Results for “law literature” 167 found
Inflation is slightly underrated
Still bad, yes, but it has a few upsides, here is one part from my Bloomberg column:
It’s also worth asking which groups are most hurt by inflation, and which least. On the one hand, inflation helps debtors, and the debtor class is often relatively poor. Yet there is also a large set of distributional effects through wages, and those effects might prove more congenial to conservative values.
One obvious loser from higher inflation is someone with a tenured job, either de facto or de jure. To use an example close to home: Many professors cannot easily switch jobs and duplicate their current working conditions, nor can they easily demand and receive offsetting raises. A lot of them are locked into their current posts — which is hardly surprising, since the nature and incentives of tenure do not require those who have it to stay at the top of their game to keep their job.
Many conservatives wish to abolish academic tenure altogether. That’s unlikely to happen (though Florida is making moves in that direction), but a dose of inflation might make tenure less appealing.
Many government bureaucrats also often have de facto tenure, and many of them are not so marketable to the private sector. For them, higher inflation is a pay cut. Again, just as inflation will not abolish tenure, so it will not eliminate bureaucracy. But it may make the less dynamic parts of the public sector less attractive, helping to slow the growing bureaucratization of society.
In contrast, consider a private entrepreneur who will attempt seven start-ups over the next 20 years, with some succeeding and others failing. That person probably will not suffer much from inflation, as he is starting from scratch with new nominal values on a fairly frequent basis. More generally, productive people who have flexibility and the ability to adjust to circumstances will emerge relatively unscathed as well.
Here is some commentary from Scott Sumner, though I think Scott is not taking me literally enough. Inflation really is bad (“never reason from an inflation change!”…nonetheless), it is simply elsewhere that I explain my views on that. And do note an extensive literature shows that the Fisher effect does not hold 1-to-1, and thus inflation at modest levels does lower real borrowing rates. It is also funny for Scott (“Money Illusion”) to say that short-run non-neutralities do not matter.
Public policies as instruction
That is the topic of my latest Bloomberg column, here is one excerpt:
Minimum-wage hikes also send the wrong message to voters. Yes, there is literature suggesting that such increases destroy far fewer jobs than previously thought, and may have considerable ancillary benefits, such as preventing suicides. Still, a minimum wage is a kind of price control, and most price controls are bad. Voters may not realize the subtle ways in which minimum-wage hikes are different (and better) from most price controls. Instead, they get the message that the path to higher living standards is through government fiat, rather than better productivity.
If you think that far-fetched, consider the initiative passed by the California Senate this week. The bill would create a government panel to set wages and workplace standards for all fast-food workers in the state, and labor-union backers hope the plan will spread nationally. That may or may not happen, but those are precisely the paths that are opened up by minimum-wage advocacy. Many people hear a bigger and more ambitious message than the one the speaker wishes to send.
So what messages, in the broadest terms, should policies convey? I would like to see increased respect for cosmopolitanism, tolerance, science, just laws, dynamic markets, free speech and the importance of ongoing productivity gains. Obviously any person’s list will depend on his or her values, but for me the educational purposes are more than just a secondary factor. When it comes to prioritizing reforms, the focus should be on those that will “give people the right idea,” so to speak.
The mere fact that you are uncertain about such effects does not mean you can or should ignore them. They are there, whether you like it or not.
The Parent Trap–Review of Hilger
Nate Hilger has written a brave book. Almost everyone will find something to hate about The Parent Trap. Indeed, I hated parts of it. Yet Hilger is willing to say truths that are often not said and for that I would rather applaud than cancel.
Hilger argues that the problems of poverty, pathology and inequality that bedevil the United States are not primarily due to poor schools, discrimination, or low incomes per se. The primary cause is parents: parents who are unable to teach their children the skills that are necessary to succeed in the modern world. Since parents can’t teach the necessary skills, Hilger calls for the state to take their place with a dramatic expansion of not just child care but collective parenting.
Let’s unpack some details. Begin with schooling. It’s very common to bemoan the state of schools in the “inner city” or to complain about “local financing” which supposedly guarantees that poor counties will have underfunded schools. All of this, however, is decades out-of-date.
A hundred years ago there really were massive public-school resource gaps by class and race. These days, however, state and federal spending play a larger role than local property tax revenue and distribute educational resources more progressively….In fact, when we include federal aid, 42 states spent more on poor school districts than on rich school districts in 2012. The same pattern holds between schools within districts
….The highest spending districts are large urban centers such as New York City, Boston and Baltimore. These cities spend large sums to educate rich and poor children alike. p. 10-11
Hilger is correct. No matter what you saw on The Wire, Baltimore spends more than sixteen thousand dollars per student, among the highest in the nation in large school districts and above average for the nation as a whole. Public schools are quite egalitarian in funding with any bias running towards more funding for poorer districts.
Schools, Hilger writes are “actually the smallest and most equalizing part of a much larger skill-building system.” The real problem, says Hilger, are parents.
But what about discrimination? When it comes to wage discrimination, Hilger is brutally honest:
If we compare individuals with similar cognitive test scores, Black college graduates earn higher wages than white college graduates. Studies that don’t control for test score differences but examine earnings gaps within specific professions—lawyers, physicians, nurses, engineers, scientists—tend to find Black workers earn zero to 10 percent less than white workers. These gaps could reflect discrimination, unmeasured skill differences, or other factors such as geography. In any case, such gaps are small compared to the 50 percent overall Black-white earnings gap and reinforce the idea that closing skills gaps would go a long way toward closing income gaps.
Hilger argues that racism does play an important role in explaining Black-white wage differentials but it’s the historical racism that made black parents less skilled and less able to pass on skills to their children. In the twentieth century, Asians, Hilger argues, were discriminated against in the United States at least much as Black Americans. But the Asians that came to the United States had high skills while the legacy of slavery meant that Black Americans began with low skills. Asians, therefore, were better able to overcome discrimination. The success of Nigerians and Jamaican immigrants in the United States also speaks to this point. (Long time readers may recall that in 2016 I dubbed Hilger’s paper on Asian Americans and Black Americans the Politically Incorrect Paper of the Year .)
Parental investment is surely important but Hilger overstates his case. He writes as if poorer parents have neither the abilities nor the time to teach their children while richer, better educated parents simply invest lots of hours and money imbuing their children with skills:
…the enormous variation in parents’ own academic skills has big implications for kids because we also demand that parents try to be tutors. During normal times, parents in America spend an average of six hours per week helping—or trying to help—their kids with school work. Six hours per week is more than K12 math and English teachers get with children…good tutoring by parents for six hours a week, every week, year after year of childhood could raise children’s future earnings by as much as $300,000.
The data on the effectiveness of SAT test-prep suggests that these efforts are not nearly so effective as Hilger argues. The parental investment story also doesn’t fit my experience. I didn’t spend six hours a week helping my kids with their homework. I doubt most parents do. I simply assumed my kids would do their work. I do recall that we signed my kids up for tutoring at Kumon, the Japanese math education center. My kids would complain bitterly when we took them for drill on the weekend. It was mostly filling out rote forms and my kids would hide or bury their drill sheets so we were always behind. Driving my kids to the Kumon center, monitoring them. and forcing them to do the work when they rebelled like longshoreman on work-to-rule was time consuming and it was ruining our weekends. I felt guilty, but after a while, my wife and I gave up. Today one of my sons is a civil engineer and the other is a math and economics major at UVA.
Hilger has an answer to this line of objection, or at least he says he does, but to my mind it’s a very odd answer. He argues, relying heavily on Sacerdote, that adoption studies show that more skilled parents result in more skilled kids. I find that answer odd because my reading of Sacerdote is that the effect of parents are small after you control for genetics—this is, as Hilger acknowledges, the conventional wisdom among psychologists. (See Caplan for an excellent review of the literature). It is true that Sacerdote plays up the effect of parents, but it looks small to me. Here is the effect of the adopted mother’s maternal education on the child’s education.
As you can see there is an effect but it is almost all from the mother going from having less than a high school education to graduating high school (11 to 12 years). In contrast, the mother can move from graduating high school to having a PhD and there is very little change in the education level of an adoptee. Note, however, that the effect on non-adoptees, i.e. biological children, is much larger throughout the entire range which suggests the influence of nature not nurture.
I am not surprised that there is some effect of parental education on child’s education because going to college is in part a cultural issue. Parents can influence cultural aspects of their children’s identity such as whether a child grows up up nominally Catholic, Mormon, or Hindu but they have relatively little effect on child religiosity, let alone personality or IQ. I think that a large fraction of the college wage premium is signaling (50% is a moderate estimate, Caplan thinks 90% is closer to the truth), so I am also not overly excited about college attendance as a marker of success.
The effect of parental income on the income of child adoptees is even more dramatic than on education—which is to say negligible. The income of the adopted parents has zero effect (!) on child’s income even as parent’s income varies by a factor of 20! The only correlation is with non-adoptee income—which again suggests the influence of nature not nurture.
At this point in the book, it was almost inevitable that we were going to get yet another paean to the Perry Preschool Project and indeed Hilger waxes enthusiastically about Perry. Seriously? The Perry Preschool project started in the 1960s and had just 123 participants (58 in treatment and 65 in control!). There are more papers about the Perry Preschool project than there were participants. I am jaded.
Aside from the small sample size, the project had imperfect randomization and missing data and most importantly limited external validity. The Perry Preschool project treated a small group of disadvantaged African American children with low-IQs (IQs of 70-85 were part of the selection criteria). The treatment is usually described as “active learning pre-school” but it was more intrusive than that. Every week counselors would go to the homes of the kids to teach the parents (mostly mothers) how to raise their children. The training was important to the program. Indeed, Hilger notes, without sense of irony, that “facilitating greater skill growth in low-income children was so complicated that it required home visitors with advanced postsecondary degrees.” (p. 89). And what were the results?
The results were good! (Heckman et al. 2010, Belfield et al. 2006). But in the popular literature the impression one gets is that the program took a bunch of disadvantaged kids and helped them read and write, making them more middle-class and successful. Some of that happened but the big gains actually happened because the participants, especially the boys, were so socially dangerous and destructive that even a bit of normalization made life substantially better for everyone else. In particular 82% of the treated group of 33 males had been arrested by age 40, including for one murder, 4 rapes, 8 robberies, 11 assaults and 14 burglaries. The control group were worse. In the control group of 39 males there were 2 murders. Indeed the reduction of one murder in the treatment group accounts for a significant benefit of the entire Perry PreSchool project.
Hilger, to his credit, is reasonably clear that what is really needed is an intensive program for disadvantaged African Americans, especially males. In a stunning sentence he writes:
The more we rely on families rather than professionals to build skills in children, the tighter we link people’s current prospects to the prospects of their ancestors. p. 134
But he soon forgets or papers over the context of the Perry Preschool project and like everyone else in the literature uses this to support a national program for which there is no external validity. It’s hard to believe, given the lack of external validity, but Heckman et al. (2010) only exagerate mildly when they write:
The economic case for expanding preschool education for disadvantaged children is largely based on evidence from the HighScope Perry Preschool Program…
Hilger’s case for the difficulty of parenting is well taken—the FAFSA was a nightmare that taxed two PhDs in my family. But the bottom line is that most parents do just fine. Moreover, it’s shocking that in recounting the difficulties of parenting Hilger says hardly one word about an obvious factor which makes parenting more than twice as hard. Namely, single parenting. I was a single parent. Once for a whole week. Don’t do it. Get married, stay married. Perhaps Hilger didn’t want to appear to be too conservative.
Instead of recommending marriage and small targeted programs and more experiments, Hilger goes full Plato.
What would it look like if we [asked]…less not more of parents? It would look like professional experts managing more than the meagre 10 percent of children’s time currently managed by our public K12 system—much more. p. 184
And why should we do this? Because we are all part slaves and part slave-owners on a giant collective farm:
As fellow citizens who benefit from tax revenue, we all—even those of us without children—collectively own about 30 percent of any additional income other people’s children wind up earning. p. 197
Ugh. We own ourselves, not one another. Society isn’t about maximizing the collective it’s about free individuals coming together to produce rules so that we can enjoy the benefits of collective action while still living in a diverse society that respects individual rights, beliefs, and ways of living.
I told you I hated parts of The Parent Trap but Hilger has written an interesting and challenging book and he is mostly right that neither schooling nor labor market discrimination play a major role in the black-white wage gap. Hilger is probably also right that we spend too much on the elderly relative to the young. The idea of greater state involvement in the raising of children is on the table today in a way it hasn’t been for some time. See also Dana Susskind’s recent book Parent Nation. Changes on the margin may be warranted. Nevertheless, I stand with Aristotle and not Plato in thinking that raising children is better done by parents than by the state.
An index for state capacity
This paper contributes to the literature on state capacity by developing a method that yields an index of state capacity with far more comprehensive data coverage across time and countries than has been possible previously. Unlike narrower measures of fiscal capacity or legal capacity, the index is more comprehensive, using data from the Varieties of Democracy dataset on fiscal capacity, a state’s control over its territory, the rule of law, and the provision of public goods used to support markets. Like the previous literature, it demonstrates that the historical prevalence of warfare predicts state capacity. Several exercises are performed to demonstrate the validity of the index in measuring state capacity.
That is from a newly published paper by Colin O’Reilly and Ryan H. Murphy, via the excellent Kevin Lewis.
What I’ve been reading
1. Stephen Crane, The Red Badge of Courage. I read this as a kid, and was surprised how well my reread held up. To the point, subtle, and with an economy of means. I hope the new Paul Auster biography of Crane (which I will read soon) will revive interest in this classic.
2. Frank Herbert, Dune Messiah. #2 in the Dune series, I disliked this one as a tot, but currently am marveling at its political sophistication. Somewhat uneven, but better than its reputation. The Wikipedia page for the book also indicates that Villeneuve is likely to do a Dune 3 based on this story.
3. Elisabeth Anderson (not the philosopher), Agents of Reform: Child Labor and the Origins of the Welfare State. Considers the political economy of child labor reform Germany, France, the United States, and the failed case of Belgium. Pathbreaking, a major advance on the extant literature. The explanations are messy rather than monocausal, but often focus on the success or failure of individual policy entrepreneurs.
4. Gordon Teskey, Spenserian Moments. No one seems to care about poor old Edmund Spenser, yet there seem to be quite a few good books about him.
5. Patrick McGilligan, Alfred Hitchcock: A Life in Darkness and Light. The best book on Hitchcock, John Nye recommended it to me eight years ago.
There is Howard Husock, The Poor Side of Town, And Why We Need It.
And Mary Roach, Fuzz: When Nature Breaks the Law.
Richard A. Williams, Fixing Food: An FDA Insider Unravels the Myths and Their Solutions, covers the food regulatory side of the FDA, and:
Markus K. Brunnermeier, The Resilient Society.
From the comments, on FDA credibility
From the Comments, On FDF
Sure and Tom Meadowcroft have been hitting it out of the ballpark in the comments sections. Two examples.
Sure:
Protocol was made to serve man, not man to serve the protocol.
The reason we have protocols is because we need to weight the harms of waiting without a treatment against the harms that happen if the treatment is counterproductive in some unforeseen manner.
We can, normally, pretty easily measure the benefit side: count up the mortality and morbidity for the illness in question. The risk side is harder so we developed tests and processes to elucidate those: RCTs, literature reviews, regulatory oversight, mandatory waiting periods. At the end of the day though, the whole process is just one giant test to measure the likely harm of a new entity.
So when is a test worth doing? After all I do not order an MRI for every patient even though I could find a lot of early stage cancers that way.
..GSW to the abdomen with crashing bp with minimal response to volume? Straight to the OR. No matter the results of the CT scan they are still getting opened to stop the bleeding.
…So now we look at the vaccine approval process and methods to stretch doses. Pre-test probability that vaccines work? Inordinately high after passing Phase II. Odds that we hit on the precise optimal timing regimen on the first go? Nil.
The likelihood ratios for RCTs and approval mechanisms are powerful. But we are talking thousands of deaths per day. The odds that these tests will remotely alter management decisions is nil. It is malpractice to delay life saving treatment on tests exceedingly unlikely to change management decisions.
And remember the UK is not seeing horrid outcomes for doing this for a while now. A lot of theoretical failure mechanisms are now off the table.
Science is wholly about building a reliable model that accurately predicts future outcomes of current actions. While doing the actual experiment is the gold standard for knowledge acquisition, it is not the only option and in cases like this pandemic is not sufficiently better than past data to merit waiting.
As far as the regulators. I work with some of them directly. They are not overburdened to anywhere near the degree that the frontline clinicians have been hit. When I ask them to explain their cost benefit calculations, they have none. Not I cannot follow them. Not I disagree with them. They have done not an iota of math to justify their course of action.
Sorry, but I believe in evidence based medicine, not eminence based medicine. If you as a regulator cannot explain to me in technical terms the math behind your decision process, even if only back of the envelope, you are not worth putting in charge.
Approve all the vaccines, FDF, fractional dosing trials, and first dose followed by variolation trials should all be done now. It is was [what] the math demands.
Also this from Tom Meadowcroft:
Scientific researchers search for the truth. Medical clinicians use limited data balance cost and benefits in the face of uncertainty to save the most lives.
When searching for the truth, it is important to have high standards of statistical significance, integrity, and patience, because credibility and a reputation for integrity is everything. Every academic knows that a retracted paper or an accusation of playing fast and loose with statistics can be the death knell for a career. As a result it is prudent to be very certain before publishing. Public health officials, particularly those in charge of approving vaccines, dread the possibility that a vaccine that will be given to millions of healthy people, often children, to prevent diseases where death is rare, which could harbor some flaw that causes a hundred avoidable deaths; they seek the highest standards of proof of safety and efficacy before approving such a vaccine.
But a pandemic is not a search for truth, and a COVID vaccine administered in the midst of a pandemic is very different than a measles vaccine administered to 2-year-olds. The pandemic makes these decisions for FDF or for vaccine approvals into clinical decisions, where health professionals should be balancing the certain benefit of reducing the thousands of daily deaths against the uncertain cost of the possibilities of harmful side-effects and uncertain details of efficacy (when does immunity kick in, how long does it last, how valuable is a booster) that additional months of testing and trials would reveal more clearly.
Public health researchers, academics for the most part, lack the ability (and courage) to make the sort of cost/benefit analysis with necessarily limited data that clinical physicians make every day in examination rooms. Any good clinician, faced with the citizenry of a country as their patient, would have opted for FDF, the AZ vaccine, and quite likely reduced doses by the start of the year. Because we are stuck with academics and administrators as our decision makes, unable to see beyond their usual routine of searching for the truth and protecting their reputations, thousands more will die.
Federal minimum wage of $15?
It’s a slam-dunk case that doubling the federal minimum wage — it’s been $7.25 since 2009 — would lead to significant declines in employment opportunities for workers with few skills or little experience. According to data from the Bureau of Labor Statistics for 2019 (before the pandemic), in 47 states, at least one-quarter of all workers earn less than $15 per hour. In 20 states, half of all workers earn less than $18 per hour, and in 30 states, the median hourly wage is less than $19.
These statistics show that $15 is a very high wage floor. For employers to keep all their workers would require raising the wages of a huge share of the national workforce. But the number of workers affected would be so large that this wouldn’t happen. Instead, the number of jobs in the low-wage workforce would shrink.
The nonpartisan Congressional Budget Office confirms this basic intuition, estimating that joblessness would increase by 1.3 million if the national hourly wage floor were hiked to $15 [TC: and that is pre-pandemic]. The CBO also concluded that this policy would reduce business income, raise consumer prices and reduce gross domestic product.
That is from Michael Strain at Bloomberg. I would add this. No matter what you think about the recent literature on the minimum wage, all economic theories imply that minimum wages should be decided at the state and local level, given the economic heterogeneity of the United States. That is the message that you as an economist should be carrying forward.
Do you think Puerto Rico should be a state? Should they have a $15 minimum wage too? Come on. Yes, it is easy enough to make an exception for them, and by the way the median manufacturing wage in Mississippi is below $15 as well. Rinse and repeat.
I am sorry to speak in such terms, but the reality is that an allied cabal of activists and left-wing economists have combined on social media to insist on a particular approach to minimum wage economics and to bully those who disagree.
Ask yourself a simple question: were any of them calling for a temporary two-year cut in the minimum wage for restaurants and small businesses during a devastating pandemic? If not, are they really carrying forward the banner of science?
How to Vaccinate and Continue Clinical Trials
According to Helen Branswell writing at STAT:
There are serious signs the Food and Drug Administration is getting cold feet over the notion of issuing emergency use authorizations to allow for the widespread early deployment of Covid-19 vaccines.
…“We are concerned about the risk that use of a vaccine under an EUA would interfere with long-term assessment of safety and efficacy in ongoing trials and potentially even jeopardize product approval,” Gruber said. “And not only the first vaccine, but maybe even follow-on vaccines.”
This is nonsense. There are many ways to conduct clinical trials while releasing a vaccine—indeed, we can make the clinical trials better by randomizing a phased release. Suppose we decide health care and transit workers should be vaccinated first. No problem–offer the workers the vaccine, put the SSNs of those who wants the vaccine into a hat like draft numbers, vaccine a randomly chosen sub-sample, monitor everyone.This is the well known lottery technique for measuring causal effects often used in the school choice literature. If we use this technique we can greatly increase sample sizes and as we study each wave we will gather more confidence in the data. We won’t have enough vaccine in November to vaccinate everyone or probably even all health care and transit workers so a lottery is an ethically fair as well as statistically useful way to distributed the vaccine. We can also randomize across cities and regions.
Tyrone, never one to mince words, also has good suggestions:
First, they could simply pay people to partake in those trials. Isn’t that in essence what the NBA did with its Covid testing in the bubble? If the value of those clinical trials truly is so high, it should be possible to internalize enough of those benefits to encourage participation. If institutional barriers stand in the way there, let’s obsess over fixing those.
Why should we force so many Americans to be sacrificial lambs, just to subsidize the trial costs? Let those costs be taken out of grant overhead! (And admin. salaries, if need be.)
…Second, there is another way to keep the trial up and running. Approve use of the treatment, but allow the suppliers to charge very high prices! Better yet, use the law to make them charge high prices and if need be forbid insurance coverage.
Or we could use human challenge trials. The ethical objections to such are now looking more and more like nonsense as thousands of people die weekly.
In short, the idea that releasing a vaccine in phases is a threat to clinical trials is a dangerous and false dichotomy and another example of how our leaders lack vision, imagination, and courage.
The Agorics era at Mercatus and GMU
This started in the late 1980s, and was led by GMU economist Don Lavoie, who earlier had been a computer programmer. Here is one bit from Don’s extensive essay, co-authored with Howard Baetjer and William Tulloh:
The market for scholarly ideas is now badly compartmentalized, due to the nature of our institutions for dispersing information. One important aspect of the limitations on information dispersal is the one-way nature of references in scholarly literature. Suppose Professor Mistaken writes a persuasive but deeply flawed article. Suppose few see the flaws, while so many are persuaded that a large supportive literature results. Anyone encountering a part of this literature will see references to Mistaken’s original article. References thus go upstream towards original articles. But it may be that Mistaken’s article also provokes a devastating refutation by Professor Clearsighted. This refutation may be of great interest to those who read Mistaken’s original article, but with our present technology of publishing ideas on paper, there is no way for Mistaken’s readers to be alerted to the debunking provided by Clearsighted. The supportive literature following Mistaken will cite Mistaken but either ignore Professor Clearsighted or minimize her refutations.
In a hypertext system such as that being developed at Xanadu, original work may be linked downstream to subsequent articles and comments. In our example, for instance, Professor Clearsighted can link her comments directly to Mistaken’s original article, so that readers of Mistaken’s article may learn of the existence of the refutation, and be able, at the touch of a button, to see it or an abstract of it. The refutation by Clearsighted may similarly and easily be linked to Mistaken’s rejoinder, and indeed to the whole literature consequent on his original article. Scholars investigating this area of thought in a hypertext system would in the first place know that a controversy exists, and in the second place be able to see both (or more) sides of it with ease. The improved cross-referencing of, and access to, all sides of an issue should foster an improved evolution of knowledge.
A potential problem with this system of multidirectional linking is that the user may get buried underneath worthless “refutations” by crackpots. The Xanadu system will include provisions for filtering systems whereby users may choose their own criteria for the kinds of cross-references to be brought to their attention. These devices would seem to overcome the possible problem of having charlatans clutter the system with nonsense. In the first place, one would have to pay a fee for each item published on the system. In the second place, most users would choose to filter out comments that others had adjudged valueless and comments by individuals with poor reputations. In other words, though anyone could publish at will on a hypertext system, if one develops a bad reputation, very few will ever see his work.
And this:
Miller and Drexler envision the evolution of what they call agoric open systems–extensive networks of computer resources interacting according to market signals. Within vast computational networks, the complexity of resource allocation problems would grow without limit. Not only would a price system be indispensible to the efficient allocation of resources within such networks, but it would also facilitate the discovery of new knowledge and the development of new resources. Such open systems, free of the encumbrances of central planners, would most likely evolve swiftly and in unexpected ways. Given secure property rights and price information to indicate profit opportunities, entrepreneurs could be expected to develop and market new software and information services quite rapidly.
Secure property rights are essential. Owners of computational resources, such as agents containing algorithms, need to be able to sell the services of their agents without having the algorithm itself be copyable. The challenge here is to develop secure operating systems. Suppose, for example, that a researcher at George Mason University wanted to purchase the use of a proprietary data set from Alpha Data Corporation and massage that data with proprietary algorithms marketed by Beta Statistical Services, on a superfast computer owned by Gamma Processing Services. The operating system needs to assure that Alpha cannot steal Beta’s algorithms, that Beta cannot steal Alpha’s data set, and that neither Gamma or the George Mason researcher can steal either. These firms would thus under-produce their services if they feared that their products could be easily copied by any who used them.
In their articles, Miller and Drexler propose a number of ways in which this problem might be overcome. In independent work, part of the problem apparently has already been overcome. Norm Hardy, senior scientist of Key Logic Corporation, whom we met at Xanadu, has developed an operating system caned KeyKOS which accomplishes what many suspected to be impossible: it assures by some technical means (itself an important patented invention) the integrity of computational resources in an open, interconnected system. To return to the above example, the system in effect would create a virtual black box in Gamma’s computer, in which Alpha’s data and Beta’s algorithms are combined. The box is inaccessible to anyone, and it self-destructs once the desired results have been forwarded to the George Mason researcher.
There is really quite a bit more at the link, noting that at the time Don had assembled a group of about ten people working on these ideas. As for the hyperlinks, I recall thinking at the time something like: “People don’t value reading so much, so making reading better with hyperlinks won’t have a huge marginal value!”
My Conversation with Audrey Tang
For me one of the most fun episodes, here is the audio, video, and transcript. And here is the longer than ever before summary, befitting the chat itself:
Audrey Tang began reading classical works like the Shūjīng and Tao Te Ching at the age of 5 and learned the programming language Perl at the age of 12. Now, the autodidact and self-described “conservative anarchist” is a software engineer and the first non-binary digital minister of Taiwan. Their work focuses on how social and digital technologies can foster empathy, democracy, and human progress.
Audrey joined Tyler to discuss how Taiwan approached regulating Chinese tech companies, the inherent extraterritoriality of data norms, how Finnegans Wake has influenced their approach to technology, the benefits of radical transparency in communication, why they appreciate the laziness of Perl, using “humor over rumor” to combat online disinformation, why Taiwan views democracy as a set of social technologies, how their politics have been influenced by Taiwan’s indigenous communities and their oral culture, what Chinese literature teaches about change, how they view Confucianism as a Daoist, how they would improve Taiwanese education, why they view mistakes in the American experiment as inevitable — but not insurmountable, the role of civic tech in Taiwan’s pandemic response, the most important remnants of Japanese influence remaining in Taiwan, why they love Magic: The Gathering, the transculturalism that makes Taiwan particularly open and accepting of LGBT lifestyles, growing up with parents who were journalists, how being transgender makes them more empathetic, the ways American values still underpin the internet, what he learned from previous Occupy movements, why translation, rotation, and scaling are important skills for becoming a better thinker, and more.
This bit could have come from GPT-3:
COWEN: How useful a way is it of conceptualizing your politics to think of it as a mix of some Taiwanese Aboriginal traditions mixed in with Daoism, experience in programming, and then your own theory of humor and fun? And if you put all of that together, the result is Audrey Tang’s politics. Correct or not?
TANG: Well as of now, of course. But of course, I’m also growing, like a distributed ledger.
And this:
COWEN: You’re working, of course, in Taiwanese government. What’s the biggest thing wrong with economists?
TANG: You mean the magazine?
COWEN: No, no, the people, economists as thinkers. What’s their biggest defect or flaw?
TANG: I don’t know. I haven’t met an economist that I didn’t like, so I don’t think there’s any particular personality flaws there.
Finally:
COWEN: Now, my country, the United States, has made many, many mistakes at an almost metaphysical level. What is it in the United States that those mistakes have come from? What’s our deeper failing behind all those mistakes?
TANG: I don’t know. Isn’t America this grand experiment to keep making mistakes and correcting them in the open and share it with the world? That’s the American experiment.
COWEN: Have we started correcting them yet?
TANG: I’m sure that you have.
Definitely recommended.
My Conversation with Melissa Dell
Interesting throughout, here is the transcript and video and audio, here is part of the summary:
From the impact of the Mexican Revolution to the different development paths of northern and southern Vietnam, her work exploits what are often accidents of history — whether a Peruvian village was just inside or outside a mine’s catchment area, for example — to explain persistent differences in outcomes. Her work has earned numerous plaudits, including the John Bates Clark Medal earlier this year.
On the 100th episode of Conversations with Tyler, Melissa joined Tyler to discuss what’s behind Vietnam’s economic performance, why persistence isn’t predictive, the benefits and drawbacks of state capacity, the differing economic legacies of forced labor in Indonesia and Peru, whether people like her should still be called a Rhodes scholar, if SATs are useful, the joys of long-distance running, why higher temps are bad for economic growth, how her grandmother cultivated her curiosity, her next project looking to unlock huge historical datasets, and more.
And here is one excerpt:
DELL: Yeah, I’ve done some work looking at the persistence of economic development in Vietnam. The work I did, actually, was limited to what was South Vietnam because there’s also been huge events, obviously, that have happened in the past hundred years in North Vietnam, with a war that destroyed much of the country and was fought over an extended period of time.
But when you look, in general, at places in Vietnam that have a similar recent history, but going back in time, one of them was part of a much stronger, more centralized state. The other one was part of what is today Cambodia, a much weaker state, generally ruled by local lords instead of by a strong centralized state.
You see the towns that were part of the stronger, centralized state going back before colonialism, so several hundred years ago. More recently, they have better-functioning local governments. They’re richer. They’re better off, which shows that places that have a long history of governance seem better able to do that more recently.
So places going back a long time ago — they were part of the central state. They had to collect taxes locally to send up to the central state. They had to organize military conscripts. The central state mandated that they had certain laws.
More recently, those places also have more functional local governments and are also better off economically, whereas the places that never had that structure that comes from a state — it was, essentially, if you were living in that area, there’d be a warlord that you sent tribute to. But there was never any regular taxation, never any organized local government under a central state. Those places much more recently — when there were constitutional reforms in Vietnam that gave them a degree of self-government — they weren’t able to do that very effectively.
They weren’t able to keep the positions on their local city council filled. They weren’t able to provide, as effectively, local public goods, like education or health services. So really, having this long history of governance makes places more able to do that today. That’s relevant because there’s been a big push to have local governments provide an important role in providing public goods, et cetera.
If places don’t have a history of doing that, perhaps not surprisingly, they tend to have a much harder time. When the World Bank says, “Well, we want to give local autonomy to let local governments decide how to provide schools in the way that works best for them,” that’s going to work in places that have a long history of providing education. In places that don’t, they’re more likely to have a hard time.
COWEN: But if you select your cases on the basis of having similar histories, aren’t you selecting for persistence because the locales that have reversals of fortune — a big war in North Vietnam, Communism coming to North Vietnam — that’s a kind of mean reversion. It deliberately gives them a not-similar history. Do you then not overrate the degree of persistence in the dataset by just taking the sliver that is indeed continuous with its own history?
DELL: I think that you could imagine writing papers about different things. Our motivation was, we wanted to think about if the historical state could have a role at all. In order to do that, you don’t really want to compare South Korea to the Philippines — which is what most of the historical literature on this does — because they’re different in so many ways. We know that South Korea looks really different from the Philippines, but there’s so many ways that they can be different.
By looking within South Vietnam, we wanted to say, “Okay, these are places that had a much more recent modern history. Can their past history still matter?” But we’re not saying that that begins to explain everything. There’s other forces that happened more recently that we think are also important.
Certainly, there can be mean reversions, and the argument is not that things are always persistent. I think part of the literature is about understanding why sometimes things persist and sometimes they don’t. Certainly, more recent events can matter, and we’re not claiming that there’s an R-squared of one that a place’s history is its destiny, but that there are these forces.
Next up will be Nathan Nunn, and I asked him a series of related questions about persistence…
Oliver Williamson, RIP
Oliver Williamson won the Nobel in 2009 with Elinor Ostrom. My post on that event is reprinted below (no indent). See also Tyler here.
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In Adam Smith there is the pin factory and the market and from that beginning we trace the long literature in economics focused on the twin questions, What price to set? How much to produce? Following Coase, Williamson asks different questions, Why a pin factory? Why are the 18 steps to make a pin performed by a single firm rather than two or more? Why are there many firms instead of one large firm? Why does the pin factory not vertically integrate upwards to buy the steel factory and downwards to buy the retail hardware shop?
Williamson’s answers rest on the notions of bounded rationality, contract incompleteness, asset specificity and opportunism. Start at the end, asset specificity and opportunism. When a deal has been sealed the parties typically move from having many potential partners to being locked in. That’s bad because it raises the possibility of opportunism–one party can exploit the other. But it’s also good because when the lock-in is credible each party may be more willing to invest in assets which are extra-productive but specific to the relationship.
Marriage, for example, takes away some possibilities but it adds others. With marriage, for example, comes a greater willingness to invest in children (n.b. asset specificity, the child is of extra value but only to the specific parties involved in the marriage) but that very benefit also means that one of the parties has the leverage to be opportunistic. Knowing all of this when they enter the contract the parties bargain ex-ante, they exchange promises and make investments (the ring), they establish rules for ex-post bargaining or decide on the background rules to apply in that eventually (pre-nup, no fault divorce, covenant marriage). The rules are never perfect and the contacts are always incomplete.
Transaction cost economics is all about applying these ideas in different settings to figure out the best governance structures (marriage, vertical integration etc.) in different circumstances. How does one deal with expensive investments (such as highly individual dies or plant construction) that are specific to a given
trade and put the investor at risk yet which increase productivity? Williamson analyzes how firms come to rely on long term contracts or vertical integration or other seemingly non-competitive solutions to enhance market productivity. Early generations of antitrust enforcers often saw these as monopolistic dealings, but scholars such as Williamson helped us understand how these are essential to the workings of the invisible hand.
Williamson’s paper, The Economics of Governance is an excellent recent summary of his views in the area.
Williamson’s work is notable for inspiring a large body of empirical and theoretical work in modern industrial organization and having influence in law, political science, and management. His work has been widely cited, and by some counts he was the most widely cited economist in the world.
I especially thank John Nye who contributed to this post.
Patents, Pollution, and Pot
In recent years, new research has significantly increased my belief that air pollution has substantial negative effects on productivity, IQ and health (see previous posts). Research in the field is exploding which means that there must also be more false positives. Consider two recent papers. The first, The Real Effect of Smoking Bans: Evidence from Corporate Innovation by Gao et al. finds that smoking prohibition increased patenting!
We identify a positive causal effect of healthy working environments on corporate innovation, using the staggered passage of U.S. state-level laws that ban smoking in workplaces. We find a significant increase in patents and patent citations for firms headquartered in states that have adopted such laws relative to firms headquartered in states without such laws. The increase is more pronounced for firms in states with stronger enforcement of such laws and in states with weaker preexisting tobacco controls. We present suggestive evidence that smoke-free laws affect innovation by improving inventor health and productivity and by attracting more productive inventors.
But the second, Do Firms Get High? The Impact of Marijuana Legalization on Firm Performance, Corporate Innovation, and Entrepreneurial Activity by Wang et al. finds that marijuana legalization increased patenting!
We find that state-level marijuana legalization has a positive financial impact on firms, likely by affecting firms’ human capital. Firms headquartered in marijuana-legalizing states receive higher market valuations, earn higher abnormal stock returns, improve employee productivity, and increase innovation. Exploiting firm level inventor data, we directly test the human capital channel and find that post legalization, firms retain inventors that become more productive and recruit more innovative talents from out of state. We also find that marijuana-legalizing states experience an increase in the number of new startups and venture capital investments.
Would anyone have been surprised if these two papers had shown exactly the opposite results? Indeed, there is some evidence that nicotine is solid cognitive enhancer and Tyler recently argued, on the basis of good evidence, that pot makes people dumb. Is it a coincidence that anti-cigarette and pro-pot papers appear as the country moves in this direction? Social desirability bias also applies to research. So no knock on either paper but I am unconvinced. As I like to say, trust literatures not papers.
Hat tip: The excellent Kevin Lewis.
My spring 2020 Industrial Organization reading list and syllabus
It is long, do note that many topics are covered in the other half of the class, I tried to put this beneath the fold, but today WordPress software is not cooperating…
- Productivity
American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633.
Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.
Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro, “The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss.
Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.
David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.
Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf
Tyler Cowen, The Complacent Class, chapter four, “Why Americans Stopped Creating,” 2017.
Ufuk Akcigit and Sina T. Ates, “Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory,” NBER working paper 25755, April 2019.
Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.
Michael Kremer, “The O-Ring Theory of Economic Development,” Quarterly Journal of Economics, August 1993, 108, 3, 551-575.
Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” Federal Reserve Bank of Minneapolis working paper 750, April 2018. Do not bother with the very long appendix.
Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides.
Tyler Cowen and Ben Southwood, “Is the rate of scientific progress slowing down?”, https://docs.google.com/document/d/1cEBsj18Y4NnVx5Qdu43cKEHMaVBODTTyfHBa8GIRSec/edit
Patrick Collison and Michael Nielsen, “Science is Getting Less Bang for its Buck,” Atlantic, November 16, 2018, https://www.theatlantic.com/science/archive/2018/11/diminishing-returns-science/575665/
Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.
Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.
2. Competition and monopoly
Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.
Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.
Tim Sablik and Nicholas Trachter, “Are Markets Becoming Less Competitive?” Economic Brief, Federal Reserve Bank of Richmond, June 2019.
Susanto Basu, “Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence,” Journal of Economic Perspectives, Summer 2019, 33, 3, 3-22.
Esteban Rossi-Hansberg, Pierre-Daniel Sarte, and Nicholas Trachter, “Diverging Trends in National and Local Concentration,” NBER Working Paper 25066, Septemmber 2018.
David Autor, David Dorn, Lawrence Katz, Christina Patterson, John Van Reenen, “The Fall of the Labor Share and the Rise of Superstar Firms,” https://economics.mit.edu/files/12979, make sure you get the Oct. 2019 version, not the earlier NBER paper.
Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.
Jan De Loecker and Jan Eeckhout, “The Rise of Market Power and its Macroeconomic Implications,” http://www.janeeckhout.com/wp-content/uploads/RMP.pdf. My comment on it is here: https://marginalrevolution.com/marginalrevolution/2017/08/rise-market-power.html and see also me on intangible capital, https://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html.
Chang-Tai Hsieh and Esteban Rossi-Hansberg, “The Industrial Revolution in Services, September 20, 2019, on-line.
Klein, Benjamin and Leffler, Keith. “The Role of Market Forces in Assuring Contractual Performance.” Journal of Political Economy 89 (1981): 615-641.
Breit, William. “Resale Price Maintenance: What do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics (1991).
Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.
Sproul, Michael. “Antitrust and Prices.” Journal of Political Economy (August 1993): 741-754.
McCutcheon, Barbara. “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?” Journal of Political Economy (April 1997): 336-350.
Crandall, Robert and Winston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,” Journal of Economic Perspectives (Fall 2003), 3-26, available at http://www.brookings.org/views/articles/2003crandallwinston.htm.
FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml, an optional browse, perhaps read about some current cases and also read the merger guidelines.
Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.” American Economic Review 89, 5 (December 1999): 1216-1233.
Demsetz, Harold. “Why Regulate Utilities?” Journal of Law and Economics (April 1968): 347-359.
Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.
Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.
Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,”http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545.
Strictly optional, most of you shouldn’t read this: Ariel Pakes and dynamic computational approaches to modeling oligopoly:
http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf
http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf
III. Economics of Tech
Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.
Weyl, E. Glenn. “A Price Theory of Multi-Sided Platforms.” American Economic Review, September 2010, 100, 4, 1642-1672.
Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.
Paul Graham, essays, http://www.paulgraham.com/articles.html, to browse as you find useful or not.
Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607
Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,” http://www.people.fas.harvard.edu/~idew/papers/BPEA_final_ineq.pdf
Browse through the first issue of Nakamoto.com on blockchain governance, read (or not) as you find useful.
IV. Organization and capital structure
Ronald Coase and Oliver Williamson on the firm, if you haven’t already read them, but limited doses should suffice.
Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.
Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.
Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010.
Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.
Tyler Cowen chapter on CEO pay in big Business, to be distributed.
Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.
Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf
Miller, Merton, and commentators. “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.
Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.
Hansemann, Henry. “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.
Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.
Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students. Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826
Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.
Scharfstein, David S. and Stein, Jeremy C. “Herd Behavior and Investment.” American Economic Review 80 (June 1990): 465-479.
Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.
V. Sectors: finance, health care, education, international trade, others
Gorton, Gary B. “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009.
Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011.
Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.
More to be added here, depending on your interests.
That is from Sure. So what is the best piece on FDA credibility? (Yes, I know the work of Daniel Carpenter and have a CWT with him coming out and we do address this directly.) And what has the FDA itself done to study the issue of its own credibility?