Tyler Cowen's Blog, page 172
May 30, 2014
The Invisible Hand of Eco-nomics
Cap and trade is going nowhere at the federal level but the California program is large and expanding and the CA program allows for properly monitored and regulated offsets to be purchased from anywhere in the United States. As a result, a price on carbon is being established nationally. As the NYTimes indicates in a very good article, once a market and a price have been established, contentious politics turns into mutually beneficial economics.
Experts who support cap and trade contend that a market mechanism can reach more deeply into the economy than any other approach, changing the behavior even of people and companies that might not necessarily care about global warming.
The Wisconsin dairymen perhaps serve as an example of that.
Even as the methane-powered generator roared on his property, John T. Pagel said he was not convinced that the climatic changes happening in the United States were a result of human emissions. He suspects they might be part of a natural cycle. But with Californians dangling cash in exchange for his willingness to cut emissions, he jumped at the chance to build his digester.
“We are doing exactly what they asked us to do to get paid to reduce carbon,” Mr. Pagel said. “If somebody else believes in it enough to put up the money, that’s all I need to know.”
What does low volatility in asset prices mean?
The excellent Gillian Tett has some interesting (and speculative) thoughts on this question, putting a new twist on Hayek:
But there is a second, less benign possible reason for low volatility: markets have been so distorted by heavy government interference since 2008 that investors are frozen. One issue that may account for the pattern, for example, is that tougher regulations have prompted banks to stop trading some assets. Another is that ultra-low interest rates have made investors reluctant to deploy their cash in public, liquid markets.
And there could be a more subtle issue at work too: investors are so unsure what to make of this level of government interference that they are unwilling to take any big bets. Far from being a sign of sunny confidence in the future, ultra-low volatility may show that investors have lost faith that markets work.
In reality, nobody knows which of these explanations holds true; I suspect that government meddling and low interest rates are the key factors here, but academic research on this issue is thin. However, one thing that is clear is that the longer this pattern remains in place, the more wary investors and policy makers should be.
The rest of the FT article is here.
Giving away money well can be harder than earning it
Northwestern has a new class method trying to teach that skill:
Vinay Sridharan must make it through microeconomic theory and the writings of Proust before the end of his senior year at Northwestern in June. But in one course, the final project is far less abstract: give away $50,000.
It is also far more difficult than it may seem.
This course in philanthropy, endowed with a grant from a Texas hedge fund manager, requires students to find and investigate nonprofit organizations and, if they stand up to scrutiny, give them a portion of the five-figure cash pot.
But did the backing donor give his money away well? I am not so sure. There is more here.
May 29, 2014
Sweden has lots of wealth inequality
Sweden is viewed as an egalitarian utopia by outsiders, but reality is complex. In some ways Sweden has less social equality than the United States. While the American upper class is largely meritocratic, the upper class in Sweden are still mostly defined by birth.
Historically, Sweden, Norway and Finland alone in Europe never developed Feudalism (Denmark was closer to continental Europe). The Nordic nobility was a small share of the population and not as powerful as the nobility in continental Europe, though still influential. The upper class in Sweden today consists of the nobility and of wealthy bourgeoisie families that socially merged with them. Wealthy bourgeois families live in the same neighborhoods and have adopted similar behavior and identity as the nobility. Despite long Social Democratic dominance they remain a coherent social group, with a distinct and recognizable accent, way of dressing, values etc.
Belonging to the upper-class is not defined merely by wealth, depending more on blood. Just as in historical times, a Nouveau riche member of the middle class will not automatically be accepted as a member of the upper-classes, unless they actively adapt their behavior and are accepted by the upper-classes socially.
The upper classes in Sweden retain a disproportional hold on wealth and power. The formal nobility in Sweden constitutes around 0.2% of the population. A couple of years ago I looked through the list of the wealthiest Swedes. Fully 10% of the richest Swedes are members of the nobility. By contrast not a single one of the richest Swedes was a non-European immigrant. Of Sweden’s prime-ministers Sweden during the modern era 20% belonged to the nobility.
Sweden is known for income equality. Increasingly, studies also point to Sweden as a country characterized by high intergenerational mobility of income. Income-distribution and wealth distribution are however not the same thing. What some may not know is that wealth-inequality is relatively high in Sweden. The top one percent own
From the comments
Mesa wrote:
I would suspect that successful research institutions don’t feel obliged to redistribute their funding to less fortunate institutions. I think the point that is interesting here is that successful academic institutions are probably deemed to have earned their support, while successful business people are not, they having generally thought to have earned their success through luck or inheritance. From the endowment and research funding data it seems universities have both high income inequality and wealth inequality, to use terminology from the current debate.
I would suspect that successful research institutions don’t feel obliged to redistribute their funding to less fortunate institutions. I think the point that is interesting here is that successful academic institutions are probably deemed to have earned their support, while successful business people are not, they having generally thought to have earned their success through luck or inheritance. From the endowment and research funding data it seems universities have both high income inequality and wealth inequality, to use terminology from the current debate. – See more at: http://marginalrevolution.com/margina...
I would suspect that successful research institutions don’t feel obliged to redistribute their funding to less fortunate institutions. I think the point that is interesting here is that successful academic institutions are probably deemed to have earned their support, while successful business people are not, they having generally thought to have earned their success through luck or inheritance. From the endowment and research funding data it seems universities have both high income inequality and wealth inequality, to use terminology from the current debate. – See more at: http://marginalrevolution.com/margina...
I would suspect that successful research institutions don’t feel obliged to redistribute their funding to less fortunate institutions. I think the point that is interesting here is that successful academic institutions are probably deemed to have earned their support, while successful business people are not, they having generally thought to have earned their success through luck or inheritance. From the endowment and research funding data it seems universities have both high income inequality and wealth inequality, to use terminology from the current debate. – See more at: http://marginalrevolution.com/margina...
I would suspect that successful research institutions don’t feel obliged to redistribute their funding to less fortunate institutions. I think the point that is interesting here is that successful academic institutions are probably deemed to have earned their support, while successful business people are not, they having generally thought to have earned their success through luck or inheritance. From the endowment and research funding data it seems universities have both high income inequality and wealth inequality, to use terminology from the current debate. – See more at: http://marginalrevolution.com/margina...
I would suspect that successful research institutions don’t feel obliged to redistribute their funding to less fortunate institutions. I think the point that is interesting here is that successful academic institutions are probably deemed to have earned their support, while successful business people are not, they having generally thought to have earned their success through luck or inheritance. From the endowment and research funding data it seems universities have both high income inequality and wealth inequality, to use terminology from the current debate. – See more at: http://marginalrevolution.com/margina...
Score one for the signaling model of education
In the new AER there is a paper by Melvin Stephens Jr. and Dou-Yan Yang, the abstract is this:
Causal estimates of the benefits of increased schooling using US state schooling laws as instruments typically rely on specifications which assume common trends across states in the factors affecting different birth cohorts. Differential changes across states during this period, such as relative school quality improvements, suggest that this assumption may fail to hold. Across a number of outcomes including wages, unemployment, and divorce, we find that statistically significant causal estimates become insignificant and, in many instances, wrong-signed when allowing year of birth effects to vary across regions.
In other words, those semi-natural experiments for the return to education, when some regions move with extra doses of compulsory schooling before others and we estimate differential wage effects, maybe don’t show as much as we used to think. As I’ve remarked to Bryan Caplan, if there is a criticism of a famous or politically correct result (or better yet both) getting published in the AER, you can up your Bayesian priors on that criticism being on the mark.
There are ungated copies of the paper here.
Piketty responds to critics
Assorted links
1. Scott Sumner on how to think about France.
2. Three revolutions from Miles Kimball.
3. Why the Germans are still in charge. And Italy’s real problem, in one picture.
4. What is the longest disambiguation page on Wikipedia?
5. My 2011 column on driverless cars.
6. Asian small-clawed otters celebrate enrichment at the Smithsonian.
7. McArdle on Piketty. And check out the cover (!).
A libertarian case for expanding Medicaid
Currently health care is very expensive in the United States, especially if you have to buy hospital care without formal insurance. Under ideal institutions, it would be much cheaper, maybe a third of the current price or lower yet (not for everything, though). For instance in Singapore health care expenditures are about four percent of gdp. A libertarian may think that laissez-faire or near laissez-faire is the way to go, while others might favor single payer with price controls, and so on. In any case, in the meantime we are stuck with expensive health care, and for reasons related to bad and coercive government policy.
Now, would a libertarian think that we should cut health care services in prisons, simply because tax dollars are in play? No, the prisoners — many of whom are morally innocent — have nowhere else to go for treatment. When it comes to health care, many potential Medicaid recipients are in essence prisoners, locked into a policy-deficient environment and so they cannot buy quality care at affordable prices. So if we favor health care expenditures for prisoners we might also favor Medicaid expansions.
That said, expanding the current version of Medicaid is unlikely to be a first-best solution, no matter what your broader political stance.
Addendum: Jacob Levy offers comment.
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