J. Bradford DeLong's Blog, page 82

Strom Thurmond (1959): Against Hawaii Statehood https://d...

Strom Thurmond (1959): Against Hawaii Statehood https://delong.typepad.com/files/thurmond-hawaii.pdf: 'There are also those in this world who are the devisees of a totally different heritage and with whom we have no identity in either antiqulty or modern times.... Our society may well be said to be... the exemplification of the maximum development of the Western civilization.... At the opposite extreme exists the Eastern heritage, different in every essential, not necessarily in a way that it is inferior, but different.... The chasm of difference between the two... is in heritage, the force that shapes the man to form unchangeable, except, if at all, by the infinite passage of time.... Oriental and Hawaiian groups constitute in excess of 70% of Hawaii's population. This large segment of the population has a heritage... in a word, Eastern.... There is serious doubt in my mind as to whether the Hawaiian people would not be seriously handicapped, possibly even precluded, in defending themselves from such as the communist-dominated Longshoremans Union by the imposition upon them of Western institutions of government, since their heritage has not equipped them to comprehend the philosophy essential to the effective operation of these institutions.... There is even greater doubt in my mind that the Hawaiian people could contribute to the degree of harmony remaining in the conduct of affairs of our Federated Republic.... An abandonment of the United States of America in favor of a United States of America and Pacific���precedenting a United States of the World���would actually benefit no one but toll the death-knell of our Federated Republic...

#noted #2019-12-17

Back in 2005, the very wise Raghu Rajan tried to warn the...

Back in 2005, the very wise Raghu Rajan tried to warn the assembled economic policymakers of the world about the heightened risks of a financial meltdown. They did not listen: Raghu Rajan (2005): Has Financial Development Made the World Riskier? https://www.kansascityfed.org/publicat/sympos/2005/pdf/rajan2005.pdf: 'Risk never can be reduced to zero, nor should it be. We should be prepared for the low probability but highly costly downturn. In such an eventuality, it is possible the losses that emanate from a financial catastrophe cannot be entirely borne by current generations and are best shared with future generations. Some of the mechanisms for sharing such systematic risks with future generations, such as (defined benefit) social security, are being changed. While there are gains from doing so, and from ensuring their sustainability, we need to ensure that the intergenerational risk-sharing mechanism they offer is not overly weakened. We also need to continue improving the intrinsic flexibility of our economies, so as to better ride out the downturns that, almost inevitably, will occur...

#noted #2019-12-17

Executive Summary of Obama Transition Economic Policy Work: Hoisted from the Archives

Hoisted from the Archives: Note that if 600 billion in fiscal stimulus would have reduced the expected unemployment rate as of the end of 2010 from 9.5% to 8%, 900 billion would still have left the economy with an expected end-of-2010 unemployment rate of 7.25%. And, of course, the memo ought to have highlighted that things had a 50% chance of being worse than expected���even considerably worse, which they were: the end of 2010 unemployment rate was 9.3%. To seek as your economic policy goal a set of policies that would might well have���and did���leave the unemployment rate two years hence above 9% seemed like malpractice on the part of the Obama-Emmanuel-Biden team then. It still seems like it was malpractice now: Obama National Economic Council Presumptive (December 2008): EXECUTIVE SUMMARY OF ECONOMIC POLICY WORK https://delong.typepad.com/20091215-obama-economic-policy-memo.pdf: 'In the absence of fiscal stimulus the economy is projected to lose 3 to 4 million jobs in 2009. Together with the jobs we have already lost and population growth, we will be 7 million jobs short of full employment. The unemployment rate is projected to rise above 9 percent and not projected to start falling until 2011. We believe that $600 billion in stimulus over two years would create 2.5 million jobs relative to what would happen in the absence of stimulus. However, this falls well short of filling the job shortfall and would leave the unemployment rate at 8 percent two years from now. This has convinced the economic team that a considerably larger package is justified.... The memo outlines four alternative plan ranging from $550 billion to $890 billion...

#economics #economicsgonewrong #macro #moralresponsibility #2019-12-17

If You Are So Rich, Why Aren't You Smart?: Hoisted from the Archives from Ten Years Ago

Hoisted from the Archives: If You Are So Rich, Why Aren't You Smart? http://www.bradford-delong.com/2009/08/if-you-are-so-rich-why-arent-you-smart.html: A correspondent emails me a link to https://web.archive.org/web/20090830190212/http://gregmankiw.blogspot.com/2009/08/least-surprising-correlation-of-all.html... Greg Mankiw looks at:

And says:

The Least Surprising Correlation of All Time: So what? This fact tells us nothing about the causal impact of income on test scores.... This graph is a good example of omitted variable bias, a statistical issue discussed in Chapter 2 of my favorite textbook. The key omitted variable here is parents' IQ. Smart parents make more money and pass those good genes on to their offspring.... Suppose we were to graph average SAT scores by the number of bathrooms a student has in his or her family home. That curve would also likely slope upward.... But it would be a mistake to conclude that installing an extra toilet raises yours kids' SAT scores. It would be interesting to see the above graph reproduced for adopted children only. I bet that the curve would be a lot flatter...

The explicit argument, of course, is that the parents are rich because they are genetically smart, and that the children test well because they have inherited smartness genes from their parents, and all is good because it is right that the worthy should be rich and the most important part of being worthy is being smart. And Mankiw drops it there���without even acknowledging that, say, being able to afford an extra bathroom is a good signal that you can afford to spend more money on your children's education. Without trying to do a quantitative calculation of the expected slope. But, rather, hingeing the entire thing on "good genes".

IMHO, merely saying that correlation is not always causation and dropping the issue is profoundly unhelpful���moreover, it shows a... certain lack of work ethic as well. Off the top of my head...

IIRC, the age-adjusted correlation between log income and IQ is 0.4: take someone with a log income higher by one standard deviation than average���these days someone with a middle-age-adjusted family income of 100,000-120,000 rather than 60,000-80,000���and their IQ is likely to be 0.4 standard deviations (6 points) above average. The individual heritability of IQ is about 0.5: take an individual with an IQ 6 points above average and their children will be expected to have an IQ 3 points above average. SAT scores have a mean of 500, a standard deviation of 100, and a high but not a perfect (0.7) correlation with IQ. So if we compare people whose parents have an income of 100,000-120,000 to those with an income of $60,000-$80,000 we would expect to see 1 x 0.4 x 0.5 x 0.7 x 100 = 14 points. The actual jump in the graph Mankiw refers to is twice as large.

The rule of thumb, I think, is that half of the income-test score correlation is due to the correlation of your test scores with your parents' IQ; and half of the income-test score correlation is coming purely from the advantages provided by that component of wealth uncorrelated with your parents' (genetic and environmental!) IQ.

The curve is less steep, but there is definitely a 'what' here to be thought about. There is no "so what" here at all...

The masters at explaining this, of course, are Samuel Bowles and Herbert Gintis, 'The Inheritance of Inequality' http://www.umass.edu/preferen/gintis/intergen.pdf

UPDATE: Conor Clarke reminds me of Christiane Capron and Michael Duyme (1989), 'Assessment of Effects of Socio-Economic Status on IQ: A Full Cross-Fostering Study,' Nature http://www.nature.com/nature/journal/v340/n6234/pdf/340552a0.pdf: 'changes in IQ resulting from changes in postnatal environment are of similar magnitude and exhibit the same general trend independently of the SES of the adopted children's biological parents.'

#cognition #equitablegrowth #highlighted #hoistedfromthearchives #inequality #2019-12-17

Guo Xu and Hans-Joachim Voth: Patronage and Performance i...

Guo Xu and Hans-Joachim Voth: Patronage and Performance in the Age of Sail https://voxeu.org/article/patronage-and-performance-age-sail: 'People in power may use their discretion to hire and promote family members and others in their network. While some empirical evidence shows that such patronage is bad, its theoretical effects are ambiguous���discretion over appointments can be used for good or bad. This column examines the battle performance of British Royal Navy officers during the Age of Sail and finds that patronage ���worked���. On average, officers with connections to the top of the naval hierarchy did better on every possible measure of performance than those without a family connection. Where top administrators have internalised meritocratic values and competition punishes underperformance, patronage may enhance overall performance by selecting better individuals...

#noted #2019-12-17

Somin Park: _Wealthier Individuals Receive Higher Returns...

Somin Park: _Wealthier Individuals Receive Higher Returns to Wealth _ https://equitablegrowth.org/wealthier-individuals-receive-higher-returns-to-wealth/: 'Why do the wealthy get higher returns from their wealth? In part, it���s because they invest a higher share of their assets in the stock market and other risky assets, and therefore are rewarded for their risk tolerance with higher average returns. Wealthier investors also benefit from the scale of their wealth, for example, by using checking accounts that pay higher rates for larger deposits and buying financial advice that leads to higher returns���what the authors call ���economies of scale in wealth management.��� Yet the authors also find that risk compensation and scale, while important, are not enough to fully account for the variation in returns, or, in economic parlance, ���return heterogeneity.��� Bank deposit accounts are safe assets that bear essentially no risk. If return heterogeneity were explained by compensation for risk-taking, then there should be no variation in the returns that people get from deposit accounts holding the same amount of wealth. The authors find, however, that there is sizable heterogeneity: People with more education tend to deposit at high-return banks. Persistent variation in returns is therefore also explained, in part, by differences in financial sophistication and differences in ability to access and use superior information about investment opportunities...

#noted #2019-12-17

A brilliant must-read: Kevin Rinz: Did Timing Matter? Lif...

A brilliant must-read: Kevin Rinz: Did Timing Matter? Life Cycle Differences in Effects of Exposure to the Great Recession https://equitablegrowth.org/working-papers/did-timing-matter-life-cycle-differences-in-effects-of-exposure-to-the-great-recession/: 'Exposure to a recession can have persistent, negative consequences, but does the severity of those consequences depend on when in the life cycle a person is exposed? I estimate the effects of exposure to the Great Recession on employment and earnings outcomes for groups de���ned by year of birth over the ten years following the beginning of the recession. With the exception of the oldest workers, all groups experience reductions in earnings and employment due to local unemployment rate shocks during the recession. Younger workers experience the largest earnings losses in percent terms (up to 13 percent), in part because recession exposure makes them persistently less likely to work for high-paying employers even as their overall employment recovers more quickly than older workers���. Younger workers also experience reductions in earnings and employment due to changes in local labor market structure associated with the recession. These effects are substantially smaller in magnitude but more persistent than the effects of unemployment rate increases...

#noted #2019-12-17

In all his columns on Project Syndicate about how dangers...

In all his columns on Project Syndicate about how dangers of global warming are overblown, Bjorn Lomborg does not appear to have ever called for a carbon tax���at least, searching the website for "Bjorn Lomborg carbon tax" produces no hits, and I cannot recall a call for one. If he does, it's not a central part of his thought. I wonder why not. What's the upside to you of our not yet having implemented a carbon tax, Bjorn?: Bj��rn Lomborg: Humans Can Survive Underwater https://www.project-syndicate.org/commentary/rising-sea-levels-media-alarmism-by-bjorn-lomborg-2019-11: 'Climate change is a problem we need to tackle, and we should be particularly mindful of how it will hurt the poorest in society. But the bigger, unreported story is that today���s climate policies will do very little to resolve the ���challenge��� of more people living below the high-tide mark.... Even when we read stories from the world���s top media outlets, we need to maintain perspective. Deaths from climate-related causes (floods, hurricanes, droughts, wildfire, and extreme temperatures) have declined by 95% over the past hundred years. Furthermore, despite the constant barrage of claims that the global climate crisis is spiraling out of control, the cost of extreme weather as a proportion of GDP has been declining since 1990. Alarming media stories that twist the facts about rising sea levels are dangerous because they scare people unnecessarily and push policymakers toward excessively expensive measures to reduce greenhouse-gas emissions. The real solution is to lift the world���s poorest out of poverty and protect them with simple infrastructure...

#noted #2019-12-17

Peter J. Klenow and Andres Rodriguez-Clare (1997): The Ne...

Peter J. Klenow and Andres Rodriguez-Clare (1997): The Neoclassical Revival in Growth Economics: Has It Gone too Far? https://delong.typepad.com/klenow-rodriguez-clare.pdf: "We find a very modest role for growth in human capital per worker in explaining growth.... We find that TFP growth accounts for most of the growth of output per worker in Hong Kong, South Korea, and Taiwan. And we stress that this relative importance of TFP growth for three of the four Asian tigers generalizes to our sample of 98 countries: we find that roughly 90% of country differences in Y/L growth are attributable to differences in A growth. Combining these growth results with our findings on levels, we call for returning productivity differences to the center of theorizing about international differences in output per worker...

#noted #2019-12-16

Willem Jongman: Gibbon Was Right: The Decline and Fall of...

Willem Jongman: Gibbon Was Right: The Decline and Fall of the Roman Economy https://delong.typepad.com/jongman-gibbon-was-right.pdf: 'To qualify as real economic growth, both population and per capita incomes... must move in the same direction, and for a lengthy period of time. Did this ever happen before the Industrial Revolution? It is my contention that Rome in the late Republic and early Empire was one of those rare examples... [like] the Dutch Republic and England in the centuries just before the Industrial Revolution.... Roman material culture of the early Empire was unprecedented, and would remain unsurpassed for many centuries (until, perhaps, a century ago).... Roman grandeur was more than brick and marble, and included a new prosperity for many if not all.... Only archaeology... can provide the large datasets... for a time series analysis of long term economic change in antiquity.... The independent repetition of the same pattern in a large number of separate archaeological datasets argues firmly against too much scepticism.... Hopkins... Roman shipwrecks.... Calatay... metal extraction.... Wood... from western and southern Germany.... We can see an improved standard of living... in the face of a rising population.... This new wealth was also, I now believe, shared more widely than earlier pessimistic critics of Roman society such as myself were willing to acknowledge.... New fruits and vegetables... Pigs, cows, sheep, or horses, and even chickens, were much larger than ever before, and for a long time after...

#noted #2019-12-16