Against current conceptions of the equity-efficiency trade-off

by  Tyler Cowen in

I cited the current use of that trade-off as the thing that bugs me most about the economics profession.  Here is my Bloomberg column, and here is one excerpt:

The equity-efficiency trade-off, in its simplest form, argues that economists should consider both equity (how a policy affects various interested parties) and efficiency (how well a policy targets the party it is intended to affect) in making policy judgments.

So far so good. I start getting nervous, however, when I see equity given special status. After all, it most often is called “the equity-efficiency trade-off,” not “an equity-efficiency tradeoff,” and it is prominent in mainstream economics textbooks. By simply reiterating a concept, economists are trying to elevate their preferred value over a number of alternatives. They are trying to make economics more pluralistic with respect to values, but in reality they are making it more provincial.

If you poll the American people on their most important values, you will get a diverse set of answers, depending on whom you ask and how the question is worded. Americans will cite values such as individualism, liberty, community, godliness, merit and, yes equity (as they should). Another answer — taking care of their elders, especially if they contributed to the nation in their earlier years — does not always show up in polls, but seems to have a grip on many national policies and people’s minds.

And:

I hear frequently about the equity-efficiency trade-off, but much less about the trade-offs between efficiency and these other values. Mainstream economists seldom debate the value trade-offs between efficiency and individualism, for instance, though such conflicts were of central concern to many Americans during the pandemic…

Surveys have shown that a strong majority of academic economists prefer Democrats. Yet most economists, including Democrats, should pay more attention to the values of ordinary Americans and less attention to the values of their own segment of the intelligentsia. That also would bring them closer to most Democratic Party voters, not to mention swing voters and many Republicans. Equity is just one value of many, and it is not self-evidently the value economists ought to be most concerned with elevating.

Damning throughout.

“What’s the best defense of the Biden administration’s performance to date?”

by  Tyler Cowen

That is an MR reader request.  You could read this longish NYT piece by Ezra Klein, but his broader perspectives are somewhat different from mine.  My defense, no matter how good or bad it may be, is a little simpler:

1. Most other countries have inflation too.  Our inflation rate is somewhat better than the Western average.  Perhaps that difference is not to Biden’s credit, but he didn’t put us on the wrong side of that ledger either.

2. The American response to Russia’s war in Ukraine seems to have gone relatively well, all things considered?  This judgment could end up rapidly reversed, but so far we have achieved a mix of embarrassing Russia while avoiding direct troop involvement or “no fly” zones.

3. China has not (yet) invaded Taiwan.  Biden at least pretends to offer Taiwan stronger support than previous administrations had done.

4. #2 and #3 are perhaps 80% of the scorecard?

5. The Chips and Science Act at least puts some emphasis back on science, though so far it seems the proffered reforms aren’t nearly good enough.

Wednesday assorted links

by  Tyler Cowen

1. Swedish Zoom reading group on classical liberal themes.

2. Monty Python Argument clinic, but with an app.

3. Straussian Taylor Swift?

4. Legislation looks to stop insurers from rating/excluding coverage based on dog breed.

5. EU may block Polish nuclear investment.

6. Admission to a research university causally shapes your politics.  But it is more about the peers than the instruction.

Redistribution and credit card debt

by  Tyler Cowen in

Is Chase Sapphire a Pareto improvement, or does it also involve redistribution?  Here is a new paper on that topic:

We study credit card rewards as an ideal laboratory to quantify the cross-subsidy from naive to sophisticated consumers in retail financial markets. Using granular data on the near universe of credit card accounts in the United States, we find that sophisticated consumers profit from reward credit cards at the expense of naive consumers who lose money both in absolute terms and relative to classic cards. We estimate an aggregate annual cross-subsidy of $15.5 billion. Notably, our results are not driven by income—while sophisticated high-income consumers benefit the most, naive high-income consumers pay the most. Banks lure consumers into the use of reward cards by offering lower interest rates than on comparable classic cards and bank profits are highest for borrowers in the middle of the credit score distribution. We show that credit card rewards transfer wealth from less to more educated, from poorer to richer, from rural to urban, and from high to low minority areas, thereby widening existing spatial disparities.

The authors are Sumit Agarwal, Andrea Presbitero, André F. Silva, and Carlo Wix. I guess I am going to continue using my Sapphire card, are you?

Via Arpit Gupta.

Why talent sorting in Germany is flawed

by  Tyler Cowen in

I won’t double indent, but this is all from Simon Grimm:

  • German academia doesn’t have world-class universities and is self-avowedly egalitarian.

  • Without a clear top university, many talented students instead enter highly competitive medical schools to prove their ability.

  • But, as argued here, medical school is a bad default choice for these students if you care about accelerated scientific, material, and moral progress. This is for four reasons:

    1. Entering many different universities instead of one top college, talented students do not generate and thus do not profit from local agglomeration effects.

    2. Medical students aren’t allowed the intellectual flexibility to explore ideas and projects independently.

    3. Medical school takes six years, offering no intermediate degree. This locks in students’ choice of study, even if they change their minds.

    4. Lastly, practicing medicine offers small impact at the margin (i.e., talented medical students can’t add much to an already highly advanced medical system).

  • Instead, talented individuals could study subjects and enter jobs that allow them to do much more good.

  • Changing this status quo is difficult, as i) strong competition between universities is probably disliked by university administrations and ii) reforming existing universities is famously hard through entrenched bureaucratic decision-making and ensuing vetocracy. Thus, change might only be possible through affluent outsiders who launch a new, better university.

Elon’s current Twitter strategy

by  Tyler Cowen in

Not macro, but super-micro.  Relative status is what gets people talking, and what is more relative status than “Blue Check” on Twitter.  And so everyone is talking about Twitter over the last few days.

Duh.

Here is the latest pricing proposal:

And adjusted for PPP.  Read the whole thread, a lot of privileges will come with the status, and I suspect spam problems will de facto force most people into this option.  See you there!  And Elon is already ahead of the critics on this one, and was all along.

Chronic School Absenteeism

by  Alex Tabarrok in

SFStandard: Chronic absenteeism in the San Francisco Unified School District has more than doubled from pre-pandemic levels, rising from 14% to 28%, according to preliminary data for 2021-22. A student is considered chronically absent when they miss 10% of the 180-day school year.

Chronic Absentism doubled for most students–chronic absenteeism among Asians, for example, doubled from 4% to 9%–but among African Americans chronic absenteeism increased from 38% to a stunning 64%. As a result, some schools with a large percentage of African American students have 80% or more of their student body chronically absent.

Abseentism is also way up in New York City and in England.

Further evidence on role models

by  Tyler Cowen in

Leveraging the Tennessee STAR class size experiment, we show that Black students randomly assigned to at least one Black teacher in grades K–3 are 9 percentage points (13 percent) more likely to graduate from high school and 6 percentage points (19 percent) more likely to enroll in college compared to their Black schoolmates who are not. Black teachers have no significant long-run effects on White students. Postsecondary education results are driven by two-year colleges and  concentrated among disadvantaged males. North Carolina administrative data yield similar findings, and analyses of mechanisms suggest role model effects may be one potential channel.

That is from a new AER paper by Seth Gershenson, Cassandra M. D. Hart, Joshua Hyman, Constance A. Lindsay and Nicholas W. Papageorge, “The Long-Run Impacts of Same-Race Teachers.”  Here are various ungated versions.  Just to be clear, I don’t consider this a justification for any particular set of policies.  I do see it as extra reason for the successful to be visible and to work hard!

Who are the best Ukraine predictors?

by  Tyler Cowen in

Here is a new reader request:

– Which kinds of people are likely to be best able to predict how events in Ukraine will unfold? Ukrainians? Political scientists? Superforecasters?

I have to go with the superforecasters, but that said, I wish for them to have the following training:

1. Have visited Ukraine and Russia, as many times as possible.

2. Have Ukrainian and Russian friends.

3. Well-read in Russian literature, and a sense of how imperialistic so many of the Russian intellectuals and writers have been.

4. Some understanding of how the KGB perspective in Russia differs from the views of the military, all as it might reflect upon Putin and his decisions.

5. Well-read in the general history of war, in addition to the history of the region.

I am not sure you want actual Ukrainians or Russians, who tend to be insightful but highly biased.  It is noteworthy to me that Kamil Galeev, who has had a good predictive record, is from Russia but is a Tatar rather than an ethnic Russian or Ukrainian.  I would downgrade anyone, as a forecaster, who took “too much” interest in the Russia/Trump issue.  They might be too skewed toward understanding events in terms of U.S. domestic politics.  Overall, would you do better taking Estonians or professional political scientists on this one?  I am not so sure.

The new *Revolver* boxed set

by  Tyler Cowen in

Not nearly as good as the White Album “Esher” sessions.  I enjoyed the original, much speedier version of “Rain” (not actually good, but the slowed down, distorted track we all know suddenly makes more sense), hearing the evolution of “Yellow Submarine” through early acoustic John demos to the almost finished song, and George’s “Love You To” with acoustic guitar rather than Indian instrumentation.

I don’t like the newer remixes of Beatles and John Lennon material, and yes I mean you Giles Martin.  In contrast, I am pleased to own a version of the Mono mix of the album.

I’m one of those who prefers The White Album to Revolver.  The Revolver songs do not flow organically for me, and it is perhaps the Beatles’s fourth greatest creation?  The three George songs are not outstanding, and I sympathize with “Yellow Submarine” more than wishing to hear it again.  “Eleanor Rigby” runs the risk of sliding into that same status.  The very greatest track in the box — “Rain” — wasn’t even on the album.

I don’t regret having spent more than $100 on these five CDs (could have been fit on two discs!), but Coase’s theory of durable goods monopoly was nonetheless foremost in my mind.

Do students choose majors rationally?

by  Tyler Cowen in

And if not, what kind of errors do they make?

Students appear to stereotype majors, greatly exaggerating the likelihood that they lead to their most distinctive jobs (e.g., counselor for psychology, journalist for journalism, teacher for education). A stylized model of major choice suggests that stereotyping boosts demand for “risky” majors: ones with rare stereotypical careers and low-paying alternative jobs…The same model predicts—and the survey data confirm—that students also overestimate rare non-stereotypical careers and careers that are concentrated within particular majors. The model also generates predictions regarding role model effects, with students exaggerating the frequency of career-major combinations held by people they are personally close to.

That is all from the job market paper of John Conlon, Business Economics at Harvard University.

What I’ve been reading

by  Tyler Cowen in

Paul Scharre, Four Battlegrounds: Power in the Age of Artificial Intelligence.  This book bored me, but here I mean that as a positive statement.  It bored me because I knew a lot of the content already, and that is because this is such important content that I have put a lot of time into trying to know it.  Both the author and I thought it was very important to know this material.  AI and the military is right now is a critical issue, and this is the book to read in the area.  Whether or not you are bored.

Perry Mehrling’s Money and Empire: Charles P. Kindleberger and the Dollar System is a definitive biography, and also a good look at the “rooted in academia but mostly in the policy world” branch of macro and finance that was so prominent in the postwar era.

I read only a small amount of Philip Short’s Putin, at more than 800 pages.  It seemed entirely fine, and useful, and surely the topic is of importance.  Yet I didn’t find myself learning conceptual points from it, or even new details of significance.  In any case it is now the biography of Putin, and some of you will want to read it.

Katherine Rundell, The Golden Mole, and Other Living Treasures is a series of short, fun takes on strange animals including the wombat (runs faster than Usain Bolt) and the pangolin, among others.  Good for both adults and children.

When I first saw the title of Clara E. Mattei, The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, I thought it was some kind of satire, or perhaps GPT-3 run amok.  Nonetheless some of the book is a serious economic history of the 1920s and its fiscal and credit policies, and you should not dismiss it out of hand.  That said, mechanisms such as the supposed “logic of capital accumulation” are assigned too much explanatory power.  The book also will convince you that “austerity” is almost always poorly defined.

There is Julian Gewirtz, Never Turn Back: China and the Forbidden History of the 1980s.  Somehow this book felt naive to me.  Yes, many Chinese paths were discussed in the 1980s, but the system nonetheless had an underlying logic which reasserted itself rather brutally…

Peter H. Wilson, Iron and Blood: A Military History of the German-Speaking Peoples Since 1500.  I thought I would love this lengthy tome (913 pp.), and it is quite a catalog, and impressively objective to boot.  Yet something is missing, and I skipped around and ended up putting it down with few regrets.

Michael Pritchard, FRPS, A History of Photography in 50 Cameras is very useful and very good, exactly what it promises, good photos too (better be good!)  I think of photography as one of those innovations that started 20-30 years earlier than I might otherwise have expected, had I not known the historical record.  1839 for basic daguerreotype, that is impressive.

Roger D. Congleton, Solving Social Dilemmas: Ethics, Politics, and Prosperity is a good book on classical liberalism and how it is embedded in stories of the historical evolution of cooperation.