Month: July 2015

Must-Read: Ezra Klein: On Paul Krugman’s Theory of Hipsters

Posted on by Brad DeLong

Must-Read: Ezra Klein: On Paul Krugman’s theory of hipsters: “Krugman suggests that hipsters are signaling a rejection of the workaday bourgeois world by flouting conventional dress codes…

…I think the truth is closer to the opposite: They’re signaling a mastery of the workaday bourgeois world by flouting conventional dress codes. You can find a gentler version of this in Silicon Valley, where hackers proved their skills so valuable that they won the right to dress however they wanted. Eventually, shorts and sandals became something weirdly close to a uniform. To wear a tie to work came to signal that you weren’t good enough at coding, and thus didn’t have the market power and independence to not wear a tie….

I suspect something similar is going on with topknots and tattoos. The trappings of the urban hipster don’t signal the absence of a job but rather the presence of the right kind of job — the kind of job that values your individual, creative talents enough that you can be covered in ink and a lumberjack’s beard and still pull down a comfortable wage. That’s particularly true when you spy the aesthetic in the hipper parts of Brooklyn, which have become wildly expensive places to live. In a city otherwise full of people who became rich at the cost of becoming boring, it makes sense that the residents would develop a way to aggressively signal that they had become rich without becoming boring. Whether the signal is actually true is, of course, a whole different issue.

The alarming deterioration of U.S. household surveys

Posted on by Nick Bunker

A peak behind the curtain that shields the U.S. economic data-making process can be alarming at times. At least, that’s the upshot of a National Bureau of Economic Research paper published earlier this week. The paper, by Bruce D. Meyer of the University of Chicago, Wallace K.C. Mok of the Chinese University of Hong Kong, and James X. Sullivan of the University of Notre Dame, looks at the quality of household surveys used in creating government data sets. Their findings could have important ramifications for the measurement of poverty and inequality, and even more broadly, the creation of economic data moving forward.

A large share of the economic data the U.S. government produces through agencies such as the Bureau of Labor Statistics and the Census Bureau are based upon surveys. Consider the unemployment rate: The rate is calculated using the results of a survey that asks questions of 60,000 households every month. The accuracy of the unemployment rate is dependent upon the ability of the survey, known as the Current Population Survey, to get an accurate sample of the population and to get accurate information from respondents. This is true of other surveys, too, such as the Survey of Income and Program Participation, which gives information on participation in government transfer programs, and the Consumer Expenditure survey, which provides data that helps calculate inflation.

Prior to the new paper by Meyer, Mok, and Sullivan, there has been concern over the quality of household surveys due to a decline in participation. Households, once contacted by the surveyors, are less likely to respond than they were in the past. But Meyer, Mok, and Sullivan argue that this decline in the response-rate is just one of three factors affecting the quality of surveys, and the least consequential for measuring the receipt of government transfer programs.

According to the three economists, surveys are becoming less accurate because of what they call “item nonresponse.” This happens when a household responds to a survey, but fails to answer all the questions. A person, for example, might agree to take the survey but fail to answer the question about the amount received from the Supplemental Nutritional Assistance Program.

Yet “item nonresponse” is not as big of an issue as measurement error. This third problem is the mismeasurement that arises when respondents underreport the amount of assistance they receive from government programs. In this case, a respondent does answer the question about government nutrition assistance, but doesn’t report the correct amount. One of the probable causes of this error appears to happen because respondents have trouble remembering exactly how much they received, as many of these programs are paid out infrequently. According to Meyer, Mok, and Sullivan, mismeasurement is the biggest threat to survey quality, larger than the other two ill-effects combined.

In order to discern the size of these ill-effects on the amount of reported government funds provided to survey respondents, the economists compare survey data from New York from 2000 to 2012 to administrative data that comes directly from government records. The size of the difference is significant. According to their results, at least 30 percent–and up to 50 percent– of the dollar value of electronic payments to recipients of supplemental nutrition assistance are missed. Similarly, 32 percent of the dollar amount of unemployment insurance and 54 percent of workers’ compensation for disabilities suffered on the job are missed.

If survey data are missing this large a share of transfer incomes—economics parlance for any government program that provides assistance of one sort or another to people in need—then perhaps other important economic surveys contain biases. For example, a study by Massachusetts Institute of Technology economist David Autor, the London School of Economics’ Alan Manning, and the Federal Reserve Board economist Christopher Smith finds a fair amount of measurement error in wage variables in the Current Population Survey.

The release of this study by Meyer, Mok, and Sullivan could not be timelier. A bill recently passed by the House of Representatives would increase the use of administrative data, which in conjunction with survey data would appear to be much more useful. Hopefully this will help researchers and policy makers alike get a more accurate picture of how much bias actually existences in important data sets.

Must-Read: Jérémie Cohen-Setton, Joshua K. Hausman, and Johannes F. Wieland: Supply-Side Policies in the Depression: Evidence from France

Posted on by Brad DeLong

Must-Read: Jérémie Cohen-Setton, Joshua K. Hausman, and Johannes F. Wieland: Supply-Side Policies in the Depression: Evidence from France: “The effects of supply-side policies in depressed economies… evidence from France in the 1930s…

…In 1936, France departed from the gold standard and implemented large-scale mandatory wage increases and hours restrictions. This quickly ended deflation, but output stagnated. We present time-series and cross-sectional evidence that the supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one- sector new Keynesian model and with a two-sector model calibrated to match our cross-sectional estimates. We propose an alternative, disequilibrium model consistent with expansionary effects of lower real interest rates and contractionary effects of higher real wages. This model and our empirical evidence suggest that without supply-side problems, France would have recovered rapidly after leaving the gold standard.

Things to Read on the Evening of July 29, 2015

Posted on by Brad DeLong

Must- and Should-Reads:

Might Like to Be Aware of:

Why Americans Are Nostalgic About Manufacturing

Posted on by Brad DeLong

Last month the sharp and hard-working Jeff Spross wrote:

Jeff Spross: Why Americans Are so nostalgic About the Manufacturing Industry: “The U.S. still manufactures a lot of stuff, but most of it isn’t stuff average American consumers buy…

…These days, we mostly make heavy industrial equipment, circuitry, aircraft, and other big and expensive goods and high-end products…. A lot of manufacturing went overseas… so we get imports for a lower cost, which improves our standard of living. People in other, less developed nations get new jobs, which… improves theirs. A win-win, theoretically speaking. Same goes for rising automation…. But the 1950s economy was also a delicately balanced ecosystem… where wages were good, health and pension benefits… plentiful… job security was high…. Globalization gave certain interests and centers of power in our society the wedge and hammer…. Unions became far weaker, business owners and management got much freer hands, and worker bargaining power collapsed. The economic benefits… weren’t broadly shared…. Other Western countries also endured globalization, but managed to keep their levels of inequality lower…. If we’d found some sort of alternative economic strategy for producing those same results, it’s unlikely voters or politicians would be nostalgically lamenting any [manufacturing] decline.

Moving our workers and our capital out of manufacturing could have been a good idea. It would have been beneficial if it were to take advantage of supply from people in other countries who could make things more cheaply. It would have been benevolent to make space for other countries to engage in successful economic development. Those both would have been good things. But there is an “if”. Those would have been good things if and as long as the industries that we were moving people and capital out of manufacturing into were genuinely the industries of the future.

What do I mean by “industries of the future”? The proper industries of the future are those that are pronounced positive spillover is associated with them–working at them and producing in them build skills and knowledge that can be deployed elsewhere in the economy. The proper industries of the future are those in which a value added is high, not in the sense that less-than-fully-informed consumers are willing to pay for them but the people in their right minds will after the fact look back and say: that was worth buying. The big problem with America’s relative shift out of manufacturing since 1975 was that the “industries of the future” that we shifted into–such treasures as high finance, health-care insurance administration, real-estate transactions, and prisons–were such wonderful prizes from the perspective of societal value-added.

Must-Read: Kevin O’Rourke: Moving on From the Euro

Posted on by Brad DeLong

Must-Read: The very sharp Kevin O’Rourke concludes that it is time to throw in the towel on the eurozone. I think it is worth one more throw of the dice: perhaps European macroeconomic stabilization regulation can be moved out of the hands of the Eurocracy in Brussels and Frankfurt and into a more general North Atlantic macroeconomic stabilization regulatory apparatus in Washington. A utopian project? Yes, but worth attempting. If that does not work–or if that is not attempted–I cannot find any holes in Kevin’s logic:

Kevin Hjortshøj O’Rourke: Moving on From the Euro: “European Monetary Union was never a good idea…

…I remember my surprise when, as a young assistant professor, I realized that I was opposed to the Maastricht Treaty…. European integration is a very good thing. But the textbook economics I was teaching showed how damaging EMU could be in the absence of European fiscal and political union. Nothing that has happened since has convinced me that the textbook was excessively pessimistic. On the contrary: it was far too optimistic…. It has been obvious for some years that the “actually existing EMU” has been a costly failure, both economically and politically. Trust in European institutions has collapsed, and political parties skeptical not just of the euro, but of the entire European project, are on the rise. And yet most economists, even those who were never keen on EMU in the first place, have been reluctant to make the argument that the time has come to abandon a failed experiment….

Five years on, the eurozone still lacks a proper banking union, or even… a proper lender of last resort… a higher inflation target remains unthinkable… the German government argues that defaults on sovereign debt are illegal…. Pro-cyclical fiscal adjustment is still the order of the day. The European Central Bank’s belated embrace of quantitative easing was a welcome step forward, but policymakers’ enormously destructive decision to shut down a member state’s banking system–for what appears to be political reasons–is a far larger step backward. And no one is talking about real fiscal and political union, even though no one can imagine European Monetary Union surviving under the status quo.

Meanwhile, the political damage is ongoing: not all protest parties are as pro-European as Greece’s ruling Syriza…. For economists like me, who have balked at advocating an end to the failed euro experiment and favored reform, perhaps it is time to admit defeat and move on. If only anti-Europeans oppose EMU, the EU baby could end up being thrown out with the euro bathwater. An end to the euro would indeed provoke an immense crisis. But ask yourself this: Do you really think the euro will be around in its present form a century from now? If not it will end, and the timing of that end will never be “right.” Better, then, to get on with it before more damage is done.

Must-Read: Mark Thoma: The Politics of Economics and ‘Very Serious People’

Posted on by Brad DeLong

Must-Read: Why is it always the people who work hard to mark their beliefs to market–like Mark Thoma–who are hesitant and worry that their political priors are contaminating their assessment of what policies actually work? Why is it that it is those whose policy views have no contact with reality are those who never think of marking their beliefs their market?

Mark Thoma: The Politics of Economics and ‘Very Serious People’: “There is one government intervention that Democrats often promote that has always been harder for me to justify based upon economics…

…the redistribution of income and wealth. I was one of those people who believed in leveling an extremely uneven playing field, and then letting the chips fall where they may. So long as everyone has an equal chance at success, there is nothing to worry about. But over time, my view has shifted. We should still do all we can to equalize opportunity, but redistribution cannot be avoided. First, there is growing evidence that once inequality passes a critical threshold, it becomes a drag on economic growth. So there is an efficiency argument for redistributing income. Second, it isn’t possible to equalize opportunity without some a priori redistribution. The wealthy have inherent social and economic advantages that perpetuate inequality across generations, and I see no way to solve that without some degree of redistribution through high inheritance taxes or other means.

Third, technological change may doom some households to a meager existence. No matter how hard they try, no matter how much education or retraining they receive, they won’t be able to find jobs that have been taken over by machines and digital technology. That is not their fault, it is an outcome of the economic system itself, and some type of social insurance that augments their income is appropriate in such a case.

I have no doubt that political considerations motivate the views and policy proposals of some economists, particularly, though far from exclusively, those outside of academia. I also have no doubt that my political views influence me in ways that I am unaware of…. But I hope that, to the extent possible, my political views on economic issues are informed by solid theoretical and empirical results. And when the economics and politics are at odds, as they often are on issues such as free trade and immigration, the economics must prevail.

The state of tax progressivity across the United States

Posted on by Nick Bunker

A group of Massachusetts advocates are working to get a ballot measure up for a vote that would create a new income tax bracket specifically for millionaires within the state. Despite the images of “Taxachusetts” that might dance in some people’s heads, the Massachusetts state government isn’t particularly tax happy when it comes to the high earners in the state. Massachusetts currently has a flat income tax where every resident pays 5.15 percent of their income. Adding a millionaire’s tax would make the state income tax system progressive. The income tax is also flat in Illinois, which considered and rejected a millionaire tax in May. (Six other states also have flat income taxes.)

These flat income taxes is one of a multitude of factors which make the overall tax systems in Massachusetts and Illinois regressive, with low-income taxpayers paying a higher percentage of their income than high-income taxpayers. The two states aren’t outliers—there isn’t a single state where residents face a progressive overall tax structure. This is because flat sales, property, and excise taxes often make the overall tax system regressive, even if there are progressive tax rates on personal income.

Regressive tax systems are not unique to Illinois and Massachusetts. The non-partisan Institute for Taxation and Economic Policy releases an annual analysis that looks at the income-distribution impact of state-and-local taxation in the 50 states and the District of Columbia. The 2015 report finds that (as in years past) the combined impact of state and local taxes in every state and the District of Columbia is quite regressive. Take the example of California, another state with a reputation for high taxes. According to the institute’s analysis, the bottom 20 percent of families pay an average of 10.5 percent of their income in state-and-local taxes. The top 1 percent, in contrast pays 8.7 percent.

The extreme example is the tax system of Washington. The state has no income tax and relies heavily on sales and excise taxes. The top 1 percent of families in the state pay, on average, 2.4 percent of their income in taxes. The bottom 20 percent? They pay 16.8 percent of their income.

It’s important to keep these statistics in mind amid all the discussion about the overall tax system in the United Sates. The federal tax system is progressive. But it has become less so since the late 1970s as policymakers have cut taxes, with an emphasis on lowering the top marginal tax rate. The top marginal tax rate in 1979 was 70 percent and had fallen to 39.6 percent by 2014, though this is an increase from its lowest level of 28 percent in 1990.

Looking at the total impact of all taxes—federal, state, and local—shows an overall higher tax burden for everyone, but this increased burden is borne more (as a share of income) by those at the middle and the bottom of the income distribution. So by ignoring the state and local tax system, we get a view of the tax system that understates its burden and overstates its progressivity.

Worm Wars!

Posted on by Brad DeLong
Google Maps

Live from Bullwinkle Plaza: Ted Miguel is 1… 2… 3… 4… 5… 6… 7… 8… 9… 10… 11… 12… 13… offices down the hall. So be warned!

BUT NEVERTHELESS:

My take on this is the same as the very sharp and very hard working Chris Blattman’s: http://chrisblattman.com/2015/07/23/dear-journalists-and-policymakers-what-you-need-to-know-about-the-worm-wars/ http://chrisblattman.com/2015/07/24/the-10-things-i-learned-in-the-trenches-of-the-worm-wars/

  1. One of the things I love about the Internet is that it brought a lot of very smart people to a key intellectual problem, the discussion brought out the central assumptions and claims, and they were answered within about a day or two. See Berk Ozler, for example. My conclusion is that the Kenya deworming results are relatively robust. Yay hive mind.

  2. On the other hand, the hive mind has a tendency to be grumpy, rude, shrill and angry. I found the debate more dignified than some, but vicious at times.

  3. I am guilty as well. I was too quick to suspect and insinuate bad faith on the part of the replicators. I can hold suspicions but I shouldn’t publicly insinuate or accuse without grounds. I am sorry for that.

  4. I do find any big, coordinated media push of a scientific finding to be problematic, to say the least. This drove and drives my suspicion of bias, even if accidental.

  5. To me the big failure in this entire business was by the editor of the academic journal. The competing claims on whether or not the results are fragile or not, and why, should never have been allowed to remain ambiguous.

  6. To me, a glitzy media push undermined the credibility and intentions of the journal further. This is a general problem in medicine and hard science that I do not see as much in social science (where the journals could care less about news coverage).

  7. On the journalist side, I can’t blame any of the writers for not following the finer statistical points. I had trouble myself. But almost none of the journalists read the reply by Miguel and Kremer (published by the same journal) and maybe none called Miguel or Kremer on the phone. I am told I was the first. Tell me if I’m wrong, but isn’t this the definition of sloppy journalism?

  8. I think the deworm the world movement has also tended to exaggerate or selectively quote the evidence in order to justify the cause. GiveWell has a much more balanced account: the evidence is not that great, but it’s good enough. Sort of. I thought GiveWell had one of the best posts. Do read it. http://blog.givewell.org/2015/07/24/new-deworming-reanalyses-and-cochrane-review/

  9. To me, the real tragedy is that, 18 years after the Kenya deworming experiment (which was not even a real experiment) we do not have large-scale, randomized, multi-country, long-term evidence on the health, education, and labor market impacts of deworming medicine. This is not some schmuck cause. This is touted as one of the most promising development interventions in human history.

  10. I also fear for the reputation of replications in development economics. I imagine some of the problems could be addressed by getting more clarity into pre-analysis plans for replications. But the incentives to make mountains out of molehills is huge. Maybe everyone should sign a “no glitzy media push” pledge.