Archive for the ‘economics’ Category
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.