Tyler Cowen's Blog, page 314
August 20, 2013
Why have corporate profits been high?
Jeremy Siegel reports:
…David Bianco, chief equity strategist at Deutsche Bank, has shown that most of the margin expansion over the past 15 years has come from two factors: the increased proportion of foreign profits, which have higher margins because of lower corporate tax rates; and the increased weight of the technology sector in the S&P 500 index, a sector that usually carries the highest profit margins.
Higher profit margins also result from stronger balance sheets. The Federal Reserve reports that since 1996, the ratio of corporate liquid assets to short-term liabilities has nearly doubled, and the proportion of credit market debt that is long term has increased to almost 80 per cent from about 50 per cent. This means many companies have locked in the recent record low interest rates and will be much less sensitive to any future increase in rates, keeping margins high.
New evidence on anchoring effects
One Swallow Doesn’t Make a Summer: New Evidence on Anchoring Effects
Zacharias Maniadis, Fabio Tufano & John List
American Economic Review, forthcoming
Abstract:
The experimental method is taking on increasing import within the economic science. We present a theoretical framework that provides insights into the optimal usage of the experimental method and the appropriate interpretation of experimental results. A key insight is that the rate of false positives depends not only on the observed significance level, but also on statistical power of the test and research priors. Through the lens of our model, we argue that most ‘surprising’ results published in the top scientific journals are likely false. As an example, we present evidence that a celebrated study with far-reaching economic implications reports results that are not replicable. The bad news is that this study is just one of hundreds that will not replicate. The good news is that a little replication goes a long way: a few independent replications dramatically increase the chances that the original finding is true.
The second link in the list, “How Economists (Mis)Use Experimental Methods,” provides an ungated pdf to the piece. The top link has an AEA member gate.
Hat tip goes to Kevin Lewis.
The Microeconomics of Export Restrictions
The typical protectionist measure is a limit on imports such as a tariff or a quota. Restrictions on exports are less common and less discussed but proposals to restrict the exports of natural gas have been in the news recently so perhaps a quick refresher on the protectionism of export restriction is in order. Restrictions on imports harm domestic demanders and benefit domestic suppliers but the harm is greater than the benefit so restrictions on imports create a net social loss. The basic result on export restrictions is similar, export restrictions benefit domestic demanders and harm domestic suppliers but the harm is greater than the benefit so restrictions on exports create a net social loss. The figure gives the analysis. As with import restrictions, the arguments for export restrictions soon turn to spillovers, networks effects, and other second round arguments. Without dismissing these in any particular case, the basic analysis suggest we should be wary of such arguments–the transfer always creates political opposition and any second round gains would have to be larger than the first round net benefits.
Addendum: Matt Yglesias comments. In brief he argues for the tax on Georgist grounds. Just because natural gas comes from land, however, doesn’t make a tax on natural gas equivalent to a tax on land. It’s the value of unimproved land that should be taxed not the value of the improvements, namely the extraction of the gas.
Are we seeing skill mismatch after all?
Peter Orszag writes:
An odd puzzle is taking shape in the labor market: Over the past three years, the number of job openings has risen almost 50 percent, but actual hiring has gone up by less than 5 percent. Companies are advertising a lot more jobs, in other words, but not filling them.
To get some sense of how significant this is, consider that if, since June 2010, hiring had risen a third as much as advertised jobs have (rather than only a 10th), and nothing else were different, job creation would be roughly 500,000 higher each month, and the unemployment rate would already be back to normal levels.
One possibility is that companies are offering jobs, but at wages too low to attract takers:
Some support for this perspective comes from experimental data in the jobs survey, which show that the job-offer rate has risen most sharply (relative to hiring) for establishments with 10 to 250 workers.
Alternatively, companies may be filling positions internally, or they may be advertising without much intention of hiring. Or we are back to the skills mismatch hypothesis. Are companies simply expecting too much perfection in their new hires? If so, why has the demand for (near) perfection gone up?
Here is commentary from Reihan. And here is commentary by Ashok Rao (did you know he is 18 years old and from Chennai?).
How to eat well in Jakarta
There are three main tiers for eating: the stalls, the food courts and restaurants in the fancy malls, and the fancy restaurants and buffets in the fancy hotels.
Oddly, standard stand-alone “restaurants” play less of a role here than in any other major city I know. (Stand-alone stores are also less important, could it be that the hot weather and traffic encourages a clumping of retail visits into large malls?) And the very small restaurants can be good, but overall I think they are dominated by the stalls.
When it comes to the stalls, you will stumble upon a bunch and then you can simply choose what looks good. Stalls in the better parts of town appear more salubrious and indeed probably are.
The food courts are good, and clean, but too homogenized for my taste. Plastic trays reign.
The fancy buffets I would never go to if I lived here, but they are a good way to sample many dishes during the course of a meal. I recommend them for tourists and newcomers. The key to eating well from them is to choose those dishes which require outside aid for their assembly.
The key question is then the optimal ratio of stalls to fancy buffets, and that depends on how many days you have in town. The fancy buffets are also better for some of the fancier dishes, for instance as might involve lamb or crabs, or for dishes from other regions of the country.
And that is how you eat well in Jakarta. Knowledge of specific restaurants is not the key here.
August 19, 2013
What explains regional variation in health care spending?
It doesn’t seem to be demand side factors, but rather what doctors believe, including false beliefs. That is scary. There is a new NBER paper by David Cutler, Jonathan Skinner, Ariel Dora Stern, and David Wennberg and the abstract is this:
There is considerable controversy about the causes of regional variations in healthcare expenditures. We use vignettes from patient and physician surveys, linked to Medicare expenditures at the level of the Hospital Referral Region, to test whether patient demand-side factors, or physician supply-side factors, explains regional variations in Medicare spending. We find patient demand is relatively unimportant in explaining variations. Physician organizational factors (such as peer effects) matter, but the single most important factor is physician beliefs about treatment: 36 percent of end-of-life spending, and 17 percent of U.S. health care spending, are associated with physician beliefs unsupported by clinical evidence.
There is an earlier ungated version here (pdf).
Child labor during World War II
Many states had induced this crisis by suspending or relaxing their child labor laws, but even those still operative proved ineffective. by one estimate 900,000 children between twelve and eighteen were working in defiance of the law in their state. Philadelphia saw a decline of 13 percent in high school attendance,while in Oakland 15 percent of the children under sixteen had gone to work. Nothing demonstrated the failings of the educational system more than the irony that many of these kids earned more than their teachers did.
That is from the new Maury Klein book A Call to Arms: Mobilizing America for World War II.
Assorted links
1. Venezuelan gangs are stealing women’s hair for resale.
2. Hayek as read by Chinese Communists.
3. Is Nebraska farmland now too expensive? (Are we seeing Austro-Nebraskan business cycle theory in action?)
5. Chinese auction markets in everything, including support of dissidents.
Beware the beam
Urologists “referred a substantially higher percentage of their prostate cancer patients” to radiation therapy when the doctors owned the equipment — linear accelerators — or had financial ties to those who provided the treatment, the report said.
Here is much more.
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