Help the world … and test your spelling

For dorks like me, this is a great little way to test your skills and donate to charity. I lost on “humunculus.”

http://www.freerice.com/index.php

Thanks, Brian!

Data-free empirics, or, Why we shouldn’t trust economics to Robert Reich

Greg Mankiw coins the delightful phrase “data-free empirics” in a description of an error made by Robert Reich in his new book, Supercapitalism.  I give most of his explanation of the incident here, but the truth of the matter is that Reich didn’t do his homework.

Here is the quotation from me that Reich uses in a footnote:

CEOs are paid what they are worth to their companies, and their high pay reflects the extraordinary value of their talent. But the supply of talent is inelastic, and the allocation of talent would not be affected if everyone faced high tax rates.

The quotation is taken as support for Reich’s broader argument that we should increase taxes on high incomes. He mentions that the quotation is from this blog, but he also cites a David Wessel article from the Wall Street Journal as a source.

Do I really believe that the supply of talented labor is completely inelastic? No, I don’t. Let’s look at the fuller quotation from my blog entry:

In his model, high CEO salaries are pure economic rents. CEOs are paid what they are worth to their companies, and their high pay reflects the extraordinary value of their talent, but the supply of talent is inelastic, and the allocation of talent would not be affected if everyone faced high tax rates.

Notice the key phrase “in his model.” That is, I was not describing any evidence on the question, nor was I even giving my opinion. Rather, I was describing a particular model presented at a Harvard seminar by Xavier Gabaix on his joint work with Augustin Landier.

When economists become polemicists…

Paul Krugman has just released his new book, The Conscience of a Liberal. Before I begin, I should start by offering that Paul Krugman is one of the main reasons why I majored in economics. His clear exposition of free trade, job losses and gains, and the budget deficit, among other topics, in The Accidental Theorist, is one of the reasons why I became an economics major. For me, he epitomizes the type of economist that the world needs more of: someone who can do the hard theoretical work, publish in top journals, and still use simple models to explain complex phenomena that average Americans struggle with everyday (e.g., trade-related job losses).

A second fact is probably pertinent: I have trouble reading his stuff these days. It’s more than that. It saddens me, like watching Michael Jordan try out for the Chicago White Sox major league squad. I know he’s exceptionally gifted at what he does, and yet he tries to do something else. He’s trying to be a political commentator.

Enter The Conscience of a Liberal, the most recent in a line of progressive political tomes from Krugman which, in addition to his bi-weekly articles in the New York Times, make the case that the Republican Party is morally corrupt, dominated by whack jobs, and single-handedly responsible for the income inequality, budget deficits, ill-conceived wars, and partisan politics that plague today’s political landscape.

Many people agree with him. He’s quite often right about many issues, especially when he excoriates the Republicans for their piecemeal policies on Social Security, health care, and budgets, as well as his general support of free trade.  He’s also right about some of the more nefarious features of the Republican Party, including its dominance by ideologues and its mismanagement of Iraq.

However, his failure to balance with his perspective with anything close to even-handedness or even rationality makes his arguments seem flimsier than Republican claims of WMD. Which is why I found the recent New York Times review of his book so refreshing.

David Kennedy’s review is reasonable and spot on, at least if this book is anything like Krugman’s articles in the Times. I’ll skip right to the conclusion and let you read the rest.

That assorted wing nuts have pretty much managed to hijack the Republican Party in recent years is scarcely in doubt. That the market is at least occasionally fallible is also not at issue. Nor is it deniable that the New Deal rendered the lives of millions of Americans more secure, and that they have become markedly less so in recent decades. A tidal wave of risk-shifting — from defined-benefit to defined-contribution retirement plans, and from employer-financed to individually-paid health care insurance, to cite but two examples — has set millions of American families anxiously adrift on a sea of uncertainty. Krugman’s chapter on the imperative need for health care reform is the best in this book, a rueful reminder of the kind of skilled and accessible economic analysis of which he is capable, and how little of it is on display here. Like the rants of Rush Limbaugh or the films of Michael Moore, Krugman’s shrill polemic may hearten the faithful, but it will do little to persuade the unconvinced or to advance the national discussion of the important issues it addresses. It may even deepen the very partisan divide he denounces. Where is the distinguished economist when we need him?

Kudos to Kennedy and the Times for offering a dissenting viewpoint. Here’s hoping that once a Democrat comes into office, Professor Krugman can go back to applying his prolific abilities to dissecting a whole new raft of economic issues, from subprime crises to dollar devaluation. I, for one, could use some assistance on these topics.

The truth about Che

The Economist sheds some much-needed light on who Che Guevara actually was… and who he wasn’t. He was a life-long revolutionary who, as far as we can tell, truly lived his beliefs, especially his revolutionary fervor and hatred of American imperialism in Latin America. He was as fiercely violent, if not more so, as the regimes that he opposed, and he was largely ineffective in his quest to introduce communism to countries other than Cuba. His adventures in the Congo, a country that bears virtually no similarity to the societies described by Marx as ripe for proletarian uprising, are particularly amusing.

It’s ashame that the occasion for this is remembrance is the 40th anniversary of his tragic assassination at the hands of American-trained Bolivians, symbolic of exactly the type of meddling that has led to much anti-Americanism over the past half-century. But nonetheless, it is worthwhile asking why the hell hipsters in the East Village are wearing his likeness on their chests?

This has, however, led to one of my favorites T-shirt designs of all time:

available from The Smash Store.

Climate change and supply side economics

Here’s a post from Greg Mankiw to offend all sides of the political spectrum. But it is strikingly ingenious and creative, so I have copied it below in full.

Consider a person who

A. takes an important truth developed by others,
B. exaggerates it for dramatic effect,
C. as a result, draws public attention to this important truth, and
D. also brings acclaim to himself as a profound, far-sighted, truth-telling guru.

Who do I have in mind?

Maybe you think it’s Al Gore, and if so, you are correct. But I also have in mind the supply-side economists of the 1980s. The more I think about it, the more similar Al Gore and the supply-siders appear.

They both noticed something that many serious scholars had been working on (human carbon emissions are causing the planet to overheat, high tax rates are causing the economy to underperform.)

They both overstated the scientific consensus (if we do nothing, temperatures will rise so quickly that sea levels will increase twenty feet; if we cut tax rates, the economy will grow so quickly that tax revenues will rise rather than fall).

They both were alleging to convey a scientific message, but drew more attention to themselves than their scholarly contributions warranted (neither Al Gore and Arthur Laffer became known for their numerous highly cited peer-reviewed publications).

They both ended up more famous as a result (a Nobel prize, an eponymous curve).

They both infuriated those on the opposite side of the political spectrum (the right has about as much respect for An Inconvenient Truth as the left has for supply-side economics).

But, through it all, they both educated the public about something important (according to the best evidence, both carbon emissions and high tax rates are true problems which we should avoid to the extent we can).

Herb Stein once said, “There is nothing wrong with supply-side economics that division by ten wouldn’t fix.” I thought of this quotation when I saw Al Gore’s movie. The more I think about it, the more I realize how parallel these two efforts of public education, or perhaps political propaganda, really are.

Homelessness in San Francisco: “People have realized they can hate George Bush but still not want people crapping in their doorway”

A change in the view of homelessness in San Francisco, as chronicled by SFGate. Featuring a few classic observations:

“Maybe there has been an epiphany,” says David Latterman, president of Fall Line Analytics, a local market research firm. “People have realized they can hate George Bush but still not want people crapping in their doorway.”

As well as this gem:

Kiely insists “we’re not some white, yuppie parents saying we can’t take this.” In fact, he says, they donate to programs for homeless people at Glide Memorial Methodist Church and the food bank at St. Anthony Dining Room. But he’s finally saying “enough is enough.”

“I don’t expect it to be Cow Hollow or Pacific Heights,” he says. “But the other day Jenny is bringing the kids back from the park, and some guy is standing on the corner throwing up on himself.”

Generation Q

Tom Friedman comes up with yet more acronyms to describe the world, but he’s right to suggest that we need more activism.

Generation Q would be doing itself a favor, and America a favor, if it demanded from every candidate who comes on campus answers to three questions: What is your plan for mitigating climate change? What is your plan for reforming Social Security? What is your plan for dealing with the deficit — so we all won’t be working for China in 20 years?

I’ve almost graduated out of the 20-something brigade and the last two of these three are the questions I’m asking every single candidate.

Why we give – From Nick Kristof

Nick Kristof has a great piece (yes, it’s old, but sometimes I’m slow on the uptake) on what causes us to give to various charities.

Time and again, we’ve seen that the human conscience just isn’t pricked by mass suffering, while an individual child (or puppy) in distress causes our hearts to flutter.

In one experiment, psychologists asked ordinary citizens to contribute $5 to alleviate hunger abroad. In one version, the money would go to a particular girl, Rokia, a 7-year-old in Mali; in another, to 21 million hungry Africans; in a third, to Rokia – but she was presented as a victim of a larger tapestry of global hunger.

Not surprisingly, people were less likely to give to anonymous millions than to Rokia. But they were also less willing to give in the third scenario, in which Rokia’s suffering was presented as part of a broader pattern.

The article is full of fun studies to help us think why we do, or don’t, give to charities.

One experiment underscored the limits of rationality. People prepared to donate to the needy were first asked either to talk about babies (to prime the emotions) or to perform math calculations (to prime their rational side). Those who did math donated less.

And in a sign that the apocalypse is upon us….

ABC’s news judgment can be assessed by the 11 minutes of evening news coverage it gave to Darfur’s genocide during all of last year – compared with 23 minutes for the false confession in the JonBenet Ramsey case.

For my blind readers…

Check out the Guide Horse Foundation.

Making the immigration debate practical — The construction industry

Forbes profiles a few local construction companies who put a human face on the very large, often intractable immigration debate.

“Every contractor in our state knows that the construction industry has been built on the backs of Mexican workers, legal and illegal. We need the Mexican labor force to keep our businesses going. It is the same for many other industries–agriculture, hospitality and landscaping, to name a few,” the Ahlers declared in a recent letter they sent to elected officials and the local newspaper.

I’m not pitying these guys, but at least they’re honest about the importance of the role that illegal immigrants play in the economy. They are VERY important.  Anyone who says otherwise and proposes, for example, building a fence, is delusional.

Now the federal government is changing the rules of the game — or actually, the enforcement of the existing rules of the game.

Now the Social Security Administration is preparing to send letters to 140,000 employers telling them billions of dollars in tax deposits they made on behalf of 8 million workers couldn’t be matched with valid Social Security numbers. In years past many employers ignored similar “no-match” letters. But in August the Department of Homeland Security issued rules providing that the letters will count as evidence an employer knew a worker was illegal if he doesn’t either resolve the discrepancy–perhaps a worker got married and changed her name–or fire the worker within 93 days. That’s all the more threatening since Homeland Security began last year slapping more employers with criminal charges of knowingly hiring or harboring illegal aliens in what it considers egregious cases. (Previously worker enforcement was mostly civil.)

Aas always seems to happen when government tries to foist a second- or third-best solution on the marketplace, businesses and individuals are coming up with all sorts of ways to evade, subvert, and otherwise avoid these regulations. Is it because these business owners are immoral or these guys are greedy? No — they simply want to build houses for US to live in or serve lunches for US to eat?

A lobbyist reports some small employers are already speculating about evasive actions. The letters are being sent only to businesses with 10 or more workers. “A guy calls me up and says, ‘I have 18 illegals. Can I get around this by forming a separate company for each 9 of them?’”

Dylan Norton, owner of Durango Doughworks, a Colorado breakfast-and-lunch shop, says he wouldn’t be able to fill his four $12-an-hour kitchen jobs if workers had to clear E-Verify [a voluntary government system to ensure workers are legally allowed to work in the U.S., now required in Colorado.] So he has dropped his business with the city government.

Road contractor Mark Gould of Glenwood Springs raised his wage from $14 an hour to $16 after half his new hires for unskilled jobs failed the E-Verify check. He got 90% of the workers he needed and passed the higher cost on to local governments. But with a state unemployment rate of just 3.8%, other businesses that can’t pay so much are coming up even shorter. Farmers, in particular, are hurting, with stepped-up border enforcement as well as Colorado’s laws scaring off migrants. Five farms are using state prisoners to pick their crops.

What would you do if you were in these guys shoes?

Skype write-off

Apparently, Skype isn’t $3 billion. EBay has written off roughly half the value of its investment in Skype only two years after buying it for a seemingly ridiculous sum.

Ebay on Monday conceded that its controversial acquisition of the internet telephone service Skype had fallen well short of its hopes, writing down the value of its investment in the company by $1.43bn (£695m), or nearly 50 per cent.

At the same time, Niklas Zennstrom, one of the founders of Skype, quit as the unit’s chief executive after missing out on a pay-day that could have earned him and a handful of other shareholders an extra $1.2bn.

The write-down and management upheaval come two years after Ebay unveiled its controversial plan to make Skype the third leg of an expanding internet conglomerate, alongside its e-commerce and online payments businesses.

Amazingly, Skype has taken over the world — they just can’t or won’t make money off of it. But I love it.