Tuesday, August 20, 2019

Alfred Kahn on clear writing

Economist Alfred Kahn died this week at age 93. Although he is most remembered for deregulating the airlines industry, Vanderbilt students know him through his essay,My War Against Bureaucratese," the gobbledygook written by government bureaucrats designed to hide what they are really doing.  Here are a few of his most salient points:
  • “Every time you’re tempted to use ‘herein’ or ‘hereinabout’ or ‘hereinunder’ or, similarly, ‘therein,’ thereinabove’ or ‘thereinunder,” and the corresponding variants, try ‘here’ or ‘there’ or ‘above’ or ‘below,’ and see if it doesn’t make just as much sense.”
  • “The passive voice is wildly overused in government writing. Typically its purpose is to conceal information. One is less likely to be jailed if one says, ‘He was hit by a stone,’ than if he says, ‘I hit him with a stone.’ The active voice is far more forthright, direct, humane.”
  • The use of ‘presently’ to mean ‘now’ is another pomposity. If you mean ‘now,’ why don’t you say ‘now’?
  • “Why use ‘regarding’ or ‘concerning’ or ‘with regard to’ when the simple word ‘about’ would do just as well? Unless you’re trying to impress somebody. But are you sure you want to impress anybody who would be impressed by such circumlocutions?
  • “Outreach makes me upchuck.” Sometimes the demands of pomposity and dynamism converge—as in using “input” as a verb, “specifics” for “details” and constantly “implementing” things and “addressing issues.”
Professor Kahn began this war as part of his succesful effort to deregulate the airline industry. He is the hero of Thomas McCraw's Pulitzer Prize Winning book Prophets of Regulation. Interestingly, the villain of the book is Louis Brandeis for his role in creating the FTC.

Colleague Mike Shor's MBA Writer puts phrases from student memos together to generate sentences that sound all too familiar.

To proactively manage profit, our key initiative objective pushes the envelope toward systematized reciprocal capability.

Enabling continuity, enterprise optimization accelerates the movement towards third-generation contingencies.

Monday, August 19, 2019

Is Sweden Socialist?

Its not even close:
...while people like Bernie Sanders use Sweden as a talking point of socialism, “most of the world would look up at Sweden and say that they are way more capitalist than we are.”

They seemed to have been headed that way when reality set in:
“In 1960 the United States and Sweden were about the same level of income and had about the same size of government. And what happens is 1960 is both governments got bigger, but Sweden’s got really big and Sweden’s growth rate really started to suffer,” he said.

As things now stand, Lawson said Sweden has much less income than the United States, and the high cost of its social services has shown its negative impact. “Maybe it’s a price they’re willing to pay, but the vitality of the Swedish economy has slowed and not kept pace with the rest of Europe—and certainly not with the United States.”

DOJ blocks printing merger

My former employer successfully challenged a merger in the printing industry :
The U.S. Justice Department’s lawsuit opposing Quad’s acquisition of LSC focused on the “intense rivalry” between the two printers that has contributed to the multi-year trend of gradually declining prices for publication printing.

This kind of enforcement is designed to preserve competition. However, the delay and uncertainty surrounding the merger seems to have damaged one of the companies so it is not clear how much competition remains:
The aborted deal left LSC a damaged company. During the nine months when it appeared to be headed to the altar with Quad, it lost salespeople and customers, ...

HT:  Margaret

DDT is making a comeback! (book recommendation, Factfulness)

Paul Hermann Müller won the Nobel Prize in 1948 for “his discovery of the high efficiency of DDT as a contact poison against several arthropods.” For two and a half years in the early 1980's, my late wife Lisa (pictured above) rode a motorcycle around the Golden Triangle in Thailand, spraying swamps with DDT and giving out Malaria pills to villagers.  However, DDT has since been banned by what Factfulness author calls "Chemophobia."  Even the WHO seems to recognize the mistake:

... Today, the World Health Organization promotes the use of DDT to save lives in poor settings by killing malaria mosquitoes, within strict safety guidelines...

The Factfulness book (I listened to it on Audible) also dispels various myths about "us vs. them," "developing vs. developed world," or the myth that things are getting worse.  Highly recommended for anyone interested in poverty.

Thursday, August 15, 2019

Homeowners' cartel is raising prices

In past posts, we have characterized housing supply restrictions as a homeowners cartel in that they benefit homeowners by limiting what their neighbors can do with their property. MarginalRevolution.com summarizes evidence that regulations are limiting increase of housing supply.  Since supply cannot respond, price adjusts instead.


Monday, August 12, 2019

When prices go up, eventually demand becomes elastic

Story of a women and her US surgeon who flew to Cancún to get and perform a knee replacement:
The hospital costs of the American medical system are so high that it made financial sense for both a highly trained orthopedist from Milwaukee and a patient from Mississippi to leave the country and meet at an upscale private Mexican hospital for the surgery.

When the price gets high enough, eventually, people find substitutes. 

Ms. Ferguson gets her health coverage through her husband’s employer, Ashley Furniture Industries. The cost to Ashley was less than half of what a knee replacement in the United States would have been. That’s why its employees and dependents who use this option have no out-of-pocket co-pays or deductibles for the procedure; in fact, they receive a $5,000 payment from the company, and all their travel costs are covered.

Dr. Parisi, who spent less than 24 hours in Cancún, was paid $2,700, or three times what he would have received from Medicare, the largest single payer of hospital costs in the United States. Private insurers often base their reimbursement rates on what Medicare pays.

Why do women bid less for gigs?

They offer 4% lower prices, win jobs more frequently, and earn higher expected revenue (prob[win]*price) than men:  New working paper:

...we provide empirical evidence for a statistically significant 4% gender wage gap among workers, at the project level. We also find that female workers propose lower wage bills and are more likely to win the competition for contracts.

This raises the obvious question, whether women bid more aggressively than men because they think that the opportunity cost of their time is lower, or because they are bidding optimally, and men are not.

Effects of the trade war: Chinese selling US assets

As the trade war with China heats up, we begin to see its effects: highly leveraged Chinese firms are being forced to sell US assets so that they have enough money to service debt, especially as they earn less from trade with the US.
The government’s dramatic about-face from encouraging aggressive overseas acquisitions to cracking down on risky lending and overseas transfers underscores worries over the risk that the nation could run short of enough US dollars to make the interest and principal payments on its mounting debt at a time when the current account balance is coming under pressure.

HT:  MarginalRevolution.com

Are we on the eve of a recession?

In the graph above, we plot two time series, the percentage growth in GDP (in red) and the difference between long and short term interest rates (in blue).  The red series has a mean somewhere between 1% and 2%.  The so-called "yield curve" (in blue) is usually positive to account for the greater risk of long term bonds.  

In all of past recessions in the graph, when the blue line has dipped close to zero before the red line goes negative.  Recently the difference has approached zero, which could be a signal of a coming recession.  Here is the theory:

Under unusual circumstances, investors will settle for lower yields associated with low-risk long term debt if they think the economy will enter a recession in the near future. For example, the S&P 500 experienced a dramatic fall in mid 2007, from which it recovered completely by early 2013. Investors who had purchased 10-year Treasuries in 2006 would have received a safe and steady yield until 2015, possibly achieving better returns than those investing in equities during that volatile period.

In other words, (i) if the alternative to holding treasuries is investing in the stock market, and (ii) you expect the stock market to fall in the the short term, then get out of equities into long-term bonds.  This drives up the price of long-term bonds.  Higher bond prices imply a lower yield because yield=(bond payment)/price.  

NOTE: there is one "false positive" for this indicator, in 1967, when the dip in the yield curve did not signal an immediate recession.  

DISCLAIMER:  If I really knew that a recession were coming, I wouldn't be teaching school, and I probably wouldn't tell you.  

Argentine peso drops 25% against dollar following leftist victory

The graph above shows that the price of argentine peso in dollars went from 45 to 61 pesos/dollar, a depreciation of the peso by about 25%, following the election victory by a "leftist."

We can infer several things from the Chart. First the depreciation of the peso indicates that the markets think that demand for dollars will increase in the new regime.  Speculators' increase in demand for dollars may be due to the expectation that the leftist regime may may try to print pesos to stimulate the economy, weakening the peso.  If speculators expect the peso to be weaker in the future, they should sell pesos to buy dollars now to preserve wealth.  That looks like what is happening. 

Anticipate hold-up--China edition

From a friend who worked in China for two years:
I was working with an education consulting company, and had signed a contract prior to moving that said I would live and work in Chengdu for two years. After about 4-5 months in Chengdu, my company said they needed to relocate me to Shenzhen. I agreed under the condition that my move would financially covered.  
I arrived in Shenzhen the night before starting work. That next morning I received a message from my manager saying that I needed to sign a contract promising that if I left before my two years were up, I would have to pay back everything from my move! 
Obviously, I refused, and then had to speak with my boss back in Beijing. She expressed her "disappointment" in me, raised her voice, and said someone else had already signed and I should too. She came up with a few other solutions (one was that I would sign a contract promising not to tell my colleague that HAD signed, and if I did tell him then I would have to pay them the convenient amount of my move- haha), but ultimately realized I would not budge and dropped it.  
Needless to say, it was a strange experience! China can be a weird place. 

In this case, my friend was "held up" after she incurred the sunk moving costs.  She never received the reimbursement.  

The difficulties of anticipating hold-up and then contracting around it, make it more difficult for the Chinese economy to adapt to change, and to create wealth by moving assets to higher-valued uses. 

Wednesday, August 7, 2019

Are kids safer in a parent's lap?

...than in their own seat? The Federal Aviation Administration (FAA) says "yes." Although a child has a bigger chance of surviving a crash when belted into their own seat, doing so would cost extra.
That cost...would cause some families to revert to car travel, which is less safe. “Consequently,” states the agency in its latest response to the safety board, “entire families would be subject to far higher fatality rates, which would produce a net increase in overall transportation fatalities.”

Remember, when evaluating a policy, you want to consider all benefits and costs that vary with the consequence of a policy. If you miss some, you commit the "hidden cost" fallacy. BRAVO to the FAA for recognizing the hidden cost of mandating safety belts and for saving lives!

Socialism vs. Capitalism: funny video

Tuesday, August 6, 2019

Should you move from Connecticut to Wisconsin?

To figure out how much to save to pay off current and future retirees, public pension defined benefits plans discount future expected liabilities at 7.5-8.5%.  If they earn that much on their investments, then they will have enough to pay the retirees.  However, this year, their investments earned only 6.8%, the lowest since 2016.

On average, pension under-funding is close to 50%.  So pension fund managers have tried to earn more by investing in
... riskier, less traditional investments over the past decade. Large public pension plans had a median 11.47% of their assets in alternative investments such as private equity for the year ended June 30 and a median 4.45% of their investments in real estate.

One good solution is Wisconsin's, to turn the defined benefits plan (paying a guaranteed amount) into a defined contribution play (paying an amount that depends on how well investments do).

However, many states, like Connecticut, are leaving this problems to future generations.  The public employees union reached agreement with the governor to ignore the problem until 2046. By that time, the fund will have fewer assets generating income which makes higher taxes, reduced state services, and pension cuts more likely.

And if residents anticipate these changes, they will migrate to states like Wisconsin that don't have these problems.  If so, this may drive down the value of real estate in CT to compensate residents for living in the state.  In equilibrium a mobile asset (people) has to be indifferent about where it is used; otherwise, it will move.

Sunday, August 4, 2019

Is public philanthropy evil?

That lobotomies were not a good way to treat mental illness was known by 1941, yet lobotomies continued for thirty more years, mostly in public asylums.  Here's why:

Because superintendents [those managing publicly funded asylums] received federal funding based on the number of committed patients rather than offering effective medical care, treating patients was a secondary matter.  
[these superintendents]... sought low-cost treatment options. The lobotomy provided such an opportunity. Unlike the therapeutic or hydro and shock treatments available (all of which are still used today), the lobotomy was comparatively cheaper and did not take years to complete. It also frequently made difficult patients more docile and easier to manage.
In contrast, private asylums, which also faced overpopulation issues and treated the same patient demographics as public asylums, were funded by philanthropic donors and the patients’ legal caretakers. When patients failed to improve, were mistreated, or not offered sufficient quality of care, an asylum risked its profitability. Accordingly, using erroneous or excessively harmful treatment methods like the lobotomy would be detrimental to their bottom line.

QUESTION:  how would you better align the incentives of superintendents with the goals of patients (and their caretakers)?

HT:  MarginalRevolution.com

Saturday, August 3, 2019

AI makes marketing more powerful

There are two kinds of Artificial Intelligence (AI): symbolic logic, where automated rules replace human decision making; and machine learning, where outcomes, like sales, are related to policy, like advertising copy, to infer causality.  This from the WSJ seems to describe machine learning by Persado software:

In one test, a headline by human copywriters urged consumers to “Access cash from the equity in your home,” with the call to action “Take a look.” A variant created by Persado was headlined “It’s true—You can unlock cash from the equity in your home” and suggested “Click to apply.” 
The Persado version generated 47 weekly applications for home equity lines of credit, compared with 25 for the original version, JPMorgan Chase said.

Machine learning is designed to improve when given more data, like the A/B testing described above. In  general, following up marketing campaigns with A/B testing is a really good idea, regardless of whether you are using AI or not. 

Friday, August 2, 2019

"Smart" flashcards to learn students names and to teach vocabulary

This month, I began using anki “smart” flashcards to memorize student names  and it has been really helpful.  I also put up the glossary of my textbook on anki cards to help students learn the vocabulary of each chapter.  The anki software is free for computer (they charge if you want to put it on your phone or tablet.)

Here is how the cards work.  On the “front” is a photo of the student, and on the back where they work, job title, and name.  You look at the photo, then “turn it over” and push one of three buttons telling the program whether you got it wrong, whether you got it right, or whether you know it for sure.  Depending on your answers, and how frequently and recently you have seen the card, the built-in Artificial Intelligence of the smart cards will show the card again until you know it.  You see cards you don't know more frequently than those you do.  The program stops after it determines that I have reached my limit; apparently that is the best way to learn.   

I have never been able to learn students names, but this program changed that.  I have taught myself to invent mnemonic’s to help me learn faster.  This came naturally to me when I found myself missing the same names over and over. 

Friday, July 26, 2019

Khan Academy video and quiz on FX and trade

Video 1:  Introduction to FX (Foreign eXchange)
     Take-away:  This is too basic for most MBA students as it describes the individual transactions the comprise an FX market.

Video 2:  FX markets
     Take-away:  How foreign exchange rates are determined (Demand/Supply analysis)

QUIZ:  Test yourself on FX markets

Pension problems in Connecticut

The ALEC came out with its rankings of pensions, and Connecticut was the worst.

Connecticut ranks last with a dismal 19.7 percent funding ratio, down 3.1 percentage points from last year. Connecticut is one of four states to set retiree benefits through collective bargaining and is unique in that the legislature does not have to consent to contracts for them to go into effect.viii A total of 124 contracts have been passed without a vote in either chamber in the legislature 
Under these rules, politicians can abstain from making politically difficult decisions needed to protect taxpayers from future pension fund bailouts and retirees from the consequences of a future pension default. Such decisions could anger current public sector union membership, placing personal political careers at risk. In late 2016, Gov. Dan Malloy came to an agreement with the state employees union to extend the amortization period of the official unfunded liability to 2046. In other words, the state will delay paying down these liabilities.x Because the fund will have relatively fewer assets generating investment income over the next two decades as a result of this delay, a combination of higher taxes, reduced state services, and pension benefits cuts becomes more likely in future years. In addition, Connecticut continues to use an assumed rate of return in excess of 8 percent to estimate unfunded liabilities—more than 5.8 percentage points higher than the risk-free rate of return. Such baseless optimism threatens the state’s fiscal solvency.
The problem seems so obvious and easy to solve that one wonders why they don't try something like Wisconsin:

Relative to other states, Wisconsin is in a league of its own with a 61.5 percent funding ratio (using a risk-free rate of return assumption). The next most responsibly managed state pension system, South Dakota, is 13 percentage points less funded than Wisconsin. The state of Wisconsin does far better than others in pursuing retirement security to current and past employees, alongside fiscal responsibility to taxpayers. 
Wisconsin’s relatively high funding ratio is due in large part to the unique design of the state’s hybrid pension. A typical hybrid pension has a traditional DB and a defined-contribution (DC) 401(k) benefit, the proportions of which vary from plan to plan. Wisconsin’s hybrid plan does not have a 401(k) benefit portion, but instead pays an annual dividend based on the health of the pension fund and the age of the retiree.vii Unlike a traditional DB plan, which provides a payout regardless of fund performance, a performance shortfall does not necessitate higher employee and/or taxpayer contributions to make up an additional gap between assets and liabilities. With this hybrid plan, underperformance simply results in a lower annual dividend, avoiding an underfunding issue.

Thursday, July 25, 2019

Why is Spain so successful?

In 1950, Spain was poorer than Argentina, Chile, Mexico, Peru, Uruguay, and Venezuela, and roughly equal to Colombia, Bolivia, Costa Rica, Cuba, Ecuador, Guatemala, and Panama. This is 11 years after the end of the Spanish Civil War, and Spain of course stayed out of World War II.

 Now it is the richer than all of them.
The [1959] “stability plan” broke an inward-looking development model with growing barriers to trade that had been followed since 1874. ... The combination of macroeconomic stability, freer flow of goods and capital, and stronger state capability triggered several decades of fast economic growth.
To a considerable extent, the economic history of Spain since 1959 is a textbook example of modern economic growth: get a few institutions right and ride them into prosperity. European transfers after Spain joined the E.U. in 1985 are a rounding error. And joining the E.U. was the consequence of growth, not the cause.
Interestingly enough, Cuba had the same income per capita than Spain in 1959 and better literacy, education, and many other indicators. A few decades of ignoring markets and see what happens.

HT:  MarginalRevolution.com

Monday, July 22, 2019

Find the problem before you own it

All of these companies could have benefitted from the advice of Chapter 19, "Anticipate adverse selection."  
  • in 2016, Marriott acquired Starwood for $13.6 billion, unaware that Starwood's reservation system had been attacked which exposed personal data of nearly 500 million of its customers.
  • In 2017, Verizon discounted its original $4.8 billion purchase price of Yahoo by $350 million after it learned--post­ acquisition--of the latter's data breach exposures. 
  •  In 2016, Abbott announced the acquisition of St. Jude Medical, a medical device manufacturer based in Minnesota, only to learn of a hacking risk in 500,000 of St. Jude's pacemakers a year later in 2017. Abbott ending up recalling the devices.    
BOTTOM LINE:  when purchasing an item of unknown value (you don't know whether a target acquisition has hidden liability associated with data breaches), anticipate that the target may have better information than the acquirer which would make the target more likely to sell because the target knows it is not worth what the acquirer has offered.  Acquirers should "find the problem before they own it." (HBR Article)

Evidence that acquirers are anticipating adverse selection:  After the EU adopted stricter liability associated with data breachers in the form of GDPR, venture capitalists were less likely to invest in startups or and a number of deals fell apart:
  • One study estimated that venture capital invested in EU startups fell by as much as 50 percent due to GDPR implementation. (NBER)
  • “55% of respondents said they had worked on deals that fell apart because of concerns about a target company’s data protection policies and compliance with GDPR” (WSJ)
HT:  Danny Sokol & MarginalRevolution.com

Saturday, July 20, 2019

The alternatives to agreement determine the terms of agreement

AT&T's DirectTV (distribution) has failed to reach agreement with CBS (content).   The absence of CBS programming on DirectTV could cause DirectTV to lose subscribers:

CBS could gain more leverage during negotiations if the blackout drags on for more than a month. CBS has rights to broadcast National Football League games, popular programming for viewers across the U.S. CBS coverage of the regular season starts on Sept. 8, with the preseason beginning on Aug. 18.

However, DirectTV has some alternatives to CBS programming.

A person familiar with AT&T’s plans said the company is planning to direct its customers toward alternatives such as Locast and local channel connector devices that will allow them to watch NFL games.
 These alternatives to agreement will ultimately determine how profit is split between AT&T and CBS

Thursday, July 18, 2019

Why do innovative "clusters" form?

Interview with Economist Enrico Moretti suggest three factors that lead to manufacturing agglomeration are much stronger for firms engaged in innovation:

The first one is the existence of knowledge spillovers, also known as human capital spillovers: the fact that our human capital depends not only on where we go to school and how much schooling we get, but also on the people who surround us and from whom we learn. 
The second one is the matching advantage offered by thick labor markets. ... For example, if you are a biotech engineer specialized in, say, biofuel and you work in Silicon Valley, where at any moment in time there are a thousand biotech firms looking for biotech engineers, you are more likely to find the one that studies biofuels ... A better match ... results in higher productivity. 
The third channel is the thickness of the market for specialized services. Again, if you are in an area where there are many other firms like yours and they all need a very specialized type of vendor, you are more likely to find it in an area where there's a big agglomeration of firms in the same sector. 
All three factors exist in manufacturing, of course. But they are much stronger for firms and workers that engage in innovation.
In computer science, the top 10 cities account for 70 percent of all the innovation, as measured by patents. For semiconductors, it's 79 percent. For biology and chemistry, it's 59 percent.
HT:  MarginalRevolution.com

What's the best way to provide opportunity?

Good profile of economist Raj Chetty who finds that housing vouchers which allow poor families to move to "opportunity" neighborhoods, help younger kids catch up to richer peers.  President Trump signed a bill that uses the research to guide policy:

Tenants have just started moving, but the program is already successful: The majority of families who received assistance moved to high-opportunity areas, compared with one-fifth for the control group, which was not provided with the extra services. Chetty estimates that the program will increase each child’s lifetime earnings by $88,000. In February, President Donald Trump signed into law a bill that provides $28 million to try similar experimental programs in other locations. 

However, Chetty still doesn't know what makes neighborhoods better:

For example, the strongest correlation is the number of intact families. The explanation seems obvious: A second parent usually means higher family income as well as more stability, a broader social network, additional emotional support, and many other intangibles. Yet children’s upward mobility was strongly correlated with two-parent families only in the neighborhood, not necessarily in their home. There are so many things the data might be trying to say. Maybe fathers in a neighborhood serve as mentors and role models? Or maybe there is no causal connection at all. Perhaps, for example, places with strong church communities help kids while also fostering strong marriages. The same kinds of questions flow from every correlation; each one may mean many things. What is cause, what is effect, and what are we missing? 

HT:  MarginalRevolution.com 

Tuesday, July 16, 2019

Does a rising tide lift all boats?

Not according to the economists advising Democrats.  Despite overwhelming evidence that growth helps all people,
...The unemployment rate for black workers in June was 6.0%, a tick above the lowest level recorded since the government started collecting such data in 1972. The black labor-force participation rate has risen in recent years, meaning a greater portion of working-age African-Americans are looking for work.

The Democratic consultants (experts in "stratification economics") seem to be eschewing growth in favor of policies to reduce racial disparities:

The white unemployment rate in June was 3.3%. Gaps persist in income, poverty and home-ownership rates. The main argument of Messrs. Darity and Hamilton’s work is that those differences are so entrenched they outlast economic cycles.

And they didn't think much of President Obama's administration:

They viewed the Obama presidency a missed opportunity. They bristled at Mr. Obama’s suggestions that a black culture disparaging academic achievement as a form of “acting white” played a role in African-American struggles. During the 2012 campaign, Mr. Darity told PBS that he wouldn’t vote for Mr. Obama’s re-election. 
Messrs. Darity and Hamilton were early advocates of reparations for descendants of slaves, which they saw as the most direct and comprehensive way to address wealth disparities.

For Democrats looking for an alternative to identity politics economics see the discussion below on expanding the Earned Income Tax Credit.

HT:  Marginal Revolution

Monday, July 15, 2019

Competition among states for businesses

In the 1980's, when I began teaching, little or no attention was paid to customers (students).  That changed with the national rankings of colleges.  The rankings drove demand, which began a competition, especially among private business schools, to rise in the rankings.

Now a similar ranking of the best states in which to start a business may start a similar competition, like the "bidding" for a new Amazon Headquarters.  Here are the losers and winners:
The results are hardly surprising: High-tax, Democrat-controlled states in the northeast offer some of the worst conditions for businesses, while low-tax states, Republican-controlled states in the Sun Belt have some of the best conditions.

Friday, July 12, 2019

Does decreasing Type II errors leads to more Type I errors?

TYPE I ERROR:  False prosecution
TYPE II ERROR:  False non-prosecution

Until 2011, Title IX (the law that prohibits sex discrimination at federally funded schools) was rarely enforced because of a strict standard of proof. That changed under President Obama.  With lower standards of proof and evidence rules that favored prosecution, we should see Type II errors fall, but with a corresponding increase in Type I errors.
Defamation claims are the new legal tool for men to clear their name and get their accuser to drop sexual assault complaints, according to legal experts. The defamation cases usually end in settlements.

“Over the last three and half years, there’s been far more legal action brought by men charged by the institution with a sexual assault violation,” said Saunie Schuster, a lawyer who advises a range of colleges and co-founded the Association of Title IX Administrators. “The trend was for them to file an action against the institution for due process, but along the way, we started seeing them not just going to file action against the institution, but also civil actions against the victims.”

It is really hard to tell whether Type I or Type II errors changed by court filings, as the selection of cases for trial is not random.  In cases like this, the only recourse is to theory, like that taught in statistics class, showing that reducing one type of error causes an increase in the other.


Snack sales jump in states where weed is legal

Wednesday, July 10, 2019

Do incentives imply inequality?

To engage students, I sometimes ask "who thinks income inequality is a good idea?" When no one raises their hands, I follow up with "who thinks incentive pay is a good idea?" Almost everyone raises their hands. Then I ask "who thinks incentive pay leads to inequality?" At this point, debate turns passionate, and my only role is to ensure that it stays civil.

I spent the morning searching for an old Economist article on this topic, and came up with these citations:

AMERICANS do not go in for envy. The gap between rich and poor is bigger than in any other advanced country, but most people are unconcerned. Whereas Europeans fret about the way the economic pie is divided, Americans want to join the rich, not soak them. Eight out of ten, more than anywhere else, believe that though you may start poor, if you work hard, you can make pots of money. It is a central part of the American Dream.

The political consensus, therefore, has sought to pursue economic growth rather than the redistribution of income, in keeping with John Kennedy's adage that “a rising tide lifts all boats.” The tide has been rising fast recently. Thanks to a jump in productivity growth after 1995, America's economy has outpaced other rich countries' for a decade. Its workers now produce over 30% more each hour they work than ten years ago. In the late 1990s everybody shared in this boom. Though incomes were rising fastest at the top, all workers' wages far outpaced inflation.

Other rich countries are watching America's experience closely. For many Europeans, America's brand of capitalism is already far too unequal. Such sceptics will be sure to make much of any sign that the broad middle-class reaps scant benefit from the current productivity boom, setting back the course of European reform even further.

Views of income inequality are divisive. Leftists blame uneven distribution on outside factors, such as poor education and corporate misconduct. Conservatives, meanwhile, tend to view these differences as a fair consequence of an individual’s choices and abilities. These beliefs have little to do with personal wealth: Mr Tuschman cites a California survey in which the poorest respondents were the most likely to say people get what they deserve, and were also the most religious. Yet he fails to explain properly why this might be.

Elsewhere, there is often great reluctance to believe that people are—or should be—motivated much by money. “Britain”, says Hermes's Mr Ross Goobey, “is a smaller, more enclosed society than America, and people still work for position, status, to be part of the great and the good.” Countries, like companies, will remain free to engineer greater or lesser degrees of equality. But there will be a price—as Sweden is discovering, and as Germany has already noticed. As the market for top talent grows more international, so it may force greater tolerance for inequality on countries that have spent half a century trying to root it out.

A second reason Americans may differ in their view of inequality is that they seem not to trust the government to fix the problem—or to believe that this is part of its job. The researchers from Dalhousie University suggest that American respondents tend to be more sceptical about the role played by government in reducing inequality. And when Jan Zilinsky at the University of Chicago randomly exposed a sample of Americans to information about inequality in America, it made them depressed about the issue but no more likely to support cash transfers to the poor. Most Americans may dislike a tax bill that increases inequality. But that does not mean they would support one that did the opposite.

Look around the world and the supremacy of “the American model” might seem assured. No other rich country has so successfully harnessed the modern juggernauts of technology and globalisation. The hallmarks of American capitalism—a willingness to take risks, a light regulatory touch and sharp competition—have spawned enormous wealth. “This economy is powerful, productive and prosperous,” George Bush boasted recently, and by many yardsticks he is right. Growth is fast, unemployment is low and profits are fat. It is hardly surprising that so many other governments are trying to “Americanise” their economies—whether through the European Union's Lisbon Agenda or Japan's Koizumi reforms.

Tuesday, July 9, 2019

Is a Universal Basic Income a good idea?

WSJ editorial arguing for an expansion of the Earned Income Tax Credit (EITC) rather than a Universal Basic Income (UBI). Rather than giving everyone $1,000 per month (this would cost so much in taxes that it would destroy jobs), a guaranteed-income program would offer transfers only to individuals whose monthly income falls below $1,000, thereby coming in at a mere fraction of a UBI’s cost.  By providing "insurance" (when your income falls) as well as "opportunity" (jobs), the EITC seems much better than the UBI.

In the US, the top policy goals should be universal health care, more generous unemployment benefits, better-designed retraining programs, and an expanded earned income tax credit (EITC). The EITC already functions like a guaranteed basic income for low-wage workers, costs far less than a UBI, and directly encourages work. On the business side, reducing the indirect costs and payroll taxes that employers pay for hiring workers would spur job creation, also at a pittance of the cost of a UBI.

Note that economists always evaluate policies like the Universal Basic Income relative to its next best alternative. If the alternative is better, we say that the opportunity cost of the UBI is bigger than its benefits.

Monday, July 1, 2019

Algorithmic Gender Bias?

Last week I got to attend the always enlightening annual ZEW ICT Economics Conference. One of the Keynotes was from the always insightful, Catherine Tucker. In one part of her talk she related that her team conducted an experiment to place a generic ad for a STEM educational program on social media only to find out it was shown much more often to men/boys than women/girls. Algorithmic bias, right!?

Digging a little deeper, they discovered that their bid lost out on the ad auction for females more often because others would bid higher. Ads are placed based on the results of real time auctions for "eyeballs." It turns out that men are cheap (pun intended). That is, women control so much more discretionary spending that they are more heavily courted by advertisers with higher auction bids. The STEM ad bid was the same for men and women and so lost out more often when it had to compete with stronger bids for female "eyeballs."