Monday, June 23, 2008

Hollywood Subsidies

La Crosse was initially in the running to become one of the locations for the new Johnny Depp "Public Enemies" movie. Wisconsin was chosen for several reasons, one of which was probably the newly passed tax considerations. Maybe we should look at the evidence and research done by other states. This headline says it all:
Rich stars pocket subsidies, state says
The analysis by the Department of Revenue this week estimated that at least half the film-industry payroll spending will go to out-of-town residents, mainly actors, directors, and producers commanding salaries of more than $1 million each. The Revenue Department assumes they will spend only a fraction of their paychecks in Massachusetts, limiting the benefits to the local economy.

The Revenue Department noted its analysis is consistent with a 2005 report on Louisiana's film tax subsidies, which estimated 60 percent of spending eligible for tax credits would go out-of-state. And when The Providence Journal reviewed records for a Wesley Snipes film subsidized by Rhode Island, it found just $1.9 million of the $11 million in production expenses went to local residents and vendors - less than the $2.65 million in tax credits issued to support the 2006 movie, "Hard Luck."

But in this week's report, the Revenue Department found the subsidies probably wouldn't generate enough money in income taxes and other revenue to offset the cost of the incentives, forcing the state to cut other government spending. Assuming $100 million a year in incentive spending, the state said it would only be able to recoup $18 million to $23 million in other tax revenue.

Bernanke as Health Economist

Ben talks about Healthcare. The conclusion with which I could not agree more:
Let me conclude by restating a point I made at the beginning: As we focus on the problems of our health system, it is easy to forget that much is good about it. Our health system has produced innovations in basic science, in the understanding and diagnosing of disease, and in pharmacology and medical technology. These advances have resulted in more-effective treatments and significant reductions in mortality across a wide spectrum of diseases. In devising policies to reform our health-care system, we must take care to maintain the vitality and spirit of innovation that has been its hallmark.

Descriptors or Treatments

I too have often thought of background variables, such as race, income, and education as descriptors, rather than treatments. However it seems as if most applied econometricians today think of them as treatments. Andrew Gelman posts on this topic:
Income, education, and religion as "background variables" or "treatments"

The discussion here on the climate change attitude mystery reminded me of a funny thing about how we think when we classify people by education, or income, or religion.

The original question was to explain why college-educated Republicans are less likely (compared to non-college-educated Republicans) to believe in human-caused global warming, while, among Democrats, those with college education are more likely to believe in it. To me this was no surprise: college-educated people are more political polarized and are more likely to align their views with their political attitudes.

But many of Tyler Cowen's commenters had a different sort of explanation, along the lines of, Going to college makes Republicans more skeptical of scientific authority but convinces Democrats of these arguments.

Setting aside the specific issue of climate change, one interesting thing here is the way I, in common with most political scientists, think of education (and other variables such as income and religion) as traits, or background variables, or descriptors of people. Thus when we talk about how rich and poor people vote, or more and less educated, or Protestants and Catholics, or whatever, we think of these as different sorts of people. But you can also think of income, or education, or religious attendance, as "treatments" that affect people--for example, if you go to college and share a room with someone of a different ethnic or political group, you might become more tolerant. Or maybe if you are conservative and go to college, you'll be skeptical of what's taught in your physics class (or if you're liberal, maybe you'll be skeptical of what's covered in your econ class).

I don't really have much to add here . . . somehow it seems more reasonable to me to think of these as descriptors than as treatments, but I guess it depends on the person and on what issue is being considered.

Delong is Right

He is absolutely right, get away from or above the nearest road and you will generally have solitude. Although Chicago Basin was a long way from the nearest road, it was a bit more crowded than I would have liked.

The Upside to Higher Oil Prices

Among them is lower obesity rates.

Here are the rest.
1. The mass transit boom

2. Lower obesity rates

What’s happening: Rising gas prices and smaller belt sizes go together, according to Charles Courtemanche of Washington University in St. Louis. His research found that, for every dollar increase in the average real price of gas, overweight and obesity levels in the United States would decline by 16 percent after seven years. His study also attributes the outward expansion of American waistlines between 1979 and 2004 in part to falling prices. Similar research published in the European Journal of Public Health found that European countries with higher gasoline prices tend to have lower rates of obesity.

Why it’s happening: One word: exercise. Bike shops across the United States are reporting record sales, and Britain is even promoting a national “Bike Week” to encourage commuters to ride, not drive, to the office. Not only is two-wheeling a cheaper way to travel, it’s also healthier. Courtemanche’s results show that “the average person walks or bicycles an average of 0.5 times more per week if the price of gas rises by $1.” Another factor he identifies is that cost-conscious Americans are choosing to eat at restaurants less frequently. Indeed, a virtuous cycle could be at work: A study published in The Engineering Economist found that Americans today use nearly a billion additional gallons of gasoline each year, compared with 1960, solely because they weigh more.

3. Fewer accidents

4. Shorter commutes

5. The biofuels craze

Early Intervention

I'm fairly convinced by Heckman's work on early cognition. Here is a great survey piece he wrote. And this via Mankiw.
Cognitive abilities are important determinants of socioeconomic success. So are socioemotional skills, physical and mental health, perseverance, attention, motivation, and self confidence. They contribute to performance in society at large and even help determine scores on the very tests that are commonly used to measure cognitive achievement.

Ability gaps between the advantaged and disadvantaged open up early in the lives of children. Family environments of young children are major predictors of cognitive and socioemotional abilities, as well as a variety of outcomes such as crime and health. Family environments in the U.S. and many other countries around the world have deteriorated over the past 40 years.

Experimental evidence on the positive effects of early interventions on children in disadvantaged families is consistent with a large body of non-experimental evidence showing that the absence of supportive family environments harms child outcomes. If society intervenes early enough, it can improve cognitive and socioemotional abilities and the health of disadvantaged children. Early interventions promote schooling, reduce crime, foster workforce productivity and reduce teenage pregnancy.

These interventions are estimated to have high benefit-cost ratios and rates of return. As programs are currently configured, interventions early in the life cycle of disadvantaged children have much higher economic returns than later interventions such as reduced pupil-teacher ratios, public job training, convict rehabilitation programs, adult literacy programs, tuition subsidies or expenditure on police.

Wednesday, June 18, 2008

Calories In, Calories Out

Not according to this guy. While I believe there is more to our complicated engine, in fact most of the concernes are of second order to calories in calories out. it is one of the few things that can explain the vast difference in obesity between the US, France, Belgium, Germany, etc. Which can hardly be accounted for in terms of carbohydrates, or genetics.

'The natural question is, "What regulates fat accumulation?"' he begins, swivelling gently in his office chair. 'That was actually worked out 50 years ago. We know that the hormone insulin is what puts fat in fat tissue. Raise insulin levels and you accumulate fat; lower insulin levels and you lose fat. And we secrete insulin as a response to carbohydrates in the diet.'We have screwed up the causality of obesity,' he continues. 'Fat people are predisposed to be fat. Genetics determines how we respond to the carbohydrates. Healthy people exercise more than unhealthy people, and we know that lean people exercise more than heavy people - but that doesn't tell us that exercise will make a heavy person lean or an unhealthy person healthy.'

Taubes's defence of a high-fat, low-carb regime sounds suspiciously like the Atkins diet, which proposed that a hefty slab of steak followed by cheese was less fattening than a bagel or a bowl of pasta. The Atkins diet still has many fans, but recently seemed to have been consigned to the reject bin among health warnings and heart-attack alerts (and the news that when Dr Atkins died in 2003 he was a hefty 18½ stone). But in his book Taubes puts forward a compelling case for avoiding a high-carb, low-fat diet. 'I have this problem when I talk to physicians and biologists, ' he says. ' They will say, "OK, I can see that obesity is a disorder of fat accumulation. I acknowledge insulin makes us store fat." Then I say, "Well, that implicates carbohydrates," and they go, "Oh, that's that Atkins crap. It's old news." They shut down and that's the end of the discussion.' In fact, he says there are many respected scientists who do agree with him, but who are reluctant to support him openly.

Gay Gene

I do not believe being gay or straight is as dichotomous as this article suggests, but nonetheless these are interesting results. Does this mean that gay females should trade and perform in lab experiments more like males?

Brain scans have provided the most compelling evidence yet that being gay or straight is a biologically fixed trait.

The scans reveal that in gay people, key structures of the brain governing emotion, mood, anxiety and aggressiveness resemble those in straight people of the opposite sex.

The differences are likely to have been forged in the womb or in early infancy, says Ivanka Savic, who conducted the study at the Karolinska Institute in Stockholm, Sweden.

"This is the most robust measure so far of cerebral differences between homosexual and heterosexual subjects," she says.

Previous studies have also shown differences in brain architecture and activity between gay and straight people, but most relied on people's responses to sexuality driven cues that could have been learned, such as rating the attractiveness of male or female faces.

Thursday, June 12, 2008


I know I have too much stuff. But this video (The Story of Stuff), forwarded by a relative, gets me really annoyed. My relative asked for an Economists opinion and here was the first part of my response:
Don’t worry, you’ve come to the right place. That piece laughable, but the real irony is how many consumer goods she probably had to use to put that video together, such as the slick new iBook, along with some fancy movie editing software, a digital camera, etc. In the first couple of minutes she makes the same argument made by Thomas Malthus (circa 1800), that we are growing too fast for our planet, technology is linear, population growth is nonlinear...blah, blah. I almost shut it off, but thought I’d better watch the whole thing. Every generation makes this argument and they are all wrong. Resources are scarce but technology and technological advancement is not, which is something these Malthusian types never seem to get. Like Garret Hardin for example, but at least he wasn't a hypocrite, he took himself out of the lifeboat.

She talks about the fact that incomes have risen but happiness has not, though that phenomenon (known as the Easterlin paradox) appears to be in jeopardy. Besides, it doesn’t even pass the smell test, can you honestly say you’d be happier living in the 50s? I’m pretty sure I wouldn’t be happier, because I would be dead.

She also talks about how we don’t pay the true cost of making things, with her $4.99 radio example. Economists refer to the things she mentions as negative externalities. The simplest example being pollution. The plant that produces the radio might pollute the air, yet they do not have to pay for their pollution, thus the cost of the radio reflects only the direct costs, and not the cost to society of the pollution externality. Eliminating externalities is easy enough, you merely have to tax the activity, thus forcing the firm to account for their pollution. This is in part why we tax gasoline, and Greg Mankiw has proposed a carbon tax to further reduce the externality. An idea embraced by Obama. Many of the things she lists that might appear to be externalities are really her own preferences masquerading as externalities. She romanticizes small communal farming, and assumes any move away from that reflects a negative externality which is not priced into the good. Hardly. It is just a preference she does not share.

She also fails to note the existence of positive externalities which would require government subsidies in order to increase output to the socially optimum level. Take cell phones. If I’m the only one that has a cell phone it is useful to me, but it would be even more useful if everyone else has one, allowing us to communicate with each other no matter where we are. So maybe the private market provides too few cell phones? Should the government then subsidize them?

She mentions Eisenhower’s CEA chair claiming the goal of the economy is to produce consumer goods. I can’t seem to find that quote anywhere, but I’m sure he meant consumer goods in the abstract sense of the term goods. That is to say both physical goods and services. So her plea for education, health care, etc are all things the CEA chair would have agreed with. Those are to an economist, part of consumer purchases. No economist I know of would ever have elevated the role of physical goods above services, or vice versa. We can all agree our life is made better off with the goods and services we consume. If it isn’t then you shouldn’t be buying it. And remember that buying “experiences” such as a family trip to Florida is part of that as well. Americans work a smaller percentage of their life than ever before in history, which means we consume more leisure than ever before. This is only possible with a more productive economy.

Her snippet on computers having only one part that changes from year to year?? WTF….that just makes the rest of the argument so much weaker since it is monumentally ignorant. Like all the goods and services we consume, new technologies are invented and used to make the products and services marginally better. At some point the increased benefits might outweigh the costs of purchasing a new unit. But it is very rare that a “new” product comes out, and is adopted by the whole market, even though there are no technological advantages (look at how bad MS Vista is flopping). You can’t fool all the people.

I feel bad for this woman, because if she took an econ class in college, the professor was horrible. She clearly has an innate interest in the functioning of the economy, yet was never introduced to a rigorous way to think about it. Instead she takes her preferences and arrogantly romanticizes poverty, and comes up with the belief that we should end consumerism? What? Yes, tell the Chinese that the last 20 years haven’t been good for them, they should go back to subsistence farming, thats a lot of fun, particularly when draught hits. Good times that starvation.

So don’t feel too bad for your kids. You are generally leaving them with a better world than you have occupied. In fact I guarantee their standard of living will be higher than yours, though it could be higher still if you sent in more money with your taxes next year to help reduce the deficit. Or just set aside more money in your 403(b).

This is not to say that there aren’t some things we should/can do. I think we can do a better job of trying to identify and correct externalities (although I will admit this is not easy and it makes my libertarians sensibilities bristle). If we do, then prices will be a very efficient allocation mechanism as they will now reflect private and public costs. I do think we could buy (ie consume) less…in fact economic growth would probably be more rapid if we consumers spent less and saved more, thus freeing up capital for corporations to invest in new technology. The beauty of it is it will provide even more stuff for us to buy in the future! So I'm only advocating consuming less now, so that we can consumer even more in the future. Though I’m quite sure that’s not the argument she is making. Remember if its family you enjoy, living longer allows you to spend more time with them, and living longer is only going to happen through better health, health care and medicine…not through buying local tomatoes.

Me, I imagine I’ll get the fill of my family…

Golf and Reliability

A great post on golf and statistical reliability.

Fast Food

Fast food doesn't make you fat, its the quantity of food you eat that makes you fat. And according to this post:
Matsa and Anderson next looked at data on individual eating habits from a survey conducted between 1994 and 1996. When eating out, people reported consuming about 35 percent more calories on average than when they ate at home. But importantly, respondents reduced their caloric intake at home on days they ate out (that's not to say that people were watching their weight, since respondents who reported consuming more at home also tended to eat more when going out). Overall, eating out increased daily caloric intake by only 24 calories. The results for urban and suburban consumers were similar.
Fast food can only be blamed for increasing caloric intake at most 24 calories at day. Since 140 calories extra a day will increase your steady state weight by about 10 lbs, at most this means 1.5 lbs.

Time to look elsewhere for a scapegoat. How about the mirror?

Tuesday, June 10, 2008

No Pole Tax

While I was away the Texas Pole Tax was defeated. From Vice Squad:
Remember Texas's "pole tax," the $5 per customer fee applied to strip clubs in January? Turns out that a state judge has ruled the tax to be a violation of the First Amendment. The Attorney General intends to devote more public funds to appealing the ruling, while other supporters of the tax are investigating reforms to the legislation that would help it pass constitutional muster. (Incidentally, I haven't read the court opinion, but I am surprised that a case decided on free speech grounds also seems to hinge (if the published reports are correct) on the earmarking of the revenues from the tax.)

Euro Churches

Having just come back from Europe I can attest to the grand churches. You would hardly believe they are a more secular society than we are except for the fact that many of the churches are merely tourist attractions now. However they are quite a sight to see, and marginal revolution provides us with an economic argument for their opulence:

Why did they build expensive medieval churches?

Bryan Caplan asks (the rest of the post is interesting on other matters):

Seeing a bunch of French cathedrals makes me even more skeptical of the claim (made by Larry Iannaccone and others) that people weren't more religious in earlier centuries. If people weren't far more religious in the Middle Ages, why did they pour such a high fraction of their surplus wealth into century-long religious architectural projects? You could say "It was primarily rulers, not donors, who allocated the funds," but that just pushes the question back a step. Were rulers vastly more religious than the masses? That's hard to believe. Were rulers trying to impress the masses by building churches? Well, why would churches impress the masses unless they were highly religious?

His answer:

Religious architecture and art were to medieval feudalism what advertising and commercialism are to modern capitalism: A rather effective way to build support for the status quo using aesthetics instead of argument. My claim, in short, is that Notre Dame played the same role during the Middle Ages that fashion magazines play today. Notre Dame was not an argument for feudalism, and Elle is not an argument for capitalism. But both are powerful ways to make regular people buy into the system.

I would add that churches were a form of fiscal policy and the associated spending was a way to hand out goodies to political allies. (This is especially important if the finished project takes decades or centuries to materialize.) In a time of political decentralization it wasn't easy to construct or maintain a long distance road. So you had to put a lot of expense in one easy-to-guard place and in a politically correct way. Churches were the obvious choice. Churches may have been an efficient means to store wealth for other reasons as well. If someone is going to plunder you on the run, they can wreck a church but they can't dissemble and carry away its value very easily.

Robin Hanson might argue that beautiful churches also signaled the status of the elites who built them.

Becoming a Super Stripper

While I was in Europe I got behind on some interesting posts. Freakonomics and others pointed me to this one:
Let’s face it. Stripping is hard work. There’s judgment from outside the club. Competition inside the club. And, you’re an independent contractor. There’s having to make nice when you don’t feel like making nice. There’s the pressure to hustle. Pressure not to hustle. There’s the standing in 8″ heels all night. And above all, the ever-present challenge of making bank. That’s where Star Light’s Exotic Dancer, M.B.A. comes in! Spend the day with us, and we’ll share tips on sales (because stripping is sales), organizing your finances, and managing the day-to-day stress of stripping. Find your path to being a SuperStripper. What’s a SuperStripper? She’s an amazing woman who uses stripping as an avenue to create financial freedom and the future she wants! Someone who doesn’t let the job define her.
There is no doubt that more money can be made if dancers use proper techniques. In fact many of them are budding neuroscientists. The link between sex, money and risk is well established. And once the money is made, properly managing it is of the utmost importance since their careers are often very short.

Monday, June 09, 2008

Random Sampling

Here is an excellent post from Marginal Revolution on the perils of random sampling. Even when you think you've done it, you might have missed something.

The Wisdom of Whores

As a teenager Elizabeth Pisani discovered that she liked sneaking into the "girlie bars" of Hong Kong and talking to the hookers and the johns. Ordinarily one wouldn't expect such peculiar hobbies to pay off in a dazzling career. But beginning in the mid 1980s, people who were comfortable talking to hookers, rent boys, trannies, warias and junkies (all Pisani's terms) especially in the hot spots of Asia and Africa became scouts and spies in the war against AIDS. Information provided by these epidemiologists in the streets about where AIDS hid and how it spread has been critical to the war.

The Wisdom of Whores
is Pisani's vivid account of what she has learned and why AIDS is still being fought ineffectively. I'll say more on this in the future. Here, however, is one bit relevant to the title:

We'd just finished our first survey of HIV, syphilis and risky sex among waria in Jakarta...I had the impression from the qualitative research...that waria were turning dozens of tricks a week, but the study showed they averaged only three. And since that figure came from 250 waria selected at random as the manual requires, it was certainly more accurate than the qualitative research...

"Three a week? Your insane!," snorted [sex worker and waria] Ines....Ines left school at fourteen but she is not stupid, so I explained how, through our probability sampling, we are asking a representative sample of Jakarta's waria. Ines dismissed by lecture with a wave of her manicure and a flick of her locks. "So clever, but so stupid." she sighed.

Ok, so what was the wisdom of the whore? (n.b. Pisani's term!) Bonus points if you can also describe a solution. I am going to have to get this into my econometric notes! Answer in the extension.

She explained, as if to an enthusiastic but slightly dim child, that a waria who is hanging around on a street corner to be interviewed by a research team is a waria who is not with a client. 'You are talking to all the dogs, obviously'.

Not something I learned in the lecture halls of London...but Ines is quite right. Our sample is biased towards the 'dogs,' who get picked up less than the cuter girls. So the study results underestimate the true number of clients per seller...

Ines's comments...prodded us into changing the sampling we work with the powers-that-be (the mami, the pimps, the brothel owners) to arrange off-hours time for data collection. The that you are not cutting into people's work time, so there is less chance of talking only to the remnant sex workers who can't get a client.

Sunday, June 01, 2008

Mostly Harmless Econometrics

A new Econometrics book : Mostly Harmless Econometrics.
The core methods in today's econometric toolkit are linear regression for statistical control, instrumental variables methods for the analysis of natural experiments, and differences-in-differences methods that exploit policy changes. In the modern experimentalist paradigm, these techniques answer clear causal questions such as: Do smaller classes increase learning? Do minimum wages reduce employment? Should wife batterers be arrested? How much does education raise earnings? Mostly Harmless Econometrics shows how the basic tools of applied econometrics allow the data to speak.

In addition to econometric essentials, Mostly Harmless Econometrics covers important new extensions--regression-discontinuity designs and quantile regression--as well as how to get standard errors right. Angrist and Pischke explain why fancier techniques are typically unnecessary and even dangerous. The applied econometric methods emphasized in this book are easy to use and relevant for many areas of contemporary social science.

* An irreverent review of econometric essentials
* A focus on tools that applied researchers use most
* Chapters on regression-discontinuity designs, quantile regression and standard errors
* Many empirical examples
* A clear and concise resource with wide applications