The Null Hypothesis Strikes Again

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Stephen L. Morgan and Sol Bee Jung write,

The results demonstrate that expenditures and related school inputs have very weak associations not only with test scores in the sophomore and senior years of high school but also with high school graduation and subsequent college entry. Only for postsecondary educational attainment do we find any meaningful predictive power for expenditures, and here half of the association can be adjusted away by school-level differences in average family background. Altogether, expenditures and facilities have much smaller associations with secondary and postsecondary outcomes than many scholars and policy advocates assume. The overall conclusion of the Coleman Report—that family background is far and away the most important determinant of educational achievement and attainment—is as convincing today as it was fifty years ago.

Pointer from Timothy Taylor, who links to other papers, not all of them as supportive of the null hypothesis.

Conservatives in a Ghetto?

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Megan McArdle writes,

I’m not blaming liberals for the rise of the conservative-media ghetto.

…There was certainly no liberal media conspiracy, just an iterative process controlled by no one: Being human, liberals naturally prefer the work of folks who agree with them, so those are the folks they tend to hire and promote. As they became increasingly dominant in the media, the trend became self-reinforcing. Fewer conservatives wanted to enter the castle in the first place, and few were allowed to.

This could describe academia as well.

The conservatives that she points to in mainstream media are what people in the mid-1960s days of civil rights called “token Negroes.” There are one or two, and they are put on prominent display, but the underlying prejudice remains. Everyone knows that George Will is on the WaPo editorial page to show that that the newspaper is supposedly balanced. What no one sees is that all of the reporters and editors who put together the news pages are on the left.

I am not saying that anyone should feel sorry for conservative intellectuals. The people you should feel sorry for are the people in the left-wing echo chamber who are dumbing themselves down, the students on college campuses who suffer from low-quality education, and ordinary citizens who suffer from bad policies.

Disincentive to Work

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Two chapters from a forthcoming NBER volume.

1. Alan J. Auerbach and others:

We conclude by addressing the question posed in this paper’s title, Is Uncle Sam
Inducing the Elderly to Retire? Based on the work disincentives Uncle Sam imposes on the
elderly, the answer seems clearly to be yes. But an open question is the extent to which the
elderly correctly perceive these disincentives. Indeed, given the complexity and interactions of
our fiscal system and the heretofore reliance on current-year marginal net tax rates, it’s hard to
believe that policymakers, themselves, are cognizant of the level and spread of the work
disincentives they are imposing on the elderly.

2. Gizem Kosar and Robert Moffitt:

families participating in two or more [needs-based] programs, while still facing negative or modest positive rates at low earnings, usually face considerably higher MTRs [marginal tax rates] at higher earnings ranges, often up to 80 percent and even occasionally over 100 percent. While the fraction of families in this category is not large, they constitute about one-fifth of single parent families and this should be a cause for policy concern.

You do remember my argument for replacing these programs with a single basic income, don’t you?

The Affordable Housing Violins

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A commenter writes,

Somewhat apropos of this post, it would be interesting to read a response from Arnold, or a likeminded person, to the following: Kevin Erdmann

Erdmann in turn links to this commentary from Treasury.

Behind these statistics are creditworthy families who have not been able to access the wealth-building opportunity of homeownership or enjoy full mobility. This lack of access is particularly acute for minority and low-income families whose homeownership rates are considerably below the national average.

My comments:

1. Whenever people start playing the affordable housing violin, we should anticipate bad policy is to follow.

2. Kevin and Treasury are pointing to credit scores as an indicator that mortgage lenders, including Freddie and Fannie, have tightened credit. I don’t really focus so much on credit scores as an indicator of risk. I worry mostly about loan type (government-sponsored lenders should stay away from cash-out refinances and non-owner-occupied loans). Then I worry about down payments.

3. If you give a mortgage to someone with a low credit score who makes a low down payment, you are setting them up to fail (not most of the time, but enough to make it a questionable proposition). And of course, when the defaults come, you will be accused of predatory lending and have to pay a big fine.

4. I think government should get out of the mortgage subsidy business. Mortgage subsidies are mostly crony capitalism for Wall Street and mortgage bankers. If you want to support home ownership, help people save for down payments.

Let’s Eliminate “Culture” from Social Science (er, Disciplines)

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Joel Mokyr, in his new book A Culture of Growth, says on p.8

Culture means various things to different people, and to begin, we need to clarify the concept and our use of it. Given the rather astonishing popularity of the concept of culture in the social sciences and the humanities and the mind-boggling number of definitions employed. . .

What follows from this is that social scientists should not use the term “culture” and instead replace it with a word or phrase that is less loaded with alternative definitions and connotations. Mokyr goes on to explain what he means by culture, pointing out that it is similar to a definition that can be found in Boyd and Richerson’s book Culture and the Evolutionary Process. Mokyr offers

Culture is a set of beliefs, values, and preferences, capable of affecting behavior, that are socially (not genetically) transmitted and that are shared by some subset of society.

My recommendation would be to replace the term “culture” with the phrase “socially communicated knowledge and behavior.” I think it is pretty obvious that a large subset of what we know is socially communicated through conversation, writing, teaching, on-the-job training, and such. A large subset of our behavior also is socially communicated. We imitate prestigious people. We obey authorities. We covet praise and fear being shamed by friends, family, and strangers.

I am not saying that everyone should define culture as “socially communicated knowledge and behavior.” Other people may wish to define it differently. Rather, I am suggest that Mokyr and others who use the term “culture” as he does should instead use the phrase “socially communicated knowledge and behavior.”

If you want to say that economic growth and development are affected by culture, some people will be inclined to resist. But if you say that economic growth and development are affected by socially communicated knowledge and behavior, my guess is that you will have pretty much everyone on your side immediately. If you say that the market is an institution that contributes to culture, again some people will resist. But if you say that the market is an institution that contributes to socially communicated knowledge and behavior, people will be ready to listen to your account of that process.

In short, the best way to get “culture” appreciated as an important factor in economics and other social sciences disciplines is to stop using the term “culture.”

Japan, Culture, and the Economy

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A commenter asks,

how do you view post-war Japan economy and society? I remember in the 1970s – 1980s the Japan Inc. being the ultimate economic machine and now today they look like a society of Grandpa Simpsons? The Japanese culture did not suddenly turn completely 180 degree different on January 1, 1990.

I think that the conventional view of the Japanese economy is that it was well-structured for “catch-up growth” but unable to adapt when that ran out. At its best, it combined a dynamic sector of large manufacturers with stagnant retail and service sectors consisting of small firms protected by regulation. Then other catch-up countries, notably South Korea and China, started to eat into manufacturing, and things went down hill. That is much clearer in hindsight, of course, but I have no reason to second-guess that story.

More generally, I want to speculate that for economic purposes, culture has two important dimensions, which are somewhat in tension with one another. One dimension is trust, and the other dimension is receptiveness to innovation.

One way to read McCloskey, and perhaps also Mokyr (I have just started his book) is that they see the Enlightenment as creating receptiveness to innovation. The conventional story would suggest that in the 1990s Japan’s economic performance came to be dominated by the sectors where there was resistance to innovation.

Trust is valuable because when people are confident that others will follow norms, this helps to lower transaction costs. Seeing markets and government as legitimate is an element of trust.

Innovation tends to lower the status of some people relative to others. That in turn tends to breed distrust among those whose status is lowered.

So I think that societies have to navigate a trade-off. Too much innovation might lead to a breakdown in trust. Too little innovation leads to stagnation. Japan appears to have erred on the side of protecting the status of small business people but suffering stagnation. The U.S. appears to be having a hard time avoiding a breakdown in trust.

Tyler Cowen on Inequality

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He writes (link is to enormous PDF file)

if American productivity growth had not slowed after 1973, today the median household would earn $30,000 more each year. Alternatively, if income inequality had not accelerated after 1973, today the median household would earn an extra $9,000 more. That is less than one-third of the loss from the productivity slowdown.

His point is that we should pay more attention to productivity. Of course, many policies that ostensibly reduce inequality serve to harm productivity. And there are some ideas, included in Tyler’s essay, that could help with both. Reducing occupational licensing, for example.

My guess is that on policy issues, Tyler is not terribly far from his “opponent” in the volume, Melissa S. Kearney. If anything, her proposals for reducing inequality would take longer to work than his.

Probably the most contentious debate in the volume concerns the employment-reducing effects of government tax and transfer programs. Robert Moffit says that the effect is small, while Casey Mulligan says that it is large. It would be nice to see if they could pin down the reason for their difference of opinion–is it that Mulligan looks at more programs in more detail, or do they take a different view of the shape of the labor supply curve?

Cowen and Pinker: Two Moments

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If I forget to put up a link, just Google for it. Tyler Cowen had a conversation with Steven Pinker. I found two moments interesting.

1. Tyler posed a scenario in which anyone with $10,000 could afford to blow up a large part of a major city. He asked how long it would be before someone carried out such a deed. The implication is that in spite of past trends in which rates of violence are down, we should not be optimistic about the future.

Pinker objected that it might never become that inexpensive to destroy a city. He also seemed to suggest that somehow our culture might evolve so that nobody would want to do that.

Another way to treat the scenario is to say that yes, it could happen, but it could still happen in a context in which the overall rate of violence is declining. One or two such explosions would not destroy civilization. But if people believe that it is becoming commonplace, then we would be in big trouble.

The David Brin solution is the transparent society, in which surveillance is effective. Brin’s solution to the threat of tyranny is to have ordinary people able to see into and affect their government at the same time as government can identify threats of mass destruction.

2. At the end, Bryan Caplan asks Pinker if there is not a conflict between Pinker’s view of the triumph of reasons and the fact that Pinker thinks that many intelligent people are wrong on important issues. I thought that Pinker was flummoxed by this question.

First of all, Pinker recommended “naming and shaming” those who would quash free speech. I think that “naming and shaming” is itself a form of speech suppression.

I would define the problem as bad ideas becoming fashionable among intellectual elites. A big part of the problem is that there is not a good feedback mechanism between the bad ideas and their consequences. The people who proclaim their allegiance to socialism do not have to live in Venezuela. They do not even have to live in Denmark. They get to impose regulations on others’ lifestyles, while reducing regulations that might impinge on their own.

If David Cutler were an Entrepreneur

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He would buy a hospital. Let me explain. The IGM forum polled economists to see if they agreed with this statement:

Long run fiscal sustainability in the US will require some combination of cuts in currently promised Medicare, Medicaid and Social Security benefits and/or tax increases that include higher taxes on households with incomes below $250,000.

Most economists agreed, as would I. However, Cutler disagreed, writing

There are ways of making the health care programs much more efficient, which would obviate the need for tax increases for some time.

He thinks he knows how to compensate health care providers more efficiently. If he were an entrepreneur, he would buy a hospital and prove his theories there. But he is a professor, so testing his theories is an all-or-nothing proposition, and we will have to pay for it.