The Female Premium

Mark Perry has an excellent take on a NYT editorial advocating regulation to close the pay gap between men and women. Because women get 88 cents for every dollar men get, clearly there is an unjustice to correct. Or so the story goes (Perry's alterations are in bold)...

Women Men now make up almost more than half of the American work force, but, according to data compiled by the Census Bureau, James Chung of Reach Advisors, who has spent more than a year analyzing data from the Census Bureau's American Community Survey, single, unmarried, childless full-time female employees still make, on average, only 77 cents $1.08 for every $1 earned by men in America's largest cities.

A large part of the pay gap originates from biology and social norms concerning children. When a female employee becomes pregnant, the company she works must find and train a replacement. When such employees have children, they are more likely to be spending time away from work caring for them in case of illness or unexpected conflicts (e.g. the nanny is ill). When there is no child and when the possibility of pregnancy is small (the female employee is single), that pay gap turns into a pay premium.

Chung's work is just one study, of course, but it's not the only one which comes to this conclusion. Thomas Sowell's Economic Facts and Fallacies reports a similar result from a different study, also finding a wage premium. The one cited in Sowell (I don't have the book handy at the moment) controlled for the nature of the job as women also tend to go to low paying occupations (e.g. administrative assistants). I assume Chung's research did this as well. Those concerned about the supposed pay gap rarely acknowledge this other important fact.

Net Neutrality Hurts Poor People

The more I hear about net neutrality, the more skeptical I become. From the National Journal:

"The FCC's mobile broadband loopholes adopted in its December Net Neutrality order are already leading to anti-competitive, anti-consumer practices," said Free Press policy counsel Chris Riley. "The agency must act quickly to investigate MetroPCS's service plans before similar blocking and content-based discrimination on wireless networks becomes an industry-wide problem."

According to the six-page letter, MetroPCS has introduced a tiered system under which customers are changed more for accessing high-usage sites such as Netflix and Skype.

In other words, some people want to be able to watch videos on their smartphones. But videos eat up a lot of bandwidth so the company offers a premium service to cover the costs. But that violates net neutrality so if this complaint goes through, then MetroPCS would have to make this service available to everyone, regardless if they wanted it or not. Cellphone bills would increase, and yes, I can see this spreading to other carriers.

The very poor, the ones who can't afford nor desire such options, would be completely shut off from this avenue. In pursuit of making the Internet accessible to everyone, you make it accessible to fewer people. This is a good object lesson in unintended consequences.

Here's HuffPo's op-ed on the subject.

HT: Alex Tabarrok

Robert Reich on the Learned Hand Rule

Reasonable precaution means spending as much on safety as the probability of a particular disaster occurring, multiplied by its likely harm to human beings and the environment if it does occur.

That's Robert Reich today using the Learned Hand rule to slam corporations. Citing GE's questionable Mark 1 boiler reactor (the same used in TEPCO's Fukushima Daiichi plant), Reich argues in favor of more regulation.

Profit-making corporations have every incentive to underestimate these probabilities and lowball the likely harms.

I'm not really sure why he thinks regulators have the all the right incentives. After all, they're not getting paid very much compared to private sector workers so they should be pretty easy to bribe.

If companies are taking too many risks (and to be sure it would be the company which bought and used the reactor who's taking too many risks, not the company which sold it), then it sounds like they are not internalizing the costs of their recklessness. Maybe regulators are the way to go, maybe stronger negligence rules are. Maybe nothing is needed at all since nuclear accidents are incredibly rare and it took a major earthquake to create one. Just because the most recent natural disaster caused problems doesn't mean companies are under-estimating the probability of the problem.

Update The size of the earthquake was completely unprecedented. Hard to blame the Japanese power company for not predicting the future.

Social Insurance and aSTG

Lately I've been reading William Rosen's The Most Powerful Idea in the World, about the history of the steam engine. But that's not the most powerful idea: the notion that people have a right to profit from their invention is. (At the dawn of the Industrial Revolution, this was a new idea.)

Rosen takes the time to explain the biology of how we get invention. In other words, when people have that eureka moment, what happening in the brain? The key, researchers Mark Jung-Beeman and John Kounios, found is that when there's a flash of insight, blood flows to the anterior Superior Temporal Gyrus (aSTG) in the right hemisphere. When you daydream, this is part of the brain that's responsible. Most of the time, the brain works to inhibit the flow of blood to this region. This makes evolutionary sense: daydreaming gets you killed because blood flowing to aSTG is blood that's not flowing to the parts of your brain which will tell you there's a lion about to kill you. This is also why you get flashes of insight when you're relaxing (taking a walk, in the shower).

So far, so good. But what does this have to do with social insurance? It occurs to me that if you are constantly concerned about survival, you have no time for flashes of insight (note to get these eureka moments, you also have to know the material...daydreaming is not a substitute for reading). I see this as a potential barrier for income mobility. If there's a safety net loose enough to encourage hard work but strong enough to allow people to relax everyone once in a while, then you're more likely to get new ideas (not just inventions, but things from small business ideas to solving everyday problems).

It should be stressed that this can easily be justification for more aid to the developing world and I tepidly agree. All things being equal, yes. But I must return to the thesis of Rosen's book: allow people to profit from their ideas. In the developing world, where it is nearly impossible to start a (legal) business, secure a loan, etc, having great ideas isn't enough to pull a country out of poverty.

But it's a start.

The Listeners of What Is This Person Referring to?

Since then, I've grown to hate these listeners. Oh, I hate them, hate them, hate them. Every time one of their narrow-minded, classist letters makes it on the air, I contemplate burning my tote bag in protest.

Answer here.

Top Ten Reasons Sex Sells

Actually, I find top ten lists annoying. Well, that's not really true. Only some are annoying and they're the ones that aren't really top ten lists because each item is really previous items restated. Inspired by this list about how Sport Illustrated disrespects women. (While published over two years ago, it came up in my blog rolls recently.) Observe:

4. Sports Illustrated disrespects women by numbing men to women's humanity.

3. Sports Illustrated disrespects women by exhibiting women to men as the "other"--as if women were a different species from the "real" athletes who are men.

2. Sports Illustrated disrespects women by sending a message to girls and young women that no matter how much they excel in athletics, all that matters is how they look to men.

It's not possible to do #3 without doing #4 nor can do you accomplish #2 without #4. Read their whole list. Their "top ten reasons" (there are more?) are really two reasons: "SI disrespects women by publishing too many photos of them as sex objects" and "SI disrespects women by publishing too few photos of them as athletes."

So why did Feminist Truths publish this as a "top ten" list? Just because you have "just" two points doesn't mean they are not worthy points. Even having two things to be concerned with can be too many (most great reporting focuses on one issue). It's because top ten lists get attention. They might depict the subject in a superficial or over-simplified way, lacking nuance and practicality, but that's largely harmless because it's up to the viewer to look deeper or, at the least, recognize it as harmless fun. But in the end, Feminist Truths are giving people what they want.

They're really no different than Sports Illustrated.

What's With the NYT?

Specifically their automated hyperlink system. The Times has a program (I assume) which runs through their articles and turns various words and phrases into links to other web resources. Sounds cool? Depends on the link because sometimes that program is dumb.

Consider this article about Pixar hoping Toy Story 3 will get best picture. Some links make sense: "Tom Hanks," "Toy Story," " the top-grossing film of the year." But consider this sentence from the article:

On a visit to the Pixar campus here, in an old canning factory a short drive from San Francisco, I got a brief lesson in the laborious art of animation.

Which word or phrase should be made into a link? Pixar? San Francisco? Nope; it was canning (click on the link for more articles about canning!) But that's not the worst one. At the end, the interviewer jokingly asks Toy Story 3 director Lee Unkrich if he has an animated version of himself.

"No," he said. "That would be really creepy. No, thank you."

Don't think that sentence deserves a link? The Times disagreed. Clearly, people want to know more about the word, "no," especially the 1998 Canadian comedy.

The thing is, I find it equally likely that the Times does this on purpose in an attempt to be cute. Is it cute? No.

Recombinant Growth

I'm going to do something I normally hate doing and that's comment on something I haven't read.

Tyler Cowen has an e-book out arguing American technological progress has plateaued. From the description:

In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century: free land; immigrant labor; and powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are barer than we would like to think.

Arnold Kling notes the irony that an argument about plateaued grow is coming in the form of a digital book for only $4. Of course you could argue that this constitutes "cutting edge" is a point in favor of Cowen's argument.

Based on my educated guess, Cowen's making an increasing marginal cost claim: as you pick the low hanging fruit, you're forced to climb the tree and go after the stuff that's harder to get. I use the same analogy when I teach principles. It works great for basic stuff like picking apples. But new technology is another story.

In a great 1998 paper, Martin Weitzman argues that knowledge causes "recombinant growth," or growth that builds on itself as ideas combine with other ideas. "The paper's main theme is that the ultimate limits to growth lie not so much in our ability to generate new ideas as in our ability to process an abundance of potentially new ideas into usable form."

It's not that we make technology, enjoy the benefits, and start again where we were. If it was, then we would have fallen back into gut-wrenching poverty long ago. The ideas we gain (not to mention the immigrants who help make those ideas) stay with use, which we use to make yet more ideas. These ideas combine with other ideas and make cutting edge stuff easier to achieve than our ancestors ever thought possible. High-hanging fruit doesn't seem high hanging. It's as if the fruit we pick not only nourished us but cause us to grow larger and provided seeds for new trees to boot.

Ignore CBO Estimates

We often hear that the estimates from the Congressional Budget Office (the folks which tell us how much laws cost or save the government) are non-partisan.

The final cost estimate produced by the non-partisan CBO -- that the health care measure would cost $940 billion over 10 years, and bring down the deficit over that same time period. [Source]

The $800 billion federal stimulus bill has boosted employment by 1 million to 2.1 million and helped the economy grow about 1.5% to 3.5% larger than it would have without the stimulus, the nonpartisan Congressional Budget Office said Tuesday. [Source]

The Congressional Budget Office, a nonpartisan watchdog, forecasts that the US will post deficits in excess of a trillion dollars in each of the next 10 years. [Source]

Even the more reasonable Matthew Yglesias will cite their scoring without ever questioning them.

While the CBO is supposed to be neutral, it doesn't take much thought to realize how naive that is. Since its creation in 1975 (thanks to some 1974 legislation), the CBO director's appointed by the mutual agreement of the Senate pro tempore and the Speaker of the House after considering the recommendations of their respective budget offices (though by tradition each chamber alternate this responsibility). In addition, either chamber may fire the director by resolution. So you'd think that if you're the CBO director, you have a pretty strong incentive to be partisan.

If I'm right, then when both chambers are of one party, the director should be that party as well (or at least sympathetic to it). This is somewhat easy to check. CBO directors aren't politicians and don't wear their affiliation on their sleeves, but thanks to some Googling and checking Wikipedia, I estimated the party affiliation of each director (excluding acting directors, which are covered by the white spaces). Here's the list of past CBO directors. The size of the blocks under the CBO heading is the length of that person as the director. If the director changed mid-year, I counted the full year if that person was more than halfway through the year and not in the year at all if he or she left before the halfway mark.


Even if you complain that so-and-so isn't partisan, or so-and-so isn't the party I assigned it, the correlation's strong enough that any single change doesn't change the overall pattern.

The chart above is not to be the definitive data which proves the CBO's partisanship, just an illustration that this neutrality everyone talks about is just hopeful thinking. And I'm first to admit my categorization isn't perfect. For example, the only reason I put Douglas W. Elmendorf as a Democrat is that he was a senior fellow at Brookings, which leans left if it leans any direction at all. The more important point is that of incentives: even if Elmendorf is non-partisan, that he can be fired by Democrats (and only Democrats) gives him plenty of reason not to be.

An Example of Good Regulation

New York Times has a great article about the growing importance of electronics in the stock market. Of particular interest is high frequency trading.

They use algorithms to zip in and out of markets, often changing orders and strategies within seconds. They make a living by being the first to react to events, dashing past slower investors — a category that includes most investors — to take advantage of mispricing between stocks, for example, or differences in prices quoted across exchanges.

High-frequency traders are “the reason for the massive infrastructure,” Mr. McPartland says. “Everyone realizes you have to attract the high-speed traders.”

These trades occur mind-bogglingly fast, with speeds measuring in the milliseconds, or millionths of a second. As various trading platforms (besides the NYSE and NASDAQ, there are about two dozen smaller ones) compete for the high-frequency traders, the bill to stay in the game skyrockets.

One such project is a 428,000-square-foot data center in the western suburbs of Chicago opened by the CME Group, which owns the Chicago Mercantile Exchange. It houses the exchange’s Globex electronic futures and options trading platform and space for traders to install computers next to the exchange’s machines, a practice known as co-location — at a cost of about $25,000 a month per rack of computers.

This is a pure arms race, where value is zero sum and purely relative. At this computing level, doubling the speeds adds nothing to our wealth but costs society billions. If everyone would half their speed, we'd loss nothing (or almost nothing) as a whole AND we'd won't have to spend so much money on these damn super-super-super computers.

The SEC chairwoman, Mary L.Sharpio, has raised the idea of limiting the speeds machines can trade at and I applaud this direction. It depends on the speed that's set, of course, but the efficiency gains between 50 milliseconds and 90 milliseconds is basically zero.

Two caveats. First, it's unclear what the spillover gains from this computing technology is. Firms are expanding the limits of technology to deliver pure speed to Wall Street(s). Such computers might add little to trade efficiency but could be useful elsewhere, say medical areas, especially in the areas of genetics and nanotechnology. Getting this technology faster could save lives.

The second is the unintended consequences. These firms compete on speed: take that away (assuming there are no loopholes) and what will they compete on instead? It could encourage better customer service, but it could also encourage accounting fraud.

But in light of these two issues, I still favor a speed cap. I doubt cutting out these customers for high end computers is going to significantly reduce the investment in high speed computer technology. The second issue I'm a little bit more nervous but I suspect there's plenty of room for honest improvement to compete on.

Congress COMPETES

The America Creating Opportunities To Meaningfully Promote Excellence in Technology, Education, and Science Act (America COMPETES Act) was reauthorized by the 111st Congress. I admittedly don't know much about these prizes and will be looking closer at them in the near future. Here's a link to various prizes the government's offering (the core of the law's been around since 2007; it looks like the reauthorization, among other things, increased the role of prizes).

The Spirit of the Season

Rasmussen Reports published today that most people prefer stores greet them with "Merry Christmas" (69%) versus the 24% preferring Happy Holidays.

But:

Very few Americans are offended when someone wishes them a "Merry Christmas," but most are more likely to say "Happy Holidays" to someone else rather than risk offending them.

And:

Also, few who don’t celebrate the holiday are offended when an acquaintance wished them "Merry Christmas."

Wishing someone a "Merry Christmas" is an externalized benefit (people prefer it more) at a small risk of an internalized cost (offending someone...which is also an externalized cost but I figure if you're going to bother to say anything in the first place, you have sympathetic preferences). According to these reports, as economics predicts, we have too few "Merry Christmases" because (drum roll please), people are taking their niceness too far! It's a strange world when a selfish Scrooge can teach us about spreading some Holiday Christmas cheer.

Merry Christmas.

Growth Is Efficiency

An article by Steve Horwitz brought on one of Brad Delong's most prestigious awards: Stupid Economist Alive. Horwitz argues that supply, not demand, is the key behind economic growth.

Starting the analysis with consumption assumes one has already acquired means. Contrary to that analysis, wealth is created through acts of production that rearrange resources in ways people value more than alternative arrangements. These acts are financed with savings that come from households refraining from consumption.

Delong (and Karl Smith and Matthew Yglesias and other Keynesians) argue growth comes from demand (hence the call for stimulus packages). From Smith:

That having been said there is a difference between consumption and investment. Investment – which is perfectly good Keynesian demand by the way – is using the resources of the universe to create tools that will allow me to make even more stuff in the future.

However, I don’t just do this for the hell of it. I hope that one day this investment will lead to a world of even greater consumption. Consumption is still the ultimate goal.

The whole discussion strikes me as silly because it ignores what economic growth is and it's not people buying things or people making things. The Soviet Union learned that when it made a bunch of stuff people didn't want and then bought of bunch of stuff people didn't want. Growth is efficiency. Period.

When we think of efficiency, we think of giant machines doing monotonous tasks but efficiency is much more than that. At its core, it's getting more output with the same amount of input, "output" and "input" broadly defined. So this isn't just technology. It's also new companies, new products, new hobbies, a better division of labor, smarter organization, etc. Anything that enriches our lives in a material or non-material way. If there's a new religion that enriches souls more fully than an older one (holding costs equal), that's growth (maybe not in terms of GDP, but growth in a way that still matters).

Now if you think this sounds like I'm echoing Horwitz's argument, think again because achieving efficiency isn't free. If it was, we'd have invented flying cars and Google a long time ago. Inventing new technology, taking on the new workers for the better division of labor, designing new products...these things are expensive to do. I'll need some kind of incentive to take on these costs, not to mention the costs associated with uncertainty. To achieve efficiency, we need not just the means, but the motive.

Roughly stated, the means are what we hear from the right/libertarians. Reduce capital gains taxes, cut down on regime uncertainty, etc. It's all about reducing the costs of operating a business, which is largely about finding ways to boost efficiency. And roughly stated, the motives are what we hear from the left/Keynesians. Increase unemployment benefits, make stimulus packages, boost aggregate demand. My point is that you need both mindsets.

This doesn't mean I'm behind more stimulus spending or cutting taxes across the board. There are good ways to embolden means and motives and there are not-so-good ways. The key point is that these two sets of policies aren't substitutes...they're complements. If you increase aggregate demand and pair it with a drop in aggregate supply (costs), then you're much more likely to increase efficiency than if you do just two policies from one set of theories.

Growth is efficiency. Understand that basic point and it's clear that the debate about if supply or demand is behind economic growth is foolish debate. You might as well ask which blade of the scissors cuts the paper.

The Bush Tax Cuts

I was largely agnostic when it came to the Bush-era tax cuts. But I had no idea how much taxing the rich taxed small business.

From what I gathered (via this video), all revenue from a privately held company (which small businesses are) counts as income for the owner. If the efforts of dozens of people bring in half a million, that's the legally the same as a CEO of a big company making half a million. In the former case, that money goes to employ the people to keep the business afloat. In the latter case, it's not. The narrator in the video underlines how risky it was for him to hire more people since it's unclear if the tax cuts will expire or not.

The video's produced by the Small Business & Entrepreneurship Council, so I assume they're correct that the tax system works as described, but of course there could be many exceptions that exclude most small businesses and the narrator's just in a bad place. Still, I think when most of us think "the rich's income" we're not thinking small business revenue.

That's not to say that small business is the "key" to economic recovery...I don't think it is. But it's not insignificant, either, and allowing the cuts to expire look less and less like a good idea.

When To Tariff

Subsidizing an industry (ignoring positive externalities) is not good for efficiency. This sort of argument is often cited about trading with China and its alleged undervalued currency. I have some thoughts about fixed exchange rates, but I'll post them another time. Right now, I'm more interested in the talk about if the US should institute retaliatory tariffs against China on the basis of its more direct subsidization (i.e. giving money directly to firms, not keeping the exchange rate down).

The nice thing about retaliatory tariffs, is that if they succeed, China will stop subsidizing industries. This is not good because the US will export more; it's good because it decreases price distortions. Wealth (on a global scale) increases. But such tariffs can back-fire if China doesn't back down. Instead of having one problem, you have two.

Suppose China will remove subsidies at a probability of x. If W is world wealth, S is the effect subsidies have on world wealth, and T is the effect tariffs have on world wealth, the US (assume the US cares about the world's wealth, not just American wealth) should not threaten a tariff if:

W - S > W - (1 - x)(S + T)

or...

S < (1 - x)(S + T)

If that equation looks familiar to you, then bravo to you! It's the Learned Hand Rule. To quote the Wikipedia entry,

an act is in breach of the duty of care if:
B < PL
where B is the cost (burden) of taking precautions, and P is the probability of loss (L). L is the gravity of loss. The product of P x L must be a greater amount than B to create a duty of due care for the defendant.

In other words, you're held liable for something if it was cheaper to remove the possibility of the bad thing from happening than it was to suffer the bad thing, weighted by the probability that the bad thing would happen. For example, it's easy to install a guardrail, likely someone will fall and very harmful if the person falls. So if you don't install a guardrail and someone falls, you're held liable.

My equation runs a similar vein, though you tolerate a subsidy instead of put up a guardrail. If the cost of suffering the subsidy is less than cost of the subsidy and tariff, adjusted for probability, you shouldn't threaten a tariff. Not tolerating the subsidy is negligent as threatening the tariff exposes the world economy to an inefficient level of risk.

Let's rewrite the equation:

S/T < (1-x)/x

If the above inequality holds, then threatening a tariff would be negligent. Let's summarize the right handed side with a graph. If S/T is above the line, you should threaten the tariff; if below, you should not.



Suppose we agree that subsidies and tariffs have an equally negative impact on wealth, or S/T is one. That means if x < 0.5 (Chinese have less than even odds at backing down), don't threaten. If x > 0.5, then you should threaten. Yes, you can get into a lot about reputation building, threatening (and following through) even if x is low in an attempt to increase x. But this post is already quite long and would make this model very complex.

It's politically harder to get rid of subsidies than tariffs, I'd wager, since tariffs are a tax and people love seeing their taxes fall. Therefore, S > T because the long term damage is higher. But it also means x is lower than we thought since it's harder for the government to give up something that is so popular. Assume S is twice as bad as T (S/T = 2) because it is twice as hard as we thought to get rid of (x is 0.5x). Because of the curve of the graph, x would have to be 0.67 (before adjusting for the change due to political viability) before you get the same payoff threatening a tariff as you do letting the subsidy stand. That's higher than the even odds I mentioned earlier.

The point of this post is to get us to think more about retaliatory tariffs as an efficiency goal, not a justice goal. Lots of people point to "leveling the playing field" and "fairness" when they advocate retaliatory tariffs, as if the aim is to punish people for wrong doing. But that's a means to an end, which is to stop subsidies. Recognizing that some subsidies aren't worth the risk of retaliation is the first step to being smarter about trade policy.

A Theory of Book Survival

Russ Roberts believes the days of the physical book are numbered.

So while there are some advantages to physical books, I’m predicting that the advantages of digital books will crush them. And it won’t take long...There will be one exception. The Jews. We will still publish prayer books and Bibles and Talmuds for use on the Sabbath when the iPad and the Kindle take a rest. But for the most part, I think that’s going to be it.

No doubt investing big in a physical book market is a fool's errand. But I don't think new physical books will become extinct. In fact, I think the disadvantages of such books will be the key to their (muted) survival.

Books as yard signs. Because books have that hefty annoying mass, they can be displayed in a home. I once heard that most people who buy books written by popular public figures don't actually read them, or read very little of them. They mostly have them to display in their bookcases. "Look what team I'm on," they scream. Displaying your copy of a hip new author plays a similar role.

Books as uncomfortable shoes. We wear uncomfortable clothes when we're trying to be serious because genuinely serious people are more willing to tolerate such discomfort. Similarly, "true readers" will read the book in the physical form because it's a pain to do. Only people who want to be part of that "serious readers" club will tolerate a physical book. Oh they'll fool themselves that the minor differences between the physical and the digital matter, e.g. the smell of the book, but it will really be about signalling.

Books as candles. While I think most of the "smell of the book" stuff is nonsense, it's true that people like nostalgia and novelty. Yeah, I think candle light's romantic but I might think that because I grew up with electricity. Old stuff always seems exotic and cool.

GRANTED, there's lots of old media where new stuff doesn't exist. Vinyl records. VHS. Cassette tapes. But such things weren't around very long. They didn't have the opportunity to entrench themselves as a nostalgic enough to warrant making new ones and they make even poorer signalling. But physical books have been around for a while and when you add in print on demand services, I think we'll be seeing new physical books around for a long time.

Bookstores, however, are a different story.

Tuition Fee Riots

Protests against rising tuition fees in London turned violent today with massive property damage as angry students swarmed the street. I first heard this story on CNN and saw it again on the BBC. Both networks kept citing that the fees would triple, which is a very dramatic increase. But no one said how exactly how much fees were increase which told me it wasn't as high as your gt reaction might believe.

I found the actual increase (notably via the BBC...apparently it's worth writing in an article but not worth saying in a newscast). For one, they are not increasing the fees per se, but increasing the cap universities can charge. It will grow from $4,830 to $14,500 (3,000 pounds to 9,000 pounds, using current exchange rates). So yes, a $10,000 increase is quite a hunk of money. But the average in state tuition in the US is $10,674. Out-of-state tuition for public universities is much higher. And that was in 2004; average tuition is certainly higher today for the same reason the Brits kicked up fees: governments are strapped for cash.

In other words, tuition rose not because the Tories, et al are picking on students but because students have been underpaying for a long time. That's why even in the wake of the violence, the Tories aren't backing down.

The Significance of Significance

William Easterly admits to being sloppy with his statistical reporting.

Aid policy was based on the premise that aid raises growth, but …{a major} study of this question was saying that this premise was false.

This quote refers to the Rajan-Subramanian paper (later published in a peer-reviewed journal) that was unable to reject the hypothesis of a zero effect of aid on growth. As I never tire of pointing out, we often get our conditional probabilities mixed up. Based on standard statistical methodology, the (1) probability of failing to reject the zero effect hypothesis is high when the effect is indeed zero. Unfortunately, the author of the quote incorrectly thinks this implies the opposite probability is high — (2) the likelihood that the effect is indeed zero when you fail to reject the hypothesis of zero. This likelihood can actually be quite low even if the first probability is high.

This is an important point, but it's not intuitive. Let me take a moment to interpret.

Suppose you and some friends are out partying but your friend Bob didn't show up. Where's Bob? It's late: Bob's probably at home. Bob being at home is your null hypothesis. (When I first learned about null hypothesis, I learned it as the theory that nothing interesting's going on. It's more complex than that but that will suit us for our purposes.)

You decide to call Bob to figure out if he can come party with you. Granted, Bob might be busy playing poker or getting drunk at his favorite bar. But he also might be home and it's a lot easier to get Bob to do something when he isn't doing anything.

If Bob tells you he's at home, you can accept the null hypothesis. Bob is indeed at home. (Technically, you never actually accept the null due to mathematical constraints but ignore that to build the intuition.) If Bob tells you he's in the gutter somewhere, at a strip club, or doing something else "interesting," you reject the null hypothesis. But if Bob doesn't pick up the phone, if it just rings and rings and rings, then you fail to reject the null hypothesis. This is not the same thing as accepting the null. Bob could be asleep in bed OR he could be in jail after having just spray painted a cop's car while wasted on vodka. You just don't know.

That confusion, that not getting an answer is the same thing as getting something boring, is the confusion William Easterly made. The Rajan-Subramanian paper didn't get statistical significance when it came to aid's relation to growth which is the same as the phone not picking up. To quote Easterly once more, "Absence of Evidence does not constitute Evidence for Absence."

The Fake Endorsement

I've always known what a politician said and what they believed were often at odds but this brings it to new heights.

Trying to be even-handed and polite, the [visiting] Brits said something diplomatic about McCain’s campaign, expecting Bush to express some warm words of support for the Republican candidate.

Not a chance. “I probably won’t even vote for the guy,” Bush told the group, according to two people present.“I had to endorse him. But I’d have endorsed Obama if they’d asked me.”

Endorse Obama? Cue dumbfounded look from British officials, followed by some awkward remarks about the Washington weather. Even Gordon Brown’s poker face gave way to a flash of astonishment.

When I first read that, I was utterly confused. "Had to?" You're the President at the end of his final term. You're basically done with politics; you don't need to be re-elected or get any bills passed. But I suppose between the speaking opportunities and book deals, you want to leave on good terms with the party faithful. A good example of how strong of an impact incentives are.

The Most Expensive Liquid You Can Buy

I'm in the market for a new printer. My existing one, a cheap Canon printer I've been using for over five years, is wearing down. It jams and the head occasionally prints a letter out of alignment. Since I'm sending out job applications, a new printer would be a big help.

But printer ink's the most expensive liquid you can buy. Printer manufacturers claim it's the technology which drives up the price. And yes, ink technology has noticeably improved over the past 20 years. A single cartridge for my printer runs $23.49 at Office Max and contains about 12 ml of ink, or $7,409.94 per gallon. I'm not buying the technology story.

I trust the tying pricing model, a form of price discrimination. Manufacturers sell a cheap printer (another reason to discredit the technology story: about half to one-third the price of the printer is eaten up by the ink it comes with) but charge a lot for ink. They are able to charge more for people who like to print and less for people who don't print very much, capturing the gains from those who are willing to pay a lot while still getting profit from those who are willing to pay only a little.

I tell my students to make sure you know the whole price of a good before you buy it and so I called Cartridge World to verify they carried cartridges of a printer I'm looking at, the Epson Stylus NX125 (the web site says it's $50 but I swear when I saw it in the store it was $40). They do not...yet. Cartridge World takes the empty cartridges people bring in (presumably for some store credit or a discount), fills them up, and sells it back. But the NX125's a new model and they don't have any cartridges yet. Moreover, manufacturers know places like Cartridge World exist and reformulate their ink so it only works with that cartridge (the printer head's a patented piece of technology), requiring other guys to figure out the formula so they can produce it for the manufacture's competitors.

It's around this point in our conversation I realized printer pricing is backwards from pricing of virtually all other consumer products: the new stuff isn't more expensive than the old stuff. It's cheaper.

If you buy an old printer, the manufacturer knows they can't get as much money from you since you can reliably buy ink elsewhere. They have competition from a key source of revenue. So they charge more for the printer to (a) capture some of the value when they can and (b) discourage you from buying the old printer in favor of the new one. I doubt new technology's driving up the price of ink but it looks like it's driving down the price of printers. Weird.

Note this also puts manufacturers in a tough place when it comes the planned obsolesce. They want you to buy a new printer but they don't want your printer to fall apart so fast you go to another manufacturer.

If my current printer didn't work, I'd probably buy a "old" printer since I print a lot. But most of my printing are things like rough drafts of papers, things where great printer quality isn't an issue. So I'll probably buy a new printer and live off the ink it comes with, printing only professional documents. The only thing is I'm not sure how annoying it will be to constantly plugging and unplugging printers. But it will make me feel like I'm outsmarting these manufacturers and I do like feeling clever...