Saturday, March 31, 2012

"The nation's most densely populated urbanized area"

This report from the census department highlights as aspect of the urbanization debate that tends to be overlooked (or worse):

The Census Bureau identifies two types of urban areas: “urbanized areas” of 50,000 or more people and “urban clusters” of at least 2,500 and less than 50,000 people. There are 486 urbanized areas and 3,087 urban clusters nationwide.

The nation's most densely populated urbanized area is Los Angeles-Long Beach-Anaheim, Calif., with nearly 7,000 people per square mile. The San Francisco-Oakland, Calif., area is the second most densely populated at 6,266 people per square mile, followed by San Jose, Calif. (5,820 people per square mile) and Delano, Calif. (5,483 people per square mile). The New York-Newark, N.J., area is fifth, with an overall density of 5,319 people per square mile. (See sortable lists.)

Of the 10 most densely populated urbanized areas, nine are in the West, with seven of those in California. Urbanized areas in the U.S., taken together, had an overall population density of 2,534 people per square mile.

The New York-Newark area continues to be the nation's most populous urbanized area, with 18,351,295 residents. Los Angeles-Long Beach-Anaheim is the second most populous (12,150,996), followed by the Chicago area (8,608,208). These areas have been the three most populous since the 1950 Census, when urbanized areas were first defined; however, at that time, Chicago was the second largest. Los Angeles became the second most populous urbanized area in 1960, and the order of the top three has not changed since.

Take into consideration the fact that this is an earthquake prone region where much of the land consists of mountains and canyons that are poorly suited for construction and these numbers become even more remarkable.



California remains in rough shape

The source of this quote is a father of two and Iraq war vet who works for the Atlantic council:
In addition to the barbarism that is our penitentiary system eating away at the basic principles on which we founded our society, our obsession with locking away people for violating arbitrary rules is destroying our human capital. We’re literally choosing locking up drug offenders over investing in our children. That’s madness and it has to stop.
Of course, the author is talking about the state of California (which has been very explicit about making this decision).  At some point I think we need to get over our fetish for incarceration.  The same article points out that the 1980's had a quarter of the rate of incarceration that we do today (comparable to a high crime European country, like Poland).  It is hard to decide what is a reasonable target for absolute rates, but going back to the levels of the early 1980's (and the top levels in Europe today) seems like a reasonable goal.

How we get there is unclear, but it seems like a priority for those of use who argue about education reform.  After all, a huge drop in prison costs (in addition to reducing human suffering) would free up funds to rehabilitate the school system.  It is challenging to increase quality while reducing funding.  But increasing available resources can only help (either directly by changing allocations inside state budgets or indirectly by reducing tax rates).

The rise of DC

Aaron Renn:
So we have New York entrenched as America's first city, and Washington, DC increasingly its new "Second City." Los Angeles, which seems to have never quite recovered from the early 90s defense draw down, and Chicago with its 2000s malaise, seem to be the victims of DC's rise. Another loser is Boston, which has seen its status as a financial hub decline and whose Route 128 corridor of tech, having first lost out to Silicon Valley, now appears to be losing out to NYC.
The rise of Washington, DC as a major growth center is not ideal.  This suggests more reliance between the Federal Government and growth than I would like.  I am far from a libertarian, but if access to government decision-makers is this important (enabling DC to rise above Los Angeles, Boston, and Chicago) then we need to consider if that is a good thing.


A programming question relating to board games

Specifically hexagonal games. I'm trying to write out concise descriptions (almost pseudocode) of some games played on hexagonally tiled board. Something like this checkers variant:


If these were rectangular tiles, the coordinates would be obvious, but with hexagons, I'm not sure which way to go.

Any suggestions?


Exciting academic career opportunity

Remember that Washington Post op-ed about all those great community college jobs with excellent pay and almost no work? (Sure you do, I talked about it two posts down) Well, the school the writer used as his main example has an opening in statistics so I'm sure some of our readers would like to get a resume in.





Business Statistics - Part-time Faculty(

Job Number:

0021Q)

Description

Business Statistics - Part-time Faculty – Germantown Campus
The Montgomery College, Germantown Campus, is currently accepting applications for possible openings as apart-time faculty member teachingBusiness Statistics courses. We are seeking an enthusiastic and dedicated teacher who exhibits a high degree of professionalism, a strong commitment to our students, and demonstrates the ability to motivate and educate in an engaging manner.

Montgomery College accepts applications for Adjunct/Part-time Faculty on a continuous basis.
Applications may be reviewed periodically based on the student enrollment needs.
  • The listing of a course in the schedule of classes as “TBA” does not constitute an assignment.
  • The hiring decision for part-time faculty involves an academic judgment and shall be determined at Management’s sole discretion.
  • During the academic year part-time faculty at Montgomery College may teach no more than 11.5 ESH (equivalent semester hour) per semester and no more than 23 ESH per academic year.
  • During summer part-time faculty at Montgomery College may teach no more than 10 ESH (equivalent semester hour) for both sessions combined.
  • Compensation for initial salary placement as a new part-time faculty member at Montgomery College is currently $870.83 per ESH (Equivalent Semester Hour)

Friday, March 30, 2012

Canada (finally) removes the penny from circulation

The CBC news story is here.
Why can't we do the same here in the United States?  Is there anybody left who sees a penny as a real unit of value and not a complication for transactions?

Thursday, March 29, 2012

More on seventeen thousand -- bounding the problem

As I mentioned before, David Levy has come in for plenty of criticism over his recent Washington Post piece, but there's one more point I'd like to throw in. Here are the passages that caught my eye:
The cost for such sinecures is particularly galling when it is passed on to the rest of the middle class and to taxpayers in states that are struggling to support higher education. Since faculty salaries make up the largest single cost in virtually all college and university budgets (39 percent at Montgomery College), think what it would mean if the public got full value for these dollars.

...

If the higher education community were to adjust its schedules and semester structure so that teaching faculty clocked a 40-hour week (roughly 20 hours of class time and equal time spent on grading, preparation and related duties) for 11 months, the enhanced efficiency could be the equivalent of a dramatic budget increase. Many colleges would not need tuition raises or adjustments to public budget priorities in the near future. The vacancies created by attrition would be filled by the existing faculty’s expanded teaching loads — from 12 to 15 hours a week to 20, and from 30 weeks to 48; increasing teachers’ overall classroom impact by 113 percent to 167 percent.
(First a brief aside: in a service industry, I would normally expect that much, if not most, of operating costs would go to the salaries of the workers who provide that service. 39% is not outside of the reasonable range for this situation but it is low enough to make me wonder if cost cutters shouldn't be asking what happens to the 61% that doesn't go to teaching.)

Let's take a quick pass over these numbers and put some bounds around the possible values and see if they justify the impact Levy's changes would have on students (whose teachers would have less time for preparing lessons, grading, answering student emails, counselling, or going over material outside of class).

Please check my math on this but assuming that your 39% was made up entirely of full time faculty teaching twelve hours a semester and you could get 37% of that faculty to increase its workload by 167% and you could immediately get all of the rest of the faculty to quit, you'd reduce your budget by just under 25%.

We could debate whether reducing a school's expenses by a quarter would be worth the loss in quality, but it would be impossible to find a school that met those assumptions. Most of the schools we're talking about (apparently including Levy's example), have fifteen hour loads. This drops the reduction to just over 20%.

And almost all schools (including Montgomery) have part time faculty or graduate TAs. Without mass firings, doubling the workload of full-time faculty would mainly result in reducing work for low-paid part timers (At Montgomery, the starting rate is less than $900 per semester hour). Now we're looking at less than a 10% reduction in costs.

In other words, David Levy's proposal, which requires shabby treatment of employees and a sharp drop in educational quality, would only produce a five or ten percent drop in tuition.

This is not a serious proposal, it's just another example of someone trying to get some attention by taking a provocative position without doing the actual work needed to support it.

Free roads, health care and This American Life

Shortly after reading Joseph's post, I finally got around to this to this extraordinary examination of the small government movement from TAL. The whole thing is worth listening to but the third act struck me as particularly relevant:

Robert Smith -- It's no accident that Colorado Springs is the place where all this happened. Colorado Springs is not just conservative, it is famous for being conservative. It's the home of Focus on the Family, evangelical churches like the New Life Church, four military bases, Air Force Academy. It is in the most right-leaning congressional district in all of Colorado. Add to the mix outdoorsy types, mountain bikers, ex-hippies, and you get this kind of pioneer leave me alone vibe around here.

The citizens of Colorado Springs didn't just believe in limited government, they made it law. 20 years ago they passed the Taxpayer Bill of Rights. TABOR, everyone calls it. And TABOR-- you may have heard of this because other states have put it on the ballot. But it started right here in Colorado Springs. Under TABOR, if you want to raise or impose any tax at all, you have to get the voters to approve it first.

Jan Martin -- Our voters very rarely will support a tax increase.

Robert Smith -- This is Colorado Springs City Councilwoman Jan Martin, one of the people who deals with TABOR day in and day out. TABOR is like a set of handcuffs for city government. It limits how much you can grow your budget, makes it hard to shift money from one thing to another. The city survives mostly on sales tax, which is great when the town is filled with tourists, right? All those hikers and mountain bikers buying energy bars.

But when a recession comes along, living off sales tax is a disaster.

Jan Martin -- What we experienced when the downturn occurred is, immediately, people stopped buying, which meant our dollars dropped faster than most communities. And we crashed and burned almost simultaneously with the economic downturn.

Robert Smith -- In 2009, tens of millions of dollars the city was counting on didn't materialize. Jan believed TABOR only gave her one choice. She had to ask voters for the tax increase you heard about. And this wasn't easy for Jan. She's a Republican. She owns her own business. She has an MBA in finance. But she thought, I just need to be straight with voters about the situation we're in.

She said, look., the city needs to raise $28 million. That means the average homeowner would have to kick in about $200 a year.

Jan Martin -- To go before the voters in the middle of an economic downturn, I will admit, it was pretty gutsy. But I really felt as an elected official I owed it to the general public to give them an option before the cuts were made.

Robert Smith -- It wasn't even close. The voters in Colorado Springs said no way. Nearly 2/3 of them voted against the tax.
The town responded first by making most city services ala carte (you want streetlights on your block? Send the city a check) and then by extensive privatisation, with somewhat mixed results:

Robert Smith -- Roland was doing more work for less money. That's the dream of privatization, right? But the bigger picture here is more complicated. Remember, Roland isn't the only cost involved. The private landscaping firms add a healthy profit on the top, that's normal. And they had to purchase a lot of the things that the city already had, like equipment.

So did the city really save any money here by outsourcing, by privatizing Roland's job? We asked the city of Colorado Springs this question over and over again. And they hemmed and they delayed. They couldn't find a number. Then they said it's tough to calculate. In the end, all we could get from the city was this. Outsourcing Roland Hawkins and all those other workers might save money in the future.

Because medical costs will rise. Pension costs could also rise. Better to get Roland off the books now, privatize him now. But as for last summer, the first year of the parks experiment, the city couldn't say if they saved a dime.

Overall, the city's budget for parks is about $12 million now, a lot smaller than it was at its height. But that's mostly because the parks department is doing less. They've closed swimming pools and laid off community center employees. They're replacing fewer playgrounds and fences and bridges. And Roland, for his part? He's not going back to the parks this summer. He hurt his back.

What I learned, though, from talking to the people in Colorado Springs is that for a lot of them these calculations don't really matter. They don't care if privatizing actually saves the government money, so long as the government is doing less.

City councilwoman Jan Martin says she hears this all the time. That it's become a matter of faith in the city that private is better. And she tells us a story. In the dark days, after the tax measure was defeated, city council was having another meeting about slashing government.

Jan Martin -- And a gentleman came up to me and actually thanked me for the adopt a street light program. He had just written a check to the city for $300 to turn all the street lights back on in his neighborhood. And I did remind him that for $200 if he had supported the tax initiative, we could have had not only streetlights, but parks and firemen and swimming pools and community centers. That by combining our resources, we as a community can actually accomplish more than we as individuals.

Robert Smith -- And he said?

Jan Martin -- He said he would never support a tax increase.

Robert Smith -- So for him it wasn't the money. He was willing to pay more to turn on the street lights than to pay for all city services.

This points to a difficulty with this debate. The anti-tax, pro-privatisation movement revolves around language of government inefficiency and waste, terms that wouldn't be out of place at a meeting of financial analysts.

But a segment of the movement (and, I suspect a fairly large one) is represented by this man, someone who's aversion to taxes is so strong that he would rather pay half again as much and get far fewer services. This is not necessarily an irrational decision (he might have objected to people in other neighborhoods who paid less getting streetlights as well -- that's not a position I would take but it's a perfectly defensible one), but it's not a financial decision and discussing it in terms of waste and inefficiency won't accomplish much.

This would be a good time to bring Jonathan Chait's seminal essay exploring small government and privatisation as ends to themselves into the discussion, or it would be a good time if it were an earlier one.

I'm going to bed. Discuss it among yourselves.

Wednesday, March 28, 2012

Roads and Free markets

A really interesting post by Timothy B Lee:
Assembling the land needed for a long-distance road is prohibitively expensive without government assistance. Unsurprisingly, private roads almost never come into existence without extensive government assistance. And that means that the profitability of a "private" road depends crucially on how many competing roads the government allows to exist. 
It's unsurprising, then, that real-world privatization schemes are often explicitly protectionist. A 2004 GAO survey found that four of the five privately-funded toll road projects started or completed in the preceding 15 years included non-compete clauses that restricted the creation of competing freeways nearby. It's much easier to turn a profit when would-be competitors are barred from entering the market.  
Supporters of free-market roads point to the experience of the United States and Great Britain in the 18th and 19th centuries as the golden age of private roads, but those roads were only private in a limited sense. This history is detailed in Street Smart, an edited collection published by the libertarian Independent Institute. Daniel Klein and John Majewski write that in the United States, "turnpikes were encouraged by government, sometimes by granting of exisitng trails or public roadbeds to turnpikes, sometimes guarantees against new parallel routes, and typically the granting of eminent domain powers." They write that they "cannot say" whether these privileges were important to the success of these turnpikes.  
The basic pattern seems to have been the same for British toll roads. Most toll roads replaced previously-existing public roads; the book doesn't say if the new roads were built with eminent domain or other government privileges. Indeed, after thumbing through the entire 500-page book, I didn't find a single example of a country, now or in the past, where most roads were built using ordinary market transactions. The vast majority of "private" roads, around the world and throughout history, came into existence thanks to direct government assistance.
I think that is is important to recognize that some areas of human activity are inevitably going to have at least some degree of government involvement.  Roads are a classic public good -- without them we would be far less mobile and trade would be much more difficult.  But a single actor can block the development of roads, absent a government intervention. 

But the part that is the most interesting is how a public good can be turned into a vehicle for rent-seeking.  As soon as there is a hint of a "non-compete" or "guarenteed revenue" clause in a privatization, you can be absolutely sure that there is not a functioning free market present.  We do not grant non-compete clauses to restaurants or clothing stores.  The ability of these business to fail is part of the entire point of the private sector (creative destruction). 

Free markets in everything is now (and always will be) a myth, just like public markets in everything ended up as a terrible system.   Why are we so resistent as a society to the incredible success of mixed markets? 

Monday, March 26, 2012

Seventeen thousand and change

My first job after getting my master's in statistics in the Nineties was as a lecturer at large state university. It was a full time, 9-month position and I stayed there for four years. During all that time I never broke eighteen thousand dollars a year.

I really didn't mind the low salary. The work was enjoyable and I've always been good at living within my means. Besides, there were adjuncts who had it worse than me. Still, seventeen thousand and change is a good number to keep in mind when you read something like this (by David Levy via Krugman):
With the 1970s advent of collective bargaining in higher education, this began to change. The result has been more equitable circumstances for college faculty, who deserve salaries comparable to those of other educated professionals. Happily, senior faculty at most state universities and colleges now earn $80,000 to $150,000, roughly in line with the average incomes of others with advanced degrees.

Not changed, however, are the accommodations designed to compensate for low pay in earlier times. Though faculty salaries now mirror those of most upper-middle-class Americans working 40 hours for 50 weeks, they continue to pay for teaching time of nine to 15 hours per week for 30 weeks, making possible a month-long winter break, a week off in the spring and a summer vacation from mid-May until September.
Seventeen thousand and change.

It is a deeply dishonest piece filled with statistical sleight-of-hand and numbers that don't add up. Robert Farley does a good (though hardly exhaustive) job of laying out the fallacies. I'm not sure I have much to add to it other than to recommend that as you're reading Levy's piece you stop from time to time and repeat to yourself,

"Seventeen thousand and change."

Sunday, March 25, 2012

Weekend gaming -- mutant sprouts

A while back I posted a recommendation for a popular pencil-and-paper game:

On the subject of topology, my game of choice is Sprouts, invented by mathematicians John Horton Conway and Michael S. Paterson at Cambridge University in 1967 (as a general rule, you can't go wrong with a game if Conway had anything to do with it).

The rules are simple:

1. Start with some dots on the paper. The more dots you have the longer the game takes so you will probably just want to start with two or three.

2. Players take turns either connecting two of the dots with lines or drawing a line that loops back and connects a dot with itself.

3. The lines can be straight or curved but they can’t cross themselves or any other lines.

4. Each dot can have at most three lines connecting it

5. When you draw a line put a new dot in the middle.

6. The first player who can’t draw a line loses.
I was thinking about sprouts the other day and a few variations occurred to me. I don't know if they're particularly playable or if they add any interesting aspects to the game, but if you can't put a half-baked idea in a blog, what's a blog for?

Variant 1 -- Free sprouts

Played as above but with the following addition: for the first k moves of a game with n dots, the player, after drawing a line, adds a new dot.

Topologically the result is a game with n+2k dots (keep k small) but with the complication that lines are being drawn without knowing exactly how those lines partition the surface. This is still a game of perfect information but the variation should make it more difficult to think a few moves ahead.

Variant 2 and 3 -- Scored sprouts

Each player starts with a separate sheet of paper and proceeds to connect the dot according to the standard rules. After no more lines are possible, the players score their graphs based on the number of dots.

Score = 6


Score = 7

In variant 1 the player with the highest score wins. In variant 2, the win goes to the lowest.

Also posted at Education and Statistics.

Saturday, March 24, 2012

Mark and I both remarked on this post

Noah Smith: 
A homeless girl turns out to be a science genius. I see stuff like this all the time. My brother-in-law grew up in a trailer with a teenage single mom, and he's now completing his PhD. My friend grew up poor in rural Northern California with a drug-abusing single mom, and now she's a neurosurgeon. There is so much human capital hidden in the poverty-stricken backwaters of America, it's absurd. And yet I still read pronouncement after smug pronouncement from guys like Bryan Caplan, declaring that success is all about I.Q., and that it's no use trying to increase economic opportunity because everyone is already just where their I.Q. dictates they should be. What a load of poppcock, rubbish, stuff & nonsense.
 The idea that social position is already perfectly distributed based on merit is reassuring for those in high socio-economic positions but seems dangerous.  At some point I will give my Ayn Rand critique again (the places where Ms. Rand's philosophy is unable to cope with actual people).

But the world is filled with people who have been successful despite being poor or disadvantaged.  That should be celebrated and not suppressed.

Friday, March 23, 2012

Consequences

Matthew Yglesias has a really good point on economic policy:
But of course "the policy of economic austerity" is not a living breathing human being with feelings and interests and values. And the specific human beings who pushed austerity policies on Europe—central bank chief Jean-Claude Trichet and his successor, their colleagues on the ECB board, Angela Merkel and her coalition partners, etc.—have not been dealt personal blows here either. They're all fine. The blow has been dealt to unemployed Irish people who are hoping to get jobs soon. The blow has been dealt to Irish small business operators who have a decent underlying product and were hoping to expand production when customers would have a bit more cash in their pockets. The blow is dealt to Irish kids who are going to school with parental joblessness and economic distress hanging over their heads.
I have been seeing the same line of thinking from Karl Smith over at Modeled Behavior and I think it is overdue in the public discourse.  Policies often hurt individual people, and not usually those who are making these decisions.  I actually don't see this as a failure of government so much as social cohesion and the idea that we all benefit from a strong and well functioning economy.

Policy is interesting in the abstract, but it is worth remembering that bad policy has consequences for specific people in the real world.

Thursday, March 22, 2012

More on the growth fetish -- Facebook vs. Groupon

There is a worthwhile exchange going on between Felix Salmon and Pascal-Emmanuel Gobry. I've already quoted Salmon, but Gobry makes some good points as well. Still, the part I found the most interesting is the part I think he got wrong.
Breakthrough technology startups are different from other kinds of businesses in that they either create a new market or violently disrupt an existing one. This means that they almost invariably require to spend lots of capital in order to stake out a defensible market position against their numerous competitors. In particular, many technology markets have winner-take-most or winner-take-all dynamics, either because of network effects or economies of scale…

Felix writes that Groupon had a profitable Q1 2010 and “it’s easy to see how it could have grown steadily from that point onward.” Except that given the characteristics of the daily deal business, particularly the need for scale, what would have happened if Groupon had tried to “grow steadily” and profitably, is that the company wouldn’t be around anymore.

It’s LivingSocial that would have raised over a billion dollars and be worth $10 billion today, Groupon would have been sold for scrap like BuyWithMe and plenty of other daily deals also-rans, and Andrew Mason would be back to doing yoga on YouTube. Groupon would be a footnote.
This illustrates (at least for me), a common error among growth fetishists -- overgeneralizing valid arguments for growth-at-all-costs. The first paragraph above is absolutely on target. There are situations where establishing dominance and critical mass as quickly as possible is incredibly valuable. Cases like Facebook. To make a bad pop culture reference, when it comes to mainstream social networking sites, there can be only one. Once Facebook was in place, all that was left was niches.

Put another way, it would cost more to unseat Facebook than it did to build it. Under those circumstances, Zuckerberg's bury-the-problem-in-money approach to running a business made sense (even if it was aesthetically lacking).

The first mover advantages for Groupon are far less obvious. There's no reason why we couldn't have two online gift card businesses. Consumers would get a wider selection and the merchants would almost certainly see lower fees (there's no way Groupon could charge those rates in a competitive market). Nor are the economies of scale that significant, at least not for the part of the business based on arranging deals with local merchants.

A potential competitor would have to spend a lot of money building a mailing list but probably not that much more than Groupon spent on its list. In short, if a potential competitor were to spend as much money as Groupon has, it might just catch up (particularly given the fact that Groupon is not a very well run company).

In terms of lifetime value, I suspect that the money Groupon spent on explosive growth was badly invested. However, in terms of buzz and stock price, it may have been money well spent as far as the backers were concerned.


Venture capital and the growth fetish

Felix Salmon has another smart post on venture capital and the way he feels it distorts American business:
Another way to look at this question is to compare US fight-to-be-number-one capitalism with the kind of capitalism practiced in undeniably successful countries like Germany, Korea, Brazil, and Japan. Those countries don’t have nearly as many world-beating behemoths as the US does, but overall their economies and current accounts are doing very well on a bedrock of medium-sized firms and family-owned corporations.

So in a way, Gobry is making my point for me. The IPO market and the VCs who feed off it are playing a game which might make a small number of people extremely rich, and which will create a very small number of hugely successful world-beating companies. They’re not playing a game which is good for founders; they’re not playing a game which is good for healthy, long-lived companies; and they’re not playing a game which is good for the economy as a whole. That’s kind of the point I’m making in the piece when I say that “Silicon Valley is full of venture capitalists who have become dynastically wealthy off the backs of companies that no longer exist”.
I think this fits nicely with one of our ongoing themes here at OE, the growth fetish:
Think of it this way, if we ignore all those questions about stakeholders and the larger impact of a company, you can boil the value of a business down to a single scalar: just take the profits over the lifetime of a company and apply an appropriate discount function (not trivial but certainly doable). The goal of a company's management is to maximize this number and the goal of the market is to assign a price to the company that accurately reflects that number.

The first part of the hypothesis is that there are different possible growth curves associated with a business and, ignoring the unlikely possibility of a tie, there is a particular curve that optimizes profits for a particular business. In other words, some companies are better off growing rapidly; some are better off with slow or deferred growth; some are better off simply staying at the same level; and some are better off being allowed to slowly contract.

It's not difficult to come up with examples of ill-conceived expansions. Growth almost always entails numerous risks for an established company. Costs increase and generally debt does as well. Scalability is usually a concern. And perhaps most importantly, growth usually entails moving into an area where you probably don't know what the hell you're doing. I recall Peter Lynch (certainly a fan of growth stocks) warning investors to put off buying into chains until the businesses had demonstrated the ability to set up successful operations in other cities.

But the idea of getting in on a fast-growing company is still tremendously attractive, appealing enough to unduly influence people's judgement (and no, I don't see any reason to mangle a sentence just to keep an infinitive in one piece). For reasons that merit a post of their own (GE will be mentioned), that natural bias toward growth companies has metastasised into a pervasive fetish.

This bias does more than inflate the prices of certain stocks; it pressures people running companies to make all sorts of bad decisions from moving into markets where you don't belong (Borders) to pumping up market share with unprofitable customers (Groupon) to overpaying for acquisitions (too many examples to mention).
I didn't consider the role of venture capital at the time. Perhaps I missed the biggest factor.

Wednesday, March 21, 2012

Misleading chart of the day

First, consider this chart (as reproduced by Matthew Yglesias):


Now examine Aaron Carroll's great rebuttal!

In general, I think Yglesias is correct that it is difficult to have any real reliability for 75 year cost projections (I wonder what the confidence limits are?).  So much is likely to change over this period of time and the prioirites of the nation may be so different that it is completely unclear how helpful such an exercise will be.  Not only do we have issues with technological and political change, but it would be odd if no future government altered policy priorities or if we could accurately guess economic growth over such a period. 

Freakonomics

Andrew Gelman's blog has a nice discussion of Freakonomics that is very topical given the discussion of Mike Daisy.  I think that he was a pretty balanced response to Stephen Dubner,who seemed to be rather distressed by the Andrew Gelman and Kaiser Fung response. Instead, I think that pointing out issues in a provocative and thought-provoking blog is essential. I admit that I often get very frustrated with the constant criticism of peer review. But it is essential to have errors pointed out and I have not seen a better way to have that happen then to have the mistakes repeatedly pointed out -- it sure makes me more careful as an epidemiologist.

One piece that I do think is worth reflecting on is this one:
Their first example of a “mistake” concerns a May, 2005, Slate column we wrote about the economist Emily Oster’s research on the “missing women” phenomenon in Asia. Her paper, “Hepatitis B and the Case of the Missing Women,” was about to be published in the Aug. 2005 issue of the Journal of Political Economy. At the time, Levitt was the editor of JPE, and Oster’s paper had been favorably peer-reviewed.  
Oster argued that women with Hepatitis B tend to give birth to many more boys than girls; therefore, a significant number of the approximately 100 million missing females might have been lost due to this virus rather than the previously argued explanations that included female infanticide and sex-selective mistreatment.  
Other scholars, however, countered that Oster’s conclusion was faulty. Indeed, it turned out they were right, and she was wrong. Oster did what an academic (or anyone) should do when presented with a possible error: she investigated, considered the new evidence, and corrected her earlier argument. Her follow-up paper was called “Hepatitis B Does Not Explain Male-Biased Sex Ratios in China.”
 I think that this missed the point of what was causing concern with this article.  An economist wanders into public health and overturns the conventional wisdom completely by considering a possible predictor but not really understanding why epidemiologists had not considered a disease-based explanation before.  It should not be considered a small point that the article showed up in an economics journal and not in a journal where it would be reviewed by experts in the clinical area. 

Is this necessary wrong to have reported potentially exciting new results?  No.  It is also true that people did put the effort into reporting when the understanding changed.  But this was in a well developed area of public health with very high policy stakes and people willing to put in a lot of effort to understand if there could be an alternate explanation.  So it induces some skepticism about "counter-intuitive" claims in areas where there are not the resources to scrutinize these claims deeply. 

Now it is natural that research has an error rate.  I wish it did not (especially not my research).  But it does point out the hazards of popularizing prelimary results.  I think I am especially sensitive to this issue as no field is more guilty of alarming and counter-intuitive findings than pharmacoepidemiology.  So I look for clues that make me cautious about publicizing preliminary results before they are really ready for prime time. 

Tuesday, March 20, 2012

The Mike Daisey incident illustrates the best in modern journalism

You might think that after some recent posts, I'd be reluctant to jump in with a counterintuitive headline like this and I'll admit I did hesitate a bit but I think the central point here is getting obscured and it's an incredibly important one.

We have always had and will always have people like Mike Daisey, serial fabulists with a gift for self-promotion. We will also always have journalistic sluggards who don't bother to check their facts and derivative hacks who pass on the conventional wisdom without scrutiny or independent thought.

The question is what do we do about these people, and the answer recently has generally been little or nothing. By comparison, the response to the Daisey incident was strong and apt and it gives us a simple template that, if followed, could go a long way toward fixing American journalism.

This is the rule: when you screw up, you take responsibility, try to set the story straight and (here is the essential part) you make your retraction at least as long and at least as prominent as the story you're apologising for.

These days, journalistic malpractice (when not ignored altogether) is generally punished by inclusion in a box that almost no one ever reads on the second page of a newspaper (and even that mild of a penalty is enough to generate whining and self-pity from journalists like David Carr*).

Just imagine what things would be like if errors in front page stories were always followed by front page corrections.






* From Fresh Air

"After I started [at the Times], I quickly ended up on page two ... the Corrections. They're not buried to us; that is a hall of shame ... it's a page you want to totally stay off of ... It doesn't matter where the error occurs — it always follows you around.

"Part of the deal of working at The New York Times is that your readers, a portion of whom are church ladies and copy ninnies and fact freaks, they wait like crows on a wire for you to make the slightest error and then descend, caw, caw, caw-ing, every time you screw up. It still is something that wakes me up at night."

Monday, March 19, 2012

21st century Journalism

I am not the biggest fan of Apple, but I have to admit that the Mike Daisy incident was dreadfully unfair to them.  Outsourcing to Adam Ozimek:
This is not consistent with anyone being able to walk up to Foxconn and within two hours be talking to underage workers. The story Daisey tells is one where Apple is negligent to an obvious and easily solved problem, whereas the facts TAL reports are of a company trying to stop underage workers and failing on relatively rare occasions. This kind of lie is not telling the story of the truth through a fictional narrative, but creating a fictional narrative that contradicts the bigger truth.
Felix Salmon also has some tough commentary on this issue. The key point here seems to be that it makes a great deal of difference what the facts are.  Outright falsehoods are an issue and it is terrifying that such obvious lies passed the fact checkers or that people feel like a defense can be mounted for this behavior as being in "in the greater good" (that the fictional narrative might be exposing hidden truths that are hard to show facts on). 

We should do better.   

Census documenting Great Depression to be released

This looks interesting:
NEW YORK (AP) — It was a decade when tens of millions of people in the U.S. experienced mass unemployment and social upheaval as the nation clawed its way out of the Great Depression and rumblings of global war were heard from abroad.

Now, intimate details of 132 million people who lived through the 1930s will be disclosed as the U.S. government releases the 1940 census on April 2 to the public for the first time after 72 years of privacy protection lapses.

Friday, March 16, 2012

You might think a personal finance story with the title “Boost your odds of winning the lottery”. couldn't be as bad as it sounds.

You'd be wrong.


How our inability to distinguish between independence and contrarianism encourages Steve Landsburg to be, let's just say, a less effective pundit

[I decided that the tone was getting a bit sharp in this debate so I'm dialing things down a bit. This entailed some very slight rewriting but none of these changes the substance of the post]

Before getting to the main thesis, let's confirm just how bad this incident was. A radio personality with millions of listeners grossly misrepresented the comments of a private citizen speaking out on an issue then used those distortions to make offensive and badly-reasoned attacks on the the woman. The situation at that point was bad enough but we don't really achieve horrible until Landsburg jumped in. Not only did Landsburg throw his reputation behind Limbaugh's illogical and factually challenged comments, he actually added additional [poor] arguments to the abuse this woman has had to put up with.

Noah Smith, Scott Lemieux, my co-blogger and others have done an excellent job addressing the lies and idiocy of this affair (check out how this blogger dismembers the I'm-mocking-the-postion-not-the-person defense) . The question for now is how this happened. How did a mid-level economist manage to reach such national prominence by writing a series painfully sophomoric books and articles?

Part of the answer, I'd argue, lies in the way journalists and editors now treat the counterintuitive. Publications like Slate give us a steady diet of pieces that take some claim that seems obviously true and argue the opposite. These publications would have us believe that this practice is a sign of intellectual independence and healthy diversity of opinion. It's not.

Contrarianism is closer to the opposite of independence, a point that's easiest to explain if we think in the idealized terms of a simplified fitness landscape. and draw an analogy between the defensibility of an argument associated with a certain position and the fitness of a phenotype associated with a certain genotype. (more on landscapes here)

Of course, it would take a lot of variables to realistically describe this landscape but the basic concepts still hold even if we simplify it to a bare-bones x, y and v(x,y). For every position (x,y) you can take, there's a resulting viability (v). Some positions are easy to defend (v is high). Some are difficult (v is low). Pundits and news analysts who try to find the best positions to argue are therefore performing an optimization algorithm (though most probably never thought about it in those terms).

For the most part, we can place this commentary and analyses in three general categories:

Neighborhood

Independent/semi-independent

Contrarian


The neighbor searcher tries to find the most defensible position within the neighborhood of a starting point. The best example I can think of here is the work David Frum specialized in until fairly recently. Frum was not being independent with his pieces in the Wall Street Journal or public radio (the terminal point of his searches was almost always within the neighborhood of the established conservative consensus) but he was arguably doing something as or more important, thoroughly exploring the landscape of the region and encouraging evolutionary shifts to sounder, more defensible positions.

The independent searcher, by contrast, goes where the search leads regardless of the starting position. The semi-independent searcher adds the condition that the terminal point has to be original (in other words, you can't end up on a point that someone else has already argued). Technically, originality and independence are in opposition here but in practice, they tend to complement each other.

And the two categories tend to complement each other as well. To grossly oversimplify, one group searches x+1 to x-1 and y+1 to y-1; the other group searches everywhere else. Given the fact the consensuses originally form around what seem at the time to be good ideas, it makes sense to explore their neighborhoods (if it helps, you could think of this in terms of Bayesian priors), but it also makes sense to keep exploring new territory. David Brooks and Frank Rich refine and improve their relative corners of the political landscape while writers like Jonathan Chait or William Safire range further and are more likely to reach unexpected conclusions.

The contrarian approach is to start with a position (x.y) that seems obviously true (often because it is true) then jump to either (-x,y) or (x,-y) and argue from there. It can, at first glance, look like the result of an independent search,but it is actually far more constrained than the neighborhood searches of Frum and Rich. Both of those writers would shift positions based on their reasoning and would insist on finding a defensible point before sitting down to the keyboard.

The typical contrarian piece hews so closely to its initial (-x,y) that there's no indication of a search at all. By all appearances, the writer simply jumps to the contrarian position and starts typing.

Contrarian writing crowds out good journalism and pumps misinformation and faulty arguments into the discourse. This would be bad at any time, but in the current state of journalism, it's disastrous. Here's a list of dangerous trends in journalism from an earlier post (with a link added from a different paragraph):

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 of these factors make it more difficult for our society to deal with bad data and contrarians are a rich source of some of the worst.

In a healthy journalistic system, counter-intuitive claims would be held to a higher standard (at least if we think like Bayesians) and if a logically or factually flawed argument made it through, both the authors and the editors would feel pressure to see that it didn't happen again.

In our current system, counter-intuitive claims are held to a lower standard (because they generate traffic) and serial offenders can actually build careers by badly arguing points that probably aren't true. Editors have lost all interest in fact-checking and outside efforts at debunking are usually treated as he said/she said.

It's easy to object to the positions Landsburg takes, but perhaps the truly offensive aspect here is the way Landsburg and the other contrarians reach those positions.


Thursday, March 15, 2012

Andrew Gelman weighs in

Mark Palko asked me to post a link to Andrew Gelman's really interesting discussion about "economics exceptionalism". 

My own take-away is that I had not thought about the intellectual dominance of Freudian thinking for a long time and I had never made the link to economics.  But there were occasional forays of economics into areas like education and public health that I have spent some time talking about.  By now we all know the idea behind Freakonomics (even if it might be largely a marketing ploy, it has some intelelctual cachet).   The issue with Ray Fisman and teacher retention policy (should we fire 80% of new teachers) has seen a lot of discussion on this blog and I consider it a classic example of this type of economics reasoning exported to a more general subject matter.  (which is not a dig at Ray Fisman who appears to be a brilliant thinker on his own turf). 

So go, read, and enjoy the comments

Futurism

Something that Mark and I have been talking about is how much less audacious we have been (as a country) since the 1950's.  Back then there was a real sense of inevitable progress and an idea that there were great accomplishments lurking around the corner.  Noah Smith weighs in with an example of this:
If we had found better ways to unlock the vast stores of energy that we know are lurking inside the nuclei of atoms, we'd have those flying cars and Mars colonies and everything people thought we'd have back in the 50s (OK, the Economist doesn't say that, but it's true).
When did we lose this ambition and can we get it back?  

Wednesday, March 14, 2012

Presented without comment

From Paul Krugman:


From KCRW:

Faced with state funding cuts, Santa Monica College can’t keep up with student demand. The school’s governing board has approved a plan to provide extra classes after the regular ones are full. But while regular classes will cost $46 a unit the extras will be $180.

Addendum

Daniel Kuehn has posted a clarification of his position on his blog making it clear that his post was not intended as a defense of Steve Landsberg's position on the Sandra Fluke issue.

There is still an interesting argument about how modern readers seem to give more weight to counter-intuitive arguments than intuitive ones.  Landsberg's career seems to be based on this approach.  Bayesian thinking says that we should do the reverse -- and I think that it would be useful to the debate if we remembered such things.



Not thinking like an economist vs. not thinking, like an economist

Noah Smith has an excellent post on the strange tendency of some economists to treat offensiveness as a sign of clear-thinking. You should read the whole thing, but first I want to take a moment to focus on this quote by Daniel Kuehn:
A lot of people don't get "thinking like an economist" when they see it, [In this case, the people who don't get "thinking like an economist" include Brad DeLong and Noah Smith, but I digress -- Mark*] and what I think Landsburg is doing here is "thinking like an economist", not being a jerk...
Thinking like an economist simply means that you scientifically approach human social behavior - which means that you approach them like any other species of animal. Nobody judges animals when they behave in ways that we would consider horrendous in other humans. They're just... animals. And that's what you really need for good social science. You need to look at your fellow humans as "just animals". Astonishing, wondrous animals to be sure - but just animals...
It's absolutely critical for good economists to see the world in this way...I suspect [Landsburg] was "thinking like an economist". The problem is, of course, it flowed over from scientific analysis of human behavior to a commentary on a single individual human being[.]
[Landsburg] dotted all his i's and crossed all his t's on the analysis, because he's good at thinking like an economist.
We've been through this before. Steve Levitt used the thinking-like-an-economist line to dismiss critics. I found it lacking at the time and it hasn't grown on me since then but it should be noted that even at his worst, Levitt is making an effort to approach questions scientifically. I don't believe that a majority (or even a plurality) of Levitt's critics disagree with him because he's too logical, but at least it's a claim that can be made with a straight face.

Landsburg's defense of Limbaugh is an entirely different beast. There's no trace of a scientific process here or of any thoughtful process at all for arriving at a position. Landsburg simply reacted angrily when he saw people he didn't like say things he disagreed with. Unfortunately, he expressed that anger with a spectacularly shoddy attempt at an argument that misrepresented the original facts, mangled the reasoning and required the reader to make up new definitions for most of the operative words.

By applying it to Landsburg's Fluke post, Kuehn has stretched the thinking-like-an-economist defense to the point that if covers pretty much any statement, no matter how incoherent, as long as it includes something offensive to the general public.

(for more to this topic, check out this post by Andrew Gelman.)


UPDATE: Daniel Kuehn argues here that Smith misrepresented his original post. Read both and come to your own conclusion.

* And just to be clear, this bracketed statement was an editorial insert by me, not an aside by Kuehn.

Tuesday, March 13, 2012

How sure are you that your models are correct?

Karl Smith makes a really good point:
Now imagine that you withheld a payroll tax cut or food stamp relief or any other program on the basis of fear about long term budgets. Depending on your macro estimates somewhere between millions and hundreds of millions of people suffered for this. 
What did you get in return for their suffering? 
Absolutely nothing. Nothing. Nothing. 
Every time you ask a real living person to suffer for some future goal you have to know that you are betting their well-being on your being right about the future. 
How sure are you that you are right? 
Austerity costs with probability one. Attempting to effect long term growth is always a gamble.
I do think that this point is worth remembering in policy discussions.  Models of distant time periods (say 30t o 50 years in the future) are subject to dramatic changes in assumptions.  Could the people living in 1890 (who had never seen a plane) have imagined what 1940 (and the air war of the Battle of Britain) would be like?

This is not to say that we should be reckless.   But policies like austerity in a time of high unemployment have immediate and real costs.  To presume that one is really preparing for the future one should be really, really confident that one can predict it . . .

EDIT: As a clarification, this is much more salient for things like Health Care costs where things like technological progress could completely change the growth curve and less of an issue for Global Warming where we have an observable and deterministic physical process.

Monday, March 12, 2012

And things get worse . . .

Avik Roy part 2:
The VA system could be turned into a huge asset for our nation's health-care system if it were privatized. One of the big drivers of rising health spending is hospital monopolies: when one or two hospitals dominate a particular region, those hospitals have the power to charge whatever they want to insurers and patients. If civilians were allowed to use VA hospitals, and vice-versa for veterans, we could significantly improve this problem. In addition, if the VA hospitals have indeed come up with operational efficiencies, competing private-sector hospitals would be forced to adopt those efficiencies, or lose patients.

If liberals are right, and the VA is a model, competition will force private hospitals to improve on both quality and cost. If conservatives are right, and VA hospitals are terrible, privatization would allow veterans to gain access to superior private-sector health care, while increasing provider competition. Seems like a win-win.
So if I think that a single payer model creates efficiency then the way to test that would be to privatize the system so that we could see if it was equally good as a multi-payer system.  The things that make a single payer system efficient -- less adminsitrative overhead, rationing, ability to implement cost-effective standards of care, no need to run at a profit -- would all vanish in a competitive market place.  Because each insurance plan would have different rules and paperwork requirements which would rapidly undermine a lot of the single payer efficiency. 

So how is abandoning the model used by liberals (single payer) to privatize VA hospitals going to work out as a "win-win"? 

The best analogy I can come up with is comparing a privately held company to one that is publicly traded.  The idea that the private company should become publicly traded so that one can judge if it is more efficient than the publicaly traded company ignores the possibility that it is more efficient because it is privately held. 

So I think that this idea isn't going to show what Mr Roy claims it will show. 

Megan McArdle is on hiatus

But there are people carrying on her work.  The argument in Avik Roy's most recent piece (a guest blogger at the Atlantic) seems to be less than well thought out.  It tries to argue that MedicAid is suboptimal insurance and that, therefore, increasing access to MedicAid will reduce health care access overall.  This is the ultimate straw person argument.  Nobody will enroll in MedicAid if they have private health insurance available to them as an option.  So the real issue is whether the uninsured would be better off under MedicAid or under no insurance at all.  Note that you could always choose not to enroll in MedicAid and stay uninsured, if that was your preference.  Nor is it guarenteed that private insurance will always be available to people as costs rise and employers rebel.   

So the real questionm here is whether MedicAid is worse than no insurance at all.  The good folks at the Incidental Economist have a post with a dense series of links as to the complete lack of evidence for this hypothesis. 

Now one could argue that it would be nice if MedicAid were better insurance, but that doesn't seem to the concern of the author of the post.  Instead, it seems to be about reducing support for health care reform without really positing a superior solution.

UPDATE: It seems that the Incidental Economist addressed this twice, with another post pointing out that reimbursements under MedicAid are set to increase (and that this should increase the number of physicians willing to accept MedicAid).

UPDATE 2: Karl Smith has a rather clever point here on the same piece:
Is the suggestion here that the fixed costs associated with running an office are so high that the breakeven point is achieved from a maximum throughput of full insurance patients? And, further that there is simply no way of operating an office with lower overhead? I can see how its not profit maximizing to accept Medicaid patients. I can even see how in a perfectly competitive market providers would have bifurcate into Medicaid and non-Medicaid providers. However, I do not see why the market cannot find a way to provide paying customers with some level of service.

Sunday, March 11, 2012

A randomized test of welfare

In the Economist, no less. Consider:
When the results were in, the team found that the unpaid women had suffered more than twice the HIV infection rate experienced by the paid women over the course of the 18 months of the experiment, and four times the infection rate of genital herpes. Intriguingly, there was no difference between the infection rate suffered by those required to go to school and those who received the money unconditionally. Whether the actual amount of money mattered was not clear. For that to emerge a larger sample would be needed. What is abundantly clear, however, was that the money did make women behave differently. They had younger boyfriends than those in the control group, and had sex less frequently.
What should be noted is that this was a randomized experiment so you can actually infer causality.  I am positive Mark will have a lot more to say about this experiment.

But let me note, for the record, that this is the opposite result of what conventional thinking would yield about giving young people cash subsidies.  It's also notable that requiring school did not change the good results so unconditional transfers are not inferior to conditional transfers.  Are we sure that a social safety net would result in worse outcomes?  What about giving grants to college students?  

Airports in the sky

2012 Skyscraper Design Competition



The idea of an airport suspended above a city was a plot point of the classic screwball comedy the Palm Beach Story. I find it remarkable that the wildly ambitious notions of seventy years ago are still the wildly ambitious ideas of today.

Remarkable and terribly depressing.

Friday, March 9, 2012

Back on the higher ed beat

Paul Krugman weighs in on recent comments from GOP candidates on the subject of higher education:
About that hostility: Mr. Santorum made headlines by declaring that President Obama wants to expand college enrollment because colleges are “indoctrination mills” that destroy religious faith. But Mr. Romney’s response to a high school senior worried about college costs is arguably even more significant, because what he said points the way to actual policy choices that will further undermine American education.

Here’s what the candidate told the student: “Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And, hopefully, you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Wow. So much for America’s tradition of providing student aid. And Mr. Romney’s remarks were even more callous and destructive than you may be aware, given what’s been happening lately to American higher education.

For the past couple of generations, choosing a less expensive school has generally meant going to a public university rather than a private university. But these days, public higher education is very much under siege, facing even harsher budget cuts than the rest of the public sector. Adjusted for inflation, state support for higher education has fallen 12 percent over the past five years, even as the number of students has continued to rise; in California, support is down by 20 percent.
The choice of California is sadly apt. The state's three-tiered UC/CS/community college system is, even after these devastating cuts, a remarkable achievement. Residents have access to an impressive spectrum of educational options, ranging from inexpensive schools designed to be friendly to disadvantaged and non-traditional students to some of the world's best public universities (with surprisingly reasonable tuition).

In case you think I'm exaggerating, check out this post from Joseph:

From the Academic rankings of world universities:
1. Harvard University (private)
2. Stanford University (private)
3. Massachusetts Institute of Technology (MIT) (private)
4. University of California, Berkeley (public)
5. University of Cambridge (British)
6. California Institute of Technology (private)
7. Princeton University (private)
8. Columbia University (private)
9. University of Chicago (private)
10. University of Oxford (British)
11. Yale University (private)
12. University of California, Los Angeles (public)
13. Cornell University (private)
14. University of Pennsylvania (private)
15. University of California, San Diego (public)
16. University of Washington (public)
17. University of California, San Francisco (public)
18. The Johns Hopkins University (private)
19. University of Wisconsin - Madison (public)
20. University College London (British)

Some interesting patterns immediately jump out. Of the top 20 schools, 17 are American, which is pretty impressive given the share of the world population held by the United States. Of the 17 American schools, six of them are public (which is amazing given how many resources the private schools have). Of the public schools, 4 of them are in California.
If you check out the rest of the list you'll find all of the UC schools have respectable rankings. Given their caliber, they are also quite affordable. I took a grad course in Bayesian networks a couple of years ago at UC Riverside. It cost me eight hundred dollars and was an extraordinary bargain.

It should be noted that some pundits don't think much of California's commitment to great universities. Here's Kevin Carey:

If Berkeley’s star professors are lured away to Stanford, it’s bad for the university but not necessarily bad for America, particularly if (as is frequently the case) those professors teach few if any undergraduates. They’ll be the same people doing the same thing at another university an hour away.


Of course, Carey also believes Rick Perry Is a Higher-Education Visionary.

A perspective on Ayn Rand

This is worth reading.

The carried interest exemption

Carried interest as an exemption isn't easy to defend:
The other problem is that private equity partners are not actually like Dan the carpenter. If Dan and Ms. Moneybags are in a true 50-50 partnership, then Dan is on the hook for half of their losses, as well. The great thing about 2 and 20, for private equity partners, is that they get a cut of the profits but they don’t absorb a share of the losses. This means that the 20 is more like a performance bonus than like a partnership share. So if the 20 is in a gray area, as Mankiw argues, it is even closer to ordinary income than Dan’s partnership share—which, as Mankiw shows (although he doesn’t quite come out and say it, for obvious reasons), should be treated as ordinary income
I have begun to wonder if capital gains should be taxed at a different rate than income, especially if we have exemptions on gains resulting from housing (as transaction costs with housing can reduce mobility).  But the only argument for capital gains exemptions (that people have to risk losing their money) clearly isn't applying to hedge fund managers.

But no matter how one looks at this situation, the best that can be said is that some people may sneak labor wages in as capital gains.  But should we not be trying to limit the cases where this happens and not encourage them?