This is Too Much

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Jared Bernstein writes,

had R&R gone through the peer-review process, I’m fairly confident that a) the spreadsheet error would NOT have been found, but b) the paper would have been sent back to them for failing to provide even a cursory analysis of the possibility of reverse causality (slower growth leading to higher debt/GDP ratios vs. the R&R claim of the opposite). Re “a,” peer reviewers do not routinely replicate findings, though they should when possible (more work these days is with proprietary data sets which cannot legally be shared).

Pointer from Mark Thoma.

I have not been commenting on the Reinhart and Rogoff fracas. My view of empirical macroeconomics is that there are hardly any reliable findings, so I always brushed aside the notion that there is some adverse growth impact of having a debt to GDP ratio of 90 percent. But some people took it seriously. And now the left is howling that all of the austerity policies in the world are due to Reinhart and Rogoff, and they should be burned at the stake, or something.

But speaking of unreliable findings in empirical macroeconomics, this is the same Jared Bernstein who co-authored a memo for President Obama saying that the multiplier is 1.54, as if we know what it is with that precision (I do not think we know with any precision that it even has a positive sign.) He has about as much right to complain about Reinhart and Rogoff as a crack-head has to complain about somebody who got drunk once.

And do read F. F. Wiley. (pointer from Tyler Cowen)

Creating Unsustainable Jobs

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Anthony Randazzo writes,

Only 23 percent of the 8,381 companies we were able to contact in our sample hired new workers to complete their stimulus project and kept all of them once the project was done. In other words, more than seven out of 10 companies did not hire workers at all or had to lay off the workers they did hire.

Of course, this is only microeconomics. Macroeconomics tells you that the stimulus injected money into the economy, and therefore it increased employment. The employment increase would not necessarily show up at companies that were the initial recipients of the money.

I’m not being entirely sarcastic. There simply is no reliable way to demonstrate how well the stimulus worked. I do not think that this study refudiates the stimulus.

For those of you new to this blog, I do not subscribe to the Keynesian story, in which spending creates jobs and jobs create spending. I think that comparative advantage is what creates jobs. To put it more carefully, comparative advantage creates the opportunity for people to sell labor and buy goods and services in the market. Entrepreneurs who identify these opportunities create jobs.

In today’s economy, I believe that the link between spending and jobs is weak. That is because, as Garett Jones put it, today’s workers do not build widgets. They do something fuzzier, which Jones terms creating organizational capital. Whether you like that term or not, I think it is fair to say that there is a large element of investment in a hiring decision these days. You do not want to hire a worker unless you are confident that the time you spend training and acclimating the worker to your company will be repaid in the form of a more effective enterprise. You do not want to let a worker go unless you are confident that the worker adds so little to the effectiveness of the enterprise that you would be better off not having to compensate that worker.

In 2008, the reluctance to fire surplus workers went away, and the reluctance to hire possibly-useful workers increased a bit. So a lot of the decade’s job destruction got telescoped into a short period of time. Why have new jobs not been created? Some possibilities:

1. Firms in 2008-2009 did a very good job of discriminating between useful and less-useful workers. The ones they let go were less useful. There has been some back-and-forth between Bryan Caplan and Tyler Cowen suggesting that this has turned the long-term unemployed into a “lemons” market.

2. The choice of “going on disability” has become attractive.

3. The “wedge” between wages and compensation has gone up (think of employer-provided health insurance).

4. Firms that have developed popular goods and services no longer expand by rapidly ramping up employment. They can increase production by using overseas suppliers and automated manufacturing. They can increase sales by using online channels rather than hiring sales clerks.

Technology, Privacy, and Freedom

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Eric Schmidt and Jared Cohen say,

By indexing our biometric signatures, some governments will try to track our every move and word, both physically and digitally. That’s why we need to fight hard not just for our own privacy and security, but also for those who are not equipped to do so themselves. We can regulate biometric data at home in democratic countries, which helps. But for newly connected citizens up against robust digital dictatorships, they will need information and tools to protect themselves—which democracies and nongovernmental groups will need to help provide.

To me, this sounds optimistic about democratic countries. Authorities want control, whether they are in democratic countries or not.

Their book comes out tomorrow. Pointer from Alex Tabarrok.

An Educational Experiment to Keep an Eye On

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From the Chronicle of Higher Education.

The Education Department has approved the eligibility of Southern New Hampshire University to receive federal financial aid for students enrolled in a new, self-paced online program called College for America, the private, nonprofit university has announced.

Southern New Hampshire bills its College for America program as “the first degree program to completely decouple from the credit hour.” Unlike the typical experience in which students advance by completing semester-long, multicredit courses, students in College for America have no courses or traditional professors. These working-adult students make progress toward an associate degree by demonstrating mastery of 120 competencies. Competencies are phrased as “can do” statements, such as “can use logic, reasoning, and analysis to address a business problem” or “can analyze works of art in terms of their historical and cultural contexts.”

UPDATE: More here.

The Three-Axis Model and the Boston Marathon Bombings

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I can see all three axes in recent commentary.

1. From The Washington Post:

With their baseball hats and sauntering gaits, they appeared to friends and neighbors like ordinary American boys. But the Boston bombing suspects were refugees from another world — the blood, rubble and dirty wars of the Russian Caucasus.

This allows us to view the bombings in terms of the oppressor-oppressed axis, with the suspects as victims of an upbringing in an oppressive environment.

2. From The Washington Times:

The Bill of Rights was already on life support before this tragedy.

…Not only did the militarized domestic law enforcement complex put the City of Boston under martial law, but nobody seems to have found it out of the ordinary, much less outrageous. Yes, a few journalists like libertarian Anthony Gregory raised a finger. But, for the most part, nobody seemed to mind that the entire city was under military siege, complete with paramilitary units in full battle gear, battlefield ordinance and tanks. Tanks!

This allows us to frame the bombing in libertarian terms, along the freedom-coercion axis.

3. From The Weekly Standard:

The bombs on Patriots’ Day in Boston brought a fresh reminder, if any were needed, that there are still those who would send us into a new dark age. And the trial of the murderer-abortionist Dr. Kermit Gosnell in Philadelphia reminds us that other barbarous things are being done in our midst. So there are still, in the enlightened and progressive 21st century, barbarians at the gates—and, sadly, within the gates.

The lead editorial is entitled “Civilization and Barbarism.” What more needs to be said?

The writers in the first piece may be perfectly correct. However, I do not think anyone other than a progressive would react with sympathy to these guys because they were refugees from blood, rubble and dirty wars. Heck, my grandparents were refugees from blood, rubble, and dirty wars consisting of raids by Cossacks during the Russian Revolution, and when they came here they felt nothing but gratitude. Even today, I think that most refugees feel the same thing.

By the same token, the writer of the second piece may be perfectly correct. But he is not going to win over any converts. Who other than a libertarian would begrudge the authorities for how they reacted in the aftermath of the bombings?

My guess is that most people will find it easier to relate to rhetoric along the civilization-barbarism axis. I would predict that the Administration will tend toward such rhetoric in talking about the bombings going forward.

Possibly Relevant

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From Radio Free Europe in 2002,

The Chechens of Russia’s North Caucasus region are a tight-knit society based on extended families, or clans, guided by a council of elders. These clans, which traditionally lived together in a single village, are called “taips.” During Stalin’s infamous deportation of Chechens to Central Asia — and even now, as war and social unrest have forced thousands of Chechens to leave their home villages and scatter throughout the republic or abandon the region altogether — the links remain strong between members of a single taip.

…Chechnya’s younger people, Arutyunov continues, are disoriented, and are now looking for new authority figures — a search that in many instances leads them to the radical Wahhabi Islamic sect or leaders of criminal rings. The generation gap has gotten so severe, Arutyunov says, that there have been several reported cases of young Chechen men beating their fathers to death. Just a few years ago, this was the strictest taboo in the Chechen social code.

Pointer from Mark Weiner, who must have stumbled on my blog posts on his book and sent me an email.

The Future of Housing Finance

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1. It was the subject of this forum. My main meta take-away is that the future of housing policy is in the grasping hands of the housing lobby. There was a lot of talk about “the American dream,” the need to preserve the 30-year fixed-rate mortgage, etc. These are people who, when they talk about the need to bring private capital back into housing, actually think in terms of what sort of government guarantee is needed to accomplish this. When it comes to policy, the people who I think should be disqualified from participating are at the center of the discussion, and the people who I think ought to be at the center of the discussion are marginalized.

2. In my housing finance course, I have just started to get into one of my favorite topics, which is mortgage analytics. In a few weeks, I will get to the issue of the housing lobby, and if my mood is the same as it was after leaving the policy forum, my lecture on the housing lobby should be one heckuva rant.

What Charter Schools Can Accomplish

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The Walton Family Foundation reports,

Peer-reviewed, forthcoming research finds that charter school students receive an average of $4,000 less for their education than peers in traditional public schools in five major cities, all of which are foundation Investment Sites. While the gap is widening in some cities and narrowing in others, the research finds that traditional public school students receive substantially more local, state and federal funds than those who attend public charter schools.

For the pointer, I thank a loyal reader. As you know, I am very skeptical that any educational intervention can disprove the null hypothesis of no improvement in long-term outcomes. By the same token, I am highly disposed to believe that we could lower spending considerably without affecting outcomes. In my view, charter schools might be a tool for accomplishing that. However, keep in mind that from an interest-group perspective, maintaining spending on schools at the highest possible level is more important than anything having to do with outcomes.

Note also Jason Bedrick’s summary of a report summarizing many studies that find school choice either having modest benefits or no effect–but never showing a negative effect.

A Very Charitable Review

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From Eli Dourado:

The Three Languages of Politics is well worth the $1.99 and the one hour of your time it will cost you to read it. It is short, insightful, useful, and above all, subversive. The political-industrial complex benefits from the Babel in which we live. If we all came to see our political opponents not as nonsensical fools but as basically reasonable speakers of another language, we would not elect the demagogues we do now, or watch the same clowns on cable news. This is a goal worth pursuing, though the odds are long. In any event, I expect the book to do a brisk business as gifts for political enemies.

Media and Political Engagement

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In a 2005 paper, Markus Prior wrote,

the decreasing size of the news audience is not necessarily an indication of reduced political interest. Interest in politics may simply never have been as high as audience shares for evening news suggested. A combined market share for the three network newscasts of almost 90% takes on a different meaning if one considers that people had hardly any viewing alternatives. It was “politics by default” (Neuman 1996, 19), not politics by choice…. Avoiding politics will never again be as difficult as it was in the “golden age” of television.

Thanks to Clay Shirky for the pointer. The divide between politically engaged elites and what is called “the low-information voter” has been understood since a classic 1964 paper by Philip Converse. The Internet has made the elites more engaged (and perhaps more polarized), but the diversity of entertainment media makes it easier for the less-engaged to tune out. Note that it is the latter who are the “swing voters” who, in effect, determine electoral outcomes.