Category Archives: Timothy Taylor is my Favorite Blogger

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.

Differences in College Completion Rates

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Timothy Taylor writes,

It turns out that if are someone from a family in the top-quarter of the income distribution who enters college, you are extremely likely to complete a bachelor’s degree by age 24; if you are in the bottom of the income distribution, you only have about a 22% chance of having a bachelor’s degree by age 24.

Read the whole thing. As he does so well, Taylor manages to locate an interesting report and extract fascinating material from it.

In terms of the Demographic Divide (one of the Four Forces), I think that the high-income college entrants are likely to have several advantages. First, they are more likely to have inherited high IQ and high conscientiousness. Second, their parents are more likely to have had their children after they were married and to have remained married after they had children. Third, the parents are likely to have better skills for identifying and dealing with their children’s needs. Finally, the parents have more financial resources to support the child. The report seems to emphasize only the last of these.

Piketty and Mort Sahl

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Timothy Taylor quotes from a recent journal article by Piketty, and then summarizes,

In case you didn’t catch all that, Piketty is noting that r>g is not useful for discussing income inequality, and does not necessarily lead to wealth inequality, and that the future of wealth inequality is highly uncertain. Instead, Piketty argues in JEP that when the difference between r and g is relatively large, it will tend to exaggerate the effect of other changes that make wealth more unequal. As he writes: “To summarize: the effect of r − g on inequality follows from its dynamic cumulative effects in wealth accumulation models with random shocks, and the quantitative magnitude of this impact seems to be sufficiently large to account for very important variations in wealth inequality.”

It was the humorist Mort Sahl who would say, “I am prepared not only to retract anything I said but to deny under oath that I ever said it.”

Reluctant Heroes Austan Goolsbee and Alan Krueger

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They write,

It is fair to say that no one involved in the decision to rescue and restructure GM and Chrysler ever wanted to be in the position of bailing out failed companies or having the government own a majority stake in a major private company. We are both thrilled and relieved with the result: the automakers got back on their feet, which helped the recovery of the U.S. economy. Indeed, the auto industry’s outsized contribution to the economic recovery has been one of the unexpected consequences of the government intervention.

Pointer from Tyler Cowen.

I guess there is no such thing as the seen and the unseen. For those of you who do not know, Goolsbee and Krueger were officials in the Obama Administration as the bailout was being executed. Here, if their arms do not break from patting themselves on the back, it won’t be for lack of trying.

Timothy Taylor, I question the editorial decision to publish this piece, even if you also include an article that challenges the auto bailouts. Could you not find a neutral party to tell the pro-bailout side? If not, then what does that tell us?

Roland Fryer, School Reformer

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Timothy Taylor writes,

These methods involved a lot of change at the schools involved, including changing a number of principals and teachers. But the same student body that had been dramatically underperforming was no longer doing so. Fryer draws the hard lesson explicitly. We know many of the changes that can be made to improve low-performing schools dramatically within a few years. The financial costs of these changes are manageable. But the school systems that need to be changed, and many of the people currently working in those systems, are not ready to make the needed changes.

I remain skeptical. I continue to believe in the ultimate triumph of the null hypothesis. But Fryer is a careful, credible researcher.

Medicare Spending by Age Group

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Timothy Taylor writes,

on a per capita basis, Medicare costs are rising faster for those at later ages. In 2000, for example, Medicare typically spent about 2.4 times as much for a 90 year-old as for a 65 year-old. By 2011, it was spending about 2.8 times as much

There is much more at the link. He cites a Kaiser Family Foundation analysis.

Something to bear in mind is that the mix of ages within Medicare can change. If you get an increase in “young old” in a given year, then average spending could decline, even though on a lifetime basis Medicare spending is not falling, and may even be rising.

Rules, Discretion, Principles, and Incentives

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Timothy Taylor excerpts from a book on macroprudential regulation.

Paul Tucker: “Legislators have typically favoured rules-based regulation. That is for good reason: it
helps to guard against the exercise of arbitrary power by unelected officials. But a static rulebook is the meat and drink of regulatory arbitrage, which is endemic in finance. Finance is a ‘shape-shifter’.

Rules do not work, because banks figure out a way to manipulate the rules. Tucker gets this. So does Wolf Wagner, also quoted by Taylor.

Also, discretion does not work, in my opinion, because discretion tends to be procyclical, doing exactly the wrong thing at the wrong time. In good times, regulators ease up, and in bad times, they tighten up. Just look at how regulators behaved before and after the housing crash. Or compare Ben Bernanke’s discussion of bank supervision before and after he knew about the crisis.

I think that principles-based regulation might work better. That is, pass a law saying that managers and directors of financial institutions are responsible for prudent management. Require auditors to flag questionable practices.

Also, I think that incentives are important. Casual observation suggests that investment banking was more cautious when investment banks were partnerships rather than limited-liability corporations. We should look for ways to give bank executives more skin in the game in their institutions. Suppose you have a bank that goes bust in 2025. All of its top executives over the preceding 10 years would be held personally liable those losses, in proportion to the compensation that they received over that period.

(For each year, take the five most heavily compensated executives, and put their total compensation into a hypothetical pool. Add these to get a company total for fifteen years. Then divide each executive’s total compensation over the 10 years by the company total to get the fraction of losses for which that executive is liable.)

Actually, I don’t think that the formula needs to be perfectly “just.” The point of any such system is to make executives manage banks as if they were risking their own money, because they would be.

Technological Obsolescence of Labor

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Timothy Taylor writes,

when I run into people who are concerned that technology is about to decimate U.S. jobs, I sometimes bring up the 1964 report. The usual response is to dismiss the 1964 experience very quickly, on the grounds that the current combination of information and communications technology, along with advanced in robotics, represent a totally different situation than in 1964. It’s of course true that modern technologies differ from those of a half-century ago, but that isn’t the issue. The issue is how an economy and a workforce makes a transition when new technologies arrive. It is a fact that technological shocks have been happening for decades, and that the U.S. economy has been adapting to them. The adaptations have not involved a steadily rising upward trend of unemployment over the decades, but they have involved the dislocations of industries falling and rising in different locations, and a continual pressure for workers to have higher skill levels.

Suppose we make some simple assumptions:

1. Leisure is a normal good.
2. Skills are heterogeneous and adapt slowly to changes in technology.

The prediction I would make is that we would see a lot more leisure. For those whose skill adaptation is adequate, that leisure will take the form of earlier retirement, later entry into the work force, or shorter hours. For those whose skill adaptation is inadequate, that leisure will show up as unemployment or reluctant withdrawal from the labor force.

I think that if you look only at males in isolation, you will see this in the data. That is, men are working much less than they used to. For some men, this leisure is very welcome, but for others it is not. In that sense, I think that we should look at the fears of the early 1960s not as quaint errors but instead as fairly well borne out.

For women, the story since the 1960s is different. In the economy as a whole, the share of labor devoted to preparing food, washing clothes, and cleaning house has gone down. Also, a higher share of the remaining work in these areas is coming from the market, via restaurants and cleaning services, rather than from unpaid female labor. The upshot is that, from the 1960s to about 2000, we saw a continuation of the trend for women to increase their share of market work and reduce their non-market labor. So, while men were increasing their leisure, women were increasing their market work. Combining men and women, you would not see a decline in market work.

It seems that around 2000, the trend for more market work by women reached its peak, making the trend toward technological unemployment more visible. From now on, what was happening to men before will be what happens to the total labor force. That is, leisure will go up, and some of it will be less than voluntary.

I might suggest also that the distribution of leisure is becoming increasingly distorted by the welfare state. Some people have too much leisure, in part because implicit tax rates for low-skilled workers are high, and in part because we over-subsidize leisure among healthy seniors. Some people have less leisure than they might otherwise enjoy, in part because they are working to support those with too much leisure.

Martin Baily Interviews Robert Solow

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Solow says,

The French automobile industry, much to my surprise, turned out to be more capital intensive than the American automobile industry. So it was not that either. The MGI studies instead traced these differences in productivity to organizational differences, to the way tasks were allocated within a firm or a division—essentially, to failures in managerial decisions.

I would note that if this is the case, then it is possible that high executive pay reflects a productivity differential. Of course, if French auto executives are paid as much as American executives, that would spoil my argument.

Solow has a different take:

An interesting conclusion to me was that international trade serves a purpose beyond exploiting comparative advantage. It exposes high-level managers in various countries to a little fright. And fright turns out to be an important motivation.

Pointer from Timothy Taylor. The whole interview is interesting.