Establishing causality: one view Eric Crampton Feb 28

Economists agonise, rightly, over causality: how can we tell whether one thing causes another thing rather than the other way round or whether both things might just both caused by some underlying third thing.

Meanwhile, here’s how the debate on causality plays out in the political arena.

Under Labour minimum wage went up significantly and unemployment went down significantly. Time for a Living Wage. It creates jobs.
— Trevor Mallard (@TrevorMallard) February 25, 2015

Mallard is far from an idiot, but this where public debate on causality is at.

Granger wept.

PS: via Lindsay Tedds – lagged variables don’t cut it either.

VINDICATED: Lagged explanatory variables should never be used for identification purposes. @comptonjrc @Lachlan07

— Lindsay Tedds (@LindsayTedds) February 24, 2015


Parallel importing Economist Eric Crampton Feb 28

Why is The Economist more expensive in New Zealand?

The simple answer is price discrimination. If readers in New Zealand are willing to pay more for subscriptions to The Economist than are readers in Canada, then prices will vary across markets – unless there is a way for consumers in the cheaper market to on-sell to those in the pricier markets, or for those in the expensive markets to pretend to be in the cheaper market.

Fortunately, you can parallel import The Economist simply by providing a Canadian billing address.

Price discrimination does not work when consumers in the higher cost market can easily access the lower cost market. New Zealand’s parallel importation regime helps to break international price discrimination that too often works to the detriment of Kiwi consumers.

I have not seen any study on it. But I would be willing to bet that New Zealand’s parallel importation regime has done more to help Kiwi consumers than has anything that the Commerce Commission has ever done. It is very likely our most effective competition-enhancing institution.

That was me reprising parallel importation and price discrimination in last week’s print edition of the National Business Review. Subscribe!


Industry bad, public good Eric Crampton Feb 27

So the official line seems to be that industry money always corrupts, but that public funding never does. Here’s Otago’s Jim Mann:

As a member of the World Health Organization (WHO) nutrition advisory committee, Mann himself cannot accept funding or gifts of any kind from the commercial sector.

“I’m glad that while with WHO, I’ve been in a position where I’ve not been able to accept funding for any project I’ve lead. I don’t even feel able to accept an invitation to go out to lunch,” he says.

The story feeds off a recent set of articles in the BMJ running conspiracy stories about industry funding. I suppose that membership in WHO advisory committees couldn’t itself possibly be the source of any conflict of interest.

There seems to me to be a growing international push to shut down research that disagrees with the comfortable public health party line. Making industry funding controversial per se makes it more difficult for university researchers doing work funded by industry, regardless of the amount of academic freedom built into any of the arrangements and regardless of the oversight arrangements.

So where does the whole “industry necessarily corrupt and evil; government-funded NGOs necessarily good” line lead? Well, let’s look to today’s news from Western Australia.

Healthway was established to fill the sports sponsorship gap when they banned tobacco sports sponsorship. Healthway was so pure in spirit, that they didn’t ever want to have anything to do with anybody who’d ever had any dealings with the tobacco industry – maybe they’d have suffered second-hand corruption or something:

The Board considered an addition to the existing policy with respect to contractual arrangements with companies or organisations which may have tobacco company involvement to reflect other possible “connections” or association with the tobacco industry. The Board approved that:
Subject to any contrary law, Healthway will not deal with any:
  • Person, company or entity receiving money or revenues from the tobacco industry or its associated foundations, whether directly or indirectly, or having arrangements, or dealings with the tobacco industry, whether directly or indirectly, which may actually, potentially or perceivably compromise tobacco control initiatives;
  • Person, company, foundation or entity that directly or indirectly has arrangements, connections or dealings with the sales, promotion or distribution of tobacco products which may actually, potentially or perceivably compromise tobacco control initiatives.

And in today’s news, it looks like Healthaway’s sponsorship didn’t just require being entirely pure about never having ever ever touched a smoke. It seems to have required giving lots of complementary tickets to the Healthaway Board. Because by definition, if it’s done by a government-funded NGO, it totally can’t be wrong.

Premier Colin Barnett will meet Public Sector Commissioner Mal Wauchope today to discuss the future of prominent Healthway chairwoman Rosanna Capolingua and her board after a damning investigation uncovered a VIP ticket scandal, plunging the taxpayer-funded health promotion agency into crisis.

The investigation, conducted by the Public Sector Commission after irregularities were uncovered by the Auditor-General, found Healthway procured thousands of tickets worth hundreds of thousands of dollars through sponsorship agreements.

Some of these went to family and friends of Dr Capolingua, former Healthway executive director David Malone, deputy chair Cathcart Weatherley and other staff.

The investigation found the volume and nature of hospitality benefits obtained via sponsorships of the Perth Wildcats, Perth Glory, WA Cricket Association and concert promoter Mellen Events were “excessive and inconsistent with the obligation to be scrupulous in the use of public resources” under the Public Sector code of ethics.

Is there any known safe level of government funding? What can we do to help to reduce the risk?


Wealth heritability Eric Crampton Feb 27

Swedish income and wealth are strongly heritable, as measured by differences between monozygotic and dizygotic twin outcome variances.

These patterns of correlations illustrate Turkheimer’s (2000) three “laws” of behavior genetics, which are not theoretical necessities, but rather stylized facts that summarize the broad pattern of empirical findings in several decades of behavior genetics studies. The first law states that all behavioral outcomes are heritable. For comparison with our estimates of around 0.50 for permanent income, the heritability of personality traits and cognitive abilities is about 0.40 to 0.60 (Plomin et al. 1994, and the heritability of height is about 0.80 (e.g., Silventoinen et al. 2003). Indeed, although Turkheimer’s first law is stated qualitatively, it could be made quantitative: Of the hundreds of outcomes analyzed to date, almost all have heritabilities estimated between 0.20 and 0.80 (see Plomin et al. 2008 for a review). The second law states that common family environment explains less variance than genes do, and the third law states that a substantial part of the variance in the outcome is left unexplained by the sum of genetic and common environment effects. Our results are consistent with the second and third laws, as well.

We still have little clue which genes are associated with intelligence and income; results from one study won’t replicate in another population, for example. Sample sizes generally are not large enough to detect small effects. I love this part:

We also predict that methodological challenges—such as multiple testing—will generate many more false positives in the literature, especially in the short run. The press is likely to distort findings and exaggerate the degree to which specific genes “determine” outcomes. In most cases there is no “gene for [insert behavior here],” despite frequent newspaper headlines suggesting that there is. Indeed, for most behaviors, researchers are struggling to find a SNP with an R2 that is greater than one-tenth of 1%. Researchers in this field hold a special responsibility to try to accurately inform the media and the public about the limitations of the science.

Moving to policy, they note:

Governments will need to formulate new policies that maximize social welfare in a world where people with genetic advantages will wish to share them with potential employers and insurers, and people with genetic disadvantages will want to shroud them.

Indeed. We probably need pre-insurance markets against inheriting an unfavourable genotype, but those would likely unravel anyway where parent type determines most of the odds, and increasingly so as assortative mating strengthens.

Greg Clark argues that strong heritability of life outcomes makes an argument for redistribution: as relative positioning doesn’t change much even where redistribution is heavy, he takes it as an argument for that labour supply of the most productive cohorts does not respond much to taxation. There’s plenty of other evidence arguing against that point, and Jason Collins’s review of Clark is on point, but let’s take it for now for argument’s sake.

What is appropriate policy if both of the following are true? I’m not saying these stylised facts are true, but I put better than even odds on each element’s being true.

  1. Generalised ability – the mix of cognitive and personality traits that combine to affect income and employment – is strongly heritable. The children of the more able will be more able; the children of the less able will be less able, although outcomes for either can be moderated a bit by environmental interventions;
  2. Family size is elastic to income: increasing a household’s income, all else equal, increases their optimal family size; decreasing their income decreases it. Yes, richer people tend to have smaller households than those in the lower-middle of the distribution, but that’s part of the all-else-equal.
You could well wind up with longer-term effects on relative skilled labour supply via an extensive margin in population composition, even where any individual’s labour supply is highly price inelastic. Welfare economics gets awfully messy when future population distribution is one of the things affected by policy.

HT: Collins on the Clark piece.


Mao’s Basilisk Eric Crampton Feb 26

Bill Kaye-Blake writes:When I spent a semester studying in Beijing, I met an old man in Tian An Men square who insisted on showing me his identity card. He pointed out that it said he had joined the revolution in 1951 (yes, the identity cards had a fie…

The trouble with Net Run Rate Seamus Hogan Feb 26

In any competition in which there is pool or round-robin play to rank teams before playoff rounds, there needs to be some method of deciding the relative ranking of teams who finish equal on wins and losses. Ideally, this method will reward the teams t…

Don’t block the entrance – or the exit Donal Curtin Feb 25

I wrote a while back about the excellent data the Bureau of Labor Statistics in the US produces on the labour market – what they call the JOLTS data (Job Openings and Labor Turnover Survey). You can access it yourself here. The graph below shows the ke…

Occupational licensing: repo edition Eric Crampton Feb 25

Occupational licensing rules block too many Americans from entering protected professions.

Brookings covered some of the horrors back in January:

For example, some states require that florists and make-up artists satisfy expensive and time-intensive requirements before they are legally permitted to perform their jobs. Also subject to such requirements in various states are locksmiths, ballroom dance instructors, hair braiders, manicurists, interior designers, and upholsterers.

This regulatory practice is known as “occupational licensing,” and it has spread to cover around 30 percent of the U.S. workforce, up from just 5 percent in the 1950s. The practice now has a significant bearing on workers of all skill levels, and extends far beyond the occupations of doctors, lawyers, nurses, and teachers. 

It is important to realize that occupational licenses are not mere state-sponsored certificates to signal that workers have completed some level of training; occupational licensing laws forbid people from practicing in their occupation without meeting state requirements. If the rationale for licensing an electrician is to protect public safety, it is difficult to see what rationale supports licensing travel guides. Yet, twenty-one states require a license for travel guides. Among these, Nevada has created the highest hurdle: a person hoping to be a travel guide in that state must put in 733 days of training and shell out $1,500 for the license. 

Their policy paper on it is here.

The Mercatus Center agreed, showing how licensing requirements also push up costs for consumers.

So New Zealand wouldn’t be dumb enough to start trying to catch up with America on this front, right?


Associate Minister of Justice Simon Bridges and Commerce and Consumer Affairs Minister Paul Goldsmith have today announced strict new laws that will better protect the public from repossession agents engaging in unscrupulous practises.
“The changes mean that all repossession agents, as well as their employees, must be registered and licensed from 6 June 2015”, Mr Bridges says.
Applications for licenses will be accepted from 6 March 2015.
“Those who breach the new laws can be fined up to $40,000 under the Private Security Personnel and Private Investigators Act”, he says.

Maybe there’s a case for going after cowboy Repo people, but why not do it simply by enforcing the rules around lawful repossession rather than setting up a big licencing regime?

Why make labour markets more rigid? Was there any RIS on this?

And today I learned that New Zealand has a Private Security Personnel Licensing Authority, which will be running the Repo Agent licensing.


Public intellectuals Eric Crampton Feb 24

Philip Matthews at the Christchurch Press asked me for comment on the role of public intellectuals in New Zealand.

He used a well-chosen excerpt from the email below. Here are the parts for which there wasn’t room in last weekend’s paper.

“Public intellectuals have to be good academic all-rounders. The best ones combine deep specialist knowledge of their own research area with broad and voracious interest in work outside their main field. They then draw the links between findings in their own specialist areas and those from other fields to provide research-informed analysis both of current policy and of the general state of the world. Denis Dutton exemplified the public intellectual. I’m not a particularly good one.”
“Anybody jumping into policy debates, public intellectual or not, has to have a pretty thick skin. Even if your analysis is entirely correct, somebody will hate the policy conclusion and yell at you about it in Letters to the Editor, on Twitter, or elsewhere. Most policy preferences are not evidence-based but come from deeper affiliations and self-conceptions. I think most people who stick their necks out understand this and can sort informed and serious critique from the noise. The risk for the public intellectual is more when those folks’ colleagues or bosses cannot tell the difference between serious critique and the Twitter mob and consequently panic too quickly about any public controversy.”

“I’ve been pretty lucky. I’m very happy with the support I get at The New Zealand Initiative. I was always supported by the Economics Department at Canterbury when I took on more of a public intellectual role. But in academia, that might be more exception than rule. Denis Dutton’s Arts & Letters Daily was a daily read for me while I was a graduate student in Virginia, half a world away from Christchurch. But it seemed underappreciated at Canterbury, and even unknown to a lot of the people who worked there.”

“Academia should serve as a repository of knowledge, as a generator of new knowledge, and as transmitter of both of those both to students and to the broader public. The current university funding model, through the Performance Based Research Fund, can do a decent job in encouraging the generation of new knowledge, but I think that that has come at the expense of the other two functions. A lot of what we have known about the world is being forgotten as academics specialise ever more deeply into their particular niches. It’s what is needed to land articles in the very top journals, but our history of thought matters too. And while the government has told the universities that it wants funding to recognise research’s impact, by which it means research’s effect in helping to improve the country and the world, it would be pretty surprising if PBRF panels did not choose to interpret ‘impact’ as meaning citation counts in journals few people read.”

“I also think New Zealand’s media does a fine job in supporting the country’s public intellectuals. The worst fate for a public intellectual isn’t having people angry about your ideas, it’s having the ideas be ignored. Academics who know how to write for a broader audience do not really have that hard a time in getting their ideas out into the public arena.”


Moderate drinking is still good for you Eric Crampton Feb 24

Last week brought lots of headlines about a new study claiming moderate drinking doesn’t really provide health benefits.I’d previously reviewed the evidence here, here and here.The new paper claims to better adjust for sick-quitter confounds by using l…

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