Category Archives: Tyler Cowen is my Favorite Blogger

Charter Schools and the Null Hypothesis

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Neerav Kingsland writes,

Overall, CMOs are delivering +.03 SD effects over three years in both reading and math. These gains are driven by the fact that students benefit from CMOs the longer they stay in them

In this context, CMOs are charter school management organizations, not collateralized mortgage obligations.

I still think that the overall picture tends to support the Null Hypothesis, although I believe that charter schools are capable of saving a lot of money while producing the same (null) effect as government schools. For a related meta-analysis, see Tyler Cowen’s post on a survey article on school vouchers.

Landlords as Speculators

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Adam Ozimek writes,

I wonder what housing investment skeptics [sic] Robert Shiller thinks of people who make their livings as landlords. How does this irrational, money losing market exist? After all, if you can’t make a profit by buying a home and renting it to yourself, how is a landlord supposed to?

Pointer from Tyler Cowen.

It is useful to think of owning a house as going into business as a landlord, with you and your family as tenants. I read Ozimek as encouraging us to think along such lines, which makes sense to me. Some further thoughts:

1. As your own landlord, you do not pay income taxes on the rent from your tenants. By the same token, you do not get to deduct as many expenses from your income.

2. As your own landlord, you might have an exorbitant amount of your wealth tied up in your rental property. You can choose less leverage and more diversification by investing instead in the stock market. Ozimek makes it sound like it’s a good thing that you can invest so heavily in housing with so little money down, but leverage multiplies losses as well as gains.

3. Mortgage lenders/investors tend to make a profit, and they are on the opposite side of the transaction as the home buyer. It is unlikely that being on one side is always better than being on the other.

4. My guess is that the landlords who make a profit are smart/lucky speculators. That is, they buy low and sell high. Just buying a random property at a random time and renting it out is less likely to be profitable.

5. As a household, you choose when to buy and sell based on many considerations other than timing the market. A landlord makes the decision solely based on trying to time the market. In the terminology of financial economics, the landlord is a “news trader” and the home buyer is a “noise trader.” On average, news traders tend to profit at the expense of noise traders.

The bottom line is that, yes, you should think like a landlord when you decide about buying a home. And a successful landlord is one with skill and/or luck at choosing when to buy and when to sell. Robert Shiller has a lot of evidence for mean reversion in the ratio of price-to-rent in the housing market. But he does not make his living as a housing speculator. Landlords do.

Tax Luxury Homes?

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Adam Ozimek wrote,

Taxing housing wealth is also efficient compared with taxing other kinds of wealth because it’s impossible to move and difficult to hide. If you tax financial wealth, you have to worry that wealthy households will park their money in offshore accounts, thereby creating a distortionary cost and also limiting revenues. However, with rare the exception of million-dollar houseboats, you can’t park a mansion overseas. It’s also a lot harder to hide the value of a mansion because house sales data are generally publicly available. Once you know what nearby homes are selling for, combine that with a building square footage and lot size and you can get at least a general idea of what a house is worth. Valuing a home is a much simpler and more transparent task than valuing someone’s financial wealth.

Pointer ultimately from Tyler Cowen. Ozimek suggests a 1 percent tax on houses valued over $1 million. It has a number of attractive features, not the least of which is that it hits hardest those cities with the strongest regulations against building.

World Bank soap opera, not unexpected

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Andrew Mayeda reports,

Paul Romer is relinquishing oversight of the Development Economics Group, the research hub of the Washington-based development lender, according to an internal staff announcement seen by Bloomberg. Kristalina Georgieva, the chief executive for the bank’s biggest fund, will take over management of the unit July 1.

Pointer from Tyler Cowen. When Romer was appointed, I wrote,

I am not sure that his personality and that institution are meant for one another.

And Paul himself writes,

you can’t say that I didn’t warn everyone

He remains as chief economist.

Matching GoFundMe Health Care

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Tyler Cowen writes,

It turns out we value health care for others more in rhetoric than in reality.

As a thought experiment, imagine that government support for health care consisted of a matching grant for GoFundMe solicitations, up to half the cost of a procedure. So, if you want other people to pay for your medical procedure, you use GoFundMe. If you can get enough money to pay for half the procedure, the taxpayers will fund the rest.

This changes the model from one of getting insurance company approval for a procedure to one of getting peer approval. Think about the pros and cons of this.

Bike Lanes and Fruitcake

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Dave Mabe writes,

If a cyclist doesn’t ride in the bike lane (for as simple a reason as making a left turn!) a lot of drivers view this as law breaking or just arrogance.

Pointer from Tyler Cowen.

I had a driver yell at me, including four-letter words, in exactly this situation. I was making a left turn, and I stayed in the street for about 100 yards with my left arm out in order to do so. I guess he thought I should have stayed in the bike lane on the right and not made my turn or cut somebody off to make my turn.

Humorist Jim Gaffigan has a joke that goes. “Fruit: good. Cake: good. Fruitcake: nasty cr@p.”

That is the way I feel about most bike lanes. The worst is when they paint a picture of a bicycle on a lane that is 99 percent used by cars. I feel like the painting says “you are welcome to smash bicycles on this road.”

In my opinion, the safest places for bikes are, in order:

1. Bike paths that have very few pedestrians (“rails to trails” tend to be like this).

2. Wide shoulders along roads.

3. Roads that have no bike lanes but few cars.

Bikes and cars are not meant to coexist. Bikes and pedestrians are not meant to coexist. And I will admit that bikers tend to be the offenders more often than the victims.

Urban bike lanes are green religious monuments.

Losing health insurance that you do not want

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Tyler Cowen writes,

many of the poor do not value health insurance nearly as much as many planners feel they ought to, in large part because they are already getting some health care.

He quotes from the abstract of a paper by Amy Finkelstein, Nathaniel Hendren, and Mark Shepard. They conclude that most low-income people would not choose to pay for health insurance if they had to. My thoughts:

1. I would be careful about concluding that people do not value health insurance based on their preferences when their incomes are low. Perhaps if you raised their incomes a lot, they would value health insurance more highly.

2. Almost 15 years ago, I wrote an essay called Health Insurance Do-nots. I recommend it as relevant to the current discussion.

3. While people with low incomes get above-board subsidies for health insurance, many people with high incomes get subsidies, also. Government workers, for example. Or people who get employer-provided health insurance, which is subsidized through the tax system.

4. If my wife and I could be assured of paying the same price for medical services that our insurance company pays, we would be much better off self-insuring than getting our Obamacare insurance. If you cumulate over 5 years, we would have to incur well over $100,000 in medical procedures in order to make back our premiums/deductibles under Obamacare. And note that we separately pay for our own long-term care insurance, which addresses the biggest health-related financial risk that we face.

Neoliberalism vs. Boboism

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Tyler Cowen recently linked to some interpretations of the 2016 election that differ from mine.

My most pronounced views are:

1. Be careful not to over-interpret the election. It was very close. Had the ball bounced differently, we would be reading few essays about the populist revolt and many essays about the political strengths of Mrs. Clinton and the Democrats. I believe that the election of President Obama was assigned excess significance by pundits, and I believe that the election of President Trump is being assigned excess significance squared.

2. I believe that the best interpretation of the populist revolt is that it reflects anti-Bobo sentiment. Bobo, of course, is David Brooks’ shorthand for bourgeois bohemian. It describes those of us who are well educated, well off financially, socially liberal in outlook, bourgeois in important respects, and bohemian in superficial respects. In his book published in 2000, Brooks painted a mostly favorable portrait of the Bobos.

However, it turns out that many Bobos became increasingly smug about their cosmopolitan social morality, to the point of not being able to hide their contempt for those who do not adopt the Bobo ethos. They became moral narcissists, meaning that

What you believe, or claim to believe or say you believe—not what you do or how you act or what the results of your actions may be—defines you as a person and makes you “good.”

One of Tyler’s links goes to Andrew Sullivan.

Modern neoliberalism has, for its part, created a global capitalist machine that is seemingly beyond anyone’s control, fast destroying the planet’s climate, wiping out vast tracts of life on Earth while consigning millions of Americans to economic stagnation and cultural despair.

I have grown wary of the term “neoliberalism.” It gets used as an undefined all-purpose boo-word. Want to explain the financial crisis? Blame neoliberalism. Want a simple theory to explain the phenomena cataloged in Coming Apart and Our Kids? Blame neoliberalism. Upset that Donald Trump won the election? Blame neoliberalism.

The term also comes up in the other essay to which Tyler links, by Henry Farrell.

They also provide, potentially a diagnosis of what has gone wrong since the 1980s. Embedded liberalism is dead, and neo-liberalism has triumphed in its place.

If neoliberalism is the ill-defined boo-word, then social democracy is the ill-defined yay-word, which Farrell employs enthusiastically. He all but insists that social democracy is what Trump voters really need, and they just need to learn what is good for them.

Again, I read the election differently. The way I see it, in 2016 there were some voters in key states who decided that they would be better represented by an anti-Bobo in the White House.

Tyler Cowen and Russ Roberts

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Self-recommending. As usual, Russ does not just throw softballs at the guest, so you get more interesting at-bats. For example,

[Russ]: I don’t sense the distinction between a less dynamic, more stable economy and a complacent one. So, tease that out a little bit for us.

[Tyler]: In a lot of the late 19th century it’s not even clear according to the numbers that our rate of productivity growth was always so high. Yet American society was not complacent. We had a frontier mentality, an immigrant mentality; we were very likely to move across state lines; we were willing to accept a lot of risk. And that in turn helped us later on, get the rate of productivity growth up higher. But I see today it’s a culture where younger people are more willing to keep on living with their parents, less interested in buying a car, more likely to aspire to being on Disability as a kind of future, and less interested in, you know, protests and social change than, say, they were in the 1960s or in the 1970s. Those to me are all signs of complacency.

And by the way, today the new edition of my Three Languages of Politics is available.

College women and the future of economics

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Catherine Rampell writes,

The shrinking of the middle is largely due to a recent rise in the share of women (who also represent a majority of college students) who identify as either liberal or far left. The share of female respondents, but not male respondents, who describe their political views this way was at an all-time high (41.1 percent for women, 28.9 percent for men).

Pointer from Tyler Cowen. Note that this survey is of incoming freshmen and freshwomen.

My hypothesis is that these left-leaning women (and men) use small-community intuition in arriving at their political beliefs. They want the relationship between government and citizen to be one of parent and child. They want to see communal sharing, as if we lived in luck village rather than effort village.

When I went to college, I was on the far left. Those views began to change, in part because taking an economics course shifted my paradigm from small-community intuition to thinking about a complex society in more systemic terms. I am not sure that today’s young leftists will undergo a similar transition.

1. In the systemizer-empathizer dimension, women are more likely than men to lean toward empathizer. Empathizers probably will be less likely to take an economics course, less likely to enjoy an economics course, and less likely to be affected by an economics course.

2. I think that economics courses are going to tilt left and toward empathizers. I have an essay forthcoming in which I suggest that in a few decades economics may turn into a left-wing ideological monoculture comparable to sociology today.