Relevant and even prescient commentary on news, politics and the economy.

A Decision Theory Case to Chew On

A Decision Theory Case to Chew On

Here’s something I posted over on Andrew Gelman’s wonderful blog:

I read Alive and thought it unknowingly made a very powerful point about decision theory, that you always have to balance the risks of action against the risks of inaction. The plane was stuck in snow on a slope that led down to a valley that was partially inhabited. Yes, the immediate survivors could not see this, and sending a party down the slope seemed very dangerous (which it was), so they delayed for months. Meanwhile, without thinking explicitly about it, they accepted the risks of staying put, which included the obvious one of an avalanche (how can you not know this about snowy mountain slopes?), which in fact transpired, killing a large fraction of those who had survived the initial crash. In retrospect, once it was obvious they would not be rescued by being spotted from the air, they should have sent a party down to the valley, and it is probable many lives would have been saved. The whole cannibalism thing is a distraction, IMO.

As for the munchy business, I once knew someone who, when giving his name at a restaurant, said “Donner” so he could hear them call out “Donner party of four!”

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Meidner Lives!

Rudolf Meidner, one of the unsung economics heroes of the last century, argued for solidarity wages on several grounds, one of which is that low wages subsidize less efficient firms.*  Bring the bottom up, he said, and you will change the mix of enterprises and boost overall productivity.  It’s just a hypothesis, but here’s a bit of recent evidence from a pair of researchers:

We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit. Restaurants with lower ratings are closer to the margin of exit on average, and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 10 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).

*Unsung in English.  What are they singing these days in Sweden?

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Two Recent Studies, Children of Incarcerated Parents and the Long Run Effects of Student Debt

Two Recent Studies, Children of Incarcerated Parents and the Long Run Effects of Student Debt

Amid the blooming flowers of May, each year sees the arrival of the Papers and Proceedings volume of the American Economic Review, containing short and sometimes punchy gleanings from the previous ASSA meetings.  Here are two abstracts of interest.  I haven’t gone through the papers themselves, so I can’t vouch for their methodologies, but the results they claim to have found are politically important.

Title: Student Debt and Labor Market Outcomes
Authors: Gerald Eric Daniels Jr. and Andria Smythe

We study the impact of student debt on various labor market outcomes, namely, income, hourly wages, and hours worked. Using the NLSY97 and a difference-in-difference approach, we find statistically significant differences in labor market outcomes for individuals who received a student loan versus those who received no student loan. We find that the difference in post- versus pre-college income is 8-9 percent higher for individuals that received a student loan relative to individuals who received no student loan. Further, we find evidence that this higher income is due to higher work hours.

Title: The Child Left Behind: Parental Incarceration and Adult Human Capital in the United States
Author: Laura E. Henkhaus

Exposure to parental incarceration is particularly prevalent in the United States, where about 7 percent of children have lived with a parent who was incarcerated. In this paper, I use nationally representative US data and apply partial identification methods to bound the likely effects of parental incarceration on education and labor market outcomes. Findings suggest that parental incarceration leads to substantially higher rates of high school dropout. Results provide some support for negative effects on likelihood of college degree attainment and employment in young adulthood. This work has important implications for criminal justice policy and social policies toward children.

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Why I’m Not Going to Properly Review “The People’s Republic of Wal-Mart”

Why I’m Not Going to Properly Review “The People’s Republic of Wal-Mart”

I’ve been thinking about alternatives to capitalism for a long time now.  I’ve taught several courses on the topic and plan eventually to write up what I think I’ve learned, so naturally I was intrigued by the new book, The People’s Republic of Wal-Mart: How the World’s Biggest Corporations Are Laying the Foundation for Socialism (PRW) by Leigh Phillips and Michal Rozworski.  I picked up a copy and started reading it, intending to write a review for this blog.

Well, I stopped about a quarter of the way through.  It’s not worth my time or yours, and I briefly want to tell you why.

For over a hundred years, socialists have looked to the organization of capitalist businesses for a vision of what a post-capitalist society might look like.  The conception of socialism as a single, all-encompassing public enterprise was widely recognized by advocates and opponents alike.  Marxists in particular looked to each new management strategy as a building block for the socialist future, since Marx’s idea was that the new society will be the product of the old, when the forces of production are liberated from the old, confining relations of production.  Remember Lenin’s encomium to the “scientific management” of F. W. Taylor?

And so there has been much left wing debate over the years about what is progressive and valuable about management, and what needs to be discarded.  You would think someone writing a book on this topic today would review that literature to see what might be learned from it.  Not this one.

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Prisoners of Overwork: A Dilemma

Prisoners of Overwork: A Dilemma

The New York Times has an illuminating article today summarizing recent research on the gender effects of mandatory overwork in professional jobs.  Lawyers, people in finance and other client-centered occupations are increasingly required to be available round-the-clock, with 50-60 or more hours of work per week the norm.  Among other costs, the impact on wage inequality between men and women is severe.  Since women are largely saddled with primary responsibility for child care, even when couples ostensibly embrace equality on a theoretical level, the workaholic jobs are allocated to men.  This shows up in dramatic differences between typical male and female career paths.  The article doesn’t discuss comparable issues in working class employment, but availability for last-minute changes in work schedules and similar demands are likely to impact men and women differentially as well.

What the article doesn’t point out is that the situation it describes is a classic prisoners dilemma.*  Consider law firms.  They compete for clients, and clients prefer attorneys who are available on call, always prepared and willing to adjust to whatever schedule the client throws at them.  Assume that most lawyers want sane, predictable work hours if they are offered without a severe penalty in pay.  If law firms care about the well-being of their employees but also about profits, we have all the ingredients to construct a standard PD payoff matrix:

There is a penalty to unilateral cooperation, cutting work hours back to a work-life balance level.  If your firm does it and the others don’t, you lose clients to them.

There is a benefit to unilateral defection.  If everyone else is cutting hours but you don’t, you scoop up the lion’s share of the clients.

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Statistical Significance and the Sweet Siren of Self-Confirmation: A Reply to Taylor

Statistical Significance and the Sweet Siren of Self-Confirmation: A Reply to Taylor

Just as Ulysses had himself chained to the mast of his ship so he wouldn’t succumb to the lure of the Sirens, John Ionnidis and others have argued we must bind ourselves to the discipline of statistical significance lest we fall victim to confirmation bias.  Some researchers will want to proclaim they have found earth-shaking results even if they are enveloped in noise, and others will try to dismiss genuine findings of no effect, even if that is where the data point.  The only way through the choppy seas of statistical investigation (sorry!) is to adhere unstintingly to the decision rule that everything else first depends on whether p is less than or greater than .05.

So says Timothy Taylor, citing Ionnidis:

The case for not treating statistical significance as the primary goal of an analysis seems to me ironclad. The case is strong for putting less emphasis on statistical significance and correspondingly more emphasis on issues like what data is used, the accuracy of data measurement, how the measurement corresponds to theory, the potential importance of a result, what factors may be confounding the analysis, and others. But the case for eliminating statistical significance from the language of research altogether, with the possibility that it will be replaced by an even squishier and more subjective decision process, is a harder one to make.

 

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Free Speech, Safety and the Triumph of Neoliberalism

Free Speech, Safety and the Triumph of Neoliberalism

I’m reading another article about debates over free speech on campus, this time at Williams College, an elite school in the northwestern corner of Massachusetts.  A faculty petition asks to formalize and tighten the college’s policy on free speech by adopting the Chicago Principles, which state that “concerns about civility and mutual respect can never be used as a justification for closing off discussion of ideas, however offensive or disagreeable those ideas may be to some members of our community.”  Over three hundred students, however, have signed a counterpetition arguing that speech which harms minorities should not be allowed.  These disputes are interesting to me, partly because my own school, Evergreen State College, went through a conflict along these lines.

Consider for a moment the idea that speech activities can be evaluated by the emotional effects they engender.  One person’s speech makes me feel good: fine.  Another’s makes me feel terrible and should be disallowed.  What this amounts to is assessing political acts according to the utility or disutility experienced by those affected by them.  The “do no harm” criterion is a bit problematic, however, since people can also be subjected to disutility by restrictions on their speech as well as by hearing the speech of others.  If one person feels unsafe because of being silenced, but if they talk, another will feel unsafe because of the speech content, a purely rights-based framework becomes inconsistent.

I can see two ways out.  One is to put forward a hierarchy of rights-bearing, a ranking that resolves rights disputes between any two such individuals.  This seems to be implicit in the way disputes like this actually play out, but if you subscribe to the principle of intersectionality (or more subversively, the principle that individuals are not reducible to their “identities”) the ranking is indeterminate.

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Economics, the Realm of Money and the Significance of GDP Growth, with an Application to Child Labor

Economics, the Realm of Money and the Significance of GDP Growth, with an Application to Child Labor

What’s economics?  There are two answers.  One is it’s the sphere of human activity encompassing the production and distribution of goods and services, which has sometimes been referred to as provisioning.  This is quite a lot but not everything.  It includes meditation classes but not meditation, making and selling binoculars but not bird-watching, etc.  The problem is that it includes so much of human life that it is barely a delineation at all.  From this perspective farming is part of the economy, and so is shopping for food, cooking the food at home, and even piling some of it on your plate.  It’s a matter of debate whether eating the food should qualify as economic, not to mention the trip to the toilet sometime later.  (I think the answer should be yes to the toilet part.)

Then there’s a much narrower conception that confines itself to just the money economy, things that are produced for sale, paid labor, and money congealed into financial assets and obligations.  This is largely what mainstream economics is about, although it claims to be about human well-being in a much more encompassing sense, using welfarism as a bridge between the empirical world of markets and the putative substrate of “utility”.

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France’s Fiscal Dilemma Solved

France’s Fiscal Dilemma Solved

I was struck by this morning’s headline in the New York Times:

No doubt this was intended as irony, but that itself is ironic, since the “unrealistic” attitude it sums up is actually a good starting point for policy.  France has one of the world’s better welfare states, and it should be preserved and enhanced.  French taxes are very high—almost half of national income—and should be cut.  Carbon needs to be priced far more comprehensively and aggressively than Macron’s idiotic gas surcharge, but that can be done with little or no additional net taxes.  (Hint: rebate.)

So what squares this circle?  France’s budget deficit is way too small, about 2.6% of GDP the past two years.  Given the slack in its economy (over 9% headline unemployment) and rock bottom real interest rates, France would be wise to cut taxes and preserve spending even if the gilets jaunes had never existed.  Of course, it is prohibited from doing this by the eurozone’s Stability and Growth Pact, but that’s an argument against the Pact, not the policy.

Nothing I’ve said goes against standard macroeconomic advice.  The reason for bringing it up is that headline, and the article that follows it, which recycles a facile putdown of populism that is both economically ignorant and disdainful of social needs.  Come to think of it, that could be a good way to describe Macron and the political circle he represents.

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Introductory Econ Textbooks: A Different Take on the Issues

Introductory Econ Textbooks: A Different Take on the Issues

My eyes were drawn to Timothy Taylor’s gloss on Greg Mankiw’s ruminations on the life of an econ textbook author.  As such an animal myself (Microeconomics and Macroeconomics: A Fresh Start), I’ve thought about many of the same questions.  Differently.

Issue #1: How do you teach the introductory economics courses if you have a dissenting perspective?  Mankiw lays out three alternatives, teaching the mainstream and suppressing your own views, teaching minority or fringe views (i.e. your own), or not teaching introductory econ at all.  He says the second option is “pedagogical malpractice”, and Taylor agrees.  I opted for an approach neither of them consider, to present mainstream economics in the third person: this is what that particular group thinks.  Allow for a critical distancing, which is not the same as critique.  I didn’t write “this stuff is garbage”, but “here are the assumptions that conventional economists make that distinguish their approach from others.”  Whenever possible, I point out where other disciplines differ, and while I encourage students to judge for themselves, I don’t pressure them into adopting any one point of view.  This is called critical thinking, and it barely exists in the world of economics textbooks, which proselytize shamelessly.

Issue #2: What should be the role of supply and demand theory and, in particular, the welfare interpretation of it?  Mankiw feels welfare economics gets short shrift in the typical intro econ course and text, while Taylor demurs.  I am mostly on Mankiw’s side here, but from a critical perspective.  I agree entirely that welfarism underlies virtually all applied econ work outside macroeconomics, and it’s important for students to understand what it means.  We just saw a “Nobel” prize awarded to an economist, Bill Nordhaus, whose primary claim to fame is an application of the welfare framework to climate change.  Nearly every economist working on climate issues adopts the same approach.  It would not be an exaggeration, however, to say that the vast majority of climate scientists regard their work as nuts.  Clearly there is a pressing need to present the underpinnings of welfare economics to as wide an audience as possible, so they can understand these disputes.

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