Wealth, Health, and Child Development

Thursday, October 13th, 2016

Swedish researchers looked at wealth, health, and child development, by studying lottery players:

We use administrative data on Swedish lottery players to estimate the causal impact of substantial wealth shocks on players’ own health and their children’s health and developmental outcomes. Our estimation sample is large, virtually free of attrition, and allows us to control for the factors conditional on which the prizes were randomly assigned.

In adults, we find no evidence that wealth impacts mortality or health care utilization, with the possible exception of a small reduction in the consumption of mental health drugs. Our estimates allow us to rule out effects on 10-year mortality one sixth as large as the cross-sectional wealth-mortality gradient.

In our intergenerational analyses, we find that wealth increases children’s health care utilization in the years following the lottery and may also reduce obesity risk. The effects on most other child outcomes, including drug consumption, scholastic performance, and skills, can usually be bounded to a tight interval around zero.

Overall, our findings suggest that in affluent countries with extensive social safety nets, causal effects of wealth are not a major source of the wealth-mortality gradients, nor of the observed relationships between child developmental outcomes and household income.

Posted in Economics, Policy | No Comments »

Maybe Companies Aren’t Too Focused on the Short Term

Tuesday, October 11th, 2016

There are plenty of stories of how U.S. corporations live for the short-term, obsessing over the next quarterly earnings statement to the neglect of their longer-run prospects:

Still, it’s not been established that American corporations are on average more short-term in their thinking than they ought to be.

Perhaps most importantly, it is often easier and better to plan for the shorter term. In information technology, the average life of a corporate asset is about six years, in health care it is about 11 years, and for consumer products it runs about 12 to 15. Very often it is hard for a company to plan its operations beyond those time periods, as the U.S. economy is no longer based on durable manufacturing machines. Production has shifted toward service sectors with relatively short asset lives, and that may call for a shorter-term orientation in response.

Companies often see their short-term problems staring them in the face — think of the need to fire an incompetent manager or lease more office space. It is harder to predict the market 20 years hence, especially when information technology is involved, and thus planning so far out can involve a lot of expense and risk.

Plenty of companies have made big mistakes from thinking too big and too long-term; for instance, a lot of mergers were based on notions of long-run synergies that never materialized. In reality, short-term improvements are often the best way to get to a good long-run plan.

[...]

Equity markets do not seem to neglect the longer run. Amazon has a high share price even though its earnings reports have usually failed to show a profit. Possibly the market judgment is wrong, but it’s hardly the case that investors are ignoring the long-run prospects of the company.

Many tech startups have high valuations even though revenue is zero or low. Again, those judgments may or may not be correct, but clearly investors are trying to estimate longer-run prospects. During the dot-com bubble of the 1990s, there was too much long-run, pie-in-the-sky thinking and not enough focus on the concrete present.

Economics Nobel Laureate Eugene Fama once said, “In hindsight, every price is wrong.” With electric and driverless cars, investors are thinking long and hard about what the future might look like and investing in equities accordingly, with share prices to be revised as events develop. If the long-run thinking of the market were systematically defective, it would be possible to profit simply through superior patience. But it is not an easy matter to see further than others.

Posted in Business, Economics | No Comments »

Warfare and Economic Growth in the Preindustrial World

Monday, October 3rd, 2016

Mark Koyama believes the economic costs of warfare are usually dismissed, for a variety of reasons:

1. Arguments like: the Romans destroyed Carthage in 146 BC yet by, say, 0 AD Carthage had recovered and was a major economic metropolis.

2. Arguments from analogy: Japan and Germany were devastated by WW2 yet they recovered rapidly and exceeded previous levels of living standards within a decade and a half.

3. Keynesian-style arguments: warfare was necessary to stimulate aggregate demand.

4. A binding technological ceiling on growth in preindustrial economies. Hence in the absence of warfare, growth was limited.

Again, if you’re in a Malthusian Trap, war might bring a drop in total GDP, but a rise in GDP per capita — until the disruption is great enough to bring down a complex economy.

Posted in Economics, Policy, War | 1 Comment »

Retire at 30

Monday, September 26th, 2016

In 2005, Peter Adeney — better known as Mr. Money Mustache — retired at 30 years old:

Leading up to retirement, Adeney and his wife, Simi, both software engineers, stashed two-thirds of their combined $134,000 take-home pay in savings. After just 10 years in the workforce, the couple had accrued about $600,000 in investments and paid off a house worth $200,000, Adeney told Nick Paumgarten of The New Yorker, giving them a solid cushion to retire on.

[...]

He suggests learning to live on less — cutting down your wardrobe, buying used cars — and finding ways to add meaning to life that don’t rely on material possessions. One personal challenge he took on was learning carpentry.

Posted in Economics | 14 Comments »

Migrant Competence

Sunday, September 18th, 2016

James Thompson explores migrant competence:

Europe is experiencing enormous inflows of people from Africa and the Middle East, and in the midst of conflicting rhetoric, of strong emotions and of a European leadership broadly in favour of taking more migrants (and sometimes competing to do so) one meme keeps surfacing: that European Jews are the appropriate exemplars of migrant competence and achievements.

European history in the 20th Century shows why present-day governments feel profound shame at their predecessors having spurned European Jews fleeing Nazi Germany. However, there are strong reasons for believing that European Jews are brighter than Europeans, and have greater intellectual and professional achievements. There may be cognitive elites elsewhere, but they have yet to reveal themselves. Expectations based on Jewish successes are unlikely to be repeated.

I am old enough to know that political decisions are not based on facts, but on presumed political advantages. The calculation of those leaders who favour immigration seems to be that the newcomers will bring net benefits, plus the gratitude and votes of those migrants, plus the admiration of some of the locals for policies which are presented as being acts of generosity, thus making some locals feel good about themselves for their altruism. One major ingredient of the leadership’s welcome to migrants is the belief that they will quickly adapt to the host country, and become long term net contributors to society. Is this true?

With Heiner Rindermann he analyzed the gaps, possible causes, and impact of The Cognitive Competences of Immigrant and Native Students across the World:

In Finland the natives had reading scores of 538, first-generation immigrants only 449, second-generation 493. The original first-generation difference of 89 points was equivalent to around 2–3 school years of progress, the second-generation difference of 45 points (1-2 school years) is still of great practical significance in occupational terms.

In contrast, in Dubai natives had reading scores of 395; first-generation immigrants 467; second-generation 503. This 105 point difference is equivalent to 16 IQ points or 3–5 years of schooling.

Rather than look at the scales separately, Rindermann created a composite score based on PISA, TIMSS and PIRLS data so as to provide one overall competence score for both the native born population and the immigrants which had settled in each particular country. For each country you can seen the natives versus immigrant gap. By working out what proportion of the national population are immigrants you can recalculate the national competence (IQ) for that country. Rindermann proposes that native born competences need to be distinguished from immigrant competences in national level data.

The analysis of scholastic attainments in first and second generation immigrants shows that the Gulf has gained from immigrants and Europe has lost. This is because those emigrating to the Gulf have higher abilities than the locals, those emigrating to Europe have lower ability than the locals.

The economic consequences can be calculated by looking at the overall correlations between country competence and country GDP.

[...]

The natives of the United Kingdom have a competence score of 519 (migrants to UK 499), Germany 516 (migrants to Germany 471), the United States 517 (migrants to US 489). There, in a nutshell, is the problem: those three countries have not selected their migrants for intellectual quality. The difference sounds in damages: lower ability leads to lower status, lower wages and higher resentment at perceived differences. On the latter point, if the West cannot bear to mention competence differences, then differences in outcome are seen as being due solely to prejudice.

Posted in Economics, Education, Policy, Science | 14 Comments »

Do Immigrants Import Their Economic Destiny?

Saturday, September 17th, 2016

Do immigrants import their economic destiny?

This is one of the great policy questions in our new age of mass migration, and it’s related to one of the great questions of social science: Why do some countries have relatively liberal, pro-market institutions while others are plagued by corruption, statism, and incompetence? Three lines of research point the way to a substantial answer:

  • The Deep Roots literature on how ancestry predicts modern economic development,
  • The Attitude Migration literature, which shows that migrants tend to bring a lot of their worldview with them when they move from one country to another,
  • The New Voters-New Policies literature, which shows that expanding the franchise to new voters really does change the nature of government.

Together, these three data-driven literatures suggest that if you want to predict how a nation’s economic rules and norms are likely to change over the next few decades, you’ll want to keep an eye on where that country’s recent immigrants hail from.

Posted in Economics, Policy | No Comments »

The Most Intolerant Wins

Wednesday, August 31st, 2016

Nassim Nicholas Taleb explains how a certain type of intransigent minority can make the entire population adopt their preferences — while a naive observer would be under the impression that the choices and preferences are those of the majority:

This example of complexity hit me, ironically, as I was attending the New England Complex Systems institute summer barbecue. As the hosts were setting up the table and unpacking the drinks, a friend who was observant and only ate Kosher dropped by to say hello. I offered him a glass of that type of yellow sugared water with citric acid people sometimes call lemonade, almost certain that he would reject it owing to his dietary laws. He didn’t. He drank the liquid called lemonade, and another Kosher person commented: “liquids around here are Kosher”. We looked at the carton container. There was a fine print: a tiny symbol, a U inside a circle, indicating that it was Kosher. The symbol will be detected by those who need to know and look for the minuscule print. As to others, like myself, I had been speaking prose all these years without knowing, drinking Kosher liquids without knowing they were Kosher liquids.

A strange idea hit me. The Kosher population represents less than three tenth of a percent of the residents of the United States. Yet, it appears that almost all drinks are Kosher. Why? Simply because going full Kosher allows the producer, grocer, restaurant, to not have to distinguish between Kosher and nonkosher for liquids, with special markers, separate aisles, separate inventories, different stocking sub-facilities. And the simple rule that changes the total is as follows:

A Kosher (or halal) eater will never eat nonkosher (or nonhalal) food , but a nonkosher eater isn’t banned from eating kosher.

Let us call such minority an intransigent group, and the majority a flexible one. And the rule is an asymmetry in choices.

I once pulled a prank on a friend. Years ago when Big Tobacco were hiding and repressing the evidence of harm from secondary smoking, New York had smoking and nonsmoking sections in restaurants (even airplanes had, absurdly, a smoking section). I once went to lunch with a friend visiting from Europe: the restaurant only had availability in the smoking sections. I convinced the friend that we needed to buy cigarettes as we had to smoke in the smoking section. He complied.

Two more things. First, the geography of the terrain, that is, the spatial structure, matters a bit; it makes a big difference whether the intransigents are in their own district or are mixed with the rest of the population. If the people following the minority rule lived in Ghettos, with their separate small economy, then the minority rule would not apply. But, when a population has an even spatial distribution, say the ratio of such a minority in a neighborhood is the same as that in the village, that in the village is the same as in the county, that in the county is the same as that in state, and that in the sate is the same as nationwide, then the (flexible) majority will have to submit to the minority rule. Second, the cost structure matters quite a bit. It happens in our first example that making lemonade compliant with Kosher laws doesn’t change the price by much, not enough to justify inventories. But if the manufacturing of Kosher lemonade cost substantially more, then the rule will be weakened in some nonlinear proportion to the difference in costs. If it cost ten times as much to make Kosher food, then the minority rule will not apply, except perhaps in some very rich neighborhoods.

Posted in Economics, Nassim Nicholas Taleb, Policy | No Comments »

The Japanese Zoning System

Monday, August 29th, 2016

Alex Tabarrok explains the Japanese zoning system:

Japan has 12 basic zones, far fewer than is typical in an American city. The zones can be ordered in terms of nuisance or potential externality from low-rise residential to high-rise residential to commercial zone on through to light industrial and industrial. But, and this is key, in the US zones tend to be exclusive but in Japan the zones limit the maximum nuisance in a zone. So, for example, a factory can’t be built in a residential neighborhood but housing can be built in a light industrial zone.

[...]

In addition, residential means residential without discrimination as to the type or form of resident.

On that last point, one commenter notes that the Japanese do not have to worry about crime, and Steve Sailer added that “Americans have replaced discrimination by race with discrimination by cost, which works pretty well, but, of course, it’s very expensive.”

Posted in Crime, Economics, Policy, Urbanism | No Comments »

The Idea of Improvement

Sunday, August 28th, 2016

What caused innovation to accelerate in so many different industries during the British Industrial Revolution? Anton Howes suggests the emergence of an idea that was even simpler and more fundamental than systematic experimentation or Newtonian mechanics, though it was implicit to each of them — the idea of improvement itself:

I present new evidence on the sources of inspiration and innovation-sharing habits of 677 people who innovated in Britain between 1651 and 1851. The vast majority of these people — at least 80% — had some kind of contact with innovators before they themselves started to innovate. These connections were not always between members of the same industry, and innovators could improve areas in which they lacked expertise. This suggests the spread, not of particular skills or knowledge, but of an improving mentality. The persistent failure to implement some innovations for centuries before the Industrial Revolution, despite the availability of sufficient materials, knowledge, and demand, further suggests that prior societies may have failed to innovate quite simply because the improving mentality was absent. As to what made Britain special, we cannot know for sure without constructing similarly exhaustive lists of innovators for other societies. But a likely candidate is that the vast majority of innovators — at least 83% — shared innovation in some way, while only 12% tried to stifle it. Just like a religion or a political ideology, the improving mentality spread from person to person, and to be successful required effective preachers and proselytisers too.

Posted in Economics, Science, Technology | No Comments »

Why Do Democracies get Weaker & more Parasitic?

Wednesday, August 24th, 2016

Why do democracies get weaker & more parasitic?

What you have under a representative, egalitarian, winner take all, democracy is a shifting coalition of about 51% of voters aligned to threaten about 49%.

If you’re getting more than 51% of the vote (which is certainly possible) that just means you’re leaving rents on the table. You could take more, and/or give less, and still win the election.

Additionally, maximum rent extraction occurs if your coalition comprises the cheapest 51% of voters, in other words, the most useless and parasitic.

In relative terms, the 51% will tend to expand in number as they gorge on the 49%, who will tend to diminish. That means, the 51% will generally be in the position of being able to kick their most productive members out into the 49% and begin consuming them turn, getting ever more radically leftist, degenerate, and freeloading in the process as the polity becomes progressively weaker and more parasitic, until finally, it collapses.

This is one explanation for the expressions “Cthulu only swims left” or “the ratchet effect.”

Thankfully, there are alternatives to democracy.

Posted in Economics, Policy | No Comments »

Why did the Roman Economy Decline?

Wednesday, August 24th, 2016

Peter Brown of Princeton University is one of Mark Koyama’s favorite historians of late antiquity, but Koyama doesn’t agree with Brown’s explanation for why the Roman economy declined:

In The Rise of Western Christendom, Brown summarizes the new wisdom on the transition from late antiquity to the early middle ages. He accepts that this transition brought about an economic decline — a decline evident in the radical simplification in economic life that took place. Long distance trade contracted. Cities shrank and emptied out. The division of labor became less complex. Many professions common in the Roman world disappeared.

All of this is relatively uncontroversial. At issue is what caused this decline? Traditional accounts emphasized the destruction brought about by barbarian invasions and civil wars as the frontiers of the Western Empire collapsed. These accounts emphasized a collapse in trade and increased economic insecurity. Brown, however, argues that the bulk of modern research rejects this old fashioned view.

[...]

The barbarian invasions, of course, play a role in this story because they put pressure on the Roman state. But their role is peripheral. Rather, Brown contends that the Roman state was the engine of economic growth of late antiquity. Turning on its head the old view associated with Michael Rostovtzeff that attributed the decline of the Roman economy to high taxes imposed by the Emperor Diocletian and his successors, Brown argues that these high taxes were in fact the source of economic dynamism.

[...]

The collapse of the Roman state was catastrophic, not because the Roman state was an engine of economic growth, as Brown contends, but because it provided, albeit imperfectly, the public good of defense. In the absence of this, transactions costs greatly increased, long-distance trade declined, markets contracted, and urbanization declined.

The notion of a Malthusian Trap helps explain how high taxes — especially efficient land taxes — might help, rather than hurt, per capita income.

Posted in Economics, Farewell to Alms, Policy | No Comments »

A trend that has been puzzling economists

Tuesday, August 23rd, 2016

Economist Erik Hurst is looking at how technology affects labor supply:

In my third summer project, I’m trying to understand the labor market and patterns in employment over the last 15 years in the US. Specifically, I’m interested in employment rates of young (in their twenties), non-college educated men. In prior work on changes in demand for low-skilled labor, the theory exists that as technology advances, both employment and wages fall due to decreased demand.

In this strand of my research, I’m almost flipping that theory on its head by asking if it is possible that technology can also affect labor supply. In our culture, where we are constantly connected to technology, activities like playing Xbox, browsing social media, and Snapchatting with friends raise the attractiveness of leisure time. And so it goes that if leisure time is more enjoyable, and as prices for these technologies continue to drop, people may be less willing to work at any given wage. This explanation may help us understand why we see steep declines in employment while wages remain steady — a trend that has been puzzling economists.

Right now, I’m gathering facts about the possible mechanisms at play, beginning with a hard look at time-use by young men with less than a four-year degree. In the 2000s, employment rates for this group dropped sharply — more than in any other group. We have determined that, in general, they are not going back to school or switching careers, so what are they doing with their time? The hours that they are not working have been replaced almost one for one with leisure time. Seventy-five percent of this new leisure time falls into one category: video games. The average low-skilled, unemployed man in this group plays video games an average of 12, and sometimes upwards of 30 hours per week. This change marks a relatively major shift that makes me question its effect on their attachment to the labor market.

To answer that question, I researched what fraction of these unemployed gamers from 2000 were also idle the previous year. A staggering 22% — almost one quarter — of unemployed young men did not work the previous year either. These individuals are living with parents or relatives, and happiness surveys actually indicate that they are quite content compared to their peers, making it hard to argue that some sort of constraint, like they are miserable because they can’t find a job, is causing them to play video games. The obvious problem with this lifestyle occurs as they age and haven’t accumulated any skills or experience. As a 30- or 40-year old man getting married and needing to provide for a family, job options are extremely limited. This older group of lower-educated men seems to be much less happy than their cohorts.

I am currently working to document this phenomenon, but there is a real challenge in determining what the right policy response might be to address the underlying issues.

Posted in Economics, Games | 5 Comments »

Danes Live Better in the U.S.

Tuesday, August 16th, 2016

Denmark is wealthy, has strong social and economic indicators, and it offers a comprehensive safety net, Tyler Cowen notes, but Danes live better in the U.S.:

or instance, Danish-Americans have a measured living standard about 55 percent higher than the Danes in Denmark. Swedish-Americans have a living standard 53 percent higher than the Swedes, and Finnish-Americans have a living standard 59 percent higher than those back in Finland. Only for Norway is the gap a small one, because of the extreme oil wealth of Norway, but even there the living standard of American Norwegians measures as 3 percent higher than in Norway. And that comparison is based on numbers from 2013, when the price of oil was higher, so probably that gap has widened.

Of the Nordic groups, Danish-Americans have the highest per capita income, clocking in at $70,925. That compares to an U.S. per capita income of $52,592, again the numbers being from 2013. Sanandaji also notes that Nordic-Americans have lower poverty rates and about half the unemployment rate of their relatives across the Atlantic.

It is difficult, after seeing those figures, to conclude that the U.S. ought to be copying the policies of the Nordic nations wholesale. It is instead more plausible to think that Americans might learn something from the cultural practices of Nordic-Americans. Sanandaji says those norms include hard work, honesty, a strong civil society and an ethic of cooperation and volunteerism.

My own view is that many groups work hard, but that a disciplined, family-based approach to education and human capital investment is the important norm in this context. All the main Nordic groups in the United States have high school graduation rates over 96 percent. That compares to an average of about 82 percent for the U.S. as a whole.

I enjoyed this angle:

Most of all we should consider the option of greater freedom of choice for residence decisions. For all the anti-immigrant sentiment that is circulating at the moment, would it hurt the U.S. to have fully open borders with Denmark? It would boost American gross domestic product and probably also improve American education. History teaches that serious assimilation problems would be unlikely, especially since many Danes already speak English.

Open borders wouldn’t attract Danes who want to live off welfare because the benefits are so generous at home.

How’s this for a simple rule: Open borders for the residents of any democratic country with more generous transfer payments than Uncle Sam’s.

Posted in Economics, Policy | 3 Comments »

Rory Sutherland

Sunday, July 24th, 2016

Rory Sutherland is an ad man and entertaining raconteur:

Posted in Business, Economics | 1 Comment »

An expert on fighting poverty makes the case against a universal basic income

Wednesday, July 20th, 2016

Notice how “an expert on fighting poverty” makes the case against a universal basic income:

I began to get particularly concerned when I began to see, in recent years, the emergence of this notion of going to UBI through a left-right coalition — of which a key building block, for the right, is eliminating most or all means-tested programs. It was at that point that I got much more heavily engaged again. I found that a lot of my fellow progressives did not fully appreciate or understand that that could well move us backward on poverty and inequality, rather than forward.

[...]

Among my fears of UBI is that given US political culture, if we ever got to a form of UBI in the first place (which I think is extremely unlikely), I think the odds are high that it would exclude people who have no earnings and have no work record.

Posted in Economics, Policy | 1 Comment »

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