Results for “nobel”
599 found

Interview with Milton Friedman

by  Alex Tabarrok in

Here is a new interview with Milton Friedman.  I liked this from the introduction:

San Francisco seems an unlikely home for the man who in 1962 first proposed
the privatization of Social Security.

Asked why he dwells in liberalism’s den, Milton Friedman, 92, the Nobel
laureate economist and father of modern conservatism, didn’t skip a beat.

"Not much competition here," he quipped.

Politically Incorrect Paper of the Month v.4

by  Alex Tabarrok in

This month’s Journal of Law and Economics has several superb papers.  Today, I discuss a shocker from Nobelist James Heckman and colleagues, Labor Market Discrimination and Racial Differences in Premarket Factors (subs. required, free version).

A 1996 paper by Neal and Johnson (jstor) showed that most of the black-white wage differential could be explained by AFQT scores.  IQ scores, however, can be influenced by schooling and on average blacks receive worse schooling than whites so Heckman et al. control for schooling and look for even earlier measures of ability (Neal and Johnson use teenage scores).   The results are not encouraging.  After throwing all kinds of factors into the analysis they are able to increase the unexplained wage gap somewhat but no matter how far back they go they still find big ability differences, even in children as young as 1-2 years of age.

The real shock, however, does not come until near the end of the paper where Heckman et al. compare blacks and Hispanics.  I will let the authors speak:

Minority deficits in cognitive and noncognitive skills emerge early and then widen. Unequal schooling, neighborhoods, and peers may account for this differential growth in skills, but the main story in the data is not about growth rates but rather about the size of early deficits. Hispanic children start with cognitive and noncognitive deficits similar to those of black children. They also grow up in similarly disadvantaged environments and are likely to attend schools of similar quality. Hispanics complete much less schooling than blacks. Nevertheless, the ability growth by years of schooling is much higher for Hispanics than for blacks. By the time they reach adulthood, Hispanics have significantly higher test scores than do blacks. Conditional on test scores, there is no evidence of an important Hispanic-white wage gap. Our analysis of the Hispanic data illuminates the traditional study of black-white differences and casts doubt on many conventional explanations of these differences since they do not apply to Hispanics, who also suffer from many of the same disadvantages. The failure of the Hispanic-white gap to widen with schooling or age casts doubt on the claim that poor schools and bad neighborhoods are the reasons for the slow growth rate of black test scores.

Here is #1 and #2, #3  in this series.

Science of the Whole

by  Fabio Rojas

The Chronicle of Higher Education has a wonderful essay about the new frontiers of science. Nobel laureate Robert Laughlin states it well here (click here to read the entire essay):

"What physical science thus has to tell us is that the whole being more than the sum of its parts is not merely a concept but a physical phenomenon. Nature is regulated not only by a microscopic rule base but by powerful and general principles of organization. Some of these principles are known, but the vast majority are not. New ones are being discovered all the time. At higher levels of sophistication the cause-and-effect relationships are harder to document, but there is no evidence that the hierarchical descent of law found in the primitive world is superseded by anything else. Thus if a simple physical phenomenon can become effectively independent of the more fundamental laws from which it descends, so can we. I am carbon, but I need not have been. I have a meaning transcending the atoms from which I am made.

I am increasingly persuaded that all physical law we know about has collective origins, not just some of it. In other words, the distinction between fundamental laws and the laws descending from them is a myth — as is therefore the idea of mastery of the universe through mathematics solely. Physical law cannot generally be anticipated by pure thought, but must be discovered experimentally, because control of nature is achieved only when nature allows this through a principle of organization."

This is the path to the future and we see it all the time in the physical and social sciences. Whether it be the study of social networks, consciousness or phase transitions, researchers are discovering that the 19th century view that all science strictly emerge from fundamental law – whether it be atomic physics or decision theory – leads us away from the great discoveries of the future.

Brain Drain at the NIH?

by  Alex Tabarrok in

Last week the NIH announced drastic new rules restricting employees, and their spouses and dependents, from stock holdings in drug, biotech and other companies with significant medical divisions.  Consulting, lecturing and other outside income is also severely restricted.  Even most prizes and awards with money are now forbidden (the Nobel is an exception). NIH employees are furious.

Word on the street is that universities, including GMU, are receiving a flood of applications from talented scientists. (Perhaps the NIH should have consulted with some economists who might have explained the concepts of opportunity costs and compensating differentials).

No doubt there were some conflicts of interest and some abuses but there were also virtues in the old system.  The free flow of scientists to and from commercial and government research is a key part of what made Washington and Maryland’s biotech sector succesful.  Moreover, as Steve Pearlstein notes, it wasn’t that long ago that this free flow of people, ideas and money was encouraged, precisely in order to get the scientists out of their ivory tower and into the real world of medical need.  Expect less from the NIH in the future.

Gerard Debreu has passed away

by  Tyler Cowen in

Gerard Debreu, 83, a former University of California
at Berkeley economist who won a Nobel Prize for breakthroughs in the
study of supply and demand, died Dec. 31 in Paris. No cause of death
was reported.

Dr. Debreu taught at Berkeley for more than 30 years.
He won the 1983 Nobel Prize in economic sciences for his theoretical
work on how prices operate to balance supply and demand.

Here is an obituary.  Here is The New York Times account.

How much should governments influence norms?

by  Tyler Cowen in

Colombian politicians have been consulting with Douglass North about how to improve citizen behavior:

Another innovative idea was to use mimes to improve both traffic and
citizens’ behavior. Initially 20 professional mimes shadowed
pedestrians who didn’t follow crossing rules: A pedestrian running
across the road would be tracked by a mime who mocked his every move.
Mimes also poked fun at reckless drivers. The program was so popular
that another 400 people were trained as mimes.

That is just the beginning:


Mockus [the driver behind these ideas and the now-former mayor of Bogota] taught vivid lessons with these tools. One time, he asked
citizens to put their power to use with 350,000 "thumbs-up" and
"thumbs-down" cards that his office distributed to the populace. The
cards were meant to approve or disapprove of other citizens’ behavior;
it was a device that many people actively – and peacefully – used in
the streets.

He also asked people to pay 10 percent extra in voluntary taxes. To the
surprise of many, 63,000 people voluntarily paid the extra taxes. A
dramatic indicator of the shift in the attitude of "Bogotanos" during
Mockus’ tenure is that, in 2002, the city collected more than three
times the revenues it had garnered in 1990.

Another Mockus inspiration was to ask people to call his office if
they found a kind and honest taxi driver; 150 people called and the
mayor organized a meeting with all those good taxi drivers, who advised
him about how to improve the behavior of mean taxi drivers. The good
taxi drivers were named "Knights of the Zebra," a club supported by the
mayor’s office.

And get this: 

To encourage Colombians skeptical of his ability to tackle the chaos and disorder of the city, he [Mockus] publicly donned a superman costume and renamed himself "Supercitizen".

Here is the full story, and thanks to Eric Crampton for the pointer.  If you read Spanish, here is an essay by Mockus on his philosophy.

The Great Experiment

by  Tyler Cowen in

Debt won’t hurt, Treasury Chief says…President Bush’s plan to partially privatize Social Security probably won’t raise interest rates or adversely impact financial markets, even if the program entails borrowing hundreds of billions of dollars to finance it, Treasury Secretary John W. Snow said yesterday.

I see four scenarios:

1. The Modigliani-Miller theorem holds and the new borrowing will be offset by the reduction in long-term Social Security liabilities.  The transition will run smoothly.

2. Financial markets will get successively more scared as the proposal progresses.  Congress will postpone action and the plan will die a natural death.  A subsequent President will address the shortfall with a combined tax boost/benefit cap.

3. Moderate Republicans from the Northeast will back out for fear of losing their seats.  Few if any Democrats will cross the line.  A subsequent President will address the shortfall with a combined tax boost/benefit cut.

4. Bush will line up an increasingly partisan Congress and push the reform through.  The U.S. will have a short-term financial crisis, as Paul Krugman has warned.

My prediction: #1 and #4 are unlikely, I put my money on #2 or #3.

My take: I don’t know of any policy, in the history of the world or the United States, that has relied successfully on the realism of the Modigliani-Miller theorem.  The theorem did deserve two Nobel Prizes, but it does not describe the world we live in, not even the market for U.S. government securities.  Keep in mind, the theorem also implies that open market operations will not even influence the price level.

My questions: If we can borrow all that new money "scot-free," will we truly reduce future expenditures on social security benefits?  Or will those funds simply be diverted, either explicitly or implicitly, to finance the Medicare shortfall?  Which way would you, as a bondholder, bet?

Here is the full story.

The scholarly content of blogging

by  Tyler Cowen in

Now that Richard Posner and Gary Becker will start blogging, let us return to Eszther’s query of how blogging and academic scholarship fit together.  I see a few models:

1. A blog post can have a new idea.  It is like a very short journal article, with other bloggers/linkers as providing a citation index of sorts.  Plus you receive quick and useful feedback.

2. The blogosphere as a whole is the relevant unit of analysis.  Don’t think that a single post amounts to much of importance.  But the blogsophere as a spontaneous order (sometimes) spits out the truth.

3. Blogging is a way to publicize academic work and give it new readers.  I call this "blogging as loss leader."

4. Blogging is more like editing a journal or magazine than writing an article.   

5. A blog post is like a (very short) public lecture.

6. Blogging is a fundamentally new medium, akin to an epic in serial form, but combining the functions of editor and author.  Who doesn’t dream of writing an epic?

Don’t focus on the single post.  Rather a good blog provides you a whole vision of what a field is about, what the interesting questions are, and how you might answer them.  It is also a new window onto a mind.  And by packaging intellectual content with some personality, bloggers appeal to the biological instincts of blog readers.  Be as intellectual as you want, you still are programmed to find people more memorable than ideas.  The academic blogger faces the new challenge of tying these disparate functions together in a compelling product.  Intellectual substance, personality, writing, and editing, that is our juggling act.

This hypothesis suggests, by the way, that reading a blog many times will be more rewarding than just sampling it once.  Readers should "specialize" their blog reading to some degree, rather than jumping around and reading the best posts on a given day.

I’ve heard that if Posner were a law school, his citation index would put him in or close to the top ten.  And Becker just gave up his Business Week column a few months ago.  He is also the most widely cited living economist, not to mention that Nobel Prize.  So why are they blogging?  They must think there is something to number six, and are eager for a new challenge.

Prescott on Social Security Reform

by  Alex Tabarrok in

Recent Nobelist Ed Prescott comes out swinging for social security reform in a fine article in the WSJ. 

Some politicians have vilified the idea of giving investment freedom to
citizens, arguing that those citizens will be exposed to risks inherent in the
market. But this is political scaremongering. U.S. citizens already utilize
IRAs, 401Ks, PCOs, Keoghs, SEPs and other investment options just fine, thank
you….Consumers already
know how to invest their money — why does the government feel the need to
patronize them when it comes to Social Security?

It would be one thing if the government’s Social Security system
paid a decent return, but as the President’s Commission reported, for a single
male worker born in 2000 with average earnings, the real annual return on his
currently-scheduled contributions to Social Security will be just 0.86%. … A bank would have to offer a pretty fancy toaster to
get depositors at those rates of return.

Further, about two dozen countries have reformed their state-run
retirement programs, including Chile, Sweden, Australia, Peru, the U.K.,
Kazakhstan, China, Croatia and Poland. If citizens in these countries can handle
individual savings accounts, especially citizens in countries without a history
of financial freedom, then U.S. citizens should be equally adept. At a time when
the rest of the world is dropping the vestiges of state control, the United
States should be leading the way and not lagging behind.

Prescott sees two economic benefits of private accounts, higher savings and greater labor supply (see my earlier post).  Brad DeLong has argued that investing in the market makes sense only if the equity premium is a market failure and not a response to risk.  At best, however, the market failure argument is a sufficient but not necessary reason for market investment.  We don’t really understand the equity-premium, however, so Prescott is right to focus on higher savings and greater labor supply – neither of these benefits of private accounts requires a non risk-adjusted premium.  Prescott’s focus is especially revealing because it was he and Rajnish Mehra who first brought the profession’s attention to the equity-premium puzzle.

Too Many Books?

by  Steven Landsburg in

This year’s Man Booker Prize, Nobel Prize for Literature, and Pulitzer Prize for fiction have now all been awarded for works I will never read, and next month’s National Book Award is certain to follow suit. Which causes me to wonder whether the world’s got enough books already. I own hundreds of novels that I will never have the time to read. If these were the only copies on earth and a fire destroyed half of them, my life would not be signifcantly impoverished.

Of course there are great novels that have brought me a lot of pleasure—most recently, Ian Pears’s An Instance of the Fingerpostand Donna Tartt’s The Secret History come to mind—(warning! Do not read the Amazon reviews of Fingerpost; they give away the ending!). But the opportunity cost of reading a great novel is reading some other great novel, so if either of these had gone unwritten, I’d probably have some other wonderful book to recommend.

There’s an important economic point here: The vast rewards that go to successful novelists can grossly overstate the social value of their work. Dan Brown’s The Da Vinci Code has sold over 6 million copies and almost surely earned its author over $20 million. But if The Da Vinci Code hadn’t been written, some other now-unnoticed book might have taken its place as the blockbuster of the year, and readers would have been almost as happy.

Writing a book is not like growing an orange. If you grow the best orange in the world, the second best orange still gets eaten. But if you write the best book in the world, the second best book loses a lot of readers. So the market price of an orange is an excellent reflection of its true social value, whereas the bulk of Dan Brown’s $20 million is only an excellent reflection of what he was able to divert from some
other author to himself.

Social security privatization, continued

by  Tyler Cowen in

Brad DeLong writes:

There is a bigger, unmentioned reason to be against private accounts. Ten years down the road or so, there will be pressure on Congress to allow people to borrow against their private accounts, or to withdraw them to buy a house, or to use them to meet unexpected medical expenses. Congress will bow to that pressure–it’s their money, after all. And in the end a lot of people will hit 70 having drained their Social Security private account dry. The rest of us will then have to decide whether to let them starve on the street, or tax ourselves a second time to give them Social Security benefits. As Dick Schmalensee says, “You have to ask yourself not just, ‘Is this good policy?’ but ‘Will this still be good policy after Congress does its worst to it?'” The Medicare drug benefit and the corporate tax boondoggle are powerful evidence that the Bush administration holds no leashes to use to control what this Congress does to policy proposals, while lobbyists can make this Congress roll over and beg.

Brad also takes on whether the government could finance the transition to a more private system by borrowing (also read Bruce Webb’s comment, number two in the list). After all, government debt would be higher but government long-term implicit obligations are lower. Would this simply be a wash? (Arnold Kling believes “yes”). I am skeptical. When it comes to government, measured nominal flows tend to be sticky. So say our government increases its borrowing today but lowers its SSA obligations for tomorrow. Even if the transaction can balance without a current increase in interest rates, the increased rate of borrowing (or taxation) will tend to stick in the long run. Plus there is a time consistency problem. If the new debt is placed smoothly, government has an incentive, ex post, to accept some new unfunded liabilities for the future. Knowing this in advance, the bond market will be suspicious about the new debt offering.

What should we do? Here is my previous post on social security privatization.

Prescott on Bush’s fiscal policy

by  Tyler Cowen in

Edward Prescott, who picked up the Nobel Prize for Economics, said President George W. Bush tax rate cuts were “pretty small” and should have been bigger.

“What Bush has done has been not very big, it’s pretty small,” Prescott told CNBC financial news television.

“Tax rates were not cut enough,” he said.

Lower tax rates provided an incentive to work, Prescott said.

As spoken, I agree with the words. But I must wonder if negative numbers count as “pretty small”? We all know that Bush has shifted taxes into the future, not cut them. Government spending is a better (albeit still imperfect) measure of what government takes from the economy. And domestic spending is way, way up; read Alex here.

We try to vary our content on MarginalRevolution; still if there were one point that we would make every day, it would be this one. “It’s the spending, stupid,” you might say.

Prescott should not be blamed for any possible misquotation or removal from context of his words by the news media; if there is any economist who understands the difference between real and nominal variables, or the importance of intertemporal budget constraints, it is he. Here is the link.