Perhaps we were a bit too quick to dismiss the Jupiter effect

Consistency

I was looking at Andrew Gelman's blog and saw his discussion of Ray Fisman's piece on compensation. I was especially struck by this statement:

Yet this aversion to pay cuts isn't good for workers or the American economy more broadly. More people end up losing their jobs than if wages were more flexible, and there are serious long-term consequences for the workers who lose their monthly paychecks. The negative impact on a worker's earnings, health, and even the earning prospects of his children lasts decades beyond the pink slip's arrival. Creative solutions—like the furloughs that cut government salaries in California and elsewhere—might help to make lower pay more palatable, by presenting the cut as a temporary measure and by creating at least the illusion of a lower workload. If we can find other ways of overcoming the simmering resentment that naturally accompanies wage cuts, workers themselves will be better for it in the long run.

I wonder how this links with tax increases. Greg Mankiw seemed to be quite displeased by the prospect of tax increases (which are a form of reducing compensation).

If this relation works the same way, then there are two implications:

1) Tax cuts are a terrible idea as a way of providing economic stimulus as they will do little to increase output (3 hours according to Fisman's experiment) but will be greatly resented if they are rescinded

2) High taxes (like low pay) seems to have little effect on income so if you rise taxes then you should raise them by a lot so you only feel the pain of resentment once.

I am not sure that this position is correct, but it sure is thought provoking.

And NPR is probably the best of the bunch

Between poll numbers, town hall meetings and the special election in New York, the Ryan budget is starting to look like a tremendous political misstep for the GOP. To make matters worse, the pundits (who have gushed praise for Ryan in the past) seem to be increasingly open to Paul Krugman's take on the plan:

Anyway, the underlying premise behind statements like that is the assumption that the Ryan plan represents a serious effort to come to grip with America’s long-run fiscal problems. But what became clear soon after that plan was unveiled was that it was no such thing. In fact, it wasn’t really a deficit-reduction plan. Once you remove the absurd assumptions — discretionary spending, including defense, falling to Calvin Coolidge levels, and huge tax cuts for corporations and the rich, with no loss in revenue? — it’s highly questionable whether it would reduce the deficit at all.

Given all this and the fact that seniors are the Republicans' most important demographic, what were John Boehner and the rest of the house leadership thinking when they publicly came out for privatizing Medicare? Not being privy to their private conversations, we can only speculate, but I suspect that, in addition to fear of primary challenges, part of their rationale was the assumption that the Washington press corps would spin the story in a way that would minimize the damage.

To see how they might have made that assumption, check out this exchange between Neal Conan and NPR political editor, Ken Rudin:

CONAN: Another candidate who's been on the hustings in Iowa is Newt Gingrich, who's been saying, well, I'm the man that Washington has learned to hate.

Mr. NEWT GINGRICH (Republican Presidential Candidate): It is impossible to have watched television for the last week and not get the conclusion I am definitely not the candidate of the Washington insiders.

Everywhere I go across Iowa, or everywhere I see people randomly, they have figured out I'm the guy who wants to change Washington and they can tell it because the people they see on TV from Washington aren't happy with me.

CONAN: Well, not happy with him because, well, any variety of reasons.

RUDIN: Well, yes, and you know something, even - even when he said the thing about Paul Ryan, that it was a radical, it was social engineering...

CONAN: He now he says he would have voted for it.

RUDIN: Yes, but you know, when he said it at the time, of course everybody jumped on him, saying how dare you say that. But everybody said, well, that may be true. And we saw New York 26, and we'll talk about that later. That could very well have been the message that came out of it. So even when he says things that may very well be true, you know, we jump on him for saying that. And of course he went back on that word.

What amazes me about Rudin's comment is how, in less that two weeks, a senior political reporter can so completely revise his memories of an event. It's true that by now everybody has jumped on Gingrich at some point but the people who jumped when he criticized the Ryan plan were completely distinct from the people who jumped on him when he tried to walk it back. The story here isn't difficult to follow: Gingrich (probably assuming his conservative credentials were solid enough) tried to distance himself from Ryan's increasingly unpopular budget proposal; Conservatives were outraged and demanded a retraction; Gingrich clumsily backtracked, apologizing to Ryan and trying to suggest that he had misspoke partly because he wasn't expecting Meet the Press' 'gotcha' questions (despite having been on the show over thirty times).

Rudin has completely internalized the values of the Washington press corps, particularly "tell both sides of every issue" (even when there's only one side). He takes an account of a dislikeable politician's disastrous launch of a trial balloon and makes it into the story of a prophet without honor in D.C., not because he supports Gingrich (I very much doubt he does) but because he's more comfortable with the revised version.

When Paul Ryan and the Republicans put forward a plan to privatize Medicare immediately after a nominally pro-Medicare campaign, they were counting on reporters like Rudin to spin it as a serious response to a dire problem. Nor did Rdin disappoint, calling the plan "perhaps politically courageous, but maybe suicidal as well."

It's worth taking a minute to recall how common this initial response was. For at least a couple of days it looked like the press, which was deeply invested in the Ryan-as-fiscal-conscience meme, was going to converge on the interpretation that the Ryan budget, though certain not to become law, was an honest attempt to start the conversation by facing up to some hard truths (you could even find some Democrats falling in line). If this interpretation had held, the story would have probably dropped off the radar fairly quickly and the political landscape would look radically different now (insert "Sound of Thunder" reference here).

There's only one thing more annoying than the kind of post Mike Konczal just put up

You know know, the "What does [recent popular culture phenomena] tell us about [______ theory or principle]?" post. Whether it's an embarrassing reality show or a celebrity's public meltdown, someone on the internet will a pretentious excuse to talk about it.

But what's even more annoying is when someone like Mike Konczal not only writes one of these ("What can the movie Bridesmaids tell us about the Recession and Keynesian Economics?"), but actually makes it good enough that I feel compelled to quote it at length.

This is the one year forward survival rate for businesses that have launched in the previous year. So a business that launched between March 2008 and March 2009 has only a 76.3% chance of being around in March 2010. As you can see, it’s actually lower than that. It’s really hard to open a business in a recession.

This is an important point that goes against the “creative destruction” view of recessions. Those who believe that kind of classical theory think that the “work” of a recession is to let the economy recalculate what goods and services are needed going forward, while also letting the virtuous and hard working purge the incompetent and the lazy out of the system. But recessions are terrible for new entrants! Good ideas or bad ideas, who wants to launch a business in a climate with 10% unemployment? Even if you are the best manager, even if your idea is killer, if all your customers can barely pay their own bills it is unlikely that your work will pay off. The realization that this depressed state could perpetuate itself was an important breakthrough for macroeconomics. The government needs to step in to jump start the economy so that the normal trucking and bartering and allocation of a market economy can function.

If you’ve been paying attention to the headlines, you’ll note that the political economy is all wrong about what needs to be done to fix this. Most of the major discussions have been about how to make the established business community feel more encouraged. From writing regulatory rules to slashing the social safety net to extending high-end tax cuts, our hopes seem entirely to rest on whether or not we can get millionaires to work an additional 10 minutes and feel properly appreciated rather than having customers with money in their pockets available for new businesses.

The Polish economist Michal Kalecki wrote an excellent 1943 essay called Political Aspects of Full Employment that warned us about this problem. If during a recession and a weak economy the government doesn’t step up to ensure full employment, then suddenly the business community has powerful indirect control over the economy. Governments give credits and rebates for established companies to expand, businesses spend the money on M&A and consolidation and, most importantly, incumbents expand and entrench their powers. This kind of confidence building isn’t going to help a small bakery that’s trying to open.

More intellectual property silliness

From TPM:

The New York Stock Exchange now claims that you have to get their permission (express or implicit) before you use images connected to the New York Stock Exchange. So if you find a wire photo of the trading floor and use it to illustrate a story on Wall Street, you're violating the NYSE's trademark because they've trademarked the trading floor itself.

We found this out yesterday when we got a cease and desist letter from the NYSE based on an article published at TPM back in November. You can see the letter here.

TPM is represented on Media and IP matters by extremely capable specialist outside counsel. And we've been advised that the NYSE's claims are baseless and ridiculous on their face. But this is yet another example of how many large corporations have given way to IP-mania, trying to bully smaller companies into submission with inane and legally specious claims of intellectual property rights.

Well, TPM's small but we have big teeth. And we don't like being pushed around. So we're again posting the same picture as an illustration for this post. But really, what's next? Mayor Bloomberg trademarks his face and the city newspapers have to get his permission to publish photos of him so not to infringe the Bloomberg face trademark? Or more likely, the Empire State building trademark's the image of the Empire State building and demands a fee or bars photographs of the New York skyline.

...

So in the spirit of the moment I propose a contest. We know that NYSE now says you need their permission to show photographs of the Exchange in the context of news coverage. And if I understand their logic you'd actually need their permission to show a sketch you drew of the Exchange floor.

So here's the contest, what do you think NYSE's next preposterous claim of intellectual property rights will be? Can you say the words 'New York Stock Exchange' without their permission? Can you do a line drawing of the facade of the exchange without running it by the NYSE's lawyers?

As many have observed (including Thomas Jefferson who refused to patent any of his inventions), intellectual property laws are a necessary evil. They restrict the creation of new work in often onerous ways but they provide an increased incentive to create work that qualifies for protection. Even more importantly, they encourage dissemination of that work.

Over the past few decades, however, we've seen less interest in the necessity and more emphasis on the evil. The result is unfair, economically suboptimal, and undeniably silly.

[We've been down this rabbit before as you can see here.]

"Top Colleges, Largely for the Elite" -- no, really?

This David Leonhardt story has been getting a lot of attention, which is all for the good. It doesn't go very deep into the issue, but it unearths some revealing facts and makes some important points that are often left out of the discussion:

The truth is that many of the most capable low- and middle-income students attend community colleges or less selective four-year colleges close to their home. Doing so makes them less likely to graduate from college at all, research has shown. Incredibly, only 44 percent of low-income high school seniors with high standardized test scores enroll in a four-year college, according to a Century Foundation report

— compared with about 50 percent of high-income seniors who have average test scores.

“The extent of wasted human capital,” wrote the report’s authors, Anthony P. Carnevale and Jeff Strohl, “is phenomenal.”

This comparison understates the problem, too, because SAT scores are hardly a pure measure of merit. Well-off students often receive SAT coaching and take the test more than once, Mr. Marx notes, and top colleges reward them for doing both. Colleges also reward students for overseas travel and elaborate community service projects. “Colleges don’t recognize, in the same way, if you work at the neighborhood 7-Eleven to support your family,” he adds.

Several years ago, William Bowen, a former president of Princeton, and two other researchers found that top colleges gave no admissions advantage to low-income students, despite claims to the contrary. Children of alumni received an advantage. Minorities (except Asians) and athletes received an even bigger advantage. But all else equal, a low-income applicant was no more likely to get in than a high-income applicant with the same SAT score. It’s pretty hard to call that meritocracy.

Another data dump

So many links, so little time.

From Felix Salmon:

That's the kind of performance Bill Ackman can only dream of. In 2007 he raised $2 billion for a hedge fund, Pershing Square IV, dedicated to going long Target; today, in the wake of a 40% plunge in January, that fund has dwindled to just $210 million.

From Huffington Post:

"Hear yourself, ma'am. Hear yourself," Woodall told the woman. "You want the government to take care of you, because your employer decided not to take care of you. My question is, 'When do I decide I'm going to take care of me?'"

Large portions of the crowd responded enthusiastically to the congressman's barb, with some giving him a standing ovation, underscoring the fierce divisions within the electorate.

William Robert Woodall III, who goes by "Rob," doesn't appear to have been referring literally to himself, but rather speaking figuratively. It's a good thing, because financial records show the 41-year-old congressman has done very little to take care of himself in his retirement. Woodall's 2009 financial disclosure forms, filed with the House of Representatives, show that his two largest IRAs have between $15,000 and $50,000 worth of assets, hardly the type of nest egg that would be able to cover the health care costs associated with aging absent government health care.

Woodall was chief of staff to former Rep. John Linder (R-Ga.), a job taxpayers shelled out more than $100,000 a year for in 2002, rising to more than $150,000 in 2009, plus gold-plated health and retirement benefits. Woodall, who has taken his former boss's seat, now makes $174,000 a year with generous benefits.

From Yahoo:

While some NFL players are spending the enforced offseason in workouts with their teammates and others (like Minnesota's Ray Edwards(notes) and Baltimore's Tom Zbikowski(notes)) are spending it in the boxing ring, third-year safety David Bruton(notes) of the Denver Broncos has set himself on a different path — he's spending the lockout as a substitute teacher at his old high school in Ohio, teaching social studies and credit recovery (yes, they have those classes for teenagers now) for the not-so princely sum of $90 per day.

From WSJ:


Could someone please explain to business writers that hearing about a ten percent jump in ingredients doesn't mean anything to us unless you tell us how much of the retail price goes for ingredients (from Businessweek):

Surging ingredient costs are putting restaurant margins under increasing pressure. World food prices rose to almost a record in April as grain costs advanced, leading to price hikes for basics like eggs, meat and sugar. Dairy Queen, which also debuted a smaller milkshake this month, expects its ice cream costs to jump more than 10 percent this year.

Nathan Myhrvold: Egotistical patent troll, or the lowest form of life on Earth?

I am surprised Mark did not post this

But one of the blogs on our blogroll has a fun probability problem. It's fun to head on over and work it out!

Use it up, wear it out, make it do or do without

My parents used to recite that rhyme when describing their parents' and grand-parents' generations (making me think that the saying preceded the ad campaign that produced the magazine copy below). It always struck me as a dramatic example of how American values have changed.

Now Tim Duy has a great post up on this ad campaign comparing the economic contexts of two very different wars on inflation.

I can't cut-and-paste this New Yorker article, which is perhaps just as well

Nicholas Lemann's examination of the entry level culture at McKinsey (reached through a link from Felix Salmon) is one of those pieces that needs to be read in full if you want to understand the state of American business. The New Yorker apparently unlocked the story because McKinsey has been in the news lately, but I think the real importance here goes well beyond the scandals.

Would you rather have Jon Stewart or Felix Salmon gunning for you?

Either way it would certainly suck to have both on your case.

And while on the subject of Salmon, check out this fascinating piece on the attributes in online reviews that bring in customers (they aren't what you'd expect).

Dean Dad makes an essential point about the higher education debate

From Confessions of a Community College Dean:

My sense, very much like Tim Burke’s, is that a category like “higher education” obscures as much as it clarifies. Harvard, the University of Minnesota, the University of Phoenix, Philadelphia Bible College, and Bronx Community College all fall under the category of “higher education,” as different as they are. Popular discussions of, say, climbing walls as drivers of tuition increases are utterly irrelevant in most of the for-profit and community college worlds. Complaints about state budget cuts have a great deal of validity for state and community colleges, but are largely irrelevant to most of the private colleges. Sports may be a religion at Texas Tech; not so much at Cal Tech. (At Proprietary U, every year represented another undefeated season.) College may be a four-year party at some second-tier residential colleges; it absolutely is not at colleges with large numbers of adult students with jobs and kids. Even complaints about “administrative bloat” seem to have validity in much of the four-year sector, but are mostly misplaced in the community college world.

With that much variety, it’s entirely possible that someone who attends, say, a huge state university with a high-profile sports program chose it for precisely that reason. That person may resent invisible professors -- or may not care -- and not mind at all the four-year party. A working Mom who chooses a community college night program might find the entire discussion of the four-year party utterly alien.

With such disparities hidden under a single category, too literal a reading of poll results could lead to destructive conclusions. Yes, Rich Kid Private College may have a lavish student center; does that mean we should cut funding for community colleges? Yes, some for-profits took advantage of legal loopholes to exploit financial aid; does that mean we should layer new regulations on public colleges?

My sense of it is that the sector that’s in real trouble is the expensive-but-not-selective, “nothing special” private colleges. A pricey, tuition-driven college without distinction or a clear niche represents a weak value proposition in a tough market. That’s true whether the college is for-profit or not. A clear niche could mean exclusivity, or a specific programmatic strength, or a strong religious identity. Being okay at a whole lot of things doesn’t justify thirty thousand a year, especially when public options are available for a fraction of the cost.

Why restrict the types of NSAIDs used as active comparators?

I am always surprised when people do not include negative controls when there is a very obvious candidate to be used as such. Consider this article:

Chronic analgesic use with either COT or COX-2 was associated with an increased risk of cardiovascular outcomes. These findings suggest either a selection of high-risk patients to chronic analgesic treatment, coupled with unmeasured or residual confounding, or a potential cardiovascular effect of these medications. Further research is warranted to evaluate causes for this association.

Why did the researchers not use an active comparator that is known to be null (a negative control)? After all, the participants who are tkaing pain medication may be systematically different from those who do not. It is prescription claims data so it is unclear whether or not you can adjust for these kinds of differences.

So why would you not at least look at Naproxen and Ibuprofen users?

Yes, the categories were: Opioids, Rofecoxib, Celecoxib,Valdecoxib, and General population. Covariates were:

We derived variables representing demographics, medical history of angina, coronary heart disease (CHD), congestive heart failure, arrhythmias, ischemic stroke, transient cerebral ischemia, peripheral vascular disease, diabetes, hypertension, hyperlipidemia, hypercholesterolemia, smoking, and obesity; and dispensing of nitrates, anti-platelet agents, angiotensin-converting enzyme inhibitors, angiotensin II receptor blockers, beta-blockers, calcium channel blockers, and diuretics. Baseline history of chronic diseases of the musculoskeletal system, diseases of the esophagus, hyperthyroidism, medical care required for general ill-defined symptoms and respiratory or chest symptoms, including dyspnea and upper respiratory symptoms, were also included.

Now I have done a paper on the misclassification of ibuprofen and naproxen in claims data but the issue there was sensitivity and not specificity. There is no reason that naproxen or ibuprofen could not be negative controls (or that aspirin could not be a positive control). It would certainly make the unexpected results of this analysis easier to interpret!

Weekend Blogging -- technology edition

The following appeared under a slide show of dumb inventions, but they got me thinking about how thin the line between stupid and successful can be. Glowing tires fail but spinning rims make it big. People show no interest in a tiny TV screen in '66 but get excited about watching shows on their cell phones 45 years later.

Was the technology flawed in these inventions. Was it too expensive? Or have we just gotten better at selling stuff?

Libertarian dreams

From Jacob Weisberg:

Though I criticized Ryan for his unsupported rosy assumptions (shame on you, Heritage Foundation hacks), I reacted too quickly and didn't sort out just how laughable Ryan's long-term spending projections were. His plan projects an absurd future, according to the Congressional Budget Office, in which all discretionary spending, now around 12 percent of GDP, shrinks to 3 percent of GDP by 2050. Defense spending alone was 4.7 percent of GDP in 2009. With numbers like that, Ryan is more an anarchist-libertarian than honest conservative.

It is interesting to be reading this as I just finished the book the Moon is a Harsh Mistress by Robert Heinlein. What I found interesting about this book was the assumption that one could so easily eliminate all of the functions of government (and yet have highly patriotic individuals willing to die for this version of a state).

But what I found interesting is how these ideas of government cannot be easily reconciled with a strong military. In the novel, Heinlein has the settlers of the moon act as a voluntary militia that is able to hold off another power. But these ideas are simply incompatible with a role as a "global policeman".

So there is a tough decision to be made about the role and scope of the US government in international affairs, if we really are going to put serious libertarian ideas of the state into practice.