Help, Help! I’m being repressed!

I’m watching the re-re-renewed debate about academic bias against conservatives with a little more skin in the game this time around. Two facts about me: for some strange reason I’m considered conservative by my academic friends, especially by non-economists, and I have decided to take a job outside of academics. So clearly there’s bias in the academy! (Where do I pick up my check.)

Megan McArdle has a great post up where she makes the standard analogy between racial and political bias and she points out that, in true fashion for partisans, the table and arguments used have done a 180. Conservatives are arguing against subtle biases inherent in the the system and liberals are calling the game because there’s no explicit rules against hiring conservatives in the academy or they are otherwise blaming the out-group.

The analogy may be apt but you would be upset with me if I said so and I also said, “who cares”! So, I’ll do just that. The academy and places of employment, say, are free associations of individual people. If these places want to exclude interesting people because of arbitrary differences, then its their loss. In the long-run Beckerian forces prevail and the non-discriminating universities and firms win.

Well, except, I care. The long-run could be a very long time! Life consists of the transitions between steady states. Without a model of how fast those transitions are and, importantly, what shapes they take, analyses of the properties of steady states is next to useless. I want to help progress along a little even to just make it visible within my lifetime. I’m selfish like that.

But there are also standard externality arguments. The academy produces non-rival and non-excludable ideas that are used to produce innovations that drive economic growth. By excluding conservatives, the academy makes the idea generating process less efficient and we all lose out. We need to subsidize Rush!

What’s upsetting about these reasons to care about discrimination is that they don’t apply to racial discrimination or other types of discrimination that I care about much more than bias in the academy. First, I’m not creative enough to make the externality argument for blacks or women. Why does discrimination against them harm me, a white male?

Second: of course the long-run is undetermined with regards to racial discrimination too, but it is not clear that the long-run transition to equality is being driven by the dynamics of discrimination. While there’s significant evidence that anti-discrimination laws had an effect on closing wage gaps, there’s much less certainty about the size of that effect. One estimate has the black-white male wage gap in the South BEFORE the CRA halving every generation or so. The CRA sped up this transition, but only in the South and only for a decade or so. The half-life reduced to about one half a generation in the decade or so after the CRA but there has been no improvement in the black-white southern male wage gap since. This sweeping legislation appears to have had minimal long-run effects, at least with regards to wage gaps. (PS – these stats are from memory, look up the . Donahue and Heckman paper if you don’t believe me)

One option, at this point, is to throw up my arms and to insist discrimination is no big deal. It will fix itself in the long-run and there doesn’t appear to be anything that we can do to speed up the transition to that long-run. But there’s a larger argument about externalities, ones at the foundational level of institutions and the structure of rules.

Tyler Cowen linked to a new paper from Buchanan that points out that the “rules of the game” are endogenous, they are not given, and more importantly non-rival and non-excludable. There is a “market” failure in the production of rules. The rules of the game are inefficiently produced; there is some marginal change to the set of rules that could make everyone better off and there needs to be some meta process that ensures these Pareto improvements can be made (Buchanan cites Coasean political entrepreneurs). The argument against discrimination: if the rules of the game are arbitrarily deficient for some large group of people then its possible they could evolve to be arbitrarily deficient for a group of people that I belong to. I have interest in making sure there exists a process that removes these sorts of deficiencies.

Does the Welfare State screw the poor?

Milton Friedman’s complaints about rent control and the minimum wage are cliche. These programs hurt the people they’re intended to help. Unintended negative consequences are the first things I look for when I think about a policy intended to help the poor. I just took their existence as an empirical fact.

But I never really thought about the structure of these unintended consequences. So I second Karl Smith’s recommendation to read Beaulier and Caplan’s paper on the subject.

Poverty policy might hurt the poor because:

  1. Poor people pay more for it than they get. E.g. poor people live shorter lives suggesting they get less social security benefits and social security taxes are regressive.
  2. There may be inter- or intra- family externalities. E.g. a welfare program may make a dad better off by leaving his family but his absence may make the rest of the family worse off.
  3. Poor folks are lead to make bad decisions (where bad is relative to a neoclassical norm) for themselves because of the program. E.g. affirmative action leads minority students to choose “higher ranked” schools whereas they would have had better outcomes if they choose less prestigious schools.

The point of the paper is to show that the third possibility is untenable in the neoclassical framework (where expanding a person’s choice set can only make them better off) but it becomes tenable if results from behavioral economics are taken seriously. Plus, deviations from rational expectations may be especially pronounced among the poor.

Substitutability as default?

I’m jumping ahead of my own narrative, but why does it seem ingrained in people (including economists) that immigrants must be competing with native workers? Why is complementarity so much more unlikely in people’s priors?

We don’t have this bias when it comes to new technologies. In fact, we have the opposite bias. Despite the popularity of the phrase “creative destruction”, quality ladder models are much less common than expanding variety models of growth. Anyone who suggests there may be a negative externality of R&D in competitive industries gets jumped all over.

Can’t immigration be seen as a type of innovation? Immigrants bring more with them than their L.

Immigrants taking our jerbs?

I’m writing a “vulgarized” immigration paper (my Italian co-author’s adjective). One thing we academics like to do is pick on the idea that immigrants take the jobs of native-born Americans.

Watching Fox the last couple of weeks, it doesn’t seem like many folks take that point of view anymore. Conservatives talk about the “rule of law” and the deleterious effect of immigrants on the welfare state ((btw, why do conservatives think this is a bad thing?)), but not many were talking about the direct economic costs of immigration.

Do you know of example of politicians or otherwise high profile people taking the view that immigrants hurt native-born American job opportunities? Quotes would be awesome!

Stated preferences

I just finished the first happiness tracking cycle and they‘ve sent me my Happiness Report. There’s some unsurprising things like I’m happier on the weekends and when I’m doing stuff I want to do. The surprises:

  • I’m happier when I’m interacting with more than one person
  • There’s no relationship between the quality of sleep and happiness, but there is a pretty strong relationship between the length of sleep and happiness
  • While my level of focus has no relationship to happiness, there’s a U-shaped relationship between how productive I’m being and happiness

I’m not sure how to explain that last one. Perhaps I mark middling productivity when I really want to get work done, or when some potential leisure activity is distracting me from my work. But this would suggest “focus” should have a similar relationship with happiness. I’m not sure what productivity is net of focus.

Here’s my happiness by activity:
My happiness by activity
A vast majority of the mass is in the middle groups: “home computer” and “working”. Also, most of these activities probably generate a level of happiness, but I suspect the causation works the other way on “listening to music”. This makes me think the real problem with happiness research in the context of economic analysis is not the revealed preference critique. This stuff might also get the outcomes and behaviors mixed.

Another thought: there may be a finance twist to happiness correlations. Controlling for the level, folks with more swings in utility generating behavior (call it “consumption”) will, on average, have higher marginal utility, i.e. they’ll be less happy on average. With standard arguments from finance, they would be willing to pay more for “investments” that have payoffs which are positively correlated with marginal utility like listening to music and having children.

UPDATE: Some potentially testable hypotheses (assuming happiness panel data exists): do people that have/ have more children have higher variance in happiness? Controlling for income, do people in richer societies have higher variance of happiness?

PK and the literature

I always laugh when Paul Krugman urges others to read the literature. He’s a brilliant economist, but he’s not exactly the goto guy for literature reviews…

Today he says that Sumner and Avant should read the literature on macro vs micro labor supply elasticities. Well, ok, he says they should only read half of that literature. Over the last decade, Prescott has been doing a lot of work showing that differences in taxes explain differences in employment and hours worked between Europe and the US. I think his Nobel speech was about this.

The micro people threw fits though because their estimates of the response of labor supply to tax changes is much less extreme than Prescott’s finding suggest. They basically find labor supply curves are vertical. This would mean that taxes simply can’t have an effect on labor supply.

For a while, these guys had me convinced because, in general, micro/labor types do a much better job of identification and I trust their estimates more than I trust macro estimates. More recently, however, macro people ((A also vagualy remembering a paper that uses the PSID to estimate the two types of elasticities, but I can’t remember what it was.)) have been making the case that the “labor supply elasticity” estimated by the micro people is different from the “labor supply elasticity” the macro people estimate. The difference isn’t due to statistical methodology, we were just calling two different things the same thing.

Of course, its the macro elasticity that matters for tax policy, though. Prescott’s work (and not the paper that PK links to) is the place to go for understanding differences between Europe and the US. He says that difference is due to differences in tax and transfer policies.

UPDATE: AC found the PSID paper.

Mike D’s utility

Mike D commented on this post:

Let’s think about two axes here. On the x axis, put altruism (the weight my assessment of your utility has in my utility function) and on the y axis, put respect (if I assess your situation using my utility function, respect = 0, if I assess your situation using what I think is your utility function, put respect =1, and interpolate between these two).

It seems obvious why altruism decreases with distance/dissimilarity. I would submit that respect is more subtle.
1) Proximity decreases respect, as I may suffer alleged externalities (real, pecuniary, or psychic) from your choices, so I have a selfish motive to override your preferences.
2) Proximity also increases respect, because your internal emotional life becomes more real and vivid to me, instead of a highly abstracted model.

So the utility function looks like this:

mike_d_utility.png

where big U is total utility for the individual, little u is his Robinson Crusoe utility, little v is the other person’s utility, x is the individual’s consumption and y is the other person’s consumption. According to Mike D, the parameter’s of that utility function behave like this:
mike_d_graph
There has to be some experiment, natural or otherwise, that would let us estimate these parameters and see how they vary with social distance.

Genes or culture or both?

An implication of Wilkinson’s theory is that intergenerational mobility should decrease over time. Wilkinson claims intergenerational mobility has decreased. It hasn’t (estimates from Lee and Salon 2009):
mobility_elasticities

The “intergenerational elasticity” (the percentage kids’ incomes raise for every percentage increase in parents’ income) has stayed about the same over the last couple of decades. Other studies get contradictory answers and few find a statistically significant trend.

Which suggests the answer to the question posed in the title is: none of the above.

UPDATE: On rewatching, I see that Wilkenson isn’t trying to explain increasing inequality as I first thought, he’s trying to explain non-existent decreases in mobility.

England since, like, ever

Prof. Clark sits in the “what revolution?” camp among economic historians that try to date the industrial revolution. His data:
clark_efficiency

Why does this matter? Well, if there was no revolution, only evolution, to modern industrial society, you need an underlying evolutionary mechanism. Clark favors genes-based stories, but most other folks are more comfortable with culture-based stories. In either case, its hard to look at Clark’s data and pick a year before 1900 that would look like a revolution in efficiency.

A definition of paternalism

Just read Mankiw’s new paper and this occurred to me:

I’m definitely a jerk if I don’t have other’s outcomes in my utility function. I’m a paternalist if I have other people’s consumption in my utility function, not their utility.

This is why a paternalist can give you healthcare instead of cash because your consumption of healthcare matters to him more than your happiness/contentedness/life satisfaction/etc.

Interestingly, most folks are jerks with respect to foreigners, they’re paternalist with respect to other anonymous citizens and they’re neither with respect to their close friends and family. I can’t find reason in this mix of preferences.