Monthly Archives: September 2014

Asymmetric Employment Adjustment

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From a paper by Ilut, Kehrig, and Schneider.

Suppose hiring after good news is slower than firing after bad news. A bad aggregate shock that lowers the mean of the distribution of private signals then has two effects. On the one hand, the mean signal is lower so hiring falls on average. On the other hand, the typical signal now brings bad news and thus generates a stronger employment response. As a result, dispersion also increases.

Asymmetric adjustment to provate signals leads to a number of predictions beyond the comovement of aggregate volatility and cross sectional dispersion. In particular, it should induce negative skewness of employment growth in both the cross section and the time series. Moreover, firms’ actions in anticipation of relevant fundamental shocks should depend on the sign of the shock realization: for example, bad (good) productivity realizations should be preceded, on average, by large drops (small increases) in hiring. We verify both sets of predicitions in Census data.

…One posssibility is that the logistics of the hiring process directly make hiring more costly than firing. This could be, for example, because hiring new workers is subject to costly search, whereas firing is free. A second candidate for asymmetric adjustment comes from information processing: if firm decision makers are averse to Knightian uncertainty (ambiguity) and are uncertain about the quality of signals, then it is also optimal to respond more to bad news.

From a PSST perspective, I think that lots of new information, which could include good news as well as bad, could lead to a recession. We have figured out that previous patterns of specialization and trade are no longer sustainable, but we are not sure where the new ones are.

What I am Trying To Read

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Casey Mulligan’s Side Effects, about the labor market effects of Obamacare. I suggested the title, after hearing him talk on the subject.

One snippet:

the ACA is still the third largest marginal tax rate hike during the seventy years.

I am finding it a tough slog. Part of it is that the e-book is not my preferred format for absorbing numerical and mathematical analysis. Part of the problem is that health care law is complex, which makes the economic analysis difficult.

Teaching, Batting, Craft, and Science

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Today I happened to have lunch with Russ Roberts, so we discussed his talk with Elizabeth Green. Some notes:

1. I like his analogy between the task of teaching and the task of hitting a baseball. In both cases, there is a limit on what you can learn by studying books or videos. At some point, you have to learn by trial and error. In baseball, a coach can do a lot to make a hitter’s practice more productive. Green, influenced by Doug Lemov and others, argues that a coach can do a lot to help a teacher.

2. This helps to bring out the difference between a science and a craft. You can learn a lot about science, such as chemistry, without trial and error. You can learn a lot through reading and through ordinary instruction in the classroom and in the lab. But you cannot learn much about hitting a baseball that way. Or you cannot absorb much of what you learn. Instead, you learn best by trying to hit and by being coached on how to hit.

3. My experience as a high school teacher have convinced me that these issues of “craft” are important. I think of most pedagogical theory as something that you could apply to writing a textbook or creating a MOOC. But actually getting a classroom to function takes a lot of skills that one can acquire only through practice and by responding to feedback. Green’s point is that American education methods tend to minimize teachers’ opportunities to receive coaching and feedback.

4. Coaching itself is very much a craft. In the case of hitting, how many people really know how to teach hitting really well? And can any of those people convey their knowledge of coaching well to others, so that other people can learn to coach hitting really well? The analogous problem exists in education. If “building a better teacher” is a scalable solution in education, then you need to find people who can teach teacher-coaching in a scalable way, so that there are enough good coaches of teachers to build lots of better teachers. I am skeptical that this is the case.

5. Coaching can improve any hitter. But it cannot make just anybody into a really good hitter. So I am also skeptical that you can make almost anyone into a really good teacher.

6. For me, the hardest things for a teacher include:

–understanding how students get things wrong, so that you can steer them from wrong to right.
–dealing with the trade-off between introducing new concepts and trying to solidify the concepts you taught last week, particularly when you have students who are at different levels of mastery
–trying to engage in cognitive instruction and deal with behavioral issues at the same time
–motivating students to reveal to themselves what they do not know and to work on those deficiencies

Russ Roberts interviews Elizabeth Green

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She says,

when universities took over teacher training and created the first real professors of education, what they did was they recruited people from other disciplines to do this job. So, they would recruit people who studied psychology, for example–that was one of the first major fields to be imported into schools of education. And then they would have these psychologists. .. You are studying learning, and teaching is very related to learning. But the professors of education, even in psychology, did not have any interest in teaching. In fact, the guy who is known as the father of Educational Psychology, Edward Thorndike, he told people that he thought schools were boring; that he didn’t like to visit them. And when he once was speaking to a group of educators and a principal asked him a real problem of practice–you know, this thing happened in my school today, what should I do, what would you do, Professor Thorndike? And Professor Thorndike told him: ‘Do? I’d resign.’ He had absolutely no interest in real problems of practice. And I think that’s carried through. Today we have, in education schools, we have people in the history of education, the psychology of education, the economics of education. But we have very few people who study teaching itself as a craft. And as a result, the folks who are left to train teachers in teaching methods are drawing on a very impoverished science. And they have very little to draw on. There’s been a little bit of a change in the last 20 years, and that’s what I write my book about. I think there are emerging ideas about what teachers should be able to do. But kind of no surprise that teachers don’t leave teacher training prepared for the classroom when we haven’t really put any resources into figuring out what we should be preparing them to do.

As a teacher, you need to know things like how to explain something to a student who is not getting it, or when to keep reinforcing a concept and when to move on to something else, or how to manage a classroom so you can accomplish what you intend to accomplish. Those are “craft” issues, as opposed to “theory” issues.

There is an analogy with business management. A business school can bring in economists to teach profit maximization using calculus, but that is of little practical value in the business world. Harvard and other business schools try to use case studies rather than rely on pure theory. And there are many books on management that are “craft” oriented with respect to handling people or improving sales.

I say that teaching equals feedback. That means that teachers need feedback in order to improve their teaching. I agree with Green that there are better ways to organize schools so that teachers get faster feedback and incorporate it more effectively. How rapidly that can improve teaching is less clear to me.

Listen to the whole thing.

UPDATE: Her book is also reviewed in the New Republic (pointer from Mark Thoma). The review, by Richard D. Kahlenberg, is tendentiously political and uninformative. He says that Green has “one big idea” and then fails to mention what it is, and in fact he seems to have missed it completely. Kahlenberg really likes the idea of raising teacher salaries a lot. But if Green is correct that good teaching is not just a talent you are born with, then you should not need to attract talented people into teaching by paying them more. Instead, you should put those resources into giving teachers better feedback and training.

I see Kahlenberg’s review as an illustration of the way that people look at education through biased political lenses (not that I claim to be innocent here). This only increases my skepticism about anyone’s solution.

What We Know About Health Care Waste Isn’t True?

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Louise Shiner writes,

geographic variation in health spending does not provide a useful way to examine the inefficiencies of our health system. States where Medicare spending is high are very different in multiple dimensions from states where Medicare spending is low, and thus it is difficult to isolate the effects of differences in health spending intensity from the effects of the differences in the underlying state characteristics. I show, for example, that previous findings about the relationships between health spending, the share of physicians who are general practitioners, and quality, are likely the result of omitted factors rather than the result of causal relationships

Russ Roberts often asks whether any empirical work in economics changes one’s mind. I would say that the Dartmouth studies changed my mind about health care spending in the U.S., convincing me that much of it is “wasted” (I prefer “spent on procedures with high costs and low benefits”). However, there have always been those who doubted the validity of those studies, and this appears to be a particularly strong critique.

On the other hand, see Austin Frakt’s overview of the literature.

Joshua Gans on Apple Pay

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He writes,

This is why I think the resolution for the identification challenge is more significant. Last year, with the iPhone 5s, Apple finally got fingerprint recognition right. Last week I actually had to use a iPhone 5c for a few days without Touch ID and I couldn’t believe how much I had learned to rely on it. It really does work and you really do use it and it really is less hassle than a pin or even swiping to unlock the phone. But the security issues were not paramount but a fortunate side product.

Now they are paramount and what is more Touch ID solves the identification problem. It is really hard for criminals to spoof it or steal your identity using it. They would literally have to hold a gun to your head or take a hostage and, frankly, at that point, they are better off just robbing merchants directly.

U.S. credit cards are quite insecure. Biometric ID would seem to me to be a big improvement. Financial intermediaries will still have to put in back-up security measures, so that somebody who figures out how to copy your fingerprint is not able to make unlimited purchases. But I see phone-based payment technology as leapfrogging the current European model of more-secure credit cards.

Incidentally, I want an i-Watch, as long as it can use Google Maps as input. It would make bicycle navigation easier, but not with the crummy default maps app. Since the product won’t be available for a few months, and it since it won’t be biking weather for a few months after that, there is time to see how it develops.

More on DeLong-term Interest Rates

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Brad DeLong writes,

the most likely–possibility is that the fact that r < g for the government is a byproduct of an extremely large outsized risk premium because of private financial markets’ failure to mobilize the risk-bearing capacity of the public and failure to establish trust and overcome moral hazard in the credit channel. Thus more government debt provides the private sector with something that it is willing to pay through the nose for: a low-risk way to transfer purchasing power into the future.

Pointer from Mark Thoma.

Imagine you had a bank that, whenever it got into trouble through bad investments, could pay off its creditors by taking wealth from people at gunpoint. Such a bank could issue debt with a low risk premium. It is not as clear to me as it is to Brad that the social optimum is for this bank to be very large. Particularly when its “investments” may earn so little in return that at some point even taking wealth at gunpoint may not be enough to enable the bank to meets its obligations.

Another Education Peculiarity

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Neerav Kingsland writes,

the wealthy are paying for status (and perhaps peer effects) more so than they are paying for educational programming.

Schools respond when people pay for status: we get beautiful buildings, wonderful extracurriculars, and a lot of social events.

Of course, these things don’t spread to all schools because they involve costly goods rather than innovations in instruction.

So instead of the wealthy subsidizing the early adoption of innovation, the reverse seems more likely true: it’s the practices of urban charter schools (Teach Like A Champion, Leveraged Leadership, blended learning, etc.) that will end up spreading to the suburbs.

Read the whole thing. If elite schools are status goods, then it will be difficult to dislodge them from their perches–until it becomes easy. I have suggested before that you could see a very rapid “tipping” away from elite schools. Once enough parents decide that there are other ways to achieve parenting status than sending kids to erstwhile elite schools, the elite schools collapse.

A Schooling Peculiarity

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Joshua Gans writes,

There was nothing this calculator did that you could not do for free on the web or through Wolfram Alpha. My teenager, with surprising patience, explained to me that (a) they weren’t allowed to be on the Internet during class and (b) even if they could be, they couldn’t be on it during exams and they needed a calculator they were familar with there. And when you are thinking about SATs or ACTs, that isn’t changing any time soon.

The reaction of schools to the Internet is to try to ban its use during school, particularly during tests. I do not think that these sorts of policies will hold up for very long.

Imagine that the printing press had just been invented. Schools would be telling students that they are not allowed to bring books to school, because books foster cheating. The proper reaction of students would then be to stay home and read, so that they can learn something.

Alex Tabarrok on Labor Market Flexibility

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He writes,

more than half of current workers have jobs that are new since the end of the recession. A majority of workers have new jobs, some workers have wages that are increasing (and thus a fortiori not downwardly rigid) and quite a few workers have flexible wages due to piece rates, commissions, bonuses and so forth. Not all of these categories perfectly overlap. Thus, the scope for nominal wage rigidity as an explanation for current problems appears to be small.

In macroeconomics, the economy is one enormous GDP factory with one price and one wage. But macroeconomics is, in my view, misguided and misleading.