Tyler Cowen's Blog, page 264
November 26, 2013
Are capital controls applied the way they are supposed to be?
It seems the answer is no, they are applied acyclically rather than pro-cyclically to calm down overheating economies. Here is a new paper by Andrés Fernández, Alessandro Rebucci, and Martín Uribe, “Are Capital Controls Prudential? An Empirical Investigation”:
A growing recent theoretical literature advocates the use of prudential capital control policy, that is, the tightening of restrictions on cross-border capital flows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in a large number of countries over the period 1995-2011. We find that capital controls are remarkably acyclical. Boom-bust episodes in output, the current account, or the real exchange rate are associated with virtually no movements in capital controls. These results are robust to decomposing boom-bust episodes along a number of dimensions, including the level of development, the level of external indebtedness, or the exchange-rate regime. We also document a near complete acyclicality of capital controls during the Great Contraction of 2007-2009.
This relates to what is perhaps the most frequent mistake in economic analysis. Markets “as we find them” are compared to government policy “as it ought to be,” rather than “government policy as we find it.” If you had nothing else to do, you could blog that error hundreds of times a day.
You also might wish to sample this 2011 IMF survey on capital controls, which relates the following: “A review of the literature shows that capital controls (as distinct from prudential CFMs) have little effect on overall flows, although it appears that controls can change the composition of flows. In most cases, controls also have little effect on currency appreciation…A broader review of the experiences of 13 emerging market economies in the 2000s also does not provide unambiguous support for the effectiveness of capital controls and prudential measures.”
Wishing don’t make it so.
The Great Reset, education edition (hi future)
Arlington-based Strayer Education Inc., hoping to curb declining enrollment, will cut tuition for new undergraduate students by as much as 40 percent.
Strayer will give all new students 20 percent off tuition at enrollment, and is offering a program called Tuition Awards, which will cover the cost of one class for every three a student successfully completes.
…Total enrollment at Strayer University for the fall term fell 17 percent, while new enrollments were down 23 percent.
Strayer (NASDAQ: STRA) is also reducing its workforce by 20 percent and closing 20 physical campuses within the next six months.
It is no surprise for many of these changes to start at the lower end of the market, just as the financial crisis started with subprime. Here is more, and for the pointer I thank Carrie Conko.
Assorted links
1. Quantum and classical light harvesting of plants as a means of computation.
2. Excerpt from Michael Nielsen’s new book on neural nets. His associated Indiegogo is here.
3. Is the number of uninsured in California even going down?
4. MIE: fake slums for luxury tourists who don’t want to see real poverty.
6. Interview with Vaclav Smil. Interview with Robert Skidelsky.
The other hand of the FDA
Via Chaim Katz, here is a Bloomberg headline from 2012: “Asian Seafood Raised on Pig Feces Approved for U.S. Consumers.” Whether or not you agree with this decision (how good is disclosure?), you get the point.
Our DNA, Our Selves
At the same time that the NSA is secretly and illegally obtaining information about Americans the FDA is making it illegal for Americans to obtain information about themselves.
In a warning letter the FDA has told Anne Wojcicki, The Most Daring CEO In America, that she “must immediately discontinue” selling 23andMe’s Personal Genome Service, more affectionately known as the spit kit.
As I wrote when this issue first surfaced in 2010:
The ability of genetic tests to predict diseases is currently limited; if the FDA were simply to require firms to acknowledge this point, say with a clear statement of probabilities, that would be one thing (although this task is better met by the FTC under advertising regulation). But the FDA is brazenly overreaching in trying to regulate genetic tests as medical devices. First, there is no question that these tests are safe–safer than brushing your teeth!–and also effective in identifying genetic markers. Thus,
there is no medical reason whatsoever for regulation.
Moreover, genetic tests provide information, personal information about our bodies and our selves. The FDA has no standing to interfere with the provision of such information.
Consider, I swab the inside of my cheek and send the sample to a firm. The idea that the FDA can rule on what the firm can and cannot tell me about my own genes is absurd–it’s no different than the FDA trying to regulate what my doctor can tell me after a physical examination or what my optometrist can tell me after an eye examination (Please read the first line. ”G T A C C A…”).
The idea that the FDA can regulate and control what individuals may learn about their own bodies is deeply offensive and, in my view, plainly unconstitutional.
Let me be clear, I am not offended by all regulation of genetic tests. Indeed, genetic tests are already regulated. To be precise, the labs that perform genetic tests are regulated by the Clinical Laboratory Improvement Amendments (CLIA) as overseen by the CMS (here is an excellent primer). The CLIA requires all labs, including the labs used by 23andMe, to be inspected for quality control, record keeping and the qualifications of their personnel. The goal is to ensure that the tests are accurate, reliable, timely, confidential and not risky to patients. I am not offended when the goal of regulation is to help consumers buy the product that they have contracted to buy.
What the FDA wants to do is categorically different. The FDA wants to regulate genetic tests as a high-risk medical device that cannot be sold until and unless the FDA permits it be sold.
Moreover, the FDA wants to judge not the analytic validity of the tests, whether the tests accurately read the genetic code as the firms promise (already regulated under the CLIA) but the clinical validity, whether particular identified alleles are causal for conditions or disease. The latter requirement is the death-knell for the products because of the expense and time it takes to prove specific genes are causal for diseases. Moreover, it means that firms like 23andMe will not be able to tell consumers about their own DNA but instead will only be allowed to offer a peek at the sections of code that the FDA has deemed it ok for consumers to see.
Alternatively, firms may be allowed to sequence a consumer’s genetic code and even report it to them but they will not be allowed to tell consumers what the letters mean. Here is why I think the FDA’s actions are unconstitutional. Reading an individual’s code is safe and effective. Interpreting the code and communicating opinions about it may or may not be safe–just like all communication–but it falls squarely under the First Amendment.
The FDA also has the relationship between testing and clinical validity ass-backward. The FDA wants to say no to testing until clinical validity is established but we are never going to discover clinical validity until we have mass testing. 23andMe is attempting to leverage individuals thirst for knowledge about themselves into a big data project that will discover entirely new connections between genotype and phenotype. But personalized medicine, just like personalized movie recommendations, only works with databases of millions. In the 20th century we took on many of our common diseases but it is now time to take on the uncommon diseases. There are some 7,000 known diseases and only about 500 have a treatment. Individual and disease heterogeneity is so large that even the diseases that we can treat are often not treated well. New approaches are necessary for progress. The collection of large amounts of DNA data is not the last step of personalized medicine but the first and by pushing back against the first steps the FDA is delaying the promise and progress of personalized medicine.
Full Disclosure: The FDA’s threat to regulate genetic tests in 2010 made me spitting mad so I put that spit to good use and became a 23andMe customer. Well worth it, if only to point out to my wife that contrary to all evidence I am in fact only 2.2% Neanderthal.
The mover’s advantage: The superior performance of migrant scientists
That is a new paper by Chiara Franzoni, Giuseppe Scellato and Paula Stephan, and the abstract is this:
Migrant scientists outperform domestic scientists. The result persists after instrumenting migration for reasons of work or study with migration in childhood to minimize the effect of selection. The results are consistent with theories of knowledge recombination and specialty matching.
The university-gated version is here. There are more new immigration papers here, via Kevin Lewis.
By the way, over sixty percent of the scientists and engineers of Silicon Valley were born outside of the United States. By the way, here is a new Swiss paper (pdf) on attitudes toward immigrant foreigners.
November 25, 2013
The new Franz Oppenheimer?
Here is the fascinating job market paper by Raul Sanchez de la Sierra� of Columbia University, entitled “On the Origin of States: Stationary Bandits and Taxation in Eastern Congo.” The abstract is this:
The state is among the greatest developments in human history and a precursor of economic growth. Why do states arise, and when do they fail to arise? A dominant view across disciplines is that states arise when violent actors impose a “monopoly of violence” in order to extract taxes. One key fact underlies all existing studies: no census exists prior to the state. In this paper, I provide the first econometric evidence on the determinants of state formation. As a foundation for this study, I conducted fieldwork in stateless areas of Eastern Congo, managing a team that collected village-level panel data on current armed groups. I develop a model that introduces optimal taxation theory to the decision of armed groups to form states, and argue that the returns to such decision hinge on their ability to tax the local population. A sharp, exogenous rise in the price of a bulky commodity used in the video-game industry, coltan, leads armed groups to impose a “monopoly of violence” in coltan villages. A later increase in the price of gold, easier to conceal and hence more difficult to tax, does not. Results based on two alternative identification strategies are also consistent with the model. The findings support the hypothesis that the expected revenue from taxation, in particular tax base elasticity, is a determinant of state formation.
Hire him!
Assorted links
1. The Three (Four?) Christs experiment.
2. The price of oil didn’t much react to the Iran deal. By the way: “…this right is clearly stated in the text of the agreement that Iran can continue its enrichment, and I announce to our people that our enrichment activities will continue as before,” Rouhani said in a statement broadcast live on television in Iran on Sunday morning.”
3. Magnus Carlsen and the Flynn Effect.
4. Ed Luce on the promise and limits of on-line education. MIT . And there is declining tuition revenue at 4 out of 10 U.S. schools.
5. Has the future already arrived in Silicon Valley?
6. Aghion on Krugman and France (in French).
Beware the top search results (the new Ricardian rents?)
Anyone in the US doing their holiday shopping from the product showcases that appear at the top of Google’s search results is almost certain to pay substantially more than if they delved deeper in the search engine.
Five out of every six items in the panels shown on a Google search made in America are more expensive than the same items from other merchants hidden deeper in the index, with an average premium of 34 per cent, according to a Financial Times analysis.
That is from Richard Waters at the FT. Do note, of course, that these higher listed products may also be of higher quality or offer better service in some way.
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