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October 13th, 2018

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Answer to the Question

CLAIMS THAT CAN'T BE TESTED

What policy lessons can we derive from UBI experiments?

Political philosopher KARL WIDERQUIST of Georgetown has published a 92-page book examining historical and current basic income pilots, the difficulties of extrapolating from policy research to policy, and “the practical impossibility of testing UBI.”

In his introduction, Widerquist mentions that the challenges for translating research into policy stem not only from the science, but also from the audience’s moral preferences and judgments, which are particularly heightened in the basic income discourse:

“Except in the rare case where research definitively proves a policy fails to achieve its supporters’ goals, reasonable people can disagree whether the evidence indicates the policy works and should be introduced or whether that same evidence indicates the policy does not work and should be rejected. This problem greatly affects the UBI discussion because supporters and opponents tend to take very different moral positions. Many people, including many specialists, are less than fully aware of the extent to which their beliefs on policy issues are driven by empirical evidence about a policy’s effects or by controversial moral evaluation of those effects. For example, mainstream economic methodology incorporates a money-based version of utilitarianism. Non-money-based utilitarianism was the prevailing ethical framework when basic mainstream economic techniques were developed but it lost prominence decades ago.”

Widerquist also writes lucidly on considerations for how to communicate scientific caveats and takeaways. The full book is available here. ht Lauren who comments: "It’s incredibly difficult to test every aspect of many, many policies (including most that are currently at full national scale). Testing a given welfare policy arguably only has to get decision makers to a point where it can be determined that the policy substantially helps those who need it and doesn’t hurt anyone as a result."

  • Activist Stanislas Jourdan spoke at the European Parliament in September about a basic income for Europe. Video of the presentation is here; slides are here. On the financing question, Jourdan proposes VAT ("already the most harmonized tax at EU level, large and reliable tax base"), as well as a European Corporation Tax, carbon taxes, and "quantitative easing for the people."
 ubi metrics

REVENUE POSITIVE

Federal student aid pays for itself

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October 10th, 2018

Who cares about stopping rules?

Can you bias a coin?

Challenge: Take a coin out of your pocket. Unless you own some exotic currency, your coin is fair: it's equally likely to land heads as tails when flipped. Your challenge is to modify the coin somehow—by sticking putty on one side, say, or bending it—so that the coin becomes biased, one way or the other. Try it!

How should you check whether you managed to bias your coin? Well, it will surely involve flipping it repeatedly and observing the outcome, a sequence of h's and t's. That much is obvious. But what's not obvious is where to go from there. For one thing, any outcome whatsoever is consistent both with the coin's being fair and with its being biased. (After all, it's possible, even if not probable, for a fair coin to land heads every time you flip it, or a biased coin to land heads just as often as tails.) So no outcome is decisive. Worse than that, on the assumption that the coin is fair any two sequences of h's and t's (of the same length) are equally likely. So how could one sequence tell against the coin's being fair and another not?

We face problems like these whenever we need to evaluate a probabilistic hypothesis. Since probabilistic hypotheses come up everywhere—from polling to genetics, from climate change to drug testing, from sports analytics to statistical mechanics—the problems are pressing.

Enter significance testing, an extremely popular method of evaluating probabilistic hypotheses. Scientific journals are littered with reports of significance tests; almost any introductory statistics course will teach the method. It's so popular that the jargon of significance testing—null hypothesis, $p$-value, statistical significance—has entered common parlance.

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October 2nd, 2018

The "Next Big Thing" is a Room

If you don’t look up, Dynamicland seems like a normal room on the second floor of an ordinary building in downtown Oakland. There are tables and chairs, couches and carpets, scattered office supplies, and pictures taped up on the walls. It’s a homey space that feels more like a lower school classroom than a coworking environment. But Dynamicland is not a normal room. Dynamicland was designed to be anything but normal.

Led by the famous interface designer Bret Victor, Dynamicland is the offshoot of HARC (Human Advancement Research Community), most recently part of YCombinator Research. Dynamicland seems like the unlikeliest vision for the future of computers anyone could have expected.

Let’s take a look. Grab one of the scattered pieces of paper in the space. Any will do as long as it has those big colorful dots in the corners. Don’t pay too much attention to those dots. You may recognize the writing on the paper as computer code. It’s a strange juxtaposition: virtual computer code on physical paper. But there it is, in your hands. Go ahead and put the paper down on one of the tables. Any surface will do.

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September 29th, 2018

Catastrophe Theory

MIDDLE WAGE

Questioning the great transition into a "global middle class"

Economist STEVE KNAUSS, in a new paper published by the CANADIAN JOURNAL OF DEVELOPMENT STUDIES, examines the "myth" of the global middle class and the claim that the $2/day measurement tells us anything substantive about poverty and inequality around the world.

"On the defensive in recent years, advocates of globalization have taken to highlighting achievements in developing countries, where globalization has supposedly pulled the majority out of poverty and catapulted them into the swelling "global middle class" remaking our world. This article provides a critical look at this interpretation. Carefully reviewing the global income distribution data behind such claims, it presents original calculations that generate new stylized facts for the globalization era.

The global income distribution approach does potentially have much to offer in terms of revealing the complexity of these changes, but in order to do so, greater attention and resources should be devoted to deepening our knowledge of the socio-historical changes underpinning the new realities of class formation and how they relate to the observed changes in global incomes. Instead of, or in addition to, constructing groups according to income thresholds, or national/global based deciles, ventiles or percentiles, more research should start from the other end, identifying national and global groups based on similarities in class formation and then attempting to trace such trajectories through the global income distribution."

Link to the article, and link to an ungated manuscript version. Jason Hickel comments:

"The question is: does their new petty income from the informal sector compensate for their loss of rural land, livestock, etc? It is not clear that it does. Therefore, we cannot say that this is a straightforward narrative of 'progress'—at least not in all regions."

Link to Hickel's thread.

  • Development economist Morten Jerven with a 2010 paper diving into the metrics question in the context of poverty in Africa: "The article therefore concludes that it is futile to use GDP estimates to prove a link between income today and existence of pro-growth institutions in the past, and recommends a searching reconsideration of the almost exclusive use of GDP as a measure of relative development." Link.
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September 22nd, 2018

Red Wall

MATERIAL UNDERSTANDING

The full resource stack needed for Amazon's Echo to "turn on the lights"

In a novel new project, KATE CRAWFORD and VLADAN JOLER present an "anatomical case study" of the human labor, data, and planetary resources necessary for the functioning of an Amazon Echo. A 21-part essay accompanies an anatomical map (pictured above), making the case for the importance of understanding the complex resource networks that make up the "technical infrastructures" threaded through daily life:

"At this moment in the 21st century, we see a new form of extractivism that is well underway: one that reaches into the furthest corners of the biosphere and the deepest layers of human cognitive and affective being. Many of the assumptions about human life made by machine learning systems are narrow, normative and laden with error. Yet they are inscribing and building those assumptions into a new world, and will increasingly play a role in how opportunities, wealth, and knowledge are distributed.

The stack that is required to interact with an Amazon Echo goes well beyond the multi-layered 'technical stack' of data modeling, hardware, servers and networks. The full stack reaches much further into capital, labor and nature, and demands an enormous amount of each. Put simply: each small moment of convenience – be it answering a question, turning on a light, or playing a song – requires a vast planetary network, fueled by the extraction of non-renewable materials, labor, and data. The scale of resources required is many magnitudes greater than the energy and labor it would take a human to operate a household appliance or flick a switch."

Link to the full essay and map.

  • More on the nuanced ethical dilemmas of digital technology: "Instead of being passive victims of (digital) technology, we create technology and the material, conceptual, or ethical environments, possibilities, or affordances for its production of use; this makes us also responsible for the space of possibilities that we create." Link.
  • As shared in our April newsletter, Tim Hwang discusses how hardware influences the progress and development of AI. Link.
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September 15th, 2018

The Marshes

THE JANUS FACE

The paradoxical outcomes of university-centered economic growth

A recent paper by RICHARD FLORIDA and RUBEN GAETANI takes an empirical look at the role of research universities in anchoring local economies and driving economic growth. The paper examines the density of patenting and financial investment within the internal geographies of specific American cities and argues that knowledge agglomeration exacerbates economic, occupational, and spatial segregation.

“Although universities certainly affect national levels of innovation and growth, research has shown that they tend to affect innovation and growth by operating through more localized channels. The roles played by Stanford University in the rise and economic performance of Silicon Valley and of MIT in the Boston-Cambridge ecosystem are cases in point.

Universities constitute a rare, irreproducible asset at the local level. At the same time, it is increasingly clear that the knowledge-economy metros and so-called college towns suffer from relatively high levels of inequality and segregation.”

Set to be released in the October issue of MANAGERIAL & DECISION ECONOMICS, the paper presents a nuanced exploration of agglomeration economies and complicates the use of universities as levers for economic revitalization, job creation, and mutual prosperity.

Link to the working paper.

  • As spotlighted in a November newsletter, Lyman Stone discusses national problems with the role of the US higher education system: “The problems we face are: (1) the regional returns to higher education are too localized, (2) the price of higher education is bid up very high, (3) the traditional entrepreneurial player, state governments, is financially strained or unwilling, (4) private entrance is systematically suppressed by unavoidable market features.” Link.
  • At CityLab, Richard Florida examined venture-capital invested start-ups and found they disproportionately clustered in metropolitan regions with high-performing universities. Link.
  • For a deep dive into the role universities play in economic and spatial development, see Margaret O’Mara’s book on Cold War era “Cities of Knowledge." Link.
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September 8th, 2018

Very First Stone

WEALTH BEGETS WEALTH

Matt Bruenig's Social Wealth Fund proposal, and responses

Last week, MATT BRUENIG of the PEOPLE’S POLICY PROJECT published the most detailed version of a bold policy he’s been writing about for a long time: a Social Wealth Fund for America.

“If we want to get serious about reducing wealth and income inequality, then we have to get serious about breaking up this extreme concentration of wealth.

A dividend-paying social wealth fund provides a natural solution to this problem. It reduces wealth inequality by moving wealth out of the hands of the rich who currently own it and into a collective fund that everyone in the country owns an equal part of. It then reduces income inequality by redirecting capital income away from the affluent and parceling it out as a universal basic dividend that goes out to everyone in society.”

The full report contains history on Sweden and Norway, information on the Alaska Permanent Fund, and then a sketch of the “American Solidarity Fund,” including funding and governance. The report stakes conceptual ground, and doesn’t offer new macroeconomic analysis. Link.

  • Matt Yglesias summarizes and adds context in Vox, noting that Bruenig’s political angle is not imperative for the SWF idea. Other proposals for government stock ownership “invariably conceptualize the government as a silent partner in the enterprises it would partially own, trying to find a way for the government to reap the fiscal or economic benefits of government stock ownership without the socialistic implications of government officials running private firms. Bruenig’s proposal is the opposite of that, a way to put real meat on the bones of “democratic socialism” at a time when the phrase is gaining momentum as a slogan and an organizing project but also, to an extent, lacks clear definition.” Link.
  • In an illustration of Yglesias’s point, Roger Farmer, who has suggested funding a SWF through countercyclical asset purchases, makes his ideological differences clear on Twitter: “You don’t have to be a Democratic Socialist to see value in a scheme whereby government borrows and invests in the stock market…unlike Matt Bruenig I do not see this as a tool for political control of corporate agendas and I have advocated that the Treasury purchase an index fund of non-voting shares.” Link.
  • Mike Konczal criticizes the SWF idea along multiple lines. “We want shareholders to ruthlessly extract profits, but here for the public, yet we also want the viciousness of market relations subjected to the broader good. Approaching this as shareholders is probably the worst point of contact to try and fix this essential conflict.” Link.
  • Bruenig responds to Konczal. Link.
  • Peter Gowan expands on the idea in Jacobin: “Following [Rudolf] Meidner, I think it is worth considering multiple social wealth funds to be established along sectoral lines.” Link.
  • Rachel Cohen gets responses from Peter Barnes and others in the Intercept. [Link](https://theintercept.com/2018/08/28/social-wealth-fund-united-stat
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September 1st, 2018

The Braid

CONSTRAINED POSSIBILITIES

On the relationship between academic economics and public policy

In a recent working paper, ELIZABETH POPP BERMAN discusses the interconnected fields of academic economics and public policy. The paper conceptualizes the translation of certain academic ideas into public policy, clarifying the relation by describing different economic theories as having certain “affordances”:

"I borrow the concept of affordances, which has been used widely to describe how particular technologies proved the potential for some kinds of action but not others. I suggest that knowledge, like technologies, may afford some possibilities but not others. In particular, some theories produce knowledge that, simply because of the kind of knowledge it is, is useful and usable for particular actors in the policy field, while others, regardless of their truth or the accuracy with which they describe the world, do not.”

The paper also examines the gap between academic theory and policy application and includes takeaways for those interested in the role of academic experts in the process of policy creation:

"It is important to recognize the relative autonomy of the academic field from the policy field. While outside groups may support one school of thought or another, the development of academic disciplines is not determined solely by who has the most money, but also by stakes—including intellectual stakes—specific to the academic field. Similarly, while the academic and policy fields may be linked in ways that facilitate the transmission of people and ideas, the academic dominance of a particular approach does not translate to policy dominance, even given influential champions.”

Link to full paper. ht Michael

  • This work builds off a 2014 paper Berman co-authored with David Hirschman, which also explores the degree to which economists, their tools and ideas, influence and create policy. Similar to the concept of “affordances”, Berman and Hirschman argue that “economic style can shape how policymakers approach problems, even if they ignore the specific recommendations of trained economists.” Link.
  • A 2010 paper offers a new framework for properly assessing research impact, which includes quantifying conventional citation data as well as other qualitative outputs. Link.

PRESCIENT HEGEMON

Branko Milanovic with a speculative paper on globalization from the turn of the millennium

Back in 1999, economist Branko Milanovic wrote a ("several times rejected") paper proposing three periods of globalization—the third being the present one—and the countervailing ideologies that sprang up to contest the first two. From the paper:

“We are currently standing at the threshold of the Third Globalization. the Roman-led one of the 2nd-4th century, the British-led one of the 19th century, and the current one led by the United States. Each of them not only had a hegemon country but was associated with a specific ideology. However, in reaction to the dominant ideology and the effects of globalization (cultural domination, increasing awareness of economic inequities) an alternative ideology (in the first case, Christianity, in the second, Communism) sprang up. The alternative ideology uses the technological means supplied by the globalizers to subvert or attack the dominant ideological paradigm."

Read the full paper here.

  • For more Milanovic on the politics of globalization, slides from a recent presentation of his on global inequality and its political consequences features much of relevance to this vintage paper. Some of its broader questions: "Does global equality of opportunity matter? Is 'citizenship rent' morally acceptable? What is the 'optimal' global income distribution? Can something 'good' (global middle class) be the result of something 'bad' (shrinking of national middle classes and rising income inequality)? Are we back to Mandeville?" Link.
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August 11th, 2018

Constellation

ALCHEMIST STOCK

Automation, employment, and capital investment

At his blog STUMBLING AND MUMBLING, CHRIS DILLOW discusses recent reporting on rapid automation fears in the United Kingdom:

"'More than six million workers are worried their jobs could be replaced by machines over the next decade' says the Guardian. This raises a longstanding paradox – that, especially in the UK, the robot economy is much more discussed than observed.

What I mean is that the last few years have seen pretty much the exact opposite of this. Employment has grown nicely whilst capital spending has been sluggish. The ONS says that 'annual growth in gross fixed capital formation has been slowing consistently since 2014.' And the OECD reports that the UK has one of the lowest usages of industrial robots in the western world.

My chart, taken from the Bank of England and ONS, puts this into historic context. It shows that the gap between the growth of the non-dwellings capital stock and employment growth has been lower in recent years than at any time since 1945. The time to worry about machines taking people’s jobs was the 60s and 70s, not today.… If we looked only at the macro data, we’d fear that people are taking robots' jobs – not vice versa."

Link to the post.

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July 28th, 2018

Jetty

BANKING AS ART

On the history of economists in central banks 

A recent paper by FRANÇOIS CLAVEAU and JÉRÉMIE DION applies quantitative methods to the historical study of central banks, demonstrating the transition of central banking from an "esoteric art" to a science, the growth of economics research within central banking institutions, and the corresponding rise in the dominance of central banks in the field of monetary economics. From the paper: 

"We study one type of organization, central banks, and its changing relationship with economic science. Our results point unambiguously toward a growing dominance of central banks in the specialized field of monetary economics. Central banks have swelling research armies, they publish a growing share of the articles in specialized scholarly journals, and these articles tend to have more impact today than the articles produced outside central banks."

Link to the paper, popup: yes which contains a vivid 1929 dialogue between Keynes and Sir Ernest Musgrave Harvey of the Bank of England, who asserts, "It is a dangerous thing to start giving reasons." 

h/t to the always-excellent Beatrice Cherrier popup: yes who highlighted this work in a brief thread popup: yes and included some visualizations, including this one showing the publishing rate of central banking researchers: 

  • Via both Cherrier and the paper, a brief Economist article on the crucial significance of the central banking conference in Jackson Hole, hosted by the Federal Reserve Bank of Kansas City: "Davos for central bankers." Link popup: yes. (And link popup: yes to an official history of the conference.) 
  • Another paper co-authored by Claveau looks at the history of specialties in economics, using quantitative methods to map the importance of sets of ideas through time. "Among our results, especially noteworthy are (1) the clear-cut existence of ten families of specialties, (2) the disappearance in the late 1970s of a specialty focused on general economic theory, (3) the dispersal of the econometrics-centered specialty in the early 1990s and the ensuing importance of specific econometric methods for the identity of many specialties since the 1990s, and (4) the low level of specialization of individual economists throughout the period in contrast to physicists as early as the late 1960s." Link popup: yes
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