Tuesday, April 26, 2011

Title IX Shenanigans

Hey, it's my first "The War on Duh" post!

The title: Schools distort figures to meet Title IX

The shocking truth: "Many Division I schools are distorting the number of students participating in sports so they can comply with Title IX..."

The fantastic quote: "Among the tactics is to pad rosters of women's teams with unqualified players or even men. The [NYT] found schools counted athletes who no longer wanted to compete or never played for that team, listing male practice players as women..."

Who would have guessed?!

Hedge Fund Managers and Sports

I'm not convinced that the causality is there, but here's a nonetheless intriguing bit from Business Week (which, by the way, is orders of magnitude better than when I started getting it a few years ago) about the poor performance of hedge funds when their managers purchase sports teams.

Tuesday, April 19, 2011

Aid is a success! No, it’s a failure! Wait, it depends.

Aid evaluation is all the rage. But how is successful evaluation possible if we don’t know the benchmark? Some aid advocates argue that aid can end world poverty while some critics of aid are more modest stating that aid can not increase growth but may ease human suffering. In a recent debate in the Cato Journal, Peter Leeson and David Skarbek argue, in their article 'What Can Aid D0?', that foreign aid is both a success and a failure:

“Foreign aid’s advocates claim aid has been successful. Aid’s critics claim aid has failed. We explain why both camps are correct. Aid can, and in a few cases has, increased a particular output by devoting more resources to its production. In this sense, aid has occasionally had limited success. However, aid cannot, and has not, contributed to the solution of economic problems and therefore economic growth. In this much more important sense, aid has failed” (page 392).

They go on to argue that, on its best day, aid can provide more ‘stuff’ but not find the solutions to the economic problem of poverty:

“So, what can aid do? Like other forms of central planning, aid can increase X by devoting additional resources to X’s production… If planners pick a specific outcome, such as more immunizations, aid can provide additional resources to produce immunizations. All of the “success stories” that aid’s advocates highlight are of this nature (page 394)…Solving the economic problem determines whether a country’s economy develops. It is strange, then, that professional economists have had trouble distinguishing the positive relationship between inputs and outputs from solving the economic problem when it comes to evaluating foreign aid” (page 391).

In a critique, Gustav Ranis claims that “. . . Skarbek and Leeson are ready to throw the baby out with the bath water,” but that different forms of aid, such as grants for projects, can be more effective than past aid. However, Leeson and Skarbek remind us in a follow up piece of the important distinction between positive versus normative analysis:

“The thrust of our original paper, which asked the simple question, “What can aid do?”, was that no foreign aid initiative can solve the economic problem societies must solve to climb from poverty. That problem requires identifying the resource allocation that maximizes resources’ value to society. “Grants for projects” don’t help us identify this. They’re an example of what aid can do—increase a predetermined output by devoting more resources to its production—not what aid must do to make poor countries rich, which is to solve the economic problem stated above. Whether developed countries should use aid to increase a predetermined output by devoting more resources to its production is a normative question. Our original argument analyzed a positive one” (pages 1-2).

So the next time a shouting match breaks out between those who claim aid is successful and those saying aid is a failure, perhaps we need to first agree on what aid can achieve and evaluate aid in this context.

Depression Era Housing Prices

Caplan at EconLog asks why housing prices held their ground for the most part during the Great Depression. Obviously, no one can say why prices are what they are, but my suspicion is that the mortgages played a role somehow. In fact, early mortgages were made interest deductible because it was primarily a business expense, and mortgages did not become a major homeowner vehicle until after the Great Depression began. From the NYT:
It was not until the 1920's and the spread of the automobile that home mortgages outnumbered farm mortgages. In the 1930's, the mortgage industry got a huge assist from the feds — not from the tax deduction, but from agencies like the Federal Housing Administration, which insured 30-year loans, and, over time, the newly created Federal National Mortgage Association, or Fannie Mae. Before then, the corner bank would issue a mortgage and wait for the homeowner to pay them back; now savings and loans could replenish their capital by selling their mortgages to Fannie Mae — meaning they could turn around and issue a new mortgage to someone else.
So in part, the stability of housing prices might have been partly due to FHA induced demand for housing stock, relative to other assets and consumption possibilities.

I'll leave it to my Austrian co-bloggers to decide if this fits into a Austrian/Recalculation story of explaining the prolonging of the Depression by changing the relative prices of capital, or if this aided as a form of liquidity the Fed failed to provide.

Monday, April 18, 2011

Gresham's Law and Zombie Banks

From TC at NYT:
ALL of the ways forward look ugly but, sooner or later, some variation of at least one of them is likely. Unfortunately, they all share the property of lowering European bank values, whipsawing currencies, hurting business confidence and possibly ending the European Union as an effective institution for collective decisions. That’s all because the euro, in retrospect, appears to have been a misguided attempt to equalize the values for some very unequal assets, namely the bank deposits of strong countries and those of weak countries.

iPad = Job Killer

Friday, April 15, 2011


It's a government ruled exclusively by men. And, according to Cracked, it is George Lucas's ideal future.
You've got all these species and races living harmoniously--jawas, ewoks, fish monsters, people--all working together. But almost no women.
I know what you are thinking: "What about Princess Leia?" Just watch the clip.

The Elasticity of Supply of Air Traffic Controllers

If you'd asked me before this air-traffic-controller-sleeping bit came about, I'd have told you that I believe the supply of air traffic controllers to be rather inelastic; I presume it takes some amount of specialized training and at current wage levels there aren't a lot of unemployed air traffic controllers. (Perhaps I'm wrong.) But as I read the reports of a new FAA regulation requiring two air traffic controllers at night, I'm having some elasticity doubts.

In an interview this morning the head (or perhaps just a representative) of the Department of Transportation said that they've got the air traffic controllers to fill this new regulation and the money to do so. Now, granted, when a government agency says they've "got the money" to undertake an expansion, that has a little different flavor than when Wal-Mart or FedEx says they've got the money. But in light of the tight budget situation now (and, in fact, budget cuts projected for the Department of Transportation were mentioned in the interview), it seemed like this wasn't an expansion-in-expenditure scenario.

So what are the possibilities here?

1. My assumptions above are wrong; there is slack in the air controller labor market and the new regulation will reduce it.

2. The government is putting on a front that this won't cost money when in fact it will cost more money. Relatively speaking, I would guess this money number is small, but still this is a solve-it-with-money scenario, not a utilize-untapped-resources situation. If there's not a large amount of unemployed air traffic controllers, then this is also a raise-wages-to-incentivize-entry-into-the-industry situation. But what's the latency in assuming a job in this industry? 6 months of training? 3? 12? More? I don't know, but I feel it's got to be at least a number of months. Again, not saying it should be-- but I'm guessing that it is.

3. They are only requiring 27 towers to abide by these new rules. Compared to the number of overall air traffic control centers (of varying sizes), this is small. However:

a) These sites are geographically separate; we're not taking a pool of laborers and requiring extra hours at a variety of locations. Along the lines of issue #1, are there spare air traffic controllers to be had, or are more hours required of the existing working pool?

b) Not unrelated to this is the fact that air traffic controllers are thought to be over-worked right now as it is (not judging the merits of that claim, but that's still relevant), so where exactly these extra working hours comes from is still unclear in my mind.

Something--somewhere-- is off, either my perceptions of the state of the market or in the stories being told. Knowing me I probably gravitate to #2 but I think that oversimplifies the problem.

Justin, will you be leaving for your new air traffic controller position soon?

Thursday, April 14, 2011

What I've Been Writing

As Walter Williams often remarks, “It's a poor dog that won't wag its own tail."

Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia (w/ L. H. White)

Economists commonly invoke sovereign powers to explain the acceptance of unbacked paper money at a positive value. The government accepts or compels taxes paid in the money (makes it publicly receivable) or compels creditors to accept it (grants and enforces legal tender status). Thus fiat money is thought to rely on enforcement of a literal fiat or decree. The case of Somalia defies this account: following the state’s collapse in 1991, unbacked paper Somali shillings continued to circulate at a positive value. We explain how historical acceptance, or “inertia,” can sustain the ongoing acceptance of unbacked money even in the absence of ongoing sovereign support. Although sovereign power might be necessary to launch a fiat standard, we conclude that it is not a necessary condition for its survival.
You can download the full version here. Also, my book review of Jimmy Stewart is Dead appears in the most recent issue of Economic Affairs.


Thursday, April 07, 2011

Torture Supply Curves Slope Up

I suppose, when all things are considered, that is good news. From Wired:
But in FeldmanHall’s study, things actually happened. “There are real shocks and real money on the table,” she said. Subjects lying in an MRI scanner were given a choice: Either administer a painful electric shock to a person in another room and make one British pound (a little over a dollar and a half), or spare the other person the shock and forgo the money. Shocks were priced in a graded manner, so that the subject would earn less money for a light shock, and earn the whole pound for a severe shock. This same choice was given 20 times, and the person in the brain scanner could see a video of either the shockee’s hand jerk or both the hand jerk and the face grimace. (Although these shocks were real, they were pre-recorded.)
The article is actually about how this result differs from cases where subjects are given similar hypothetical scenarios. To me, this is evidence in favor of relying on revealed preference approaches over surveys in social science.

Monday, April 04, 2011

Slay Which Tax 'Monster'?

Veronique de Rugy argues here that we should eliminate the Alternative Minimum Tax.

Her points are fair enough, but if we are going to argue for such a large move in the tax code, I would instead suggest that we eliminate the traditional part instead and put everyone on the AMT. That would broaden the base, and allow us to lower the rate, which offers better incentives all the way around.


Arnold Kling reports:
Michael Mandel pointed out that the large increase in household debt is not consistent with the basic necessities becoming easier to afford. I have to agree. Something to chew on.
If households get greater access to credit markets and necessities fall in price, then income effects can shift the preferences towards luxury goods.

I am far more likely to believe that households are buying more luxury goods than I am to believe that the price of necessities has increased. This would also be consistent with the observation that college students have nicer televisions and go to more exotic vacation spots than I.