Category: Equitablog

Should-Read: Douglas L. Campbell: Ancestry and Development: the Power Pose of Economics?

Posted on by Brad DeLong

Should-Read: Douglas L. Campbell: Ancestry and Development: the Power Pose of Economics?: “George Mason… asked me to present my work joint with Ju Hyun Pyun, taking down the “genetic distance to the US predicts development”…

…This has evolved into an Amy Cuddy “Power Pose” situation, in which Spolaore and Wacziarg refuse to admit that there is any problem with their research, and continue to run income-level regressions and write papers using genetic distance which do not include a dummy for sub-Saharan Africa, but exclude that region instead…. The remaining question is how robust the genetic distance-development relationship is in Europe. In fact, there is already a paper, by Giuliano, Spilimbergo, and Tonon, saying that the impact of genetic distance on both trade and GDP in Europe is not robust…. The early drafts of that paper also said something about GDP in Europe, while the published version stripped out GDP precisely because the referees—likely Spolaore or Wacziarg—wouldn’t allow it….

Wacziarg has now posted regressions on his website used by this referee, so I gather that he must be the author… had some very choice words for this paper… “Giuliano, Spilimbergo and Tonon, the authors of this paper are clearly referring to an old (2006) version, which contained numerous errors and imprecisions.”… I’m curious… what kind of “errors and imprecisions”?… I decided to check if Giuliano, Spilimbergo, and Tonon were really that careless, or whether Spolaore and Wacziarg were, once again, wrong… on the metro ride from Dupont Circle to George Mason, I fired up Stata to check how robust the results were when we exclude sub-Saharan Africa….

It’s amazing to me that these two Harvard PhDs would want to continue to push this, and to stake their reputations on this…. They now have written an additional 5-6 papers, it seems, repeating the same mistakes, even after they became aware that their results are not robust…. In their new paper, they’ve gone back to the cross-country income regressions, which they previously conceded were not robust. I guess they were hoping that their comments over at Gelman’s blog (and at Marginal Revolution) would be forgotten. In any case, if Spolaore and Wacziarg want to respond with more gibberish, I’ll yield to them the floor…

Must-Read: Noah Smith: On Twitter @noahpinion: “Nasty tweets are like nasty blog comments…

Posted on by Brad DeLong

Must-Read: Noah Smith gets this 100% right, IMHO

Noah Smith: On Twitter @noahpinion: “Nasty tweets are like nasty blog comments…

…My feed is like a blog. And because Twitter has no way to delete or moderate individual tweets, blocking is the only option for curation….

Blocking isn’t for my own benefit. It’s to protect my timeline and my followers from people who just come to disrupt conversation and create unnecessary bad feelings!… [People muted] still respond to my tweets and engage with my followers, this disrupting the friendly, positive community I want to create in my timeline…

Six Faces of Right-Wing Chain-Forging Economist James Buchanan…

Posted on by Brad DeLong

Steven Teles inquired why I liked Will Wilkinson’s essay How Libertarian Democracy Skepticism Infected the American Right much more than I liked Henry Farrell and Steven Teles’s essays When Politics Drives Scholarship and Even the intellectual left is drawn to conspiracy theories about the right. Resist them as takes on Nancy McLean’s Democracy in Chains http://amzn.to/2zKJygv…

I must confess that I was struck by the contrast between the, on the one hand, enormously generous hermeneutic through which [Steve Teles and Henry Farrell] read James Buchanan and the, on the other hand, ungenerous hermeneutic through which [they] read Nancy McLean….

I see at least six James Buchanans:

  1. The brilliant academic thinker behind the genius insights of Calculus of Consent http://amzn.to/2hF4H5k. It is worth noting that the framework underlying CoC with its emphasis on unanimity at the constitutional stage for any regime that can be just or justified, has a profoundly egalitarian and even Rawlsian bent—a bent that becomes stronger the thinner you make the veil of ignorance and the more averse to risk you make the people behind it. Thus the fact that Buchanan deduces a profoundly anti-egalitarian politics and built from it an intellectual movement that, as Mancur Olson used to say, “has a very strong right but a very weak left wing, and will never be healthy until both are equally strong” from it, is deserving of much careful and thoughtful inquiry.
  2. The academic operator seeking to get money from ex-Governor and U.Va. President Darden for the great public choice research project by overpromising how useful his Thomas Jefferson Center for Political Economy would be in providing intellectual weapons to strengthen the political causes of Darden and his friends.
  3. The academic operator going beyond what I, at least, regard as the permissible academic pale by imposing a political-ideological litmus test on who he invited into the public choice circle—i.e., not Mancur Olson, or any Olson students or potential Olson students (like me, in my younger days). That only “‘Manchester’ liberals who emphasize individual freedom as the central feature of the good society” and “Western conservatives who
    emphasize the importance of Western traditions in preserving the good social order” are invited in is, IMHO at least, in shocking contrast to say, Marty Feldstein’s NBER, where the bet is that an honest intellectual process will show that I am right—and if it shows otherwise, I badly need to know that.
  4. The grandson of Kentucky Governor John Buchanan, offended that Yankees would dare tell southern gentlemen how to deal with their “peculiar institutions”. (And just what are these “Western traditions”? And how near to the core of these “Western traditions” is white supremacy anyway? That the language here is Aesopian is not to Buchanan’s credit.)
  5. The friend of plutocrats or would-be plutocrats buying into the Hayekian idea that political democracy was, fundamentally, a mistake because the plebes would vote themselves bread-and-circuses and so ultimately destroy civilization.
  6. The right-wing activist seeking, in a von Misian or Rothbardian way, to harness and in fact mobilize racial evil to the service of what he regarded as the good of stomping the New Deal and Keynesian economics into oblivion.

I tend to see Buchanan(1) as at least half the picture. (I was, after all, one of the two people at the fall 1986 MIT Economics Department Wednesday faculty lunch after the Nobel Prize announcement willing to say that awarding the prize to James Buchanan was not an obvious and stupid mistake—the other one, IIRC, being Jim Poterba). Our elders had very strong opinions..

Nancy sees Buchanan(6) as 1/3 of the picture, Buchanan(5) as 1/3 of the picture, Buchanan(4) as 1/6 of the picture, Buchanan(3) as 1/6 of the picture, and does not see Buchanan(2) or Buchanan(1) at all.

But, of course, they cannot be separated. They are all in there together.

And I think Will Wilkinson: How Libertarian Democracy Skepticism Infected the American Right overwhelmingly gets closest to the proper balance of anything I have read so far…

Cf., also:

Should-Read: Noah Smith: The “cackling cartoon villain” defense of DSGE

Posted on by Brad DeLong

Should-Read: Noah Smith: The “cackling cartoon villain” defense of DSGE: “The new defense of DSGE by Christiano, Eichenbaum, and Trabandt is pretty cringe-inducing…

…reads like a line from a cackling cartoon villain. “Buahahaha, you pitiful fools” kind of stuff. It’s so silly that I almost suspect Christiano et al. of staging a false-flag operation to get more people to hate DSGE modelers…. Calling DSGE critics “dilettantes” was a bad move. By far the best recent critique of DSGE (in my opinion) was written by Anton Korinek of Johns Hopkins. Korinek is a DSGE macroeconomist. He makes DSGE models for a living. But according to Christiano et al., the fact that he thinks his own field has problems makes him a “dilettante.”…

Dismissive snorting is… a bad look. Why? Because declaring that outsiders are never qualified to criticize your field makes you look insular and arrogant. Every economist knows about regulatory capture. It’s not much of a leap to think that researchers can be captured too — that if the only people who are allowed to criticize X are people who make a living doing X, then all the potential critics will have a vested interest in preserving the status quo…. Christiano et al.’s essay looks like a demand for outsiders to shut up and keep mailing the checks.

Second of all, Christiano et al. give ammo to the “econ isn’t a science” crowd by using the word “experiments” to refer to model simulations…. Everyone knows that model simulations aren’t experiments, so obstinately insisting on misusing this word just makes econ look like a pseudoscience to outside observers…

Shiller CAPE Is Currently Pricing in One Great Recession Every Decade

Posted on by Brad DeLong

Note to Self: Spent the Berkeley Econ faculty lunch talking to Yuriy Gorodnichenko, Pierre-Olivier Gourinchas, St. Matthew the Greater, Dmitriy Sergeyev, and a couple of others about a very wide range of topics, ending with r-star (which Yuriy has to discuss Saturday at the Clausen Center Conference). I left the conversation desperate to figure out how Shiller’s stock-market CAPE index which currently suggests substantial stock market valuation even with a low fundamental safe real interest rate r-star is affected by the low earnings of the crisis years 2008-2011…

Yes, it makes a significant difference:

2017 11 15 Shiller Alternative CAPE

Replacing actual earnings from 2007 on with just flat real earnings until actual earnings catch up knocks the Alternative CAPE index down by 5, from higher than any time save during the High Dot-Com Bubble to lower than during the 1995-2007 part of the Great Moderation era. Taking Shiller CAPE at face value means that your idea of stock market fundamentals is currently pricing in one Great Recession every decade. If you do not believe that, you should not take Shiller CAPE at face value…

2017 11 15 Long Run Shiller Alternative CAPE

Data: http://delong.typepad.com/2017-11-15_shiller_cape_alternative.csv
Notebook: https://www.dropbox.com/s/9vhwu0d26wobpg8/2017-11-15%20Shiller%20Alternative%20CAPE.ipynb

# set up function to import data as a pandas time series dataframe object 

import pandas as pd
import os
from urllib.request import urlretrieve

URL = "http://delong.typepad.com/2017-11-15_shiller_cape_alternative.csv"
FILENAME = "2017-11-15_shiller_cape_alternative.csv"

def get_stocks_data(filename, url, force_download = False):
    if force_download or not os.path.exists(filename):
        urlretrieve(url, filename)
    data = pd.read_csv(filename, index_col = 0)
    return data

# import shiller data as a pandas time series dataframe object
# read it in from web if necessary

stocks_data = get_stocks_data(URL, FILENAME)
stocks_data.rename(columns = {'CAPE’':'Alternative CAPE'}, inplace = True)

stocks_data['Alternative CAPE'].plot()
stocks_data['CAPE'].plot()

plt.title("Stock Market Value as a Multiple of a 10-Year

Lagged Moving Average of Earnings”,
size=20)
plt.ylabel(“Multiple of 10-Yr Average of Lagged Earnings”)
plt.xlabel(“Year”)
plt.xlim(1970, )
plt.legend()

stocks_data['Alternative CAPE'].plot()
stocks_data['CAPE'].plot()
plt.title("Stock Market Value as a Multiple of a 10-Year

Lagged Moving Average of Earnings”,
size=20)
plt.ylabel(“Multiple of 10-Yr Average of Lagged Earnings”)
plt.xlabel(“Year”)
plt.legend()

Medicaid’s financial benefits are larger than previously thought

Posted on by Emilie Openchowski
Supporters of Medicaid expansion celebrate their victory, in Portland, Maine. Voters decided they wanted Maine to expand Medicaid to some 70,000 citizens in a public referendum in November 2017.

Given the costs associated with out-of-pocket health expenses across the United States, it’s no surprise that Medicaid can have a significant impact on the financial health of American families. But new research looks at the extent to which Medicaid has indirect benefits on household financial well-being as well—in the form of expanded access to credit. The new paper released last week by Kenneth Brevoort of the Consumer Financial Protection Bureau, Daniel Grodzicki of Pennsylvania State University, and Martin Hackmann of the University of California, Los Angeles, documents how the reduction in unpaid medical bills led to a sizable boost in credit access, making Medicaid’s financial benefits double that of previous estimates.

Throughout its history, eligibility for the joint federal-state Medicaid program primarily covered low-income children and their parents, as well as those with disabilities. The passage of the Affordable Care Act expanded the scope of the federal piece of the program, providing states with the money to enable Medicaid to cover any adult earning less than 138 percent of the poverty line, or about $16,000. At least, that was the intention. While the Medicaid provision of the ACA was originally intended to be a nationwide mandate, a later Supreme Court decision allowed states to decline the additional federal funding. Today, 18 states have not expanded their Medicaid programs.

Those state decisions enable researchers to assess the effectiveness of Medicaid. By comparing states that expanded their Medicaid programs in 2014 to those that did not, Brevoort, Grodzicki, and Hackmann’s research found that Medicaid expansion reduced the incidence of newly acquired medical debt by 30 percent to 40 percent overall, adding up to a total $3.4 billion in savings two years after the reform was enacted. For individuals who were newly covered by the program, this translated to $900 annually. It is well-documented that Medicaid-expansion states saw an increase in coverage and improvements in self-reported health outcomes. But this new paper demonstrates that families also experienced improved financial well-being due to a decline in medical bills.

While the reduction in household debt is an important aspect of Medicaid’s financial benefits, it is not the only one. Considering the ways in which unpaid debt tarnishes families’ financial health, there are even broader implications for economic well-being. Other research establishes how, in the United States, the uninsured pay only 20 percent of out-of-pocket medical costs, leaving 80 percent of their medical bills unpaid. Some hospitals and care providers absorb the rest of the costs, but if they do not (which is often the case), then the balance is sent to third-party collection agencies and reported to credit bureaus, directly affecting credit scores and individuals’ financial health overall.

The reduction in debt, therefore, can mean immediately better financial health and improved outcomes down the road. Brevoort, Grodzicki, and Hackmann underscore those findings by looking at delinquency rates, which are remarkably lower following the expansion, especially for consumers with subprime credit scores. People in the states that expanded their Medicaid programs under the Affordable Care Act also received more offers of credit and at much better terms compared to those in states that did not. The authors documented major savings due to lower annual interest rates, with an average of about $280 per year for those who were newly eligible for Medicaid.

Brevoort, Grodzicki, and Hackmann find that the financial benefits of Medicaid double once you consider the indirect factors combined with the reduction in out-of-pocket spending They note that they view this estimate as conservative “since it ignores other benefits, including a reduction in hassle costs of collections and legal actions.” Access to credit is crucial to economic well-being and prosperity, whether that’s buying a home, starting a business, or taking out a loan to help finance a child’s education.

Should-Read: Jasjeet S. Sekhon: Causal Inference in the Age of Big Data

Posted on by Brad DeLong

Should-Read: Jasjeet S. Sekhon: Causal Inference in the Age of Big Data: “The rise of massive datasets that provide fine-grained information about human beings and their behavior offers unprecedented opportunities…

…for evaluating the effectiveness of social, behavioral, and medical treatments. With the availability of fine-grained data, researchers and policymakers are increasingly unsatisfied with estimates of average treatment effects based on experimental samples that are unrepresentative of populations of interest. Instead, they seek to target treatments to particular populations and subgroups. Because of these inferential challenges, Machine Learning (ML) is now being used for evaluating and predicting the effectiveness of interventions in a wide range of domains from technology firms to clinical medicine and election campaigns.

However, there are a number of issues that arise with the use of ML for causal inference. For example, although ML and related statistical models are good for prediction, they are not designed to estimate causal effects. Instead, they focus on predicting observed outcomes. Treatment effects, however, are never directly observed, and creating validation datasets where ground truth is known is difficult. Such validation is of particular importance because although ML algorithms have been designed to overcome prediction challenges when the data generating process is unknown, they cannot overcome bias when treatment assignment is a function of variables that are not observed…

Should-Read: Lant Pritchett: The Perils of Partial Attribution: Let’s All Play for Team Development

Posted on by Brad DeLong

Should-Read: Lant Pritchett: The Perils of Partial Attribution: Let’s All Play for Team Development: “There was a growth acceleration in 1993 that created 1.1 trillion in additional GDP…

…Then, there was another growth acceleration in 2002 that created another 2.5 trillion in GDP (over and above the previous). Together, relative to the “business as usual” trajectory there has been 3.6 trillion dollars in gain (this cumulative additional GDP is larger than the annual total of the UK or France of about 2.8 trillion).

What caused this additional gain? Of course, no one is really sure exactly what it was and how to parse out the factors and simplistic (e.g. “trade reform”) explanations are almost certainly, well, simplistic. But something did happen and it almost certainly had to do with deft handling of the macro-economy plus a well-executed shift in strategy towards greater reliance on markets and more openness to the global economy (which is not saying that “laissez faire” was the answer or that India turned into a “neo-liberal” state).

Who caused this additional gain? In order to achieve a national policy shift there were of course hundreds, if not thousands of people who participated in producing evidence, disputing explanations of India’s past growth, examining alternatives for the future. But let me single out one group. The ICRIER (India Council on Research on International Economic Relations) was a think tank founded in 1981 that, according to its 20th anniversary document:

The Indian Council for Research on International Economic Relations (ICRIER) was established in August 1981 as an autonomous, policy-oriented, not-for-profit, research institution. This initiative was intended to foster improved understanding of policy choices for India in an era of growing international economic integration and interdependence….

There is a narrative in which Ford Foundation, a global philanthropy provides some millions of dollars of funding that play some role in creating a think tank that itself then plays some role in providing the conditions in which good policy choices are made that then results in the creation of 3.6 trillion in additional output of Indians. Suppose the Ford Foundation gave 36 million dollars (I have no idea what it really was but I strongly suspect this was the right order of magnitude and I just make it divisible) to support ICRIER….

In a very strange turn of events the organizations and supporters of the wildly successful “team development” are under pressure to sacrifice actions that can produce trillions in gains (in the economy, in education, in health, etc.) through systemic transformation. Instead development actors are being pressured to do only actions for which “rigorous evidence” proves “what works” but that leads inevitably to a focus on individualized actions known to produce at best mere millions—but for which the donors and external development actors can take direct causal credit. But there are real dangers from the perils of partial attribution in which individual actors care more about what they can take credit for than whether there is team success.

Should-Read: Matteo Maggiori, Brent Neiman, and Jesse Schreger: International Currencies and Capital Allocation

Posted on by Brad DeLong

Should-Read: Matteo Maggiori, Brent Neiman, and Jesse Schreger: International Currencies and Capital Allocation: “The external wealth of countries has increased dramatically over the last forty years…

…Much is still unknown about trillions of dollars of capital allocated across the globe. Using a novel security-level dataset covering more than $27 trillion of global securities portfolios we find that the structure of global portfolios is driven, at both the macro and micro level, by an often neglected aspect: the currency of denomination of the assets. If a bond is denominated in the currency of one particular country, then investors based in that country tend to own the vast majority of that bond. This implies that the much-studied home bias in bonds is instead mostly currency bias.

Foreigners’ portfolios are very different from domestic portfolios: foreigners only finance a subset of domestic firms, those that issue bonds in the foreigners’ currency. The dollar and the euro are exceptions to this pattern, with companies in the US and EMU uniquely able to place local currency bonds in foreign portfolios. We uncover a large and pervasive shift in the use of these international currencies starting around the 2008 financial crisis. Cross-border portfolio holdings have starkly shifted away from euro-denominated bonds and toward dollar-denominated bonds…

What does the research show about the need for fair work scheduling legislation in the United States?

Posted on by Emilie Openchowski
A retail employee folds shirts for display on the main-floor area of a Seattle-based outdoor, bike, ski, and clothing company.

Rep. Rosa DeLauro (D-CT) today is hosting a press conference with workers and advocates for fair scheduling practices to highlight her legislation, the Schedules That Work Act. Sen. Elizabeth Warren (D-MA) is the sponsor of the companion bill in the Senate. The legislation is intended to address the unpredictable and inconsistent workplace schedules that affect about 17 percent of U.S. workers, particularly among low-income workers in retail and service-industry jobs. The proposed legislation, for example, would require employers to provide workers with their schedules two weeks in advance and compensate workers who are sent home from a scheduled shift because there’s not enough work for them that day.

The Washington Center for Equitable Growth has spent a lot of time studying the issues surrounding unpredictable work schedules. In a new report for the Hamilton Project on modernizing labor standards for the 21st century, Equitable Growth’s Heather Boushey and Bridget Ansel explain how unpredictable scheduling harms workers’ ability to balance their job responsibilities with other obligations such as arranging childcare. They highlight research done by sociologists Daniel Schneider of the University of California, Berkeley and Kristen Harknett at the University of California, San Francisco, which finds that unpredictable work schedules are associated with household financial insecurity and poor health. You can learn more about Schneider and Harknett’s research here.

Unpredictable scheduling also hurts the firms that engage in these types of employment practices and thus crimps growth in the broader economy. Boushey and Ansel lay out these broader consequences in an issue brief on the subject, in which they highlight research by the University of Chicago’s Susan Lambert that finds managers themselves place part of the blame for high employee turnover (among the stores surveyed for this research, turnover was more than 100 percent for part-time employees) on unstable schedules.

While Congress hasn’t taken action on the Schedules That Work Act, policymakers at the local level in San Francisco, Seattle, and Emeryville, CA, have all passed legislation that penalizes employers for giving insufficient notice of work schedules. Whether federal legislators decide to follow their lead, the research is accumulating that unpredictable work schedules threaten not only the stability of U.S. families but also businesses’ bottom lines. Neither outcome is good for economic growth.