Monthly Archives: March 2016

Also from the Monkey Cage Blog

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Lilliana Mason writes,

Partisan identities have become increasingly aligned with religious and racial identities. Republicans tend toward Christian and white identities, and Democrats tend toward non-religious and non-white identities. With these highly aligned identities, people tend to be more sensitive to threats from outsiders, reacting with higher levels of anger than those with cross-cutting identities.

Read the whole post. I wanted to excerpt all of it. My one quibble is that I wish that she had not only used Trump supporters as examples of what she is talking about. I think she is saying that people on the left also react angrily to the identity threats posed by those with differing political beliefs and cultural traits, but my guess is that many of the readers of the post will miss that.

I have been interested in the issue of tribalism in politics for quite some time. See, of course, The Three Languages of Politics.

From the Monkey Cage Blog

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Pippa Norris writes,

Most remarkably, by the most recent wave in 2011, almost half — 44 percent — of U.S. non-college graduates approved of having a strong leader unchecked by elections and Congress.

The chart in the post shows that 28 percent of college graduates agree. To me, this suggests that the problem is hardly limited to those without a college education. In fact, I am much more worried about the college graduates who do not believe in the Constitution.

For the most part, the post consists of “analysis” that tries to connect dots that I am not sure are connected–between low levels of education, conservative beliefs on social issues, and support for Donald Trump.

American Workers and Substitution

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Raven Molloy and others, in a paper for a Brookings conference, show that there has been a largely unexplained decline in the rate of job switching and other measures of what they call labor market fluidity over the past three decades. Pointer from Nick Bunker via Mark Thoma.

My thoughts turn to the four forces, and in particular to globalization and the rise of the Internet. Think of three margins of substitution:

1. Substitute American workers for other American workers.

2. Substitute foreign workers for American workers.

3. Substitute capital equipment (including computers) for American workers.

If the elasticity of substitution has gone up for (2) and (3), might it not follow that we would see less of (1)? In more concrete terms, if a firm wishes to expand, nowadays it can increase production overseas or use more capital equipment, rather than hire more American workers. That would reduce (domestic) labor fluidity.

An Accounting Threat

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The WSJ reports,

Starting in 2017, EU rules will require European governments to calculate the total amount they must pay current and future pensioners. Making this obligation more visible could spur them to deal with it, said Hans Hoogervorst, chairman of the International Accounting Standards Board and a former Dutch finance minister. “It will make clear that the current situation is unsustainable.”

Such a rule would be helpful here, as well.

Prison and Mental Illness

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Scott Alexander writes,

What about that graph? It’s very suggestive. You see a sudden drop in the number of people in state mental hospitals. Then you see a corresponding sudden rise in the number of people in prison. It looks like there’s some sort of Law Of Conservation Of Institutionalization. Coincidence?

Yes. Absolutely. It is 100% a coincidence. Studies show that the majority of people let out of institutions during the deinstitutionalization process were not violent and that the rate of violent crime committed by the mentally ill did not change with deinstitutionalization. Even if we take the “15% of inmates are severely mentally ill” factoid at face value, that would mean that the severely mentally ill could explain at most 15%-ish of the big jump in prison population in the 1980s. The big jump in prison population in the 1980s was caused by the drug war and by people Getting Tough On Crime. Stop dragging the mentally ill into this.

Another case of “this one chart” not being a compelling argument. Read the whole post. He is not buying the view that de-institutionalization of the mentally ill caused the prison population to rise.

Entertaining Debate on the Economics of Education

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I recommend this EconDuel between Tyler Cowen and Alex Tabarrok, with the latter channeling Bryan Caplan, on whether education is content or signaling.

Tyler argues that students pick up valuable intangible forms of knowledge in college. One might term this cultural learning.

When I showed the debate to my high school students, they were somewhat put off by Tyler saying that students learn to “submit to authority.” I think that a better formulation would be to say that students learn to please authority in ambiguous situations. That is, a skilled worker in today’s economy needs to meet expectations in a setting where instructions are not precise. Your boss does not want to spend time telling you exactly how to do your job. Instead, the boss wants to set some general expectations and have you figure out how best to meet or exceed those expectations. In college, writing a paper or trying to prepare for a test requires similar skills–the ability to anticipate and satisfy what the professor is expecting without being given a precise set of step-by-step instructions.

When I gave job interviews, the crucial point in the interview was when I said, “Tell me what questions you have.” I took the view that someone who was going to do a good job would have the ability to ask relevant, probing questions. Someone who lacked that ability would be too passive and create too many opportunities for communication failures between me and the employee.

In theory, a better educated person would do better in my interview. That person would have a better sense of the right questions to ask in order to be successful as an employee.

On the other hand, the cultural learning aspect of college education might be nothing but an Eliza Doolittle effect. Because you are able to speak with the proper intonation and express the views of a well-educated individual, you ingratiate yourself with people who can hire you into or connect you with well-paying jobs. But someone with more lower-class conversation patterns might actually be as good or better at doing the work.

Jason Collins on John Kay

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Jason makes it sound like Kay’s book is worth reading.

One of the most interesting threads in the books is that many of the regulatory mantras are about the financial intermediaries, not the end users. The drives for transparency and liquidity in particular come in for criticism by Kay. First, the demand for transparency is a sign of the problem

The quoted passage that follows strikes me as very good. I also have argued that non-transparency is in some sense the point of financial intermediation. If I know everything about a bank’s portfolio, then I do not need the bank. I can just buy the portfolio myself.

From the Comments

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On libertarians and the welfare state.

I think that increasingly, especially if the Trump becomes a thing but likely trending that way without him, libertarian wonks are going to become a subset of the Democratic coalition since that is already the coalition of highly educated people sensitive to the harm principle of morality.

Their role in the democratic coalition will be to provide the propaganda for:

1) UBI [universal basic income], which various libertarian heroes have already proposed in the past

2) “Nudge” policies based on statistical studies. These will be sold as the “less intrusive” alternative to some new bureaucracy (“a tax on Soda’s is preferable to a new Soda Safety Department”).

3) Loosening of regulations on a the democratic client base the way they’ve done so for the republican client base.

4) Anything anti-cop.

On #1 I doubt they will succeed in dismantling current welfare/service bureaucrats, but they may manage to add a layer of direct UBI on top of that.

I disagree with (2). I think that even those libertarians who I think of as fitting the commenter’s model are quite skeptical of governmental nudging.

Otherwise, however, I think that it is quite difficult for libertarians to dissociate themselves from the highly-educated class. Libertarians will tend to emphasize issues on which they and the educated left can agree, rather than focus on changing the minds of the educated left on issues on which they disagree.

Libertarians may not formally join the Democratic coalition, but in recent years all of the libertarian victories (marijuana legalization, gay marriage) have come from liberal issues, none on free-market issues. We could not even persuade people on the left (or the Republican establishment) to oppose the Ex-Im bank.

Economists Against Chronic Medical Conditions

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On Tuesday, there was a full page ad in the WaPo signed by various economists about the issue of chronic diseases, including Douglas Holtz-Eakin of the center-right and David Cutler of the center-left. The ad did not say much, and it referred the reader to this page.

Our health care system needs reforms that align incentives to encourage payers, providers, employers, and individuals to better prevent, detect, treat, and manage chronic diseases – both physical and mental – before they become an acute problem. Special attention should be paid to patients with multiple chronic conditions who consume the majority of the nation’s health care spending.

Read the whole page. I am afraid that all I could take away from it is that a few chronic conditions generate a lot of health care spending, and public policy should deal with this. When I see a phrase like “special attention should be paid,” I note two things.

1. It is in passive voice.

2. It seems to say, “We know there is a problem, but we have no idea what to do about it.”

The cynic in me thinks that what these economists want is more funding for their research into the impact of these diseases on health care spending.

Why We Could not Bail Out Mortgage Borrowers

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An idea that just will not die is that the government could have done a better job of bailing out mortgage borrowers. Larry Summers is one of the people who touts this idea without having any institutional facts at his disposal.

The key fact is that in the markets that experienced the strongest cycle, about 45 percent of homes were purchased by speculators. That means that the government faced the following choice:

1. Bail out these housing speculators. That would mean either that taxpayers or banks would reduce their mortgage amounts to the point where they could rent out their properties and cover their mortgages. Why this would be equitable or stimulative to the economy is not at all clear to me.

2. Have a bailout that was limited to owner-occupied homes. This would not have accomplished very much in the markets that had the strongest housing cycle. In addition, it was not easy to execute, for a variety of reasons. As I pointed out at the time, it involved creating new business processes that folded together loan servicing, loan origination, and security payments. Also, you face a trade-off. Give the borrowers too generous a bailout, and you generously reward the profligate. Give them too limited a bailout, and they re-default. Under the programs that were tried, re-default rates were very high.

I am reminded of this by a new paper by Patrick Bayer, Kyle Mangum, and James W. Roberts that documents the mindset of speculators during the housing boom. They found evidence that people who observed speculative behavior had a propensity themselves to speculate.

The presence of each neighbor that begins to invest in housing within 0.10 miles of a household increases that household’s probability of also investing in housing by 8 percent within the next year and up to 20 percent over three years. The presence of a flipped property that has just been re-sold, the other channel of contagion that we consider, raises the probability of that household investing by 9 percent and 19 percent over the same horizons, respectively. The magnitudes of both forms of investor contagion change over the course of the housing boom, especially the flipped property channel, the effect of which is greatest in the peak years, 2004-2006.