More on inequality

As a follow-up to the last post consider this point by Chris Dillow:

Of course, this calculation only makes sense if we assume such redistribution could occur without reducing aggregate incomes. But such an assumption is at least plausible. The idea that massive pay for the 1% has improved economic performance is - to say the least - dubious. For example, in the last 20 years - a time of a rising share for the top 1% - real GDP growth has averaged 2.3% a year. That's indistinguishable from the 2.2% seen in the previous 20 years - a period which encompassed two oil shocks, three recessions, poisonous industrial relations, high inflation and macroeconomic mismanagement - and less than we had in the more egalitarian 50s and 60s.

It is not that there are no adverse consequences to redistribution.  Nor does it mean than any policy, taken to an extreme, will be as effect as it will on the margin when applied to current conditions.  But it is an even more compelling argument that inequality is not, in and of itself, self evidently a force for economic growth without some additional evidence. 

Data Intuition

Paul Krugman:

Even more strikingly, however, the level as opposed to the growth rate of French GDP per capita is substantially lower than that of the US.

This is my main concern about Ostry et al. Suppose we think that strong redistributionist policies reduce the level of output — but that it’s a one-time shift, not a permanent depression of growth. Then you could accept their result of a lack of impact on growth while still believing in serious output effects.

I might be able to accept the one time shift theory of redistribution, where reducing inequality lowers the overall GDP of the economy.  But if these effects are dynamic (they change the rate of growth instead of shifting the absolute level) then they should show up in the historical record.  After all, there are a number of highly unequal societies -- have they outcompeted the more equal societies repeatedly? 

Did the French revolution greatly depress French output and dynamism? 

Now it could be that this is one element of a complex system.  That is totally plausible.  But then it should also be a candidate for trade-offs.  But the countries that have done large levels of redistribution (think US versus Canada or Denmark) have not obviously done worse. 

In general, simple explanations for complex phenomenon are always suspect, especially if it is difficult to formulate a test that night falsify the hypothesis

Open Data

This is a pretty good argument for why there is resistance to completely open data:

When people don’t want to release their data, they don’t care about the data itself. They care about the papers that could result from these data. I don’t care if people have numbers that I collect. What I care about is the notion that these numbers are scientifically useful, and that I wish to get scientific credit for the usefulness of these numbers. Once the data are public, there is scant credit for that work.

It takes plenty of time and effort to generate data. In my case, lots of sweat, and occasionally some venom and blood, is required to generate data. I also spend several weeks per year away from my family, which any parent should relate with. Many of the students who work with me also have made tremendous personal investments into the work as well. Generating data in my lab often comes at great personal expense. Right now, if we publicly archived data that were used in the creation of a new paper, we would not get appropriate credit in a currency of value in the academic marketplace.

I think the key to this argument is that most of the effort in some fields lies in the collection of the data bit all of the credit is based on papers.  So you would end up, rather quickly, with a form of tragedy of the commons where the people who create the data end up with little credit . . . meaning we would end up with less data. 

Are there are alternatives to this paradigm?  Of course.  The US census is a excellent example of an alternative model -- where the data collection and cleaning is done by a government department on the behalf of all sorts of researchers.  Splitting data collection and data analysis in this way is certainly a viable model. 

But pretending that open data is a simple case of people being reluctant to share their information is really an unfair portrayal.  In my own career I have had lots of access to other peoples data and they are extremely generous so long as I offer to give proper credit.  So I don't think the open data movement is all wrong, but it does suggest that there is a difficult conversation to make this work well. 

How did we miss this one?

Mike the Biologist links to a remarkable statistic:

There are numerous problems with using VAM scores for high-stakes decisions, but in this particular release of data, the most obvious and perhaps the most egregious one is this: Some 70 percent of the Florida teachers received VAM scores based on test results from students they didn’t teach and/or in subjects they don’t teach

.Even more remarkable, this was only revealed after a court ordered the Florida Times-Union sued for access to the records.  The source also notes that this issue is live in Tennessee, which has similar problems.  Now we have a lot of moving parts in the area of education reform and there are arguments about the use of value added measures (VAM) testing. 

But nobody has a good argument about testing other teachers and making employment decisions based on their performances.  When we talk about peer effects, it is the students in the classroom and not colleagues that we are thinking of.  It is also striking how much room there is to game statistics when you only collect real data on one third of teachers.  Can we really presume that this data collection is a proper random sample? 

These issues are not necessarily small issues.  They have the potential to replace one set of issues in education with another.  Nor is it 100% clear that they address the issue of social mobility, either, as less job security for teachers does not appear to directly address the drivers of intergenerational social mobility. 

I have respect for people trying to solve a tough problem, but this does not seem to be a great way to go.

Biomedical Patents

In a follow-up to this post, I thought it would be worth looking at a piece of the patent system where I don't have major concerns -- namely drug patents.  According to the FDA, a drug patent is good for 20 years after filing. 

This is very much the low end of the intellectual property patent discussion.  Micky Mouse was invented in 1928, so the current duration of protection has been > 85 years.  On the other hand, a 20 year patent would have expired before the end of Walt Disney's life.  Or consider JRR Tolkien who wrote the hobbit in 1937 and the Lord of the Rings in 1954/55.  He died in 1973 -- meaning the Hobbit would have exited protection during his lifespan and the Lord of the Rings would barely have made it. 

Furthermore, the cost of biomedical drug development are huge.  You could imagine replacing this system with research grants, but there is no way to avoid the conclusion that this would immediately be one of the largest items in the Federal budget.  This is not to say that the process could not be improved or streamlined.  But given that we maintain the current cost structure for drug development, these patent lengths look either short or appropriate. 

Or, in other words, different areas have different issues. 

The frustrations of public health

Amanda Marcotte:

In other words, learning that they were wrong to believe that vaccines were dangerous to their kids made vaccine-hostile parents more, not less likely to reject vaccination. Mooney calls this the "backfire effect," but feel free to regard it as stubborn, childish defensiveness, if you'd rather. If you produce evidence that vaccination fears about autism are misplaced, anti-vaccination parents don't apologize and slink off to get their kids vaccinated. No, according to this study, they tend to double down. 

This is just so depressing that it is not even humorous.  It suggests that attitudes towards medical treatment are fundamentally irrational.  This has a ton of scary implications for the over-use of popular therapies (antibiotics) and under-use of  unpopular ones (vaccines).  In a sense, it has been too long since we saw the large numbers of deaths that diseases like smallpox used to inflict and we have lost our fear of these diseases. 

Even a paternalistic regulatory regime is going to find dealing with these problems to be challenging. 

Copyright

From Beat the Press:

The big winners get to be big winners because the government is prepared to devote substantial resources to copyright enforcement. This is crucial because if everyone could freely produce and distribute the music or movies of the biggest stars, taking full advantage of innovations in technology, they would not be getting rich off of their recorded music and movies.

The internet has made copyright hugely more difficult. The government has responded by passing new laws and increasing penalties. But this was a policy choice, it was not an outcome dictated by technology. The entertainment industry and the big "winners" used their money to influence elected officials and get them to impose laws that would restrain the use of new technology. If the technology was allowed to be used unfettered by government regulation, then we would see more music and movies available to consumers at no cost.

In other words, it is government regulation that makes a winner take all economy in this case, not technology.

I think that this really is the piece of the whole puzzle that is worth discussing.  The regulation of the market place creates outcomes that are going to favor some actors over others.  It is the sad true of rules -- all rules will hurt some people and help others.  But we cannot treat the current set of rules as if they are divinely ordained or immutable -- even if current winners would enjoy that approach.

It is also the place where a Libertarian perspective seems most at odds with the marketplace.  The idea that laws need to be enacted to protect the profits of specific industries (what was once called "industrial policy") seems to be the main concern of key thinkers in the movement (consider Ayn Rand and the plot of Atlas Shrugged). 

Since the argument for copyright is about the social benefits of encouraging innovation (i.e. it is an ends based argument, not a natural rights based argument), it does seem that we should consider whether these aims are being well met in the current legal environment.  I am not an expert on this area, but it does seem that it is possible that we are too far on one side of the spectrum, where the rewards are more than are needed to incent innovation.  After all, do we really believe Walt Disney would have abandoned Mickey Mouse as unprofitable if now, 48 years after his death in 1966, the early films left copyright? 


NOTE [from Mark]:

Here are a couple of links to some previous posts that provide some background on the Mickey Mouse angle.

Alice in Lawyerland

Intellectual property and business life-cycles

Do copyright extensions drive innovation? -- Hollywood blockbuster edition

Back (momentarily) on the terrestrial superstation beat part 1 -- GetTV

While checking the TV listings a couple of weeks ago I came across an interesting but unfamiliar station showing what appeared to be a Jack Lemmon film festival. A visit to Wikipedia revealed that GetTV was a new terrestrial superstation from Sony Pictures and a quick perusal of the channel and its schedule revealed a heavy unacknowledged debt to Weigel's ThisTV and (particularly) Movies!

If you're going to steal, you from the best. As I've mentioned before, Movies! is, after TCM, probably the best channel for film buffs currently broadcasting. Technically, it's a collective effort from Weigel and Fox, but the division of labor has Fox providing the brawn (stations, money, libraries) and Weigel providing the brains (concept, programming, ad campaigns). Sony has stuck closely to the Movies! model and the result is a nice addition to the free-TV landscape.

It also provides a telling data point, especially when you take a close look at the timeline. I'll explore this in more depth in an upcoming post, but the broad outline will do for now. Six years ago, the idea of using over-the-air television to launch TBS-style superstations was not generating much interest. The only entrant was the well-respected but decidedly minor regional player, Weigel.

The first effort, ThisTV, was successful enough to convince Weigel to take its popular local format national with METV. Weigel's historic crosstown rival WGN soon followed with AntennaTV. Then came Bounce (combining elements from Weigel and BET). Then NBC/Universal's COZI. Then Weigel and Fox's previously mentioned Movies! and now, GetTV. There are a few points that need to be emphasized here:

This has a remarkably slow and steady process with increasingly large investments coming in as new information has flowed into the system;

That information is quite detailed. Since terrestrial superstations are generally broadcast in partnership with other stations, lots of parties have rich, reliable data about viewership and revenue;

As far as I know (and I've been following this story closely), all of the stations launched in this market over the past six years are still around with either their original format or a significantly upgraded one. What's more, they all appear to be making money.

Also true for Epidemiology

From the ever interesting Andrew Gelman:

Don’t model the probability of win, model the expected score differential. Yeah, I know, I know, what you really want to know is who wins. But the most efficient way to get there is to model the score differential and then map that back to win probabilities. The exact same issue comes up in election modeling: it makes sense to predict vote differential and then map that to Pr(win), rather than predicting Pr(win) directly. This is most obvious in very close games (or elections) or blowouts; in either of these settings the win/loss outcome provides essentially zero information. But it’s true more generally that there’s a lot of information in the score (or vote) differential that’s thrown away if you just look at win/loss.

This is the same principle in a lot of medical problems.  There is often a tendency to define diseases based on continuous distributions as binary outcomes.  Consider:

• High blood pressure = hypertension
• High cholesterol (especially LDL) and/or low cholesterol (HDL) = dyslipidemia
• High blood glucose = diabetes

Now, there are case where the true value is obscured by treatment.  That can be a reason to dichotomize, especially if the effect of the drugs is variable.  However, even in such cases there are options that can be used to estimate the untreated values of the continuous parameter. 

But I think that you will see much better prediction if you first model change in the parameter (e.g. blood pressure) and then convert that to the binary disease state (e.g. hypertension) then if you just develop a logistic model for prob(hypertension). 

Light posting

The last major push of traveling season is upon me and I know Mark is in the later stages of a pretty cool project.  So we might be updating a tad less than usual. 

The Outlier by the Bay

[Homonym alert -- I dictated this to my smart phone then edited it late in the evening.]

There's an energetic debate going on over at Andrew Gelman's site regarding Richard Florida's theories of the creative class. I can understand the urge to rise to Florida's defense. After all, there's great appeal to the idea that the kind of smart, innovative people who tend to drive economic growth are attracted to diverse, tolerant, livable cities with vibrant cultures. To  some extent, I believe it myself, but I find myself having the same problems with Florida I have with the rest of the urban utopianists: first that they have a tendency to take interesting but somewhat limited findings and draw impossibly sweeping conclusions and TED-ready narratives; and that these narratives often mesh badly with the facts on the ground. I've already discussed the latter (in probably overly harsh but still heartfelt language). Here are some thoughts on the second.

Part of my problem with a lot of urban research is that there just aren't enough major cities out there to make a really good sample, particularly when you have data this confounded and so many unusual if not unique aspects with each area. For some cities, with New York and San Francisco being very close to the top of the list, these unique aspects make it difficult to generalize findings and policy suggestions.

When I look at Richard Florida's research, at least in the form that made it to the Washington Monthly article, the role of San Francisco strikes me as especially problematic.

What is by many standards the most Bohemian and gay-friendly area in America is also arguably the country's center of technological innovation. Even if there were no relationship in the rest of the country, that single point would create a statistically significant correlation. That would not be so troubling if we had a clear causal relationship or a common origin. Unfortunately, the main driver of the tech boom, if you had to limit yourself to just one factor, would have to be Stanford University, while the culture of San Francisco does not appear to have been particularly influenced by that school, particularly when compared to Berkeley. In other words, had Stanford chosen to establish his college in Bakersfield, we might still have had Haight-Ashbury but we almost certainly would not have had Silicon Valley.

What's more, when we start looking at this narrative on a city by city basis, we often fail to see what we would expect. For example, if you were growing up in a relatively repressive area of the Southeast and you were looking for a Bohemian, gay-friendly metropolitan area with a vibrant arts scene, the first name on your list would probably be New Orleans followed by, roughly in this order, Atlanta, Savannah, and Memphis. Neither Cary. North Carolina nor Huntsville, Alabama would have made your top 10.

Rather bizarrely, Florida discusses both the Research Triangle and and New Orleans in his WM article, apparently without seeing the disconnect with his theories.:

Stuck in old paradigms of economic development, cities like Buffalo, New Orleans, and Louisville struggled in the 1980s and 1990s to become the next "Silicon Somewhere" by building generic high-tech office parks or subsidizing professional sports teams. Yet they lost members of the creative class, and their economic dynamism, to places like Austin, Boston, Washington, D.C. and Seattle---places more tolerant, diverse, and open to creativity.

There are lots of reasons for leaving New Orleans for Austin, but tolerance, diversity and openness to creativity aren't among them.

Even stranger are Florida's comments about the Research Triangle:

Kotkin finds that the lack of lifestyle amenities is causing significant problems in attracting top creative people to places like the North Carolina Research Triangle. He quotes a major real estate developer as saying, "Ask anyone where downtown is and nobody can tell you. There's not much of a sense of place here. . . .The people I am selling space to are screaming about cultural issues." The Research Triangle lacks the hip urban lifestyle found in places like San Francisco, Seattle, New York, and Chicago, laments a University of North Carolina researcher: "In Raleigh-Durham, we can always visit the hog farms."

Remember, Florida said "Places that succeed in attracting and retaining creative class people prosper; those that fail don't," so is this spot withering away? Not so much:

Anchored by leading technology firms, government and world-class universities and medical centers, the area's economy has performed exceptionally well. Significant increases in employment, earnings, personal income and retail sales are projected over the next 15 years.

The region's growing high-technology community includes such companies as IBM, SAS Institute, Cisco Systems, NetApp, Red Hat, EMC Corporation and Credit Suisse First Boston. In addition to high-tech, the region is consistently ranked in the top three in the U.S. with concentration in life science companies. Some of these companies include GlaxoSmithKline, Biogen Idec, BASF, Merck & Co., Novo Nordisk, Novozymes, and Wyeth. Research Triangle Park and North Carolina State University's Centennial Campus in Raleigh support innovation through R&D and technology transfer among the region's companies and research universities (including Duke University and The University of North Carolina at Chapel Hill).

This is not to say that there is not some truth to Florida's narrative or validity to many if not most of his insights. It does appear, however, that the magnitude of the effects he proposes are far less than he suggested and that the absolute claims he is fond of making are often riddled with exceptions.

Weekend blogging --Hard boiled (foreign edition)

A couple more from the Criterion Collection for your cinematic to-do list (free for the next nine days).




 Akira Kurosawa's High and Low:





This next one is not as well known but it sounds interesting:
Ascenseur pour l'échafaud is a 1958 French film directed by Louis Malle. It was released as Elevator to the Gallows in the USA (aka Frantic) and as Lift to the Scaffold in the UK. It stars Jeanne Moreau and Maurice Ronet as criminal lovers whose perfect crime begins to unravel when Ronet is trapped in an elevator. The film is often associated by critics with the film noir style. According to recent studies, it also introduces very peculiar narrative and editing techniques so that it can be considered a very important experience at the base of the Nouvelle Vague and the so-called New Modern Cinema.

Context is everything

There has been some vigorous discussions about the Congressional Budget Office's claims that increasing the minimum wage would cost jobs.  But there really are two things to keep in mind. 

One, noted by Jon Chait, is that we don't seem to be worried about job losses in other contexts:

And yet the Congressional Budget Office, now brimming with conservative credibility, has spent the last five years issuing report after report assailing the Republican position. Republicans weeping for the half-million or so jobs that would be destroyed by a higher minimum wage would be shocked to learn that, according to the CBO, they have destroyed 200,000 jobs by blocking the extension of emergency unemployment benefits (which lift the incomes of destitute workers, creating higher demand). Likewise, the budget sequestration they have embraced as their cherished second-term Obama trophy has destroyed 900,000 jobs.

The other issue is that costs are being talked about in the absence of benefits:

As economic policies go, that's not bad. In the real world, there's no such thing as a policy that has benefits with zero costs. There are always compromises. In this case, in return for the small job losses, 16 million workers would get a direct wage increase; another 8 million would get an indirect wage increase; and nearly a million workers would be lifted out of poverty. That's about as good as it gets. 

The argument against the extensions of unemployment benefits is the cost to the deficit (or the need to increase taxes).   It is not a good plan to consider both costs and benefits for the policies that you do like, and not to consider benefits for the policies that you do like. On point is:

There is no policy I can think of that generates only benefits without any costs, and policy makers always have to weigh the two sides. In the case of the minimum wage, on the benefits side of ledger, the budget office shows that 16.5 million low-wage workers would directly get a much-needed pay increase at no cost to the federal budget.

Finally, the magic trump card of "innovation" can be considered.  The argument against increasing taxes is that it might reduce innovation by high performers.  Robert Downey Jr might make fewer movies, for example, as he might value his leisure time more.  I am not convinced by this argument, but at least there is some theory that links these two things (high taxes and innovation) together. 

However, with minimum wage you have the opposite problem.  Low wages are known to stifle innovation.  It is well accepted that one of the problems with slavery (in Rome, as a common example) was that the cheap labor made the returns on labor saving innovations small.  So making labor cost more could have the expected costs and benefits plus drive innovation.  And there is no tax increase to be considered. 

Now does this mean that this policy is a "no-brainer"?  No.  But it does mean that there really has to be a much deeper engagement with the pros and cons of such an argument. 

Chip and Pin

Kevin Drum:

Americans are already accustomed to using PINs, and would have no more trouble managing multiple PINs than Danes and Italians do. And while using one PIN for ten cards might not exactly be best practice, it's certainly better than no PIN at all. How could it possibly increase fraud? Signature cards can be used with nothing more than a scrawl.

And then we get to the last paragraph. If cards have PINs, banks and card issuers will have to spend a bit of money helping people change their PINs. 

And that seems to be what we're left with. Merchants are willing to make the switch. Consumers would get used to the switch pretty quickly. But card issuers don't want to bother because it might increase their customer support costs a bit during the transition.

 So clearly we are in a situation where there is not a really open market.  The quote from Capital One in another Kevin Drum post makes this even more clear: the banks are blaming retailers not wanting to adopt this system.  But I look at major events like the recent Target hacking and figure that secure payment systems would have huge market value.  Or the actual statements from retailers wanting the more advanced system and, again, ponder why this is so hard to arrange.  So why can't one specific bank just pioneer the new system (well tested in Canada and Europe) as a market advantage?

Well, the unified payment systems would seem to me to be the issue.  But that is an issue of infrastructure as we go to a post-cash world.  If fraud mostly affects merchants, the incentives for banks is to offload costs. 

Why can't we get to an equilibrium where everyone is better off? 

French inefficiency

So I had always presumed we make a painful choice between efficiency and social support.  That the United States has an efficient and dynamic economy because we make the hard decisions to leave workers with a lower support network so that companies can be more agile. 

But then I read about the French:

• Having better medical care
• Having faster broadband for less money
• Less expensive and faster infrastructure

And they do this with early retirement, unions, and a dense network of government regulations.  I don't want to make the mistaken attribution that they are perfect -- that would be clearly untrue.  But I want to think a bit more clearly about precisely where our advantages lie.  Because these were the areas that I thought might be the most likely candidates for the US to dominate, given low levels of  regulation and flexible labor.