In April, when Open Borders: The Science and Ethics of Immigration was available for pre-order Tyler wrote:
[Open Borders] is a phenomenal achievement. It is a landmark in economic education, how to present economic ideas, and the integration of economic analysis and graphic visuals. I picked it up not knowing what to expect, and was blown away by the execution.
I’ve just gotten my copy hot off the press and Tyler is correct. I too was blown away. I expected the ideas to be good. What I didn’t expect was how well the graphic-novel format works to convey those ideas. It’s a joy to read. Bryan’s personality–friendly, welcoming, honest but also analytic, numerate and morally and factually serious–comes through on every page. Every page also contains something interesting. The interplay of graphics and words shows two craftsmen at the top of their game–the pictures offer wry commentary, cameos, and emphases and bear careful viewing. What’s phenomenal is that in addition to being fun to read this is also the most serious book on freedom of movement that has ever been written. Caplan and Weindersmith do not shy away from discussing all the major critiques–crime, politics, culture, IQ, deep roots and more. Anyone interested in freedom of movement, pro and con, should read this book.
Open Borders: The Science and Ethics of Immigration is a leading contender for an Eisner award.
That is the title of my latest Bloomberg column, the inspiration for which came from an Alex T. tweet. Here is one passage:
Economists themselves have been of no great help. My Twitter feed includes plenty of the world’s greatest (or at least best-known) economists. They love to debate Elizabeth Warren’s plan for a wealth tax, an idea that probably isn’t going to happen (just ask Mitch McConnell or, for that matter, any moderate Democratic senator). When it comes to designing a better incentive model for California power utilities — a concrete problem for which economics is remarkably well-suited — there has been close to complete silence.
Economists are just reflecting a more general failing in American political debate. The old saying that all politics is local has been turned on its head: All issues are now national in scope and partisan in nature. People are less interested in the day-to-day mechanics of actual governance, including at the state and local level. The comeuppance for those ideological obsessions is now upon us.
I wonder how much worse things will have to get before they become better.
If wages are more rigid downward than upward, then unemployment is volatile during recessions. In benchmark models, the wage for new hires is particularly important for unemployment fluctuations, but there is limited evidence of downward rigidity on this margin. We introduce a dataset that tracks the wage for new hires at the job level—that is, across successive vacancies posted by the same job title and establishment. We show that the wage for new hires is more rigid downward than upward, in two steps. First, the nominal wage rarely changes at the job level. When wages do change, they fall infrequently, suggesting a constraint from beneath. Second, when unemployment rises, wages do not fall for new hires—though wages rise strongly as unemployment falls. We show that prior work, which studies the average wage for new hires, cannot detect downward rigidity due to changing job composition. Finally, we match a standard labor search model to our estimates, and uncover state dependent asymmetry in unemployment dynamics. After contractions, unemployment responds symmetrically to labor demand shocks; after persistent expansions, unemployment is as much as twice as sensitive to negative than positive shocks.
It is a true puzzle why the wage should be sticky for employment relations which do not yet exist! (It is easier to see you might not cut wages for workers who had prior expectations and who will stick around and might wreck things due to being disgruntled.)
Do note this:
However the average wage for new hires, the object of previous studies, is not more rigid downward than upward—in contrast to our job- and establishment-level results on downward rigidity…
But note that in section 6.2 the paper shows that firms do not lower the average quality of job during a recession so as to lower the average wage offer — yet a further puzzle. Section 6.3 considers whether quality of job reallocation across establishments might offset wage rigidity.
This paper raises many important questions, and it is the most significant progress on understanding wage rigidity I have seen since the questionnaire work of Alan Blinder and also Truman Bewley.
Recommended, both the paper and the job candidate!
Addendum: Note this earlier post of Alex’s, on workers moving to new jobs since the end of the recession.
If the Denver Nuggets win the NBA title, I send Kevin $75. If the Los Angeles Clippers win, he sends me $25.
I say this year there is no parity, and the Clippers (barring injury) are clearly better than any other team.
Time will tell!
4. Fukushima: “We estimate that the increase in mortality from higher electricity prices outnumbers the mortality from the accident itself, suggesting the decision to cease nuclear production has contributed to more deaths than the accident itself.”
It is not obviously a winner policy, at least not from the point of view of boosting women’s labor market opportunities. In fact it seems to harm them:
This paper uses IRS tax data to evaluate the short- and long-term effects of California’s 2004 Paid Family Leave Act (PFLA) on women’s careers. Our research design exploits the increased availability of paid leave for women giving birth in the third quarter of 2004 (just after PFLA was implemented). These mothers were 18 percentage points more likely to use paid leave but otherwise identical to multiple comparison groups in pre-birth demographic, marital, and work characteristics. We find little evidence that PFLA increased women’s employment, wage earnings, or attachment to employers. For new mothers, taking up PFLA reduced employment by 7 percent and lowered annual wages by 8 percent six to ten years after giving birth. Overall, PFLA tended to reduce the number of children born and, by decreasing mothers’ time at work, increase time spent with children.
That is from a new NBER working paper by Martha J. Bailey, Tanya S. Byker, Elena Patel, and Shanthi Ramnath. And are you wondering why the number of children falls as a response? Because the mother ends up staying home with them? Or do mothers invest more in child quality, thereby lower quantity, as in a Becker model? In any case a good question.
Event study estimates suggest that cartel presence increases substantially after 2010 in municipalities well suited to grow opium poppy. Homicide rates increase along with the number of active cartels per municipality, with higher increases when a second, third, fourth and fifth cartel become active in the territory. These results suggest that some of the increase in violence that Mexico experienced in the last fifteen years could be attribute to criminal groups fighting for market shares of heroin and not only to changes in government enforcement.
That is one chapter in Orlando Patterson’s new and excellent The Confounding Island: Jamaica and the Postcolonial Predicament. One thing I like so much about this book is that it tries to answer actual questions you might have about Jamaica (astonishingly, hardly any other books have that aim, whether for Jamaica or for other countries). So what about this question and this puzzle?
Well, in terms of per capita Olympic medals, Jamaica is #1 in the world, doing 3.75 times better by that metric than Russia at #2. This is mostly because of running, not bobsled teams. Yet why is Jamaica as a nation so strong in running?
Patterson suggests it is not genetic predisposition, as neither Nigeria nor Brazil, both homes of large numbers of ethnically comparable individuals, have no real success in running competitions. Nor do Jamaicans, for that matter, do so well in most team sports, including those demanding extreme athleticism. Patterson also cites the work of researcher Yannis Pitsiladism, who collected DNA samples from top runners and did not find the expected correlations.
Patterson instead cites the interaction of a number of social factors behind the excellence of Jamaican running, including:
1. Preexisting role models.
2. The annual Inter-Scholastic Athletic Championship, also known as Champs, which provides a major boost to running excellence.
3. Proximity and cultural ties with the United States, which give athletically talented Jamaicans the chance to access better training and resources.
4. The Jamaican diet and a number of good public health programs, contributing to the strength of potential Jamaican runners (James C. Riley: “Between 1920 and 1950, Jamaicans added life expectancy at one of the most rapid paces attained in any country.”)
5. The low costs of running, and running practice, combined with the “combative individualism” of Jamaican culture, which pulls the most talented Jamaican athletes into individual rather than team sports. (That same culture is supposed to be responsible for dancehall battles and the like as well.)
Whether or not you agree, those are indeed answers. The book also considers “Why Has Jamaica Trailed Barbados on the Path to Sustained Growth?”, “Why is Democratic Jamaica so Violent?”, and a number of questions about poverty. Amazing! Those are indeed the questions I have about Jamaica, among others.
Recommended, you can pre-order here.
That is the topic of my latest Bloomberg column, here is one key excerpt:
A second factor, however, pushes in the opposite direction. If Trump is viewed as too corrupt, too poisonous or too unreliable by swing voters, some of these senators also run the risk of losing their jobs. These senators therefore wish to rein in Trump, if only for selfish reasons. Trump and his policies are not very popular, as illustrated by numerous polls. And some senators might decide that loyalty to country, and to the future of the world, also argues for constraining Trump.
Reining in Trump does not have to mean forcing the leopard to change its spots, which is probably impossible anyway. But it could mean nudging Trump to be less outrageous: Don’t respond to the Ukraine accusations by encouraging China to investigate Joe Biden’s son, for example. Be more careful in your dealings with Turkey and the Kurds. Refrain from calling Never Trump Republicans “human scum.”
OK, so now to take the next step: How can these senators possibly check Trump? The threat of impeachment is their most potent weapon…
The upshot is that McConnell’s power over the president is growing. These are exactly the kinds of wrist slaps Trump notices.
The question, of course, is how Trump will respond to critical signals from Republican senators. My guess is that he will not play a cooperative “tit for tat” strategy, trading signals in a rational manner to keep senators in line and proceeding toward an orderly resolution of the impeachment judgment from the House. Rather, the signals sent his way might enrage him or raise his stress level to the point where he behaves less rationally than usual. Then the Senate will have to work all the harder to constrain Trump, thereby upping the stakes — and the stress — once again.
We will see.
2. Technological progress in bowling alleys, which are making a comeback (Bloomberg).
Once again there is a risk of fire so they are turning off the power in many parts of dry and windy northern California, for 2.7 million people. From The New York Times:
“When you turn the lights out on 3 million people because you have to keep the power lines safe then there’s no reason you should be allowed to continue,” Mr. Court said.
Michael Lewis, PG&E’s senior vice president of electric operations, said the issue was safety.
“We would only take this decision for one reason — to help reduce catastrophic wildfire risk to our customers and communities,” Mr. Lewis said in a statement.
PG&E filed for bankruptcy in January after amassing tens of billions of dollars in liability related to two dozen wildfires in recent years. As speculation grew that its equipment might be the cause of the Kincade Fire, its stock price plummeted about 30 percent on Friday to $5.08, a small fraction of its 52-week high of $49.42.
I would think the market expectation is that if PG&E is allowed to continue, as is likely to be the case, that it slowly will claw its way back to profitability, given that this is a highly regulated sector with barriers to entry. So the company is afraid of losing its expected remaining profit from further liability, and thus it plays it safe with power, too safe because they don’t suffer so much from the power blackouts. Sadly, the retail customers do not have many other options.
One solution would be to remove the liability the company faces from the fires, or alternatively you could add a liability option of set of fines from power cuts (call them “breach of contract”). Both changes would introduce greater symmetry into the liability equation, but of course the former would eliminate the incentives for fire safety and fire reduction and the latter might bankrupt the company or create unenforceable or undefinable legal obligations. Still, it hardly seems the current arrangement can be first best.
How about raising rates? And then spending more on capital improvements? (do read the tweets behind that link):
And in those proceedings, there is an independent division of the CPUC (the ‘Office of Ratepayer Advocates’) that has typically argued against maintenance and safety expenditures, so that rates can be kept low
How about raising rates a lot? But maybe it is too late for that.
Another option, which I do not feel I have enough information to assess, is to have the state government buy out the power company. That is not usually a good idea but in this case there is at least a chance it could lead to superior incentives. The resulting company would then be geared toward pleasing voters, hardly an ideal arrangement but possibly better than the current incentives toward excess safety and massive power cuts with no real chance of consumer backlash. With government ownership, how would the state internalize the liability risk? How much would state borrowing rates rise?
Have you seen good proposals for improving the incentives in this rather disastrous matter?
I develop an approach, which I term narrow thinking, to break the decision-maker’s ability to perfectly coordinate her multiple decisions. For a narrow thinker, different decisions are based on different, non-nested, information. The narrow thinker then makes each decision with an imperfect understanding of the others. Formally, it is as if the decision-maker is a collection of multiple selves playing an incomplete-information game. The friction effectively attenuates the degree of interaction across decisions and can translate into either over- or under-reaction depending on the environment. Narrow thinking leads to a violation of the fungibility principle and a smooth model of mental accounting. Narrow thinking also reconciles other seemingly disparate phenomena in a unified framework, such as excess smoothness to taste shocks, the small wage elasticity of daily labor supply, and the label effect. Finally, I study an endogenous narrow thinking problem: the decision maker chooses optimally what information each decision is based upon, subject to a cognitive constraint.
That is the abstract of a new paper from Chen Lian, who is on the job market this year from MIT. (That is not his job market paper but it does have a revise and resubmit from Review of Economic Studies.)
3. The Gilded Age?: “New paper forthcoming in Cliometrica with Peter Lindert. In the paper we show that between 1800-1914, inequality in cost of living fell offsetting sizable share of increase in nominal income inequality”.
4. How bad is it to be “scooped” in science? And how much do astronomers rely on lucky good weather?
5. Research in progress: “First, I document that opioid deaths and religiosity are strongly negatively correlated across counties. Then, I find that an 8% decrease in religious employment – equivalent to the decrease observed since the height of the Catholic sex abuse scandal – would increase opioid deaths by 4.8 per 100,000, approximately a third of the current opioid epidemic. The effects of religiosity are concentrated in areas with higher Catholic rates before the scandal. In contrast, I find no evidence that religiosity affects other drug deaths, suicides, or mortality due to alcoholic liver disease.”
You’ve read elsewhere about the sin of promiscuity. Let me tell you about the sin of self-restraint.
Consider Martin, a charming and generally prudent young man with a limited sexual history, who has been gently flirting with his coworker Joan. As last week’s office party approached, both Joan and Martin silently and separately entertained the prospect that they just might be going home together. Unfortunately, Fate, through its agents at the Centers for Disease Control, intervened. The morning of the party, Martin happened to notice one of those CDC-sponsored subway ads touting the virtues of abstinence. Chastened, he decided to stay home. In Martin’s absence, Joan hooked up with the equally charming but considerably less prudent Maxwell – and Joan got AIDS.
When the cautious Martin withdraws from the mating game, he makes it easier for the reckless Maxwell to prey on the hapless Joan. If those subway ads are more effective against Martin than against Maxwell, they are a threat to Joan’s safety. This is especially so when they displace Calvin Klein ads, which might have put Martin in a more socially beneficent mood.
If the Martins of the world would loosen up a little, we could slow the spread of AIDS. Of course, we wouldn’t want to push this too far: if Martin loosens up too much, he becomes as dangerous as Maxwell. But when sexual conservatives increase their activity by moderate amounts, they do the rest of us a lot of good. Harvard professor Michael Kremer estimates that the spread of AIDS in England could plausibly be retarded if everyone with fewer than about 2.25 partners per year were to take additional partners more frequently.
Addendum: I later pointed out that the Kremer model appears to fit what happened in Thailand quite well.
From a new and very important paper by Kevin Munger and Joseph Phillips from Penn State:
The most extreme branches of the AIN (the Alt-Right and Alt-Lite) have been in decline since mid-2017.
However, the Alt-Right’s remaining audience is more engaged than any other audience, in terms of likes and comments per view on their videos.
The bulk of the growth in terms of both video production and viewership over the past two years has come from the entry of mainstream conservatives into the YouTube marketplace.
…despite considerable energy, Ribeiro et al. (2019) fail to demonstrate that the algorithm has a noteworthy effect on the audience for Alt-Right content. A random walk algorithm beginning at an Alt-Lite video and taking 5 steps randomly selecting one of the ten recommended videos will only be recommended a video from the Alt-Right approximately one out every 1,700 trips. For a random walker beginning at a “control” video from the mainstream media, the probability is so small that it is difficult to see on the graph, but it is certainly no more common than one out of every 10,000 trips.
That authors suggest (p.24) that if anything the data suggest deradicalization as a more plausible baseline hypothesis.
Of course this is not the final word, but in the meantime so much of what you are reading about YouTube would appear to be wrong or at least off-base.