The Peltzman Effect at Sea

Deiana, Maheshr,and Mastrobuoniand have recently published an analysis of the effects of Search and Rescue operations on migration from Africa to Europe.Nearly half a century ago, Sam Peltzman showed that, because mandatory seat-belts made driving safer, drivers tended to drive more recklessly, partially offsetting the increased safety. Similar effects occurred in the search and rescue context. From the abstract:

Many countries are facing and resisting strong migratory pressure, fueling irregular migration. In response to mounting deaths in the Central Mediterranean, European nations intensified rescue operations in 2013. We develop a model of irregular migration to identify the effects of these operations. We find that smugglers responded by sending boats in adverse weather and utilizing flimsy rafts, thus inducing more crossings in dangerous conditions and ultimately offsetting intended safety benefits due to moral hazard. Despite the increased risk, these operations likely increased aggregate migrant welfare; nevertheless, a more successful policy should instead restrict supply of rafts and expand legal alternatives. 

Higher interest rates in the US make the dollar stronger

The Economist: The yen has been falling against the dollar because US interest rates are 5% points higher in the US than in Japan.  This increases the demand for dollars, as Japanese investors sell ¥to buy $ so the price of a dollar appreciates.

In the chart above, we see the price of a dollar (inverted scale) has risen to about ¥160.  

"Institutional Neutrality" to organize polarized people

NPR's interveiw with Chancellor Diermeier: Vanderbilt University, "...will not take policy positions unless they directly affect the operating of the university." 

Also WSJ editorial by the Chancellor.

Meritocracy and Productivity

A new paper by Bandiera et al. focuses on how matching worker skills to job characteristics affects productivity. They use detailed data for 120,000 workers across 28 countries in an attempt to identify the productivity effects of i) worker skill endowments, ii) technology, and iii) job markets frictions. They formalize meritocracy as as the degree to which worker skills match with the skill requirements of jobs. Miss-allocation, due to, say, inflexible labor laws or nepotism, would imply a reduced the role for meritocracy.

Not surprisingly, they find that most of the difference in income between developed and developing countries is from differences in skills and technology.  However:

... a large share (36 percent) of the gains from adopting frontier endowments and technology are realized through enhanced sorting. Improvements in worker-job matching thus constitute an important amplification channel for economic development ...

Without the ability to hire he right person, technology is less productive. Without the likelihood of using advanced skills on the job, workers forgo acquiring these skills. More generally, meritocracy improves incomes because it increases the return to investing in the technology and skills. This is further documentation of the importance of getting the incentives right.

Why are quarterbacks taken so early in the draft?

 WSJ:

Since 2011, the NFL has had a rookie wage scale, which allocates relatively affordable salaries to each draft pick regardless of position. That means taking a rookie at one of the more valuable positions has the chance to generate enormous surplus value. It’s why, for instance, quarterbacks on rookie deals are so advantageous—teams can get the most from them before they re-sign on contracts that could cost upward of $50 million a year.

In other words, quarterbacks salaries are fixed further below expected value than other positions, so they generate more expected profit for the team.

Note how NFL owners negotiated with current players and came up an agreement that screwed the only people not at the table, future players (college kids).  Nice metaphor for the human condition. 

 Ironically, I am still disappointed by this kind of self-interested behavior. 

HT: Lamar

US v. Google: do complaints have to be internally consistent?

From former DOJ Economist Greg Werden: 

The governments case suggests that its exclusive deals with Apple and Mozilla to be the default search engine on their browsers “allowed Google to maintain its monopoly power [in "general search"] in violation of Section 2 of the Sherman Act.”  

However, the government's brief also suggests that Google's scale is very important, which implies that its scale economies--not its exclusive deals--that maintain Google’s dominant share. 

What does Earth Day teach us about supply?

Around the time of the first Earth Day (1970), Environmentalists were making dire predictions (via Mark Perry): 

• ...world famines of unbelievable proportions.
• some 4 billion people, including 65 million Americans, would perish in the “Great Die-Off.”
• By the year 2000, … there won’t be any more crude oil.
• Lead, zinc, tin, gold, and silver would be gone before 1990.

Why were these predictions so spectacularly wrong? 

ANSWER: If prices increase, producers find more supply or develop alternatives. For example, oil reserves are much bigger now due to technological innovations like directional drilling and shale oil extraction. 

• In 1980, Paul Ehrlich, a Stanford biologist (author of "The Population Bomb,") bet Julian Simon, a Maryland Economist, that prices of five metals (chromium, copper, nickel, tin, and tungsten) would rise due to increased demand from population growth. 
• In 1990, the prices of all five metals had fallen, and Ehrlich lost $1,000.

BOTTOM LINE:  Don't underestimate supply.  

Places like Illinois "are screwed"

The Economist: Declining fertility and declining immigration lead to:

• DEATH SPIRALS: ... the biggest problem is that, once a place starts shrinking, ... there is far more housing available than people to fill it, ... landlords and even homeowners stop maintaining their properties, ... blight spreads .. 
• TAXES PAID BY FEWER PEOPLE: as cities lose population, the cost of providing public services [mostly public pensions] tends to stay about the same. ... the result is that the remaining taxpayers must pay more simply to support the same services. 
• STATE CANNOT PAY ITS PENSIONS: Across Illinois the total burden of unfunded state and local pension liabilities is estimated to be around $210bn, or roughly four times the state’s entire annual budget.
• IL, NJ, WV, have been shrinking for awhile
• In 2021, 14 more states shrank.

McKinsey was wrong: diversity does not improve performance

Econ Journal Watch:

Combined with the erroneous reverse-causality nature of McKinsey’s tests, our inability to quasi-replicate their results suggests that ... they should not be relied on to support the view that US publicly traded firms can expect to deliver improved financial performance if they increase the racial/ethnic diversity of their executives.

Why growth matters

Making the pie bigger ("the growth agenda") means we are not fighting over a fixed pie ("zero sum fallacy"), and it guides decision making, "does this policy increase the size of the pie?"

MarginalRevolution points to a Jason Furman graph showing that a 0.5% growth rate difference between the US and Argentina over the last 120 years has lead to a per capita income in the US that is over three times as large as Argentina's [note exponential scale]