Is there an economist is the house? Casey Mulligan edition

After Christmas dinner, I did some web surfing and came across the following from Noah Smith:

Two posts back, I explained why the "Great Vacation" idea doesn't pass the smell test. If U.S. unemployment had been caused by a negative shock to labor supply, we should have expected to see an increase in real wages.

Casey Mulligan, one of the leading proponents of the Great Vacation story, responded on his blog:

A number of bloggers have recently discovered real wages as a labor market indicator. They are at least 3 years late to the party.

Three years ago I blogged about the effect of labor supply on real wages;

I noted how real wages had risen since 2007, and predicted that they would begin to decline in 2010.

I have continued to update this work, eg here, and here. The fact is that the real wage time series fits my recession narrative very well.*

Smith then pulls up a graph of real wages and uses it to argue that the data does not, in fact, fit Mulligan's narrative. It's definitely something you should check out, but right now there's something else I'd like you to take a look at. If you follow the link where Mulligan talks about blogging about the effect of labor supply on real wages, you get a column discussing the relationship between labor supply and productivity. This seems to be the relevant passage:

The second type of explanation is reduced labor supply.

Suppose, just for the moment, that people were less willing to work, with no change in the demand for their services. This means that employees would have to be more productive because they have to get by with fewer workers.

Of course, people have not suddenly become lazy, but the experiment gives similar results to the actual situation in which some employees face financial incentives that encourage them not to work and some employers face financial incentives not to create jobs.

Professor Douglas gave us a formula for determining how much output per work hour would increase as a result of a reduction in the aggregate supply of hours: For every percentage point that the labor supply declines, productivity would rise by 0.3 percentage points.

As mentioned earlier, in late 2008, labor hours were 4.7 percent below where trends from previous years would predict the number to be. According to Professor Douglas’s theory, this means productivity should rise 1.4 percent above its previous trend by the fourth quarter.

So let’s take a look at the numbers. Unlike in the severe recessions of the 1930s and early 1980s, productivity has been rising. Through the third quarter of 2008, productivity had risen six consecutive quarters, with an increase of 1.9 percent over the past three, or 0.7 percent above the trend for the previous 12 quarters.

Because productivity has been rising — almost as much as the Douglas formula predicts — the decreased employment is explained more by reductions in the supply of labor (the willingness of people to work) and less by the demand for labor (the number of workers that employers need to hire).

This way outside my field, so I could easily be missing the obvious here, but this post doesn't seem to support the claim that Mulligan was blogging on this question three years ago. That's not to say Mulligan's argument isn't valid or that it doesn't somehow imply his point about wages but if you're going to say "Three years ago I blogged about the effect of labor supply on real wages," you should probably mention wages in more than a passing way.

I can be sympathetic. Since I started blogging I've often recalled some prophetic observation I made in the past and started typing up a boastful post only to discover on review that I actually hadn't been that prophetic after all.

That's why I always reread old posts before I link to them; if I don't, someone else will.





* I had to remove a couple of reams of html formatting here. If I inadvertently removed something else. let me know.

Happy Holidays

Layoffs

Jeff Grubb has a very interesting window into how corporations act to try and create endless cycles of growth:

And part of it is that the corporation demands continued growth and profit. It can defer some of its growth for long-term development, or keep on an unsuccessful project that someone really likes, but really it boils down to guaranteed growth. And if you attain that growth, then they need to increase that rate of growth. And lord help you if you have a very good year - that very good year becomes the baseline for further calculations. In short, it is a vicious cycle.So they pass out the budgets for next year and now the departments have to plan. Yeah, some of that planning involves going back and telling the guys with the budgets that this makes no sense and sometimes that works. More often it involves figuring out what goes overboard in order to jack up profitability.Sometimes it is a new process that saves times or lowers cost of materials. Sometimes it is a new market that has been opened. Sometimes it is that "big hit" that suddenly arrives and surprises everyone (businesses actually don't like the "big hit" - it really screws up their planning. If they say you are going to lose 3 million this year and you instead MAKE 3 million, you make them look like idiots, and you will be punished accordingly).

There are two chilling comments here. One, is the idea that a good year can become the baseline for future expectations. So it makes sense to ensure that you don;t have any unexpected surprises. Two, which is the icing on the cake, is the idea that an unexpected burst of profitability will actually be punished. How this can actually be an efficient system is astonishing.

The standard explanation of "creative destruction" (badly run firms fade to be replaced with better run firms) presumes that we actually let large corporations fail. But there has been a general reluctance to do this in fields ranging from automobile manufacture to banking. Without that safety valve, this approach is going to be very dangerous to efficiency. In a later post, Jeff Grubb notes the CEO compensation for Hasbro (the subject of the first post) is pretty decent:

For those not linking, it is an announcement that the CEO of Hasbro is getting paid $23 Million this year. And yeah, it is like pouring oil on troubled water, then tossing in a match.Now, doing the digging in the article, the CEO gets a raise in salary from $1 Mill to $1.2 Mill (hardly chump change), and the rest being common stock. And to the best of my knowledge (the Internet will correct, of course), this means that it comes out of the company till - they are reassigning stock held by the company to the individual. And this assignment may have other strings attached - the stock cannot be sold except back to the company, it may only be sold at a particular price, it must be sold on leaving the company. So it is a fuzzy number, but a very large fuzzy number.The article also makes clear that this is a retention payment, negotiated last year, to keep the CEO around. It also notes that Hasbro had a weak 2010 in sales (stock prices went up, though). 2011 is nothing to write home about (stock prices have since deflated) and 2012 is not shaping up to be any better (Upcoming big movie: Battleship). So this is not about performance, but rather about stability. This is payment for showing up.

What is fascinating about part two is that this is the same company that just laid off two popular and productive long term employees in the Wizard's of the Coast division. So I googled game developer salaries and found this:

Game designers who work for a big company such as Hasbro or White Wolf Publishing can expect a more reliable salary, usually averaging between $30,000 and $50,000 per year.

Now let us presume fringe and overhead double the salary, and that both of the senior developers were at the very top of this range. The retention bonus portion of the CEO retention payment was enough to pay 400 developer-years of salary )both have fringe and overhead, it's unclear how this would work out in the details but this is a good starting estimate). Seriously, keeping the CEO around for another year was worth hundreds of experienced employees. What is ironic, is the base salary of the CEO is that of twenty senior developers (raised to that of twenty-four this year). That is actually a credible ratio of the benefit of a good CEO for a company (they have about as much influence as a couple of seasoned design teams). The additional $22 million is hard to understand. No wonder companies don't like comparisons between executive compensation and line worker compensation.

I do not really have a good idea about how to handle this issue in a more global sense, but I am deeply worried that this pattern could be playing out in corporations that we simply are unwilling to let go under.

That is a scary thought.

Do copyright extensions drive innovation? -- Hollywood blockbuster edition

After all this time on patents, I thought we'd give copyrights a turn.

One of the standard arguments for stronger intellectual property laws is that they encourage innovation. Now let's think about how this is supposed to work. Stronger protection for intellectual property makes those properties more valuable. Greater value causes the market to generate more and better properties, particularly those specific properties that best capitalize on the new profit potential.

In the case of copyright protection, the properties that make the best use of these extensions are franchisable stories and characters. I'm specifically using franchise in the sense of selling the right to use a business model. Just as McDonald's can sell one person the right to run a restaurant in one neighborhood and then sell a different person the right to run one in a different neighborhood, the company that owns the rights to, say, Batman can allow one creative team to produce a series of properties based on the character, then turn around a few years later and allow another team a shot.

This interchangeability of talent is essential given the lengths of time we're talking about here. For most of the Twentieth Century, copyright protection was effectively capped at fifty-six years, but major extensions were passed in 1976 and 1998 which extended protection of corporate works up to ninety-five years and left the possibility open of essentially unlimited future extensions.

In order to reach their full potential, franchises have to repeatedly replace all of their creative personnel. Bond and Batman are arguably the good examples, both having gone through numerous incarnations with completely different creative teams, but there's an important difference in the business model. Bond was an ongoing series with considerable continuity both in front of and behind the camera; Batman pattern since the Sixties has been successful run, fallow period, relaunch with new team. The second model, with its long cycles, takes better advantage of the long copyrights.

We would expect 1976 and 1998 to produce major upticks in the creation of properties that could support Batman style franchises because at those points the profit potential of that type of property greatly increased. We would also expect newer properties generally to be more valuable than older properties both because of freshness and because of changing tastes.

That means by now if we look at films that are either part of a franchise or an attempt to launch or relaunch one, we should expect to see a very large share from the past decade (both because of the 1998 Act and because of recency) then a decent showing from the the Eighties and Nineties and little if anything from before the mid-seventies. With that in mind, let's look at the medium to large budget franchisable movies from 2011 and their creation decade:



The Adventures of Tintin -- Twenties


Alvin and the Chipmunks: Chipwrecked -- Fifties


The Twilight Saga: Breaking Dawn - Part 1 -- 00s


Captain America: The First Avenger -- Forties


Conan the Barbarian -- Thirties


Cowboys & Aliens -- 00s


Diary of a Wimpy Kid: Rodrick Rules -- 00s


The Green Hornet -- Thirties


Green Lantern -- Sixties*


Harry Potter and the Deathly Hallows: Part 2 -- Nineties


I Am Number Four -- 00s


Mission Impossible -- Sixties


The Muppets -- Fifties


Pirates of the Caribbean: On Stranger Tides -- Sixties (part of Disney's movies based on rides series)


Rise of the Planet of the Apes -- Sixties


Sherlock Holmes -- Nineteenth Century


The Smurfs -- Fifties


Spy Kids: All the Time in the World -- 00s


Thor -- Sixties


Transformers: Revenge of the Fallen -- Eighties


X-Men: First Class -- Sixties


You can quibble with some of my calls here. I quibbled with myself quite a bit, going back and forth on the Adjustment Bureau (old), Cars (new), Puss-in-boots (old) and Diary of a Wimpy Kid among others, but no matter what standards you use, it's almost impossible to see anything in the data that supports the idea that these extremely long copyrights have increased the production of highly marketable properties.

At best you could argue that the extensions might have had a positive effect but it was small enough to be swamped by other technological, economic and demographic factors. At worst, you could make the case that copyright laws were approximately optimal in the middle of the Twentieth Century and that the extensions have actually inhibited innovation.

Like patents, copyrights are necessary, but highly intrusive regulations. Taken to an extreme, they distort markets, divert resources from creators to legal departments, encourage consolidation and set up onerous barriers to entry for small companies and start-ups.

For another layer of irony here, take a look at how Disney approached intellectual property in its early days.

* Technically very late Fifties (or even Forties if you count earlier character with the same name)

Also posted at MippyvilleTV.

Two telling quotes from Bill Adair of PolitiFact

Politifact has come in for a lot of criticism recently, some of it from surprising sources. Ramesh Ponnuru of the conservative National Review suggested that, rather than being the "Lie of the Year," the Democrats statements about Medicare were legitimate, while Jonathan Chait, then of the the liberal New Republic, has called the organization on unfair attacks on Republicans.

Without getting into the pros and cons of this most recent debate, I did want to share a couple of quotes from PolitiFact editor-in-chief Bill Adair:

From NPR:

"We're going to make the best calls we can in a pretty gutsy form of journalism," he says. "When we do, I think it's natural that the people on one side or other of this very partisan world we live in are going to be unhappy."

And from PolitiFact itself:

The most over-the-top response (was it tongue-in-cheek?) was a rant from Jim Newell in Gawker under the headline "Why PolitiFact is bad for you." He conveniently ignored the fact that our fact-checks are based on hours of journalistic research and portrayed them as the work of rogue bloggers with a gimmicky meter.

We've mentioned concerns about the decline of journalism and how various factors compound the problem. This is another one of those compounding factors: the strange obliviousness of many journalists. Adair, on the record, describes his own work as "gutsy." He holds up "hours of journalistic research" as an impressively high standard. He seems incapable of thinking of criticism as being based on anything but partisan bitterness. (If you think I'm cherry-picking here, follow the link above. The whole piece is like this.)

Even if you put aside the many criticisms of PolitiFact (spelled out cogently and with crushing thoroughness by Chait) and view them in the best (and I do mean best) possible light, the most you can say for the organization is that it's doing what we used to think of as standard due diligence from journalists.

Intellectual property: the story that never ends

More on intellectual property rights from Matt Yglesias, who is worried about Google patenting basic features of driverless cars:

If you look at the cars we have, they're all of course different but they have a lot of really profound similarities. You almost always turn a key in the ignition. You have your gas pedal and your break, and you push them both with your right foot. You steer them with a wheel. There's a spedometer and a fuel indicator in more-or-less the same place. They use mirrors so you can see where you're going without constantly turning your head. Would it be a better world if for twenty years someone had held a patent on a Using Mirrors To Allow Drivers To See Behind Them Without Turning Their Head? I say, no. Absent the inability of new entrants into the automobile market to copy some of the basic concepts of what a usable car looks like, we would have had much less competition and much less innovation around the real cutting edge of the automobile industry.

This was not the most interesting thing that was on Moneybox today, but it fit really well into an an evolving theme that we have been seeing recently about how the patent industry is formalizing rent-seeking.  This cannot be good in the long run.

Now, it is true that I think that the driverless car is an over-rated concept.  Like the jetpack, it is a neat idea that has a lot of very difficult implementation issues.  In the case of the driverless car, the main issues, in my opinion, are rethinking the complex web of liability we have constructed around vehicles and smoothly integrating them into mixed use roadways.

The risk of bicycle commuting has been an extremely favorable development, despite the occasional tension between cars and bikers.  But I wonder if driverless cars will be able to handle treating cyclists as other vehicles or might the smaller profile of the bike make it harder for the car to account for them?  The same concerns come up with pedestrians, especially in large cities.

Still more adventures in intellectual property

From the LA Times (comment would be superfluous):

The patent war between Apple Inc. and smartphone rival Samsung Electronics continues to escalate, and there's only one way to describe the latest vicious salvo:

:)

That's right, it appears that Samsung has initiated a lawsuit against Apple governing the company's use of emoticons.

According to a report from patent observer Florian Mueller, who has been dependably covering the worldwide patent wrestling match between Apple and Android manufacturers, one of four new patent lawsuits filed by Samsung in German court is over, once again, yes, emoticons.

Believe it or not, Samsung does indeed own a patent on smartphone use of emoticons. It won the European rights to that "technology" in 2000, and interested readers can see the actual patent here.

A few more thoughts on journalistic conformity

I complained in an earlier post that journalists have recently shown an alarming tendency to converge on a small set of standard stories when covering a major topic -- small sets that more often than not leave out things that we readers really ought to know about. Here's another example.

There are at least two potentially serious consequences to the amount of carbon we've been pumping into the atmosphere. The first is global warming. The second is the chemical and biological changes in the oceans.

Though it's difficult to compare the likely impact of phenomena this big and complex, the second problem is arguably on a level with the first, a point driven home in the LA Times' Pulitzer-winning series on the subject:

As industrial activity pumps massive amounts of carbon dioxide into the environment, more of the gas is being absorbed by the oceans. As a result, seawater is becoming more acidic, and a variety of sea creatures await the same dismal fate as Fabry's pteropods.

The greenhouse gas, best known for accumulating in the atmosphere and heating the planet, is entering the ocean at a rate of nearly 1 million tons per hour — 10 times the natural rate.

Scientists report that the seas are more acidic today than they have been in at least 650,000 years. At the current rate of increase, ocean acidity is expected, by the end of this century, to be 2 1/2 times what it was before the Industrial Revolution began 200 years ago. Such a change would devastate many species of fish and other animals that have thrived in chemically stable seawater for millions of years.

Less likely to be harmed are algae, bacteria and other primitive forms of life that are already proliferating at the expense of fish, marine mammals and corals.

In a matter of decades, the world's remaining coral reefs could be too brittle to withstand pounding waves. Shells could become too fragile to protect their occupants. By the end of the century, much of the polar ocean is expected to be as acidified as the water that did such damage to the pteropods aboard the Discoverer.

Some marine biologists predict that altered acid levels will disrupt fisheries by melting away the bottom rungs of the food chain — tiny planktonic plants and animals that provide the basic nutrition for all living things in the sea.

And we haven't even gotten to the primeval toxic slime (you really do need to read the whole series).

Given their common origin, comparable severity and potential for synergistic effects, topics like acidification should show up frequently in stories about global warming. Not all the time, but I would expect to see it in at least fifteen or twenty percent of the stories. It is simply a pairing that journalists to make on a fairly regular basis, but while a search of the last twelve months of the New York Times for "climate change" produces 10,509 hits, a search on '"climate change" acidification' over the same period produces 15.

(If we do a quick, back-of-the-envelope hypothesis test on the null that most journalists are well-informed, hard-working, independent thinkers...)

The specific tragedy here is that, for all the ink that's been spilled on the impacts of carbon emissions, all we really get in the vast majority of cases are simply the same handful of stories endlessly recycled. We read dozens of articles but since the writers have converged on a tiny number of narratives we remain ill-informed.

The general tragedy is that this is the way almost all journalism works these days. Through a lack of independent thinking (often augmented by laziness and a lack of rigor), journalists quickly settle on a small number of templates which they seldom stray from, even though these templates leave out important aspect of the larger story. Stories on the environmental impacts of carbon leave out the oceans; stories on the economics of cable don't mention broadcast television; stories about the free spending ways of countries like Greece and Spain omit the fact that Spain was running a surplus before the crisis.

It would be easy to find more examples. Finding counter-examples is the tough one.

Prediction is difficult

There is a really thoughtful post in the Economist. The gist:

In a nutshell: I've become far less confident about our ability to accurately describe possible outcomes more than a decade out. Correspondingly, I've become increasingly sceptical of the value of analyses of decisions now that attempt to assess the costs and benefits of action over horizons any longer than a decade.

I think that this was a very good complement to yesterday's discussion of inference from observational medical research.  Models are hard.  The more complicated the model is, the more likely something is to go wrong.  Future predictions suffer from these sorts of complications -- we honestly do not know what the circumstances will be like in the future or how many unlikely events will actually happen.  Over the short run, predictions can bank on it being unlikely that a lot of "low event rate but high impact" events will happen.  We can also neglect the slow (but incremental variables) that are currently unnoticed but which will make a huge difference in the future.

In the same sense, looking at low event rate outcomes in incomplete data (most of pharmacovigilence), leads to a lot of innate uncertainty.  In both cases, I think it makes a lot of sense to be humble about what our models can tell us and to focus on policy that accepts that there is a lot of innate uncertainty in some forms of prediction.

Hat-tip: Marginal Revolutions

Can we do observational medical research?

Andrew Gelman has a really nice post on observational medical research.  How could I not respond?

In the post he quotes David Madigan who has a fairly strong opinion on the matter:

I’ve been involved in a large-scale drug safety signal detection project for the last two or three years (http://omop.fnih.org). We have shown empirically that for any given safety issue, by judicious choice of observational database (we looked at 10 big ones), method (we looked at about a dozen), and method setup, you can get *any* answer you want – big positive and highly significant RR or big negative and highly significant RR and everything in between. Generally I don’t think there is any way to say definitively that any one of these analysis is a priori obviously stupid (although “experts” will happily concoct an attack on any approach that does not produce the result they like!). The medical journals are full of conflicting analyses and I’ve come to the belief that, at least in the medical arena, the idea human experts *know* the *right* analysis for a particular estimand is false.

This seems overly harsh to me.  Dr. Madigan (who I think is an amazing statistician) is working with OMAP, which I recall as being comprised of data sets of fairly low quality data (prescriptions claims for Medicare/MedicAid, GPRD and other clinical databases, and these sorts of databases).  It is a necessary evil to get the power to detect rare (but serious) adverse drug outcomes.  But these databases are often problematic when extended beyond extremely clear signal detection issues.  

The clearest example of high quality medical data is likely to be randomized controlled double-blinded clinical trials.  But there is a whole layer of data between these two extremes of data quality (prospective cohort studies, for example) that has also generated a lot of important findings in medicine.

Sure, it is true that the prospective cohort studies tend to be underpowered to detect rare adverse drug side effects (for precisely the same reason that RCTs are).  But there is a lot of interesting observational medical research that does not generate conflicting results or where the experts really seem to have a good grasp on the problem.  The links between serum cholesterol levels and cardiovascular events, for example, seems relatively solid and widely replicated.  So do the links between smoking and lung cancer (or cardiovascular disease) in North American and European populations.  There is a lot that we can learn with observational work.

So I would be careful to generalize to all of medical research.

That being said, I have a great deal of frustration with medical database research for a lot of the same reasons as David Madigan does.  I think the issues with trying to do research in medical claims data would be an excellent series of posts as the topic is way too broad for a single post.

How to read Megan McArdle part 46 -- the quotes

Via Joseph via Karl Smith, Megan McArdle (in a post entitled, "When it Comes to Taxes on the Poor, the Supply Siders are Right") quotes the following passage from Jeff Liebman:

"Despite the EITC and child credit, the poverty trap is still very much a reality in the U.S. A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn't make ends meet any more. I told her I didn't know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000. I told her that she should first try to find a $35k job closer to home. Also, she apparently can't fully reverse her decision to take the higher paying job because she can't get the child care voucher back (the waiting list is several years long she thinks). She is really stuck. She tried taking an additional weekend job, but the combination of losing 30 percent in increased rent and paying for someone to take care of her child meant it didn't help much either.

The question is what is the policy solution here. Means-tested transfers have to be phased out at some point, so there is no easy answer.

Notice strangely brief second paragraph and the missing quotation mark at the end? Statisticians tend to be suspicious people, particularly when it comes to odd cut-offs for data ranges so I clicked through the link to the Jeff Frankels post that provided the original quote and saw a possible reason why McArdle had stopped so abruptly. Here's the very next sentence:

I think there are three things we might be able to do — all of which would, as you say, be a better use of revenue than tax cuts for the rich.

The whole paragraph is worth reading:

The question is what is the policy solution here. Means-tested transfers have to be phased out at some point, so there is no easy answer. I think there are three things we might be able to do — all of which would, as you say, be a better use of revenue than tax cuts for the rich. First, make child-related tax benefits equal for all families (now they are high at the bottom because of the EITC and high at the top because the dependent exemption is more valuable the higher the tax bracket you are in, and the dip in the middle raises marginal tax rates by 21 percent for a family with two kids — so eliminating the dip would get rid of this 21 percent portion of the effective marginal tax rate). David Ellwood and I analyze this first idea. Also Sawicky and Cherry have put forth a similar idea. Second, in designing universal health insurance, we need to be very careful not to phase out income-related premium subsidies over the same income range where all of these other benefits are being phased out. Third, implement a delay between income increases and rent increases in section 8 — allow people to save up a bit before they are hit with the rent increase (I believe I read that some states have been trying out something like this recently, but I am not up to date on these policies). There are some excellent papers that carefully model how the cumulative effects of the welfare system create a poverty trap. But I don’t think either of these papers includes all of the factors facing the woman above — so they would probably indicate that she faced a 60 percent marginal tax rate rather than the 130% (or whatever it really is) rate that she actually faces.”

I not entirely convinced that Liebman has made the case for counting personal expenses required for a new job as a tax increase, but it's a coherent and honest argument that's certainly persuasive on the reality of a poverty trap.

As for the rest of McArdle's post, after having spent a great deal of time arguing that a situation exists where supply siders predict a strong effect, her whole defense of her central thesis consists of this:

Note two things: first, that in this case, at least, the supply siders seem to be completely right. Everyone I've spoken to about the problem seems to agree that the poor respond to these high marginal tax rates by either taking lower-paying jobs than they could, or working less--not in every individual case, but in aggregate.

And second, that this is not a problem that supply siders seem to be applying much brain power or political capital to fixing.

The everyone-I've-spoken-to standard leaves something to be desired, particularly given the fact that the woman in the anecdote did the exact opposite of what supply side theory predicted; rather than "taking lower-paying jobs than [she] could, or working less," she "tried taking an additional weekend job."

(and to put way too fine a point on this, I don't see the predicted big dip for affected families in these numbers either)

On the bright side, this still isn't the worst thing to come out of the Atlantic recently.

When a model simply doesn't match reality

Karl Smith relates a story from Megan McArdle:

A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn't make ends meet any more. I told her I didn't know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000. I told her that she should first try to find a $35k job closer to home. Also, she apparently can't fully reverse her decision to take the higher paying job because she can't get the child care voucher back (the waiting list is several years long she thinks). She is really stuck. She tried taking an additional weekend job, but the combination of losing 30 percent in increased rent and paying for someone to take care of her child meant it didn't help much either.

Ms, McArdle tries to make a supply side argument here, where she points out that we are failing to create policies to incentive work among the poor (who can suffer a marginal tax rate of > 100% in many circumstances). It is a really interesting question why we focus on the top marginal tax rate and not the marginal tax rate for people in lower income brackets (where there is less of a competition effect). However, Karl Smith notices the really interesting behavioral issue here:

She faced a marginal tax rate in excess of 100%. This meant as her earned income went up she got poorer. What did she do? She tried to earn even more income. It was only we she failed at the attempt to make ends meet by supplying ever more labor to the free market that she try to go back to making less money.

So, not only do we have evidence from Matt Yglesias and Felix Salmon that top income earners don't necessarily even know their marginal rate, but we see low income people (facing a > 100% marginal rate of taxes) desperately trying to get more income and not less. It is not the case that the woman in this heartbreaking story decides that she would prefer to spend more time in leisure (so we can't intice her into working more). It is that working actually costs her money.

And her response is to get a second job!

Is it really too late to put supply side economics into the "special circumstances only" bin and leave it there? It may influence the odd movie producer, consultant, or freelancer (who have the ability to take on work in discrete projects and who have income sufficiency already). But this conceptual model seems to be absolutely dreadful at making predictions about how real people will act in most employment situations.

A really nice article by Andrew Gelman and Kaiser Fung

Andrew Gelman and Kaiser Fung have an article on Freakonomics in American Scientist. My favorite part was the story of Emily Oster and her theory of Hepatitis B:

Monica Das Gupta is a World Bank researcher who, along with others in her field, has attributed the abnormally high ratio of boy-to-girl births in Asian countries to a preference for sons, which manifests in selective abortion and, possibly, infanticide. As a graduate student in economics, Emily Oster (now a professor at the University of Chicago) attacked this conventional wisdom. In an essay in Slate, Dubner and Levitt praised Oster and her study, which was published in the Journal of Political Economy during Levitt’s tenure as editor:

[Oster] measured the incidence of hepatitis B in the populations of China, India, Pakistan, Egypt, Bangladesh, and other countries where mothers gave birth to an unnaturally high number of boys. Sure enough, the regions with the most hepatitis B were the regions with the most “missing” women. Except the women weren’t really missing at all, for they had never been born.

Oster’s work stirred debate for a few years in the epidemiological literature, but eventually she admitted that the subject-matter experts had been right all along. One of Das Gupta’s many convincing counterpoints was a graph showing that in Taiwan, the ratio of boys to girls was near the natural rate for first and second babies (106:100) but not for third babies (112:100); this pattern held up with or without hepatitis B. In a follow-up blog post, Levitt applauded Oster for bravery in admitting her mistake, but he never credited Das Gupta for her superior work. Our point is not that Das Gupta had to be right and Oster wrong, but that Levitt and Dubner, in their celebration of economics and economists, suspended their critical thinking.

I think that this story actually has two elements. One is the dangers of a convincing explanation. There are a lot of associations that can appear and would be extremely exciting if they were true. Just consider the recent article on statins reducing mortality due to pneumonia: it is an amazing result that would be extremely exciting if it were true. I worry that these kinds of exciting results get a lot of press instead of being seen a signposts towards needing to examine the problem more carefully. After all, it was a good thing that Das Gupta had a chance to look at her data and control for an additional predictive variable. What is concerning is not raising the idea -- it is the strength of the language: "Except the women weren’t really missing at all, for they had never been born" which implied a lot more certainty than seemed warranted. But putting that point aside, the real interesting thing (to me) is considering likely effect sizes. When you look at the population level infection rates (incremental on the infection rates in countries without this gender imbalance) then you quickly conclude that the effect of infection has to be high. After all, the rate in India appears to be about 3% (versus less than 1% in the United States). At the same time, the sex ratio in India was 1.10 (these are approximate numbers). So if the natural sex ratio is 105 and India has 110 we can do a calculation. Assume that the Hep B rate among reproductive age women is triple the population average (say 9%). So 0.91 x 105 + 0.09 x [RATE] = 110. That suggests that the sex ratio among infected women is 160 (it gets a lot worse if you merely assume double). That means we could prove this hypothesis by following a very small cohort of Hep B infected pregnant women, since the effect size is so large. Now this is a simplistic way to look at the problem, and I am sure that more nuanced approaches make sense. But isn't this the sort of data you'd look for before suggesting that the experts completely missed the explanatory variable? After all, you are positing an enormous effect size for the influence of the virus on sex ratios. This would be observed in routine clinical practice. So, not to give anybody a hard time. We all have challenges in our research and it is really hard to tackle these types of problems. People should have credit for putting their necks out and proposing testable hypotheses that can enhance our understanding of the world. But I think we should rethink just how certain we are when we make these proposals. Maybe we need to learn to say "this is a possible explanation for some of the observed variation".

Remember, it no longer counts as plagiarism unless you use exactly the same words

I had started out to write a post about the cable executive who described the rising cost of ESPN as a "tax on every American household," but when I went looking for source articles I noticed something strange. The Atlantic, the Wall Street Journal, and the rest all told the story in the same way, right down to the same omission of the role of over-the-air television (which is particularly relevant to a story about threats to cable's business model).

Don't worry, this is not another rabbit-ears story. What's significant here is that in a story about cable losing cost-conscious customers, none of the writers mentioned the tens of millions of people who were getting full digital television for free. Not only do journalists now tend to cover the stories from the same angles, they even omit the same important details.

This group-think is bad enough on its own, but when you combine it with an increasingly nonchalant attitude toward accuracy and fact-checking (here's one of many examples), the results can be dangerous.

Look at the debate over the Euro-crisis. Any number of virtually identical stories have appeared claiming that the crisis was started by the wild deficit spending of southern countries, implicitly or explicitly including Spain, despite the fact that Spain had been running a surplus before the crisis.

If journalists aren't bothering to think independently or check their facts when reporting on the Euro-crisis, what stories are important enough to justify their A-game?

K12

This is not surprising:

Nearly 60 percent of its students are behind grade level in math. Nearly 50 percent trail in reading. A third do not graduate on time. And hundreds of children, from kindergartners to seniors, withdraw within months after they enroll.

By Wall Street standards, though, Agora is a remarkable success that has helped enrich K12 Inc., the publicly traded company that manages the school. And the entire enterprise is paid for by taxpayers.

Now, we've long been test score critics at OE. So I will accept the argument that test scores should not necessarily be the most important feature of a school. But if they are the motivation for shifting to private education then I'd at least like to see reasonable scores (after all, this is the reason for the existence of these options).

Nor is the fact that the schools are focusing on aggressive expansion reassuring:

Despite lower operating costs, the online companies collect nearly as much taxpayer money in some states as brick-and-mortar charter schools. In Pennsylvania, about 30,000 students are enrolled in online schools at an average cost of about $10,000 per student. The state auditor general, Jack Wagner, said that is double or more what it costs the companies to educate those children online.

“It’s extremely unfair for the taxpayer to be paying for additional expenses, such as advertising,” Mr. Wagner said. Much of the public money also goes toward lobbying state officials, an activity that Ronald J. Packard, chief executive of K12, has called a “core competency” of the company.

I think that it is concerning that a core competency of a large (and growing) private school is that it focuses on lobbying governments for money. If the main issue that we have with traditional public education is rent-seeking by teachers, how much worse is rent seeking by a corporation? After all, if teachers gain a small surplus per teacher that at least has a broad social impact. Clearly K12 has managed to avoid expensive teachers:

But online schools have negligible building costs and cheaper labor costs, partly because they pay teachers low wages, records and interviews show. Parents, called “learning coaches,” do much of the teaching, prompting critics to argue that states are essentially subsidizing home schooling.

At what point is the school simply letting the parent home school their children and accepting educational grant money for the purpose? This is a model that, I suspect, has a chance if and only if you have a stay at home parent that focuses on working with the child on education (or if sleep is an activity that you engage in only on weekends).

Now, I do not want to be a luddite. There may be a role for online education and this particular NY Times piece may not capture all of the nuances of K12 (the articles about traditional schools often has this issue as well). But this sort of business model has long been one of my major concerns about the push towards privatization of schools.

Smart comments from Matt Yglesias and Dana Goldstein are also worth reading.

Question about Airlines

Mark Thoma tweets:

MarkThoma Mark Thoma
Just once, I'd like to be able to get on the plane at the scheduled time, and make all my connections. Once doesn't seem to much to ask. Grr

I cannot agree more. Why is it so difficult for modern airlines to provide basic services? Why is the city bus more likely to be on schedule than Delta Airlines?

This week's appalling story of intellectual property abuse

Brought to us by Alex Tabarrok:

Prometheus gave man fire, thankfully he didn’t charge every time man lit a match. Prometheus Labs in contrast wants to charge patients for a rule that says when to increase or decrease a drug in response to a blood test. Quoting Tim Lee:

The patent does not cover the drug itself—that patent expired years ago—nor does it cover any specific machine or procedure for measuring the metabolite level. Rather, it covers the idea that particular levels of the chemical “indicate a need” to raise or lower the drug dosage.

Even this is not quite right for suppose a physician notes that the patient’s metabolites are within the range where a change in dosage is not necessary; although the physician takes no action she still has used the patent and thus must pay Prometheus Lab a fee or infringe.

Maybe the Republican primary is going just as we should expect

I don't mean that in a snarky way. This is a completely non-snide post. I was just thinking about how even a quick little model with a few fairly intuitive assumptions can fit seemingly chaotic data surprisingly well. This probably won't look much like the models political scientists use (they have expertise and real data and reputations to protect). I'm just playing around.

But it can be a useful thought experiment, trying to explain all of the major data points with one fairly simple theory. Compare that to this bit of analysis from Amity Shlaes:

The answer is that this election cycle is different. Voters want someone for president who is ready to sit down and rewrite Social Security in January 2013. And move on to Medicare repair the next month. A policy technician already familiar with the difference between defined benefits and premium supports before he gets to Washington. What voters remember about Newt was that some of his work laid the ground for balancing the budget. He was leaving the speaker's job by the time that happened, but that experience was key.

This theory might explain Gingrich's recent rise but it does a poor job with Bachmann and Perry and an absolutely terrible job with Cain. It's an explanation that covers a fraction of the data. Unfortunately, it's no worse than much of the analysis we've been seeing from professional political reporters and commentators.

Surely we can do better than that.

Let's say that voters assign their support based on which candidate gets the highest score on a formula that looks something like this (assume each term has a coefficient and that those coefficients vary from voter to voter):

Score = Desirability + Electability(Desirability)

Where desirability is how much you would like to see that candidate as president and electability is roughly analogous to the candidate's perceived likelihood of making it through the primary and the general election.

Now let's make a few relatively defensible assumptions about electability:

electability is more or less a zero sum game;

it is also something like Keynes' beauty contest, an iterative process with everyone trying to figure out who everyone else is going to pick and throwing their support to the leading acceptable candidate;

desirability tends to be more stable than electability.

I almost added a third assumption that electability has momentum, but I think that follows from the iterative aspect.

What can we expect given these assumptions?

For starters, there are two candidates who should post very stable poll numbers though for very different reasons: Romney and Paul. Romney has consistently been seen as number one in general electability so GOP voters who find him acceptable will tend strongly to list him as their first choice even if they may not consider him the most desirable. While Romney's support comes mostly from the second term, Paul's comes almost entirely from the first. Virtually no one sees Paul as the most electable candidate in the field, but his supporters really, really like him.

It's with the rest, though, that the properties of the model start to do some interesting things. Since the most electable candidate is not acceptable to a large segment of the party faithful, perhaps even a majority, a great deal of support is going to go to the number two slot. If there were a clear ranking with a strong second place, this would not be a big deal, but this is a weak field with a relatively small spread in general electability. The result is a primary that's unstable and susceptible to noise.

Think about it this way: let's say the top non-Romney has a twelve percent perceived chance of getting to the White House, the second has eleven and the third has ten. Any number of trivial things can cause a three point shift which can easily cause first and third to exchange places. Suddenly the candidate who was polling at seven is breaking thirty and the pundits are scrambling to come up with an explanation that doesn't sound quite so much like guessing.

What the zero property and convergence can't explain, momentum does a pretty good job with. Take Perry. He came in at the last minute, seemingly had the election sewn up then dropped like a stone. Conventional wisdom usually ascribes this to bad debate performances and an unpopular stand on immigration but primary voters are traditionally pretty forgiving toward bad debates (remember Bush's Dean Acheson moment?) and most of the people who strongly disagreed with Perry's immigration stand already knew about it.

How about this for another explanation? Like most late entries, Perry was a Rorschach candidate and like most late entries, as the blanks were filled in Perry's standing dropped. The result was a downward momentum which Perry accelerated with a series of small but badly timed missteps. Viewed in this context, the immigration statement takes on an entirely different significance. It didn't have to lower Perry's desirability in order to hurt him in the polls; instead, it could have hurt his perceived electability by reminding people who weren't following immigration that closely that Perry had taken positions that other Republicans would object to.

Of course, showing how a model might possibly explain something doesn't prove anything, but it can make for an interesting thought experiment and it does, I hope, at least make a few points, like:

1. Sometimes a simple model can account for some complex and chaotic behavior;

2. Model structure matters. D + ED gives completely different results than D + E;

3. Things like momentum, zero sum constraints, convergence, and shifting to and from ordinal data can have some surprising implications, particularly when;

4. Your data hits some new extreme.

[For a look at what a real analysis of what's driving the poll numbers, you know where to go.]

Model assumptions

Felix Salmon and Matt Yglesias:

The entire debate in congress over taxes is that President Obama wants to restore the top marginal rate to the level that Dimon thinks it already is. Meanwhile, Dimon doesn’t even know what tax rate he pays.

I think that this quote is really, really important. Classical economic models presume that individuals act to maximize their utility. But real people often have limitations, including lack of perfect information about what costs really are. I would be surprised if Mark did not have follow-up thoughts.

But the key point is that if these assumptions about informed persons can't hold for the CEO of JP Morgan Chase (whom you would assume is numerate) then how likely is that these models are going to be good at prediction? After all, we presume Jamie Dimon is maximizing his utility for a 39.6% marginal tax rate; so a change in taxes to what he currently thinks that they already are would alter his incentives how?

Quote of the day

However, one view of pure research is that it is research that has not yet found application; pure research is a long-term investment just as applied research is a short-term investment.

M.F. Goodchild
"Geographical Information Science"

Defined Contribution Health Insurance

Via Austin Frakt, there is an interesting piece on defined contribution health insurance. It is an interesting idea and likely not a bad policy direction. I know I would contribute more to my health saving account if the balance could roll over. But, as things are currently set up, it is impossible to plan against a major medical event.

I think that it might be useful to consider this model with some tweaks. Essential to making it work is to include catastrophic event coverage (major medical insurance). Patients will not go out of their way to have heart attacks, stroke, and major cancers just to take advantage of their health care insurance. These events are what really create the "risk" (and thus insurance) part of health care.

Otherwise, it is actually plausible for people to budget for health care expenses and tax sheltered accounts might be a great transition move.

Eating Eric Roberts

I've spent half my life in small town and rural America, so I have a pretty good feel for just how big a role the postal service plays in many people's lives. And it's not just in the country. There are millions of others who depend on the mail, housebound seniors, the unbanked, people left behind by the internet age. (To say nothing of the businesses that rely on the service and the benefit we all get as a society from being able to get documents and packages to anyone in this country.)

I don't see a lot of concern about these people, not from the pundits and certainly not from Patrick Donahoe, the U.S. Postmaster General, who seems to view himself as a consultant brought in to smoothly dismantle the institution rather than a leader appointed to represent its interests.

And (because my mind works in strange ways) that got me thinking about the South Park episode where members of the town are trapped by a storm and decide to eat visiting celebrity Eric Roberts. What makes the bit so inspired is how quickly and casually the townspeople descend to the last resort, arguing that they could be there for hours and that some of them had skipped breakfast.

I see similar reasoning in this debate. We have jumped to the extreme measures (having mass layoffs, slowing down first class mail, closing small town post offices) when there are simpler, far less painful steps that can usually be achieved just by loosening some of the highly restrictive rules that hobble the USPS:

Allow pricing a little closer to what the market would bear. Even after a twenty percent jump, postal rates would still be a good deal;

(From Andrew Gelman) Round prices up to the nearest round number (would anyone really mind paying forty-five or even fifty cents instead of the current forty-four?);

(From Felix Salmon) Allow the post office to offer a wider range of products and services;

End Saturday delivery (not my favorite, but less drastic than much of what's been suggested);

And finally, remind congress that since they passed all these rules effectively preventing the service from turning a profit and storing money away in good times they should take responsibility when times turn bad.

I realize that at some point drastic steps may be necessary, but I don't see why they always have to be our default option.

Your tuition dollars at work

Remember, when we underwrite student loans for private schools, we subsidize this:

SIEGEL: So, who would be the highest paying university president who remained in place?

STRIPLING: That would be Nicholas Zeppos, who's the president of Vanderbilt University. He collected just under $1.9 million for the 2009 calendar year.

SIEGEL: And there's another measure used, you say, which is this year you also compared university presidents' pay to the pay of professors on their campuses. What did you find?

STRIPLING: Well, we found that, by and large, most presidents make about three and a half times that of full professors on their campus. At the same time, we found six institutions where presidents made more than 10 times that of professors on their campus. The biggest disparity was at Stevenson University in Maryland, where Kevin Manning made 16 times that of professors on this campus.

A big part of that was a deferred compensation payout that he received in 2009. But, at the same time, even if you looked at him in the year prior, he still made seven times that of professors on his campus, which was considerably greater than the median.

Agendas

I think that this is correct:

Less honest single-payer advocates ignore the issue entirely. More honest and thoughtful single-payer advocates sometimes address it by talking about central planning, global budgets, and transition away from any fee-for-service care. They also talk about moving to an all-non-profit-facility delivery system. And if you think single-payer is unpopular now, wait until people start hearing about those things.

I get why many on the right are uncomfortable with this. There are days I am, too. But I’ll concede one point: if Medicare is so awesome for people age 65 and up, why is it socialism for someone who’s 64?

I, of course, like the plan of going for central planning, global budgets with competitions between treatments based on QALY's, reducing or eliminating fee for service, and see all non-profits in medicine as a great idea. It would do wonders for efficiency and make medical care widely available. It would also do very bad things to people currently invested in health care.

Trying to find a way to compromise on this front is a hard issue. Unlike Dr. Carroll, I think a discussion of end state is important even if it is not a politically feasible option (as it is good to have the end state out and in the public debate). We could lose the debate, but better to lose a debate (this is a democracy and not all policy ideas are going to be implemented) than to try (or appear to try) to sneak an long term agenda in under the radar.

That way there can be an evidence based debate on the issues. So I think that this is a good focus point for those of us thinking single payer -- we need to really lay our cards on the table and explain the totality of why we think that it would be an objective improvement. That way we present a hypothesis against which evidence can be applied and political will gauged.

Cascading failure

"A cascading failure is a failure in a system of interconnected parts in which the failure of a part can trigger the failure of successive parts."

Wikipedia

Here's Paul Krugman again railing against the cult of balance:

All indications are, however, that Campaign 2012 will make Campaign 2000 look like a model of truthfulness. And all indications are that the press won’t know what to do — or, worse, that they will know what to do, which is act as stenographers and refuse to tell readers and listeners when candidates lie. Because to do otherwise when the parties aren’t equally at fault — and they won’t be — would be “biased”.

This will be true even of those news organizations specifically charged with fact-checking. Yes, they’ll call out some lies — but they’ll also claim that some perfectly reasonable statements are lies, in order to keep their precious balance. This is already happening: as Igor Volsky points out, one of the finalists for Politifact’s Lie of the Year is a Democratic claim — that Republicans want to abolish Medicare — that happens to be entirely true.

While Bruce Bartlett discusses how reliable sources of information have been dismantled because they've been politically inconvenient:

In addition to decimating committee budgets, he also abolished two really useful Congressional agencies, the Office of Technology Assessment and the Advisory Commission on Intergovernmental Relations. The former brought high-level scientific expertise to bear on legislative issues and the latter gave state and local governments an important voice in Congressional deliberations.

The amount of money involved was trivial even in terms of Congress’s budget. Mr. Gingrich’s real purpose was to centralize power in the speaker’s office, which was staffed with young right-wing zealots who followed his orders without question. Lacking the staff resources to challenge Mr. Gingrich, the committees could offer no resistance and his agenda was simply rubber-stamped.

Unfortunately, Gingrichism lives on. Republican Congressional leaders continually criticize every Congressional agency that stands in their way. In addition to the C.B.O., one often hears attacks on the Congressional Research Service, the Joint Committee on Taxation and the Government Accountability Office.

Lately, the G.A.O. has been the prime target. Appropriators are cutting its budget by $42 million, forcing furloughs and cutbacks in investigations that identify billions of dollars in savings yearly. So misguided is this effort that Senator Tom Coburn, Republican of Oklahoma and one of the most conservative members of Congress, came to the agency’s defense.

And Andrew Gelman (and countless others) have pointed out numerous cases that suggest there is no real consequence when a journalist doesn't bother to get even the most basic and easily-checked facts right.

I don't want to push this analogy too far -- there are some important dissimilarities -- but all sorts of failures have grown more common in what you might call our feedback system, the channels we use to get the information we, as a democracy, need to make informed collective decisions. Worse yet, these failures have the potential to trigger and intensify each other, leading to catastrophic results.

1. Reliable information sources like the CBO are undermined;

2. An increasing amount of our information comes from unreliable subsidized sources like Heritage;

3. Journalists suffer no penalty for publishing inaccurate information;

4. Journalists also fashion for themselves an incredibly self-serving ethical rule that lets them, in the name of balance, avoid the consequences that would have to be faced if they honestly assigned responsibility for screw-ups;

5. A growing tendency to converge on a narrative makes the media easier to manipulate.

All these things are serious. All are getting worse. And if we don't do something about them, I think we're all pretty much screwed.

p.s. I added a link to number 4

What fictional character has been worst served by his or her movie adaptation?

Here's my nominee.

Student Loans: a continuing series

This is a really depressing story about how devastating referrals are in modern student loans:

Notice anything?

Original balance: $37,099.00

Current balance: $35, 908. 41

I’ve been in repayment since 2006. I had to do one deferral – as to not default. I signed up for a program to minimize my payments that, I was told, was beneficial to someone who is going through financial difficulties – yet I regularly made payments over the minimum payment.

Because Sallie Mae helpfully provides a payment history, I was able to whip out a calculator and count up the exact amount I have paid over these last few years.

That amount is $23, 449.65

The penalties are pretty spectacular for needing to defer the loans. After 5 years of repayment, Ms. Antonova paid 50% of the starting balance of the loans. Presuming that she is being honest, the effective interest rate on this loan beats that of unsecured debt. Is this really a sustainable pattern? Do the "no bankruptcy provisions" not reduce the risk of the debt and suggest more moderate effective interest rates.

If we consider this in light of the "risk-free" borrowing rate (TIPS are now 0.2%) then an inflation adjusted loan at such rates should be 50% gone already. Why are rates not reflecting the new reality of how hard it is to be forgiven your student loans?

Also germane to Mark's recent post, there is an ant/grasshopper dichotomy here as well:

We have a myth of the “deserving poor” in our culture – it’s similar to the myth of the “good rape victim.” But like most people living real lives, I have my financial ups and downs. I’ve all sorts of things these last few years: walking people’s dogs for grocery money, sitting in a cafe in Chelsea, drinking a glass of moderately priced champagne and asking the readers of this blog for Paypal donations.

As a writer and journalist, I supplement my income with freelance writing gigs, much like my director husband supplements his with acting gigs. All of that together makes up our family budget. When the gigs dry up, so does the money going towards my loans. We’ve been chasing more work, but as the economy continues to suffer, and the cost of living goes up while jobs evaporate, people like us end up competing for jobs that barely exist.

Now it is true that some people manage to graduate with degrees and without debts. In many cases, they have families who made huge sacrifices in order to make this happen -- they feel like they avoided a debt trap through virtue. But the plain truth is that a lot of young Americans can pick between college (and bankruptcy proof, high interest debt) or questions about "why didn't you go to college"?

If we walked back and asked if education is a public good, that would be a good step. I don't want to spur a false dichotomy, but we have the highest rate of incarceration in the world in the United States. That isn't free, either. Are we sure that we have our priorities correct?

h/t: Erik Loomis

I happen to like handles on my coffee cups

Other than that, though, I pretty much agreed with everything Thomas Hayden had to say in this interview about 'crap technology,' devices with "no cachet but all the functionality you'll need."

And yes, I listened to the interview on a Coby media player. It's more than a year old, cost me twenty-four bucks and I also watch videos on it when I'm at the gym.

More "moral" economics via Chait

While we're on the subject...

One of the really insidious things about the ant-and-the-grasshopper view of the European crisis is the way that the conflicting facts have been revised and the revisions have gone directly into the conventional wisdom. Jonathan Chait has a recent example:

David Brooks today devotes his column on Europe to the familiar conservative morality tale, in which the European countries in trouble are paying the price for their slothful, profligate ways:

Over the past few decades, several European nations, like Germany and the Netherlands, have played by the rules and practiced good governance. They have lived within their means, undertaken painful reforms, enhanced their competitiveness and reinforced good values. Now they are being brutally browbeaten for not wanting to bail out nations like Greece, Italy and Spain, which did not do these things, which instead borrowed huge amounts of money that they are choosing not to repay.

Does anybody else on the Times op-ed page care to rebut this? Perhaps somebody who has glanced at the relevant data? Yes, you there, the bearded man with the Nobel Prize in economics:

How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very likely to find some pundit declaring that if America doesn’t slash spending we’ll end up like Greece. Greeeeeece!

But the truth is nearly the opposite. …

Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis.

On his blog, Krugman also has a chart showing that Italy and Spain both had shrinking debts as a percentage of GDP in the dozen years before the crisis.

Perhaps the most remarkable thing about this is the fact that Krugman and numerous other economists have been trying to correct these mistakes for a long time, often in prominent forums, and yet even normally reliable sources like Marketplace nonchalantly refer to the profligacy of Spain and Ireland alnog with that of Greece as established facts.

It's funny. In a debate that focuses so much on virtue and personal responsibility, so little attention is given to dishonest arguments and professional negligence.

Economics and Morality

I have noticed a rather poisonous idea that is starting to get noticed -- the link between moral virtue and economic success. Consider these two points below.

Matt Yglesias:

To be clear, I don't think we're looking at hypocrisy exactly. Instead it goes back to the preference for morality tales. Whoever is up at the moment must be up because of their greater moral virtues. I seem to have somehow missed the conservative articles lauding Germany and the Netherlands from back four or five years ago. Instead at the time I was reading lots of stories about the triumph of the Celtic Tiger, the genius of the flat tax in the Baltic states, articles praising Silvio Berlusconi and so forth. Certainly at no point during the Bush administration was there a lot of talk in the right-wing press about the evils of household debt, the overwhelming merits of current account surpluses, or any of the rest of it.

Andrew Gelman:\

Nothing here about “hardworking” or “virtuous.” In a meritocracy, you can be as hardworking as John Kruk or as virtuous as Kobe Bryant and you’ll still get ahead—if you have the talent and achievement. Throwing in “hardworking” and “virtuous” seems to me to an attempt (unconscious, I expect) to retroactively assign moral standing to the winners in an economic race.

The reason that I consider this to be a poisonous idea is that distracts us from the actual moral actions of the people involved. I'd consider the "all bosses are bad" to be an equally poisonous notion. Painting a social class with either virtue or vice is likely to distort thinking and policy in bad ways.

Economic success is good; we all like living in a world where utility is maximized. But I'd thought the linking of material success to moral virtue (consider the finale of the story of Job) had gone out of style. Instead we live in a world where people with significant moral failing (think Steve Jobs) can still contribute to economic success.

Linking these two concepts interferes with assisting the economic losers as it tends to attach the stigma of blame. This is not to say that hard work may not correlate with economic success but that it is important to remember that hard work does not necessarily lead to economic success.

Just ask a medieval serf!

"So crazy it just might work"

Another strong effort from This American Life with all the superlatives that normally apply, but this one is of special interest to the kind of people who would read a blog called Observational Epidemiology. It describes an unlikely collaboration between a cancer researcher and a layman who claimed to have more or less invented a cure for cancer in his garage. The story lays out in painful detail how differently a scientist and a non-scientist see problems, even when they seem to be in agreement.

You can listen for free but I'd strongly recommend sending them a few bucks in appreciation.

Act One, Mr. Holland's Opus. OK, true story. A guy goes to college on a music scholarship. And then afterwards, he ends up going into science. And he becomes a cancer researcher. His name is Jon Brody. And 19 years after graduating, Jon is invited back to his old college to give a talk about his work. And the speech he gives is mainly about how important it's been in his research to think outside the box, to use an overused phrase. To think outside the box, to be ready to turn away from what's familiar and try some new idea.

And then after his speech, Jon is approached by his old orchestra teacher, a guy named Anthony Holland. And Professor Holland, to Jon's great surprise, says, "Speaking of thinking outside the box, I've actually been working on an experiment for a few years that I'd like to show you. Come look at this video. I think you'll find it very interesting." So what could Jon do? He'd just actually given a whole talk about keeping an open mind.

What resulted from this was the kind of scientific collaboration that almost never, ever happens-- a serious cancer researcher teaming up with an amateur to try to make a breakthrough. Gabriel Rhodes is a documentary filmmaker. And he's been following the story from the beginning, back when Jon watched that video.

Intellectual Property

Apple appears to be suing as part of its business plan:

Apple makes great products, but you wouldn’t know it from the way it’s attacking Samsung. Rather than let the marketplace decide whose products are better, Apple wants the courts to decide. Specifically, Apple is slugging it out with Samsung in a minimum of 19 lawsuits in 12 courts in nine countries on four continents.

Let that sink in for a minute. Apple is trying to use intellectual property law as a bludgeon around the world to protect its sales.

I think that we need to think carefully about what these laws exist to do and to promote. Apple is a profitable and successful company even with competitors. It might well be less profitable and successful if competitors could not enter into it's space. Imagine if the basic functionality of the telephone (talking remotely to people) was under patent. What would be the incentive for innovation?

Intellectual property is a very slippery idea; the gap between compensating for innovation and creating rent-seeking behavior seems razor thin.

Emotionally an eight-year old

An enormously revealing (bordering on the delusional) response from Washington Post reporter Paul Kane. The questioner said that there was " no factual basis" for a claim that Kane and his colleagues made. This charge was part of a larger widely-circulated accusation that Kane and co. have repeatedly distorted their coverage to maintain a comfortable narrative and avoid the blowback that inevitably follows when you hold powerful people responsible for their actions.

Kane is familiar with these accusations (he's the one who brings up the subject) and it's clearly a sore point, because when he hears the question he angrily... Well, I'm not sure what the hell he does but he certainly does it angrily.

Q. (IM)MORAL EQUIVALENCE

Paul, I'm guessing you won't be sympathetic to the following point, but I'll put it out there anyway. Most reporting on the supercommittee--like most reporting on the deficit--reflects an acceptance of a basic fallacy. Whenever there is an impasse, there seems to be a desire to blame both sides equally, on the theory that if only Democrats would concede more, Republicans would reciprocate (all evidence to the contrary notwithstanding). Yes, Democrats have drawn lines in the sand, but as Greg Sargent and other commentators have documented, when you compare the specifics, there is no factual basis for blaming both parties equally. So my question is, why does the Post's coverage do so anyway, either explicitly or implicitly?
– November 21, 2011 11:48 AM

A. PAUL KANE:

Yeah, you're right. I think this point is just absurd and ridiculous. This is a big thing among folks calling it "moral equivalence" (Fallows, Ornstein) and others calling it the "cult of balance" (Krugman).

It's just stupid. If you want someone to tell you that Republicans stink, read opinion pages. Read blogs. Also, the underlying sentiment on the left is that this is the real reason why things went wrong in 2010: That the mainstream media is to blame. Sorry, I think that's the sorta head-in-sand outlook that leads to longer term problems for a movement.

Greg is a fine writer. He's an opinion writer, in the opinion section of the web site. I encourage you to keep reading him. And I encourage you to keep reading the news coverage, which should always strive to present both sides of the story. If you really don't want to hear anything about the other side of the story, I really do encourage you to stop reading the news section.

You'll notice he never says "I never implied that both sides were equally to blame." or "Both sides are equally to blame." Instead he calls the complaints 'stupid' and says that if people don't like his rules they can just go home.

Kane's stunted emotional development might be amusing if not for the bigger story. I'll try to come back later and flesh the following out but here is the need-to-get-to-bed version.

Our ability to have a productive public discourse has been eaten away by this and other problems including:

a decline in standards of accuracy;

undermining of authoritative sources like the CBO;

subsidized debate by partisan foundations;

an increased use of press releases as news and a tendency of journalists to simply print what they're told;

coziness with subjects;

more and more groupthink.

As someone who likes the idea of a democracy, these things scare the hell out of me.

Lots of good stuff

From NPR:

Priya sits between two operating tables. When she finishes one patient, usually in less than 10 minutes, she turns to the next table, where the patient is draped and ready. This way, there is no time wasted between surgeries. Priya says she performs 30 to 40 surgeries a day.

And Marketplace:

But what if I told you that there's a way to cut the deficit by as much as $7 trillion over the next 10 years? That's way more than the $1.2 trillion the super committee was supposed to cut. And the best part? Congress wouldn't have to do much at all. Anything, really.

And Richard Thaler via Salmon:

Having decided that charitable giving is a worthy cause, the government subsidizes charitable gifts from certain households, and for those chosen to be part of the plan, every dollar donated to a charity is increased by a specified percentage. To qualify, taxpayers must have a substantial home mortgage; the subsidy rate increases with taxable income. Low-income taxpayers receive no subsidy, but donations from qualified high-income taxpayers are subsidized by as much as 40 percent — or more…

And Harvard via TPM:

I hate John D. Cook

As God as my witness, I swear I was getting ready to do a post looking at argument from authority in terms of informative priors.

Apple Stock

Karl Smith is bearish on Apple:

On the one hand you can buy Apple stock for $375 a share and pay $7 to ScottTrade. On the other hand I also have a trash can in which you can deposit your $375, pay me $5 and I will set it on fire for you.

Clearly, I am offering the better deal as in both cases you have approximately zero probability of getting your money back and I am willing to burn it for $5 whereas you have to pay ScottTrade $7.

This is really one of the paradoxes of the stock market. It is not clear whether or not companies that do not issue dividends will ever be investments that pay off. The longer Apple puts its cash in executive compensation without rewarding owners, the higher the risk that Karl Smith is right.

How many rich families do you know that sustained multi-generational wealth via the stock market? How many do it with real assets? It is worth thinking about.

Another statistics/auteur theory post -- causality

[the second in a very infrequent series]

From the LA Times:

Cinema trends ebb and flow, but one facet of Hollywood moviemaking proving remarkably consistent is gender inequality, according to a study being released Monday by USC's Annenberg School for Communication & Journalism.

In a survey of the top 100-grossing movies of 2009 — including "Transformers: Revenge of the Fallen," "Harry Potter and the Half-Blood Prince" and "The Twilight Saga: New Moon" — researchers found that 32.8% of the 4,342 speaking characters were female and 67.2% were male, a percentage identical to that of the top-grossing movies of 2008.

"We see remarkably stable trends," said USC Annenberg associate professor Stacy L. Smith. "This reveals an industry formula for gender that may be outside of people's conscious awareness."

...

Researchers found that the sex of the storytellers had a significant effect on what appeared on-screen. In movies directed by women, 47.7% of the characters were female; in movies directed by men, fewer than a third of the characters were female. When one or more of the screenwriters was female, 40% of characters were female; when all the screenwriters were male, 29.8% of the characters were female.

The article doesn't quite come out and say it explicitly but I think it's fair to read this as claiming that there's a causal relationship between director's gender and the number of female characters, and that's really not feasible.

Gender of characters with speaking roles (which seem to be the ones we're talking about) are specified in the screenplay and, despite a widely held opinion to the contrary, directors don't write screenplays. This leaves us with two possibilities: writer/directors are confounding the data or the causal relationship runs the other way -- a screenplay with more female characters is more likely to be directed by a woman (perhaps because female directors are seen as less capable of handling male-heavy action films).

This question of causal direction has interesting implications for other auteurist analyses. How many of the common themes we see in a director's work are the result of the artist's personal vision and how many are the result of a certain director being assigned a certain type of picture (director as subgenre)?

Take Dial M for Murder. Thematically, it certainly feel like Hitchcock, but it was a successful stage play before it was a movie and pretty much all of the themes were in place before anyone even considered a motion picture version. In this one case isn't it reasonable to suggest that the themes caused the studio executives to pick Hitchcock rather than Hitchcock being responsible for these themes?

Sad news

I think that the statement speaks for itself:

My wife, Kimberly Webb Joyner, died this morning in her sleep from unknown causes. She was 41.
She leaves behind two little girls she loved more than anything, Katie, who turns 3 on New Year’s Eve, and Ellie, who was born June 21.

I have always respected Dr. Joyner (even if I often disagreed with him) and I am deeply sorrowed to hear of this tragedy. Best wishes to him and his family from the OE team.

Contradictions

Karl Smith is striking me as an optimist:

In any case, during the GOP Google debate there was a poll that asked GOP voters if someone should be denied medical treatment because they could not afford it. 80% said no. This is the end of the major question in my mind. If you answer no then you have de facto signed on to socialized medicine through some means.

After all, he is demanding consistency here. I am not sure that humans are especially good at consistency. People often get quite annoyed at me when I drive the speed limit. I have the attitude that if we all want to drive faster on the road I am game, but I am unwilling to get a speeding ticket because local government cannot reach consensus on an appropriate speed limit.

In the same vein, I suspect that there can be a lot of daylight between the principle here and the application. That being said, I'd be delighted if we did adopt a more socialized medical system, purely for reasons of economic efficiency.

Living with Mistakes the easy way -- larger points

Andrew Gelman fact-checks the New York Times:

For example, David Brooks wrote the following, in a column called “Living with Mistakes”:

The historian Leslie Hannah identified the ten largest American companies in 1912. None of those companies ranked in the top 100 companies by 1990.

Huh? Could that really be? I googled “ten largest american companies 1912″ and found this, from Leslie Hannah:

No big deal: two still in the top 10 rather than zero in the top 100, but Brooks’s general point still holds. As Brooks said, we have to live with mistakes. This is more a comment on how a statistician such as myself will see a number and immediately feel the urge to check it.

...

Again, this is no criticism of Brooks—as a journalist, he’s of course more interested in good stories than in getting the details right (recall the notorious $20 dinner at Red Lobster). That’s ok. Storytelling is his job, numbers are mine.

I appreciate Gelman's sharp eye and I can understand why, being a nice guy, he tends to favor catch-and-release criticism, but I disagree sharply with his conclusions here.

For starters, creative destruction a big part of the story Brooks is telling, both in this column and in his body of work collectively. In this narrative, it's a tough process, but a healthy and fundamentally fair one. Here's the sentence that precedes Gelman's excerpt from Brooks: "Even if you make it to the top, it is very hard to stay there."

We can argue about the validity of this view, but there's no question that Brooks' incorrect statement supported this point while the corrected version undercuts it. There are millions of businesses and if success is truly determined solely by who has the best business model, the best execution and the best timing, a long run in the Fortune 500 (with shifts in markets and changes in management) would be a hell of a feat. The number we actually see would certainly imply something more at work (regulatory capture, anti-competitive practices, etc.).

So yes, I would call this a big deal with respect to the story Brooks is telling.

Perhaps more importantly, I have a problem with the distinction drawn here between statisticians and the rest of the world. It's true that the ability to sniff out suspect numbers and questionable findings is an essential part of being a good statistician, but it's also part being a good journalist (and a good engineer and a good accountant and any number of other professions).

As statisticians we need strong mathematical intuition and a heightened sense of how numbers relate to each other, but we don't have any claim to the urge to check the unlikely. David Brooks was simply being a bad journalist when he wrote that passage. It was not because of inability -- Brooks is smart and highly capable -- but because he didn't care enough to get it right. He know there would be no real consequences either for him or his paper if he got it wrong.

And a lack of consequences, my friends, makes living with your mistakes amazingly easy.