Tyler Cowen's Blog, page 109

Does telling Swedes about the true income distribution make them more right-wing?

Maybe so.  Let’s hear from Mounir Karadja, Johanna Möllerström (my new colleague), and David Seim:

We study the extent to which people are misinformed about their relative position in the income distribution and the effects on preferences for redistribution of correcting faulty beliefs. We implement a tailor-made survey in Sweden and document that a vast majority of Swedes believe that they are poorer, relative to others, than they actually are. This is true across groups, but younger, poorer, less cognitively able and less educated individuals have perceptions that are further from reality. Using a second survey, we conduct an experiment by randomly informing a subsample about their true relative income position. Respondents who learn that they are richer than they thought demand less redistribution and increase their support for the Conservative party.

This result is entirely driven by prior right-of-center political preferences and not by altruism or moral values about redistribution. Moreover, the effect can be reconciled by people with political preferences to the right-of-center being more likely to view taxes as distortive and to believe that it is personal effort rather than luck that is most influential for individual economic success.

The paper (pdf) is here, and the pointer is from Gabriel Sahlgren.

Should all public officials wear cameras?

Arnold Kling poses that question., and he writes:

Suppose that when they meet with bankers, for example, Fed officials had to wear cameras and audio recorders, which could be obtained by FOIA requests. Or suppose that IRS officials had to wear cameras, for example, when they wrote emails or engaged in discussions about dealing with tax-exempt groups.

The intended consequences of the camera rule would be, as with having police wear cameras, to make sure that public officials remember that they are being watched and to reduce instances where they are wrongly suspected of acting against the public interest.

What might be the averse unintended consequences of forcing high-level public officials to wear cameras and recording devices when engaged in their ordinary duties?

I believe this practice would induce some offsetting adjustments.  First, public officials would much more frequently act as if they were on television.  We more or less know what that is like.

Second, the unmonitored positions would rapidly become much more powerful.  The monitored positions would become a bit like the British monarchy, namely of great ceremonial importance, and capable of causing a public scandal with ill-thought out remarks, but not the real decision-makers.

Third, the demand for unmonitored “private contractors” would go up.  These contractors would attach themselves to individual politicians, and carry out their will with the outside world, receiving  their instructions as those politicians were initiating their love-making, off camera of course.

Scott Sumner’s nominal gdp market is in its early stages

Scott writes:

I’m finally ready to announce the first step in creating an NGDP future market.

And here he is quoting Robert Quigley-McBride from iPredict:

iPredict is a real-money prediction market run by Victoria University of Wellington. With over 8000 traders, iPredict is operated by students of the University with the purpose of forecasting social, economic and political events. iPredict has designed contracts for trading to allow forecasting of nominal GDP (NGDP). Traders will be able to buy and sell contracts paying $1 if NGDP falls within a particular range in a particular quarter.

An example contract would pay $1 if the US GDP for Q1 2014 were greater than or equal to $17,250 Billion and less than $17,500 Billion, based upon the [initial estimate for quarterly nominal GDP from] BEA Table in Section 1 – Domestic Product and Income, Table 1.1.5, Line 1. We would establish similar contracts spanning the intervals $250 Billion above and below the example contract, with two open ended intervals beyond those for outcomes above or below the ranges.

The set of contracts, for each quarter, will generate probability estimates for the different levels of NGDP, as well as providing a gauge of the traders’ uncertainty, or margin of error, on this estimate.

To support the accuracy of the forecasting, we wish to provide the market with an injection of liquidity. This will help by ensuring there is sufficient incentive for traders with beneficial information to bring it to the market. To support contracts for forecasting NGDP for the next 3 years, we will need to raise $1500. This will be used to provide a market maker on the contracts, which will ensure there is always a reasonable bid-ask spread, and that any trader wanting to bring information to the market can do so even if there is not necessarily another trader to take the other side in the trade.

The full post is here, and you will note that Scott also is looking for private funding.

Is the world of Swedish CEOs a meritocracy?

Renee B. Adams, Matti Keloharju, and Samuli Knüpfer have a new paper:

This paper analyzes the role three personal traits — cognitive and non-cognitive ability, and height — play in the market for CEOs. We merge data on the traits of more than one million Swedish males, measured at age 18 in a mandatory military enlistment test, with comprehensive data on their income, education, profession, and service as a CEO of any Swedish company. We find that the traits of large-company CEOs are at par or higher than those of other high-caliber professions. For example, large-company CEOs have about the same cognitive ability, and about one-half of a standard deviation higher non-cognitive ability and height than medical doctors. Their traits compare even more favorably with those of lawyers. The traits contribute to pay in two ways. First, higher-caliber CEOs are assigned to larger companies, which tend to pay more. Second, the traits contribute to pay over and above that driven by firm size. We estimate that 27-58% of the effect of traits on pay comes from CEO’s assignment to larger companies. Our results are consistent with models where the labor market allocates higher-caliber CEOs to more productive positions.

In other words, Swedish CEOs are a pretty impressive lot.  Scott Sumner offers some related remarks on American CEOs.

Some data on the value of the airplane seat recline right

Christopher Buccafusco and Chris Sprigman report:

…we ran an experiment to measure how much people value the ability to recline compared to extra knee and laptop room.

In an online survey, we asked people to imagine that they were about to take a six-hour flight from New York to Los Angeles. We told them that the airline had created a new policy that would allow people to pay those seated in front of them to not recline their seats. We asked one group of subjects to tell us the least amount of money that they would be willing to accept to not recline during the flight. And we asked another group of subjects to tell us the most amount of money that they would pay to prevent the person in front of them from not reclining.

It turns out that Barro was right: Recliners wanted on average $41 to refrain from reclining, while reclinees were willing to pay only $18 on average. Only about 21 percent of the time would ownership of the 4 inches change hands.

But it also turns out that Barro was wrong and Marron was right. When we flipped the default—that is, when we made the rule that people did not have an automatic right to recline, but would have to negotiate to get it—then people’s values suddenly reversed. Now, recliners were only willing to pay about $12 to recline while reclinees were unwilling to sell their knee room for less than $39. Recliners would have ended up purchasing the right to recline only about 28 percent of the time—the same right that they valued so highly in the other condition.

Wait … what? How is it possible that people’s valuation of reclining vs. not being reclined upon depended so completely on which party (recliner or reclinee) held initial ownership of the property right? Shouldn’t the right to recline be worth the same to you whether you initially have it or not?

It is fair to call this an endowment effect, but I also view it as evidence for my earlier view that people do not want to bargain over this right.

For the pointer I thank Tim Harford.

Assorted links

1. There is no great stagnation.

2. “”

3. The Solow Sonso residual.

4. Cypriot profile of Robin Hanson.

5. Ronald McKinnon has passed away.

6. An apologetic for China in Hong Kong.

Living simply in a dumpster

From James Hamblin at The Atlantic:

Not long ago, Wilson was nesting in a 2,500 square foot house. After going through a divorce (“nothing related to the dumpster,” he told me, unsolicited), he spun into the archetypal downsizing of a newly minted bachelor. He moved into a 500-square-foot apartment. Then he began selling clothes and furniture on Facebook for almost nothing. Now he says almost everything he owns is in his 36-square-foot dumpster, which is sanctioned and supported by the university as part of an ongoing sustainability-focused experiment called The Dumpster Project. “We could end up with a house under $10,000 that could be placed anywhere in the world,” Wilson said at the launch, “[fueled by] sunlight and surface water, and people could have a pretty good life.”

Wilson, known around town as Professor Dumpster, recounted in another recent interview that he now owns four pairs of pants, four shirts, three pairs of shoes, three hats, and, in keeping with his hipsteresque aesthetic, “eight or nine” bow ties. (That’s an exceptional bow-tie-to-shirt ownership ratio.) He keeps all of this in cubbies under a recently installed false floor, along with some camping cooking equipment.

The article is interesting throughout, good photos too.

For the pointer I thank Michelle Dawson.

My favorite things Kentucky

1. Popular music: The Everly Brothers, I recommend this song.  There is also Loretta Lynn and Dwight Yoakum and Merle Travis, I like this video.  In jazz there is Lionel Hampton.

2. Visual artist: Edgar Tolson, that image is not fully safe for work.  John James Audobon worked in the state quite a bit.

3. Movie, set in: Goldfinger, though of course immobilizing that stock would not affect the world price of gold very much.  And keep in mind the nominal price of gold was pegged back then under Bretton Woods — should we really have expected a lot of goods and services deflation, just because some nutcase set off a bomb?  I don’t think so.

4. Monk: Thomas Merton.  He was an excellent writer, as a monk I cannot judge.

5. Author: Hmm…I don’t really like either Robert Penn Warren or Hunter S. Thompson.  So Thomas Merton wins a second category, try The Seven Storey Mountain.

6. NBA player: The incandescent Rex Chapman, recently arrested for shoplifting.  I liked Pervis Ellison too, believe it or not.

7. Movie director: I believe John Carpenter grew up there, he has several excellent films, including The Thing, Starman, Dark Star, and Escape from New York.  I don’t actually enjoy the D.W. Griffith movies.

8. Poet and impresario: Muhammad Ali.

For some inexplicable reason Victor Mature was one of my father’s favorite actors.  There is also Johnny Depp and George Clooney.  Economist Milton Kafoglis passed away not long ago.  How about the Kentucky Colonels?

The bottom line: If I had better taste in fiction, this list would be strong across the board.  I’m in Louisville for the day.

How to shout a pro-democracy slogan in Hong Kong

Other good photos, with different subjects, are here.

More women are among the top earners

Claudia Sahm has given us the link (pdf) for Guvenen, Kaplan, and Song, David Wessel the summary.  The paper abstract is this:

We analyze changes in the gender structure at the top of the earnings distribution in the United States over the last 30 years using a 10% sample of individual earnings histories from the Social Security Administration. Despite making large inroads, females still constitute a small proportion of the top percentiles: the glass ceiling, albeit a thinner one, remains. We measure the contribution of changes in labor force participation, changes in the persistence of top earnings, and changes in industry and age composition to the change in the gender composition of top earners. A large proportion of the increased share of females among top earners is accounted for by the mending of, what we refer to as, the paper floor — the phenomenon whereby female top earners were much more likely than male top earners to drop out of the top percentiles. We also provide new evidence at the top of the earnings distribution for both genders: the rising share of top earnings accruing to workers in the Finance and Insurance industry, the relative transitory status of top earners, the emergence of top earnings gender gaps over the life cycle, and gender di�erences among lifetime top.

David pulls this out:

A trio of economists, wielding big data from Social Security’s records, says that in 1981-85, women constituted just 1.9% of the top 0.1% of earners (based on average earnings for those years) and 5.2% of the top 1%.

But a quarter-century later, in 2008-12, women were 10.5% of the top 0.1% and 27.5% of the top 1%.