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Disagreement over the role of wage rigidity in the Great Depression. Brad DeLong says: "If wages had fallen faster and further, goods prices and real estate prices would have fallen further and faster, more banks would have gone into bankruptcy, the bank failures would have shrunk the money supply even more, the velocity of money would have fallen even further, and the Great Depression would have been even worse."
links for 2009-08-29
30-Aug-09
links for 2009-08-27
28-Aug-09
links for 2009-08-24
25-Aug-09
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"The Commons Transport Committee said non-compliance among overseas vehicles was unacceptably high. Nearly 47% of foreign vehicles stopped were found to have dangerous defects, compared with 37.5% for UK vehicles."
Why isn't the headline on this story 'MPs urge lorry crackdown'? 37.5% of UK lorries have dangerous defects - there's your scandal.
links for 2009-08-23
24-Aug-09
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"But of course part of the issue is that in our society economists have a lot more prestige than social anthropologists. For the economists who shape regulatory systems to admit the need to start thinking more about power structures, vested interests, and social silence would cut against their own vested interests and undermine the existing power structures."
links for 2009-08-20
21-Aug-09
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Richard Posner adds another one to the growing pile of facile and misleading critiques of the Obama stimulus plan. Brad comments: "In my view, anyone holding themself out as a public intellectual has one duty: to be smart. Being smart involves (a) checking your arithmetic, (b) building up your intellectual tools, (c) using Google, (d) reading works until you understand them, and (e) not writing things where you have absolutely no clue about what you are talking about.
Does Richard Posner think that he is behaving ethically here? In my view, he has failed to satisfactporily perform any item of that checklist."
links for 2009-08-11
12-Aug-09
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A great bit of visualisation by the Times of 30 years of food consumption data from Defra
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Yes: "I promise to get very angry at stop sign flouting cyclists as soon as drivers agree to accept a full, no tolerance program of speed limit enforcement."
links for 2009-08-06
07-Aug-09
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Because apparently some people need to be told. "Unemployment benefits clearly do provide an incentive to stay out of work longer. Holding other things constant, we would expect an increase in the generosity of unemployment benefits to lead to more joblessness.
But that does not mean that in the absence of unemployment benefits the unemployment rate would be lower, because one cannot hold other things constant while changing benefits. In particular, one can't hold the consumption of the unemployed constant while changing benefits."
links for 2009-08-05
06-Aug-09
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Quoth Quiggin: "Rational egoist models like homo economicus, ’selfish gene’ models like evolutionary psychology, and ‘realist’ models of international relations (in which nation-states are viewed as unitary actors) use similar styles of argument and therefore appeal to the same sort of person, but they radically inconsistent with each other, because they each posit a single level at which everything can be explained, different in each case."
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"Ex-prisoners tend to be geographically concentrated in a relatively small number of neighborhoods within the most resource deprived sections of metropolitan areas. Furthermore, many prisoners return “home” to the same criminogenic environment with the same criminal opportunities and criminal peers that proved so detrimental prior to incarceration. Yet estimating the causal impact of place of residence on the likelihood of recidivism is complicated by the issue of selection bias … In August 2005, Hurricane Katrina ravaged the Louisiana Gulf Coast, damaging many of the neighborhoods where ex-prisoners typically reside. The residential destruction resulting from Hurricane Katrina is an exogenous source of variation that influences where a parolee will reside upon release from prison. Findings reveal that moving away from former geographic areas substantially lowers a parolee's likelihood of re-incarceration."
links for 2009-08-02
03-Aug-09
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Mark Thoma on non-discretionary stimulus. This is the kind of thing the right tends to either denigrate or actively try to destroy, but it is pretty useful in macroeconomic terms aside from its other effects.
"So when we are assessing the effectiveness of government interventions designed to ease the recession, there are two alternative (or baseline) scenarios to think about. One is a world without the stimulus package and without the financial bailout, and that would be bad enough. But the other is a world without the stimulus package, without the financial bailout, and without social insurance, and that would be much, much worse."
Incentives and the fight against malaria
02-Aug-09
Bill Easterly recently wrote:
Technical knowledge needs people to implement it – people who have the right incentives to solve all of the glitches and unexpected problems that happen when you apply a new technology, people who make sure that all the right inputs get to the right places at the right time, and local people who are motivated to use the new technology. The field that addresses all these incentives is called economics.
I commented that while economists are very good at saying “Incentives matter!” they’re often not so good at saying which incentives matter and how. Other commenters also weighed in, arguing that insights from other fields such as political science, anthropology and psychology were crucial to understanding the incentives that really apply in each context, particularly so when you’re talking about the incredibly diverse range of settings encountered in development practice.
Now Easterly’s old nemesis Jeffrey Sachs brings us an excellent example of how crude assumptions about ‘incentives’ can lead us astray. We know that insecticide-treated bed-nets are effective in reducing malaria infection, and that many very poor people in Africa (especially in rural areas) currently lack them. The question is, how can we improve access to nets and ensure that they’re used?
Sachs and many others in the ‘aid community’ have long favoured distributing nets free of charge with the costs met by aid, on that basis that the target demographic is so poor that they generally cannot afford even the relatively cheap nets (cost about $10). Easterly, in his book ‘The White Man’s Burden’, poured his characteristic brand of scorn on the idea:
But if bed nets are such an effective cure, why hadn’t Planners already gotten them to the poor? Unfortunately, neither celebrities not aid administrators have many ideas for how to get bed nets to the poor. Such nets are often diverted to the black market, become out of stock in health clinics, or wind up being used as fishing nets or wedding veils
As I’ve said before, Easterly was ignoring the fact that the actual expenditure of aid on anti-malaria programmes in Africa had been comparatively tiny until very recently, so it was hardly surprising that the impact had been inadequate. Nevertheless, Easterly felt secure in arguing that free distribution was a failure. Instead, he favoured the ‘cost-sharing’ model, in which NGOs sell nets at a discounted price, with the NGO keeping a small share of the proceeds, “which means it gets the nets to those who both value them and need them”. The financial incentive means the seller will search out new markets, and the price paid by the user means they will value the net more than something acquired for free. See, incentives matter!
So what actually happened? Over to Jeffrey Sachs:
The uptake of bed nets in Africa through sales was very small, and coverage remained a tiny fraction of those in need. As of 2005, before the start of large-scale free distribution, one million children or more continued to die each year in Africa of a largely preventable and wholly treatable disease … Beginning in 2002 and 2003, the International Red Cross and UNICEF began experimenting with a mass free distribution of LLINs in some trial sites. They found that the logistics of mass free distribution were indeed feasible, that community uptake was high, and that distributed bed nets were indeed in the households in high percentages upon spot checks of the recipient communities a few months after the mass distribution … Recently the Poverty Action Lab at the Massachusetts Institute of Technology carried out a detailed experiment in Western Kenya that compared mass distribution with a partial-subsidy approach. The results: even a small charge for bed nets led to a tremendous drop in their adoption. Moreover, there was no greater wastage of the nets received for free than for the nets that were purchased at the discount price. The conclusion of the M.I.T. study was clear: Free distribution is both more effective and more cost-effective than cost-sharing.
The lesson here is not that Jeffrey Sachs is always right, or that aid is always well distributed or effective. While it turns out to be wrong to assume that the ‘market-led’ approach was the best one for anti-malaria bed-nets, it would be just as wrong to assume that the free distribution model can be crudely applied in every location and for every health problem. The MIT study, for example, highlights the importance of complementary interventions such as a government advertising campaign that raised awareness of bed-nets in Kenya. The point is that ‘incentives matter’ should be the start of the investigation, not the end.