Conversation with a friend about political economy: Two economists lament

In case you wonder what economists talk about when they get together…

Economist 1: I have a friend who is not speaking to me because I sent hir an article by Alan Krueger saying that a $15 min wage is probably too high (after zie made a big deal on social media about attending a “fight for 15” rally). And I have another friend who is avoiding me because zie voted for Trump and knows I think that’s despicable. I think I quit.

Economist 2: Don’t quit! Can you tell hir 15 is probably right for [expensive city]? You’re better off without the Trump supporter in your life. Keep fighting for evidence based policy, even if you only get to see people who truly understand once a year and at work…

Economist 1: I told hir I thought it was right for [other expensive city]. I was nice about it (I thought) and I sent it to hir over email – not publicly on Facebook. But zie’s ticked off anyway. And yes – I probably am better off without the Trump supporter but I’m so disappointed in hir and I’m sad about it.

Economist 2: Maybe if we lived in a different world with more social support and greater support of people getting education and also more automation…

Economist 1: Yes. Exactly. I don’t like arguing with people who are on the same side but… This friend was a strong Bernie supporter [#notallberniesupporters], which I guess explains a lot. Sigh.

Economist 2 [still imagining a theoretical world in which a $15 minimum wage is imposed across the US]: Probably what would happen though is we would have a highly functioning black market with little to no worker protections. *sigh* Reality just doesn’t care about ideals and opinions.

Economist 1: The side that *supposedly* cares about science and evidence won’t listen when the science doesn’t perfectly support their ideals. And everyone hates economists :(

Economist 2: We were briefly listened to under Obama… Everybody should love us– we have a hand for everyone! There are very few one handed economists!

Economist 1: Exactly!!! But instead we get crap from BOTH sides.

Economist 2: It really makes one not believe the median voter model. What bunk! (To think I so strongly believed in it prior to the Gore v. Bush election. How naïve I was.)

Economist 1: Maybe if we didn’t have gerrymandering and the electoral college…

Economist 2: Excellent point.

Have you lost (or gained) friends over politics recently?

Ask the Grumpies: Where to learn economics?

Leah asks:

I’d love to learn some basic econ. Where’s a good place to start that is not too arduous but is also accurate?

I know there are a lot of Econ for laypeople books out there (Freakanomics being the most famous), but when people ask me this question I always stick to two textbook recommendations.  The first is the Intermediate Microeconomics by Robert Frank called Microeconomics and Behavior.  The second is Public Finance by Jonathan Gruber.

I love Frank because he discusses microeconomics in a way that contrasts how the rational person would behave with how people actually behave.  This I think makes the theory more believable and more powerful.

Public Finance I really think ought to be taught in high school.  If you want to understand the role for government, it is a must read.  So much of what is going on with healthcare right now violates basic economic principles and after reading about adverse selection, you, too, will understand why.

Note for these that you do not at all need to buy the most recent edition.  The 1998 edition of Frank is fine for understanding the basics.  The first edition of Public Finance by Gruber is still a fantastic read.  Get whatever is available and cheap.

What economics tomes/videos do you recommend, Grumpy Nation?

Ask the grumpies: If you were a supercommittee with superpowers where would you start reducing the federal government budget?

chacha1 asks

If you were the supercommittee, with actual governmental superpowers, where would you start with reducing the federal government’s budget so that we could actually start reducing the national debt without condemning the nation’s poor to starvation, homelessness, and/or death from preventable illnesses and workplace injuries?

Well, the answer to this would depend a lot on how much power said supercommittee had.  Like, does what we say become law?  Does it have to be voted on?  What happens when people protest?  And so on.

Here I’m going to assume that the committee has the power to force through legislation and people just have to lump it, but doesn’t have supernatural powers to change the hearts and behaviors of people.  We make the laws, they try to get around them.  They can’t vote us out.  In any case, some really easy cuts would be to go with evidence-based policy.

Note:  We may not actually *want* to reduce spending when times are bad because even just throwing money out of a plane over a city is better than reducing spending.  So I’ll assume that in those situations the money saved goes to feed kids, fix infrastructure, fund education, stimulate important research, and otherwise fix the economy in ways that are good for our long-term growth.

So easy things:

1. Phase out the mortgage benefit– this benefit does not encourage homeownership, only overconsumption of houses
2. Phase out the SS tax cap
3. Completely eliminate ridiculous agricultural subsidies that are making us fat.
4. Examine the corporate tax code– this is hard because there’s a lot to be cut, but there is a real worry that corporations will move things overseas, so it’s not just a slam-dunk.  I’m sure more educated folks than I have better ideas.
5. Go with the Poterba policy recommendations for stream-lining the tax code so that there are fewer loopholes for extremely high earners (this is essentially expanding the alternative minimum tax system)
6. Make stock earnings taxed as income (or otherwise make it so the Buffett tax hits people who own American stocks)
7. Cut inefficient military spending, replace it with efficient military spending or infrastructure spending so as not to hurt communities dependent on the industry (possibly phasing out plants)
8. I’m not so good at foreign policy, but there’s a lot that can be done to decrease our spending in this arena without jeopardizing our national security.  We need more focus on doing things with coalitions rather than unilaterally.  And we do need to help out more like with the Syrian refugee crisis.
9. Cut foreign policy aid to Israel and possibly to Egypt.
10. Cut some Medicare spending– allow Medicare better bargaining power, allow outcomes from experiments to influence policy, cut some doctor reimbursement (but not to Medicaid levels)
11. Allow federal funds to fund abortions.
12. Add a public option to health care with an eye towards eventually transitioning to single payer health care (this will actually cost money and we’ll have to pay more taxes but it is good for efficiency).

There’s probably a lot I’m forgetting.  In my work office I have a chart of government spending, but I don’t have one off the top of my head here.

When economists prefer tossing economic theory to being woke

I seriously do not understand how so many economists (white male etc.) think that “cultural differences” explain things that are easier explained by “different constraints.”

As if we’re not all rational actors, only the white guys are.  Everyone else is doing worse because they are worse.  They’re either low quality or have bad culture.  If everyone acted like a white guy, then everybody would be doing as well as white guys.  As if.

It’s like, do you not listen to your own theory? How is it that when someone who isn’t a rich white guy is involved, all of a sudden you become a poor quality sociologist (who doesn’t really understand sociology)?

How to write a power-point discussion (economics-specific)

The goal of a good discussion is to explain to the audience where the paper fits into the general social science/policy framework and to help the paper improve for the future.  The goal is not to destroy a paper but to improve it (see exception below).  Discussants are serving science!

1. Frame question— why is it important?  (You can mention your own work here if applicable.)
2. Briefly summarize paper.  If the presenter is great, you will be able to skip the summary or only go over what you see as the most important parts.  If the presenter is terrible, your audience will really appreciate figuring out what they just heard, so it’s good to be thorough on your slides if you don’t know a priori how good the presenter will be.  If applicable, here would be a great place to take the author’s work through a “sniff test”– Bridgette Madrian is one of the best discussants I’ve seen, and one of my favorite discussions of hers was where she took a person’s paper (on whether or not we need 70% of our income after retirement) and applied it to her own life with a spreadsheet and came to the conclusion that the paper’s thesis was plausible.  Sometimes discussants will call up experts in the industry to ask their qualitative opinion.  Really great discussants will sometimes replicate or extend with another dataset.  None of these things are necessary, but if they’re easy for you or an RA to do, they can really push you to be memorable (though being invited to discuss more papers is not necessarily something you want to do!).
3. Constructively point out problems with the paper and suggest solutions (if any).  Don’t be a dick.  Frame these as questions to think about, how big a problem you think they are etc . Don’t use this part as a place to talk about why your work is awesome and theirs sucks.  If you do mention your work in this spot, use it only as a place to commiserate with standard problems and suggest solutions that could work for them.
4. Extensions for the future, broader impact.  Here’s a place where you can talk up your own work if it is related and can speak to the paper you’re discussing.

How many slides do you want?  Fewer than the number of minutes you have to present.  It is better to go short than to go long.

Special cases:

1.  The authors haven’t actually done anything yet:  Spent the majority of your time on why this is an interesting question and suggestions for future work.  (Also ok to use a chunk of your time talking about your own related work.)  Use the word “preliminary” a lot.
2. The authors clearly haven’t addressed causality but causality needs to be addressed (or any other major elephant in the paper issue):  Spent the majority of your time on why this is an interesting question.  Talk about the problems of getting to causality and (if easy for you to do) what other authors have done and (if easy for you to do) the problems with what they’ve done (or if not problematic, then suggest these authors follow).  Gently mention that causality is something that these authors need to think about.  The audience will understand.  Then suggest future work (which will include really nailing down causality).
3. You don’t get the paper to discuss until the night before at 3am:  Feel free to spend the entire time talking about your own work, or to come up with something off the cuff while they’re giving the presentation (it is AOK to note that you did not get the paper until the night before, but that should be the extent of your dickishness).
4. The paper is poorly done and the results, if taken at face value, will do real harm to people, particularly those from marginalized groups:  In this case, it is ok to firmly and politely destroy the paper for shoddy craftsmanship.  You can do so in a professional manner in steps 2 and 3. You’re still not being a dick, but you don’t have to frame things as questions to think about but as real methodological problems.   It’s ok to throw around the terms “dangerous” and “needs stronger proof”.  It’s a shame that there are still guys (and the occasional woman) who write papers with sexist/racist agendas who ignore basic science in order to prove that wealthy white men are superior and deserve their privilege, but there are.  They shouldn’t be allowed to do bad science.

Academic readers– is this about right?  What things are the same or different in your discipline?  Any other tips?

How to do a powerpoint presentation (social sciences, economics)

I LOVE me some powerpoints.

Think about what you want your audience to take away.  Use the rule of 3 to emphasize those points (say what you’re going to say, say it, then tell people that you said it).  Depending on how much time you have you won’t be able to get through every point in the paper, so think about what subset you want to present, what slides you want to keep in case of questions but not actually present, and so on.

Use the powerpoint as a guide to remind you what to talk about, so brief bullets/phrases instead of full sentences.  Do not read off the slides.

Some people will only want to read your slides, some people will only want to listen to what you say.  Make sure that people who do one or the other will still get the gist of your presentation.

Make sure your fontsize is big enough that the people in the back can see it if they’re wearing glasses.   My heuristic is to not go below 28 point Calibri if it’s something I want them to read.  (Table notes can go smaller)

Graphs are often more compelling than regression output.  (But keep the regression output as a backup)

Don’t use fancy wipes/fade-outs/etc.  Anything that distracts without a purpose is useless.

Development economists, behavioral economists, psychologists, antrhopologists, etc. use a lot of photos/pictures/drawings and occasionally movies.  Do that if it is common in your field.  If it isn’t, then only sex it up like that if it helps improve understanding.

DO NOT USE PREZI.  Or if you do, use it like you would Powerpoint or Beemer.  You do not want to give members of your audience migraines.

I have often found it helpful to have different versions of the same information in the powerpoint that I can skip over depending on how pressed for time I am.  So I will have a pretty chart, regression output, and summary bullets (or two out of the three) and I will use combinations of one or two of these depending on how much time I have left.  It is also helpful to know which sections can be skipped without losing the main themes of the presentation.

Practice your talk.  Know how the talk is going to differ if questions are allowed vs. no questions being allowed.

It is better to go a little under than a little over.  It is better to skip parts than to talk so quickly nobody can understand you.

Join us next Tuesday for:  How to write a powerpoint discussion(!)

Academic readers– is this about right?  What things are the same or different in your discipline?  Any other tips?

Ask the grumpies: minimum wage

Mutant Supermodel asks:

what do economists think about raising the minimum wage? Is there a general consensus either way or is it as mixed up as it is on my Facebook feed?

#1 is not the economist but I’ll say that I support it right now, within reason.  What does #2 say?

Ok, the short of it is:  Economists are still divided on the topic of whether or not, and at what point, raising minimum wages decreases jobs or job growth.

Basic econ 101 theory says that if you raise the minimum wage, creating a wage floor, in a perfectly competitive market, then employment will go down because all the people who would have gotten jobs at lower wages will no longer get jobs.  (This is usually taught in the same chapter as why rent control is bad.)

That’s basic economic theory in a perfectly competitive market.  Market intervention hurts jobs.

HOWEVER, we don’t live in a textbook world.  So this is an empirical question.  And there are literally hundreds of papers exploring the effect of minimum wage increases in a non-experimental framework.  They find mixed results based on functional form.

The first major natural experiment on this topic is one by David Card and Alan Kruger.  They look at the effect of a minimum wage increase on employment of fast food workers at border counties in Pennsylvania and New Jersey.  They find that employment doesn’t change or actually *increases* in the state where the minimum wage goes up.  It doesn’t seem to be decreasing employment at all.

There are a number of potential explanations.  One that I’ve always liked (for its simplicity), but many prominent economists don’t share my like of is the thought that these fast food markets have monopsony power– which is like monopoly power, but what you have when you’re the only employer (or one of the only employers).  When employers have this kind of labor market power, they can keep wages artificially low because they can say either you work for us or you get nothing, because there’s no competitor to say you can work for me and I’ll give you a penny more (thus bidding up wages).  (You don’t need just one employer for there to be some monopsony power– just a small number of employers if they’re willing to collude, or for there to be other frictions in the labor market.)  When this happens, increasing the minimum wage would just reduce profits but wouldn’t negatively affect employment.

David Neumark is the big anti-Card and Kruger guy.  His work with coauthors argues that Card and Kruger’s survey data are inaccurate and that employment goes down based on administrative data.  Card and Kruger disagree.  There was some back and forth.  Cambridge-school economists tend to believe Card and Kruger.  Chicago-school economists tend to believe Neumark and Wascher.

More recently there’s been some work that reconciles all of the findings, suggesting that minimum wage increases don’t actually have a lot of effect in the short run.  People don’t get fired because the minimum wage increases, because firing people is bad for company morale (among other things).  HOWEVER, this newer work suggests that the minimum wage does depress job growth in the long-run.  As people leave (as they often do in minimum wage jobs), they’re not replaced  one-for-one.  There may also be an effect on overall growth by industry (with firms that can only afford minimum wage workers shrinking or going out of business), which would further disguise any negative effect on employment.

What’s the bottom-line?  Economists don’t know.  Most, if not all, economists will agree that there’s some point at which the minimum wage really does decrease employment rates.  (If minimum wage were $100/hr, most of us would stop sending our kids to daycare and fast food workers would be replaced entirely by machines.)  Many economists will also point out that, historically, real minimum wages have been much higher, particularly at times of economic growth (correlation not being causation, but slyly winking and nudging that direction), and some will even note that we’re subsidizing companies that don’t offer a minimum wage with foodstamps and other benefits.  Without those government subsidies, companies might be forced to offer living wages.

Personally, I think the minimum wage should be raised right now.  However, I’m not sure that it should be raised as much as some people are suggesting, particularly in some parts of the country where living costs tend to be lower.  (Just as a sniff test, I’m willing to hire people at $10/hr for standard minimum wage jobs that I’m not willing to hire at $12.50/hr– I’ll just do it myself at that price unless I already know the person is exceptionally competent.)  And then there’s all those exceptions to think about… should teenage wages be lower (and what does that do to adult unemployment?)?  Waitstaff positions?  And so on.  It’s a very complicated question full of many moving parts, and if economists can’t even agree on the direction, it’s hard to know what the magnitude is!