Monday, May 31, 2010

Men should exercise to improve sex life

LA Times article "Men should exercise to improve sex life" (May 31st, 2010) notes a study that finds
Men who exercised had significantly higher scores on a sexual-function questionnaire compared with men who were sedentary, according to a study released Monday at the annual meeting of the American Urological Assn.
The article then makes the causal claim implied in its title. Of course, the relationship (that more exercise implies better sex life) may be inverted. Perhaps it is true that men who have greater utility from their sex life are willing to pay more to maintain that sex life. This will, among other things, cause these men to exercise more, improving their appearance to the opposite sex (and so increasing the amount of sex they have). In addition, it may be that more virile men have both better sex and are pre-disposed to exercise more. Fundamentally, the article gives us no reason to exclude either reverse-causality or a correlation caused by an unobserved third factor as responsible for the relationship reported between sex and exercise. Nonetheless, the article suggests in its title that people change their lives in way fundamentally rooted in a rejection of these possibilities.

Saturday, May 29, 2010

America's 'casualty gap'

Los Angeles Times opinion editorial "America's 'casualty gap'" (May 28th, 2010) reports the difference between the percentage of total wartime casualties suffered by members of poor communities relative to members of rich communities.
Nationally, in the Korean, Vietnam and Iraq wars, communities in the lowest three income deciles suffered 35%, 36% and 38% of the casualties, respectively. Yet communities in the top three income deciles sustained significantly fewer casualties — 25%, 26% and 23% of the casualties, respectively.
The United States has a volunteer army. Soldiers are compensated by regular pay, hazard pay, enlistment bonuses, government benefits, and well-earned gratitude from present and future generations. When the United States has a volunteer army, which it has since December 1972, the last month in which an individual was conscripted into the U.S. Armed Forces, it is an exercise in futility to argue any sort of discrimination. Individuals freely choose the Armed Services over their other options. They further choose their branch of service, as well as their military occupational specialty, generally speaking. If poorer people choose the military, it would appear, in a rough analysis, that they are benefitting more from its presence.

This may be especially true during wartime. Corrections cobbled together military pay for E-2 (an enlisted pay-grade corresponding to a Private in the Army, PFC in the Marine Corps, Airman in the Air Force, and Seaman Apprentice in the Navy and Coast Guard. It is a pay grade relatively rapidly achieved for enlisted men. Military pay sheets for every year were not easily available. Corrections imputed pay for those years in which it is not, denoted by a circle. Years featuring a war in which more than one-hundred Americans died (as well as the first three years of Operation Enduring Freedom, in which fewer than 100 Americans died) are denoted in red, while years without such a conflict are denoted in blue. It appears to Corrections, generally speaking, that post-draft wartime has caused more rapid increases in inflation-adjusted military pay. Therefore, it is difficult to discern without more careful calculus whether or not individuals are being compensated for the risks they are taking--with heterogeneous valuations, we might expect wartime military service to be better for poorer Americans who choose to serve, rather than worse. Our data is displayed graphically below (click to enlarge).

We note the sharp spike in pay occurred when Richard Nixon was engaged with the idea of an all-volunteer army.

Corrections should further add that including Operation Enduring Freedom, Operation Iraqi Freedom and Operation New Dawn in their analysis, without including the enrollment, average length of service, and rate of ascent figures for each income decile is egregiously misleading. In fact, both the lower class and the upper class are underrepresented in enrollment--this article's analysis would suggest that the middle class suffers disproportionately the costs of war.

In addition, a low-income recruit may not be identical to a high-income recruit, making it difficult to compare their wartime outcomes directly. For example, it is well known that income is correlated with education. If the army recruits more "high-quality" soldiers from higher income brackets, then we would expect these "high-quality" recruits to more quickly achieve higher and higher military rank, making them potentially less likely to be in the line of fire than their low quality counterparts. In this sense the article may be taking issue with the fact that more intelligent soldiers are less likely to die in battle. Similarly, if the poor serve longer than the rich, these statistics could be driven by the relative density of poor servicemen. Ultimately, the number of confounds in this analysis make it completely incredible.

Friday, May 28, 2010

Holiday drivers will see a drop at the gas pump

Washington Post article "Holiday drivers will see a drop at the gas pump" (May 29th, 2010) makes a seemingly innocuous claim that doesn't appear to have empirical support. Specifically, the article claims that the approaching summer is a time in which gasoline prices increase.

Memorial Day weekend, the traditional start of the summer driving season, typically means higher prices at the gas pump. But drivers hitting the road for the holiday this year will be greeted with falling prices instead, thanks in part to investor jitters about the global economy that have sent crude oil prices tumbling in recent weeks.

The average monthly price data on regular unleaded gasoline does not appear to support the claim that "driving season" has meant higher prices historically. First, for reader edification, we display the inflation-adjusted relative price changes in regular unleaded gasoline since 1976, with the 1982-1984 price set to 1 (click to enlarge).

It is, of course, difficult to discern whether or not there is a modulo 12-month pattern from the time series display. Therefore, we produce the monthly deviations from a linear December-to-December trend (click to enlarge). If there is indeed a trend, we should see an increase during the Summer months, which certainly doesn't jump out at Corrections.

Viewing the data in a different way, we can see general monthly effects by looking at year-month price data (click to enlarge).

Finally, we can look at the same graph, but of off-December-to-December deviations (click to enlarge). If a trend is present, it should be apparent from a continual up-slope heading north-northwest on the figure between April and August--something that, if it is present, we cannot see.

In summary, a quick graphical examination of the data appears to belie the Post's statement that regular unleaded gasoline prices go up during the Summer. Corrections would further suggest that though we undoubtedly have a shift in the demand for gasoline, we also are likely to have a shift in supply. Indeed, we would suggest that one shouldn't expect a perpetual increase in price much above the cost for storing gasoline for a few months--otherwise a predictable and significant arbitrage opportunity is present--a thing abhorrent to nature.

Wednesday, May 26, 2010

When Passengers Spit, Bus Drivers Take Months Off (May 24th, 2010)

New York Times article "When Passengers Spit, Bus Drivers Take Months Off" (May 24th, 2010) offers a foolish quote with no rebuttal. The article deals with the reaction Metropolitan Transportation Authority bus drivers take to being spit upon. The article notes that of the 51 spat-upon drivers last year, each driver took an average of 64 days off work. It quotes a union official offering the typical refrain that incentives don't matter:

'Being spat upon — having a passenger spit in your face, spit in your mouth, spit in your eye — is a physically and psychologically traumatic experience,' said John Samuelsen, the union’s president. 'If transit workers are assaulted, they are going to take off whatever amount of time they are going to take off to recuperate.'

Corrections believes that incentives matter, and that the union president's quote is ludicrous and deeply un-economic. John Samuelsen is deeply wrong. We would add, to our two other predictions (1) and (2), a third: bus driver leave-taking is not completely inelastic. We predict that drivers would take fewer days if it cost them to do so. If we find data, we will make a note of it.

Tuesday, May 25, 2010

Child mortality rates dropping, study finds, but U.S. lags

LA Times article "Child mortality rates dropping, study finds, but U.S. lags" (May 24th, 2010) argues that
The U.S., which is projected to have 6.7 deaths per 1,000 children this year, saw a 42% decline in child mortality, a pace that is on par with Kazakhstan, Sierra Leone and Angola.

"There are an awful lot of people who think we have the best medical system in the world," said Dr. Christopher Murray, who directs the institute and is an author of the study. "The data is so contrary to that."

The statistic the article uses, however, does not speak to the quality of the medical system. The mortality rate equals the number of children who die divided by the number of children who are born. The number of children born very prematurely in the US has increased dramatically in the past twenty years, as we show in the graph below (click to enlarge).

In fact, the great improvements in delivering children who have a low survival rate may fight any improvements in lowering the mortality rate among more healthy children. The greater number of at-risk children delivered, the greater the mortality rate will be. Such success should not suggest a "lag" on the part of the US, and it may simply indicate that few at-risk children are born alive in other nations.

Monday, May 24, 2010

The propaganda campaign against Obama's tougher fuel economy rules

Los Angeles Times editorial "The propaganda campaign against Obama's tougher fuel economy rules" (May 26th, 2010) offers a diatribe in favor of higher fuel economy for cars. Within its arguments, it offers a pecuniary externality:

To recap the benefits of fuel economy: Consumers win by saving money on gas; public health improves because cars emit fewer toxic pollutants; the nation becomes less reliant on foreign oil; and greenhouse gas emissions drop.

The first is false. If the government imposes higher fuel economy, Corrections suggests that it is a fact of competition that they will lose more money/utility on their more expensive cars than they will on fuel economy. If a car company could produce cars that has savings that consumers want, then they could make money off it. The fact that car companies are not making it now indicates that the "saving money" argument is fallacious--were it worth it for consumers, the profit motive is there, and it would already be being done.

Sunday, May 23, 2010

Five myths about college admissions

Washington Post article "Five myths about college admissions" (May 23rd, 2010) offers a silly argument while claiming discrimination. Specifically it cites as a myth the idea that: "Admissions officers have figured out how to reward merit above wealth and connections." Attempting to dispel the myth, it states that:

A 2004 Century Foundation study found that at the most selective universities and colleges, 74 percent of students come from the richest quarter of the population, while just 3 percent come from the bottom quarter. Rich kids can't possibly be 25 times as likely to be smart as poor kids, so wealth and connections must still matter.

This argument is disingenuous. There are a number of reasons why we might expect poorer individuals would do more poorly at University than wealthier students, on average. Human capital accumulation does not begin in college. Cognitive and non-cognitive skill development start at a young age. Conditional on wealth alone, we should expect wealthier students to be better adapted to college. We should further see budget constraints being less impactful.

Furthermore, the Post's statistics are abysmal. In order for us to have zero poor students going to College, all rich students have to be is some tiny epsilon smarter than the smartest poor student. A ratio of three percent to seventy five percent does not have to be generated by a "high income" distribution with a mean twenty-five times higher than that of the "low income" distribution.

Saturday, May 22, 2010

Can an Enemy Be a Child's Friend?

New York Times article "Can an Enemy Be a Child's Friend?" (May 17th, 2010) states that teenagers who face their classmate's enmity and reciprocate it are better socially adjusted. Throughout, the article's context suggests that such behavior could cause individuals to become better adjusted. Corrections sees heterogeneity rather than causality.

In a series of recent experiments, a group of psychologists at the University of California, Los Angeles, recorded mutual dislike among 2,003 middle school students. Unlike previous studies on the same topic, these researchers also compared children who reciprocated a fellow classmate’s dislike with those who did not. Students who were not named at all on anyone’s blacklist were excluded from this analysis.

This comparison found that the girls who returned classmates’ hostility scored significantly higher on peers’ and teachers’ ratings of social competence. They were more popular and widely admired. The boys who did the same scored highly on teachers’ ratings of classroom behavior.

Corrections is perpetually pointing out the difference between correlation and causation. In a parallel argument, we note that these correlations are scarcely even suggestive of causation when we are dealing with optimizing agents. Imagine that an individual faces enmity from a classmate. Their ability to respond successfully by reflecting enmity back is heterogeneous in the population--they vary in their effectiveness. Furthermore, socially competent people have a greater degree of efficacy in their ability to reflect enmity. Were we running the analysis the Times runs, we would display the following relationship (click to enlarge), which clearly displays a positive relationship between an individual's enmity reflection decision and their social competence:

However, let us imagine that social competence and effectiveness at reflecting enmity have the positive relationship that we graphically display below (click to enlarge):

Then we might say that all individuals who are effective at reflecting enmity do so, and all those that do not, don't. We have in truth the relationship (click to enlarge):

Ordinarily, when we point out that correlation is not causation, we note that a third factor is likely causing both. Here, we posit causality: enmity doesn't cause social competence--social competence causes enmity.  Further, in this causal relationship, boosting enmity among those not displaying it would clearly hurt them (we display this in the last diagram). Students who don't display enmity don't do so for a reason.

Friday, May 21, 2010

Teachers Facing Weakest Market in Years

New York Times article "Teachers Facing Weakest Market in Years" (May 19th, 2010) laments the state of the educational and teaching market. It suggests teachers face a dire labor market. This doesn't line up with our fact-check.

The recession seems to have penetrated a profession long seen as recession-proof. Superintendents, education professors and people seeking work say teachers are facing the worst job market since the Great Depression. Amid state and local budget cuts, cash-poor urban districts like New York City and Los Angeles, which once hired thousands of young people every spring, have taken down the help-wanted signs.

The article discusses how this has been a terrible labor market for teachers. Indeed, it has been in a sense--layoffs have increased dramatically off-trend. However, educational hiring has also increased off-trend. Examining the linear trend in hiring from 2000-2005 and projecting it out to 2010, we examine the difference between cumulative predicted hiring to actual cumulative hiring. The deviations from indexed expected hiring and layoffs in both educational jobs and the private market are displayed graphically below (click to enlarge).

Examining the figure, we can see that while layoffs have increased dramatically off-trend for teachers, so have hires. Corrections hasn't given evidence for whether or not teachers are actually in a better position than the average worker in the private realm, just as the Times only gave anecdotal evidence and projections, but no actual data on the teaching job market. Nor have we definitively pinned down the causes of increased unemployment, if it is present. Corrections does suggest that this gives some evidence that the evidence the Times cites, such as dozens of people applying for single jobs, is at least in some significant part a supply-side trend, rather than completely a demand-side trend, due to layoffs.

Addendum: We can also observe indexed, seasonally adjusted private employment and educational employment, displayed graphically below (click to enlarge). It makes our point even more strongly, and further suggests to Corrections that this "worst job market for teachers" is simply a supply-shift by unemployed persons seeking teacher's jobs, rather than a demand shift from layoffs.

Thursday, May 20, 2010

The starving can't wait

LA Times article "The starving can't wait" (May 19th, 2010) claims that

Although development experts need to address the global shortfalls in production, distribution problems and other underlying causes of famine, the immediate challenge always is to feed the hungry.

The short-term challenge of feeding the hungry may undermine long-term efforts to lead developing countries out of poverty. Foreign aid combined with corruption keeps poor systems of governance in place. It appears a significant portion of foreign aid ends up being subsidies for corruption and oppression. For example, Jakob Svensson and Ritva Reinikka's 2004 Quarterly Journal of Economics paper "Local Capture: Evidence From a Central Government Transfer Program in Uganda" finds that only 13 percent of grants for schools were actually spent on schools--most schools received no grant money. Foreign aid easily can hurt populations as often as help them.

Wednesday, May 19, 2010

What ever became of welfare moms?

Chicago Tribune article "What ever became of welfare moms?" (May 17th, 2010) offers the suggestion that no-one believes that potential jobs exist for individuals who are looking for them. Corrections isn't so sure.
No one sane assumes that today's unemployed are loafing, that jobs are 'out there' for them or that getting married would solve their problems.
The suggestion is that somehow, all individuals who are not unemployed due to minimum wage simply cannot get a job because there are no jobs out there for them. This idea is displayed graphically below (click to enlarge). The figure isn't copacetic with the empirical reality as Corrections sees it. Here, an increase in labor supply will only decrease wages while creating no extra jobs.

However, they still appear to be "voluntarily" unemployed, insofar as there are jobs they are unwilling to take. Let us examine job openings, layoffs, and the unemployment rate from the Job Openings and Labor Turnover Survey (for job openings and layoffs) and the Current Population Survey (unemployment rate). displayed graphically below (click to enlarge). All figures are seasonally unadjusted and relate to private job openings and layoffs.

As we can see from the figure, there is no giant increase in the availability of Summer jobs, and little discernible seasonal variation, save a spike in January layoffs. From this we might conclude the entire job market was being determined by demand-side economics--when firms want to hire, unrelated to the desire of individuals to work.

However, if we examine the teenage job market, we might expect a large supply shift during the Summer, because the cost of working has declined (they are no longer in school). If this is the case, and our first figure holds for teens, teen wages should go down but no more teens should work. However, this is not the case. We can see this through replication (note: our axes are different) of Figure 4 in Casey Mulligan's 2010 NBER Working Paper Simple Analytics and Empirics of the Government Spending Multiplier and other "Keynesian" Paradoxes (click to enlarge). The figure displays the total deviation in teen employment on yearly trend (in thousands). It clearly indicates that this Summer appears to be similar to past Summers in terms of employment--in spite of a supposedly inelastic labor demand. This suggests that labor demand is not in fact inelastic--it is elastic enough to support a large (million strong) (Summer) increase in labor supply.

As we see, teen employment in the two "crisis" Summers was almost exactly the same as it was from 2003-2007. That labor markets were this flexible for teens even while seasonally unadjusted job openings were not spiking dramatically. For Corrections point that labor demand is not inelastic to hold, the above is all that is required--earnings are not necessary (though preliminary examination of quarterly data indicates support for our claim). It should be quite clear that the increase in jobs is largely due to supply-side factors of workers rather than demand-side factors of firms.

However, in the interest of further making our point, we display "monthly" deviations from December-to-December trends of weekly earnings for our three relevant periods--2003 to 2007, 2008, and 2009 (click to enlarge). We note this is a bit artificial, as we use quarterly data with monthly trends. The general shape shouldn't change much, and it illustrates our point well.

There does not appear to be a consistent summerly (3Q) effect. No significant downward shift for the average of 2003-2007 and 2009, negative for 2008. If anything, this further indicates to Corrections that labor demand is relatively elastic, rather than inelastic. Were it inelastic, we would expect a Summer wage effect consistent across 2008 and 2009, due to the large increase in labor supply.

Corrections concludes that there do appear to be jobs out there for those who are willing to supply them--the labor demand of firms appears to be elastic enough to cause a positive employed individuals.

Tuesday, May 18, 2010

Food companies sign up for war on salt

LA Times article "Food companies sign up for war on salt" (May 17th, 2010) suggests that saving peoples lives by lowering their salt intake will lower healthcare costs.
The report repeated evidence that reducing sodium in American diets — from today's average of more than 3,400 milligrams to the 2,300 mg (about a teaspoon) a day recommended for most healthy people — could prevent 100,000 deaths each year
"We've had 40 years of history with this and not much success," says Jane Henney, professor of medicine at the University of Cincinnati and editor of the Institute of Medicine report. "If over time we can get down to a reasonable level of sodium intake, it's going to make a real difference in terms of health outcomes, and we will see the impact in real dollars in healthcare savings."
Prolonging the life of those whose health deteriorates so severely from over-consumption of salt could easily increase total healthcare costs. If the goal is simply to reduce healthcare costs, Corrections notes that the deceased have lower healthcare costs than the living.  If healthcare cost is the dimension that this article suggests we optimize over, then we might even conclude that the government should encourage salt consumption.  If it is maximizing health outcomes, then we note we have already repeatedly discussed how this will lead to less happiness even if it leads to longer lives.

In addition, the cross price elasticity of salt with far unhealthier foods may be less than negative one, in which case an increase in the "cost" of consuming salt can greatly increase the consumption of, say sugary or fatty foods. For example, if the local deli does not sell salt and vinegar potato chips to someone because advocates in New York would prefer that he not consume such salty foods, then rather than going on a hunt for this 150 calorie treat, this consumer may reach for a 250 calorie Slurpee. Obesity may lead to far more expensive complications than high sodium intake.  The assumption that individuals will simply reduce sodium intake while keeping all other decisions constant is definitely in error.

Certainly, when debating the savings on lifestyle changes, authors should not keep "all else equal."  In the real world, small changes tend to have large repercussions.

Monday, May 17, 2010

Building Is Booming in a City of Empty Houses

New York Times article "Building Is Booming in a City of Empty Houses" (May 15th, 2010) suggests that the country has too many houses. While it gives some reasoning for this argument, the evidence for a bubble is not clear-cut to Corrections.

Simply put, the country already has too many houses, the legacy of wide-scale overbuilding during the boom. The Census Bureau says there are two million vacant homes for sale, about double the historical level. Fewer new households, moreover, are being formed as families double up for economic reasons, putting a further brake on demand.

Was there a housing bubble in prices? Was there a housing bubble in construction? One might ask, as Casey Mulligan has (our analysis is indebted to him), whether or not these oft-cited bubbles are really bubbles--the answer is not immediately apparent to Corrections. There does not appear to have been a particularly spectacular housing boom in terms of new housing units or housing completion, judging from the biannual American Housing Survey. The housing bubble is often cited to have started in 1996, when the Case-Shiller Housing Index first began to rise dramatically. However, it appears as though half of the dramatic rise in prices from 1996 has survived the "bubble's" burst--indicating that at least some portion of the bubble was not a bubble at all, but driven by some fundamentals. Housing Units from the American Housing Survey are displayed below, along with the composite Case-Shiller Index, Housing Completions from the Census, and Residential Investment from the Bureau of Economic Analysis's National Economic Accounts (click to enlarge). Housing Units for 2009 is due Summer 2010--the value displayed is imputed from housing completions over a period of 20 years, and some interstitial data points are similarly linearly imputed. An update will be offered when the American Housing Survey for 2009 is released Summer 2010.

As one can see, the stock of housing units never increased dramatically--15% at their peak. The flow of housing completions and residential investment both grew and have fallen from their peak. However, prices have not fallen completely, which indicates to Corrections that the "bubble" was not necessarily a bubble, but simply a housing boom, driven at least in some part by fundamentals--were it not, prices would be even lower than they are now, given an increased housing stock.

Sunday, May 16, 2010

A Bench of Rivals

New York Times editorial "A Bench of Rivals" (May 14th, 2010) raises economic ignorance to an exalted status by praising Elena Kagan's suggestion that incumbents do not favor laws that favor incumbents, an idea that flies in the face of the simplest stylized facts of political economy. Antonin Scalia suggested that politicians are biased towards laws that favor their own self-interest, and Kagan denies it. Kagan is either being disingenuous or monstrously foolish.

Indeed, Ms. Kagan gave as good as she got. Later in her presentation, Justice Scalia again interrupted, to remind her that there are reasons to be suspicious of Congressional regulation of campaigns: 'I doubt that one can expect a body of incumbents to draw election restrictions that do not favor incumbents,' Justice Scalia said. He then asked, rhetorically: 'Now is that excessively cynical of me? I don’t think so.' Ms. Kagan, without missing a beat, shot back, 'I think, Justice Scalia, it’s wrong.'

Kagan's argument is not a point of view with any basis in fact. There are a plethora of ways to show that incumbents favor themselves over potential opponents, but the point is made best graphically below, with a depiction of Pennsylvania Congressional District 12 (click to enlarge), surrounded by rival party districts:

Or North Carolina's Congressional District 12 (click to enlarge):

Or Illinois's Congressional District 4 (click to enlarge):

These are samples of districts that have been deliberately drawn to give one party an electoral advantage--the first for John Murtha, the second a district that had been repeatedly struck down as racially gerrymandered throughout the 90's until it was decided that racially-focused partisan gerrymandering was constitutional. The third is another racially-focused partisan gerrymandered district. No thinking, ingenuous individual could think that politicians do not favor themselves.

Saturday, May 15, 2010

Plan B: Skip College

New York Times article "Plan B: Skip College" (May 14th, 2010) suggests that those students unlikely to graduate college will benefit from an increased number of post-high school enrichment programs.

A small but influential group of economists and educators is pushing another pathway: for some students, no college at all. It’s time, they say, to develop credible alternatives for students unlikely to be successful pursuing a higher degree, or who may not be ready to do so.

A college degree comes with a wage premium. Colleges are often willing to accept marginally qualified applicants whose graduation outcomes are uncertain. These students may be willing to take the risk of wasted tuition and time in order to gain that wage premium. We are observing them choosing not to enroll in programs that are less valuable (in terms of the increase in wages they expect after completing these programs).

Note that high-school graduates will decide whether or not to attend college or alternative programs based on the difference of two differences. Specifically, they compare the cost and benefit of getting a college degree, the cost and benefit of getting an alternative degree, and compare the two. Therefore, an increase in either wages or a decrease in the cost would make a program more attractive.

Therefore, it is relevant to ask: what can we expect from an increase in the supply of these college-alternatives due to a subsidy? Certainly, the tuition of alternative programs will fall and enrollment will rise. The question, however, is the margin on which enrollment will rise. It is unclear that these programs will lure high school graduates away from college. In particular, if high school graduates are not currently enrolling in these programs, why should we expect that they will do so on the margin? It is quite possible that the increase in attendees will come from an older demographic seeking to improve their resume, or less qualified high school students.

The idea behind this is motivated graphically below (click to enlarge), and it parallels a previous analysis Corrections has provided. The idea is as follows: "quality" of both University program and student increases as one goes from top to bottom. Quantity is depicted by length. We assume positive assortative matching between students and universities. The diagram on the left displays that, if there are relatively more universities than high-quality candidates, we expect that an increase of community colleges will only impact non-college, non-alternative program high school graduates. The second diagram displays the same idea, just with an "alternative" program rather than more community colleges.

We can see that it is a definite possibility that the program would tend not to improve outcomes of marginal college students, but instead of the lower margin.

We might further, and incidentally, note that Nicole Fortin's "Higher Education and the College Wage Premium: Cross-State Evidence from the 1990s" (AER 2006) provides evidence that state appropriations for college impacts the wage premium negatively. We might expect that appropriations for alternative programs or community colleges would increase the college wage premium relative to those programs.

Thursday, May 13, 2010

Growers Feel the Squeeze To Sell a Pinch of Saffron

New York Times article, "Growers Feel the Squeeze To Sell a Pinch of Saffron" (May 12th, 2010) describes worries of decline that saffron growers experience. These growers are given a special license by the Italian government:
The famed New York chef Mario Batali, , calls L’Aquila’s saffron “the best saffron in Italy.” In 2005, saffron grown here was awarded Italy’s “protected product” status, like Parmagiano Reggiano and prosciutto di Parma, acknowledging its extraordinary culinary standing.
Unfortunately, the youth don't seem interested in growing saffron, and the cooperative worries that they will not sustain membership for long. The article concludes,
Yet Ms. Sarra, who has been harvesting saffron since she was 3, is optimistic. In addition to the 97 members of the cooperative who can use the special product designation now, there are 10 applications pending. “We need to see they are good people, will respect the rules and take our strict rules seriously,” she said.
This collusive business, in which licensing restricts the number of people growing saffron in the cartel, will unlikely remain able to sustain higher than market prices. The article notes that for two weeks of work per year, these Italian farmers are able to earn $5,000 to $10,000 a year. If children of the farmers are not interested in cultivating saffron, someone, perhaps in a neighboring town with no special certification, will be. Perhaps even without this certification, the saffron grown outside of L'Aquila will taste just as good (maybe they'll earn $3,000 for the same two weeks of work).  Eventually people will notice that the "L'Aquila" stamp does not justify its price, and will turn to saffron grown elsewhere. Rather than discuss the dissolution of this cartel, however, the article mourns its loss, not even acknowledging the possibility that consumers are harmed by this town's actions.

New York Minorities More Likely to Be Frisked

New York Times article "New York Minorities More Likely to Be Frisked" (May 12th, 2010) speaks of New York's Terry stops and how minorities are more often subjected to them. The article largely contains interviews of individuals who are against this disparity. However, the data the article cites indicates that police may be efficiently using discrimination.

According to the analysis of the 2009 raw data by the Center for Constitutional Rights, nearly 490,000 blacks and Latinos were stopped by the police on the streets last year, compared with 53,000 whites.

But once stopped, the arrest rates were virtually the same. Whites were arrested in slightly more than 6 percent of the stops, blacks in slightly fewer than 6 percent.

A check on whether or not there is discrimination is if the marginal Terry stop yields the same arrest rate. If marginally frisked whites are arrested at two times the rate than marginally frisked blacks, then this is an indication that there is statistical discrimination against blacks (not whites!)--it would be more efficient to stop more whites. But if marginal stops in the two groups yielded the same arrest rates, then we are efficiently discriminating.

While we cannot observe margins, the fact that we are gaining the same proportion of arrests post-stop is encouraging--if the average stop is approximately the marginal, then the article gives evidence that police in New York are discriminating efficiently.

Tuesday, May 11, 2010

Public housing authorities should adopt smoking ban

New Orleans Times-Picayune editorial "Public housing authorities should adopt smoking ban" (May 11th, 2010) advocates a public-housing smoking ban that is being considered by local housing authorities. However, it fails to note the Coase Theorem's input to understanding the problem of intra-household second-hand smoke.

Non-smokers living with people who smoke suffer the risks of exposure to second-hand smoke. The St. John the Baptist Parish Housing Authority wants to reduce those risks, and cut the cost of building maintenance, by banning smoking inside the agency's public properties. That's a move worth considering.

Corrections suggests that it doesn't suspect non-smokers living with people who smoke are necessarily not-well off. Specifically, we expect that any non-smokers who value a smoke-free household more than the smoker is free to pay the smoker to stop smoking in the household. Being a domestic arrangement, there are low monitoring or enforcement costs. Intra-household transfers are often present enough that every individual has an income of sorts to trade--where they may not pay in dollars, they pay through intra-household transfers, such as cooking, cleaning, television control, etc.

In this case, it appears that in all households where second-hand smoke is present, it is because the smoker values smoking more than the non-smoker values non-smoking. There does not appear to be an externality problem here. Banning smoking would seem to lower smoker's happiness, by definition more than it would increase second-hand smoker's happiness.