Monthly Archives: March 2015

News Reports Throw Caution to the Wind

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Many news reports about a new Department of Energy report echo the Boston Globe.

Wind power will be cheaper than electricity generated by natural gas within a decade, even without a federal tax incentive, according to a US Energy Department analysis.

Increasing wind energy to 35 percent of US electricity supplies by 2050 will cause national power prices to decline 2.2 percent and result in $400 billion in benefits related to reduced emissions of greenhouse gases. Wind energy provided 4.5 percent of US power supplies in 2013.

The report itself says,

The Study Scenario is a plausible outcome, representing what could come about through a variety of pathways, including aggressive wind cost reductions, high fossil fuel costs, federal or state policy support, high demand growth, or different combinations of these factors.

(emphasis in the original). If I am understanding this correctly, the authors took this 35 percent goal and conjured a scenario in which it might occur. Maybe we will have the “aggressive wind cost reductions, high fossil fuel costs” and so on, or maybe we will not.

I would add that I really object to a study that says that wind power will soon be cheap and ubiquitous. . .and that is why we need to make a long-term commitment to subsidize it. If wind power really does amount to 35 percent of total electricity generation, those subsidies will amount to real money. Moreover, if you really are confident that wind power is economical, then you would not be arguing for subsidies out into the indefinite future.

Provocative Sentences

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From Yuval Noah Harari, author of what is likely an interesting new book, Sapiens.

you should take into consideration the possibility that medicine in the 21st century will be elitist, and that you will see growing gaps because of that, biological gaps between rich and poor and between different countries. And you cannot just trust a process of trickling down to solve this problem.

There are fundamental reasons why we should take this very seriously, because generally speaking, when you look at the 20th century, it’s the era of the masses, mass politics, mass economics. Every human being has value, has political, economic, and military value, simply because he or she is a human being, and this goes back to the structures of the military and of the economy, where every human being is valuable as a soldier in the trenches and as a worker in the factory.

But in the 21st century, there is a good chance that most humans will lose, they are losing, their military and economic value. This is true for the military, it’s done, it’s over. The age of the masses is over.

Almost twenty years ago, I wrote essays, such as this one, on the differences between the industrial era and the post-industrial era. One of these differences is that in the industrial era everything was about “mass.” Mass production, mass consumption, mass warfare, etc. That is not so true now, and the social implications are large.

Question from a Reader (Health Care Costs and Wages)

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I feel as though I am constantly reading articles regarding the stagnant wages of American (and in particular middle class/poor) workers. However I have also seen numerous articles regarding massive annual growth rates in healthcare spending. It is my understanding that most Americans receive their healthcare through their employer (with the employer typically picking up the majority of of the costs). This creates something of a logical disconnect for me, so my question is this:
1. Do most statistics/reports of stagnant wages not take into account employer benefits such as healthcare (or employee 410k matching etc.)? Thereby painting a picture of stagnant wages when in actuality total compensation (wages + benefits) has not been stagnant?
2. Or do they take that into account, and non-benefit wage growth has actually been less than inflation, which taking into account an assumed high singe digit, low double digit growth rate in employee benefits, results in stagnant total wage/compensation?

There is a measure of wage growth that includes the cost of fringe benefits, such as health insurance. This is called compensation per hour. There is also a measure that does not include fringe benefits, which is just called wages. Because health care spending has soared, the “fringe” benefits can amount to quite a lot. Thus, the two measures have diverged, with compensation going up more than wages.

Suppose that my salary is $50,000 a year and the employer contributes $15,000 to my health insurance. The good news for me is that the health insurance benefits are not taxed. The bad news is that I might value the health insurance at much less than $15,000.

So do workers value health insurance at something like its dollar cost, or do they not? This becomes very interesting when you try to calculate a real wage, which is the nominal wage adjusted for price changes. If you look at wages excluding fringe benefits, then you are taking soaring health care costs out of the numerator. If you then use the Consumer Price Index to convert from a nominal wage to a real wage, you are including soaring health care costs in the denominator. That strikes me as an overly pessimistic way to calculate real wages.

If workers care about health care expenses, then you should look at their total compensation. If they do not care about health care expenses, then you should use a price index that just includes those goods and services that they do care about.

I have to say that when this issues is discussed in the press and in blogs, what you see is at best lacking in nuance and at worst a deliberate attempt to manipulate data to create a distorted point of view. I should add that if somebody insists on not including fringe benefits in their calculations, you might ask them why then one should consider employer-provided health insurance a good thing.

Timothy Taylor on Media Bias

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He writes,

There’s lots of political bias in the media, mainly because media outlets are trying to attract customers with similar bias. But in the world of the Internet, at least, people of all beliefs do surf readily between news websites with different kind of bias. The growth of television to some extent displaced the role of newspapers and lowered the extent of voting. For the future, a central question is whether a population that gets its news from a mixture of websites and social media becomes better-informed or more willing to vote, or whether it becomes a population that instead becomes expert at selfiesm, cat videos, World of Goo, Candy Crush, Angry Birds, and the celebrity-du-jour.

I see no reason to fear the second outcome more than the first.

The new Robert Putnam Book

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I got it as soon as it was released and finished it in a few hours.

I like his top third/bottom third way to approach inequality. Of the four forces, he emphasizes what I have been calling demographic disparity and what he calls, more descriptively, bifurcated family patterns; he mentions, using different terms, factor-price equalization and Moore’s Law, but does little with them. Nothing on the New Commanding Heights.

He is inexcusably shabby toward Charles Murray. He does not say he owes a debt to Murray. He does not summarize Coming Apart. He just gives it one brief, dismissive footnote.

Putnam plays very fast and loose with correlation and causality. At one point, he even admits this.

He never once mentions genetics as a factor in inequality. This biases the analysis much more in favor of policy remedies than is reasonable.

Overall, I came away with some new data points, but no new insights, and some anger and frustration with the flaws.

Some of the data and some of the analysis goes against his lefty readers’ biases, although he makes it easy for them to stumble over these truths, pick themselves up, and move on as if nothing happened. (Churchill’s phrase)

Null Hypothesis Watch

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Melissa A. Clark and others report,

In 2010, Teach For America (TFA) launched a major expansion effort, funded in part by a five-year Investing in Innovation (i3) scale-up grant of $50 million from the U.S. Department of Education. This study examines the effectiveness of TFA elementary school teachers in the second year of the scaleup, relative to other teachers in the same grades and schools. The study found that, on average, TFA corps members hired in the first two years of the scale-up period were as effective as other teachers in the same high-poverty schools in both reading and math. Although TFA teachers in lower elementary grades (prekindergarten through grade 2) had a positive, statistically significant effect on students’ reading achievement relative to other teachers in the same schools, this was not true for TFA teachers in upper elementary grades (3 through 5) in reading, or for any grade level in math.

Pointer from Jason Richwine, who notes

On the bright side, TFA teachers appear to be at least as effective as regular teachers when it comes to teaching reading and math to elementary students. The fact that TFA requires only a five-week crash course in pedagogy — rather than traditional teacher certification — is another reason to question the value of an education degree.

Of course, this is consistent with the Null Hypothesis, as applied to teacher education. Actually, if you believe the Null Hypothesis only applies to teacher education, then you would expect the TFA teachers, who presumably have higher native ability, to perform better than typical teachers. However, then you run into the Null Hypothesis for education in general.

My Problem with Search Theories of Unemployment

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Nick Rowe steps into a debate.

The better the job you want to get, the longer you expect to search (or wait) before you get it. ..

Now suppose the economy enters a recession. The trade-off worsens … You choose a new point. You will probably choose a point as drawn, expecting to search or wait longer and get a worse quality job.

He illustrates with a nice diagram.

It’s a neat theory, and I like it better than models that do not use job search. But I don’t really buy it.

From a PSST perspective, the searching that is important is the search for new patterns of sustainable specialization and trade. It’s not like a marriage market in which a suitable match exists and you just have to find it.

The Age of Creative Ambiguity

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Tyler Cowen writes,

File under “The End of Creative Ambiguity.” That file is growing larger all the time.

What is Creative Ambiguity? I would define it as the attempt by policy makers to ignore trade-offs and to deny the need to make hard choices. Consider the Fed’s balance sheet. One hard choice might be to sell its gigantic portfolio of bonds and mortgage-backed securities. That would depress the prices of those assets and make it harder for the government to borrow and to provide mortgage loans. The other hard choice might be to provide whatever support is necessary to enable the government to borrow and to provide mortgage loans, even if it means printing enough money to risk hyperinflation. Creative ambiguity means convincing investors that neither hard choice will be necessary. Perhaps that is even true.

However, if the Fed’s hard choices are to be avoided, then at some point the government must get its fiscal house in order. That is where the real creative ambiguity comes in. See Lenders and Spenders.

How Students Really Consume Online Education

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Sam Gerstenzang wrote,

What works about on demand knowledge is that it is pull based (the knowledge you need, when you need it) and comes in digestible chunks. Unlike MOOCs, which are consumed far in advance of the knowledge being applied, Wikipedia and StackOverflow are the knowledge you need, now. Humans are lazy and working ahead requires discipline and foresight, which makes on demand knowledge far more appealing to most.

You may need to read the whole post. I thank Ben Casnocha for the pointer.

It has struck me that the the traditional notion of a course and the medium of online learning may be misaligned. Try to imagine what would happen if you got rid of courses. What would you do instead in order to provide students with direction in their learning?

David Brooks on Redistribution vs. Education

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He writes,

No redistributionist measure will have the same long-term effect as good early-childhood education and better community colleges, or increasing the share of men capable of joining the labor force.

Pointer from Tyler Cowen.

A cynical believer in the Null Hypothesis would argue that putting money into education is an exercise in redistribution. It will redistribute income toward teachers’ unions members, college professors, and administrators.

Also, what is the probability that Brooks is simply trolling Bryan Caplan?