Archive for the ‘economics’ Category
A few years ago, I bought a copy of Charles Tilly’s Why?, just for fun sociology reading. All the Important sociology reading got in the way, and I never read Why?
But while I was unpacking this week I came across it and thought I’d bring it along on a car ride to Providence over the weekend. Not only is it a fun read, as well as touchingly personal at times, it turned out to be surprisingly relevant to stuff I’ve been thinking about lately.
The book is organized around four types of reasons people give for things…any things: their incarceration in mental hospitals, why a plane just flew into the World Trade Center, whether the last-minute change of an elderly heiress’s will should be honored. In grand social science tradition, the reasons are organized into a 2 x 2 table:
|Cause-Effect Accounts||Stories||Technical Accounts|
Why? illustrates these types with a wide range of engaging examples, from eyewitness accounts of September 11th to the dialog between attending physicians and interns during hospital rounds.
Conventions are demonstrated by etiquette books: they are reasons that don’t mean much of anything and aren’t necessarily true, but that follow a convenient social formula: “I lost track of the time.” Stories are reasons that provide an explanation, but one focused on a protagonist—human or otherwise—who acts, and which often contain a moral edge: evangelist Jerry Falwell’s account of how he came to oppose segregation after God spoke to him through the African-American man who shined his shoes every week. Both conventions and stories are homely, everyday kinds of reasons.
Codes and technical accounts, on the other hand, are the reasons experts give. Reasons that conform to codes explain how an action was in accordance with some set of specialized rules. The Department of Public Works did not repair the air conditioning because they lacked a form 27B/6. While law is the quintessential code, Tilly shows that medicine follows codes to a surprising extent as well.
Finally, technical accounts attempt to provide cause-effect explanations of why some outcome occurs. Jared Diamond argues that Europe developed first because it had domesticable plants and animals and sufficient arable land, and lacked Africa’s north-south axis. Technical accounts draw on specialized bodies of knowledge, and attempt to produce truth, not just conformity with rules.
I’ve spent a lot of time in recent months thinking about what experts do in policy, and thinking about the different paths through which they can have effects. Lots of these effects are technical, of course. Expert opinion may not determine the outcome in debates over the macroeconomic effects of tax policy changes or what standards nutrition guidelines should be set at, but there’s no question that they’re informed by technical accounts.
But at least as important in influencing a wider audience are the stories experts can tell. Deborah Stone wrote about these “policy stories” decades ago, though she wasn’t especially focused on experts’ role in creating them. Political scientists like Ann Keller, however, have shown that scientists, too, translate their expertise into policy stories—for example, that human activity was creating the sulfur and nitrogen oxides that produce acid rain, destroying fisheries and making water undrinkable. These stories are grounded in technical accounts, but are simplified versions with moral undertones that point toward a particular range of policy solutions—in this case, doing something about the SOx and NOx emissions that the story identifies as creating the problem.
Some kinds of expertise, or rather some kinds of technical accounts, are more amenable than others to translation into policy stories. Economic models, in particular, are often friendly to such translation. For example, although this isn’t the language I use there, my book in part argues that U.S. science policy changed because of a model-turned-story. Robert Solow’s growth model, which includes technology as a factor that affects economic growth (by increasing the productivity of labor), became by the late 1970s the basis of a powerful policy story in which the U.S. needed to improve its capacity for technological innovation so that it could restore its economic position in the world.
Similarly, a basic human capital model in which investment in training results in higher wages easily becomes a story in which we need to improve or extend education so that people’s income increases.
Sociological models, even the formal ones, seem less amenable on average to these kinds of translations. Though Blau and Duncan’s well-known status attainment model could be read as suggesting education as a point of intervention to improve occupational status, it seems fairer to read it as saying that occupational status is largely determined by your father’s occupation and education. While this certainly has policy implications, they are not as natural an extension from the model itself. It hearkens back to that old saw—economics is about how people make choices; sociology is about how they don’t have any choices to make.
I guess part of the appeal of Why? for me was that it mapped surprisingly well onto these questions that were already on my mind. Mostly I’ve thought about this in the context of economic models becoming policy stories. I wonder, though, whether my quick generalization about the technical accounts of sociology lending themselves less readily to compelling policy stories actually holds up. What are the obvious examples I’m missing?
This week, some readings on who goes to college and why:
- College Choice in America by Charles Manski. The standard model of how students choose the college they attend. Just add $40k to the tuition bill to update it.
- Read a bunch of reports summarizing the results of the annual freshman survey fielded by UCLA’s Higher Education Research Institute. Start with the 70s and move forward.
- How elite schools choose students: Crafting a Class by Duffy and Goldberg; Creating a Class by Mitchell Stevens; and The Chosen by Jerome Karabel. Each a classic in its own way.
- Academically Adrift by Arum and Roksa. Shows the limited learning in higher ed.
- Read Becker on human capital, Arrow & Spence on signalling, and Collins on credentialism. Each is a classic statement of different theories of how college plays into employment and income.
- Read Carnevale, Strohl and Melton on the incomes associated with different college majors.
- On student protest: Freedom’s Web by Richard Rhoads and From Black Power by myself.
Use the comments for more suggestions.
Over at Scatterplot, Andy Perrin has a nice post pointing to a recent talk by Rodney Benson on actor-network theory and what Benson calls “the new descriptivism” in political communications. Benson argues that ANT is taking people away from institutional/field-theoretic causal explanation of what’s going on in the world and toward interesting but ultimately meaningless description. He also critiques ANT’s assumption that world is largely unsettled, with temporary stability as the development that must be explained.
At the end of the talk, Benson points to a couple of ways that institutional/field theory and ANT might “play nicely” together. ANT might be useful for analyzing the less-structured spaces between fields. And it helps draw attention toward the role of technologies and the material world in shaping social life. Benson seems less convinced that it makes sense to talk nonhumans as having agency; I like Edwin Sayes’ argument for at least a modest version of this claim.
I toyed with the possibility of reconciling institutionalism and ANT in an article on the creation of the Bayh-Dole Act a few years back. But really, the ontological assumptions of ANT just don’t line up with an institutionalist approach to causality. Institutionalism starts with fairly tidy individual and collective actors — people, organizations, professional groups. Even messy social movements are treated as well-enough-defined to have effects on laws or corporate behavior. The whole point of ANT is to destabilize such analyses.
That said, I think institutionalists can fruitfully borrow from ANT in ways that Latour would not approve of, just as they have used Bourdieu productively without adopting his whole apparatus. In particular, the insights of ANT can get us at least two things:
1) It not only increases our attention to the role of technologies in shaping organizational and field-level outcomes, but ANT makes us pay attention to variation in the stability of those technologies. It is simply not possible to fully accounting for the mortgage crisis, for example, without understanding what securitization is; how tranching restructured, redistributed and sometimes hid risk; how it was stabilized more or less durably in particular times and places; and so on.
You can’t just treat “securitization” as a unitary explanatory factor. You need to think about the specific configuration of rules, organizational practices, technologies, evaluation cultures and so on that hold “securitization” together more or less stably in a specific time and place. Sure, technologies are sometimes stable enough to treat as unified and causal—for example, a widely used indicator like GDP, or a standardized technology like a new drug. But thinking about this as a question of degree improves explanatory capacity.
An example from my own current work: VSL, the value of a statistical life. Calculations of VSL are critical to cost-benefit analyses that justify regulatory decisions. They inform questions of environmental justice, of choice of medical treatment, of worker safety guidelines. All sorts of political assumptions — for example, that the lives of people in poor countries are worth less than people in rich ones — are baked into them. There is no uniform federal standard for calculating VSL — it varies widely across agencies. ANT sensitizes us not only to the importance of such technologies, but to their semi-stable nature—reasonably persistent within a single agency, but evolving over time and different across agencies.
2) Second, ANT can help institutionalists deal better with evolving actors and partial institutionalization. For example, I’m interested in how economists became more important to U.S. policymaking over a few decades. The problem is that while you can define “economist” as “person with a PhD in economics,” what it means to be an economist changes over time, and differs across subfields, and is fuzzy around the borders.
I do think it’s meaningful to talk about “economists” becoming more influential, particularly because the production of PhDs happens in a fairly stable set of organizational locations. But you can’t just treat growth theorists of the 1960s and cost-benefit analysts from the 1980s and the people creating the FCC spectrum auctions in the 1990s as a unitary actor; you need ways to handle variety and evolution without losing sight of the larger category. And you need to understand not only how people called “economists” enter government, but also how people with other kinds of training start to reason a little more like economists.
Drawing from ANT helps me think about how economists and their intellectual tools gain a more-or-less durable position in policymaking: by establishing institutional positions for themselves, by circulating a style of reasoning (especially through law and public policy schools), and by establishing policy devices (like VSL). (See also my recent SER piece with Dan Hirschman.) Once these things have been accomplished, then economics is able to have effects on policy (that’s the second half of the book). While the language I use still sounds pretty institutionalist—although I find myself using the term “stabilized” more than I used to—it is definitely informed by ANT’s attention to the work it takes to make social arrangements last. Thus I end up with a very different story from, for example, Fligstein & McAdam’s about how skilled actors impose a new conception of a field — although new conceptions are indeed imposed.
I don’t have a lot of interest in fully adopting ANT as a methodology, and I don’t think the social always needs to be reassembled. The ANT insights also lend themselves better to qualitative, historical explanation than to quantitative hypothesis testing. But all in all, although I remain an institutionalist, I think my work is better for its engagement with ANT.
In one of my graduate courses, I taught the Rand health insurance experiment. It’s a famous study where some people were randomly given health insurance coverage to see how it affected access and health. The bottom line is that using insurance to decrease the costs of health via low co-payment helps with access, but not with health. In the discussion, I mentioned how this result surprises people. Then, one of my BGS* said the following, paraphrased by me:
The reason this might be surprising from an economic perspective is that social behavior is a question of relative prices. Obviously, purchasing health care would become more common if it were made easier. However, health is often beyond the ability of individuals to directly influence. Health might be due to genetic factors, social class, occupation, and other processes that are not easily countered by a visit to a doctor. Health is the result of a long chain of events. These policy interventions only happen at the end, so the modest effects shouldn’t be surprising.
Now, we did discuss the famous finding that the intervention helped with low-income individuals. But this supports the “end of the chain” view of health. For most people, they already have the resources and environment that will help with prevention of chronic health problems (e.g., malnutrition in youth) or managing short term issues that could become long term issues (e.g., avoiding jobs that might lead to injury). But low income individuals don’t have the resources for basic health self-management and even simple interventions might have a big impact. My take home? Think about the chain and the closer you are to the end, the more focused the policy effects will be, if it exists at all.
* Brilliant Graduate Student
Wired recently produced a nifty graphic that showed were the major tech firms recruit their employees. The messages are obvious:
- Physical proximity – this is West Coast/Canada intensive.
IBM is the exception, in that it recruits from India. But still, it recruits from the big Indian engineering programs.
The other message that I get is from the absences. 1. The Midwest engineering powerhouses (Ohio, Kansas, Michigan, Illinois) are under represented due to geography. Path dependence is cruel. 2. The Ivy League and elite liberal arts are sparsely represented, probably due to a lot recruitment by finance and smaller engineering departments. So in terms of the upper strata of the economy, West Coast is for innovation, East Coast is elite training, and the Midwest is for building cars and stuff.
cfp on “The Rise of Finance: Causes and Consequences of Financialization” at Socio-Economic Review journal
Now that the spring semester is ending, some of our readers are kicking the manuscript preparations into high gear, judging from the uptick in the number of review requests that I’m starting to receive. For those of you looking for a special issue to target as an author or a reader, I wanted to call attention to a call for papers in the Socio-Economic Review that might be of interest (click this PDF for more info: SER 2015 Special Issue CfP on Financialization):
Call for papers
“The Rise of Finance: Causes and Consequences of Financialization”
Sabino Kornrich, Emory University
Alex Hicks, Emory University
Submission deadline: July 21, 2014
Publication of Special Issue in Socio-Economic Review: 2015
The financialization of the economy, as seen in the growing importance of financial markets and the shift from industrial to financial capitalism, stands out as one of the largest changes in the structure of the economy over the last half of the twentieth century (Krippner 2005, 2012; van der Swaan 2014). Indeed, van der Swaan’s (2014) review points to shifts in the structure of accumulation, the role of financialization in firms’ attention to shareholder value, changing individual and household approaches toward everyday life, and related changes in institutional structures. One important line of research focuses on the increasing concentration of profits in financial firms and its consequences for inequality due to its influence on top incomes, the labor share of income, and the distribution of income and profits across sectors (Tomaskovic-Devey and Lin 2011; Volscho and Kelly 2012; Kristal 2013). Even in firms which focus primarily on non-financial activities, financial divisions have become more important (Krippner 2012). While existing research has convincingly demonstrated the rise of financialization in the USA, fewer studies have examined these processes in other countries (e,g, Akkemik and Özen 2014, Godechot 2012). An important agenda remains to understand the extent to which the patterns and dynamics of financialization can be generalized or differ significantly across different types of capitalism, as well as how these have potentially reshaped global economic interdependencies.
This special issue aims to build on and extend this research by enlarging the explanatory focus. We seek contributions that either add empirical insights and advance theory in relation to the underlying causes of financialization, the consequences of financialization for
individual-level and organizational outcomes, and extending the focus of financialization
research beyond the United States and into a broader frame of comparative political
(I swear I drafted this before Fabio posted about economic imperialism! I guess it’s just economics week here at orgtheory.)
People who make high-quality decisions are wealthier, even after controlling for income and other factors. This is the takeaway from a study in the latest American Economic Review, “Who Is (More) Rational?”
I got kind of obsessed with this paper the other day. It’s interesting in its own right, but the real reason I’m stuck on it is because it illustrates a much larger issue: the gap between the modest discoveries we humans can actually make about ourselves and the much broader conclusions we draw about how the social world works and how we should act in it.
Although there are the standard academic hedges, the clear story of the paper is that some people are more rational than others, and that those people become wealthier, net of other factors. The paper ends with a policy implication:
If differences in decision-making ability are important sources of heterogeneity in economic outcomes, then even quite costly policy changes aimed at ‘soft’ or ‘libertarian’ paternalism may hold substantial promise.
When I was a wee academic, people were scared of ECONOMIC IMPERIALISM. The idea was this: economic analysis was being applied to everything and it was going to displace nearly all other approaches to social behavior. But that didn’t happen. Here’s my scorecard:
- There is internal colonialism in economics. Economists are now doing work on all kinds of issues.
- Partial conquest of political science/public policy. I think they’ve got an East/West Germany thing happening. They even had a perestroika movement.
- Economists conquered a small, but important, island in the legal academy. See Posner & co. But law & econ isn’t even close to being the modal form of legal analysis.
- In sociology, they won some ground, but now RCT is almost extinct, in the sense that there are no new people being trained in it. Not even at Chicago!
- History is completely unaffected.
- Psychology is unaffected and they even think the neo-classical choice model is bizarre and primitive.*
- Anthropologists never got the message.
- In the professional fields (education, health, business), economists have their own fiefdom but haven’t won converts.
So the way I see it, economic imperialism was mainly an internal discussion among economists about the meaning of their field. The new definition of economics was adopted by a notable faction of people in politics/policy/law that needed the aura of scientific rigor. The rest of the social sciences are happy to have “the economics of …” be a specialty in their field. But most of the people in that specialty are trained in econ programs. “Native” scholars in professional schools usually don’t rush into RCT models of their topics.
I have two hypotheses. First, there is math. Basically, you lose about half the audience whenever you use math. Some people are just allergic to math. But that doesn’t explain all of it. People are willing to learn statistics and some types of models have, periodically, gained prominence. My second hypothesis is that you lose people when you engage in formalization for formalization’s sake. In other word, if you tell social scientists that a simple model X captures an important social process, I think you will win followers. You lose people when academic research becomes an exercise in proving model X in the most general case, or in pursuing refinements. Finally, as was noted in our discussion of b-schools and economics, human behavior is about more than just decisions and social science can’t be reduced to cost-benefit trade-offs, even though it is extremely important.
* Sorry, behavioral is a very limited incorporation of psychology into econ.
“Is College Worth It? Clearly, New Data Say.” So reads the headline, and what follows does not surprise:
The pay gap between college graduates and everyone else reached a record high last year, according to the new data…Americans with four-year college degrees made 98 percent more an hour on average in 2013 than people without a degree. That’s up from 89 percent five years earlier, 85 percent a decade earlier and 64 percent in the early 1980s.
You hear this a lot. And at one level, it’s absolutely true. But what the payoff-to-college headlines often miss is that it’s graduating from college that is worth it. The NYT’s own chart implies this, though the piece never makes the connection. The earnings of people with some college have hovered around 1.1 times those of HS grads since 1975, while earnings of those with a 4-year degree have increased from about 1.45 to 1.8 times those of HS grads.*
What doesn’t help, and in fact makes things worse, is taking out loans to go to college but then failing to finish. Your income goes up almost none, but now you have debt. About 44% of students who start a four-year degree don’t finish it within six years. I couldn’t find quick numbers on the percentage of dropouts who have loans, and of what size, but 29% of those who borrowed between 2003 and 2009 dropped out by the end of that period.
The problem is that the policy takeaway of “College is a great investment!” is 1) let’s get more people into college and 2) let’s get more people to finish college once they start. But the people who aren’t now starting college after high school — the ones we might get to enroll — look an awful lot like the students who drop out with debt. It seems entirely possible that a heavy focus on increasing enrollment would create more indebted dropouts than successful graduates.
The second part makes more sense. Here, though, the incentive is usually to improve graduation rates by making it easier to graduate, rather than by improving students’ academic performance. Assuming that the point of college isn’t just to keep people off the labor market for a few more years, we need ways to offer students support while raising standards.
But how do we actually do that? I don’t have a great answer. One possibility might be to push community colleges and four-year programs in different directions. Keep community college as cheap as possible. Let people try multiple times if they need to, or move in and out as their life circumstances change. Ignore completion rates entirely.
Then for the four-years, raise standards — on both the front end and the back end. Accept that a four-year degree comes with a certain level of indebtedness for most people these days, and that most people will be worse off if they start (and borrow money) but don’t finish. Don’t emphasize “access” for students who are likely to end up in that position — send them to the low-cost option and tell them to prove themselves before they take on big debt. Provide support for the students you do accept — financial, academic, and to help with the kinds of small but potentially derailing crises students of modest means are likely to encounter. And then hold colleges accountable for completion rates.
I don’t really like this option. It limits access while not actually fixing the incentives to water things down. Given the current loan-driven, state-disinvestment model we’ve got, though, I don’t see better ways to minimize the number of dropouts with debt** while increasing, rather than reducing, the rigor of college.
* The income of HS grads, interestingly, has remained basically flat during this time — dropping from $33,500 to $32,600 in 2012 dollars. See data here; I adjusted for inflation. I expected it to drop more — but changes in the demographic mix may explain that.
** Doing something about for-profits, which have terrible numbers on this, would certainly help.
A number of analyses have shown that (a) college tuition has outpaced inflation, (b) administrators have increased in number and in cost, and (c) graduate student and faculty pay have remained flat. This isn’t to say that the only force behind higher tuition is administrative growth, but it’s certainly one important factor. The way that this normally interpreted is that you have greedy administrators who are just voting themselves raises which, in the absence of competition, go unrestrained.
Here is a slightly different framing. Increased college costs are a collective pay increase for faculty. How? It helps to realize that faculty salaries are fairly constrained. In the arts and sciences, salaries top out at, about $95k, for full professors at most colleges. Research profs can add about $10k, liberal arts can subtract $10k. Not bad, but still modest compared to top professionals in other fields. It also helps to realize that people start hitting the full professor rank in their forties, which means you could have 20-30 years of work with few pay increases in real terms.
The solution? Stop being a professor. Switch to a more fluid labor market for executives. Unlike professor jobs, your skills are portable and there is actual demand. Luckily, there has been a recent increase in college cash flows, so the budget is bigger. If you believe this story, then the escalation of tuition and costs is simply society’s way of paying more to people who used to get “stuck” at the full professor level. They’re just called associate deans now.
Update: Bryan Caplan also discusses this lunch at Econlog.
There have been a lot of wonderful tributes to Gary Becker, who passed away this weekend. In the blogosphere, you have commentary at Marginal Revolution, Econlog, and Mankiw’s blog. Organizations and Markets posted two tributes. Kieran has a very insightful discussion, which draws on Foucault’s reading of the rise of economic thinking, and Brayden’s commentary is worth reading as well.
Here, I’ll relay a story that is a little more personal. In my first or second year of grad school at Chicago, my friend Bryan Caplan was invited to give a talk at an economics department workshop. He came at the invitation of Sam Peltzman. While showing Bryan around campus and getting him to his next meeting, Peltzman said that it would be ok if Bryan’s friend could come to lunch at the faculty club. I readily accepted the invitation.
After we sat down, and I ordered the trout, Peltzman indicated that his friend would be joining us. It was Gary Becker. He just came in and ordered his meal. Now, since Becker was a presence in my building and my econ friends where taking micro with him, I wasn’t surprised. I saw him all the time. But Bryan was a huge Becker fan and was star struck. So much that he fumbled his glass and spilled some water on himself. He denies it to this day, but this is truth.
The conversation started out in a way that kills all your dreams about hanging out with star faculty. Peltzman, I think, was talking about weddings. Bleh. Then, Becker, I think, talked about some home repair. Maybe it was a broken appliance. Double bleh. I was bored silly. Is this what Nobel prize winners talk about over lunch?
I was totally lost in my trout when, finally, the conversation shifted. Things perked up a bit when Becker and Petlzman started to assess some other economist. Some junior professor whose work left them totally unimpressed. This was the first moment that I realized that academia is, at its core, about evaluation. I had never heard professors talk this way about each other. It was all lovey dovey in the class room. But, here, right in front of me, these two professors were shaping the career of some other colleague. Humbling moment.
Then things got really testy when Peltzman and Becker, and Bryan to a lesser extent, started arguing the merits of this funky new paper they’d just read. They were kind enough to summarize it for me: This economist was arguing that abortion legalization resulted in lower crime rates. Really? Why? The people who tend to get abortions are low SES are also the people who tend to have children who grow up to commit crimes. Then, they started thinking about the strengths and weaknesses of the argument. As usual, Becker focused on inter-temporal utility issues. He was worried that abortion didn’t reduce crime because getting abortions didn’t necessarily reduce the number of low SES kids. It might just shift them in time. Peltzman, I think, focused on the econometrics.
As this debate went on, I finished my trout and a few thoughts crossed my mind. First, wow. It’s pretty cool that I can hear such talented people debate such a novel hypothesis. Second, whoever wrote this paper must be a real clever person. The claim is designed to make everyone angry. Liberals would hate it for its implied eugenic policy implication. Conservatives would hate any paper that had a good thing to say about abortion. Third, I was fascinated by the way that Becker and Peltzman picked at the paper in a dispassionate, but sharp, way. It was a real model of critical thinking.
That was the last (and only) time I ever had any serious interaction with Gary Becker. A brief encounter, but one that was that was instructive and memorable. You can read orgtheory articles that are about Becker here.
Gary Becker passed away this weekend at the age of 83. Becker was among the most influential economists in sociology. He was one of the first economists to use economic theories to explain social phenomena, leading the way for contemporary scholars like Steven Levitt. Interestingly, I think Becker was less influential in organizational theory, despite doing important work on human capital. Over on the evil twin blog, Peter Klein pays a nice tribute to Becker, mentioning his relationship to organizational economics.
Sociologist are fond of citing Becker for saying that he thought about transferring to sociology in grad school but that he found the subject “too difficult.” One thing that made Becker stand out from sociologists was that could simplify very complex problems/social phenomena – like discrimination – using a equilibrium model. This is not the sort of thing sociologists would do, and I suspect that most sociologists found the language he used to describe preference maximization offensive, but in a world of formal modeling and rational choice theory, Becker’s perspective was elegant. He helped create a tenuous bridge, along with Jim Coleman, between mathematical sociology and economics.
Reading his Nobel speech this afternoon, I was struck by this insight about the impossibility of Utopian dreams. Becker reminds us just how precious and valuable our time is, especially in a society where so many of our other wants and needs are satisfied.
Different constraints are decisive for different situations, but the most fundamental constraint is limited time. Economic and medical progress have greatly increased length of life, but not the physical flow of time itself, which always restricts everyone to twenty-four hours per day. So while goods and services have expended enormously in rich countries, the total time available to consume has not. Thus, wants remain unsatisfied in rich countries as well as in poor ones. For while the growing abundance of goods may reduce the value of additional goods, time becomes more valuable as goods become more abundant. Utility maximization is of no relevance in a Utopia where everyone’s needs are fully satisfied, but the constant flow of time makes such a Utopia impossible.
Nathan Nunn has a paper in the Quarterly Journal of Economics estimating the effect of slavery on long term growth:
Can part of Africa’s current underdevelopment be explained by its slave trades? To explore this question, I use data from shipping records and historical documents reporting slave ethnicities to construct estimates of the number of slaves exported from each country during Africa’s slave trades. I find a robust negative relationship between the number of slaves exported from a country and current economic performance. To better understand if the relationship is causal, I examine the historical evidence on selection into the slave trades and use instrumental variables. Together the evidence suggests that the slave trades had an adverse effect on economic development.
Check it out.
When I argue that we have too much college, people quickly fall on the well established fact that college graduates make a lot more than non-college graduates. But you don’t need to be an education skeptic to ask a sensible question: what’s the variance? Are some people not making the college premium? How many? Well, turns out that a firm has been calculating the rate of return for college and it varies a huge amount. There are folks who don’t make it back. Some college graduates are making a *negative* rate of return. From the economist:
A report by PayScale, a research firm, tries to measure the returns on higher education in America (see article). They vary enormously. A graduate in computer science from Stanford can expect to make $1.7m more over 20 years than someone who never went to college, after the cost of that education is taken into account. A degree in humanities and English at Florida International University leaves you $132,000 worse off. Arts degrees (broadly defined) at 12% of the colleges in the study offered negative returns; 30% offered worse financial rewards than putting the cash in 20-year Treasury bills.
None of this matters if you are rich and studying fine art to enhance your appreciation of the family Rembrandts. But most 18-year-olds in America go to college to get a good job. That is why the country’s students have racked up $1.1 trillion of debt—more than America’s credit-card debts. For most students college is still a wise investment, but for many it is not. Some 15% of student debtors default within three years; a startling 115,000 graduates work as caretakers.
In other words, before we rush more people into the college, we have to make it cheaper, much cheaper. And we shouldn’t facilitate degrees that massively bad consequences for your economic life chances.
One of the more serious anti-immigration arguments is that immigration is correlated with welfare state expansion. The argument hinges on a normative evaluation of social services, but, at the least, it is a coherent argument. The issue then is empirical evidence – does immigration actually precede welfare state expansion? An op-ed in the Investor’s Business Daily summarizes research that claims that there simply isn’t any association. Written by Alex Nowratesh and Zachary Gouchenour:
.. we show that, historically, immigrants and their descendants have not increased the size of individual welfare benefits or welfare budgets and are unlikely to do so going forward. The amount of welfare benefits is unaffected by the foreign origin or diversity of the population.
Since 1970, no pattern can be seen between the size of benefits a family of three gets under welfare programs like Temporary Aid for Needy Families (TANF) and the level of immigration or ethnic and racial diversity.
We compared individual states because they largely decide the benefit levels for many welfare programs, and states’ levels of ethnic diversity vary tremendously along racial, ethnic and immigrant lines. For instance, in 2010 only 1.2% of West Virginia’s population was foreign-born while 27% of California’s was.
Furthermore, the amount of TANF benefits also varied by states with similar demographics. For instance, in 2010 a California family of three received $694 a month in TANF benefits. But in Texas, an identical family received only $260. The size of the Hispanic population in each state is the same: 39%.
For every California with many immigrants, considerably diverse, and a vast welfare state, there is a Florida or a Texas with similar demographics but a smaller welfare state.
In other words, there is no actual link between welfare state generosity and a state’s immigration population. So, basically economic research shows small or no effects on wages and this research shows no effect on political outcomes. The arguments against immigration are extremely flimsy.
What do the Cooper Union and the University of California have in common? They both promised no tuition and have abandoned that. This leads to an interesting idea about higher education. My hypothesis is that free tuition is an “unstable equilibrium.” Once you get it going, it can be sustainable, since people exert great pressure to keep it that way. But once you charge tuition, it’s impossible to go back. For the University of California, it was the freedom to charge a “registration fee.” Originally meant to cover bureaucratic costs, it very quickly became de facto tuition. It was even litigated and the courts openly admitted it was de facto tuition but needed. The same for the Cooper Union, which is now just another private school with a hefty tuition, after nearly a century of being tuition free.
In a world where college is a certification for the labor market, and entry is restricted, you invite monopoly pricing by producers. In that world, any excuse you can provide that allows you to start charging tuition is the first step in extracting huge amounts of money from students and parents. And that is very hard to resist.
Shamus and I have a long standing debate over the 2002 Dale/Krueger paper and whether it really does show that elite college premia are due to ability bias (e.g., kids who go to Harvard make more money because they are smarter/better connected/whatever, not because Harvard gives them any particular human capital). Via Econlog, I discovered thet D&K have a working paper, which bolsters this claim with newer analysis. From the abstract:
We find that the return to college selectivity is sizeable for both cohorts in regression models that control for variables commonly observed by researchers, such as student high school GPA and SAT scores. However, when we adjust for unobserved student ability by controlling for the average SAT score of the colleges that students applied to, our estimates of the return to college selectivity fall substantially and are generally indistinguishable from zero. There were notable exceptions for certain subgroups. For black and Hispanic students and for students who come from less-educated families (in terms of their parents’ education), the estimates of the return to college selectivity remain large, even in models that adjust for unobserved student characteristics.
In other words, if going to Harvard causes you to get more income, the income associated with going to Harvard should remain unexplained when we control for sensible individual covariates. In the data, when you include data on school you applied to, which indicates how ambitious you are, the Harvard effect goes away, except for low-SES students.
Bottom line: Elite college attendance is a marker of ambition. That’s important to know, but shouldn’t be conflated with a human capital effect, except for populations which don’t have wealth or social connections.
To me, learning about a scholar’s intellectual trajectory and philosophy is helpful for understanding the impetus for particular schools of thought. One of the pivotal moments for me during my grad school days was hearing Neil Fligstein‘s candid perspective about having to advocate for one’s research question, methods, and claims. In fact, he compared being an academic with being the creature from Alien(s). That’s right, we’re not the flame-toting Lt. Ripley and the heroic but ill-fated Nostromo crew; we’re more like the chest-bursters who have to keep coming back, no matter how many times we get (spoilers ahead! cover your eyes, young’uns) burnt, ejected from the airlock into outer space, frozen, etc.
With that imagery in mind, have a look at Fligstein’s discussion of his most recent works. Fligstein talks in an interview with McGill student Nicole Denier about how he decided upon a PhD in sociology (hint: a foray with social movements), where he sees the field headed, and his agenda for
grand general theory.
ND: …what do you think are the challenges for sociology to overcome in the next few years?
NF: What I have found most frustrating about sociology is that it is so Balkanized. One of the most depressing things about sociology is when I look at the American Sociological Association and see that there are forty-four sections, which could be reduced to about six. It tends to create these Balkanized theory groups (for lack of a better term) that are engaged in a discourse with ten other people. From a graduate student’s point of view, that’s the hardest thing to face in the field—how fragmented it is. The problem is that there just aren’t that many people. There are only about 15,000 sociologists in North America, I think. It was bad when I was a graduate student twenty-five years ago, it’s much worse now. It’s very frustrating for people and it’s hard to overcome. One of the things I like about the construction of something called economic sociology is that for the first time in 30 years there is a synthetic field – not a field which wants to break the field into smaller and smaller parts—but a field that wants to say that politics and law and economic processes and organizations and social movements are all part of the same thing. So to me, this is what this economic sociology thing is all about. It is more synthetic than breaking it into a smaller piece.
ND: Similarly, your field theory has the possibility to span a number of areas. You’re not so optimistic about it overcoming the differences between the institutionalisms in economics, political science, and sociology. But do you think it can bridge the gaps within sociology?
NF: I’m an optimistic person. I hope that it becomes more synthetic. People have moved so far from (I’ll use a dirty word) a general theory of society or a theory of society that it’s not in their vocabulary any more. It was so discredited so long ago that you’re a bad person if you even have that thought. It’s a big taboo in sociology to say that, you know, there really is a general theory of society. Again, you get off stage with people and you talk to them and a lot of people think there is a general theory of society….[snip!!!]…. Sociologists tend toward understanding action in groups, yet we don’t even think about it most of the time. Field theory is about that: how groups of people and groups of groups do these kinds of interactions and watch other people and reference other people and take positions, a very generic level of social process. I figure a lot of people are ready to hear that message in sociology. Hopefully, it will go a little further beyond where it is right now.
In the spring, I wrote a series of posts about Joel Mokyr’s The Enlightened Economy, which argues that industrialization was precipitated by cultural change in the UK. This final (?) post on Mokyr’s book extracts some of Mokyr’s observations about education and contrasts them with a popular theory of the education/growth link.
First, what are some standard stories of the education/growth correlation?
- By-product: The by-product thesis says that you first get growth, due to technical or institutional change, then people are wealthy enough to invest in education.
- Average worker productivity: The standard story in the media (and among social scientists) is that education increases the average productivity of workers, which lead to growth. Education is an across the board “upgrade” in the economy.
What is the alternative? Well, Mokyr’s history suggests an alternative:
- Elite reformation: Education mainly changes elites in two important ways that lead to economic growth. First, education shows innovators (the technical elite) the idea of translating abstract knowledge into concrete application. It also provides a common stock of knowledge (e.g., we all know chemistry or law). Second, education of political elites might make them more tolerant of wealth accumulation by innovators. Science and engineering are no longer threats to be punished through force or tax.
This Mokyrian theory is motivated by the observation that the UK saw massive economic growth with an almost illiterate population. Mokyr’s (implicit) elite reformation theory has a number of attractive features. It doesn’t require a massive re-education of the population before growth in the historical record. Second, it provides a concrete mechanism linking cultural change to institutional change (ie., the ideas get broadcast in educational institutions that elites tend to hang out at, like Oxbridge in the UK). Third, it explains why having an educated technical elite is not enough for growth, which explains why some nations with strong technical elites but misguided political elites remain mired in poverty (e.g., India). Finally, elite reformation theory doesn’t require you to explain why it is that sending the masses to trigonometry class – which they will promptly forget – makes them more productive.
There’s a recent study by researchers at Northwestern showing that part time instructors do better than tenured full timers. A few clips from an Inside Higher Ed piece addressing the issue:
A major new study has found that new students at Northwestern University learn more when their instructors are adjuncts than when they are tenure-track professors.
The study — released this morning by the National Bureau of Economic Research (abstract available here) — found that the gains are greatest for the students with the weakest academic preparation. And the study found that the gains extended across a wide range of disciplines. The authors of the study suggest that by looking at measures of student learning, and not just course or program completion, their work may provide a significant advance in understanding the impact of non-tenure-track instructors.
There’s a recent NPR story that features the research of a friend of mine, Marit Rehavi of UBC. She has co-authored a paper, with MIT’s Erin Johnson, on the topic of c-sections. The authors compare c-section frequencies of health professionals (MD moms) vs. everyone else. The finding?
… physicians are almost 10 percent less likely to receive a C-section, with only a quarter of this effect attributable to differential sorting of patients to hospitals or obstetricians. Financial incentives have a large effect on C-section probabilities for non-physicians, but physician-patients are relatively unaffected. Physicians also have better health outcomes, suggesting overuse of C-sections adversely impacts patient health.
In other words, people who have better knowledge (MD moms) have fewer procedures and better health outcomes. The policy implications are clear – the c-section rate is too damn high!
Off-list, Howard Aldrich penned Brayden and me a heartfelt lament about the one-sided exchange between sociology and economics. He described a recently published article in which an economist urges fellow economists to conduct research on how organizational identity motivates workers to work hard because (surprise!) monetary incentives aren’t sufficient.
With Aldrich’s permission (but without naming the offending article and author), I am excerpting his thoughts here:
“What is heartbreaking is that there’s no sign in this article that the author has any clue that sociology and management & organization theory have been concerned with such questions for decades, or that there is a rich and robust literature on organizational culture, social identity, and so forth. Although the author mentions the social psychology of identity at one point (Ed. Note: plus 2 mentions of March and Simon’s work as “seminal”), all but a handful of the 60+ references are to the literature in economics.
Several years ago, I had a similar experience when I read a special issue of an entrepreneurship journal that was devoted to entrepreneurial teams. It contained an economist’s algorithmically driven analysis of why and how entrepreneurial teams should form. Plenty of other economists were cited, but he seemed clueless to the fact that, five years previously, a couple of sociologists (namely, Martin Ruef and me, together with a business administration scholar) had written an empirical paper, based on a nationally representative sample, addressing precisely some of the idle speculation he’d written up in his paper. I was so irritated that I called up the special issue editor, who apologized profusely but offered no explanation.
So, for economics, all that matters is what other economists have done. I’m sure this simplifies the literature search process, but one can imagine that some insights might be sparked if economists were occasionally to dip into the literature of other fields. For example, what came to mind immediately upon reading the first article was Bill Ouchi‘s rather famous – - at least to me – - book from 1981, Theory Z, which was one of the first books to ride the wave of the “organizational culture” phenomena in organization and management studies.”
In a follow-up email, Aldrich opined the desire for economists either to share or return home:
“I just want them to either go back to their own village or else begin engaging in a more fair exchange….The problem is that I doubt very much whether we can ever create a truly equitable exchange with economists – - I’ve seen the same pattern for years, and indeed Chick Perrow actually talked about something like “invasion of the body snatchers” in talking about when economists came into our field.”*
Since economists are supposedly prone to practicing what they preach, could it be that the discipline of economics is ill-suited to contributing to a knowledge commons?
This is a guest post by Graham Peterson. He has just finished up his master’s degree in economics at UIC and will begin the PhD program in sociology at the University of Chicago. He is interested in economic sociology
and extended blog comments.
It’s a shame sociology took its final-swoop quantitative turn just about the same time economics reissued its permissions to do comparative history and started publishing discourse studies in its mainstream journals. It’s as if estranged siblings would be forever doomed to blow past one another and reissue each other’s mistakes. Politics.
The turn for sociology was of course both theoretical and empirical, but that damned dissertation in 2021 really sealed it: Foundations of Sociological Analysis (Paul Samuelson glowed proud from his grave). It was as if sociologists had been waiting for someone to come along and resolve all the definitional issues in theory and compose an axiomatic graph-theoretic derivation of sociological principles. Now all the theorists do is applied combinatorics on graphs. Useless.
The usual advice about art and investing is “don’t bother.” Buy it because you love it, but don’t expect a decent return. Well, that’s not exactly true. There are at least two ways to consistently make money from art, but neither is easy:
- The Vogel Strategy: Named after the Vogels, who spent their lives collecting art on a postman’s salary, the idea is simple – immerse yourself in art and buy up lots of cheap stuff. But you can’t buy any old art. You go to the cultural center, hang out with impoverished artists, and buy cheap.
- The fussy value buyer: As discussed in a recent Art Market Monitor article, art investment funds do actually manage a decent rate of return. The way they do it is to avoid the fancy auctions and look for somewhat undervalued works by artists that are already on track to having good historical reputations. For example, if Bacon is already famous, go for his lesser known buddy Frank Auerbach. Good work, but probably under-appreciated.
The tricky part with the Vogel strategy is that you need to invest in a lot of stuff, much of it goofy. Most people don’t have the patience or taste needed to spot how today’s bizarre avant-garde might be featured in tommorrow’s history book. The trick with the Moneyball strategy is that you go for people who are relatively cheap, but still expensive in absolute terms. You need a lot of capital to even contemplate this strategy. Also, you need to be confident and ignore the hype that often surrounds “hot artists.” That is hard to do for many investors.
One of the problems of graduate education in many fields is that the requirements for the dissertation are vague. Another issue is that the dissertation is a book length treatment, even in fields where articles are standard. This leads students spend years writing overly long documents that have little value. For that reason, I encourage all my students to use the “three essays” format as the default. It’s simple, it works, and they’ll get done. If they have a good reason for deviating, then we can talk about it. But most folks should really stick to “three essays.”
There is now more systematic research showing that this advice is correct. A recent AER paper authored by Wendy Stock and John Siegfried shows that economists who use the “three essays” format do better in terms of academic job placement and subsequent publication. The abstract says it all:
Dissertations in economics have changed dramatically over the past forty years, from primarily treatise-length books to sets of essays on related topics. We document trends in essay-style dissertations across several metrics, using data on dissertation format, PhD program characteristics, demographics, job market outcomes, and early career research productivity for two large samples of US PhDs graduating in 1996-1997 or 2001-2002. Students at higher ranked PhD programs, citizens outside the United States, and microeconomics students have been at the forefront of this trend. Economics PhD graduates who take jobs as academics are more likely to have written essay-style dissertations, while those who take government jobs are more likely to have written a treatise. Finally, most of the evidence suggests that essay-style dissertations enhance economists’ early career research productivity.
My take home message? We should drop the pretense of the sprawling dissertation. All departments should require or strongly encourage the three essay format as the default. If the student wants something else, they need to make the argument.
Hat tip to our evil twin, Organizations and Markets.
Last week, we had a discussion about academia and social mobility. Is it the case that low SES individuals are well served by a career in academia? My response is no. Graduate education is highly uncertain. Even if you get the degree there’s a good chance that you might be adjuncting. You might have to get work outside of academia that does not require doctoral education. I suggested that if we are really concerned about inequality, we’d suggest that people more seriously consider career paths that have high rewards and low risk, like engineering or health.
Then, Krippendorf wrote a comment that made me seriously question my claim. I quote the entire comment:
For Hispanic men, Hispanic women, and African American women, the estimated lifetime earnings of a PhD are greater than the estimated lifetime earnings of professional degree holder. The much-touted professional-to-PhD earnings drop is limited to whites, Asian Americans, and African American men. See here: http://www.census.gov/prod/2011pubs/acs-14.pdf, Table A2
If — and, taking Rory and others’ points, it’s a big if — the goal is to increase the earnings potential of students of color, using group averages as your sole predictor, it still doesn’t make sense to discourage all students of color from getting a PhD.
That being said, I completely agree that the solution isn’t admitting additional PhD students. (And, at my university, students of color are not “add-ons:” they count against the department’s allocation of both slots and funding packages, just like any other student.)
I agree with much in this comment. Group averages are not to be used strictly in all cases. I am also glad that Krippendorf and I agree that we shouldn’t be expanding graduate enrollments. But the core of Krippendorf’s comment made me think: is it really true that black MDs make *less* than black PhDs? If you look at the linked census report,* that is the case (see Table 2-C, for example). So what gives?
I suspect it has to do with the definition of “professional degree.” My hypothesis is that Blacks and Hispanics PhD make more than professionals because Blacks and Hispanics are less likely to be in high paying professions (e.g., MDs) and more likely to be in low paid professions (e.g.,social work a profession). The report does not list what counts as a “profession,” so it’s hard to say.
There is circumstantial evidence for my interpretation. For example, a 2009 article in Health Affairs estimates physician income by ethnic group. Not surprisingly, even Black and Latino MD’s make a bit more than the average for all professors. For example, the *average* Black male family practitioner makes about $159k a year. Hispanics actually earn *more* than their White counterparts on the average. We can also look at engineering. Not much research, but one study by NACME shows that engineering salaries for Black bachelor degree holders in their 30s is about $73k – which is a little above the average for all professor ranks combined in sociology. If you look at life time earnings, even Black engineering BA holders do better than Black PhD because they don’t have to spend a decade getting the degree, paying extra tuition, and loading up on debt.
Bottom line: There’s something fishy in that Census report and other evidence shows professions, at least STEM/health, are a better path for mobility for minorities.
* One of the authors is a former student, so I claim credit for all excellence in the report.
Article of interest from Rationality and Society:
- Mark Pingle and Tigran Melkonyan on “To believe or not believe…or not decide: A decision-theoretic model of agnosticism“
- David Pate on “Concealing to reveal: The informational role of Islamic dress“
- Douglas Savitski on “Is plea bargaining a rational choice? Plea bargaining as an engine of racial stratification and overcrowding in the United States prison system“
- Anthony Paik and Vernon Woodley on Symbols and investments as signals: Courtship behaviors in adolescent sexual relationships
- Louis Corriveau Game Theory and the Kula
Check it out.
Yesterday, I discussed Joel Mokyr’s book on Britain’s industrialization and I focused on the finding that industrialization happened with a work force that was not formally educated. Today, I’ll focus on another of Mokyr’s observations – Britain was taxed a whole bunch before, during, and after industrialization.
Mokyr raises this point to argue that it wasn’t low taxes that made industrialization possible, but ideas. I wish to raise another point. Economic development can exist within a wide range of tax regimes. Mokyr makes a persuasive point that Britain wasn’t low tax in the 1700s. There were all kinds of tariffs and other forms of taxation. Mokyr does point out that taxation was indirect and that seems to be the cruz of the matter, at least in his eyes.
That seems consistent with modern political economy. Sure, at extremely high tax rates, e.g., socialist economies, you can crush economic growth. But you get a lot of growth at intermediate rates. When you add up American taxes, you get about a 54% tax rate. Same with Europe. Bottom line? There is definitely a point of too much taxation, where people just stop working, but if the taxes are indirect and hidden, people won’t notice for quite a while and they’ll just keep on working.
I’ve recently finished Joel Mokyr’s The Englightened Economy, an economic history of Britain during the industrial revolution. The book is an exhaustive argument about the role of Enlightenment ideas on economic development. I won’t go into detail here, but I’ll summarize it by merely saying that the book is a thorough review of the literature on Britain through the eyes of economists and historians.
Today, I want to make a comment on an observation of Mokyr. In his review of research in higher education during British industrialization, he notes the following:
- Higher education was very rare
- Innovators and industrial leaders were mostly uneducated
- Individuals with elite education (e.g., Oxbridge) were fairly rare among the ranks of the industrial leadership
Mokyr raises this point in service of the argument that Britain’s economic expansion can’t be attributed to rising quality of education since most people were not well educated until well after the industrial revolution. My point: This is somewhat analogous to economic expansion today. Leading Silicon Valley firms aren’t always, or even usually built, from people who have advanced degrees. I can think of only one such major firm (Google). Microsoft, Facebook, and Apple were founded by college drop outs, albeit elite drop outs. Groupon was founded by a policy school grad school drop out (not computer science). Twitter’s founder was a computer geek in high school but went to un-glamorous Missouri Tech, then later went to NYU, not known as a computer science hub.
The conclusion: You need an educated work force to carry out ideas, but the leadership doesn’t need a lot of education. Rapid economic expansion seems to hinge on having a mix of smart people who get their “training” from a wide variety of sources, not just college. Colleges are more about educating the masses who compose the rest of the organization.
Last week, Teppo commented “The Org: The Underlying Logic of the Office,” a book by CBS prof Ray Fisman and editor/writer Tim Sullivan that brings organization theory to a popular audience. This week, I’ll add a few of my own comments to the discussion. Later, Ray and Tim will be contributing to the blog.
In summary, The Org brings to the educated reader an argument about why organizations are important and how they work. It’s about coordination and routinization. Modern life simply requires big tasks that can’t efficiently be done with managers, bosses, and CEOs. It’s the sort of book that you might give someone who is just starting to think about why the social world is the way it is.
The book covers a lot of basic territory in a crisp and easy to grasp way. The book gives great examples of principal agent problems, superstar markets, and the problems of vertical integration. The examples range from the for-profit world, to the military, to churches.
In particular, I enjoyed the chapter on innovation. The issue is that innovation and organization are at odds with each other. Organizations thrive because they can exploit scale and produce the same product over and over. That requires people to obey. In contrast, innovation requires that people diverge from established routine. Rather than give in to a feel good approach to innovation, Fisman and Sullivan sensible point out that the tension between organization and innovation is natural and that it will be solved in different ways. They give good examples that show the range of solutions. McDonald’s demands conformity from franchisees and innovates in a lab, while Lockheed Martin famously created a separate entity that encourage wildly creative innovation Yes, that is old school contingency theory, but it remains a good insight.
A few nit picks. Rhetorically, I wish the book had been a little more cognizant of the interdisciplinary nature of organization studies. The book begins with the typical “an economist looks at …” discussion that is in vogue in the post-Levitt era of popular economics writing. But the book itself covers a lot of great material from managerial economics, business school scholarship, sociology, history, and even concludes with a quote with the old man himself, Max Weber. Also, I wish the book had said a little more in the conclusion about the social consequences of management. The world we have today is shaped by management philosophy and management itself has given rise to a new class of people. That deserves some discussion. But overall, these are quibbles, though. The book’s a winner and I’m sure it’ll start appearing in organization studies syllabi.