were 1) a road, and 2) a better water supply, the current water tank being a few kilometers away. At night a few small lights go on, powered by solar. Cell phones are commonplace, and many of the children now go to school, a recent development.
A poor family might own 100 cattle, a rich family perhaps 200 cattle. A typical cow might sell for $80 in the market.
They do not know what America is, though if you point toward the sunset you can tell them you come from that direction.
The rate of smiling is fairly high. One woman had lost her leg, it is believed because of a snakebite requiring amputation.
Nobels for practitioners of economics?
Who else?
If they gave Econ Nobels to practitioners of economics, not just researchers, who would deserve the prize?
Some picks, in rough order of importance for human welfare:
– Wan Li, for Chinese rural reform
– Manmohan Singh
– Mario Draghi, for "whatever it takes"— Oliver Kim (@oliverwkim) June 14, 2023
Comments are open…
Tuesday assorted links
Messiaen’s Vingts Regards sur l`Enfant Jesus, by Krystoffer Hyldig
Elephant tusks, incentives, and the sacred
In a heap of burnt and powdered elephant tusks, you can see so much of social science.
If you visit Nairobi National Park, you will see rhinos, hippos, and giraffes, all within sight of the city skyline. You also will see an organized site showing several large mounds of burnt and powdered elephant tusks. They are a tribute to the elephant, and along with the accompanying signs, a condemnation of elephant poaching.
Starting in 1989, the government had confiscated a large number of tusks from the poachers, and as part of their anti-poaching campaign they burnt those tusks and placed the burnt ashes on display in the form of mounds. There are also several signs telling visitors that it is forbidden to take the ashes from the site. There have since been subsequent organized tusk burns.
In essence, the government is trying to communicate the notion that the elephant tusks are sacred, and should not be regarded as material for either commerce or poaching or for that matter souvenir collecting. “We will even destroy this, rather than let you trade it.” In economic terminology, you could say the government is trying to shift the supply and demand curves by changing norms in the longer run.
The economist of course is tempted to look beneath the surface of such a policy. If the government destroys a large number of elephant tusks, the price of tusks on the black market might go up. The higher tusk price could in turn motivate yet more poaching and tusk trading, thus countermanding the original intent of the policy.
This scenario, whether the most relevant equilibrium or not, is not just fantasy. Economics Nobel Laureate Michael Kremer (with co-author Charles Morcom) has a well-known paper simply called “Elephants.” In that research, symbolic goods and the sacred are put aside and they take an “incentives only” approach to elephant tusk policy. The abstract runs like this:
Many open-access resources, such as elephants, are used to produce storable goods. Anticipated future scarcity of these resources will increase current prices and poaching. This implies that, for given initial conditions, there may be rational expectations equilibria leading to both extinction and survival. The cheapest way for governments to eliminate extinction equilibria may be to commit to tough antipoaching measures if the population falls below a threshold. For governments without credibility, the cheapest way to eliminate extinction equilibria may be to accumulate a sufficient stockpile of the storable good and threaten to sell it should the population fall.
The key sentence there, for our purposes, is that the government might end up selling its stock of tusks on the open market, to deter speculators. And thus, in that scenario, you do not want to be burning the tusks.
The Kremer and Morcom policy analysis (is it a recommendation? I am not sure) would of course involve the non-credible government in the market for elephant tusks. Periodically wiping out the speculators would have its benefits, for the economic reasons outlined in their paper. At the same time, a government playing around in that market would have a much harder time making the case that elephants and elephant tusks are something sacred. Such a government would have a much harder time making the case that the tusks never should be traded.
Which is better? The policy conducted by the Kenyan government, or the policy described in Kremer and Morcom?
From this distance, I do not pretend to know. I can also see that an anti-poaching government may not have credibility now, but it may wish to invest in “the sacred” for a pending future where its credibility is greater. Treating elephants and elephant tusks as sacred, even if counterproductive in some short runs, may contribute to establishing the credibility of said government. And indeed part of the credibility of today’s Kenyan government (while decidedly mixed) comes from its ability to keep many of the nature reserves up and running in good order. Many of the animals are coming back, and tourism continues to increase.
Many non-economists think only in terms of the sacred and the symbolic goods in human society. They ignore incentives. Furthermore, our politics and religious sects encourage such modes of evaluation.
Many economists think only in terms of incentives, and they do not have a good sense of how to integrate symbolic goods into their analysis. They often come up with policy proposals that either offend people or simply fall flat.
Wisdom in balancing these two perspectives is often at the heart of good social science, and not just for elephant tusks. And who exactly is an expert in that?
Can you help Max Thilo in Singapore?
Having experienced the strengths and weaknesses of the NHS firsthand — I recently completed treatment for Hodgkin’s lymphoma — Tyler kindly awarded me an Emergent Ventures grant to travel to Singapore to study their healthcare system. I would like to meet with health professionals and civil servants working in the health sector. I am looking for practical lessons that can be applied to the NHS i.e not user charges. I am particularly interested in industrial relations, the management of publicly-owned hospitals, and the cost-effectiveness of polyclinics. If you have insights to share or would like to connect, please feel free to reach out to me at [email protected]
My EA fireside chat with Kelsey Piper, on Effective Altruism
Recorded before the SBF implosion, and full of predictions. Only now available on YouTube, with Q&A from the EA audience as well
Interesting throughout.
Monday assorted links
1. Catfish noodling. “Catfish spawn in underwater holes, so when spawning season comes, you reach or dive underwater, stick your hand in the an underwater hole, wait for a catfish to bite down on your hand, and then you grab the fish by its jaw and wrestle it out of its hole and up to the surface. There are, however, a few nuances you’ll want to know about.”
2. Lina Khan update. That hardly ever happens.
Black Magic Technology
Arthur C. Clarke said that “Any sufficiently advanced technology is indistinguishable from magic.” Here’s an example. You know those ubiquitous little LEDs on devices like speakers, card readers, microphones etc. that simply indicate that the device has power? The authors show that these LEDs can bleed information about power consumption that can be used to deduce when and for how long a computer is computing cryptographic keys and that can be used to deduce the keys. For example, using a “hijacked” security camera the author’s were able to film the power LED on a smart card reader from 16 meters away and from that able to deduce the keys. Paper here. Video below.
Now some people will say, well all you have to do is make sure the LEDs are properly insulated from the main power and adjust the cryptographic algorithms to not take some shortcuts and your systems will be safe. Uh huh.
Eliezer Yudkowsky has a more realistic perspective. Although this is not about AI per se, he notes this is a good example of the kind of thing that a superintelligence could do that would not have been predicted in advance and would seem to require magical powers.
Safari surprises
I learned just how accustomed I am to North American wildlife patterns. In much of North America, you see wildlife only sporadically, as for instance in Yellowstone Park you can easily drive for an hour and not see a bear.
In this part of Masai Mara, it is unusual to drive for more than thirty seconds without seeing something interesting. And very commonly you can see a tableau of multiple animals, such as buffalo, Thomson’s gazelle, warthogs, and zebras, all together at once.
On those 4-5 hour drives around the plains, usuually I am thinking about “solving for the equilibrium.” When you see a group of dik-diks, the immediate thought is “how do they escape the cheetahs?” You wonder what is the optimal number of a buffalo grouping to repel a lion attack, without crowding or overgrazing on a particular patch of land.
How close can your open vehicle come to the lions without arousing excessive interest? (Closer than you might think.)
When should a pride of lions split into two groups, balancing strength of collective attack against food scarcity?
Why do cheetahs go about it solo? And how is that fact related to their propensity to win chases on the basis of extreme bursts of speed?
Can you model why the zebras and wildebeest seem to get along so well together?
What is the deadweight loss from the fact that wildebeest use property allocation — over which the males fight — to attract females?
I have noticed that the guides are implicitly Lamarckian in their theorizing.
As dusk arrives, many of the larger cats become more active. And so the potential prey wake up and move to more open territory, where they can see predators arriving. They group and spread themselves out (optimally?), to maximize their own collective field of vision and aural acuity, in case a predator should approach. Those patterns are gone by the late morning.
There is definitely a set of land value gradients here, noting that waterholes are both a) super-valuable, and b) the place where you are most vulnerable to predators. Few potential prey wish to settle there, though they will visit and make haste to leave.
I enjoy watching the prey trigger equilibrium of “My durability in running speed exceeds yours, so I can hang around and expect you won’t charge me, at least not if I keep a safe enough distance. Furthermore, if I don’t run away I can keep you in plain view, which is preferable in any case.”
So my biggest surprise is how visible the notion of equilibrium is here.