Re: Laffer Curve
Does the following have any bearing on the Laffer Curve discussion? Hammermesh estimated that a 10-percentage point reduction in payroll taxes would lead to a short-term 3 percent increase in employment and a long-term 10 percent increase in employment United States. It sure does. A ten percentage point drop is about a 2/3rds cut in payroll taxes which would be close to a 1/3rd cut in total revenue from income and payroll taxes combined. Obviously that is not going to come close to being offset by a 10% increase in work hours since that would increase revenue by less than 10% of its original value. Further, in my experience this is towards the upper end of such estimates. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Laffer Curve
I'm just wondering if it is even possible for the supply and demand curves to be shaped shaped in such a way that the Laffer curve does not apply to some market. Since you asked... Take an income tax and the very standard constant elasticity formulations for demand and supply (they are called constant elasticity because a one percent increase in the wage always causes the same percentage increase in labor supply (b) and the same percentage decrease in labor demand (a) no matter what the wage is): Ld=D w^(-a) Ls=S [w(1-t)]^b which implies w=(Ld/D)^(-1/a)=(Ls/S)^(1/b) (1-t)^(-1) If I did my algebra correctly with Ld=Ls=L L^(1/b+1/a)=D^(1/a)S^(1/b) (1-t) or L=[D^(1/a)S^(1/b) (1-t)]^(ba/(a+b)) so Revenue=twL=C t (1-t)^[b(a-1)/(b+a)] (C a constant function of D and S) If a is less than 1 (a one percent increase in the wage causes less than a one percent decline in labor demand) and you take the limit as t goes to 1 you get revenue going to infinity - - not exactly a Laffer curve. With an elasticity of demand less than 1 wages rise more than enough to compensate for the reduction in labor supply caused by the tax increase. With these demand and supply equations a little calculus yields the result that the tax rate that maximizes revenue is t (rev. max)=(a+b)/[a(1+b)] which is greater than 1 (which is impossible the way the tax rate has been defined) if a is less than 1. It asymptotes to 1/(1+b) as minus the demand elasticity (a) goes to infinity and 1/a as supply elasticity ( b) goes to infinity (and therefore zero as both approach infinity). From what I remember, typical estimates of a are (a lot) less than 1, but some come in somewhat above it. Typical estimates of b are .1 with very high estimates for aggregate labor supply coming in around .2. Being generous (a=1.5, b=.2) that would give a revenue maximizing tax rate of .94. Another calculation you see is that people assume that demand is infinity elastic in the long run (which follows for small countries in some trade models with constant returns to scale) and compute 1/(1+b) as the revenue maximizing income tax. That will give you the sort of value that one poster mentioned (.8 ish). Note what you have to assume to get revenue maximizing rates down where income tax rates are in thi! s country - - extremely high elasticities of demand along with Ls elasticities of close to 2 or more which are way out of bounds for anything anyone has computed for long run supply (think about what it would imply for what the work week should have done over the last century if elasticities were that high). Another calculation you can perform with these equations is what the effect of a tax increase will be on revenue. With a=1.5 and b=.2 and a tax rate of 33% a one percentage point increase in the tax rate causes about a 29 percent increase in revenues - - obviously not a whole lot of leakage due to decreasing labor supply and demand. The main reason why the Laffer curve takes so much abuse is calculations like this. I don't know of any serious public finance economists who believe that we are anywhere near the point of maximum revenue on most important taxes. Anyone working in public finance knew full well that additional tax revenue wouldn't equal the change in the tax rate times current wL long before Laffer drew his curve on a napkin for Jack Kemp, but those people knew better than to suggest that a tax cut could be self financing. The only cuts I've ever seen where serious arguments were made that they were self financing were capital gains cuts (for example the cut in 78). There was a fall in revenue from capital gains taxes when they were increased in 1987, but that appears to have been due to a huge flurry of selling of assets in December of 86 in anticipation of the higher rates and really says nothing about what the long run revenue effects of the higher rates would be. In my judgement reasonabl! e estimates still suggest that even capital gains tax increases are revenue increasing in the long run. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Laffer Curve
Without understanding the parts I snipped I would like to point out that if *my* tax rate was .94, I would need no more incentive to derive 100% of my income from the underground economy. Or is this just one of those counter-intuitive economic conclusions? Throw me a bone here. ;-) Perfectly reasonable. However, I wasn't trying to answer the question of what the true revenue maximizing tax rate is. Rather I was responding to the questioner who wanted to know if there was any supply and demand system that didn't yield a Laffer curve and I was showing that the very standard log-linear demand and supply curves (constant elasticity of demand and supply) give that result. I then showed what other results you can get from manipulating that model. No one believes that the world is exactly log-linear, and increasing tax evasion with higher tax rates is as good a reason as any to be suspicious of trying to forecast the effects of tax increases much beyond current tax rates. That said, the calculations I proposed that showed: 1) what the current tax yield for an increase in the tax rate is, and 2) what elasticities would be needed to get the revenue maximizing rate down into range of current tax rates, do not involve projection outside the range of our recent experience and therefore are not subject to that criticism. The log-linear demand and supply system can be viewed as first order approximations to any general demand and supply system and is therefore not likely to give you results that are very far off assuming the parameter estimates are correct. In other words, we have no idea what tax rates would maximize revenue, but we do know we are nowhere near them right now - - at least not without brining in other factors besides labor supply and demand. Some people have tried to argue that savings and investment increase substantially with income tax cuts, but I'm pretty sure that CBOs dynamic scoring takes such effects into account and shows almost no significant effect from that at current tax rates. CBO is headed by a former member of Ws Council of Economic Advisors who brought dynamic scoring to CBO and can hardly be called an ideologue of any stripe. There are lots of reasonable objections to raising taxes. You can decide that you don't think that tax revenue is put to good uses. You can believe that ethically taxation is theft. But there is no reasonable argument (at least none that I've seen) that tax increases in any range we've seen in this country don't raise revenue. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Unemployment rates and trade deficits
Hi Cyril, Actually I wrote a review article on this literature over a decade ago. You can find it in my book with Laura Tyson and John Zysman _The Dynamics of Trade and Employment_ Ballinger 1988. I'm sure there are better and more recent reviews, but I haven't kept up with the literature. As you suspect, it is a very well studied question, but not a particularly well defined one. A lot of people have done the exercise of breaking imports and exports down into 70 or so product categories and computing the labor use due to each from an input-output matrix. You take the labor used to produce exports and subtract the labor demand lost due to imports and you get a net labor demand effect of the current account (preferred to the trade balance since it includes services and is thus a more complete measure of economic output involved in trade). It gives you pretty much the same result as taking the trade deficit and dividing it by labor productivity. Problem is, the trade deficit isn't just something that happens to us. It doesn't really make sense to talk about the effect of the trade deficit or the current account deficit since both are as much effects of economic events as causes of them. Take your regression. You get the standard result that deficits are negatively related to unemployment. The standard explanation for that is that when the US grows quickly (relative to the rest of the world) our incomes grow and demand for imports grows more than proportionally with income so the trade deficits worsen. It isn't that the trade deficit is causing low unemployment - - the normal explanation reverses the causation. So what causes the trade deficit and what are the effects of those things on unemployment? I've already mentioned one. When we grow more quickly than the rest of the world we import more and that causes a trade deficit. Another factor that affects the relative demand of foreign vs. domestic goods is the exchange rate - - for us the price of foreign currency that we have to pay to buy foreign goods. For a long time in the 90s the US dollar was very valuable relative to other currencies and this made other country's goods very cheap. There have been studies that show that when some exogenous factor (ie. one that effects things in the system we are studying without being affected by anything in that system) causes the value of the dollar to go up that has a negative impact on US employment, but during the 90s it was the booming economy that was probably responsible for the dollar being strong (more on that in a moment) and the dollar going up in value only partially offset! the effects of the booming economy leaving unemployment very low. But there is a flip side to the trade deficit that also figures heavily in the picture. If we are going to buy more goods from abroad than we sell, accounts have to balance some how. If we are getting more goods and services than we are selling then someone on the other side of the transaction must be willing to take our dollars and hold them. If we don't export goods and services we have to export ownership of American assets to exactly offset the current account deficit. Normally foreigners are only going to be willing to do this if saving money in dollars is a better deal than saving money in their own currency. This could happen for a number of reasons. It could be because our economy is booming and investments in dollar denominated assets like stocks are yielding a good return. It can also happen if our interest rates are high relative to the rest of the world. You sometimes hear that budget deficits cause trade deficits. The normal mechanism for explaining how th! is happens is that budget deficits drive up interest rates which attract foreign lenders who want dollars. They buy dollars with their own currency driving up the value of the dollar and making foreign goods cheap so that consumers spend the extra foreign currency on imports. If a trade deficit is caused by a booming economy or a government budget deficit, it is normally thought that the trade deficit offsets some of the employment creating effects of these exogenous causes (not that a booming economy is exogenous, but whatever the policy or event was that caused the boom would be). But an increase in investment in the US can also happen if the rest of the world has excess savings and there aren't good investments anywhere else, or simply because investments in the US look good because they seem relatively safe, or because a lot of international trade is done in dollars and countries wanting to hold reserves of currency to pay for trade may want to hold dollars. In that case it is possible for foreign investment in the US to have a depressing effect on the US economy by causing the dollar to go up in value. There is yet one more commonly discussed cause of a trade deficit and it is typically thought that it
State IQ and why Libertarians should all become Democrats
Those guys are Marginal Revolution already got to that Economist article:http://www.marginalrevolution.com/marginalrevolution/2004/05/iq_hoax.html So your claiming that the data in the article in the economist can't be found in the Lynn book? I would be very surprised at that. The Economist is not a wild liberal hack journal and they normally check their sources. Also, as much as I disagree with Lynn's conclusions in the book, it is very carefully researched. Further, I've done my own analysis of stateAFQT using the NLSY. The sample sizes are very small, so you wouldn't want to believe the state by state numbers, and although I haven't done the correlation with the Gore vs. Bush vote by state, I can tell you that the South and the West trails the East and the Midwest significantly within race. I would be very surprised if there wasn't a strong positive correlation between Gore vote and state IQ. I saw Sailer's piece on this and although he calls the table phony, heaps scorn on liberals who like the table but don't like to admit that blacks score lower on IQ tests, and provides alternative evidence on the question that the table purports to answer, as far as I can see he never tells us directly that the data on state IQ can't be found in Lynn's book. Has anyone looked? I've read the book and don't remember seeing it, but I could have missed it (its a long book and I would have skipped over a section on US states since I was reading it for the international evidence). Like I said, I doubt the economist would publish the table without checking the book. My point in raising this was not that Republican's are stupid. The data Sailer cites on party identification by years of school is probably exactly reflective of party identification by cognitive ability - - people with little schooling and people with post graduate degrees are most likely to be Democrats while people with college degrees are most likely to be Republican. I suspect that IQ would follow the same U shaped pattern and that the causation of the relationship has more to do with geography than cognitive ability. Bush's support is greatest in rural areas and rural states. That is where you find the most poor whites with the lowest cognitive ability and a lot of the sorts of pathological behavior that has been commented on. Yes, there is a black-white dimension to this (that explains DC in Sailer's NAEP data), but there is the same rural-urban gradient for blacks as for whites, and the tests are just as predictive of the behaviors in question for blacks as whites. What does all this mean? Certainly it does not mean that stupid immoral people vote for Bush. I think the argument of reverse causation is basically right. There can be little doubt that there has been a massive change in social norms over the last 50 years - - a huge shift in favor of individual liberty over social conformity that I would expect most people who subscribe to this list would applaud. I would argue that middle class people have benefitted from these social changes, but the poor have seen their families crumble while their relative incomes have been falling due to economic change. Not surprisingly they feel under assault and not surprisingly they become social reactionaries and "values voters." Because the Democratic party is allied with gay and women's rights movements it can only appeal to these people on economic grounds and the economy isn't bad enough for that to work. So poor, low cognitive ability, states with lots of single moms, divorces etc. vote Republican. What you libertarians ought to be wondering is whether your tax cuts are worth the cost of being part of a Republican party going in this direction. You can't like theidea of legislating fundamentalistmoral strictures.I would also argue that the fiscal irresponsibility that the Bush administration has shown isinherent in this strategy. IfRepublicans started cutting the social programs they would have to cut to pay for their tax cuts it would hurt these poor white constituents andturn them back to theDemocrats (who do you think gets most SSDI, food stamps, TANF - - not urban blacks). I suspect most of you don't like this aspect of the Bush strategy either. So what's a libertarian to do? I suspect that most of you would be much more comfortable in the moderate wing of the Democratic party these days. You would find a lot of people (like me) who would be willing to compromise on things like regulation and taxes(we're technocrats and like efficiency) in order to preserve individual liberty. Moderate Democrats are fiscal conservatives these days (actually they always have been except for a willingness to run counter cyclical fiscal policy). Further, moderates would welcome you. We are all pro free trade and shudder at the gains the anti-globalization people have made in the party in the last four years. I feel I have more in common with many libertarians than I do with the more liberal members of my own
Re: Oscar Political Business Cycle
Sure it does if you think that high box office movies are also likely to be prize winners! Everybody wants to release their film at Christmas, but unless it is really really good you know that you are going to play second fiddle to the good movies. Thus you release at some other time if you aren't going to do well at the box office. - - Bill Bryan Caplan [EMAIL PROTECTED] 01/05/04 01:14AM But this wouldn't explain the clustering of *plausible prize-winners* (many of which are not big grossers) around Xmas. - Original Message - From: William Dickens [EMAIL PROTECTED] Date: Saturday, January 3, 2004 9:55 am Subject: Re: Oscar Political Business Cycle I thought the explanation for the grouping of releases around holidays was that that was when the box office was biggest. Why release movies at any other time? If you have a movie that isn't that great you release it at another time when the competition won't be as strong for first run box office. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens Bryan Caplan [EMAIL PROTECTED] 12/31/03 02:07AM The Political Business Cycle story has not fared well empirically in recent years (though Kevin Grier has done interesting work on Mexico's PBC). But it seems overwhelming in the Oscars. It seems like roughly half of the big nominees get released in December. What gives? Is there any way to explain this other than Academy voters' amnesia? I guess there is a small intertemporal benefit - if you could win Best Picture of 2004 with a January 2004 release, or Best Picture of 2003 with a December 2003 release, the present value of the latter prize would presumably be higher. But can that one year's interest (presumably adjusted for a lower probability of winning due to tighter deadlines) explain the December lump?
Re: Oscar Political Business Cycle
Sure it does if you think that high box office movies are also likely to be prize winners! Everybody wants to release their film at Christmas, but unless it is really really good you know that you are going to play second fiddle to the good movies. Thus you release at some other time if you aren't going to do well at the box office. - - Bill [EMAIL PROTECTED] 01/05/04 01:14AM But this wouldn't explain the clustering of *plausible prize-winners* (many of which are not big grossers) around Xmas. - Original Message - From: William Dickens [EMAIL PROTECTED] Date: Saturday, January 3, 2004 9:55 am Subject: Re: Oscar Political Business Cycle I thought the explanation for the grouping of releases around holidays was that that was when the box office was biggest. Why release movies at any other time? If you have a movie that isn't that great you release it at another time when the competition won't be as strong for first run box office. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens Bryan Caplan [EMAIL PROTECTED] 12/31/03 02:07AM The Political Business Cycle story has not fared well empirically in recent years (though Kevin Grier has done interesting work on Mexico's PBC). But it seems overwhelming in the Oscars. It seems like roughly half of the big nominees get released in December. What gives? Is there any way to explain this other than Academy voters' amnesia? I guess there is a small intertemporal benefit - if you could win Best Picture of 2004 with a January 2004 release, or Best Picture of 2003 with a December 2003 release, the present value of the latter prize would presumably be higher. But can that one year's interest (presumably adjusted for a lower probability of winning due to tighter deadlines) explain the December lump?
Re: Real wages constant since 1964?!
Not my class! I remember laboring for a while under the misimpression that hedonic methods were used for autos (they aren't), but when you took Econ 1 from me I certainly never said the CPI wasn't adjusted for quality. And yes, you can go the BLS web links that I had in my original post and read the technical documentation. This is, and has been for a long time, a major issue that people spend a lot of time thinking about. I think you are remembering your undergraduate education incorrectly (it has been a while Bryan). Some goods don't get any quality adjustment. It is possible that that is what you are remembering. There are cases where there are quality changes and no adjustment, but every index is, and always has been (as far as I know), adjusted to some extent to allow for quality changes. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens Bryan Caplan [EMAIL PROTECTED] 12/04/03 02:43PM Really? Every undergraduate class I can remember listed the failure to adjust for quality as one of the main problems with the CPI. And I don't think they just said it was inadequate. William Dickens wrote: This is completely wrong. The CPI-u is, and the CPI-x was, adjusted for quality changes (see http://www.bls.gov/cpi/home.htm ). The CPI-X doesn't exist anymore. So what price statistic wasn't adjusted for quality changes? They all are. No one (who knew what he was talking about) has ever claimed that they are not adjusted. The common claim is that the adjustments (which are quite complex and differ across different types of goods) are inadequate. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] Infancy conforms to nobody: all conform to it, so that one babe commonly makes four or five out of the adults who prattle and play to it. --Ralph Waldo Emerson, Self-Reliance
Re: Real wages constant since 1964?!
David Levenstam wrote: Yes, the BLS series uses CPI-u to deflate the nominal wage series. Since CPI-u doesn't account for changes in the quality of goods or the market basket, and overstates inflation more the higher the actual rate of inflation, for the inflationary period from roughly 1968-1983 the BLS series understates real wages. Using a better deflator, CPI-x, which accounts for changes in the market basket (though perhaps not for changes in quality) discloses that real wages have indeed risen quite a bit since 1964. This is completely wrong. The CPI-u is, and the CPI-x was, adjusted for quality changes (see http://www.bls.gov/cpi/home.htm ). The CPI-X doesn't exist anymore. It has been replaced by CPI-U-rs ( http://www.bls.gov/cpi/cpirsdc.htm ) which takes all the methodological improvements introduced in the CPI in the last few years and computes what the CPI would have been if those changes had been in place all along (the published CPI-u for any given date reflects whatever methodology was in place at the time of the initial release). The most important change in explaining the difference between the CPI-u-rs and the CPI-u is the treatment of housing during the late 70s and early 80s when rents were much lower than the imputed cost of new housing based on current mortgage rates. There is a very big question as to whether the CPIs current methods for dealing with quality change are adequate. On the one hand there are lots of ways that they probably fail to pick up quality improvements (service industry output is notoriously difficult to measure so quality improvements are very hard to discern). On the other hand, there are clear cases where methods over state quality change. For example, every time a new product is introduced that replaces an old one the entire increase in price is attributed to improved quality rather than treated as a price increase. Since the introduction of a new product is also an opportunity to change the price, one suspects that at least some inflation will get factored into such changes, but will be ignored. Also, a lot of people wonder whether the hedonic methods used to compute the increases in quality of computers isn't overstating those gains (which are a very big part of productivity gains over the last decade). The value of an increase in memory or speed is judged by what those who buy it are willing to pay for it when both old and new machines are being sold, but we know that those who run out and buy the fastest new machine when it comes out probably value speed etc. a lot more than those who don't buy. When the price goes down enough so that everybody buys what used to be the fastest machine the CPI quality adjustment assumes that even the last people to get the fast machine value it as much as the marginal person when the machine was relatively new. Most economists who study these issues think that the CPI (even the new research series) still understates quality change on average though most also think that the understatement is quite modest (less than the Boskin commission's estimates of 2%). However, Janet Norwood (who was BLS commissioner during the last Republican administration) has argued to me that the CPI probably over estimates quality change for the reasons I mentioned above. Her guess was that the overestimate was about 1% or less per year. Obviously 1% error either way for 30+ years is going to make a huge difference in what we think has happened to real wages. Given the methodological uncertainty I doubt we could ever know for sure. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Real wages constant since 1964?!
This is completely wrong. The CPI-u is, and the CPI-x was, adjusted for quality changes (see http://www.bls.gov/cpi/home.htm ). The CPI-X doesn't exist anymore. So what price statistic wasn't adjusted for quality changes? They all are. No one (who knew what he was talking about) has ever claimed that they are not adjusted. The common claim is that the adjustments (which are quite complex and differ across different types of goods) are inadequate. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Cost benefit analysis
Hi Fred, Yes, that is a good question. I think the answer is that it does take a fairly sophisticated economist to write a cost-benefit analysis, but it doesn't take much savvy to know when one is badly biased. Anyone knowledgeable about the topic - - even if they have only a minimal understanding of CB technique - - can tell when analysis is being skewed by biased assumptions. Of course you are also right that it is often very difficult to apply CBA given available information. In those cases CBA can be a guide to what sorts of information is lacking to make a good decision. Let me also back off just a tad from my original pronouncement. There are situations where a cost benefit analysis is irrelevant. A harm is alleged and the proposed remedy for it so cheap that costs and benefits are obvious. The issue in cases such as this is not the CBA but making the case that the harm is real (or isn't) and that the remedy will work (won't work). For lots of issues these are the questions rather than CBA BTW, my academic perspective was honed by working as a senior economist with Clinton's CEA. One of the things I did during my time with the CEA was fight a losing battle with OSHA over the introduction of CBA considerations into some parts of rules-making. For what its worth, it is the pro-regulation, pro-environment, pro-safety crowd that are the most ardent critics of CBA. If you are a libertarian I think that CBA is more often that not your friend. But that is another story... - - Bill Dickens [EMAIL PROTECTED] 02/13/03 11:23PM From: William Dickens Fred, You completely misunderstand my point. If a cost benefit analysis is presented it makes very clear what the assumptions are that lead to the policy conclusions. Bill, I don't think I completely misunderstood. I do apologize, however, as I allow myself to gravitate from your purely academic response back into the real world. Your point is well taken, but my mind was on the earlier question. Is there a practical way for policy makers to assess the reliability and objectivity of CBA? I thought this was an excellent question. How many policy makers do you know that are actually able to understand the necessary variables to arrive at a meaningful assumption in order to evaluate the analysis? I work in government. CBA is seldom used. I would like to see it used more often, but data are relatively sparse due to the disjointed accounting systems and other road blocks (E.g. - collective bargaining agreements). Seldom does a cost center actually represent the work being performed. -Fred Childress - Original Message - From: William Dickens [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Thursday, February 13, 2003 9:33 PM Subject: RE: Cost benefit analysis Fred, You completely misunderstand my point. If a cost benefit analysis is presented it makes very clear what the assumptions are that lead to the policy conclusions. Thus any debate of the question is going to be much better informed and much more closely focused on the issues that matter. Its going to be more logical. I am not saying that a bad CBA trumps a good verbal argument in deciding an issue. I'm saying that as a starting point for a debate a bad CBA is still a good point of departure because it spells out the assumptions and logic that the person presenting it is making. - - Bill Dickens [EMAIL PROTECTED] 02/13/03 05:37PM On Thu, 13 Feb 2003 15:52:43 -0500, William Dickens [EMAIL PROTECTED] said: Any CBA is better than no CBA - - even a badly skewed one. Its the same argument for formalizing theory in economics. It makes clear what your assumptions and logic are and makes it easy to identify areas of agreement and disagreements between opponents on an issue. - - Bill Dickens Did I just read what I think I read? So here is the scenario - a *badly skewed* CBA is used by misguided (do-gooder) policy makers to influence legislation by defeating a more reasonable (logical) argument. This CBA had more traction (the bad science environmentalists had a well funded propaganda campaign) and the resultant legislation ended up killing millions of people (refrigerators in third world countries no longer able to keep food cold or pesticides no longer available to kill mosquitos which carried disease). I find it hard to agree that any CBA is better than no CBA. -Fred Childress [EMAIL PROTECTED] 02/13/03 01:57PM One problem with applying CBA to policy formulation is ensuring reliability and objectivity. Too often, CBA is manipulated for predetermined policy positions. EPA once produced a Regulatory Impact Analysis that contended that benefits from the phaseout of CFCs are $8 trillion to $32 trillion. In such cases, CBA does more to confound, rather than illuminate, rational policy formulation. Is there a practical way for policy makers to assess the reliability and objectivity of CBA
RE: Cost benefit analysis
Fred, You completely misunderstand my point. If a cost benefit analysis is presented it makes very clear what the assumptions are that lead to the policy conclusions. Thus any debate of the question is going to be much better informed and much more closely focused on the issues that matter. Its going to be more logical. I am not saying that a bad CBA trumps a good verbal argument in deciding an issue. I'm saying that as a starting point for a debate a bad CBA is still a good point of departure because it spells out the assumptions and logic that the person presenting it is making. - - Bill Dickens [EMAIL PROTECTED] 02/13/03 05:37PM On Thu, 13 Feb 2003 15:52:43 -0500, William Dickens [EMAIL PROTECTED] said: Any CBA is better than no CBA - - even a badly skewed one. Its the same argument for formalizing theory in economics. It makes clear what your assumptions and logic are and makes it easy to identify areas of agreement and disagreements between opponents on an issue. - - Bill Dickens Did I just read what I think I read? So here is the scenario - a *badly skewed* CBA is used by misguided (do-gooder) policy makers to influence legislation by defeating a more reasonable (logical) argument. This CBA had more traction (the bad science environmentalists had a well funded propaganda campaign) and the resultant legislation ended up killing millions of people (refrigerators in third world countries no longer able to keep food cold or pesticides no longer available to kill mosquitos which carried disease). I find it hard to agree that any CBA is better than no CBA. -Fred Childress [EMAIL PROTECTED] 02/13/03 01:57PM One problem with applying CBA to policy formulation is ensuring reliability and objectivity. Too often, CBA is manipulated for predetermined policy positions. EPA once produced a Regulatory Impact Analysis that contended that benefits from the phaseout of CFCs are $8 trillion to $32 trillion. In such cases, CBA does more to confound, rather than illuminate, rational policy formulation. Is there a practical way for policy makers to assess the reliability and objectivity of CBA? Walt Warnick -Original Message- From: Driessnack, John [mailto:[EMAIL PROTECTED]] Sent: Thursday, February 13, 2003 9:56 AM To: [EMAIL PROTECTED] Cc: [EMAIL PROTECTED] Subject: RE: Cost benefit analysis In defense you can say that almost all of the weapons related spending (Procurement and RDTE budget - almost half of the budget when you consider the spare purchases) is accomplished having gone through some CBA in the process of deciding the approach to develop, procure, and then maintain the equipment. An Analysis of Alternative is required along with estimates (actually by several layers of organizations). The other source to look at would be the Federal Acquisition Regulations (FAR). This policy drives use of CBA for certain purchases. So you could estimate off of this policy! jdd John D Driessnack, PMP, CCE/A Professor, Defense Acquisition University PMT-250/352, DAU Risk/Tools Subject Matter Expert DAWIA PM, Acq Logi, FM Level III NE-Capital Campus, Faculty Department Program Management and Leadership 9820 Belvoir Rd, Building 205, Room 115B Ft Belvoir, VA 22060-5565 703-805-4655 (DSN-655) [EMAIL PROTECTED] FAX 703-805-3728 -Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]] Sent: Tuesday, February 11, 2003 11:16 PM To: [EMAIL PROTECTED] Subject: Cost benefit analysis Does anyone know how often CBA is actually used in making policy? What percent of the federal budget (or state or local) has been determined by CBA? Cyril Morong Yours in Liberty, Fred Childress LNC Region 5 Alt Representative - http://www.LP.org Even if you're on the right track, you'll get run over if you just sit there. -Will Rogers
Re: Cost benefit analysis
Depends on what you mean by used in making policy. As far as I know there are no decisions which are based solely on cost-benefit analysis. Budgeting is done by legislatures so if CBA plays any role there it is in influencing the decisions of legislators. CBA is most commonly used in making regulatory decisions. Even there it is seldom the only criteria, but it is common for regulators and those contesting NPRMs (notice of proposed rule making) to present CBAs. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 02/11/03 11:15PM Does anyone know how often CBA is actually used in making policy? What percent of the federal budget (or state or local) has been determined by CBA? Cyril Morong
Re: income and substitution effect
Hi Alex, I cannot point with conviction to any example of a Giffen consumption good and I don't consider it to be a very important consideration. My claim was not that any demand curves _do_ slope up, but that you want your students to know that it is a logical possibility and what is required for it to be true if for no other reason than to innoculate them against arguments that they may later here that assume only income effects. Also, I always make a point of mentioning Veblen goods since I do think that that is a real (though not very important) phenomena. I always found that if I didn't mention Veblen goods someone in the class would always raise the issue of snob appeal. When I taught principles I would always integrate policy relevant examples into all my discussions and not wait to the end of the course to cover topics. For every concept I would give them a real world application of it. For is I did labor supply and income taxes. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 02/12/03 12:36PM I do agree that one of the few applications of i. and s. effects is to labor supply (this was mentioned in my first post). (This is because labor is one of the few goods where the income effect is likely to be large.) Hence that is the context in which I teach the material. It is appalling, therefore, that most textbooks teach i. and s. effects early on and leave labor supply to an entirely different part of the text. Bill, do you really mean to say that you think that Giffen goods are a real phenomena???! Even the classic, Irish potato famine has much better explanations (e.g. Rosen recent JPE) than in terms of Giffen goods. As to what to teach instead there are many choices e.g. most intermediate classes don't cover the Coase theorem or any law and economics, finance is another topic that could be taught more at the i. level. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Fw: why Iraq? here's one theory
Utter and complete nonsense. The reason the press doesn't discuss the issue is because it is a non-issue. The only necessary harm done to the US by the Euro becoming the world's primary reserve currency (or sharing the status with the Euro) is a loss of a few hundred million in revenue for the Fed. Should OPEC set oil prices in Euros and hold their cash reserves in Euros what would be the real consequences for the US? 1. A tiny increase in risk wrt oil prices (we know its tiny because the cost of currency hedging is minimal). 2. A tiny loss of income for the Fed from being able to print cash and create reserves as cash is repatriated and foreign banks accounts in dollars are reduced. 3. Some tendency for the dollar to depreciate which can be completely offset by slower money growth (this and 2 are really the same thing). Perhaps slightly more foreign exchange risk for companies doing business with countries that cease to peg to the dollar. Will be still be able to borrow in our own currency? Of course we will as we will still have the largest and most efficient capital markets in the world. Will investors pull out of the dollar and move into the Euro? So what if they do? That just means higher returns for US investors in US investments (but don't count on that as money has a way of flowing to where it earns the best risk adjusted returns). Is George Bush worried about the Euro? Please! He probably thinks its a river in the Balkans. - - Bill Dickens
Re: Lott
[EMAIL PROTECTED] 02/06/03 10:30AM I'm quite sure that if this happened with a Brookings scholar he would be fired. It will be interesting to see what AEI does. Hats off to Sanchez at Cato for discovering this. - - Bill Dickens A few years ago, Michael Lerner, the Editor of Tikkun (a very left-wing magazine) was found to be writing the Letters to the Editor himself. Nothing happenned to him. Which shows (if I'm right about Brookings) that we have higher standards of intellectual honesty for our employees than the publishers of Tikkun have for theirs. Now we'll see if AEI does. - - Bill
Re: Lott
Indeed, the main finding from the surveys is not the brandishment result but the fact that guns are used defensively several million times a year (according to Kleck's survey and several others.) Which is highly suspect. It is computed by projecting the fraction of people in a relatively small sample who say they used firearms defensively to the whole population. Anyone who has ever worked with survey data knows that error rates of a couple of percent (at least) on all sorts of questions are common. Both coding errors and reporting errors substantially increase (in percentage terms) the fraction of respondents giving positive responses to questions with very low fractions of positive responses. Think also about how people treat surveys (for example the number of people who say they have been abducted by aliens). I would bet any money that the true fraction of people who use firearms in self-defense (brandishment or otherwise) is a whole heck of a lot lower (an order of magnitude or more) than what is suggested by Kleck's survey. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Lott
While she was Attorney General, Janet Reno commissioned a study to try to prove that private firearms ownership does not deter crime. The commission concluded nonetheless that Americans use firearms .5 to 1.5 million times a year to deter crimes. Given the obvious bias of the study, this conclusion makes the Lott/Kleck numbers quite credible. Can you provide a citation to this study and its methodology? I've never heard of it. If it used survey methods it could have naively produced the same results no matter what the intent of the author. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Lott
How would one estimate the accuracy of self-reports of self-defense? I know in medical research you can assess the validity of self-reported health by doing follow up medical exams or seeing if the respondent dies or becomes seriously ill shortly after the survey. Well one thing one can do is ask if the survey data make sense in light of other sources of data we have. I'm _told_ that if you project the number of certain specific types of crimes that were supposedly prevented, according to the survey, that you get numbers that are many times larger than the actual number of those crimes committed. This doesn't seem plausible given that most people don't carry their guns with them when they are out on the street where the vast majority of crimes are committed. (Since I don't have a cite for this I'm not claiming its true, just suggesting it as a methodology.) Another thing one can do is compare error rates on verifiable items of a comparable nature. For example a lot more people report that they are managers than actually are (as verified by their employers). Since a lot of people would probably consider it heroic to fight of a criminal with a gun I wouldn't be surprised if people engaged in a similar sort of wishful thinking on this question. This approach in particular suggests that _all_ the reports in the survey could easily be in error (which doesn't mean that no one ever uses a gun in self-defense, just that you would need a much bigger sample to find them and accurately calculate the true rate). One could look at published reports of crimes and attempted crimes and look at the fraction of reported incidents in which victims were armed. Of course there is going to be reporting bias, but isn't this why the whole issue of brandishing vs discharging is important? We expect that if people have to discharge their weapons in self defense then we will read about it in the paper and we should be able to get an accurate estimate of how important gun use in self defense is from such sources. Suppose we never hear about cases where criminals are scared off by someone brandishing a gun but we always hear about it when a criminal is shot. My understanding is that reports of the latter are very rare. If they account for 25% of crimes prevented then there aren't many crimes prevented (4x reports), but if 98% of the time all one has to do is show the gun then the number of crimes prevented is 50x the number of reports and is considerably more important. Thus the difference between! 75% and 98% is very very substantive. A difference between 98% and 90% would mean 1/5th as many crimes prevented. Is self-defense just one of those issues where we'll never have decent data? Yes, but that doesn't meant that we can't learn from what data are available. My understanding is that depending on how you come at this issue you reach very different conclusions. If what I have been told by people I trust on these issues is true, there is very little evidence supporting the view that guns are frequently used in defense against criminals other than survey data and anecdote. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Questions about the stagflation episode...
I'm actually not a Kuhnian on these issues, but I am trying to see how far Kuhn's theory goes in accurately describing economic research. Is it really true that there aren't reigning paradigms in meteorology? That is not what I meant. Of course there is. Its thermodynamics. However, to an outsider it looks to impose about as much structure on weather modeling as the notion of general equilibrium imposes on macro-modeling - - that is that the devil is in the details, big models can be less informative than the careful eye of a specialist in local phenomena, and simple models which are consistent with, but not based explicitly on physical theory, do almost as well as very big very complex models with a very tight relation to the theory. Also, I doubt there has been anything that looks like a paradigm shift in meteorology though I suspect there have been changes in fashion with respect to how weather is predicted. I should note that experimental econ seems to be developing in a very Kuhnian fashion. In what sense. I would say its inverted. In Kuhn new ideas come into a profession because young people feel free to work with them while the dinosaurs continue doing what they do. With behavioral economics young people are only now starting to do it after a bunch of people with tenure fought like heck for 20 years to get the ideas accepted. the hallmark of modern physics. Sure there are physical problems where chaos and complexity cause the same sorts of problems that economists have dealing with the economy, but they aren't at the core of the discipline the way they are in economics. Thus I think that a lot of Some core parts of physics deal with complexity - how about statistical mechanics? Is there a macro counterpart to statistical mechanics? Not sure what you mean by this, but I suspect that is exactly what the stochastic mechanics of the typical general equilibrium model is about. But you miss my point. I'm arguing that the phenomena physicists study at the core of the discipline are amenable to sufficiently exact theory and exact measurement that you can have decisive paradigm shifts driven by anomalous research results. Economic theory is not as precise so measurement can't provide the sort of strong evidence that one sees in core physics. Of course Kuhn's point is that research results aren't decisive in physics either. That anomalous results can always be reinterpreted to fit with the old paradigm and that therefore paradigm shift is a social phenomena rather than a purely logical phenomena. However, what I'm suggesting is that sharp divisions between paradigms, and paradigm shifts aren't a good way of thinking about how we progress in economics. One could say that economics has never had a paradigm shift. ! We went from pre-science to science with the marginalist revolution and have been doing normal science ever since. I would argue that pre-1970s macro was fully within this tradition within economics though the connections to price theory were verbal rather than rigorously theoretical and allowed verbal theorizing about behavior that was less than perfectly rational. The changes that took place with respect to micro-foundations in the 70s and 80s may look like a paradigm shift but I would argue that they are not. The changes preserved the fundamental notion that the economy should be thought of as a general equilibrium system with markets moving between equilibriums as shocks impact the system. What changed was the specifics of how the equations of the general equilibrium model were derived, estimated and rationalized. While this didn't represent a sea change in the scientific view of the economy, it did represent a sea change in methodology and a sea change in the relative pow! er of the two main ideological camps in economics. For a while the models where tight ties to basic price theory ensured welfare results that were anathema to interventionist liberals. Since about 1985-1990 things have been swinging back the other way with more and more accommodation of rigidities into mainstream (academic) models (largely driven by the inability of models without such rigidities to fit the data). However, it is my distinct impression that there is still a large gulf between practitioners of the different schools. In this sense I think that macro is still quite fragmented. Talking about paradigms and paradigm shifts obscures what I think is the real dynamic. In the 70s and early 80s a confluence of forces including the difficulty Keynesians had with stagflation, but more importantly the internal drive of the profession to insist on tight connections between rational actor models and empirical research, led academic economists to abandon the old tradition of approximating the macro economy with linear equations meant to captur! e the behavior of different markets without explicit micro foundations. Starting in some sense with the failure of rational
Re: Lott
I disagree on the second point. John Lott's children are just as free to submit reviews as anyone else--and lots of people use false names on Usenet. The more interesting question is whether his son had read the book--but I gather his mother helped with the review, and she surely has. -- David Friedman David, I wouldn't dispute his son's or his wife's right to write the review or use assumed names. However, if any member of my family did that (particularly if they were using my pen name as in this case) I would certainly ask them not to as I would consider it very dishonest. Using a pen name isn't necessarily a breach of ethics, but if the purpose would be to cover up ones personal relationship to the author, it certainly is. That is information that should affect how people reading the review interpret it (I would put less weight on a review of one of my books from my family than from an anonymous third party). Further, if my family went ahead and submitted the review, despite my request that they not do it, I would inform Amazon of their true identities. I would hope that I would do this without any extrinsic incentive simply because it would be the right thing to do, but in part I would do it because I would be scared silly that: 1) people would think that I had written the review and had committed a serious breach of academic ethics (there would be no way to prove that I didn't if the review is submitted from my home computer) . 2) Such a breach of ethics would rightly call into question my integrity and therefore my reliability as a scholar. I wouldn't think it at all unreasonable for people to believe that someone who played fast and loose with truth in one arena wouldn't in others. Most of the value of an academic work is lost if you can't trust the written to accurately represent the facts. If you have to check every footnote and re-run every regression that someone presents in most cases there is little point in reading what they write. 3) The perceived loss of integrity would adversely affect all my colleagues at Brookings as people would rightly ask what sorts of standards Brookings was applying in its hiring. 4) I would therefore expect that the institution would investigate the facts of the matter and finding that I took no action to stop the publication of the deceptive review or to inform the public of its deceptive nature once it was published that I would be fired to protect the reputation of the institution. As I said, it will be interesting to see how AEI responds to this. - - Bill Dickens
Re: Questions about the stagflation episode...
For the most part a fair summary of what I wrote, but I'm not sure that macro is in a pre-scientific state. That's giving both too much and too little credit to the current state of macro. Pre-science implies that eventually there will be a unified scientific theory. For all the various reasons identified in past discussions of social vs. physical science I doubt that social science will ever look like physics. I suspect that we will always be muddling through. When systems reach a certain degree of complexity we have to deal with partial abstractions of the system and in the case of macro-economics I'm convinced that they are inherently seriously inadequate. They will always leave room for judgement and expert knowledge in their interpretation. On the other hand, I think there is fairly wide agreement on the framework that one should use to think about problems in macro-economics. Everybody in main stream economic thinking about macro-problems has a general equilibrium model with capital markets, labor markets, and money markets in mind. The specifics of how some of those markets should be represented and what the rationale is for the representations used is the main items for debate. - - Bill Dickens [EMAIL PROTECTED] 02/02/03 01:48AM IIUC, macro was characterized by multiple schools but there was an outstanding critique that the micro picture was flawed or asbent, which served to undermine one popular school. The anomaly didn't serve to usher in a new macro, but unravel some old science, which still has adherents in a modified version. The new macro is still fragmented and there is no consensus yet. Sounds like an example of science as muddling through. Or in Kuhn's terminology, macro is pre-science - a stage where there is no central idea providing coherence for macro. Fabio On Sat, 1 Feb 2003, William Dickens wrote: None of the above. Macro was already fragmented and remained fragmented after the 70s. Hard core monetarism probably did pick-up some adherents due to the events of the 70s, but the internal dynamic of the profession - - the relentless march of the rational actor model into all aspects of the work of economists - - was probably only speeded by these events. What stagflation did was convince people of the correctness of the Friedman/Lucas critique. This set nearly everyone off on a much more determined search for micro foundations for macro theory. I'll go out on a limb and say we still haven't gotten there. Thus Keynesian theory is still taught to undergraduates and it is what is behind most commercial forecasting models (though they may have some new-classical tweaks here and there). This is why I don't think this was a paradigm shift in the sense of Kuhn because there was no alternative paradigm to take the place of the Keynesian model. ù Bill Dickens [EMAIL PROTECTED] 02/01/03 02:06PM What would be the most accurare description of the economic profession's response to stagflation: 1) Everybody dropped Keynesianism and adopted a new model (monetarism?). 2) Macroeconomics broke up into competing schools, with different concepts and theories. 3) Keynesians kept going, but new economists adopted one or more models. Fabio
Lott
I'm quite sure that if this happened with a Brookings scholar he would be fired. It will be interesting to see what AEI does. Hats off to Sanchez at Cato for discovering this. - - Bill Dickens Scholar Invents Fan To Answer His Critics By Richard Morin Mary Rosh thinks the world of John R. Lott Jr., the controversial American Enterprise Institute scholar whose book More Guns, Less Crime caused such a stir a few years ago. In postings on Web sites in this country and abroad, Rosh has tirelessly defended Lott against his harshest critics. He is a meticulous researcher, she's repeatedly told those who say otherwise. He's not driven by the ideology of the left or the right. Rosh has even summoned memories of the classes she took from Lott a decade ago to illustrate Lott's probity and academic gifts. I have to say that he was the best professor I ever had, Rosh gushed in one Internet posting. Indeed, Mary Rosh and John Lott agree about nearly everything. Well they should, because Mary Rosh is John Lott -- or at least that's the pseudonym he's used for three years to defend himself against his critics in online debates, Lott acknowledged this week. I probably shouldn't have done it -- I know I shouldn't have done it -- but it's hard to think of any big advantage I got except to be able to comment fictitiously, said Lott, an economist who has held senior research positions at the University of Chicago and Yale. Moreover, the AEI resident scholar acknowledged on Friday that he permitted his 13-year-old son to write an effusive review of More Guns, Less Crime and then post it on the Amazon.com Web site. It was signed Maryrosh. His son gave the book five stars -- the highest possible rating. If you want to learn about what can stop crime or if you want to learn about many of the myths involving crime that endanger people's lives, this is the book to get, the review stated. It was very interesting reading and Lott writes very well. He explains things in an understandable commonsense way. I have loaned out my copy a dozen times and while it may have taken some effort to get people started on the book, once they read it no one was disappointed. Lott denied that he was the author of the review, an assertion made on various Web sites that have been tracking the controversy. He said his son wrote it, with some help from his wife. They told me they had done it. They showed it to me. I wasn't going to tell them not to do it. Should I have? Lott's book, which argues that gun ownership deters crime, has been praised by gun advocates and attacked by those who favor gun control. Lott also is a lesser player in the now-diminishing debate over the 2000 elections. In a study two years ago, Lott reported that the decision by the major television networks to call the Florida election for Al Gore before the polls had closed everywhere in the state led thousands of Republican-leaning voters in the Florida Panhandle not to vote. Other researchers dispute his findings, which have been embraced by conservatives as well as by critics of exit polling. Lott said that he frequently has used the name Mary Rosh to defend himself in online debates. The name is an amalgam of the first two letters of his four sons' first names. In a posting to the Web site maintained by Tim Lambert, an Australian professor who has relentlessly attacked Lott's guns studies, Mary Rosh claims to be a former student of Lott at the University of Pennsylvania, where the economist taught between 1991 and 1995. I had him for a PhD level empirical methods class when he taught at the Wharton School at the University of Pennsylvania back in the early 1990s, well before he gained national attention, and I have to say that he was the best professor that I ever had. You wouldn't know that he was a 'right-wing' ideologue from the class. . . . There were a group of us students who would try to take any class that he taught. Lott finally had to tell us that it was best for us to try and take classes from other professors more to be exposed to other ways of teaching graduate material. When a reporter attempted to read the posting to him over the telephone, Lott stopped him after the first few words. I'm sure I did that. I shouldn't have done it. Julian Sanchez, a Cato Institute staffer, is the cybersleuth who tracked Mary Rosh back to John Lott. Sanchez is a blogger -- someone who maintains a Web site where they report and comment on the news -- who had been tracking the debate between Lott and critics of his gun research. He became suspicious about Rosh after he noticed that several of Rosh's online defenses of Lott seemed to track closely with arguments the scholar himself had made in private e-mails to Sanchez and other bloggers. He tracked Mary Rosh's IP address (the computer code translation of the standard e-mail address) to Pennsylvania. I compared
Re: Lott
Writing under a pen name while creating no lies regarding the actual issues involved is a fireable offense?! He represented himself as someone who had taken courses from himself and presented testimonials about his character from that persona. That isn't lying? More to the point. Allowing a family member to submit a review of a book under a false name is a pretty serious breach of academic integrity. - - Bill Dickens
Re: Questions about the stagflation episode...
None of the above. Macro was already fragmented and remained fragmented after the 70s. Hard core monetarism probably did pick-up some adherents due to the events of the 70s, but the internal dynamic of the profession - - the relentless march of the rational actor model into all aspects of the work of economists - - was probably only speeded by these events. What stagflation did was convince people of the correctness of the Friedman/Lucas critique. This set nearly everyone off on a much more determined search for micro foundations for macro theory. I'll go out on a limb and say we still haven't gotten there. Thus Keynesian theory is still taught to undergraduates and it is what is behind most commercial forecasting models (though they may have some new-classical tweaks here and there). This is why I don't think this was a paradigm shift in the sense of Kuhn because there was no alternative paradigm to take the place of the Keynesian model. — Bill Dickens [EMAIL PROTECTED] 02/01/03 02:06PM What would be the most accurare description of the economic profession's response to stagflation: 1) Everybody dropped Keynesianism and adopted a new model (monetarism?). 2) Macroeconomics broke up into competing schools, with different concepts and theories. 3) Keynesians kept going, but new economists adopted one or more models. Fabio
Re: Bubblemania
I have to agree with Alex Bryan. Here is a graph of the SP 500 http://finance.yahoo.com/q?s=^SPXd=ct=5yl=onz=bq=l About a third of the drop occurred before 9/11, a third occurred immediately after 9/11, and the other 2/3rds occurred in the first half of last year. Why 4/3rds? Because most of the drop after 9/11 was recovered over the next few months. But this is silly anyway. 1) I challenge anyone to explain what 9/11 told us that we didn't already know that would explain something on the order of a 40% drop in the rational valuation of the US capital stock! 2) For that matter, what combination of events could have provided information that would lead one to conclude that the PV of future income streams would be 40% lower in July of last year than it was thought to be in July of 2000? It was a bubble. Financial markets aren't fully efficient. Live with it. ;-} - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 01/24/03 02:24PM Alex T Tabarrok wrote: Bryan D Caplan wrote: Another annoying thing about the I told you there was a bubble people is that a good chunk of the stock market crash can be attributed to the 9/11 attacks (more specifically, indirect effects via policy changes). If ever there were a random shock, it was 9/11. Shame on Bryan for asserting such a falsehood. Here is a graph of the Nasdaq market. It is very clear that the crash happened well before 9/11. Gee, Alex, I said a good chunk, not all, or even 50%. And your graph is of the Nasdaq rather than the broad market, and shows absolute levels rather than percent changes. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Limited Liability for Vaccine Makers
Can your friend explain why vaccines are different from other drugs? Everything has side effects. Precisely because the Democrats have such a stake in pushing the interests of trial lawyers the Republicans have the opposite incentive making just about any pronouncements on this topic highly suspect - - particularly when they include one-sided political flames. - - Bill Dickens (DC) William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 11/22/02 07:27AM David: As you seem interested in this issue, here's a reply I got to my vaccine question from my knowledgeable friend, Ron, who is not on this network. Your, Asa The proposal, as I understand it, is not to cap liability for actual damages, that is medical bills, lost future earning cased by death of a working person, burial costs, child care and similar real damages. Real damages are affordable and can be insured against. Rather, the proposal would protect drug companies from punitive damages, which make up most of the awards in recent absurd tort cases and settlements to avert punitive damages, and vicarious liability, the convoluted search for deep pockets seen in many of these abusive tort awards. Vicarious liability generally involves some obscure claim for agency of the party with deep pockets. Since in the case of vaccines, the only deep pocket would be the drug company producing them, no reasonable Board of Directors would allow a major drug company to produce the vaccines without tort protection. There have been several occasions recently when vaccines were needed by the Armed Forces and the natural producers not being able to obtain tort relief by statute and not being able to insure the risk, essentially put the product in the public domain and the DOD funded a no pocket production corporation to make it. The tort situation for corporations is so bad that most Boards would not do this again because of the potential for vicarious liability for the intellectual property or the bugs or the proto-vaccine. The enormous contributions of the Plaintiffs lawyers to the Democratic Party and to four of five key Republican Senators, McCain and Jeffords, before he switched parties, particularly, are intended to prevent tort limits, like those proposed for vaccines. Absent a ban on punitive damages and vicarious liability, big tort awards are a sure thing with any vaccine. And not just from the actual medical problems that are sure to arise. Count on a vaccine syndrome and a jury somewhere in the Mississippi Delta -- LA, MISS or ARK. ** -- The history of all hitherto existing society is the history of class struggles. -- Karl Marx, Manifesto of the Communist Party
Re: Economists job market/search costs
I should note that all my answers are based on 12 years experiencing advising Berkeley graduate students. I'm not sure how well it translates to GMU students. Also, my info is 10 years old. 1. Once you are almost ABD, what is the opportunity cost of prolonging your graduation one more year, as opposed to just taking your chances at the job market right now? Depends on how long you have been working on your PhD. It used to be the case that taking more than 4 years to finish an Economics PhD was seen as a bad sign and going on the market in your 4th year even if your PhD dissertation wasn't that far along was the normal advice. However, it is my understanding that the 4 year norm has been breaking down so that may not be an issue so much anymore. If not I'm sure there is still some marginal penalty in that people who finish early are considered better risks than people who take a long time to finish their dissertation. 2. What is the opportunity cost of trying the job market prematurely, and, worse comes to worse, just cancel the job search if nothing appealing comes about and then try again the year after that? The cost of going on the academic market more than once is huge. If you go on one year and don't get a job you are known as damaged goods (someone no one wanted last time). Since testing the water and then pulling out is not the norm this hurts. Avoid doing it at all cost if you want a good academic job. If you are in some other market where people aren't watching who is coming out of where every year I doubt it would matter. 3. What is the benefit, at the margin, of going into the market with say one, two, or zero publications? (For instance, perhaps the market is so tight that the marginal benefit is not that big--after all, low-tier institutions may not be that different.) Having publications before you go on the market can make a very big difference. At least 10 years ago very few people did and having published work was taken as a very strong signal. However, most hiring committees can probably do the math. Five years with two publications vs. four years with 1. But who are you kidding. You really don't have a choice. If you go on before your advisor tells you to our don't do it when your advisor tells you to you are going to get your advisor ticked off at you and then you will never get a job anyway. - - Bill Dickens
Re: Return to Education and IV
If the decision is literally a no-brainer, then failing to consider alternatives is rational. ??!!! Not if they make the wrong choice! OK, I suppose you are going to argue that all the people who didn't have a clue what the return to continuing their education was are the ones for whom it was a no brainer and the ones who were about to drop out all answered my questions correctly. I can't prove that wrong but do you really believe that was what was going on? Marginal students frequently weigh continuing vs. dropping out (just like they weigh attending vs. not attending!). Agreed, but it is my contention that they don't deal with the future returns in a way an economist would judge as rational. Incidentally, most of your arguments (here and later in this discussion) suggest that people over-estimate the return to education. Is that your real view? If you ask people to think about it my guess is that the average person attending a four year college will give you a response suggesting that they over estimate how much money they will make either when they graduate or if they drop out. The only evidence I have on this (my survey of Berkeley undergrads taking intermediate macro) suggests that they over estimate the percentage return as well. However, I don't think people act on this information. It is my strong impression that people tremendously overweight their current feelings of happiness or unhappiness about being in school so that on net people don't get as much schooling as they should if they were truly utility maximizes. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Return to Education and IV
Of course, very few people, if any, are profoundly rational optimizers, but they are approximate optimizers. This is always the response of mainstream economists when one points out that people obviously are not behaving as models predict. Unfortunately, for a lot of people that is where the discussion stops. The assumption seems to be that all one has to do is add an error term to the prediction of the standard model and all the rest of the results about optimality etc. go through approximately. I think in a lot of cases that isn't right. Fifteen years ago I was relatively lonely in making this assertion and trying to systematically work out the implications of various types of irrationality. Today I've got a lot more company. Economists in general would do well to note that for a wide range of policy questions approximately rational is a far cry from fully rational and to think carefully about the implications of less than full rationality for problems they are working on. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Return to Education and IV
because I strongly suspect that 1) people have almost no idea how much it will be worth for them to continue in school, Gee, now you're sounding Austrian! No idea? Come on. Just look at how parents groan when their kids talk about the low-earning majors like sociology, and rejoice when they do CS and the like. There's certainly some plausible guesstimating going on, though I agree it could be improved if people knew the PDV formula and used Excel (as I make my labor undergrads do). Note its the _parents_ in your story who are groaning, not the kids. OK, I'll admit that the no idea was based on what I know it was like when I was going to college in the 70s. However, it is still my impression after 13 years of teaching college that the vast majority of college students not only have never done a present value computation about their decision to go to school, but have never seriously considered the alternative of not going to school - - what they could do, how much they could make, what their lives would be like etc. 2) most people's decisions about schooling have to do with how much they like it vs. how much they like whatever the alternative is (and are therefore fairly short sighted), How much they like it is in turn heavily influenced by how good they are at school - an indirect channel for ability bias. Fine. I'm happy to acknowledge that ability affects decisions to go to school, but my contention is that the decision is more of a present trade-off decision than a future vs. present trade-off as the standard economic analysis maintains. At least my experience with school is that most college kids are looking forward to $$$. They almost never compare current fun of school with current fun of work. Are you thinking only of economics majors? Business and economics majors (some) think this way. Do you think the average lit major is? Psych? Pol. Sci? 3) 2) is heavily influenced by whether mom and dad are willing to pay for you to go to school (or someone else is), and True, though it's not clear what the relevance is. Standard economic model assumes that most of the costs are forgone earnings. Mom and Dad paying for school should be small potatoes (since you can always go to a state school at low cost). My impression is that this factor ways in people's decisions way out of proportion to its economic value. 4) whether mom and dad are willing to pay depends on their own views about the return to education and their bequest motive and has nothing to do with any discount rate. ??? Isn't their view of the return to education a view about the discount rate? Well I suppose if you believe in perfect capital and education markets with completely rational and identical consumers it would have to be, but otherwise why would you think that the return to education would have anything to do with an individual's discount rate? But more to the point, I doubt that parents are making any sort of intertemporal comparison in paying for kids school. How many do you think have thought Well, if I invest the money I'm paying for the kids school in corporate AAAs at 6.5% his income from my bequest will be $XX, in 20XX whereas if I pay for his school it will be... No way. What they think is better to teach a man to fish than to buy him fish... or something like that and they fork over the bucks to U. Not the economic model at all. - - Bill — William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Return to Education and IV
The history majors knew they'd make less with a history degree, on average, but placed a higher value on doing something they enjoyed then on having a higher income. Yes, but did they know how much of a difference it would make? I once did a survey of students in one of my undergraduate economics classes about their knowledge of gains from additional years of education. What I found was that: 1. They thought the average HS graduate made about 30% more than that person actually makes, 2. They thought the average family income was 50% above what it actually was at the time, 3. They thought that going to college would double their income (and would do the same for anyone - - this was early 80s before the big gains so it wasn't anywhere near close) 4. The standard deviation of their estimates of the _average_ return to attending college was over 15 percentage points. Of course I'm sure that they actually knew the answers perfectly well, but couldn't be bothered to answer my questions accurately being the profoundly rational optomizers that they are... ;-} - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Return to Education and IV
But controling for IQ isn't warranted if years of schooling is endogenous. Kevin Lang has written extensively about these issues. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/17/02 19:46 PM Alex T Tabarrok wrote: Bryan's question, however, can be rephrased as not how do you explain the data (low ability bias and high discount rate bias) but why is it that ability bias appears low? Ability bias isn't really low. Using the NLSY data, for example, controlling for AFQT scores reduces the naive estimate of the return to education from 12.6% to 7.5%. Ability bias *after* controlling for intelligence might be low, though. In other words aren't there good grounds for thinking that ability bias is large? And if so how is it that this doesn't show up in the data? Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366 -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Return to Education and IV
As I remember the standard neo-classical answer to this is that the main source of endogenaity isn't ability bias but discount rate bias - - that people with below average discount rates get more schooling. So if the question you want to know is the effect of attending high school vs. only going through the 11th grade for the average person the return appears lower if you don't take into account that the average discount rate of people who drop out at 11 is much higher than the average discount rate of those who finish high school. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/16/02 02:13PM I've occasionally heard that instrumental variables (IV) estimators of the return to education yield markedly higher estimates than OLS. Is this true? And how can this make any intuitive sense? If IV is correcting for endogeneity, you would expect things to go the other way. Why? With a medical treatment, you would expect endogeneity to understate the benefit, because sicker people are more likely to voluntarily seek treatment. But with education, you would expect endogeneity to overstate the benefit, because able people are more likely to voluntarily enroll. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
RE: Journal response times
OK, but I've never had a paper turned around in less than 6 months (and often it has taken up to a year) at any journal except the QJE. Also, you can't divide time to publish by 3 since most of the time there is only 1 revise and resubmit and in my experience more papers are accepted on the first submission than go for two revise and resubmits. Also in my experience (and that of my friends) the top journal s are the worst for turn around. Econometrica kept one paper of mine for 14 months. A friend had a paper go three rounds at AER and that took 3 years. I wouldn't be surprised if a lot of bad papers get rejected quickly and that would bring down the average turn around time a lot. But that is irrelevant if you are submitting a good paper that is eventually going to be published. Then you care about the time to publish and its disgraceful at nearly all economics journals. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/15/02 12:00AM My original statement was not about about time to publication, but turn around time - ie, the time it takes to return a manuscript to author with referee comments. I opined that turn around time for well staffed journals was in the 3-6 month range for the faster social sciences, but much longer for other fields. As another poster noted, if you assume that accepted papers need at least 1 revision, you should multiply that by 3 and then you get the numbers cited in an earlier post - minimum 18 months. This was my estimate for the top journals, which get money for staff. Smaller journals have less money, which translates into a tired editor with grad student assistant, resulting in longer turn around times. Your experience of 14 months for a psych journal is in fact normal, and much better than fields like history, math or literary studies. Perhaps the absolute fastest is experimental physics, where claims of first discovery matter, and stuff is rushed to print in a month or two. Once you work in journal publishing, you soon realize how friggin' hard it is to get stuff reviewed and then 14 months to publication (or even two years) starts to seem reasonable. Fabio I wouldn't if I were you. My submission to Psych Review with a revision took 14 months from submission till it appeared in print. I've never made it into print in a refereed economics journal in less than 18 months and more typical times are 2 to 3 year. Oh yes. And the editor of Psych Review was profusely apologetic for the refereeing taking so long! - - Bill
Re: patent paper and bepress
Hi Alex, Congratulations and thanks for a very useful report on your experience with BE. I have never read any articles in BE. I hadn't even gone to their website before this. However, I'm a technological dinosaur who still gets hard copies of journals. My RAs barely know what the inside of a library looks like as the first place they turn for any research need is the web. Thus I suspect that e-journals are the wave of the future. I wonder how many people on this list have read an article in a BE journal and how many people have submitted articles. I also have noted a tendency for print journals to both formally and informally move towards the use of e-mail in the refereeing process. This should speed things up, but a lot of the problem is simply conventions. It is my impression that most other disciplines require much faster turn around. I've been dealing with psychology journals a lot recently (submitting and refereeing) and they typically want 1month turn around on referee reports and they consider it scandalous when a report takes more than three months. It happened to me but I suspect I was taxing the methodological acumen of at least some of my referees - - the editor of the journal sent me a profusely apologetic letter because it took them almost 6 months to turn my paper around. As you can imagine I laughed myself silly given the norm in economics. Anyone have any idea why the norm in economics allows referees so much time to do a report? Why its so different from other fields? Is this one of those soft vs. hard field things? Its my impression that the physical science journals all want fast turn around on their referee reports. Anybody know what its like with Anthropology, Sociology, or Political Science? - - Bill Dickens [The DC area one - - not the one with the expert Nobel picks...] William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/12/02 01:40PM Warning: Some shameless self-promotion as well as promotion of bepress.com My most recent paper, Patent Theory versus Patent Law, has just been published by the B.E. journal, Contributions to Economic Analysis Policy. You can find the article and abstract here (abstract is also below) http://www.bepress.com/bejeap/contributions/vol1/iss1/art9/ Contributions is a BE press electronic journal. Here is a report on my experience publishing with them. Like many people I think it is an outrage that referee reports typically take 6 months or even longer. It also drives me nuts when I have to make revisions to a paper that I haven't worked on for a year and need to waste my time refreshing my memory about where the data and code are kept. So I gave the B.E. journals in Economic Analysis and Policy a try and was very impressed. I submitted this paper to them and had two referee reports within 6 weeks and after my revisions were complete had the paper published within a day. Amazingly, *most* of the time from submission to publication was on my clock not on theirs. I also got excellent editorial comments and was able to use their refereeing technology to good advantage. The way the journals work is that with one submission you get simultaneous consideration at four journals ranging in quality and interest. The referee reports come electronically. A very useful feature is that you can anonymously email the referees to clarify any points. I couldn't understand one of my referee's comments, for example, and with a brief email was able to establish that the referee had not realized that a footnote was continued on the next page (either that or it had not printed correctly). I was thus able to solve the problem and easily reassure the editor that I knew what I was talking about - almost impossible to do otherwise. Submitting to the journal can be expensive (when submitting to the journal you agree to write some referee reports for them - also you pay when submitting a revision) on the order of $150 as I recall but was well worth it in my judgment. Key remaining question is whether the journals will be cited by others. The quality of the articles published to date is high and the editors in my experience are very good. Also, they are working hard to promote the journals. My one nagging doubt is whether people may really want a hardcopy. My hope, however, is that these journals take off as they are offering a superior product. Alex AUTHOR: Alexander Tabarrok TITLE: Patent Theory versus Patent Law SUGGESTED CITATION: Tabarrok, Alexander (2002) Patent Theory versus Patent Law, Contributions to Economic Analysis Policy: Vol. 1: No. 1, Article 9.
Re: Unions and Bankruptcy
Freedman and Medoff looked at effects on profits (and concluded that the profit effects almost exactly offset the productivity differences), but I don't know of any study of bankruptcy. I've seen a study that showed that union firms have higher debt-equity ratios. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/11/02 11:45AM I didn't know the answer to this. Does anyone else? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Unions and Bankruptcy
That's Freeman of course. Not Freedman. - - Bill [EMAIL PROTECTED] 10/11/02 01:27PM Freedman and Medoff looked at effects on profits (and concluded that the profit effects almost exactly offset the productivity differences), but I don't know of any study of bankruptcy. I've seen a study that showed that union firms have higher debt-equity ratios. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/11/02 11:45AM I didn't know the answer to this. Does anyone else? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Nobels
I think Harsanyi is still at Berkeley. Also, I think Friedman is now at Stanford. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/10/02 09:27AM This is a rough look at which schools currently have Nobel prize winners on faculty. Do I have any of these wrong? Any additions that need to be made? If this is right, then GMU ties for the 5th highest number of Nobel winners. Eric -- Chicago: 6 Friedman, Coase, Becker, Fogel, Lucas, Heckman Berkeley: 3 Debreu, McFadden, Akerlof MIT: 3 Samuelson, Modigliani, Solow Stanford: 3 Scholes, Spence, Arrow George Mason: 2 Buchanan, Smith Princeton: 2Nash, Kahneman Cambridge:2 Sen, Mirrlees Columbia: 2 Mundell, Stiglitz Baruch, CUNY: 1 Markowitz Harvard Business School: 1 Merton Washington, St. Louis: 1 North Penn: 1 Klein
Re: Why does tenure exist?
Obviously the supply side of the academic labor market values this and is willing to forgo some money compensation to get it. Evidently the cost of producing this amenity for academic employers is generally less than the value to the employees so there are very few schools that don't promise tenure. You might ask why people value tenure so much or why it is cheap for schools to provide it, but again I don't think that is too surprising. Academics value their freedom and tenure guarantees a reasonable minimum income if you decide to think unconventional thoughts for a while or pursue a high risk long term project. On the other hand, academic employers still have a fair amount of power over their employees short of firing them. Three percent inflation a year for a decade takes a nasty gouge out of ones real earnings, and of course tenure doesn't protect you if you seriously misbehave. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 09/18/02 01:13AM Seriously, why does tenure exist at all? I know the motivations for tenure, but why isn't it competed away somehow? I would like to know what economic process ensures its continued existence. Fabio
Re: Partisan fiscal policy
(does anyone in econ still talk about the old concept of aggregate supply and demand?), Judging by the best selling textbooks yes. Most certainly. I haven't looked in the last couple of years, but the last time I did there still wasn't a really good text book that presented undergraduate macro entirely in terms of OLG or RBC models that still dealt with standard concerns about stabilization policy. Most undergraduate instructors still think stabilization policy is important (and since it is a very large part of the discussion of economic events in the press they are probably right) and want to teach it. The IS-LM-AD-AS model is still the best way to explain those concepts. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Savings Rates
You can check the article but that is my memory (I'm at home now and can't check the article myself). When they added capital gains in real estate and equities to the flow of savings to get change in wealth they got high savings rates. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 08/12/02 15:38 PM William Dickens wrote: Gale and Sabelhaus do not answer the question that you ask but they do look at the question of whether savings rates are low if we define savings as change in wealth rather than income minus consumption. They conclude that were (at least at the time of the article) extremely high. They conclude that savings rates were extremely high? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Index mutual funds
Do you seriously find this exercise helpful? Couldn't you just as easily back out the (von Neumann-Morgenstern, I presume) utility function you need to get an introspectively plausible answer? In other words, if you feel nervous with a SD of 20% of the mean, could looking at utility functions really make you feel better about it? Well this is a tad embarrassing. I thought I was using standard values for the coefficient of relative risk aversion, but had messed up its definition so that I was actually using values that were very very low. Using a CRRA of 3, a reduction in the standard deviation of income from 20% to 10% gives an increase in utility equivalent to about a 7.5% increase in income (RV is a normal truncated and + or - 3). Sound more reasonable? However, this does drop off rapidly as you decrease the CRRA. For example, with a value of 1 (the commonly used log utility) it only takes a 1.7% increase in your income to compensate you for an increase in the standard deviation from 10 to 20% of your income. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Index mutual funds
Bryan wrote: Right, but if you want to reduce the SD of your return, you've got to square those numbers - you need 100 stocks to get the SD down by 90%. And isn't that the measure of risk most people vaguely have in mind? Well what I suppose we should be using isn't either the SD or the Var, but the % of the maximum increase in utility that is possible with increasing diversification. Playing around with a few examples it looked to me that the gain in utility was inversely proportional to the decline in variance - - not the SD. However, more surprising than that was the incredibly small utility gain that one obtains by reducing the standard deviation of your income from say 20% of the mean to 10% of the mean. In all the examples I worked out a .1 or .2% increase in the rate of return completely dominated that. In any case, I'd like to thank Bill for the only useful investment information I've learned since the JEL piece on international diversification. Your welcome. Just note that this was never intended as investment advice, your milage may vary, not doing exactly what someone else told you to do will certainly cost you your life fortune and leave you broke and starving, its not my fault, repeat PLEASE DON'T SUE ME! So Bill, if you had to guess, roughly what expected return reduction would you get from (a) standard stock-picking and active trading, (b) managed mutual funds, (c) index funds, and (d) buy and hold with discount brokers? I would still guess that (c) closes 90% of the distance between (a) and (d), but I'd like to hear your guesstimate. Depends on the size of your portfolio. If its $2,000 you might very well be better off with the mutual fund. With a million dollars or more I expect that 90% is almost exactly right (figure zero percentage costs vs. annual costs of .5% of your current net worth in present value terms for 20 years). I use the .5% figure rather than the .17% or .2% figures for the reasons I mentioned in a previous post plus one more I've thought of since then. If you buy individual stocks you are likely to have some losers. You can sell those to take capital losses that you can use to reduce your tax liability for your unavoidable investment income (dividends and interest on fixed income assets). Can't do that if you diversify in a mutual fund. - - Bill Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Why do people pick stocks?
There is another reason howevr. Even the lowest cost index mutual funds have more overhead then you are going to have if you use a discount broker and buy and hold (and they hide these costs Who is the they - mutual funds or discount brokers? And how are they being hidden? I've been told by a Law Professor who works on security regulation that the management fees reported by index funds do not fully reflect the costs they incur for reballencing their portfolio's to match market shares and that the actual costs are a multiple of the reported management fees. It was claimed that if one compared the return on the SP500 to the return on holding the mutual fund the difference in basis points would be larger than the reported management fees. I told this to a stock broker who insisted that that was wrong or that I had misunderstood and that perhaps what the law professor meant was that because the fund incurs capital gains in the process of dealing with fluctuations in invested funds and these have to be paid out and taxed that that would account for the difference between the afrter tax return from holding the market yourself and holding the mutual fund. Take your pick. I don't have first hand knowledge to judge. Discount brokers can really beat a .2% annual fee with no loads on either end? For sure. Most brokerage houses don't have any fees other than fees for trading. Even if you have a round-trip cost of $100 for $10,000 worth of stock (you can do much better than this - - $14 is not out of the question) if you hold it for 20 years you are way ahead of a .2% annual fee. But again, according to my sources the actual difference in performance between holding yourself and holding in the lowest cost mutual fund is a lot more than .2% per year. - - Bill Dickens
Re: Index mutual funds
[EMAIL PROTECTED] 07/14/02 14:19 PM If I want to buy shares in the 500 or so companies on the SP 500, I'll be looking at commissions of at least $3000, right (unless I have a commissionless trading account, which requires a minimum balance of $500,000 or so)? If I hold those stocks for 20 years without ever rebalancing, that's $150/year. $150 divided by .2% is $75,000. What if I don't happen to have $75,000? Should I not invest in stocks at all until I've raised that much money just so I can save on commissions and fees? If I buy 10 stocks and hold them for 20 years, I might pay less in commissions and management fees, but I'm much less diversified, right? There is definitely a point at which mutual funds become less cost-effective than buying individual stocks, but I'm pretty certain you need to have at least $1 million dollars lying around in your stock portfolio for that to be true. I've read in the Wall Street Journal that exchange-traded funds are a better deal than index mutual funds if you have $30,000. If you are able to accumulate $30,000 in cash every month, then mutual funds don't make sense. (That implies a disposable income of at least $360,000 a year). At lower amounts, mutual funds are by far the best choice for convenience, cost, and diversification. Are there any flaws in my reasoning here? James
Re: Why do people pick stocks?
Ie, why do people accept lower returns just for the privilige of picking the stocks themselves? Mostly because they believe they are smarter or more knowledgable than average and will outperform the market. I know some very sophisticated people who believe this (and at least some of them have portfolios that do outperform the market on a regular basis (note that this could be endogenous)). There is another reason howevr. Even the lowest cost index mutual funds have more overhead then you are going to have if you use a discount broker and buy and hold (and they hide these costs - - I'm not talking about the loads or transactions costs you pay for some mutual funds, but the management and trading fees that get deducted form your investment each year). If your portfolio is large enough to allow sufficient diversification you can do somewhat better on your own - - particularly if you want to diversify beyond the SP500. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: double vs. single entry
Does anyone answering here know any accounting or are people just guessing? I pulled out an accounting text I keep as a reference and looked up double entry and single entry and they weren't there. My understanding is that the the invention of double entry accounting refers to the invention of the balance sheet. My vague memory on this is that prior to that invention all people had in the way of accounting was ledgers showing transactions and rather haphazard listings of firm's assets and liabilities. If my memory serves me here the invention of the balance sheet allowed quick and easy insight into the book value of the firm which was not a well defined concept before this. Those who are familiar with accounting principles will recognize this as a big change. You could say that the invention of the balance sheet is the beginning of modern accounting. You could go further and say that there is virtually no useful accounting without the balance sheet and that nearly every other modern accounting concept (income statements and cash flow) are linked to the balance sheet. - - Bill
RE: Consumer Reports on Deregulation
Huh? Why would the _nature_ of quality competition be affected by deregulation? I suspect that it is true that competition was on the basis of both quality of service and attractiveness of flight attendants back in the 60s and 70s, but it was the women's movement, the Civil Rights act (particularly its application to age discrimination) and the flight attendants' union that changed this. Not deregulation. But there is a lot more to quality competition than flight attendants. In flight meals were more substantial and more frequent. Ticket lines were shorter for coach passengers. Major airline employees were more polite. There were lots of give always (decks of cards, airline pins, etc.) Flight attendants with time on their hands would strike up conversations with passengers. I don't know that anyone has tried to quantify this, but I don't know anyone who flew much before deregulation who doesn't think that the quality of service with the major airlines declined before and after deregulation. Given that deregulation seems to have caused fairs to drop in the major markets this is exactly what an economist would expect. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 06/12/02 09:45PM On Bill's pint about quality competition. I've heard that during the days of regulated air travel, airlines apparently competed on the beauty of the stewardesses. I've been told by numerous sourcces (but have no real evidence) that some business magazines would rate the quality of the stewardesses in each airline. If you favor hiring people based on their ability to serve coffee and tea instead of their looks, you might favor deregulation. mitch mitchell - Original Message - From: William Dickens [EMAIL PROTECTED] Date: Monday, June 10, 2002 5:08 pm Subject: RE: Consumer Reports on Deregulation Also relevant is quality and availability of service. Previously pricesmay have been cheap/falling but the range of offering, customer treatment or availability may have constrained enjoyment of the serviceto a sub optimal level. Deregulation could/should change this. (I think it has in my limited experience) Exactly the opposite of what happened in the formerly regulated markets I'm familiar with. With prices fixed at a level that gave most good companies very good rates of return they competed by increasing quality. Quality has declined most noticeably in air travel and the brokerage industry, but arguably in trucking and banking as well. I'm also not sure to what extent the prices charged were also controlledby governments as a macroeconomic tool to reduce measures of inflation? Any thoughts? Since the regulatory agencies tended to be captured by the regulated industry (or at least sympathetic) prices tended to be too high (thus the price declines) rather than too low. As someone else said, the counterfactual is everything. CR is comparing the price declines during the 50s, 60s and early 70s with the price declines in the late 70s, and 80s. Productivity growth was notably faster in the earlier period than the later period. Would prices have declined as much in the 80s in trucking airlines, and phone service if there hadn't been deregulation? From the studies I've seen I seriously doubt it. Of course not everybody's prices decline. Regulation did tend to set prices too low for many low volume markets. In those places prices have skyrocketed. I suspect that some of this is just price rising to meet marginal cost, but because these are also markets with substantial fixed costs (maintaining terminals, ticket agents etc.) there is probably also some element of natural monopoly pushing prices in these markets up above long-run marginal cost. I would guess that there are three factors that account for CR's anguish about deregulation: 1) Their sense of fairness is offended by the big price increases experienced in difficult to serve markets, 2) Coming from the upper middle class as they do, they put more value on quality and are less concerned about price than the marginal air traveler/bank customer/brokerage customer so they experience the change from high q high p to low q low p less favorably than the new people attracted to the market by the change, and 3) deregulating a monopoly may cause an increase in price and to some extent that is what deregulation did (perhaps most notably in the cable industry, small air markets, and certain types of phone service). With respect to 3) don't think I'm not aware of the competition that cable faces from satellite or how contestable air markets are. Imperfect competition and limit pricing still leave plenty of room for monopolistic distortion. I don't think that _the_ definitive study
RE: Consumer Reports on Deregulation
Also relevant is quality and availability of service. Previously prices may have been cheap/falling but the range of offering, customer treatment or availability may have constrained enjoyment of the service to a sub optimal level. Deregulation could/should change this. (I think it has in my limited experience) Exactly the opposite of what happened in the formerly regulated markets I'm familiar with. With prices fixed at a level that gave most good companies very good rates of return they competed by increasing quality. Quality has declined most noticeably in air travel and the brokerage industry, but arguably in trucking and banking as well. I'm also not sure to what extent the prices charged were also controlled by governments as a macroeconomic tool to reduce measures of inflation? Any thoughts? Since the regulatory agencies tended to be captured by the regulated industry (or at least sympathetic) prices tended to be too high (thus the price declines) rather than too low. As someone else said, the counterfactual is everything. CR is comparing the price declines during the 50s, 60s and early 70s with the price declines in the late 70s, and 80s. Productivity growth was notably faster in the earlier period than the later period. Would prices have declined as much in the 80s in trucking airlines, and phone service if there hadn't been deregulation? From the studies I've seen I seriously doubt it. Of course not everybody's prices decline. Regulation did tend to set prices too low for many low volume markets. In those places prices have skyrocketed. I suspect that some of this is just price rising to meet marginal cost, but because these are also markets with substantial fixed costs (maintaining terminals, ticket agents etc.) there is probably also some element of natural monopoly pushing prices in these markets up above long-run marginal cost. I would guess that there are three factors that account for CR's anguish about deregulation: 1) Their sense of fairness is offended by the big price increases experienced in difficult to serve markets, 2) Coming from the upper middle class as they do, they put more value on quality and are less concerned about price than the marginal air traveler/bank customer/brokerage customer so they experience the change from high q high p to low q low p less favorably than the new people attracted to the market by the change, and 3) deregulating a monopoly may cause an increase in price and to some extent that is what deregulation did (perhaps most notably in the cable industry, small air markets, and certain types of phone service). With respect to 3) don't think I'm not aware of the competition that cable faces from satellite or how contestable air markets are. Imperfect competition and limit pricing still leave plenty of room for monopolistic distortion. I don't think that _the_ definitive study on the costs and benefits of deregulation has been done and I very much doubt that CR's study is it. After all, CR used to (still does?) insist that economists have to be wrong about the predictability of capital markets because there are numerous mutual funds that have had 5 or more years of ROR above the market average - - without asking how many would be expected on the basis of chance alone. Thus they used to endorse mutual funds with exceptional records which, of course, tend to be the ones with the riskiest strategies (and by the studies I've seen only infinitesimally better expected returns). Sigh... - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Grade Inflation
I posted a note to this list a couple of days ago about this, I'm not sure it went through. Its been a while since I looked at this, but when I did the information that I found suggested that employers not only don't get transcripts, but they don't even ask grade average information on job applications. Does anyone know of any information to the contrary? It may be changing given some of the other things that are going on in the labor market, but a recent study by Ron Ferguson that surveyed employers about what third of the HS class their workers were drawn from had to be reworded to get the employers to guess when they didn't know because many (most) had no concrete knowledge. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 04/13/02 04:55AM Has anyone done a study on this: Which matters more for employers? Someone who's got high grades and studies in a so-so school or above-median (but not so high) and studies in an ivy league? At 07:17 AM 4/10/2002 -0700, you wrote: --- Robert A. Book [EMAIL PROTECTED] wrote: Isn't this what the GRE, MCAT, etc., are for? Granted, they don't apply to all post-graduate plans, but it's a start. How many employers require applicants having a BA/BS to have taken the GRE etc. before they are considered for hiring? If few do, then it shows the degree and grades are still a sufficient criterion. Fred Foldvary = [EMAIL PROTECTED] __ Do You Yahoo!? Yahoo! Tax Center - online filing with TurboTax http://taxes.yahoo.com/ --- Incoming mail is certified Virus Free. Checked by AVG anti-virus system (http://www.grisoft.com). Version: 6.0.295 / Virus Database: 159 - Release Date: 11/1/2001
Re: Grade Inflation
This discussion has been assuming that employers look at grade averages. Last time I looked into this, very very few employers requested university or high school transcripts or even asked people to report their grade averages on their applications. Asking for GREs would probably get them into trouble with the EEOC and the courts since using tests in hiring is very difficult if blacks and whites score differently on them. I believe the law still requires employers to show that using the test is a business necessity. Does anybody have any evidence that employers are requesting grade averages frequently today? That would be a very interesting result given all the discussion of upgrading of required skills. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 04/10/02 01:13PM --- Robert A. Book [EMAIL PROTECTED] wrote: Isn't this what the GRE, MCAT, etc., are for? Granted, they don't apply to all post-graduate plans, but it's a start. Fred Foldvary ([EMAIL PROTECTED]) responded: How many employers require applicants having a BA/BS to have taken the GRE etc. before they are considered for hiring? If few do, then it shows the degree and grades are still a sufficient criterion. Good point. I'm sure few if any do, which raises an perhaps even more interesting question: Most graduate schools are part of universities which also have undergraduate programs, and most graduate schools require some standardized tests. Does that mean they put less confidence in the degrees and grades they themselves give, than the employers do? There are two caveats to taking that question the way I'd like to. First, I suspect employers use personal interviews much more than graduate schools do; perhaps interviews produce more, or more relevant information than a standardized test. Second, I wonder how the standardized testing community would react to employers wanting to use existing tests for hiring purposes. Surely there is nothing to stop job applicants from taking the GRE, but I don't believe there is any existing mechanism for employers to receive score reports directly from ETS. (Schools seem to want scores from ETS, not from the applicant, probably to prevent forgery.) The absense of such a mechanism may mean there is no demand for the service from employers, or it could mean the suppliers refuse to supply for some reason. --Robert
Re: re : securities analysis
But the real question is whether there were any clustering in the attributes of the minority who consistently beat the market. If there is a strong clustering of attributes (they ate the same brand of corn flakes for many many years or went to the same school or followed the principles of the same Guru of investing or whatever ...) obviously then there is some causal variable that may explain the phenomenon and it would not be scientific to dismiss this clustering by taking the argument that majority under performs the market anyway. There is strong evidence against clustering. Clustering would imply that there should be a fairly strong correlation between who outperforms the market in one year and who outperforms the market in the next. A study done a few years ago (NBER working paper - - I don't recall the authors) showed that there was a statistically significant, but vanishingly small, correlation in the performance of publicly traded funds from one year to the next. So you can increase your expected return a tiny bit above the average for all mutual funds by picking a fund that performed well in the previous year, but from what I remember it wasn't enough of a gain in expected performance to overcome the under-performance due to over-management [*whew*]. So then what should we make of the fact that several people who follow a particular strategy have all done well? Nothing at all. Suppose that I profess to the world that the thing to do today is to own gold and drug stocks. Suppose that I happen to get lucky and those two assets do particularly well over the next five years. Would anyone be surprised if dozens of people from the golden-drugs school also did well? In the example cited above one would need to look deeper. Have all these people done well picking different stocks using the same principles or does the fact that they ascribe to the same principles mean that they have all picked mostly the same stocks and therefore had highly correlated returns? If the latter then there is no more of an insult to efficient market theory than if one person had done very well for the same length of time. And in a market with lots of participants that will happen frequently. All that aside, there is evidence that value investing works and that is an anomaly. However, as I recall, the increase in expected returns that one gets by following such a strategy are measured in basis points, not percentage points as some advocates of this approach would suggest. One other thing. I very much liked Alex's thoughtful commentary on this. As he noted, there are lots of anomalies that can mean that stocks are badly mispriced, but that doesn't necessarily mean that there are guaranteed excess returns out there. This was the point of Summers' old noise trading model. You can have market equilibrium with irrational traders dominating the market, but the additional risk that their behavior induces in the market exactly offsets the increase in expected return that is created by the mispricing that they cause. This possibility was made all too clear to me when I took a $20,000 short position in Amazon.com - - a year too early. I haven't met anyone who will argue that Amazon wasn't over priced at that time, and if I hadn't been forced to abandon the position or face bankruptcy I would have made money. However, I couldn't afford the margin calls and ended up losing a lot of money on the deal. Insult was added to injury when a year after I was forced to abandon my position I had to sit at a dinner table listening to someone brag about how much money he had just made shorting Amazon.com, and about how stupid participants in the stock market obviously are. When I asked him how he had decided when to take his short position he cited an argument with another person over market efficiency as the precipitating incident - - in other words dumb luck. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: re : securities analysis
But those who bought long-term put options (LEAPs) on Amazon could lose no more than than their financial investment, and the put options could be held or others bought until the downturn, with no margin calls. The Longest term option that was availale wouldn't have gotten me far enough to have made money and the premium was _huge_. - - Bill
Re: re : securities analysis
So Bill, are you willing to stick your neck out regarding the January effect? Thaler says average ROR in January is 3.5%, versus an average of .5% for all other months. Is this another case of basis points being exagerated into percentage points? So if you invest in stocks in January and bonds the rest of the year and the bonds earn 80% of the average annual return of stocks you get ~10.5% return vs. 9.3% from stocks vs 7.2 from bonds. If most of the volatility in stocks is in January as well you don't save much on risk premium. Not hard to imagine that the tax cost of getting in and out of stocks every year could dominate an extra 1.2% return. That plus I thought I remembered that Thaler's January effect has been more subdued since he wrote his article. Thaler advises a fund and I haven't heard that it is head and shoulders above other funds. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Disaster Raises Happiness, Trust
Indeed, the ease with which the clever people on this list are able to generate explanations that go either way seems to me to be a bad sign for evolutionary psychology. Hi Alex, It was a bad sign for EP 25 years ago when that was virtually all there was to EP (then called socio-biology) but EP these days does a lot more than generate interesting explanations. Today's EP practitioners use their explanations to generate predictions for laboratory behavior of humans today and then test those predictions. They are sometimes quite startling. Perhaps the best example is the many many experiments that show that an elementary logic problem can be posed in dozens of different more and less familiar ways and most people will get it wrong. But pose the problem in a form in which it involves identifying cheating on social exchange, even if the setting is very unfamiliar, and almost everybody gets it right. This pattern was a prediction of EP theory of social exchange. In other examples, women have been asked in laboratories to select the pictures of men they find most appealing for short affairs and for long term relationships. There is a very strong tendency for them to choose men with physical characteristics typical of those with higher testosterone levels for affairs than for long term relationships. Also, the tendency to choose higher testosterone goes up when women are ovulating. (Both EP predictions.) There are some examples where predictions have been less spectacularly successful. For example, attempts to establish an evolutionary explanation for aesthetics have been less than fully successful (I'm being generous). Still, there can be no doubt that EP is a real science which is making real progress in understanding human behavior. This from someone who only 7 years ago was about as die hard an environmentalist as there could be. The more I've learned the more I've been won over to the view that there are important insights to be had by studying the genetic origins of behavior. - - Bill Dickens (DC based) William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/09/01 06:31PM Why not deny the empirical fact - given all we have for data is a second-hand report about a newspaper column! Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: 2001 Economic Nobelists
Bryan, U. A Nobel prize is a slap in the face? I'd certainly turn the other cheek! - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/10/01 03:03PM In a way, isn't dividing the prize 3 ways a slap in the face to Akerlof and Stiglitz? Stiglitz in particular, I suspect, would have preferred not to have won this year in the hope of getting an unshared prize. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] Familiar as the voice of the mind is to each, the highest merit we ascribe to Moses, Plato, and Milton is, that they set at naught books and traditions, and spoke not what men but what *they* thought. A man should learn to detect and watch that gleam of light which flashes across his mind from within, more than the lustre of the firmament of bards and sages. --Ralph Waldo Emerson, Self-Reliance
RE: Disaster Raises Happiness, Trust
Since Darwin we normally think that it is women who choose which males to mate with since males want to mate indiscriminately. Thus you would expect it would be the male who would have to adapt to the woman and not the other way around. However, if we are talking about males supporting women and/or forming lifetime bonds then we have an evolutionary game and it isn't clear what the outcome is. However, that just puts us back in the dilemma that I proposed earlier. We can see that it might be in men's interest to want to mate when threatened but not women. I don't deny the empirical fact, I just don't buy the explanations that have been given. - - Bill Dickens [EMAIL PROTECTED] 10/03/01 12:12PM I think the popularity of Nightmare on Elm Street, etc., including with many young women, is fairly relevant, and supportive of stress arousal. I'd suspect a strong second order effect in women: the men are more than usually aroused; which leads to more than usual arousal in the women. I'd suspect women who are NOT more than usually aroused with such men to be at a doubly severe evolutionary disadvantage: a) fewer children overall, and b) less likely to keep a father around to help with the kids she does have. Tom Grey -Original Message- From: William Dickens [mailto:[EMAIL PROTECTED]] Sent: Wednesday, October 03, 2001 4:17 PM To: [EMAIL PROTECTED] Subject: Re: Disaster Raises Happiness, Trust I think this is a good EP explanation for men, but there is a problem with it as an explanation for women. I have to admit that I don't know if women are aroused by stress as well, but from the woman's perspective it would seem that her offspring would be most likely to succeed if she waited for the guys to come back and then picked from that bunch. They would presumably be a more fit sub-sample of the original population and would be more likely to be around to help provide for the children. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/01/01 10:19PM With regard to Mr. Dickens' comment regarding whether stress should cause sexual arousal, I am tempted to think that evolutionary psychology can certainly explain this phenomenon. Early societies, according to most models of human development, used the males as hunters and warriors; females were gatherers. With this division of labor, males certainly incurred the more perilous part of the community's job. Before an important hunt or major battle, it is manifestly in the male's evolutionary favor to become sexually aroused; after all, this may be his genome's last chance to reproduce itself! Even if he dies in battle, his sex partners -- still safely at home -- will be able to bear his young.
Re: Disaster Raises Happiness, Trust
I think this is a good EP explanation for men, but there is a problem with it as an explanation for women. I have to admit that I don't know if women are aroused by stress as well, but from the woman's perspective it would seem that her offspring would be most likely to succeed if she waited for the guys to come back and then picked from that bunch. They would presumably be a more fit sub-sample of the original population and would be more likely to be around to help provide for the children. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 10/01/01 10:19PM With regard to Mr. Dickens' comment regarding whether stress should cause sexual arousal, I am tempted to think that evolutionary psychology can certainly explain this phenomenon. Early societies, according to most models of human development, used the males as hunters and warriors; females were gatherers. With this division of labor, males certainly incurred the more perilous part of the community's job. Before an important hunt or major battle, it is manifestly in the male's evolutionary favor to become sexually aroused; after all, this may be his genome's last chance to reproduce itself! Even if he dies in battle, his sex partners -- still safely at home -- will be able to bear his young.
Re: Airlines
The argument would have to be that the problem isn't a permanent but a temporary reduction in demand. That that temporary reduction may make otherwise viable businesses insolvent and lead to their dissolution and that that will result in the inefficient destruction of their fixed assets that will have to be reconstructed once demand rebounds. Such arguments raise the usual questions of why private capital markets can't provide the bailouts in terms of loans or why chapter 11 bankruptcy isn't an adequate solution to the problem of preserving the business' assets. It also raises the question of how to decide when governments should do this sort of thing and when they shouldn't and how to avoid the moral hazard problems involved with bailouts. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 09/26/01 12:15PM The President has authorized some 15 billion dollars to bail out the airlines and now travel agents and a host of others are asking for help also. Question: Is there any economic defense for this sort of action? After all, if the demand for air travel has fallen then isn't the optimal response to reallocate resources from the airline and related travel industries into other industries? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
RE: # buyers = # sellers ?
I never said that # buyers always and everywhere # of sellers. I specifically said if the market is operating there is a buyer for every seller. It is certainly true that specialists on the floor of the NYSE often suspend trading in a stock when there is an imbalance of orders and that bids on the NASDAQ are for specific quantities of stock. However, has there ever been a case where orders to sell at the market in the NASDAQ were not executed for extended periods of time on a stock that was officially still trading? If not, I stand by my statement. It is actually quite remarkable that security markets so regularly clear completely even in the most tumultuous times. However, I would be the last person to claim that this means that asset markets aren't prone to a wide range of anomalous behavior. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 09/21/01 06:12AM Economists (and I am one) can smirk at commentators saying 'that there are more buyers than sellers', but from a market practioners point of view, that is certainly how it feels at times. Financial markets have traders who maintain large stocks of whatever they are trading. When a piece of highly adverse news is reported, traders 'mark down' their holdings, that is they give a considered guess as to the fall in value of their holding due to the news and adjust prices accordingly. Thus prices traders are willing to bid have fallen, but there has been no market input. For instance, if you were holding a lot of airline stocks on 11 Sept, how much had their value declined by the time markets reopened? Yes, such stocks would have lots of offers to sell, but there would be comparatively wide spread and few bids to buy, moreover if you tried to take a trader up on the bid, they would only be wiling to buy a small amount. The rules and regulations of the market may well say, traders must make a market, but it is often the case that the bid is only open to good customers or for very small amounts of stock. Two more examples. The dot com bubble had many companies valued at absurd amounts, why? One reason, it was often the case that only a small amount of the companies stock had been released for sale, the vast majority still being held by the founders, who were locked into maintaining their holdings. Yet the whole company was valued at the price which a small portion of the stock was trading. Many people were willing to buy, but few would or could sell. The price went up, but the bids went unfulfilled. Or a downside case. My old firm, Bankers Trust, was sold to Deutsche Bank when its stock of high yield bonds became worthless in the rush to safety that followed the collapse of the Russian bond markets. These high yield bonds, all in US companies, were valued at zero if you look at the bid price, there was no one in the market willing to buy. There were of course many offers to sell, but the holders of the stock were not willing to go all the way down to the offer price (which was in this case zero). Yet within a couple of months (and after our Chairman had sold the company and pocketed over $80 million in doing so) the market regained its composure and the bonds were again in demand. The price went down, but the offers were not taken up. I can fully understand the theory of making a market, and it does work over the medium term, but significant anomalies, sometimes months long, can and have been seen. James -Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of Alex Tabarrok Sent: 20 September 2001 17:40 To: [EMAIL PROTECTED] Subject: # buyers = # sellers ? When the stock market goes up or down and some pundit says there were more sellers than buyers (or vice-versa) it's common for economists to point out that for every buyer there is a seller. (Bill made this argument recently and I have said this before also). Of course the argument is correct in the sense that someone must buy what others sell. The argument is generally incorrect, however, if taken to mean that the number of buyers equals the number of sellers because it could be the case that many buy and few sell but each seller sells more than each buyer buys. Which leads me to my question. Does the number of buyers and sellers vary with the direction of stock movements? For example, during a crash is it the case that a few buyers are buying a lot and many sellers are selling a little? Does anyone know of work done on this question? Cheers Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Rent to Own
Fabio, I just realized that I don't know what the typical rent-to-own contract looks like. Presumably the original owner retains title, but what if there is a dispute over the maintenance of the property during the rental period? What does the contract specify and how are disputes resolved? What protects owners from tenants who do not take good care of their property and then exercise their option not to buy it and what protects renters from owners evicting them and stealing their equity stake? Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 09/20/01 12:48PM Why does Rent to Own exist? Isn't rent to own just a way of lending money to the customer (like many auto firms)? One friend said it was a way of selling to people whose religion precludes the paying or charging of interest. Any comments? Fabio
Re: Handicapping the 2001 Noble Prize in Economics
I will happlily give 5 to 1 that George beats out Janet in getting the Nobel. - Bill Dickens (the DC one) [EMAIL PROTECTED] 09/20/01 18:44 PM Of course, Bill, the right thing to do would be to state some odds and place a bet. Fabio On Thu, 20 Sep 2001, Bill Dickens wrote: As Fall approaches one of the interesting rituals involves the selection of Nobel Laureates. While I'm not a legitimate bookie, I do engage in some innocuous speculation about who will receive the Nobel Prize in Economics. I did however correctly forecast Robert Mundell several years ago but for the most part my track record is not impressive. Paul Romer is a sure lock as a future recipient. This year I submit the following three (3) names: 1. William Baumol 2. Albert Hirshman 3. Janet Yellen [sorry Prof. Ackerlof but your wife will be the first family member recognized :-)] So, who are your deserving entries? Bill Dickens
Re: Micro Incentives -- real case question
My top management would like an incentive/accounting system which satisfies both teams, and gets both teams to cooperate more fully, and to use the advantages of each more fully. Is there any micro- / game-theory analysis on such internal business organization? Lots! But you would have to be more specific about the nature of the product, how output is evaluated, how contracts are secured, what the nature of cooperation between the two groups is etc. before anyone would know how to apply it. Also, some people get paid for doing this sort of thing and you might keep in mind the old line you get what you pay for. - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Posts on Stock Market
First, on Monday I gaurantee you that if the market functions, there will be a buyer for every seller. Every transaction has two sides. Whenever you hear commentators saying there were more sellers than buyers today so the market went down you should wince. Second, you don't have to be a patriot to think that the market will go down, but that you won't sell. The market could open down -- prices significantly lower than last Monday's close. That is typically what happens when there is bad news between the close and the open. If that is the case there is no point in selling even if you know for certain that the market is going down because there is no opportunity to get out before the prices go down. Sometimes it seems that the market is dropping over time. That's because the indicies that are reported in the media are calculated on the basis of the last transaction. When the market opens in the morning after bad news it can take some time before all stocks are trading. During that time the indicies are being calculated using a mixture of the new prices and the last closing price. Thus the appearance of stock prices dropping over time after the open even though prices are simnply opening lower. Third, world stock prices were somewhat lower on Friday than on Monday when US exchanges were last open. So we probably should expect that the market will open down. Fourth, as horrible as the events of last week were I don't think they have much economic significance. a) For all the talk of consumer confidence, empirical analysis suggests that it is a very minor factor in consumption demand (comparable to interest rates) and is dwarfed by the importance of income. Further, we don't know how this is going to affect consumer confidence or purchasing decisions. If people fear ratioing or shortages they might spend like crazy. Or people may be feeling better about themselves and their country as a result of the burst of patriotism. b) This isn't going to be much of a war. We probably don't have much of an enemy. Unless we can link Iraq pretty tightly to the attack (which seems unlikely) our only enemy is going to be a handful of terrorist training camps which have probably already been emptied out and the government of Afganistan. Its not clear what our objective in a war against Afganistan would be, but assuming we don't try to go in and occ! upy territory we won't need to spend a whole heck of a lot more money to fight this war so no big fiscal effects (unless we use this is an excuse to build up our military, build a missle defense, etc.) c) Rebuilding will take place over time and will be a tiny tiny drop in the bucket when measured on the same scale as GDP. No fiscal effect there. (But Fabio, do you really think that Keynsianism is so dead that an exogenous shock to demand won't affect the economy? Your joking right? Even the most hard core RBC people are building sticky prices into their economic models these days and a negative shock will have effects on output in such a model.) d) So that leaves impacts on financial markets as one more way that this could have an effect. But world financial markets have been mostly open. Only US equity markets have been closed. I don't see any reason to expect anything more than a decline at the open of the magnitude we've seen in world markets over the last week. Finally, despite all these relatively optomistic thoughts I'm considerably more pessimistic about the state of the economy today than a week ago. But this is mainly because of several statistics that came out last week reporting data from before the bombing that suggest that what looked like a turn around in the late Summer hasn't materialized. I had thought we might be seeing growth pick up in the third and fourth quarter. I don't see that happening now. -- Bill Dickens
Re: returns to higher education
There are a number of previous studies which suggest that returns are higher to attending schools where students have higher SAT scores, but none of these do a very good job of controlling for the unobserved characteristics of the persons attending the schools. Krueger does this in a recent study by controlling for the quality of the schools you were accepted to (not everyone goes to the best school that accepts them) and finds that average SAT scores don't matter but tuition does. I am not convinced that the identification is bullet proof nor that the result might not be sensitive to specification. Particularly since average SAT score at schools is always badly mismeasured (either because the schools misreport them or because of the limited samples used to estimate them). -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Years of education and job performance
The report also contains a number of other fascinating statistics. For example, according to (Schmidt and Hunter, 1998) years of education and years of job experience correlate poorly with measures of actual on-the-job performance: 0.10 and 0.18, respectively. Be wary of numbers like this. As you might expect, they vary considerably from job to job. There are big problems with restriction of range in most studies since, for example, you don't see many highschool dropouts applying for jobs that require a PhD. Also, is a correlation of .18 such a poor correlation? Relative to what? If performance variance is high enough choosing only the top 10% of your applicants by education can make a big difference in your bottom line. Schmidt and Hunter are famous advocates of the use of IQ tests, and IQ generally is a better predictor of job performance than just about any other single factor. But IQ isn't costless to observe and for some jobs has a correlation with measures of performance that is as low as the numbers cited above for years of education. Personnel Psychologists aren't economists and a lot of the stuff they do would make an economist choke. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Years of education and job performance
Thanks for the heads up. If you have a moment, can you point me to one or two book/review articles (by someone whose methodology you respect) that covers predictors of long term on-the- job performance ? I don't know of any studies of long-term job performance though I wouldn't be surprised if there were some out there. As you might imagine measuring job performance is a tricky business. What you can measure well is almost always a relatively narrow measure of only some part of the job while the best you can do for total job performance is something vague and unreliable like supervisor assessments. I imagine that some of the studies that use supervisor assessments might involve impressions formed over long periods of time, but I've been mainly interested in the more objective measures since I got into this literature to understand the relative efficacy of IQ tests for predicting the performance of blacks and whites. One of these days I _will_ write up something on my views on The Bell Curve which is no small task because they are relatively highly nuanced. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Homelessness message dated
If someone knows of a study showing that homelessness is voluntary I would love to see it. I've never heard that claimed before for the obvious reason -- how would you ask about it? I can't imagine that a majority of homeless would say that they would prefer living on the street no matter what their resources were or if free safe shelter were available. I do know that many homeless people will only go to a shelter when it is necessary due to the weather (and sometimes not then) because shelters are evidently dangerous places where things get stolen and people get knifed. I can imagine this being the source of the notion that homeless choose homelessness. A few years ago I read the literature on homelessness. As I remember: 1) Mental illness is a problem for only about 1/4th of the homeless. A majority did have drug or alcohol problems. 2) Deinstitutionalization has very little to do with the rise in homelessness as most deinstitutionalization took place a decade before the rise in homelessness (which those of us who lived through it will recall as taking place in the early 1980s). 3) The rise in homelessness correlated with a large cut back in support for low income housing, but the mechanism by which this would have produced the rise in homelessness is hard to describe since the people who were showing up as homeless were not the type who would have been in public housing and public housing never covered more than a fourth of those eligible anyway. 4) Four things which are thought to have contributed to the rise in homelessness: a) Building codes that made SRO hotels untenable, b) a steep rise in housing costs due mainly to ! a steep rise in real interest rates and a change in the tax treatment of rental housing, c) the elimination or sharp reduction of state general assistance programs, d) the 1980/82 recessions. If these are the factors then to the extent its a-c in some sense the rise is voluntary since a) and b) mean that the price is going up and c) means that income is going down. Simple supply and demand says that fewer people will buy housing in those circumstances. But that doesn't mean that any individual feels that s/he (almost entirely he in this case) chose to be homeless. Lots were living with other people and for one reason or other were kicked out. Some, but not many, were kicked out of a house or apartment for non-payment after a job loss. These people tend to have very short spells of homelessness, but it can then be very hard for an individual to get off the streets once they are there. Lots of employers won't hire someone without an address and lots of places won't rent to someone without a job. This impresses me as one area where private charity and even government assistance are reasonably in order. Particularly if the government is going to insist on putting quali! ty restrictions in place that put housing out of the reach of many people who otherwise could afford it. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Think Tank Bias' (formerly More Guns, Less Crime?)
Bryan Caplan Wrote: I don't think we really disagree here. Less than I thought when I misinterpreted what you were saying. I thought you were implying that we were government funded and wouldn't bite the hand that feeds us. If that is not what you are saying then we are closer to agreement than I realized. Sure, Brookings people are happy to make marginal criticisms of the status quo. What you view as marginal a lot of people would view as fundamental and sweeping. That was why I added the qualification about "some people on this list..." ;-} What I think is very unlikely is that they would publish something saying things like: 1. Let's quit worrying about "fighting poverty" 2. Let's get rid of discrimination laws 3. Let's get rid of immigration laws You are right that I can't think of anyone at Brookings who would write anything like this. Though there have been some pretty serious questions raised about some other regulatory regimes. To take another of my favorite examples, do you recall the "Looking Before We Leap" project you were involved in a few years ago. The basic premise, which sounds sensible enough, is that welfare reform programs should be based on the best available social science information, which, it turns out, is highly inconclusive. Hence, proceed with extreme caution. When I read this, I suggested that when e.g. Medicare was first proposed, Brookings didn't publish a parallel work emphasizing the risk that the program might get out of control. I think you agreed that the asymmetry was real. I don't agree with your characterization of the conclusions of this project. They were much more specific (concerning potential problems with funding etc.) then your characterizations and not very different from the sorts of criticisms and comments made by Brookings folks about the Clinton health care bill (I wasn't around during the Medicare debate). However, ... I don't think the Brookings brand of scholarship is a product of financial incentives so much as self-selection of personnel. Moderates of all types feel comfortable at Brookings. Others probably wouldn't. The same is true of other think tanks for the most part. I can't argue with this. The same operates to one degree or another in nearly every organization I'm familiar with. However as John Samples has acknowledged, there is a fair amount of diversity in points of view represented on the Brookings staff. It is my impression that we have a much broader representation of views than AEI, Herritage, Cato, PPI, or EPI. Let me turn now to Johns note. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Airline firms
Since deregulation, start-ups come and go. Big airlines seem to survive on the basis of the monopoly power they derive from their terminal slots at major airports. Otherwise airlines might be the classic case of a declining cost industry with few barriers to entry making it impossible for anyone to stay in business for long since competition will tend to drive prices down to marginal cost total cost ... -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 01/16/01 08:52PM Why do airline firms exist? Seriously, given the unpredictable nature of the airline industry such as disasters, bad weather, labor strikes and regulation you would think almost no one could survive in such a wacky business environment. I know that some firms tend to make profits (like Southwest) but even in booming times, most airlines seem to live on indefinite credit lines. any insight by people in the know? -fabio
RE: Airline firms
I'm not sure how the slots are allocated, but I believe it is done when the airport is built or expanded by the airport authorities which are local government entities. -- Bill Dickens [EMAIL PROTECTED] 01/17/01 09:30AM This is interesting. What is the source of the monopoly power over the slots? How are the slots allocated? Second, absent that monopoly power and given the effects of competition, wouldn't we expect to see re-regulation of the industry to end the "anarchy" of the market? Perhaps even a Department of Aviation to go with the Department of Agriculture? John Samples Cato Institute -Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of William Dickens Sent: Wednesday, January 17, 2001 8:36 AM To: [EMAIL PROTECTED] Subject: Re: Airline firms Since deregulation, start-ups come and go. Big airlines seem to survive on the basis of the monopoly power they derive from their terminal slots at major airports. Otherwise airlines might be the classic case of a declining cost industry with few barriers to entry making it impossible for anyone to stay in business for long since competition will tend to drive prices down to marginal cost total cost ... -- Bill Dickens
Re: Airline firms
This doesn't seem consistent with the usual story that big airlines want slots allocated by competitive bidding, while small airlines don't. If the slots are the source of the monopoly power, competitive bidding would lead to full dissipation of the rents, no? Not at all. The network economies mean that the slots are a lot more valuable to an established airline, and the differences in the extent to which airlines depend on existing cities as hubs means that the value to one airline is going to be greater than any of the others and so it will not lose all its rents to bidding. But that misses the main point. Big airlines want competitive bidding for _new_ slots, not existing ones. This will allow them to maintain the value of their existing slots by strategically out-bidding potential competitors. At least that is my understanding of their motivations. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Airline firms
And what do you say on the predation thing? I'm not sure. I wouldn't be surprised if it was true, but I don't think you need any predation to explain why new entrants would be very unstable and have low survival rates in a market with significant economies of scale but no effective barriers to entry. Simple competition between the new entrants could be enough to explain their failure. But I don't know the facts well enough to know that that is the explanation. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Landsburg Column
RE: http://slate.msn.com/economics/00-02-09/economics.asp I read the Landsburg column, but I haven't read the original study he is commenting on. Given that, Landsburg's account of the idea seems totally nutz to me. Why would we assume that the relative price of quality vs quantity should remain the same over time (that has to be the underlying assumption that makes sense of the analysis that is being done). Doesn't it seem obvious that the manufacturing revolution of the early to mid 20th century reduced the relative cost of quantity (look at how the use of craft work in buildings dropped in favor of simple machine honed moldings for example and how mass produced plastic ticky-tacky replaced crafted pottery and dishes) while the information revolution seems to be reversing that trend and decreasing the relative cost of quality (by making more customization possible)? If I'm right that would mean that the method that Landsburg wants to use would grossly overstate productivity growth for the first 70 years of the 20th century (where ! the price of quality is underestimated and the trend is ignored). Its hard to say whether its under estimated or over estimated since then. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Landsburg Column
Hi Alex, We agree. If I'm right that the changes in the price of quality are profound then the five year measures should show big changes. Particularly between 1945 and 1970 I would bet they would be enormous. -- Bill [EMAIL PROTECTED] 11/27/00 12:03PM Bill, As I read Landsburg the Klenow-Bils idea is that if at time 1 the rich own 100% more microwaves than the poor at a 25% higher price then at time 2 when the poor own 100% more microwaves than at time 1 the quality-adjusted price (unobserved) has fallen 25%. What they need to assume is that the quantity/quality price that poor and rich consumers face at time 1 continues to hold between time 1 and 2. My guess is that the assumption requires some sort of uniform technological improvement across the span of microwaves from low to high quality. (Probably also some homotheticity type assumptions about preferences). The examples you mention show that technological improvement is not uniform across quality types but does the tradeoff change so fast that the cross-sectional results are uniformative? Suppose, for example, that you reestimate the cross sectional quantity/quality price every five years - this is easy as there is plenty of data - then all you need is more or less uniform technological improvement over any five year span, which seems reasonable enough to me. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Teacher's income
So, are professors really underpaid? A few thoughts. When people say that teachers are underpaid I don't think that they are mainly referring to professors. I think its K-12 where unfavorable comparisons are often made between the salaries paid to BA teachers and HS grad semi-skilled manual laborers. In fact, in a minute I will argue that there sense in which an economist would say that these people may be thought of as underpaid (as may nurses). In general I think that when one hears complaints about people being underpaid it is because their earnings are low compared to what other people with similar credentials are being paid. In my experience most people don't think in terms of markets setting salaries. They think in terms of employers deciding what to pay and they think that employers can pretty much pay whatever they want. Pay is viewed as unfair if it doesn't reward the things that are supposed to be rewarded according to norms (talent, education, and experience). Economists have very different views of the reasons why people are paid for these things having to do with their scarcity and the cost of acquiring the characteristic. Our view would have little to do with fairness. However, I think that there is one place where the economists' view of what's "fair" and the common person's view leads to similar conclusions. I would argue that in both K-12 teaching and in hospital nursing the dominance of large institutions (often government run) have led to a situation where monopsony is common. In the classic monopsony, wages are set too low and the individual monopsonists are always complaining about under supply. Evidence: 1) You are always hearing about teacher and nursing shortages. 2) Public schools do seem to set wages in a way which is typical of a price leader (quality adjusted pay is lower than the private sector unless there is a union). 3) There is an interesting study from a couple of years ago showing that market concentration in an MSA in the hospital industry is negatively associated with nurses wages and 4) I've had the personnel director for a large hospital in a major metropolitan area brag to me that she was personally responsible for saving millions of dollars in health care costs by coordinating the local cartel of hospitals to keep down nurses wages. Two minutes later she was complaining bitterly about how hard it was to hire competent nurses. When I asked her why she wouldn't think of raising wages I got the classic collusive monopolist's answer. She said that in the short run they might get a few more nurses, but that all the other hospitals would raise their wag! es and in the end they would all be paying a lot more and overall they wouldn't get that many new nurses. So here I would think that both the common person and an economist would agree that in a very real sense these jobs are underpaid. Are professors underpaid? If one thinks that there is chronic excess supply this hardly seems arguable. The argument against this view is that there is also an oversupply of aspiring NBA players, but that doesn't mean that current NBA players aren't being paid the value of their marginal revenue product. Those who aspire may not be able to perform at the level of the incumbents. One piece of evidence that might suggest that low paid professors are indeed the victims of monopsony is that the usual explanation for why economists, engineers, MDs and lawyers are paid more than classics profs etc. is that there is a market for their services outside of academia. Why should this matter (its obvious why if Universities exercise monopoly power)? It costs the individual more to get a degree in classics than in economics (fewer opportunities for relevant employment in grad school and fewer scholarships and grants) and if anything economists have it easier than classicists (in terms of ! perqs), so why should they earn less in equilibrium unless there is monopsony? Is being a classics professor that much more fun than being an economist? Or is it that the skills to be an economist are in relatively short supply? I won't push this very far mind you. The market for nurses and teachers is largely local because of career co-location decisions while the market for Profs is national. The local nature of the nurse and teacher markets makes monopsonistic coordination possible (the Personnel director I talked to didn't take seriously the notion that high wages for nurses in her city would attract more nurses "They're all married and they can't move." even while she was willing to allow that there would be an increase in supply from "burnt out" nurses reentering the field). -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Harris again
OK, Bryan is right (as was Alex) and I'm wrong. This from the horses mouth (a note I got today from Judith Harris): === My theory is definitely not an excuse for people to throw up their hands and say "We give up -- there's nothing we can do!" Because (as you said) children are socialized first at home, any aspect of socialization that is common to the majority of the children in a given group is likely to be effective. If the majority of the parents in a given neighborhood decided to teach their children to nod their heads three times whenever someone gave them something, then that custom would probably become standard behavior in their neighborhood; children who were new to the neighborhood would quickly pick it up. That's how cultures are passed on. That's why it matters where you raise your kids and where they go to school. When people choose a neighborhood in which to raise their kids, what they're doing is trying to find a place where the other parents have attitudes and customs that are similar to their own. By doing that, they maximize the chances that their children will retain the attitudes and customs they acquired at home. = and = Thanks for enclosing the note from Bryan Caplan (actually, N = 2). Yes, Caplan is right, and Dan Quayle had a point. When you're looking for a neighborhood in which to raise your kids, it's a good idea to look for one in which most of the kids have fathers. The reference to a sample size of 2 comes from earlier in the note in which she had said that she had concluded that economists were very smart but that that was based on a small sample (N=1). So I guess that Bryan impressed her. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: reading recommendation
Bryan wrote: === This is almost orthogonal to my original point, but not quite. It wouldn't be interesting if the expected cost of bad judgment was $100/year, would it? So even taking a policy perspective, expected value of error matters. Agreed, but I think the evidence here is that cognitive anomalies can cause big losses. Sure the vast majority of the time confusing .01 with .1 doesn't make much difference in ones life, but if people consistently confuse the two when making decisions about (for example) occupational safety and health, that can have big effects in the aggregate the might be addressed by policy. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: AIDS/POLIO-Not Much Econ
The article did grant that there remains the strange puzzle of the coincidence in timing of the various strands of AIDS all being transmitted from primates to humans within a close period, which I suppose that Hooper will emphasize when backed into a corner. The article suggests theories of population increases or the introduction of cheap syringes, both of which might explain why infection didn't happen earlier. I'm probably way in over my head here, but I thought that there was still a lot of controversy over exactly when and where AIDS first emerged in the human population. I seem to remember hearing it claimed that there were confirmed cases in humans before the polio vaccination campaign. I thought I've also heard it claimed that the wave of reports around the time of the vaccine could be explained by a reporting anomaly -- that there was a buzz in the medical community that caused people to recognize what they were seeing as a single disease whereas before that time the pattern of symptoms might not have been seen as a unique disease. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: reading recommendation
Sure, some important real world applications exist. But why is that interesting? I would think that the interesting question is: what's the *expected value* of the loss, averaging over situations of all importance levels? So would you argue that the interesting question about government policies is whether averaging over all of them net welfare effects are positive? Wouldn't you want to know something about particular policies with an eye towards identifying which ones are better or worse. Even if you thought that on average they were bad you probably couldn't convince most people that they shouldn't be considered on a case by case basis. Similarly, if you can identify even one situation in which judgement can be shown to fail and design an intervention to minimize the cost of that failure isn't that interesting? -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Economist Olympics?
Can such games model reality well enough to give interesting results? Interesting to whom? To game players yes. For certain purposes there are useful models that can help people understand how systems operate and predict outcomes. Would economists agree on the meta-rules enough to agree to participate? Absolutely not. If you can agree on a model you can almost always agree on the policy prescription. Most disagreements between economists are over what the right model is, not what policy should be pursued given the model. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Harris
Hi Alex, First, it is my contention that this is JH's view -- not mine. I've been involved in an E-mail conversation with Judy for a couple of months now about the differences in our views (I have not pulled rank in the debate with Bryan because my conversation with Judy hasn't really touched on this specific point so I can't say for sure that I've got her view on this issue right, but its getting to the point where I should probably ask her...). However, there is a very definite link between child culture and adult culture that ensures a link between them and continuity. One thing I know for certain about JH's views from our correspondence is that she is convinced that roles you adopt for yourself as a child carry over to your behavior as an adult. So if I understand Judy correctly she is saying that cultural transmission is from child's peer group to child's peer group and the link to adult culture flows from children to adults not adults to children. This is the interpretation I have been suggesting in the previous e-mails. The best evidence for her view is what happens when you throw populations from different cultures together. The parents keep separate cultures while the kids develop a unique "pidgin" culture that ultimately develops into a creole culture as they become adults (with common languages and customs evolving from disparate roots). This is certainly a better description of what happens when cultures collide than the notion that adults transmit culture to kids. Also, this fits my experience pretty well. My social culture looks a lot more like the social culture that was established by my peers during the late 60s and the early 70s than it looks like the social culture of my parents. I focus my social life around informal visits with friends where my parents socialized mainly with relatives. When my parents weren't socializing with relatives they were socializing with members of social organizations they belonged to. I don't belong to the Elks or the KoC or any organizations associated with my sons school. These are differences that were established in our youth. From what I got from talking to my parents their friends when they were young were also either relatives or were members of clubs to which they belonged. Norms about topics of discussion, use of profanity, drug and alcohol use, etc. all seemed to be established in youth and persist through adulthood. This would seem to fit Judy's view. Note that JH would reject out of hand any criticism of her point of view on the grounds that it doesn't fit well with "contemporary views" since her whole point is that contemporary views are based on extremely naive interpretations of correlational evidence that seems to evaporate when you control for genetic factors. Note also that if you can affect your kids peer groups and this can affect the rest of their lives then you have to find some way of explaining why this doesn't show up in the behavioral genetics results which suggest small effects (often vanishingly small) of family background on almost any measurable outcome as people age. I think JH would say that the only way you can affect your kids peer group is to move to a different neighborhood or send him/her to boarding school. Otherwise your kid will find his/her "peers" no matter what you do about it. At this point I think there are three differences between my views and JH's (though we are still in the process of clarifying that). Two are a matter of emphasis, but one is substantive. 1) I think that she doesn't give enough credit to parents for the work of socialization. My kid may speak the language of his peers, and if I don't teach him that language he will learn it on his own. However, in most circumstances kids learn their language (and a whole host of other cultural knowledge) from their parents. She emphasizes the determinative roll of peer culture even though the main burden of socialization is carried by parents. 2) I suspect that "small effects" may not really be that small. Evidence that differences between families only explain a small fraction of variance between adults doesn't mean that there can't be important effects of differences between families. I don't think economists need much explanation of this point -- R2 isn't a very good measure of costs an! d benefits. 3) I think that she is right about childhood culture getting carried over to adult culture, but I think she is wrong that the effects of peer group on personality are any more permanent than the effects of family. I think the best interpretation of the evidence is that most environmental variance in personality is due to contemporaneous or recent effects of environment. Thus I tend to think that there are large effects of many different aspects of environment on at least some measures of personality (IQ for example), but that they all fade over time so that what
Re: Harris
Hmm. The quotes seem clear enough to me, but perhaps you need the context too. I read the quotes in context. I have the book in front of me now. How would you interpret this finding that she talks about - that it is bad for kids to be in fatherless neighborhoods, but not fatherless homes? Again, it is my understanding that her view is that you don't want to grow up in a fatherless neighborhood because of what that signals about the genes of your peers and the culture of your peers, not because your peers fathers are missing per se. -- Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
