Assault of Thoughts - 5/24/2013

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- The Nation reports on secret/corporate donors and their impact on liberal think tanks. This highlights the problem with soft-money research type organizations, where a lot of money is raised and put in an endowment or fund to push a broad research agenda. Although the constraints placed by competing for grants and contracts on doing the research you want to do can be frustrating, the advantage is that you avoid stuff like this. It can be useful to take the big pot 'o money (a technical term, of course) approach to financing research. Often research grants and contracts can't really focus on the interesting scientific question. But there are major risks as well, particularly when that's how the whole organization is financed.

- We have a demand problem, not a skills problem.

- Gene on Plato on radical ideologies.

- Bryan Caplan has an interesting discussion of IVs. My skepticism of IVs should be familiar to most readers here. I have a comment on the post that repeats the skepticism. They persist because the problem that motivates IVs is very real and it's substantial. The way to proceed, I think, is (1.) to be more critical of IV choices, (2.) to look for discontinuities and natural experiments that provide a much clearer identification of the model, and (3.) to look at a lot of different studies - think of any given IV more as a sensitivity analysis than a solution to an endogeneity problem.

- Paul Krugman and Brad DeLong on Charles Lane.

Interesting event yesterday - different worlds colliding (which is usually good to experience every once in a while)

I went to a STEM/high skill visa event at the Capitol yesterday that was interesting simply in how many different worlds it brought together. The audience was primarily Congressional staffers and journalists. Hal Salzman was the only academic on the panel. There was an immigration lawyer, government relations or human resources people from TI and Intel, as well as two industry associations, and a representative of historically black colleges and universities (HBCU) science programs. The group that organized the event deals a lot with diversity in STEM and getting underrepresented minorities interested and active in STEM.

Diversity vs. Immigration: With all the industry people there, the diversity angle was nice because they were agreeing a lot with Hal - suggesting that they were graduating a lot of domestic students that were having trouble getting jobs and the idea of a shortage sounded odd to them. Usually you don't see the diversity in STEM/STEM immigrants discussion coming together in this way but that was very productive I thought.

Scholarly vs. Popular Literature: It was also interesting to see the research and industry worlds collide. One of the guys from an industry association said that Hal sounded like "climate change denialists" because ours was the only study out there saying there were no shortages. This was shocking to me. I know a lot of economists that support high skill visas but I don't know any off-hand that think we have a high skill labor shortage. Certainly none of the big names in the high-skill labor literature. All of the major economic studies on the question since the 1950s that I know of are skeptical of the labor shortage claim. But of course, this guy isn't thinking of the economic literature when he said Hal was like a climate change denialist. He's thinking of the studies he's seen from trade associations and think tanks. I pretty much ignore the trade association studies and have a very discriminating eye when it comes to think tank studies (I think for good reason!), but that seems to be all he has in mind.

Politics vs. Policy: Our group was talking to a journalist we know that covers these issues afterwards - he was asking us some questions and we were trying to get feedback from him. What struck me about that conversation was how focused most people were on the politics driving the immigration bill, specifically how the high-skill provisions were being structured to get Republican support for a bill many would rather not support. I'm very much a "politics without romance" guy and that sort of thing isn't news to me. But it's also not the interesting question for me at all. The interesting question is the policy question - what conditions would justify these policies and do those conditions exist? But a lot of people are not really focusing on that.

Whereabouts

Here today.

Here Tuesday/Wednesday.

Studying macro and a little nursery painting in between.

Robert Solow contrasting Keynes and Friedman

"After all, why should there be another Milton Friedman in the future when none had appeared before him? I suppose the likeliest candidate for that role in the past was J. M. Keynes. He, too, had an extraordinarily sharp and quick mind, according to all reports of contemporaries, and appears to have had the same facility—and joy—in debate. But there is a vital difference: Keynes was not an ideologue. Of course he took strong positions, and had no lack of self-confidence. But Keynes avoided extremes, and changed his mind often. The usual complaint was that he was too flexible. There was a joke that a group of 12 economists would have 13 opinions on any significant issue, because Keynes would have two. You would never read Friedman’s name into that sentence."

- Robert Solow, May 2013, "Why is there no Milton Friedman today?"

Is there any hope of exogenous variation in the sort of fiscal or monetary policy that matters?

I was talking with Bob Murphy last night about some of Scott Sumner's more strenuous claims. I for one have serious doubts about really declarative empirical claims about monetary or fiscal policy as it relates to the current depression (and I'm skeptical of a lot of historical empirical claims as well!). That goes for Konczal declaring a "natural experiment" as well as Sumner latching on every jobs report that comes out.

My point to Bob was that we need exogenous variation to get a handle on this. There is something of a case for exogenous cross-sectional variation. It's probably weak but it's probably there for a bright person to pull out (and many have tried). We don't have exogenous longitudinal variation in this crisis. That got me thinking about the exogenous variation we've used in the past to estimate multiplier, and that started to depress me about empirical macro.

The distinction between cross-sectional and longitudinal variation is a distinction between different data structures.

But an arguably more important distinction is between what we might call exogenous static and exogenous dynamic policy. In the New Keynesian (vs. the Old Keynesian) and the Market Monetarist (vs. the old Monetarist) or really just in the post-rational-expectations world a lot of the interesting policy effects are in the dynamics and in the impact of policy on expectations. So really if you want a meaningful policy multiplier you want not just to find exogenous policy variation - you want exogenous variation in peoples' expectations about future policy.

That is a very tall order, if you think about it. We usually think that peoples' expectations are affected because they know there is an intention on the part of policymakers to continue a particular policy. But the only reason why there would be such an intention is if there was cause for it (i.e., if the policy was not exogenous). This seems by its very nature a lot harder to me.

It's not impossible. One obvious example of trying to do this that comes to mind is Valerie Ramey's use of the "war news" variable in her work precisely to get at military spending that people expect to persist (I can't think of anyone that has been as explicit about the need for making this distinction as Ramey). If you think about the Romers' work on tax policy, these too are policies that people expect to persist (although I don't think they consider the distinction I make here quite so explicitly). So it's not hopeless, but it's a lot harder. Policy that changes easily (the spending side of fiscal policy or monetary policy) is going to be particularly hard to find exogenous dynamic variation, even though you may find creative ways to pick out exogenous static variation.

Maybe the way to go is to look for natural experiments, but of course natural experiments bring special circumstances. The Depression provides some good ones: FDR and gold for monetary policy and WWII for fiscal policy.

An email to Charles Lane of the Washington Post

Regarding this article.

To: Charles Lane

Perhaps I'm missing something, but isn't your "compromise" option precisely Krugman's position? I think it's the right idea, but I think that's exactly where Keynesians are. The tough part is figuring out how to get the pro-austerity crowd to that point.

Keynes actually advocated separating the current budget from the capital budget, and it was the current budget that was supposed to be balanced, not necessarily the two together. Most economists agree that you can run perpetual budgets and still maintain a stable debt ratio as long as the deficits aren't too large.

Daniel Kuehn
Doctoral student, Department of Economics
American University

Death Norms

Someone died across the street from us on Saturday. They haven't been well for awhile - I actually don't know who it was (never met the deceased, in other words - my impression was they didn't get out much at all). But I'm acquainted with the other people in the household and they've had ambulances come by every couple weeks for the last several months, so it wasn't a surprise that their health was starting to fail. The street has been packed with various cars from visiting family the last two days.

In the next day or two (once things settle down) I want to bring over flowers and some food. My question is, what is a good food gift on an occasion like this? The stereotypical thing seems like casserole but that seems stupid and... stereotypical. What about something like banana bread? That's got a homey feel to it but not quite so cliché. Or should I just bring flowers and a card and forget the food?

This is the sort of thing you don't really see in the same way in an anonymous apartment where neighbors aren't really neighbors in the same way, but it's the sort of thing that I never personally dealt with on my own growing up before apartment living.

I guess I'm also just curious about death norms of readers in general and experience offering comfort to someone that you sort of know but have only been living near for a year.

Assault of Thoughts - 5/20/2013

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Chris Lewis has a great article up at Campus Progress based on an interview with me about why we need to be thinking about demand-side rather than supply-side science policies. Given the brevity and the audience, it's necessarily a textbooky treatment of the economics of science - I obviously recognize there's more to be discussed - but I feel like even given the format it gets more in depth than most treatments of externalities in research.

- In the NBER working papers, there's some skepticism about strong labor supply effects of unemployment insurance from Farber and Valetta.

- Also in the NBER working papers, Morris Kleiner finds smaller wage effects of licensing than unionization. This seems natural to me, but apparently it's in contrast with other studies.

- My response gets cited in Bryan Caplan's list of the best answers to his what to do with a billion dollars post. He neglected my preferred response, though.

- Ryan Murphy successfully defended his dissertation! Congratulations! He has so far not tooted his own horn on his blog for me to link to, so I'll just link to his CV.

Umbrella?

"Loose coupling" and seminary education

Our Sloan Foundation grant is titled "Loose Coupling in the Science and Engineering Workforce", and while we're working on a lot of stuff under the auspices of the grant, the major project is to look at science and engineering (S&E) course-taking pathways in school and how they relate to occupational choice and ultimate labor market performance. You often hear about a "leaky pipeline" when it comes to S&E where you have an initial set of promising students that we lose to attrition over the course of high school, college, grad school, and the workforce. It's a great metaphor for calling people to action (everyone wants to fix a leaky pipeline!). Our project is in a lot of ways a less alarmist look at this apparent "loose coupling" between the different stages in the development of the S&E workforce to understand the choices that are made and the potential benefits provided by this loose coupling.

What's interesting is that this is not just a phenomenon going on in the S&E workforce, although that's primarily where you hear about it.

The Washington Post reports today that 42 percent of seminary graduates are working directly in ministry. A seminary degree is in a lot of ways a professional degree like a law degree or a medical degree (probably less so than those examples but more than a lot of other degrees), so these numbers are quite notable - and they were not the norm several decades ago.

Clearly this is a phenomenon that goes beyond S&E education and work.

The most obvious answer for why we see this loose coupling is that the skills you obtain in a degree program are beneficial in a lot of different fields. Indeed being the guy with a seminary degree in some settings can give you unique insights that other people at your place of work wouldn't have. This is usually the explanation that you hear most, and I think that's for good reason - it's probably an important factor in most cases. In the case of seminary students there are other pressures, primarily that it's getting harder to make a living at a church as people become less attached (and therefore less financially attached) to their churches.

Another explanation I'm going to be exploring in my dissertation is the real option value of degree for getting a job in a particular field. If you get a degree in an S&E field you are not guaranteed to get a high paying job in that field, but the likelihood of getting one goes up. Instead of applying to that S&E job with probability A of getting the job, you can exercise the option of applying with probability B - an option that is only available to people with an S&E degree (all others apply with a lower probability A). Ex ante, the availability of that S&E job and its pay relative to the available outside opportunities is uncertain, but an S&E degree offers the opportunity to exercise certain options if the circumstances are right.

Another explanation not particularly appealing to economists (not because it's unrealistic but because it's not an "economic" explanation) is that students just get things wrong. They think they want to do something and then it turns out they don't. None of our economic explanations should be construed to exclude this possibility, but you're also not going to get many economists interested in this.

Are there any other good reasons for "loose coupling" between major choice and occupational choice?