2010 Gus Rankings: Week 3

Here are this week's Gus Rankings, just in time for tonight's game when Miami visits Pittsburgh. (Gus has no opinion; both teams are at #69 this week.) Bob Lawson's Auburn Tigers top the list with Texas, Arizona is third and seven teams claim the fourth sport. Look for the winner of Auburn/South Carolina to make a big jump next week.

And bringing up the rear...Ed Lopez' North Texas Mean Green.

Kill Whitey?

In Wired is a fascinating set of studies on race, politics, and "The Trolley Problem." In a classic psychology experiment, people are asked if they should flip a switch that detours a trolley away from running over five people to another rail that runs over a single person. The intention is to get at whether people are morally utilitarian or consequentialist. Other variations include pushing someone in front of the train.

The article covers research on introducing race and political leanings of the participants, with many fascinating findings. The conclusion (at least suggested by the article here) is that people adopt their moral reasoning ex-post, rather than employ it ex-ante:

So we’ll tell a child on one day, as Pizarro’s parents told him, that ends should never justify means, then explain the next day that while it was horrible to bomb Hiroshima, it was morally acceptable because it shortened the war. We act — and then cite whichever moral system fits best, the relative or the absolute.

2010 Gus Rankings: Week 2

Here are the first Gus Rankings of the 2010 season.

Of note:

- No team has two points, which is the same as last year. I think this is a fairly strong piece of evidence that teams don't want to maximize the quality of opponents early in the season, independent of what coaches or athletic directors may say. Yes, there is a factor out of your control in getting to 2 points through Week 2, but you'd expect that to wash out over multiple teams sitting at 2-0. You'd think someone would get there if enough teams tried to.

-Three teams-- Arizona State, Ball State and Indiana (Hi Justin!)-- have yet to play a FBS opponent.

- Gus has slated Eastern Michigan and UAB as the worst teams through only two weeks of games.

Blockquoting X

X = Fidel Castro, in response to a question on whether Cuba's economic system is still worth exporting to other countries:

The Cuban model doesn't even work for us anymore.

Wow. I used this video in class recently. The saddest thing: the average Cuban could not utter that same phrase without fear of state action.

Boettke links to other communist admissions.

What I'm Writing

Roger Koppl and I are currently working on a book chapter titled "Animal Spirits and Cognition in Macroeconomics." I'll post the full draft shortly. Here's a snippet on rational expectations which (at least I hope) takes aim at the typical presentation of the assumption (you know: the Phillips curve assumes expectations are unchanged; then Friedman and Phelps said that was stupid; and Lucas, building on Muth, discovered rational expectations as the logical conclusion to the argument of Friedman and Phelps--as if no one had thought of it before):

It is historically inaccurate (and, to the extent one knows otherwise, intellectually dishonest) to claim the rational expectations assumption was discovered in the 1960s with Muth. The theoretical power behind the assumption of full and complete expectations had in fact been known for some time. Among others, Hicks (1936, p. 241) had expressed the basic idea in admitting it “unrealistic to assume that an important change in data—say the introduction or extension of a public works policy—will leave expectations unchanged, even immediately.” Rational expectations was not discovered, but rather rediscovered in the 1960s because earlier theorists had explicitly rejected the assumption. In the case of Hicks, it was assumed that “there is a psychological unknown, affecting the magnitude of the impact effect” and, as such, “[w]e must not expect the most elaborate economic analysis to enable us to see very far ahead” (p. 241). Earlier economists were aware of rational expectations and, as Meacci (2009, p. 1) describes, saw the assumption primarily as “a device […] to conceal the link between the disappointment of expectations and the theory of fluctuations.” It was not a lack of knowledge that had left the assumption largely unemployed, but the feeling that it was wholly inappropriate to use in addressing a topic so intimately linked to the process of time.

The comments are open. I'd love to hear what you think.

New Data: Social Assets and Vulnerability Indicators

My fellow data lovers might be interested in this interesting range of data collected by SAVI. It is a "dynamic community information system" hosted by the Polis Center at IUPUI, and it allows you to map, compare, and store data about Central Indiana communities from a wide range of data sources.

The amount of data available is impressive, with geographic information on subsidized housing, air quality, communicable diseases, birth defects, etc. You can find a complete listing here.

IU We're All For You

That's the title of SPEA graduate and rock comedian Brian Smith. He gives a shout-out to SPEA in the video, but in a way that does not flatter our image on campus among the undergraduates. The video is funny, so even if you've never seen IU, you will probably enjoy it.

When Should the Government Exploit the Salience Bias in Taxation?

This paper is provocative enough for it to automatically appear on my reading list for doctoral public finance. By Deborah Schenk, of NYU, and titled "Exploiting the Salience Bias in Designing Taxes" but the theme is closer to the title of this post. Here is the abstract:

In making decisions, individuals rely on certain heuristics or cognitive biases. One of these is salience, which generally refers to visibility or prominence. Individuals are likely to focus on items or information that are prominent or salient and ignore those that are less visible. This paper develops an argument for exploiting this cognitive bias in designing or changing taxes. Most commentary assumes that the intentional use of low-salience taxes by the government is undesirable and that increased salience is always required; to do otherwise is to take advantage of the cognitive bias that causes individuals to ignore taxes that are not prominent or salient. Although increasing salience is often desirable, there is a political economy argument for intentionally exploiting this bias by incorporating low-salience provisions into tax design. In developing the argument that utilizing this bias may be an appropriate fiscal tool, the paper begins by setting out the differences between transparency, complexity, and salience, which are often confused in the literature. The paper then makes a normative case that it is appropriate for legislators to design a tax by intentionally exploiting the cognitive bias that causes individuals to ignore information that is not prominent. The paper differs in two ways from past literature discussing salience. First it considers salience with respect to federal income taxes. Most commentators have explored salience in connection with consumption or commodity taxes. Second it considers the salience of discrete provisions, rather than merely the salience of the tax itself. It concludes with a case study where the use of low-salience tax provisions are justified and effective, i.e. where Congress finds it necessary to minimize the prominence of the tax because politically it cannot increase marginal tax rates.

Bumper Stickers at SPEA

An intelligent group parks here:


And no, I don't know the owner of the car.

Before there was Enron, there was Orange County

That's the title of this article in Public Budgeting & Finance (couldn't find an ungated copy), by David Matkin. I share it primarily because the title is so good:

Recent financial scandals in some of America's largest corporations have prompted popular speculation that a similar crisis may occur within the public sector and, therefore, that government and nonprofit organizations should be required to adopt financial oversight practices similar to those that are mandated of publicly-traded corporations in the Sarbanes-Oxley Act of 2002. One of those mandated practices—the use of financial-oversight committees—is already a common practice in public organizations, though little is known about its effectiveness. This study uses a national sample of local governments to examine whether financial-oversight committees improve financial control and strengthen stakeholder confidence in financial reporting. The findings provide preliminary support for the use of financial-oversight committees as an effective tool to improve financial accountability in local government.

Get ready for some more Gus!

My apologies for the sparse appearances here at TPS-- worry not, the experts still come here first.

I wanted to drop a quick note and let everyone know that, as the college football season gets underway tonight, the Gus Rankings will be in full force again this year! For the uninitiated, the Gus Rankings are TPS's simple method of ranking college football teams-- nothing more than counting wins and losses. Here's the original post that outlines the methodology, and here's everything Gus related on this blog.

Remember, Gus can't generate a ranking until teams play at least two games, so expect to see the first rankings after the weekend of Saturday, September 11. Don't expect to see a large degree of variation in the rankings until 5 or 6 weeks in--then again, it's always fun to see who rises to the top early in the season. (Like Washington at #1 in Week 3 last year.)

An Empirical Test of the Division of Labour

Forthcoming in JUE:

This paper provides supportive evidence to the notion that the division of labour is limited by the extent of the (local) market. We first propose a theoretical model. Its main prediction is that scarce specialists occupations are over-represented in large cities. Using census data for French cities, we find strong empirical support for this prediction.

Haven't read it, but it is on the "when I have the time" pile of papers.

Regulating Away Equality

Tax Notes Today (I think it might be gated, sorry) provides readers with 10 Executive Compensation Mistakes for firms. Most of them are details on how to structure contract details to conform with regulatory and accounting requirements. This one is particularly interesting in the second paragraph:

4. Treating everyone the same. It has long been standard operating procedure at many companies to treat all employees the same, for a host of reasons. Foremost among those reasons is that many companies find it hard to make distinctions among rank-and-file employees or senior executives.

However, current trends and regulatory reforms are forcing companies to distinguish some employees from others. Companies are now required to expense stock option awards, meaning that making option awards available to all is simply not financially feasible. Not everyone can be treated the same; not everyone can get big option or restricted stock grants.

Government mandated accounting standards and disclosure requirements are not the only reason to differentiate among employees. There are the important questions of incentives and retention: A company must provide a reward structure to motivate its employees to perform and to stay with the company. Each company must ask and answer why it cares about retaining a given person and how it plans to do so. Inevitably, employees are clearly going to be treated differently. Companies will have to learn how to manage the process of creating and calibrating an incentive structure.

Paging Professor Stigler

From Wired:

“An Act to Ensure That A Local Government That Competes with Private Companies in Providing Communication Services Has The Support Of Its Citizens” was sponsored by a prominent state lawmaker and backed by incumbent ISPs, including the cable lobby. But it’s not like those ISPs actually wrote the now-discarded bill, right?

[...]

When the I-Team asked him if the cable industry drew up the bill, Senator Hoyle responded, “Yes, along with my help.”

Why would anyone have expected different?

Rent-Seeking Fail

A twofer:
Rent-Seeking Fail #1: The New Jersey education commissioner gets caught in a lie over a paperwork error that probably cost the state a $400 million grant from the Federal Government.

Rent-Seeking Fail #2: This prompts a call for his resignation from the governor, and responds by saying out-loud what is only to be implied:

Schundler said he was asked to resign, but he requested to be fired instead so he could collect unemployment insurance.

"I have a mortgage to pay and a daughter about to start college," he said.

Hat Tip to KipEsquire for the find.

Death By PowerPoint

I assume Claudia will ensure that Aidwatch will be all over this. From Wired:

Consider it a new version of death by PowerPoint. The NATO command in Afghanistan has fired a staff officer who publicly criticized its interminable briefings, its over-reliance on Microsoft’s slide-show program, and what he considered its crushing bureaucracy.

Have you centrally planned your war economy today?

Markets in Everything: Dowry in Bangladesh

From the QJE (ungated 2007 version, I haven't checked compatibility):

We explain trends in dowry levels in Bangladesh by drawing attention to an institutional feature of marriage contracts previously ignored in the literature: mehr or traditional Islamic bride-price. We develop a model of marriage contracts in which mehr serves as a barrier to husbands exiting marriage and a component of dowry as an amount that ex ante compensates the groom for the cost of mehr. We investigate how mehr and dowry respond to exogenous changes in the costs of polygamy and divorce, and show that our model gives a different set of predictions than traditional models. We show that major changes in dowry levels took place precisely after the legal changes, corresponding to simultaneous changes in levels of mehr.

A Room With Two Views

Editorial from WSJ (gated), titled "The IRS Targets Incompetent Tax Preparers: That's The Good News. But the Agency is Going Overboard."

The article describes the new regulations to be unnecessarily complicated and burdensome for the more "legitimate" establishment.

I would like this to be a taste of their own medicine. Tax preparers are among the special interest groups that pressure for a complex and evolving tax code so that they keep plenty of business. However, it is more likely that this will devolve into a bootlegger and baptist story.

Finally, I would like to suggest that another way of making tax preparers less incompetent is to make the tax code less complicated, thereby reducing the need for specialists.

The Deadweight Loss of NY Sales Tax: Sliced Bagels

From WSJ (HT: KipEsquire):

In New York, the sale of whole bagels isn't subject to sales tax. But the tax does apply to "sliced or prepared bagels (with cream cheese or other toppings)," according to the state Department of Taxation and Finance....Kenneth Greene, the owner of 33 Bruegger's Bagel franchises throughout New York, says the state demanded that he start charging taxes on all bagels, except for those that remain intact and are consumed off premises, and forced him to pay a "significant" sum in taxes that the state estimated he owed.

Declaration of Independence: "Too late to apologize"

In apparent envy of the Hayek-Keynes rap, political economists and political scientists rally behind equally-cheesy video.



Stick around until the end. It gets even cheesier.