Ray Dalio is the founder of Bridgewater Associates, known to some as “the world’s richest and strangest hedge fund.” He has appeared on this blog before, talking about the upsides of negative feedback. Now Dalio has put together a beguiling 30-minute video that tries to explain how the U.S. economy actually works. Don’t be ashamed if you find out a lot you didn’t know — as Dalio makes clear, most policy makers don’t know much about the economy either.
In last week’s TIME cover story, the prolific Tyler Cowen argues that “Texas Is Our Future”:
So why are more Americans moving to Texas than to any other state? Texas is America’s fastest-growing large state, with three of the top five fastest-growing cities in the country: Austin, Dallas and Houston. In 2012 alone, total migration to Texas from the other 49 states in the Union was 106,000, according to the U.S. Census Bureau. Since 2000, 1 million more people have moved to Texas from other states than have left.
As an economist and a libertarian, I have become convinced that whether they know it or not, these migrants are being pushed (and pulled) by the major economic forces that are reshaping the American economy as a whole: the hollowing out of the middle class, the increased costs of living in the U.S.’s established population centers and the resulting search by many Americans for a radically cheaper way to live and do business.
The full article is gated, but here’s a good summary of Cowen’s arguments.
Most adults have vivid memories of the cars of their childhoods — the wood-paneled station wagons (with backwards-facing rear seats, no less) or the boxy minivans in which they were driven to school or church. But how much do those memories affect people’s car-buying decisions in adulthood? That’s the question asked in a new paper (draft PDF; abstract) by Soren T. Anderson, Ryan Kellogg, Ashley Langer, and James M. Sallee:
We document a strong correlation in the brand of automobile chosen by parents and their adult children, using data from the Panel Study of Income Dynamics. This correlation could represent transmission of brand preferences across generations, or it could result from correlation in family characteristics that determine brand choice. We present a variety of empirical specifications that lend support to the former interpretation and to a mechanism that relies at least in part on state dependence. We then discuss implications of intergenerational brand preference transmission for automakers’ product-line strategies and for the strategic pricing of vehicles to different age groups.
Our podcast “Women Are Not Men” looked at a variety of gender gaps, including the fact that the vast majority of violent crime is committed by men. A new paper by Darrell J. Steffensmeier, Jennifer Schwartz, and Michael Roche in the American Sociological Review finds that women are less likely to be involved in corporate crime as well:
Typically, women were not part of conspiracy groups. When women were involved, they had more minor roles and made less profit than their male co-conspirators. Two main pathways defined female involvement: relational (close personal relationship with a main male co-conspirator) and utility (occupied a financial-gateway corporate position). Paralleling gendered labor market segmentation processes that limit and shape women’s entry into economic roles, sex segregation in corporate criminality is pervasive, suggesting only subtle shifts in gender socialization and women’s opportunities for significant white-collar crimes. Our findings do not comport with images of highly placed or powerful white-collar female criminals.
“Men lead these conspiracies, and men generally prefer to work with men,” Steffensmeier told the Washington Post. “If they do use women, they use them because they have a certain utility or they have a personal relationship with that woman and they trust her.”
A new research paper (abstract; PDF) by Ahreum Maeng, Robin J. Tanner, and Dilip Soman looks at how a shopping environment affects buying patterns. From the press release:
New research by Ahreum Maeng, an assistant professor in the KU School of Business, finds that socially crowded environments lead consumers to be more conservative. Specifically, Maeng finds that consumers in crowded settings prefer safety-oriented options and are more receptive to prevention-framed messages than promotional messages — for example, preferring a toothpaste offering cavity protection over a toothpaste promising a whiter smile. Maeng also finds consumers in crowded settings are less willing to make risky investments.
“Consumers in crowded environments get conservative and safety-focused,” Maeng said. “We believe this is because people in socially crowded settings activate an avoidance system that results in a more prevention-focused mindset. This, in turn, makes socially crowded individuals more likely to choose options that provide prevention-focused benefits.”
Maeng points out that the research has important implications for retailers as well as policymakers. “For example, our findings indicate a store would benefit by selling and marketing products differently on a crowded Saturday during the holidays versus a Tuesday morning in August,” she says. “And even within the same day, stores might consider changing their signage or product placement to account for different levels of crowding.”
A new working paper (PDF; abstract) by Martha J. Bailey, an economics professor at the University of Michigan, analyzes the effects of increased access to birth control in the 1960s and 1970s:
This paper assembles new evidence on some of the longer-term consequences of U.S. family planning policies, defined in this paper as those increasing legal or financial access to modern contraceptives. The analysis leverages two large policy changes that occurred during the 1960s and 1970s: first, the interaction of the birth control pill’s introduction with Comstock-era restrictions on the sale of contraceptives and the repeal of these laws after Griswold v. Connecticut in 1965; and second, the expansion of federal funding for local family planning programs from 1964 to 1973. Building on previous research that demonstrates both policies’ effects on fertility rates, I find suggestive evidence that individuals’ access to contraceptives increased their children’s college completion, labor force participation, wages, and family incomes decades later.
Flip Pidot, co-founder and CEO of the American Civics Exchange, writes to let us know that the exchange has recently added cash prizes to their political prediction markets and is currently running two parallel government shutdown prediction markets, allowing for an interesting experiment:
At American Civics Exchange, we’ve just begun to implement cash prizes in our political prediction market (a sort of interim maneuver on our way to regulated exchange-traded futures).
For the government shutdown, we’re running two parallel markets – one in which traders buy and sell different shutdown end dates (with play money), yielding an implied odds curve and consensus prediction (below), and another in which traders simply log their best guess as to exact date and time of resolution (with no visibility into others’ guesses), with the closest prediction winning the real-money pot.
A new study seems to confirm the adage that older means wiser, at least when it comes to making decisions about economic matters. From ScienceDaily:
To conduct their research, [Ye] Li and his colleagues recruited a group of 336 people — 173 younger (ages 18 to 29) and 163 older (ages 60 to 82) — and asked them a series of questions that measured economic decision making traits. They also administered a battery of standard fluid and crystallized intelligence tests.
These traits included temporal discounting (how much people discount future gains and losses), loss aversion (how much the valuation of losses outweigh gains of the same magnitude), financial literacy (understanding financial information and decisions) and debt literacy (understanding debt contracts and interest rates).
They found the older participants performed as well or better than the younger participants in all four decision-making measures. The older group exhibited greater patience in temporal discounting and better financial and debt literacy. The older participants were somewhat less loss averse, but the result did not reach standard levels of significance.
“The findings confirm our hypothesis that experience and acquired knowledge from a lifetime of decision making offset the declining ability to learn new information,” Li said.
(HT: R.E. Riker)
A new NBER paper (abstract; PDF) by Amanda Pallais looks at how small fees impact the application behavior and outcomes of low-income students. Using data from the ACT, she found that an increase in the number of free score reports that students were permitted to send to colleges resulted in students sending their scores to a wider range of colleges, with low-income students attending more selective colleges. These outcomes were surprising because the non-free score reports were a mere $6. The abstract:
This paper estimates the sensitivity of students’ college application decisions to a small change in the cost of sending standardized test scores to colleges. Using confidential ACT micro data, I find that when the ACT increased from three to four the number of free score reports that ACT-takers could send, the fraction of test-takers sending four reports rose substantially while the fraction sending three fell by an offsetting amount. Students simultaneously sent their scores to a wider range of colleges. Using micro data from the American Freshman Survey, two identification strategies show that ACT-takers sent more college applications and low-income ACT-takers attended more selective colleges after the cost change. The first strategy compares ACT-takers before and after the cost change, controlling for time trends and covariates, and the second estimates difference-in-difference regressions using SAT-takers as a control group. Back-of-the-envelope calculations suggest that by inducing low-income students to attend more selective colleges, the policy change significantly increased their expected earnings. Because the cost of sending an additional (non-free) ACT score was merely $6 throughout, this sizable behavioral change is surprising and suggests that students may use simple heuristics in making their application decisions. In such a setting, small policy perturbations can have large effects on welfare.
Our podcast about false memory, “Sure, I Remember That,” featured the research of Steven J. Frenda, Eric D. Knowles, William Saletan, and Elizabeth Loftus. If you enjoyed that, you may want to check out Loftus’s recent TED talk about her research on embedding false memories in U.S. soldiers. It focused on soldiers who had recently gone through “Survival School” training, during which they are “captured,” sent to a mock prisoner of war camp, and aggressively interrogated:
Psychiatrist Charles Morgan and his collaborators have been studying the effects of Survival School for a number of years. We worked together to conduct a study with the soldiers who’d gone through the training in which some would be fed erroneous information. Some have been exposed to misinformation about the “perpetrator” who conducted the hostile interview. They were showed a photograph of a man who was identified as the one conducting the interrogation, and were asked questions such as, “Did your interrogator give you anything to eat? Did he give you a blanket?” The trick was that the photograph was of a completely different person. When the soldiers were fed this misinformation, 84% of them later on went ahead and identified the person whose photograph was shown. All of them were, of course, mistaken.
Last year, we did a podcast on college tuition which discussed the growing gap between a college’s “sticker price” and the actual tuition paid by low- and middle-income working families. In order to demystify this gap — and help low-income families understand that many expensive private colleges are actually well within their reach — Wellesley College has just released a “Quick College Cost Estimator” calculator.
“The conversation that takes place around college costs is largely misguided,” Phillip B. Levine, an economics professor at Wellesley, told David Leonhardt of the Times. “People focus only on the sticker price. The sticker price is a meaningful statistic for roughly 40 percent of our students. The majority of our students are receiving financial aid, and for them the sticker price is an irrelevant number.” While The College Board and Harvard have similar calculators, Leonhardt likes the simplicity of Wellesley’s version. “The larger point is that Wellesley’s calculator is a significant step in the growing effort to spread accurate information about college costs,” writes Leonhardt. “As Mr. Levine says, the widespread misunderstanding of tuition ‘clos
In the Globe and Mail, Clive Thomas argues that all the time kids spend on Facebook, Twitter, and blogs may be making them better writers and thinkers. Thomas cites the work of Andrea Lunsford, an English professor at Stanford, who recently compared freshman composition papers from 1917, 1930, 1986, and 2006 and found that, while the average rate of errors hasn’t changed much since 1917, students today write longer, more intellectually complex papers:
In 1917, a freshman paper was on average only 162 words long and the majority were simple “personal narratives.” By 1986, the length of papers more than doubled, averaging 422 words. By 2006, they were more than six times longer, clocking in at 1,038 words – and they were substantially more complex, with the majority consisting of a “researched argument or report,” with the student taking a point of view and marshalling evidence to support it.
“Student writers today are tackling the kinds of issues that require inquiry and investigation as well as reflection,” Prof. Lunsford concluded.
Michael Sivak, a transportation scholar at the University of Michigan whose work has appeared on this blog before, released a new study on inter-state variations in economic activity per unit of driving. His findings are interesting and reflect significant differences in GDP per distance driven among U.S. states:
In 2011, the highest GDP per distance driven was in the District of Columbia ($30.04/mile, followed by Alaska, New York, Connecticut, and Delaware. The lowest GDP per distance driven was in Mississippi ($2.51/mile), followed by Alabama, New Mexico, Arkansas, and Oklahoma. The median value was $4.66/mile. In comparison, the standard federal reimbursement rate for fixed and variable costs of operating an automobile in 2011 was $0.51/mile.
From 1997 to 2011, the largest absolute increase in GDP per distance driven (with GDP measured in current dollars) was in the District of Columbia (+$14.95/mile), followed by Alaska, New York, Delaware, and Oregon. The smallest increase was in Mississippi(+$0.67/mile), followed by Alabama, Michigan. Florida, and New Mexico.
In our podcast “Women Are Not Men,” we explored why Wikipedia has such a low percentage of female editors. John Riedl, the researcher who studied the Wikipedia gender gap (and who passed away this summer), had this to say:
RIEDL: We know from a bunch of psychology studies that women tend to be made more uncomfortable by conflict than men are made uncomfortable by conflict. And so one of the ideas is maybe in Wikipedia where the fundamental nature of the site is that if you want to correct what someone else has done, the way you do that is you delete it and write them a really mean message. Well, maybe that’s creating a culture of conflict that is driving women away. They just don’t find it a place they enjoy being, and so they go places where they’re happier.
An op-ed by Linda Martín Alcoff in The New York Times reports a similar discussion in the field of philosophy, where only 16.6 percent of professors are women, and none are women of color.
The BPS Research Digest offers a quick guide to the psychology and science of human attraction. Their dating suggestions — based on real studies — are:
1. Does having a strip club in your neighborhood increase crime rates?
2. Did a poorly designed skyscraper melt a car with its reflection?
3. A paper that crowdsources black-market drug prices.
4. How techies process census data.
Al Roth reports on an interesting gender gap in Taiwan: according to an article in Focus Taiwan, “Of the 620,000 people on Taiwan’s organ donation list, 65 percent are women…” The article goes on to point out that:
The trend is more pronounced in the largest demographic of organ donors, those aged 21-50, which features 2.2 times more women than men, Wu [Ying-lai] said, based on an analysis of the 223,250 people who have signed up for the national organ donation program in the past 10 years.
Looking at the data more closely, the largest groups of donors are women aged 31-40, followed by women aged 41-50, women aged 21-30, men aged 31-40, and men aged 41-50, she noted.
Last year, Google realized that its employees were eating too much free candy — M&Ms, specifically. So the company conducted a little experiment, and carefully tracked the results. Cecilia Kang, writing in the Washington Post, summaries:
What if the company kept the chocolates hidden in opaque containers but prominently displayed dried figs, pistachios and other healthful snacks in glass jars? The results: In the New York office alone, employees consumed 3.1 million fewer calories from M&Ms over seven weeks. That’s a decrease of nine vending machine-size packages of M&Ms for each of the office’s 2,000 employees.
The company has conducted similar experiments in an effort to reduce consumption of sugary drinks and encourage employees to consume less calories in the company’s cafeterias. “With a company as big as Google, you have to start small to make a difference. We apply the same level of rigor, analysis and experimentation on people as we do the tech side,” says Jennifer Kurkoski, a member of Google’s HR team.
1. Today in aptonyms: a trainer named Michael Jock. (HT: Stephanie D)
2. Certain homes in Gary, Indiana going for $1 a house — but most buyers don’t fit the qualifications. (HT: Dave McCall)
3. Drive-in “sex boxes” in Zurich designed to make work less dangerous for sex workers.
4. Consider the price of lobster: cheap at the bay this year, still expensive at restaurants.
5. Does birth order matter? (HT: Eric M. Jones)
Think you can do a better job at predicting the economic future than all those economists and pundits? Here’s your chance to prove it:
Members of the public are being encouraged to take on the Bank of England by betting on the U.K.’s future inflation and unemployment rates.
Free-market think tank the Adam Smith Institute on Wednesday launched two betting markets in an attempt to use the “wisdom of crowds” to beat the Bank of England’s official forecasters. Punters can place bets on what the rate of both U.K. inflation and unemployment will be on June 1, 2015.
Sam Bowman, the research director of the Adam Smith Institute, believes the new markets will “out-predict” official Bank of England predictions. “If these markets catch on, the government should consider outsourcing all of its forecasts to prediction markets instead of expert forecasters,” he said.
A man in the U.K. is charging telemarketers for calling him. From BBC News:
A man targeted by marketing companies is making money from cold calls with his own higher-rate phone number.
In November 2011 Lee Beaumont paid £10 plus VAT to set up his personal 0871 line – so to call him now costs 10p, from which he receives 7p.
The Leeds businessman told BBC Radio 4’s You and Yours programme that the line had so far made £300.
Phone Pay Plus, which regulates premium numbers, said it strongly discouraged people from adopting the idea.
Beaumont says that he’s following the rules of premium numbers by informing all telemarketers exactly how much they’re being charged for calling him, and suggesting they email him if they don’t like the charges.
(HT: James Kraft)
President Obama recently proposed an interesting solution to the skyrocketing cost (and declining popularity) of law school: make it shorter:
“This is probably controversial to say, but what the heck, I’m in my second term so I can say it,” Obama said during a stop at the State University of New York at Binghamton. “I believe, for example, that law schools would probably be wise to think about being two years instead of three years because [….] in the first two years young people are learning in the classroom.”
In the third year, he said, “they’d be better off clerking or practicing in a firm, even if they weren’t getting paid that much. But that step alone would reduce the cost for the student.”
The Daily Dish reports on various responses to Obama’s suggestion. For example, law professor Matt Bodie wonders if the change would really decrease costs:
Writing for the Wall Street Journal, Jeffrey Singer describes a patient who came in for a “simple outpatient surgical procedure” and discovered it was cheaper to just ignore his “low-cost ‘indemnity’ type of health insurance policy.” The patient’s estimated costs had he used his health insurance plan: approximately $20,000 (out of the estimated hospital charge of $23,000). After speaking to the patient, Singer realized that he wasn’t bound by a “preferred provider” contractual arrangement and offered the patient a solution that saved him $17,000:
I explained that just because he had health insurance didn’t mean he had to use it in every situation. After all, when people have a minor fender-bender, they often settle it privately rather than file an insurance claim. Because of the nature of this man’s policy, he could do the same thing for his medical procedure. However, had I been bound by a preferred-provider contract or by Medicare, I wouldn’t have been able to enlighten him….
Most people are unaware that if they don’t use insurance, they can negotiate upfront cash prices with hospitals and providers substantially below the “list” price. Doctors are happy to do this. We get paid promptly, without paying office staff to wade through the insurance-payment morass.
So we canceled the surgery and started the scheduling process all over again, this time classifying my patient as a “self-pay” (or uninsured) patient. I quoted him a reasonable upfront cash price, as did the anesthesiologist. We contacted a different hospital and they quoted him a reasonable upfront cash price for the outpatient surgical/nursing services. He underwent his operation the very next day, with a total bill of just a little over $3,000, including doctor and hospital fees. He ended up saving $17,000 by not using insurance.
(HT: Jason Hirschhorn)
1. Do calls to prison cost too much?
2. History of the world — in one 1931 map.
3. The boomerang generation: “Some 21.6m Americans aged 18 to 31—36% of the total—still languish in the parental home.” (HT: Chakrit Achava-amrung)
4. The pricing truth behind season tickets. (HT: V. Brenner)
5. Bullying in the army: will dismissing bad leaders make the organization more “efficient”?
During recent recessions, worker productivity has actually risen — but economists have been unsure if the result is driven by a changing workforce composition (i.e. more productive workers retaining their jobs) or an increase in effort and productivity on the part of individual workers. In a new paper (gated; working version here), called “Making Do With Less: Working Harder During Recessions,” economists Edward P. Lazear, Kathryn L. Shaw, and Christopher Stanton find that it’s the latter. Here’s the abstract:
There are two obvious possibilities that can account for the rise in productivity during recent recessions. The first is that the decline in the workforce was not random, and that the average worker was of higher quality during the recession than in the preceding period. The second is that each worker produced more while holding worker quality constant. We call the second effect, “making do with less,” that is, getting more effort from fewer workers. Using data spanning June 2006 to May 2010 on individual worker productivity from a large firm, it is possible to measure the increase in productivity due to effort and sorting. For this firm, the second effect—that workers’ effort increases—dominates the first effect—that the composition of the workforce differs over the business cycle.
Women are not men, as we firmly established in a podcast earlier this year. A new working paper (abstract; PDF) by economists Peter J. Kuhn and Marie-Claire Villeval suggests one more difference between the sexes — women may be more drawn to cooperation. Here’s the abstract:
We conduct a real-effort experiment where participants choose between individual compensation and team-based pay. In contrast to tournaments, which are often avoided by women, we find that women choose team-based pay at least as frequently as men in all our treatments and conditions, and significantly more often than men in a well-defined subset of those cases. Key factors explaining gender patterns in attraction to co-operative incentives across experimental conditions include women’s more optimistic assessments of their prospective teammate’s ability and men’s greater responsiveness to efficiency gains associated with team production. Women also respond differently to alternative rules for team formation in a manner that is consistent with stronger inequity aversion.
Our recent podcast “Parking Is Hell” explored the high costs of free parking. Transportation scholar Donald Shoup described one study, from L.A.:
We made 240 observations. When you add it up, the average time it took to space was only three minutes, that’s two and a half times around the block, which doesn’t seem like very much. It’s about half a mile hunting for parking. But when you add up all the people who are parking in Westwood Village, if they had the same average that we had, that adds up to 3,600 vehicle miles of travel a day. That’s the distance across the U.S., and that’s just in the 15-block area of Westwood. If you add it up for a year, that’s equal to 36 trips around the Earth or four trips to the moon hunting for underpriced curb parking in a little 15-block area.
In South Korea, an oil company has started a campaign to reduce parking search time. The HERE campaign states that South Korean drivers wander 500 meters everyday for parking spots; by cleverly installing a balloon that indicates exactly where open spots are, it reduces search time for drivers.
A few years back, we did a podcast about the role of artificial insemination in the livestock industry. Writing for Modern Farmer, Jesse Hirsch reports on what would happen if, for example, foot-and-mouth disease came along and wiped out American’s entire population of cows, or pigs, or chickens:
Breathe easy, livestock lovers. Housed in a vast storehouse in Fort Collins, Colorado, the USDA has 700,000 straws of liquid nitrogen-preserved sperm, from 18 different species. They’re ready.
“Let’s say another foot-and-mouth disease comes along, killing off our cows,” says Dr. Harvey Blackburn, repository coordinator. “We have the ability to repopulate entire breeds.”
The National Animal Germplasm Program (NAGP) started in 1999. Its facility stores a huge mishmash of semen — rare and vintage samples, combined with the most common breeds on the market. Blackburn says the everyday strains are just as important as the heirloom semen, if not more so.
(HT: The Dish)
A new working paper (abstract; PDF) by Eric V. Edmonds and Maheshwor Shrestha analyzes whether schooling incentives (in the form of conditional cash transfers) effectively reduce child labor, which is a persistent problem in developing countries. Their conclusion: you get what you pay for. From the abstract:
Can efforts to promote education deter child labor? We report on the findings of a field experiment where a conditional transfer incentivized the schooling of children associated with carpet factories in Nepal. We find that schooling increases and child involvement in carpet weaving decreases when schooling is incentivized. As a simple static labor supply model would predict, we observe that treated children resort to their counterfactual level of school attendance and carpet weaving when schooling is no longer incentivized. From a child labor policy perspective, our findings imply that “You get what you pay for” when schooling incentives are used to combat hazardous child labor.
Ray Fisman and Tim Sullivan use the example of New York City’s surprisingly efficient passport office to explore an interesting question: “Why do some government offices perform well and others poorly, even when they’re providing the same services and working with comparable resources?” Fisman and Sullivan think it’s all about the management:
There’s an emerging body of research that chalks up these productivity gaps to the all-too-human ways that different companies (and divisions within a single organization) are managed. The fact that management matters—a lot—shouldn’t come as a shock to anyone who has ever worked under a good manager and also a bad one: Good managers coach, listen, support, and make their employees feel like they’re making progress. Bad ones don’t—often in uniquely horrible ways. And if this is true at for-profit companies, why wouldn’t it be true for branches of the government?
At the Hudson Street New York Passport Office, the management is Michael Hoffman:
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