Tyler Cowen's Blog, page 140

What is the least nonsensical interpretation of this result?

New research by Esther Friedman of the RAND Corporation and Robert Mare of UCLA finds that parents of college grads live two years longer than parents whose kids didn’t graduate high school. That two-year bump in life expectancy for parents of the most-educated kids is surprisingly large - it amounts to about two-thirds of the longevity benefit of running every day.

Even more surprising: your kids’ educational attainments have a bigger effect on your life expectancy than your own schooling. While sending your kid to college adds two years to your life relative to letting them flunk out of high school, getting a college degree yourself only adds 1.7 years to your life compared to not having a high school degree.

That is from Christopher Ingraham, the full story is here.

American firms are aging too

The share of firms aged 16 years or more was 23 percent in 1992, but leaped to 34 percent by 2011—an increase of 50 percent in two decades. The share of private-sector workers employed in these mature firms increased from 60 percent to 72 percent during the same period. Perhaps most startling, we find that employment and firm shares declined for every other firm age group during this period.

We explore three potential contributing factors driving the increasing share of economic activity occurring in older firms, and find that a secular decline in entrepreneurship is playing a major role. We also believe that increasing early-stage firm failure rates might be a growing factor.

From Ian Hathaway and Robert E. Litan, there is more here.

Why is euro-area inflation so low?

Sober Look has the numbers, for instance:

The area’s CPI is now below 0.5% on a year-over-year basis. Yesterday we saw German CPI hit new lows (see chart) and Italy’s inflation rate is now hovering just above zero.

What is the most economical model here?  The ECB invested in building up a lot of credibility in some areas, such as price level stability, but that means less credibility when it comes to pushing higher inflation.  So to get two percent inflation, perhaps the ECB has to genuinely and truly seek four percent inflation, because a big chunk of the market won’t believe they really want four percent.  Four will get them to two.

The ECB in fact may be wishing for two percent price inflation and getting…less than that.  Which in turn conditions market participants to doubt the commitment of the ECB to the rates of price inflation which it claims to be seeking.  The ECB and the citizenry can get stuck in a self-fulfilling prophecies equilibrium, yet without requiring a standard liquidity trap.

I don’t by the way think of this as a time consistency problem.  The ECB doesn’t want to be in a position where it is genuinely shooting for four percent inflation, even if that means it will end up imposing only two percent on the Germans.  They are still caught with their proverbial pants down and their internal culture of inflation love would be seen as unacceptable and illegal too.  Yes, the ECB is selfish, and law-abiding as well, as its charter mandates price stability as the goal.

And you know what?  When “selfish” and “law-abiding” point in the same direction, that is very often what you will get.

Economists sign petition asking Congress to contain fallout from Argentina debt ruling

The notice is here, signers include Bob Solow and Dani Rodrik.  I agree with their arguments, and you will find my slightly different but still consistent earlier critique here.  Here is one bit from the press release:

“It’s a widely shared opinion among economists that the court’s attempt to force Argentina into a default that nobody – not the debtor nor more than 90 percent of creditors – wants, is wrong and damaging,” said Mark Weisbrot, economist and Co-Director of the Center for Economic and Policy Research, who helped circulate the letter.

Matt Levine has a good post on the situation here.

Assorted links

1. Further evidence for political insider trading, this time for hedge funds.

2. You call it “3-D printing optimism,” I call it “order transmission and cheap delivery pessimism.”  Amazon enters the game.

3. Google search and stock prices, further results.

4. Indian monkey costume markets in everything, Parliamentary edition.  And lingerie for Chinese peaches.

5. China will liberalize its internal passport system.  And The Woman in Black settles in Winchester,VA.

6. Broody octopus keeps four-year vigil.

7. In which we learn that Neel Kashkari is very good at impersonating a zero marginal product worker.  That skill usually does not operate in reverse.

8. Brad DeLong on Jeff Faux and NAFTA.  I mostly agree, but also think rural Mexican corn farmers need to be leaving that sector in any case.

Private Schools vs. Caste Discrimination

Nearly 30% of children in India (ages 6-14) attend private schools and in some states and many urban regions a majority of the students attend private schools. Compared to the government schools, private schools perform modestly better on measures of learning (Muraldiharan and Sundararaman 2013, Tabarrok 2011) and much better on cost-efficiency. Moreover, even though the private schools are low cost and mostly serve very poor students they also have better facilities such as electricity, toilets, blackboards, desks, drinking water etc. than the government schools (e.g. here and here).

In an op-ed Vipin Veetil and Akshaya Vijayalakshmi argue that the private schools may also reduce caste discrimination:

It’s no secret that government schools in India are of poor quality. Yet few know that they are also breeding grounds for caste-based discrimination, with lower-caste students in government schools often asked to sit separately in the classroom, insulted in front of their peers and even forced to clean toilets. This despite the fact that caste discrimination is illegal in India.

…Government-school teachers aren’t necessarily more prejudiced than their private-school counterparts. But private-school teachers find it more costly to discriminate. In a survey of over 5,000 children, academic researchers James Tooley and Pauline Dixon found that students in private schools felt more respected by their teachers than children in government schools.

Caste discrimination in the government schools is also one of the reasons why the private schools focus on teaching English. Among the Dalits, English is understood as the language of liberation not just because it offers greater job prospects but even more because Hindi, Sanskrit and the regional languages are burdened by and interwoven with a history of Dalit oppression. As one Dalit put it, “No one knows how to curse me as well as in Tamil.”

Why not put a firm on your board?

State corporate law requires that “natural persons” provide director services. This Article puts this obligation to scrutiny, and concludes that there are significant gains that could be realized by permitting firms (be they partnerships, corporations, or other business entities) to provide board services. We call these firms “board service providers” (BSPs). We argue that hiring a BSP to provide board services instead of a loose group of sole proprietorships will increase board accountability, both from markets and from courts. The potential economies of scale and scope in the board services industry (including vertical integration of consultants and other board member support functions), as well as the benefits of risk pooling and talent allocation, mean that large professional director services firms may arise, and thereby create a market for corporate governance distinct from the market for corporate control. More transparency about board performance, including better pricing of governance by the market, as well as increased reputational assets at stake in board decisions, means improved corporate governance, all else being equal. But our goal in this Article is not necessarily to increase shareholder control over firms; we show how a firm providing board services could be used to increase managerial power as well. This shows the neutrality of our proposed reform, which can therefore be thought of as a reconceptualization of what a board is rather than a claim about the optimal locus of corporate power.

That is from a Stanford Law Review piece by Stephen M. Bainbridge and M. Todd Henderson.  For the pointer I thank Kevin Lewis.

Interview on inequality, with Eduardo Porter

Eduardo Porter interviewed me in addition to his column, here is one excerpt:

What about other consequences of inequality? There is evidence that it hurts mobility, sapping young men’s incentives to succeed. Some have suggested it corrupts our political system and could fuel social unrest.

We know very little about what income inequality tends to cause in politics. We do see that income inequality is up considerably and crime is down considerably. We do know that older societies, as we are becoming, tend to be more peaceful and stable. We also see that a rising middle class often leads to political instability, such as in Thailand or Turkey or Brazil or for that matter the United States in the 1960s. Many young American men may be experiencing a crisis of confidence these days, but the problem lies in the absolute quality of their opportunities, not the gap between them and Bill Gates.

And this:

If we are looking for a remedy, a greater interest in strict religions would help many of the poor a lot — how about Mormonism for a start? Just look at the data. Many other religions prohibit or severely limit alcohol, drugs and gambling. That said, this has to happen privately rather than as a matter of state policy.

Here is the whole thing.

Is genetic risk aversion rational?

As the conflict rages, displacing hundreds of thousands, U.N. and Palestinian officials say some families have made a macabre calculation: to split up, with each group seeking refuge in different parts of Gaza. If one part of the family gets killed, others will live on to help the survivors and keep their dynasty alive.

But most families, officials say, still move together as a source of strength and comfort. Some are now living with other relatives, further increasing their familial size, while others have taken shelter in U.N.-run schools and other refuges.

From Sudarsan Raghavan, there is more here.  Note that if there is a “single (cost-adjusted) safest perceived place,” splitting up the family into two or more locations is increasing the net expected danger to some family members, without making any members safer.

“In a data-chic world, a chief economist is the new marketing must-have.”

The rest of the WaPo story, by Lydia DePillis, is here.  Here is one excerpt:

The market for consumer-facing economists is certainly getting crowded. Big Internet companies have had chief economists for years now; Google’s Hal Varian is an oft-quoted exponent of his employer’s capabilities and worldview. Microsoft recently hired Yahoo’s former chief economist to push a more “data-driven culture” at the tech dinosaur.

But they’re not just looking for super-wonks. More importantly for Richardson, rival real estate sites Zillow, Trulia, and CoreLogic have offered their chief economists as media-friendly talking heads, always available to explain national trends: Stan Humphries, Jed Kolko, and Mark Fleming have essentially become their companies’ most visible employees, speaking at conferences and testifying on Capitol Hill. That’s why Apartmentlist.com’s recent listing for a chief economist includes the following in its job description: “Act as the face of the company with key journalists for both print and tv interviews with leading publications,” “work closely with our PR and branding teams,” and have “excellent stage presence.”

File under “Those New Service Sector Jobs.”