Links round-up

Hi all,

 Well it’s been a completely  manic week, so if these links feel a bit anaemic and tired, rest assured that they reflect their maker. And if they seem on the brink of absolute despair and weeping, blame Sri Lanka, whose approach to scoring might be described as binary, except that would indicate a few ones among the ducks. Now please excuse me while I go and punch a wall.

 1.       This week, Dietrich Vollrath used Spinal Tap to win an argument about economics (and trust me, this is a win. It’s the equivalent of the Cavs versus the Raptors in Game 1 – a total and complete smackdown). The argument was about whether getting better at doing business, as measured by the Doing Business Indicators can improve growth. Dietz breaks this idea apart carefully. He looks at the way in which the Doing Business scores are put together (old hat to DFID economists); then he looks at the rate of growth you can achieve even if doing business is your constraint to growth, and finally, he suggests that one of the reasons for Singapore’s success isn’t so much it’s business environment as the fact that it’s a single city – and measured against other cities it doesn’t actually look that impressive. The summary does little justice to all the wisdom in the post. Dive in.

2.       (So, Sri Lanka just lost another wicket. We should just declare now and stop embarrassing ourselves). Anyway, while I tear my hair out, read this superb discussion of inequality from Branko Milanovic. He looks at firm structure and how the decline of huge companies that employ loads of people has actually led to an increase in inequality. This seems counterintuitive – surely smaller companies should be less unequal? But no – Branko doesn’t make this connection, but one of the best papers of recent years, Nick Bloom (and co-authors) piece on firms and inequality demonstrates this: most inequality is now between firms, not within them. Basically firms are specialising more and more, and the lucky people who work for the really productive ones earn heaps – but within the firm, there’s not much inequality. For the rest of the people, though, incomes are falling further and further behind, as they are no longer hooked to their more productive peers (as a concrete example, think about the rise of outsourced security guards, who are no longer employed by the same firm as the buildings they guard).

3.       Who would have thunk it? It turns out we actually kind of need low-skilled migrants, and without them a lot of firms will find it very hard to fill jobs.

4.       Every time Markus talks about research methods we should ask sit down, shut up and listen. Here he gives really interesting tips on how to run research in conflict-affected areas. This is interesting even for those of us who don’t commission or run research projects, as an insight into the amount of thinking and care that goes into the design of a good piece of field work.

5.       Last week, I linked to Harry Enten’s piece on why it was so hard to predict Trump. This week, it’s Nate Silver’s turn, and he’s typically thorough, and proposes a good way of doing better next time, again turning to Bayes.

6.       Lastly, apropos of absolutely nothing, here are two great pieces on Sumo wrestling – which for some reason spawns really high quality writing. First, FiveThirtyEight uses a rich data source stretching back aroud 200 years to ask if Hakuho, the current top dog, is the greatest ever (the article is fascinating, even if you nothing about the sport). And older, but brilliant – Fightland on Vice break down what the heck Sumo is, for people like me who thought it was just plus-sized dudes bouncing bellies.

 Have a great weekend, everyone!

 R

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To What Extent Resource Discovery Influences the Politics of Fiscal Decentralization

“North Sea oil and gas reserves are another matter of much dispute. Mr Salmond says an independent Scotland would earmark a tenth of revenues – which the Yes campaign puts at about £1bn a year – to form a Norwegian-style sovereign wealth fund, creating a £30bn pot over a generation. Prime Minister David Cameron says the North Sea has been a British success story – and now oil and gas are getting harder to recover it’s important to back the industry with the “broad shoulders” of the UK.” Barford (2015)

Haggling over a fair share of the tax revenue between the central and the provincial governments is often an integral part of the political theatre in many countries. Natural resource revenue for its part plays a crucial role in influencing the politics of revenue sharing. Whether the issue at hand is fiscal federalism or autonomy or secession, the geographic location and the distribution of natural resource revenue seems to play a role. For example, the discovery of North Sea oil off the coast of Scotland has underpinned the Scottish case for sovereignty since the 1970s. North Sea oil was an integral part of the political discourse on either side of the Scottish independence referendum debate in the UK in 2015. The same could also be said about the secession movement of the three mini Indian states of Jharkhand, Chhattisgarh and Uttarakhand. These three mini states split from the three large states of Bihar, Madhya Pradesh, and Uttar Pradesh respectively in the year 2000 and they also happen to be endowed with one of the largest mineral deposits in the country. Bolivian indigenous communities of the Aymaras and the Quechuas not receiving a fair share of the natural gas revenue sparked mass protests and political instability in the country which led to the nationalisation of gas fields in 2005.

The UK's 2015 Oil Reality (Creative Commons)

The UK’s 2015 Oil Reality, by Michael Elleray (Creative Commons)

In spite of the potential connections, research on the interrelationship between natural resources and fiscal decentralization remain rare. Standard models of fiscal decentralization assume benevolent governments at the central and regional levels. They maximize the sum of utilities of residents in their jurisdiction and provide local public goods. Therefore, there is merit in fiscal decentralization or centralization depending on the nature of externality that the provision of local public goods generates for other regions in the country. Alternatively, another class of models view fiscal decentralization from a ‘Neo-Hobbesian’ perspective whereby the central government is a revenue maximizing Leviathan only constrained by the constitution and bottom-up democratic pressure via the regional governments. Under both of these approaches, one would expect the spatial distribution of natural resources and the quality of political institutions to matter by influencing the power relationship between the central and the regional governments. Yet studying the effects of natural resources and political institutions on fiscal decentralization remains on the periphery of this literature.

The recent CSAE working paper of Sambit Bhattacharyya, Louis Conradie and Rabah Arezki systematically explores the causal effect of natural resources on fiscal decentralization and how the quality of political institutions affects this relationship. In particular, the study exploits the exogenous variation in giant and supergiant discoveries in oil, gas and mineral reserves to set up a quasi-natural experiment to identify the effect of natural resources on fiscal decentralization. The study analyses the effect of resource discovery as an exogenous news shock using a global dataset covering up to 77 countries over the period 1970 to 2012. Furthermore, the study also estimates the effect of resource rent on fiscal decentralization.

The study makes the following contributions. First, establishing causality is the main motivation in this literature and the study presents a credible strategy to achieve that objective by using the exogenous news shock of resource discovery as an identifier. Second, the study uses a novel geocoded dataset on resource discovery. In particular, the new dataset is able to distinguish between 11 different minerals (gold, silver, platinum group elements (PGE), copper, nickel, zinc, lead, cobalt, molybdenum, tungsten, uranium oxide) and oil discoveries. Third, the study is first to analyse the effect of resource discovery on the politics of fiscal decentralization. In particular, it explores how democratization influences the relationship between resource discovery and fiscal decentralization.

There is no obvious prior when it comes to the effect of natural resources on fiscal decentralization. On the one hand resource discovery could embolden a central government who is acting as a revenue maximizing Leviathan to act far more unilaterally and centralize fiscal affairs. On the other hand resource discovery could also incentivize the central government to decentralize in order to either expand political patronage or improve the efficiency of public spending by addressing the preference matching problem. (Note that the preference matching problem refers to the mismatch in preference between the local population and the rest of the country with regards to public spending and revenue collection.) Therefore, the lack of a strong prior either way makes this a valid empirical question.

Estimating a model controlling for country specific unobserved heterogeneity and trends, time varying common shocks, discovery history in the previous decade, GDP per capita, and heterogeneity in the measurement of fiscal decentralization the study finds that resource discovery (both oil and minerals) has very little effect on fiscal decentralization from the revenue side. However, the former appears to induce centralization on the expenditure side and the effect seems to be driven by oil discovery and not minerals. The intertemporal effect of resource discovery on revenue decentralization (measured by revenue share) also appears to be statistically insignificant both 10 years pre-and-post discovery. The estimated coefficients however indicate expenditure concentration up to 6 years post discovery. The study also document that permanent democratization and the quality of political institutions have a differential impact on the effect of resource discovery on fiscal decentralization. In particular, the study finds that resource discovery leads to fiscal centralization in locations which have not experienced permanent democratic transition.  This effect is primarily driven by oil discovery. The study notes similar but statistically insignificant trends with mineral discovery.

Which fiscal institutions respond most to the resource discovery news shock and democratization? The study finds that tax and intergovernmental transfers respond most to the shocks of resource discovery and democratization. The institutions of own source revenue, property tax, educational expenditure, and health expenditure do not seem to be significantly affected. The discovery news shock might affect government revenue and spending through expectations but any direct effects on revenue collection have to wait till the start of production. The marginal impact of resource rent could be much more immediate and direct. Using both the standard fixed effects model and the instrumental variable (IV) method the study finds higher resource rent leads to more fiscal centralization and the effect is moderated by permanent democratization. This pattern is observed for both oil and mineral rents even though the effect is albeit weak for the latter.

 

Dr. Sambit Bhattacharyya is a Senior Lecturer in Economics at the Department of Economics, University of Sussex. His research interests are in the areas of development economics, economic history, and political economy. He has authored a book entitled Growth Miracles and Growth Debacles: Exploring Root Causes and published widely on topics related to natural resources and economic development.

References

Barford, V. (2015). Scottish Independence: Five Unresolved Questions, BBC Online, 25 August, 2015. http://www.bbc.co.uk/news/uk-scotland-scotland-politics-28883540?print=true

Bhattacharyya, S., L. Conradie and R. Arezki (2015), “Resource Discovery and the Politics of Fiscal Decentralization,” CSAE Working Paper Number 2016-5, University of Oxford.

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Links round-up

Hi all,

It’s Friday the 13th, so obviously the Spurs lost. How else can it be explained? I’m still in shock. After the 27-degree sunshine in London (for which, of course, I was in rainy and chilly Addis Ababa), Leicester City winning the premiership, and the continued rise of Trump, this is clearly a sign of the end of days. So quickly, to the economics, before the coming apocalypse makes the Solow Growth model and convergence of incomes moot.

1.       Speaking of Trump, I think I need to eat some serious humble pie. After the first primary, I remember confidently stating that there was no way on earth that he could possibly win the Republican nomination; that early polls are usually wildly inaccurate; that no-one with such net negative favourability ratings had ever won. Well, he did; and we need to work out why so many people got this so wrong. The best piece of navel-gazing comes from one of the more consistent Trump sceptics, Harry Enten at 538. I am now resolutely making no predictions whatsoever, because my ‘put your house on the Spurs’ statement indicates that my endorsement is a kiss of death, and I’m not taking the blame for President Trump.

2.       In another sign that the Idiocracy is almost upon us, an Italian economist was chucked off a plane for writing in ‘terrorist code’. The said code? Algebra. Granted, the Lagrangian Multiplier is probably one of the scariest things I’ve seen, but still, make no mistake, this is the worst. I mean, what’s the reasoning here? Person writes in non-English script, must be Bin Laden? Even if Guido Menzio was Middle Eastern and writing in Arabic, how did it get this far? Suspicion was raised because he was not white enough and was writing in a foreign script. This is outrageous.

3.       Perhaps the only silver linings here are that Guido’s work is getting more attention, and the Economist did something funny (yes, I know – end of days, see the intro) with their list of ten signs that you’re sitting next to an economist on a plane. If you’re sitting next to this economist, you can tell by the loud snores and constant, annoying, fidgeting.

4.       The SDAs on the list might not like this, but here’s Stephen Porter arguing that qualitative research is increasingly irrelevant. Before the rotten tomatoes are launched my way, I think qualitiative research is really important (and always make this point in trainings on using evidence effectively), but he’s right that there’s a trend among some researchers into wilfully esoteric and vague work, which makes it less attractive to policy makers.

5.       And, for fairness’s sake – here’s Dave Evans on a bugbear of mine about quantitative research – how little of it provides information on cost and cost-effectiveness of interventions. This always annoys me – it matters if something is really expensive! Speaking of research – here’s some pretty terrible practice – a researcher released personally identifiable data on 70,000 OKCupid users, and then casually brushed it off. Gah.

6.       The IMF lays the smack down on Brexit.

7.       Finally – someone has actually gone up to everyone in a café and asked them what exactly they’re working on at that moment. Two main thoughts: one, Americans are pretty entrepreneurial; and two, they’re all clearly lying because none of them said ‘goofing off on Facebook’.

 Have a great weekend, everyone!

 R

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Intra-household Resource Allocation and Familial Ties

Households in traditional societies often deviate from the form of the nuclear family household that dominate in developed economies. Grandparents and grandchildren, married siblings, other extended family members, or even unrelated individuals may cohabit, produce and consume together.

In sub-Saharan Africa, there is evidence that the prevalence of nuclear family households is rising, in both urban and rural areas. It raises the question what is driving this change and what consequences it may have for the way households allocate resources.

The role of extended families and kinship networks in economic interactions has received considerable attention from economists in recent years (literature reviewed by Cox and Fafchamps 2008) but with a focus on extended family members who inhabit separate households. Whether and how the cohabitation of extended family members affects intra-household allocation is less well-understood.

Agricultural households in Burkina Faso provide an interesting setting for exploring the relation between household structure and decision-making because of the diversity of family ties that exists within the same household. The setting also has two distinctive features which make it easier to formulate and test hypotheses related to household production: (i) the practice of assigning farm plots, individually, to adult household members for which they control production choices, as well as the proceeds of farm output (Udry 1996) and (ii) besides these ‘private’ plots, the presence of ‘common’ plots which are farmed collectively under the management of the household head (Kazianga and Wahhaj 2013; Guirkinger and Platteau 2015).

Using data from a panel survey of agricultural households in Burkina Faso, conducted by the Ministry of Agriculture, we find, within the same geographic, economic and social environment, that nuclear-family households achieve near Pareto efficiency in allocating productive resources and Pareto efficient allocation of consumption, while extended-family households do not.

This pattern is captured in the following figure which shows the distribution of plot yields across farm plots planted to the same crop in the same year (i) belonging to the same nuclear-family household and (ii) belonging to the same extended-family household, after controlling for differences due to the physical characteristics of the plots. For comparison, the figure also shows corresponding distributions for farm plots (iii) within the same village and (iv) managed by the same individual.

figure

For each group, the dispersion of yields captures the potential for improving output by reallocating resources, and therefore a wider dispersion implies greater inefficiency. The household-level distributions, for both subsamples, lie between the village-level and individual-level distributions. This is consistent with the findings by Udry (1996) and Kazianga and Wahhaj (2013) and implies that the household is more efficient than the village at allocating resources across farm plots that belong to the group, but not as efficient as the individual. We also see from the figure that there is greater variation in plot yields across apparently identical plots for extended family households as compared to nuclear family households. The equality of the two distributions is rejected at any conventional level using a Kolmogorov-Smirnov test, implying that the allocation of production resources is more efficient in nuclear family households than for extended family households.

We develop a theory where household members with closer familial ties exhibit higher levels of altruism towards each other (drawing on the evolutionary approach to altruism and familial ties, based on the work of Hamilton (1964)), which in turn motivate them to make intra-household transfers close to that required for efficiency. The theory predicts that household members who share a nuclear family tie (as opposed to an extended-family tie or no family ties) should contribute higher levels of labour on each other’s individually owned farm plots. This is confirmed by data on agricultural labour contributions by different household members on individually owned farm plots.

Using data on consumption expenditures by different household members, we implement two tests of intra-household risk-sharing, based data on consumption expenditures and idiosyncratic shocks to income from specific farm plots, and data on child anthropometrics and shocks to mothers’ farm income. With both approaches we are able to reject the hypothesis of efficient risk-sharing for extended family households but not for nuclear family households.

DC5DXM BURKINA FASO, fair trade and organic cotton project, farmer of cooperative UNPCB in village Kayao

Farmer of cooperative UNPCB in village Kayao (Burkina Faso)

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Farmers cultivating soil in village Fada      (Burkina Faso)

 

We argue that the frequent presence of extended-family members and unrelated individuals within the household reflects a household’s response to the absence of markets for labour exchange and risk-sharing: the additional household members provide extra labour (in exchange for room and board and use of household land for farming) and serve as a means of income diversification. Consistent with this argument, we find that household heads with more inherited land and exposed to greater income volatility (due to local rainfall conditions and the characteristics of their inherited land) are more likely to end up with extended-family households.

The two theories of intra-household allocation that have received the most attention in the academic literature and tested most frequently using household data are the Unitary Model and the Collective Model. The Unitary Model, which postulates that the household behaves as if it were a single individual, has been consistently rejected by empirical evidence. On the other hand, tests of the Collective Model, which postulates that household members with conflicting preferences are able to achieve Pareto efficient outcomes, has yielded mixed results — not rejected for labour supply decisions in developed countries or consumption decisions in developing countries, but commonly rejected for production in African households. Our findings regarding the allocation of resources within nuclear and extended-family households provides a way of reconciling these two strands of empirical evidence in the literature that have either failed to reject or have rejected Pareto efficient allocation of household resources.

The wider implication of our analysis is that as markets develop and agricultural land scarcity increases, extended-family households should give way to nuclear family households. This should result in more efficient allocation of resources for production and consumption because of the ties that bind together members of the nuclear family.

 

Link to the CSAE Working Paper

Harounan Kazianga is an Associate Professor of Economics at Oklahoma State University. His research focuses on rural economic activity in Sub-Saharan Africa. He has conducted extensive research in Africa on technological change in agriculture, the use of financial markets, asset accumulation and gift exchange to cope with risk, gender relations and the structure of household economies, education and a variety of other aspects of rural economic organization.

Zaki Wahhaj is Senior Lecturer in Economics at the University of Kent. His research deals, broadly, with themes of social norms and household decision-making in developing countries, including the role of social norms in intra-household resource allocation and household formation, issues relating to female education and economic participation, and interactions between formal law and customary practices. His current research is based in South Asia and West Africa.

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Links round-up

Hi all,

 So, I’m in Ethiopia (without a mule, sadly), and despite a meeting schedule that could be used as a cudgel (all fascinating, of course, but for someone for whom a blank diary is a form of rapture, also a challenge) I’m having a great time. It’s a fascinating place at a fascinating time, yes; but a lot of what makes it such a great place to be hasn’t changed for a while: kitfo, coffee, and the birdlife. Apparently, so long as one has no shame whatsoever, it’s not entirely frowned upon to bring an enormous bird guide everywhere you go, including meetings. I’ve stopped short at bringing the binoculars because there’s a thin line between eccentric and crazy, and I’ve been known to use it as a jump rope in the past. Anyway. It seems like a come-down after all those amazing endemics, but on to the economics.

 1.       I’m here thinking about, among other things, employment. It’s a complicated and difficult subject, and a good way around that is to outsource one’s thinking to Francis Teal. Here, he considers whether it’s small firms or large firms that policy should promote, and concludes that small firms are good at generating some work, and that work – though badly paid – gets slightly better paid over time, but large firms are where economies become productive. My attempt to square this is thus: it’s the productivity gains, value-added and rents that large firms generate that are crucial to driving up the returns to working in small firms, and so neglecting them will allow you to get lots of people into some kind of work, but limits the rate at which that work becomes better paid. As Francis concludes, “Policy, not for the first time in Africa, seems to be focused on completely the wrong problem.” (Full paper here).

2.       Dietrich Vollrath is the most readable and sensible growth economist out there. In development, we talk a lot about within-sector productivity growth and across-sector productivity growth, terms that are not inherently intuitive. Dietz explains them excellently here, and I encourage everyone to read it all – if the equations scare you, ignore them and read the explanation, which makes everything clear. He’s talking about the US (and briefly South Korea) here, but the intuition applies everywhere, and he summarises it thus: “You cannot talk about aggregate productivity growth without talking about both technology and the distribution of workers across sectors.” In most developing countries, the distribution of workers across sectors isn’t great, and that’s why economists keep banging on about structural transformation.

3.       This week in stuff that makes me so, so angry: social protection and social policy typically evolves based on a strange mix of political expediency, short-term firefighting and ideology. They then persist for a very long time, even when circumstances render them insane. Planet Money looks at US housing support (often awarded as part of a lottery. Yes, a lottery, that’s not a typo), and explains how bad this makes coverage. (Transcript).

4.       Speaking of which, here’s the promised Tim Harford post on the idea of a basic income. a typically intelligent and measured response, he concluding: “the idea appeals to three types of people: those who are comfortable with a dramatic increase in the size of the state, those who are willing to see needy people lose large sums relative to the status quo, and those who can’t add up.” I suspect category three is substantial.

5.       This might be my favourite map of Japan – when you plot the location of electric car charging points, you can no longer see anything else. They might not have the charm of the decrepit and terrifying Ladas that dominate the Ethiopian taxi market, but they’re a hell of a lot greener.

6.       Great LitHub piece on the decisions that underpin what a free market is, and how it looks in different contexts.

7.       Lastly, because I love her, Jessa Crispin burns all her bridges. Every. Last. One. (alternative title: how to be awesome).

 Have a great weekend, everyone!

 R

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Should policy seek to promote small firms or large ones in Africa?

Is small beautiful when it comes to firms in poor countries? Whatever one thinks is the answer to that question the pervasiveness of small scale enterprises in countries in sub-Saharan Africa is not in dispute. In a recent CSAE discussion paper, I document that in Ghana not only do small firms dominate the urban industrial landscape but this dominance has been increasing over the period from 1987 to 2003. It thus rather matters if we think this is progress in moving people out of poverty or signs of increasing immiserisation – a rather more prosaic question than the beauty of the small but nonetheless a vitally important question for policy in developing countries.

Newly available data from the Ghana Statistical Office has enabled the pattern of small firm growth to be seen in a longer term perspective and the data is relevant for several issues which have been prominent in discussions of policy in Africa. The reforms in the late 1980s and early 1990s in moving African economies towards more market oriented policies, often under instructions from the IMF, were deeply contentious. How did small firms perform under the new regime relative to the old one and how much did employment in them increase? Small firms are traditionally viewed as part of the informal sector and an influential policy agenda set out by the ILO argues for a focus on ‘decent jobs’. Are the jobs that were created between 1987 and 2003 in Ghana’s manufacturing sector ‘decent’ ones? Finally how successful were these small firms in producing value-added, which is after all what firms are there to do?

Well the answer to the first of these questions is crystal clear. Between 1962 and 1987, roughly the period of the old market hostile regime, the number of small manufacturing firms in urban Ghana scarcely changed. Between 1987 and 2003 their number more than tripled as did employment in them. IMF type policies are good for small firms or, at the very least, do them no harm. And yes small firms created lots of jobs over this period. Data from the household surveys for the period from 1998 to 2005 show that employment in small firms (across all sectors, not simply manufacturing) rose from 3.4 per cent of the population aged 15-65 to 6.7 per cent, an employment rise from 352,401 to 885,391.

But, and it’s an important qualification, these jobs are badly paid relative to those working in larger firms where employment in manufacturing actually fell. So were these ‘bad’ jobs that have been created, ones which the ILO wishes to disappear? Certainly, their report is explicit that a contraction of the informal sector is necessary to promote their agenda However, a rather more relevant question for the poor is – did those working there see an increase in their incomes? Again the answer from the household surveys seems clear. Yes and these income gains were substantial. Between 1998 and 2005 men’s incomes rose in real terms by 45 per cent and women’s by 51 per cent. Poorly paid the jobs were, the key point is that they were becoming better paid.

It is the role of small firms in the development process which is more complex. The Ghana data certainly suggest that their formation is not a problem. But their productivity measured as value-added per employee is low relative to larger firms. Even more important their relative productivity seems to have fallen over the period from 1987 to 2003.

So is small beautiful? The answer appears to be that small firms are good at what small firms do. They create lots of jobs using little capital when policy lets them – in Ghana after 1987 but not before. But large firms are valuable too, they have far more capital per employee and produce far more output – the figure graphically illustrates that while small firm dominate in numbers they produce far less value-added than large ones. So much so that in 2003 the top 1 per cent of firms produced 63 per cent of value-added. Policy rhetoric focuses on the problems faced by small firms. Data from Ghana over the period for which we have it suggests that it is large firms that face the problems. Unloved possibly because they are not seen as beautiful they are vital for the output of the sector. Policy, not for the first time in Africa, seems to be focused on completely the wrong problem.

 

Figure of the number of manufacturing firms and the total value-added for 1987 and 2003 in urban Ghana.
 

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Note: A small firm employs less than 10, a large firm 10 or more.

 

 

 

 

 

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Links round-up

Hi all,

 In a parallel universe, one where I haven’t been mainlining coffee in an increasingly desperate attempt to maintain some level of functionality at work today, I am writing an incredibly witty intro to these links, weaving together the junior doctors’ strike, the end of days sunshine-rain-sunshine-hail weather we’re getting in London and the plummeting price of renewables that we can’t work out how to use effectively. Instead I’m going to try and type this e-mail with my eyes closed and my head on the desk. That said, my energy will return as I write – I really struggled to pick which link to lead off with, there were so many brilliant ones.

 1.        In the end, what won the race for first link was this sentence: “So we were trying to think of how to get around that, and then someone suggested that we actually just mail all of our female users a Bane mask like from ‘Batman.’” We all know, by now, that discrimination is costly for firms, for consumers, and for the economy as a whole, but it still happens. Why? Because so many of the shortcuts we take to guess at ability levels when we’re sifting job applicants hinge, at some deep level, on an unconscious bias against some group that we have, a bias that might have no bearing on ability to the job. Planet Money have a great podcast that looks at some of these biases and documents cases where overcoming them increases performance for the firm and worker – including the hiring of criminals with felony convictions in the states. That opening quote comes from one way of introducing ‘blind interviewing’, to remove all the signals that my trigger the interviewer’s unconscious biases. Theatricality and deception, Mr. Wayne. (Transcript).

2.       I very nearly led with this: Chico Ferreira thoughtfully and intelligently reviews Branko Milanovic’s new book. This is glorious, high quality thinking about inequality here, from two of the best researchers around on the topic. Sample quote: “… inequality is … a general equilibrium outcome, reflecting … very different factors: the quantity of schooling…, the changing nature of the demand for skills (affected in turn both by technical change and by trading patterns), changes in labor market institutions (such as unionization rates, or minimum wage policies), changes in tax and expenditure regimes, changes in marriage patterns, changes in returns to capital, changes in land prices, etc. The list is almost endless.” I think this is a good time to renew my call for a “I think you’ll find it’s just a little bit more complicated than that”.

3.       This was the third strong contender for first link: Tim Harford uses the threat of closure of Tata Steel in Port Talbot as a springboard for an excellent piece of thinking about how we should respond, socially, to the effects of declining industries: prop them up forever? Let them die on the vine and trust the market? Like most sensible people, he thinks the answer is somewhere in the middle, and he suggests three ‘middle-way’ policies. He closes with the suggestion that we ‘just give cash’ and promises a future post on the topic – but in the meantime, here’s a good long read on the topic from FiveThirtyEight.

4.       A colleague of mine told me this week that she’s worrying about a decline in the attention to detail with which we (by which I mean technocrats, policy wonks, and institutional researchers) use household data. She’d probably love this piece from Jed Friedman, a clever experiment to find out how biased household survey measures of consumption are, and what causes their biases. Really interesting, and I hope many of you click through.

5.       Via David McKenzie – this made me really smile: a paper about brilliant economists getting the smack laid down on them via journal rejections.

6.       In a week in which I haven’t very often felt good about humanity, in a monumental turn-up for the books Tyler Cowen provided a reason to be optimistic: a market uptick in positive opinions about migration in the US. Let’s just hope this travels.

7.       “What kind of degenerate only wants to own 30 books (or fewer) at a time on purpose?” LitHub writes about Marie Kondo’s The Life-Changing Magic of Tidying Up, and in doing so perfectly expresses my relationship to my books.

 Have a great weekend, everyone!

R

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Links round-up

Hi all,

The economic punmaker in me wants to start this round-up with a joke about 2016 being the year of ‘creative destruction’, but the wound is too sore. I was in a pub restroom last night when I got a text letting me know about Prince and I unleashed a howl of anguish (side note: howling in pain in a pub restroom is frowned upon). I was only properly introduced to him a couple of years ago (I know, I know), but because of that introduction, Starfish and Coffee will always be one of my favourite songs – and in that video, combined with muppets, well: smiles for hours. As the New Yorker put it, ‘now we begin the collective, active experience of remembering Prince’. LitHub has a piece on his musical origins, and another asking three writers to summarise what he meant to them (“his defining legacy will be his genius for individuality, and his defiance of reductive identities…”). And FiveThirtyEight crunches the numbers on his brilliance. Now, before we get into the weekly geekery, if any of my readers are in Brighton can you pop over to his house and wrap Nick Cave in bubble wrap? 2016 has taken quite enough heroes already.

1.       Tim Harford was in coruscating form this week (and apologies for the bad language here). If you read only one non-Prince-related thing this weekend, make it this brilliant piece on how politicians have corrupted statistics with bullshit. Not lies, mark, but bullshit: “the liar care[s] about the truth… The bullshitter … was indifferent to whether the statements he uttered were true or not.” It’s marvellous. Harford carefully examines the language and evidence politicians use in justifying their work, and finds little that is outright incorrect or a lie, but finds that almost all of it is basically meaningless – so carefully chosen and selected, and so carefully divorced from context and nuance that it might as well be a lie. The practice is akin to being asked, “How old are you?”, and responding with “I have ten fingers”. It’s not a lie, it’s just functionally meaningless in the context. Alongside this, he assesses three claims about Brexit. Anyone want to guess what he calls?

2.       Matt Collin runs Tim close this week, with a piece of rationality shot through with feeling here: he takes Chris Bertram to task on his own criticism of Branko Milanovic’s proposal to increase migration by reducing migrant rights (I heard a similar proposal made by someone else recently). I don’t fully agree with Matt – there is also a philosophical all-or-nothing case that can be made, arguing that we either protect the world we believe in or lose it, without compromise. I’m not saying that it’s the right position, but it’s a philosophically defensible one.

3.       Chris Blattman had a number of great pieces this week but my favourites: one on how eliminating deadlines dramatically reduced applications for a particular grant. His theory, which I think has a great deal of merit, is that only a deadline can stir a bureaucracy to action. The other link he had which I loved: oil prices reimagined as a rollercoaster. Would you want to put all your eggs in a basket on the back of that rollercoaster? Of course not – which is why it’s so important that oil exporters diversify, and so frustrating that so few do.

4.       Angus Deaton writing about Raj Chetty’s recent research into income inequality and healthcare outcomes in the US. Seriously, this does not need any further selling. It’s Angus. Talking about Raj Chetty. Why haven’t you clicked yet? It’s obviously excellent, full of the kind of points you only make if you understand something intimately. Angus understands a lot intimately.

5.       Excellent piece by Dietz Vollrath considering under what conditions increased market concentration is good for innovation. It’s a complicated topic, explained as clearly as it can be, and I recommend economists read it closely.

6.       I love this: in honour of the Queen’s birthday, someone told the worst story ever. Seriously, it’s worse than the story I told about me howling in a pub loo.

7.       In any other week, this would be the last link – six bulldozers getting into a massive mechanised brawl, tenuously linked to an economic slowdown. It’s like Anchorman for construction workers.

8.       But, let’s be serious. I was never going to end on anything but this, was I?

 Have a great weekend, everyone!

 R

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Links round-up

Hi all,

 It’s the end of an era. Kobe Bryant, basketball savant or ball-hogger extraordinaire depending on your viewpoint, has retired. It’s appropriate that a player so obsessed with his own statistics should have had such an effect on the way in which basketball is analysed, but I’ll leave that to the last link, below. For now, let’s just remember this and accept that only a ball hog of epic proportions is capable of such excitement. I may have to turn in my economist card, but some things are more important than efficiency (that last link makes me grin from ear to ear). So some token economics before we get to Kobe-by-statistics. [As an aside, it’s also the start of a horrifying era, as James Cameron has announced, in what is presumably not a late and vicious April Fool’s, that he will make four sequels to Avatar. Four. Seriously, four. 4. My only consolation is that my discount rate is sky-high, and the negative effects of the third and fourth films aren’t tipping me into a suicidal mood].

 1.       This week in things that should be a far bigger deal than they are (also in this category, William Fiennes’s The Snow Geese, Beat Takeshi’s latest movie Ryuzo and his Seven Henchmen, and everything that Nick Bloom does): Tyler Cowen picks up some of the coverage of Nigeria’s economy. “Factories are closing because they can’t find dollars to import parts. Supermarkets are struggling to keep shelves stocked. Power plants have virtually stopped producing electricity because they can’t pay for maintenance… Nigerians abroad are stuck with ATM cards they can’t use because the central bank has limited withdrawals outside the country.” This is one to keep an eye on. They may manage their way out with nary a scratch, but it would be an escape worthy of Steve McQueen.

2.       When I lived in Zanzibar, there was a shopfront upon which the announcement “Mr Credit is dead. Living only his son, Mr CASH!” was emblazoned. I loved that. We’re getting to a stage where international development might need a version of this slogan. First Dave Evans suggests that cash is might be a pretty good counterfactual for most development programmes (always ask “should we just give cash instead?”) I agree with that, depending on what the programme is trying to do. It escalates though. Give Directly, in a move that makes me queasy, is attempting a massive pilot of a basic income in Kenya – without, it seems from a glance, much input from the Kenyan government. Berk Ozler suggests ways of improving the evaluations here, very thoughtful. But it strikes me that we lack even flimsy theoretical justifications for using cash as a substitute for deep institutional development; and while few us take it as such, it seems like some do. And if GD are doing this around the Kenyan government, there might be some ‘do no harm’ questions they need to ask themselves.

3.       There’s loads of interesting stuff in this Tim Harford article looking at how the framing of choice can affect our decision-making. But the sentence I cannot get over is this: “Starbucks offers about 100,000 drink combinations — millions, once the syrups are taken into account.” I mean, seriously – millions of drinks and they all taste like a sock steeped in hot water and then shot with a cannon full of sugar? HOW?!

4.       A colleague sent this to me today, with the qualification ‘far be it for us to cast stones, but…’: the NYT on the lack of concrete language in World Bank reports. Choice quote: “[The study] found a sharp decline in factual precision, replaced by what the researchers call management discourse, a bureaucratic gobbledygook whose meaning is hard to decipher.” I agree. To combat the issue, I suggest we take this offline, so we can take a deep dive into the issues and facilitate a systemic mapping of the low-hanging fruit adjacent to our vector of possibilities.

5.       Nice, thoughtful Berk piece on the apparently rising trend of Peter Singer-type experiments to induce altruism by teachers with a ropey grasp of moral philosophy. I wonder what Michael Sandel would make of this? It’s a gussied up version of those guilt-tripping Oxfam ‘killer stats’ like “every year we spend more on ice cream than on preventing malaria” [sound of head thumping the table].

6.       In a modern equivalent of being shamed into helping people, I always find it a bit weird that we have try to prove that helping migrants or refugees or women achieve economic equality is good for the rest of us. It almost certainly is, but is that really the point? Related, a nice photo essay about migrant workers from the Graun.

7.       That’s quite enough of that rubbish. Let’s get back to the Mamba. 538 points out that the wave of advanced stats that rejected Kobe’s claims of greatness were… well… not really all that advanced. As they improved, they became more likely to capture the specific benefits that Kobe brings that other players just can’t. Does it make him the new Jordan? Of course not, but he was still pretty damn good. We tend to underestimate the great ones while they’re playing – the number of people who somehow forget that LeBron James is a cyborg from outer space at MVP voting time completely amazes me – but the numbers stack up for Kobe. So in that frame of mind, two more links: first, the Warriors are ridiculous. And second, at the end of the greatest season of shooting in the history of people throwing balls into little hoops, an appreciation of all the hard work that goes into making Steph Curry look effortless.

 Have a great weekend, everyone!

 R

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Links round-up

Hi all,

 We’re not going to talk about this. Not at all. In particular, no mention will be made of the fact that seconds before the first delivery was bowled, I confidently texted a friend ‘England have this in the bag – amazing comeback!’. Further, we will gloss over that (not insignificant) portion of me that was howling with laughter inwardly at the ability of the England team to call up that awful temptress, Hope, only to reveal at the last moment her true identity – that of her evil twin: Despair. Very quickly, to the sweet balm of economics.

 1.       I have a friend whose immediate reaction when confronted by an opinion different to his is sympathy for the poor soul who has yet to discover the truth. This drives me nuts, but apparently it’s not uncommon. Tim Harford puts it thus: “We see what we want to see. We also tend to think the worst of the ‘idiots’ and ‘maniacs’ who think or act differently”, and has a really nice write up of the research into this phenomenon. I think this is particularly important for development  workers. When working for developing country governments it was a constant annoyance that every donor who wasn’t greeted as the messiah for suggesting that we institute an MTEF would ask me “Why don’t these pesky locals see the need for this?”. Rarely would someone think “well, these guys have been here way longer than I – maybe they know something about this that I don’t.” We did: MTEFs had been tried repeatedly and never worked, because the budget was a fiction anyway – you might as well keep it a relatively easy fiction to write.

2.       Speaking of things that drive me nuts: the mean (or arithmetic average) being used, even when it’s wildly inappropriate, because so many people assume it’s the ‘best’ or ‘normal’ average. There is no such thing! The right average depends on what you’re measuring and what you care about, and actually, I think the safest bet tends to be the median. Priceonomics has an interesting piece on the history of the ‘average’, and they must be right because they agree with me.

3.       One particular situation where the mean average is guaranteed to make me swear: analysis of incomes, when we should care very much about the distribution. Inequality guru Branko Milanovic writes here about The Great Gatsby Curve, and the erroneous idea that in the US high income inequality matters less because social mobility is high. Not only is this weirdly persistent myth wrong, the reality is the opposite: actually, when there’s higher inequality, the poor get poorer over time, relatively.

4.       On the value of information in crises, and how that value is eroded over time. A very nice breakdown, but I’m not sure how much this tells us without breaking down the different kinds of information and how their value-erosion varies – and how their value compares in absolute terms. More information is almost always better (almost: I have no desire to know about the hygiene of my favourite restaurants), but we need some way of prioritising what we invest in.

5.       Planet money on a sovereign debt default in that weird in-between place, Puerto Rico: part of the US, but kind of not. Debt crises can seem a bit remote, a bit difficult to really think about in concrete terms, and the Planet Money team do a great job of both accessibly explaining how this one came about, and giving some indication of the human cost (Transcript).

6.       Harvard’s 1953 economics exam was awesome. And I disagree with Chris. I think economists are still typically way behind the curve on history.

7.       Lastly, because these links have been depressing, two happy ones: first, remember that crazy depressing story about the guy who faked the study showing how exposure to gay people made people discriminate less? Well it has a happy ending! Real researchers who didn’t make up the data have found some pretty similar results, but even more positive in some ways. And lastly, the best poem I have read so far this year. What a line: ‘I was born aflame, I believe.’

 Have a great weekend, everyone!

 R

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