Tyler Cowen's Blog, page 376
April 18, 2013
Berlin at night
You all know the famous photo of the two Koreas? Well, here is a photo of Berlin at night:. The key point is that the West and East still look quite different, mostly because they use different kinds of light bulbs.
The pointer is from Elan Bechor, who credits Canadian astronaut Chris Hadfield with the photo.
ZMP workers and morale externalities
On Twitter, Bryan Caplan asks me to clarify why zero marginal product workers do not clash with the notion of comparative advantage. The point is simple: some workers destroy a lot of morale in the workplace and so the employer doesn’t want them around at any price.
Most of us buy into “morale costs” as a key reason behind sticky nominal wages. If your wage is too low, your morale falls, you produce less and so the wage cut isn’t worth it. Well, what else besides low wages makes people unhappy in their workplace? Very often the quality of co-workers is a major source of unhappiness; just listen to people complain about their jobs and write down how many times they are mentioning co-workers and bosses. (I do not exempt academics here.) A “rotten apple” can make many people less productive, and you can think of that as a simple extension of sticky nominal wage theory, namely that installing or tolerating a “pain in the ass” is another way of cutting wages for the good workers, they don’t like it, it lowers their productivity, and thus it is not worth tolerating the rotten apple if said apple can be identified and dismissed.
There is no particular reason to think that ZMP workers are especially stupid or in some way “disabled.” If anything it may require some special “skills” to get under people’s skins so much. (Of course there are some individuals who, say for health reasons, cannot produce anything at all but they are not usually in or “near” the active labor force.) To draw a simple analogy, the lowest-publishing members of academic departments are rarely those who make the most trouble.
To the extent production becomes more complex and more profitable, ZMP workers are more of a problem because there is more value they can destroy. The relevance of these morale costs also varies cyclically, in standard fashion. A company is more likely to tolerate a “pain” in boom times when the labor itself has a higher return.
Note also the “expected ZMP worker.” Let’s say that some ZMPers destroy a lot of value (that makes them NMPers). You pay 40k a year and you end up with a worker who destroys 80k a year, so the firm is out 120k net. Bosses really want to avoid these employees. Furthermore let’s say that a plague of these destructive workers hangs out in the pool of the long-term unemployed, but they constitute only 1/3 of that pool, though they cannot easily be distinguished at the interview stage. 1/3 a chance of getting a minus 120k return will scare a lot of employers away from the entire pool. The employers are behaving rationally, yet it can be said that “there is nothing wrong with most of the long-term unemployed.” And still they can’t get jobs and still nominally eroding the level of wages won’t help them.
In the perceived, statistical, expected value sense, the lot of these workers is that of ZMPers.
One policy implication is that it should become legally easier to offer a very negative recommendation for a former employee. That makes it easier to break the pooling equilibrium. There also are equilibria where it makes sense to “buy the NMPers out” of workforce participation altogether, pay them to emigrate, etc., although such policies may be difficult to implement. Oddly, if work disincentives target just the right group of people — the NMPers — (again, hard to do, but worth considering the logic of the argument) those disincentives can raise the employment/population ratio, at least in theory.
Addendum: Garett Jones offers yet a differing option for understanding ZMP theories.
Who shares data?
Perhaps I’ve linked to this before, I am not sure, but it is worth another look:
We provide evidence for the status quo in economics with respect to data sharing using a unique data set with 488 hand-collected observations randomly taken from researchers’ academic webpages. Out of the sample, 435 researchers (89.14%) neither have a data&code section nor indicate whether and where their data is available. We find that 8.81% of researchers share some of their data whereas only 2.05% fully share. We run an ordered probit regression to relate the decision of researchers to share to their observable characteristics. We find that three predictors are positive and significant across specifications: being full professor, working at a higher-ranked institution and personal attitudes towards sharing as indicated by sharing other material such as lecture slides.
That is from Patrick Andreoli Versbach and Frank-Müller Lange, with a thanks to Florens Sauerbruch for the pointer.
Here (via @autismcrisis) is a new paper by John Ioannidis and Chris Doucouliagos, “What’s to Know About the Credibility of Empirical Economics?”, possibly gated for you, here is the abstract:
The scientific credibility of economics is itself a scientific question that can be addressed with both theoretical speculations and empirical data. In this review, we examine the major parameters that are expected to affect the credibility of empirical economics: sample size, magnitude of pursued effects, number and pre-selection of tested relationships, flexibility and lack of standardization in designs, definitions, outcomes and analyses, financial and other interests and prejudices, and the multiplicity and fragmentation of efforts. We summarize and discuss the empirical evidence on the lack of a robust reproducibility culture in economics and business research, the prevalence of potential publication and other selective reporting biases, and other failures and biases in the market of scientific information. Overall, the credibility of the economics literature is likely to be modest or even low.
April 17, 2013
The food culture that is Canada
When author Anita Stewart first heard about the Canadian government’s new food truck parked in Mexico City, she laughed so hard she cried. The new Canada-branded, taxpayer-funded venture, which kicked off its three-week pilot project last week, is serving up a Mexican-ized version of poutine, using Oaxaca cheese instead of curds. Also on the menu are Alberta beef tourtière, and maple-glazed Albacore tuna.
The truck is trying to draw attention to Canadian products such as McCain French fries, and promote the ‘Canada Brand’ in Mexico.
Here is more, via @RGrier88. By the way, I enjoyed this paragraph:
“Some of our initial research in Mexico to support the Canada Brand found that only 35% of Mexicans were able to associate Canada to a particular food product, with fish and maple syrup being the most cited,” Patrick Girard, a spokesperson for Agriculture Canada, wrote in an email Wednesday to the Post.
That said, whenever I travel to Canada, I feel I am entering quite a distinct food culture (city by city), it simply is a little hard to define up front.
Assorted links
One further thought on the Reinhart and Rogoff fracas
There is a genuine tension between becoming (and staying) “famous” and expressing all the appropriate levels of agnosticism on issues, which fairly often ought deserve quite an extreme agnosticism (see Mark Thoma on this). It is hard to do both, and you can see this tension in the writings of most if not all well-known economists, at least in their more public pronouncements. In the “good old days” that tension could be elided. Academic discourse took place at relatively closed seminars, no quick responses were required, word traveled slowly, back and forth was much less rapid, and in general transparency was lower all around.
I’ve seen the Reinhart and Rogoff book in airports around the world, even though it is to most people unreadable or at best boring. Could they have still made a splash if they had changed the title to This Time is Different: Why Inference from Macroeconomic Data is Really, Really Hard? I don’t think so.
Enter the internet and the blogosphere. Someone criticizes your work, in this case a body of work which has become very famous and made you very famous. Do you respond by trying to defend the “fameworthiness” of the work, in which case a gross “rightness” might suffice, or at the very least you will try to outline the defensibility of your position. Or do you respond by spelling out all of the reasons why one might be agnostic about a difficult issue?
I predict that most famous people will respond by trying to defend the fameworthiness of their work.
We as readers then respond by taking media which produce both fame and transparency — the internet and the economics blogosphere and Twitter — and suddenly wielding them as a weapon for transparency alone. Obviously something won’t look right. I don’t want to conclude “the fault is ours,” but it is still worth noting the tension between the mediums we patronize and what they are, to the broader world, actually good for. It’s as if you showed up to Justin Bieber’s birthday party and started complaining that not everyone in the room deserves to be there. They probably don’t, and their presence at the party should not cause you to overlook their shortcomings. Still, it’s also good to be self-aware about one’s own role in uttering such a complaint about the quality of the party.
If you are receiving any public recognition at all, choosing how to present your material is one of the most difficult decisions.
Justin Fox has very good related comments.
A more complete response from Reinhart and Rogoff
You can read it here, it is too long and the formatting is too complicated to reproduce in full on MR (which is what I ideally would like to do), so please do read it.
Absurd pitches (pull out the Hayek and Polanyi lesson)
Facebook - the world needs yet another Myspace or Friendster except several years late. We’ll only open it up to a few thousand overworked, anti-social, Ivy Leaguers. Everyone else will then join since Harvard students are so cool.
Dropbox - we are going to build a file sharing and syncing solution when the market has a dozen of them that no one uses, supported by big companies like Microsoft. It will only do one thing well, and you’ll have to move all of your content to use it.
Amazon - we’ll sell books online, even though users are still scared to use credit cards on the web. Their shipping costs will eat up any money they save. They’ll do it for the convenience, even though they have to wait a week for the book.
Virgin Atlantic - airlines are cool. Let’s start one. How hard could it be? We’ll differentiate with a funny safety video and by not being a**holes.
Mint - give us all of your bank, brokerage, and credit card information. We’ll give it back to you with nice fonts. To make you feel richer, we’ll make them green.
Palantir - we’ll build arcane analytics software, put the company in California, hire a bunch of new college grad engineers, many of them immigrants, hire no sales reps, and close giant deals with D.C.-based defense and intelligence agencies!
Craigslist - it will be ugly. It will be free. Except for the hookers.
iOS - a brand new operating system that doesn’t run a single one of the millions of applications that have been developed for Mac OS, Windows, or Linux. Only Apple can build apps for it. It won’t have cut and paste.
Google - we are building the world’s 20th search engine at a time when most of the others have been abandoned as being commoditized money losers. We’ll strip out all of the ad-supported news and portal features so you won’t be distracted from using the free search stuff.
Github - software engineers will pay monthly fees for the rest of their lives in order to create free software out of other free software!
PayPal - people will use their insecure AOL and Yahoo email addresses to pay each other real money, backed by a non-bank with a cute name run by 20-somethings.
Paperless Post - we are like Evite, except you pay us. All of your friends will know that you are an idiot.
Instagram - filters! That’s right, we got filters!
LinkedIn - how about a professional social network, aimed at busy 30- and 40-somethings. They will use it once every 5 years when they go job searching.
Tesla - instead of just building batteries and selling them to Detroit, we are going to build our own cars from scratch plus own the distribution network. During a recession and a cleantech backlash.
SpaceX - if NASA can do it, so can we! It ain’t rocket science.
Firefox - we are going to build a better web browser, even though 90% of the world’s computers already have a free one built in. One guy will do most of the work.
Twitter - it is like email, SMS, or RSS. Except it does a lot less. It will be used mostly by geeks at first, followed by Britney Spears and Charlie Sheen.
That is all from Quora, hat tip goes to James Crabtree.
What I’ve been reading
1. Gianni Toniolo (editor), The Oxford Handbook of The Italian Economy Since Unification. If you want a 742-page, $142.50 volume on the Italian economy, written by highly intelligent and well-informed experts, but with some repetition, this is indeed the place to go. And that was exactly what I wanted.
2. Michael Suk-Young Chwe, Jane Austen, Game Theorist. I remain a Chwe fan, even though I appreciate Jane Austen less than do most other readers of intelligent fiction.
3. Toni Strubell, editor, What Catalans Want: Could Catalonia be Europe’s Next State? I loved this book. First, it is full of information about what Catalans want. Second, no one person is allowed to go on for too long. The book offers fascinating data — in the Hansonian manner — about “the logic of complaint,” namely what many people consider to be legitimate grievances and also about how people frame some of the emotional deficits in their public lives. The photos of the contributors reflect something common, though I can’t quite put my finger on it. I’m going to keep this one and reread many parts of it.
4. Willy Hendriks, Move First, Think Later: Sense and Nonsense in Improving Your Chess. To me, more interesting as behavioral economics and as epistemology than as a chess book. The author claims that most chess advice is bad, and that we figure out positional strategies only by trying concrete moves, not by applying general principles. You do need chess knowledge to profit from the book, but if you can manage it, it is one of the best books on how to think that I know.
5. Rebecca Miller, Jacob’s Folly. Finally a fiction book this year I am truly excited about, lots of fun but deep too. Here is a Bookslut interview with the author.
In the last week, the quality of my reading has been above average. I’ve also been enjoying the Feenstra and Taylor international trade text. This book is very well-written, as are the contributions of Krugman, but overall that field has some of the worst writing in all of economics and also many of the most pointless (yet still well-cited) theory pieces.
April 16, 2013
Reinhart and Rogoff respond
I knew something would come quickly, though this is quicker than I had expected. Via Matt Yglesias:
We literally just received this draft comment, and will review it in due course. On a cursory look, it seems that that Herndon Ash and Pollen also find lower growth when debt is over 90% (they find 0-30 debt/GDP, 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; 90-120, 2.4% and over 120, 1.6%). These results are, in fact, of a similar order of magnitude to the detailed country by country results we present in table 1 of the AER paper, and to the median results in Figure 2. And they are similar to estimates in much of the large and growing literature, including our own attached August 2012 Journal of Economic Perspectives paper (joint with Vincent Reinhart) . However, these strong similarities are not what these authors choose to emphasize.
2012 JEP paper largely anticipates and addresses any concerns about aggregation (the main bone of conention here), The JEP paper not only provides individual country averages (as we already featured in Table 1 of the 2010 AER paper) but it goes further and provide episode by episode averages. Not surprisingly, the results are broadly similar to our original 2010 AER table 1 averages and to the median results that also figure prominently. It is hard to see how one can interpret these tables and individual country results as showing that public debt overhang over 90% is clearly benign.
The JEP paper with Vincent Reinhart looks at all public debt overhang episodes for advanced countries in our database, dating back to 1800. The overall average result shows that public debt overhang episodes (over 90% GDP for five years or more) are associated with 1.2% lower growth as compared to growth when debt is under 90%. (We also include in our tables the small number of shorter episodes.) Note that because the historical public debt overhang episodes last an average of over 20 years, the cumulative effects of small growth differences are potentially quite large. It is utterly misleading to speak of a 1% growth differential that lasts 10-25 years as small.
By the way, we are very careful in all our papers to speak of “association” and not “causality” since of course our 2009 book THIS TIME IS DIFFERENT showed that debt explodes in the immediate aftermath of financial crises. This is why we restrict attention to longer debt overhang periods in the JEP paper., though as noted there are only a very limited number of short ones. Moreover, we have generally emphasized the 1% differential median result in all our discussions and subsequent writing, precisely to be understated and cautious , and also in recognition of the results in our core Table 1 (AER paper).
Lastly, our 2012 JEP paper cites papers from the BIS, IMF and OECD (among others) which virtually all find very similar conclusions to original findings, albeit with slight differences in threshold, and many nuances of alternative interpretation.. These later papers, by they way, use a variety of methodologies for dealing with non-linearity and also for trying to determine causation. Of course much further research is needed as the data we developed and is being used in these studies is new. Nevertheless, the weight of the evidence to date -including this latest comment — seems entirely consistent with our original interpretation of the data in our 2010 AER paper.
Carmen Reinhart and Kenneth Rogoff
April 16, 2013
Addendum: Paul Krugman comments.
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