Tyler Cowen's Blog, page 163

Assorted links

1. MRU commencement speech?

2. Hong Kong groups get together to eat food they hate.  And the exposure of Taiwanese banks to China.

3. More companies are offering IPOs to employees, customers, and fans.

4. The new French school with no teachers, no books, and no tuition.  And the price of higher education will be falling.

5. Miyazaki images.

6. Data on some of the new websites.

Can we trust published results in finance?

Maybe not.  So says the new working paper by Campbell R. Harvey, Yan Lui, and Heqing Zhu, the abstract is here:

Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0. However, what hurdle should be used for current research? Our paper introduces a multiple testing framework and provides a time series of historical significance cutoffs from the first empirical tests in 1967 to today. We develop a new framework that allows for correlation among the tests as well as publication bias. We also project forward 20 years assuming the rate of factor production remains similar to the experience of the last few years. The estimation of our model suggests that today a newly discovered factor needs to clear a much higher hurdle, with a t-ratio greater than 3.0. Echoing a recent disturbing conclusion in the medical literature, we argue that most claimed research findings in financial economics are likely false.

If you click on the link above, you also will see a picture summarizing their main points.

For the pointer I thank Noah Smith.

What does the Argentina Supreme Court decision mean?

Joseph Cotterill writes:

Pari passu will now be enshrined as a powerful enforcement device in New York-law sovereign debt.

The Supreme Court declined to hear the case, meaning the current ruling will stand.  The bottom line is that if Argentina tries to bypass a holdout debtor and make a payment somewhere else, the denied debtor has a potential legal claim to those funds.  To expand on that a bit:

This law supports courts in deciding that ratable payment could be a remedy to use against sovereigns who refuse to pay their debts, and that third parties — settlement banks, clearing systems, other bondholders — may be sued if they are seen to handle funds in violation of such orders.

In more practical terms, that raises the cost to banks which are still dealing with Argentina or other defaulting nations.  Most likely, this means creditors have a stronger incentive to be holdouts in the first place.  I take that to be a negative and welfare-decreasing.  If creditor rights were weaker up front, as I would prefer, it would be harder for nations to over-borrow in the first place, and ex post less of the cost of that over-borrowing will fall on the taxpayers and citizens of the poorer citizenry.  Furthermore this could mean that associated financial institutions will be quicker to run for the exits once trouble materializes for a country, and that may worsen “sudden stop” and “runs” problems with lending to sovereigns.

In a separate but related judgment yesterday:

Ruling seven to one, the justices decided that the holdouts are allowed to “seek infor­mation about Argentina’s worldwide assets generally” to enforce judgment debt.

You can think of both judgments as telling Argentina they cannot default in the manner in which they had attempted to.  And what might Argentina’s response be?  They might once again…default.  The country has two weeks to try to make it work under the current arrangements.

Here is yet another explanation.  Here is Peter Coy on the same.  Here is The Economist.  This piece discusses the constraints on negotiating with the holdouts.

Are currency movements and capital outflows the relevant lever for China problems?

Maybe so:

There are some benefits to a weaker currency, such as more competitive exports. But with China’s current account surplus having shrunk from 10 per cent of gross domestic product in 2007 to just 2 per cent now, net outflows have a bigger impact on currency markets.

“[Policy makers] need the renminbi to go down, but that then unlocks Pandora’s box,” says Ms Choyleva. “If you exclude the exchange rate gains there’s nothing much left to invest in China.”

Kevin Lai, head of Asian economic research at Daiwa, believes the moves to guide the renminbi higher last week by the People’s Bank of China are a sign that authorities are “deeply concerned” the recent trickle of capital outflow could become a damaging flood – especially if the US Federal Reserve’s unwinding of asset purchases entices capital out of emerging markets including China.

The PBoC has for years expanded its balance sheet as foreign capital flowed in, he explains. Now, with capital beginning to flow out China’s central bank is being forced to add cash to the economy without the underpinning of US dollar inflows. That, in turn, is contributing to renminbi weakness.

His forecast is for a further 8 per cent fall in the Chinese currency against the dollar by the end of 2015, to Rmb6.83 from Rmb6.21 now, pushing back down through the 18-month lows plumbed in recent weeks.

“If the renminbi keeps going down, the market will demand a real answer and start pulling money out. That is the worst fear of the PBoC,” says Mr Lai.

That is Josh Noble from the FT, there is more here.

Assorted links

1. Is robot journalism going mainstream?  And a Guardian survey piece on automation.

2. German investment is low and falling.

3. Which country has the best fans at the World Cup?

4. Joel Mokyr vs. Robert Gordon.

5. Has all politics become national?

6. The Piketty slides of Justin Wolfers, very useful.

7. A critique of Clayton Christensen.

The importance of tax evasion

Mr. Zucman’s tax evasion numbers are big enough to upend common assumptions, like the notion that China has become the world’s “owner” while Europe and America have become large debtors. The idea of the rich world’s indebtedness is “an illusion caused by tax havens,” Mr. Zucman wrote in a paper published last year. In fact, if offshore assets were properly measured, Europe would be a net creditor, and American indebtedness would fall from 18 percent of gross domestic product to 9 percent.

There is more here, interesting throughout.  You will find some of the related research here.

What is the “sticker shock” for ACA reform?

There is a new NBER Working paper on that topic, by Mark Pauly, Scott Harrington, and Mark Leive, here is the abstract:

This paper provides estimates of the changes in premiums, average or expected out of pocket payments, and the sum of premiums and out of pocket payments (total expected price) for a sample of consumers who bought individual insurance in 2010 to 2012, comparing total expected prices before the Affordable Care Act with estimates of total expected prices if they were to purchase silver or bronze coverage after reform, before the effects of any premium subsidies. We provide comparisons for purchasers of self only coverage in California and in 23 states with minimal prior state premium regulation before the ACA now using federally managed exchanges. Using data from the Current Population Survey, we find that the average prices increased by 14 to 28 percent, with similar changes in California and the federal exchange states; we attribute the increase primarily to higher premiums in exchanges associated with insurer expectations of a higher risk population being enrolled. The increase in total expected price is similar for age-gender population subgroups except for a larger than average increases for older women. A welfare calculation of the change in risk premium associated with moving from coverage that prevailed before reform to bronze or silver coverage finds small changes.

You will find an ungated version here.  The general point is that you hear enormous amounts of talk, including from economists, about what a success ACA has been.  This talk does not in general consider trade-offs or welfare calculations, as could be illustrated by these results.

Sentences to ponder

Staff members at dozens of Department of Veterans Affairs hospitals across the country have objected for years to falsified patient appointment schedules and other improper practices, only to be rebuffed, disciplined or even fired after speaking up, according to interviews with current and former staff members and internal documents.

An intrinsic problem with government bureaucracy, or just the result of having the wrong people in charge?  I say the former.  The story is here.

From the comments, more on LBGT as deserving of respect

Mr. Econotarian wrote:

Actual science is that your brain can be gendered during development in a different fashion than your sex chromosomes. And that gender is not something that hormones alone can “fix”.

For example, the forceps minor (part of the corpus callosum, a mass of fibers that connect the brain’s two hemispheres) – among nontranssexuals, the forceps minor of males contains parallel nerve fibers of higher density than in females. But the density in female-to-male transsexuals is equivalent to that in typical males.

As another example, the hypothalamus, a hormone-producing part of the brain, is activated in nontranssexual men by the scent of estrogen, but in women—and male-to-female transsexuals—by the scent of androgens, male-associated hormones.

I would stress a social point.  If it turns out you are born “different” in these ways (I’m not even sure what are the right words to use to cover all the relevant cases), what is the chance that your social structure will be supportive?  Or will you feel tortured, mocked, and out of place?  Might you even face forced institutionalization, as McCloskey was threatened with?  Most likely things will not go so well for you, even in an America of 2014 which is far more tolerant overall than in times past, including on gay issues.  Current attitudes toward transsexuals and other related groups remain a great shame.  A simple question is how many teenagers have been miserable or even committed suicide or have had parts of their lives ruined because they were born different in these ways and did not find the right support structures early on or perhaps ever.  And if you are mocking individuals for their differences in this regard, as some of you did in the comments thread, I will agree with Barkley Rosser’s response: “Some of you people really need to rethink who you are.  Seriously.”

Some of you people really need to rethink who you are. Seriously. – See more at: http://marginalrevolution.com/margina...

It’s not just the libertarian argument that you have — to put it bluntly — the “right to cut off your dick” (though you do).  It’s that there are some very particular circles of humanity, revolving around transsexuality, cross-gender, and related notions, which deserve a culture of respect, above and beyond mere legal tolerance.

India is not the paradise for cross- and multiple-gender individuals that it is sometimes made out to be, but still we could learn a good deal from them on these issues.  If nothing else, the argument from ignorance ought to weigh heavily here: there is plenty about these categories which we as a scientific community do not understand, and which you and I as individuals probably understand even less.  So in the meantime should we not extend maximum tolerance for individuals whose lives are in some manner different?

No, I do not know what are the appropriate set of public policies for when children should receive treatment, if they consistently express a desire to change, and what are the relative limits of family and state in these matters.  But if we start with tolerance and acceptance, and encourage a culture of respect for transsexualism, we are more likely to come up with the right policy answers, and also to minimize the damage if in the meantime we cannot quite figure out when to do what.

Starbucks will be funding on-line education

Starbucks will provide a free online college education to thousands of its workers, without requiring that they remain with the company, through an unusual arrangement with Arizona State University, the company and the university will announce on Monday.

The program is open to any of the company’s 135,000 United States employees, provided they work at least 20 hours a week and have the grades and test scores to gain admission to Arizona State. For a barista with at least two years of college credit, the company will pay full tuition; for those with fewer credits it will pay part of the cost, but even for many of them, courses will be free, with government and university aid.

“Starbucks is going where no other major corporation has gone,” said Jamie P. Merisotis, president and chief executive of the Lumina Foundation, a group focused on education. “For many of these Starbucks employees, an online university education is the only reasonable way they’re going to get a bachelor’s degree.”

There is further information here.