Monday, March 30, 2009

Oh what a marriage of beauty and brains: The fair Lopokova and John Maynard Keynes

If, over generations, the smartest men earn the most money and are able to attract the most attractive women as partners, and if both intelligence and beauty are heritable, then might we expect a correlation between intelligence and attractiveness?

Kanazawa says such a correlation exists (HT: National Business Review). He has a sample of 15000 people with IQ scores and attractiveness ratings. Turns out that there's a strong correlation.

I'll quibble somewhat with his use of a single evaluator on attractiveness: a photo put up on Hot or Not and subject to hundreds of ratings would give a more reliable estimator. But I'm not terribly worried about it at this point.

Tomorrow's installment from Kanazawa will address the likely causal mechanism. Will it be that a lack of genetic fitness affects both bodily symmetry and intelligence? Will it be assortative mating, as suggested above? It'll be interesting and highly controversial either way. Enjoy!

Update 1 April: Kanazawa's part time blog is here: The Scientific Fundamentalist. I've added it to Google Reader; you should do the same.

Saturday, March 28, 2009

Vengeful economy

The best explanation of the current economic unpleasantness that I've yet seen, courtesy of South Park. If the link doesn't work, just search on (South Park bailout). Brilliant, as usual.

And don't forget their earlier exposition of the perils of migrant labourers stealing our jobs....

Friday, March 27, 2009

Ignorance in the 2008 NZ Election

The Electoral Commission has released a survey conducted by Colmar Brunton on voter satisfaction with the 2008 election. The survey also included some interesting data on how well voters understand their electoral system. Some highlights:
  • Only 30% of voters rated MMP as difficult or very difficult to understand but:
    • 48% failed to list the Party Vote as deciding the number of MPs
    • 70% failed to list either winning 5% of the Party Vote or winning one electorate as being required to cross the threshold
  • Males, those with a University degree, and those with a higher income level were more likely to answer correctly. These results are consistent with my work on the 2005 NZES survey.
I'm hoping to be able to get the underlying dataset to check the independent effects of the covariates in this survey to compare against what I've found in the 2005 data. I'm also curious to see whether rating MMP as difficult to understand correlated with getting the knowledge questions wrong. Stay tuned.
HT: Kiwiblog

Wednesday, March 25, 2009

Auckland seminar

I'll be giving a talk on political ignorance for the Law & Economics Association of New Zealand, Tuesday, 21 April, up in Auckland at Ernst & Young. Details at the LEANZ site. Hope to see some of you there!

Natalism

Matt over at The Visible Hand points us to one of the darker responses to the current economic unpleasantness: resurgent tribalism. Long story short: a New Zealand manufacturing plant with some skilled migrant Filipino workers kept those workers on and laid off some relatively lower skilled New Zealand workers. The laid off workers are, of course, upset about having lost their jobs and some are pushing to have the migrant workers' visas revoked.

It's depressing that the government seems to be jumping on the "let's blame the immigrants" bandwagon. Leaving aside the obvious point that if the company were to have to lose its more skilled workers it might well lose its contract with Nissan and consequently have to lay off a lot more good Kiwi blokes, it's still none of the government's business. The firm is better placed than the government to decide which of its employees are most important to keep on - and all the more so when many firms are running pretty close to the shut-down point.

I'd previously reported on the correlates of "economic thinking" in New Zealand. One of the components of my "economic thinking" variable measured whether the respondent tended to agree that immigrants help the economy. I re-ran things, this time using only the immigration measure. I constructed a variable taking on a value of 1 if the respondent disagreed or strongly disagreed that immigrants help the economy, and 0 if neutral or positive towards immigrants' effects. I then ran probit specifications to find the correlates of being in this group.

The NZES also queries whether respondents agree or disagree that "immigration is a threat to the New Zealand way of life". The variable correlates strongly with thinking that immigrants hurt the economy (0.44). The two columns in the table below report the results (marginal effects) of separate probit specifications looking at the correlates of thinking immigrants are a threat either to the New Zealand economy or to the New Zealand way of life.



The table reports only those interesting variables that are significant both after a general-to-specific reduction and in the initial specification, so some variables only show up in one specification or the other. The coefficients tell you the increase in the probability of answering that immigrants are a threat given a change in the independent variable listed. So, if you're of Asian ethnicity, you're 14% less likely to believe that immigration hurts the economy (but no more or less likely to believe that immigrants threaten the New Zealand way of life).

What I found most interesting was that left-wing ideology, which I expected to be a reasonable insulation against fear of immigrants, only showed up in the second specifications: holding left-wing ideology correlates with a reduced fear that immigrants threaten our way of life, but has no effect on views of the effects of immigrants on the economy. I was also very surprised to find that union membership had zero effect on beliefs about how immigrants effect the economy, but strongly affected beliefs about "way of life". None of the occupational codes came up as important, being unemployed or on unemployment benefit didn't matter. Being of middling income seemed to increase fear of immigrants, as both low and high income groups showed negative effects (though which proved statistically significant varied by specification).

The obvious candidate variables show up as important: education and reading newspapers reduces fear of immigrants; political ignorance, being in a rural area, and being born in New Zealand increases it. If I add in political party support, supporters of the Maori Party and New Zealand First are significantly more likely to view immigrants as a threat to the New Zealand way of life and to the economy; National and Labour supporters are pretty similar to each other on these questions with reduced likelihood of viewing immigrants as a threat as compared to the set of other parties' supporters.

Perhaps sentiments have changed a lot since 2005 when this survey was conducted, what with the ongoing economic unpleasantness. In the 2005 survey, there's little evidence that those out of work or in more tenuous household situations were more fearful of immigrants; of course, it's now much harder to find a job if you become unemployed. But, based on the 2005 numbers, 35% of respondents rated immigrants a threat to the NZ way of life (with 41% disagreeing) and only 22% rated immigrants a burden to the economy (with 51% disagreeing). And, National supporters were more pro-immigrant than average. This is all pretty promising. Even if Immigration Minister Coleman is not helping in keeping immigrants from becoming scapegoats, it doesn't look like there's a big base on which such sentiment could build.

Tuesday, March 24, 2009

Appeals to ignorance

Grossman and Helpman's classic model posits that informed voters are attracted by parties' policies, always voting for the party whose policy position is closest to their own ideal point, and that uninformed voters are swayed by advertising. This then gives room for lobby groups to contribute funds to politicians willing to move away from the median informed voter's preferred policy position and towards the lobby group's ideal position. The politician then uses the acquired funds to buy advertising. How far policy moves depends on the steepness of the isovote curves: how quickly informed voters shy away from parties deviating from their preferred position, and how effective advertising is in attracting uninformed voters.

Recent work by Ekant Veer and reported in the New Zealand Herald shows that uninformed voters are indeed far more responsive to celebrity endorsements than are informed voters.
Bath University's Dr Ekant Veer said while endorsement in the United States had long been part of the landscape and peaked last year with huge numbers of celebrities who openly backed Barack Obama's presidential campaign, Westminster democracies used celebrities rarely because of doubts about their credibility.

However, in research to be published in the European Journal of Marketing, the former Waikato University student has found good reason to turn that assumption on its head. Using advertisements which featured celebrities and non-celebrities, he asked 316 participants whether they would vote for the British Conservative Party.

He found that while endorsements did not work on those who rated themselves as having a high level of political understanding, for those who knew or cared little about politics the effects of having a celebrity on board made them more likely to vote for the party.

Academics who admit to half-hating their research results are rare, but that is where Dr Veer finds himself because political party strategists are likely to more effectively target celebrity endorsements to particular groups, he says.

"I hate the idea that a politician can pick this up and go 'sweet, we don't need people to think, we just need to find the biggest celebrity'. That's not good enough in my mind."

It's not surprising that those without much political knowledge will use celebrity or other endorsements as a way of making decisions. Indeed, much of the work on political ignorance suggests that this kind of cue-taking behaviour can enable the politically uninformed to vote as though they were informed. Unfortunately, much of that work is question-begging: if you can't decide for whom to vote, how can you decide to whom to listen for political cues? It really just pushes the problem back a step. Who's more likely to draw more votes for a candidate: an economist saying that candidate X's policy would improve economic growth by a percentage point more than candidate Y's policy, or some rugby or cricket star saying that candidate Y is a good fellow?

Veer goes on to argue for non-partisan celebrity "get out the vote" campaigns. Unfortunately, that seems likely to draw the least informed voters to the polls. Since we know that the politically uninformed are systematically biased compared to the politically informed, it's rather unclear to me why this is desirable.

HT on the Veer study: Phil Ascroft.

Monday, March 23, 2009

Morning links roundup

Wednesday, March 18, 2009

Economics of Scalping: Trent Reznor edition

Economists have for some time been trying to figure out why concerts are priced below market clearing. Surely the artist does better by having fans allocate scarce supply by willingness to pay rather than by willingness to queue. The scalper profits by the arrangement rather than the artist, venue or promoter: why not reallocate the surplus back up the chain by charging market-clearing prices? Some candidate explanations, and rebuttals:
  • Queuing generates news stories the publicity value of which outweighs revenues forgone
    • But why not achieve the same outcome by pricing only half of the venue below clearing and have premium seats sold at market clearing prices? Is it really plausible that there's more press from queuing than from stories about sales of $1000 tickets?

  • Queuing sorts fans by fandom rather than by willingness to pay. This has benefits for the artist by increasing the average attendee's willingness to pay for complementary higher margin goods like t-shirts and posters, by ensuring that the mosh pit is filled with the most enthusiastic fans and thereby improving the concert experience for everyone.
    • But this could be achieved still by segmenting the venue; it doesn't explain why concerts without mosh pits (or active floor seating) are priced below clearing. Steve Landsburg likes the t-shirt explanation, but it's unclear to me why this predicts overall queuing rather than queuing for the floor seats and market-clearing prices for the rest.
  • Contractual arrangements between artist and venue give the artist stronger incentives to promote sale of ancillary goods than to maximize profits over both ticket sales and t-shirt sales; see discussion of sorting by fandom, above.
    • Then why don't they write better contracts?

Trent Reznor, the genius behind Nine Inch Nails, provides some insight. In short, scalping could be stopped immediately, without price changes, if concert promoters or venues wanted to stop it: simply print names on tickets and check against photo ID at the door. Why don't they do it? Let's turn it over to Trent.

The ticketing marketplace for rock concerts shows a real lack of sophistication, meaning this: the true market value of some tickets for some concerts is much higher than what the act wants to be perceived as charging. For example, there are some people who would be willing to pay $1,000 and up to be in the best seats for various shows, but MOST acts in the rock / pop world don't want to come off as greedy pricks asking that much, even though the market says its value is that high. The acts know this, the venue knows this, the promoters know this, the ticketing company knows this and the scalpers really know this. So...

The venue, the promoter, the ticketing agency and often the artist camp (artist, management and agent) take tickets from the pool of available seats and feed them directly to the re-seller (which from this point on will be referred to by their true name: SCALPER). I am not saying every one of the above entities all do this, nor am I saying they do it for all shows but this is a very common practice that happens more often than not. There is money to be made and they feel they should participate in it. There are a number of scams they employ to pull this off which is beyond the scope of this note.

In short, the ticketing agents have already made a deal with the scalpers to split the surplus without appearing like jerks by having high posted ticket prices. As Eric Cartman would say, it's like having your cake, and eating it too.
What's NIN done about it? Again, over to Reznor:

NIN gets 10% of the available seats for our own pre-sale. We won a tough (and I mean TOUGH) battle to get the best seats. We require you to sign up at our site (for free) to get tickets. We limit the amount you can buy, we print your name on the tickets and we have our own person let you in a separate entrance where we check your ID to match the ticket. We charge you a surcharge that has been less than TicketMaster's or Live Nation's in all cases so far to pay for the costs of doing this - it's not a profit center for us. We have essentially stopped scalping by doing these things - because we want true fans to be able to get great seats and not get ripped off by these parasites.

I assure you nobody in the NIN camp supplies or supports the practice of supplying tickets to these re-sellers because it's not something we morally feel is the right thing to do. We are leaving money on the table here but it's not always about money.
Being completely honest, it IS something I've had to consider. If people are willing to pay a lot of money to sit up front AND ARE GOING TO ANYWAY thanks to the rigged system, why let that money go into the hands of the scalpers? I'm the one busting my ass up there every night. The conclusion really came down to it not feeling like the right thing to do - simple as that.

That story's consistent with the fandom explanations above. I can buy that the artist would want the most enthusiastic fans up at the front rather than the boring folks who can afford to pay $1000 per ticket. Giving an economics lecture is a lot worse if the students up front seem less interested than you think they ought to be, and I'd fully expect that the effect is greater for musicians. Why shouldn't they trade off some monetary income for being able to put on a show that's more fun for them? I certainly put non-trivial weight on how fun a given lecture will be for me to deliver; I wouldn't expect anyone else to do otherwise.

Reznor concludes:
My guess as to what will eventually happen if / when Live Nation and TicketMaster merges is that they'll move to an auction or market-based pricing scheme - which will simply mean it will cost a lot more to get a good seat for a hot show. They will simply BECOME the scalper, eliminating them from the mix.

Nothing's going to change until the ticketing entity gets serious about stopping the problem - which of course they don't see as a problem. The ultimate way to hurt scalpers is to not support them. Leave them holding the merchandise. If this subject interests you, check out the following links. Don't buy from scalpers, and be suspect of artists singing the praises of the Live Nation / TicketMaster merger. What's in it for them?


I'm a bit confused at this point. If the prior argument was that collusion between the ticketing agencies and the scalpers allowed an arrangement maintaining the facade of "fan friendly pricing" while allowing for extraction of rents, why would a merger between the venues and the ticketing agents allow that solution to become explicit with true market-clearing pricing? If the current constraint is wanting to maintain the veneer of low prices, what about the merger removes that constraint?

I'd argue instead that we're just seeing a trend towards market clearing prices because prior arrangements where concerts effectively served as loss-leaders for albums has had to change with file-sharing; now, the CD tracks are the loss-leader for the concerts and ancillary products, and we'd have to expect a move towards clearing via prices.

Reznor provides a nice compendium of links on scalping, including Russ Roberts' discussion over at EconTalk! Reznor listens to Roberts. Worlds colliding....

Update 23 March: I told you recordings are a loss leader for the concert. See Reznor's distribution of free EPs for folks signing up for email updates on his upcoming tour with Jane's Addiction (awesome) and Street Sweeper (never heard of 'em, but almost certainly worth trying on given the recommendation).

Offsetting Behaviour

A nice example of offsetting behaviour, via Popular Mechanics. They even cite Peltzman!
Give people antilock brakes, airbags and other safety devices, and they “consume” the safety improvements by driving more aggressively. This phenomenon is called the Peltzman Effect, after economist Sam Peltzman, who first wrote about it in 1976. The decades-long effort to make highways straighter, wider and better-marked, with more guardrails and rumble strips, has eliminated one class of dangers only to foster another: the complacent driver with a cellphone in one hand and a cup of coffee in the other, steering the vehicle with a knee while occasionally glancing at what’s ahead.

Meanwhile, modifying roads and intersections so drivers are less comfortable—by making driving, in some ways, more dangerous—forces people to slow down and pay attention, producing a change in behavior that, paradoxically, results in more safety. This is also true for pedestrians, who Vanderbilt says are more cautious away from crosswalks than within them because they don’t know if cars will actually stop.


Solution? See my masthead...

Monday, March 16, 2009

Scientific Ignorance

I wish I could find the full survey results for this one! A recent survey by Harris Polls for the California Academy of Sciences finds that only 53% of Americans knows how long it takes for the Earth to revolve around the sun and only 59% know that the earliest humans and dinosaurs didn't live at the same time.

I wish I could find more detailed breakdowns of their polling responses to see whether the same covariates that correlate with economic and political ignorance also predict scientific illiteracy. It seems particularly odd to me that more people would get right that humans and dinosaurs didn't live at the same time than figured out that the Earth goes round the sun once a year. I mean, none of us have experience of the pre-historic era, and the Flintstones could be confusing, and preferences over young-earth religious beliefs might induce odd beliefs on the dinosaur front, but surely we all have direct experience of there being 4 seasons per year.

I'd love to know how the "Earth revolves around the Sun" questions was set up. Did the correct answer hinge on differences between Calendar, sidreal, and anomalistic years? Or was it the obvious a) one year b) one month c) 5 years kind of thing?

HT: Slashdot.

Update 19 March I'm likely to be getting the survey data. Excellent.

Wednesday, March 11, 2009

NZ Roundup

Welcome to readers from EconLog!

Most of my blogging lately has been about the effects of political ignorance. I'll be doing a lot more on that topic in posts and papers yet to come. If there's sufficient demand from readers outside of Middle Earth, I'll supply updates on what New Zealand's up to.

Here's a current roundup. While the Wall Street Journal has praised us for not being too stimulating, we do run the risk of doing things. One nice one is a cheap symbolic move: the construction of a national cycling path running from the northern tip of the North Island to the southern tip of the South Island (whether Stewart Island gets included, I've not seen). Current cost estimates are $50 million, and I've little doubt the project would be dumped if it proved to be substantially more costly. The project wouldn't do much harm, would be more likely to use unskilled labour than would more complicated infrastructure stimulus projects, and is a nice way of looking to be doing something. Kiwi Pundit reckons it a useful symbol that might forestall calls for more harmful actions.

The more worrying proposal on the horizon is for a government-funded 10% reduction in the standard work week. Large employers could send employees home one day per fortnight, with government paying the stood-down workers for up to five hours per fortnight at the minimum wage. Kiwiblog has the details. I think the idea is to let employers with restrictive union contracts get some flexibility without having to lay off staff. Initial versions of the scheme would have had the day off be used for training, but I had a really hard time working out how that could be implemented.

Of course, the whole scheme is predicated on some form of the lump of labour fallacy: that there's only so much work to be done, and the more of it that I do, the less of it there is left for you to do. While this may be true for any particular firm in the short term, it can't hold for the economy as a whole or over the longer term. I can imagine second-best arguments for this where we're constrained against nominal wage cuts in a low inflation environment, but wouldn't the better policy be to encourage greater wage flexibility and to introduce a general employment stimulus by having government temporarily pick up part of the employer's ACC contribution (a payroll tax that covers workplace accident insurance)? The government's reckoning on costs of about $20 million. While cost estimates on these things tend to be low-balled, $5 per capita can't do terribly much harm even if costs are underestimated by an order of magnitude. But it won't help productivity.

The most worrying proposal still on the horizon is the potential that the government require the currently politically-neutral New Zealand Superannuation Fund invest 40% of its portfolio on New Zealand assets, with some risk that government infrastructure bonds count as New Zealand assets. The disadvantages of the scheme are obvious: with a diversified portfolio, absent the kinds of global shock we're currently experiencing, returns from the overseas investments can offset New Zealand specific shocks to tax revenues to help pay pensions; with a New Zealand concentrated portfolio, fund returns tank at the same time that tax revenues tank. Not a great idea. And, it breaks the current bright-line rule that the SuperFund is completely independent to make its own investment decisions on the basis of maximizing returns. It will be a lot easier for a subsequent government to introduce ethical investment rules if Key goes through with this one.

But, on the whole, we're not doing too badly yet. The unemployment rate is still only around 4.6%. The whole country has taken a massive real wage cut with a drop in the dollar from about $0.80 to the US to about $0.50 to the US. We came into things with a very low level of overall government debt but with a bad ongoing fiscal position left by the outgoing Labour government which set up long term spending programmes when tax revenues were high and which violated the Public Finance Act by misrepresenting the government's accounts going into the election to conceal a massive deficit in the government's accident compensation scheme. We're consequently somewhat falling into a rather large fiscal stimulus, if we define fiscal stimulus as government spending a fair bit more than it takes in in taxes for a while. This has been less a result of deliberate policy and more a consequence of Labour's big spend-up, Labour's previously-announced tax reductions, and National's election promise to enhance the previously-announced scheduled tax reductions. The government's accounts are going to look bad for some time, but we can afford to build up a bit of debt given where we're at. Hopefully, the current National government will be able to claw back some of the prior government's spending initiatives: they can do a fair bit of that while maintaining a net stimulus position. On the whole, Key's National government has so far done a lot less harm than have others. Let's hope it continues.

If readers outside of Middle Earth are keen, I'm happy to give semi-regular roundups of this sort.

Tuesday, March 10, 2009

Experiments with the minimum wage

Most economists tend to reckon that increases in the minimum wage reduce job creation, but that small moves around current levels don't do very much one way or the other. So the usual reductio from those who really don't like minimum wages is to ask why we don't just double or triple them.

Well, Honduras has just come close! The minimum wage went up 1 January from $157 to $289 per month. Apparently, this follows a 2007 reduction in the minimum wage from $178 to $136 per month. A US State Department travel advisory warns against travel there: layoffs of about 15,000 workers have exacerbated rather serious previously existing crime problems.

It sounds like there's huge variation in the minimum wage in Honduras. Are any labour economists looking at this one? I don't know how binding minimum wage regulations are in Honduras (not binding in the sense of above-market, but binding in the sense of whether companies have to obey the law), or whether decent stats exist on employment, but it sounds like somebody could be doing some really nice checks on sensitivity of employment to minimum wage shocks that are a fair bit bigger than the rather small ones usually seen in the US. It would also be neat to check the elasticity of crime with respect to minimum wage rates.

HT: Kiwi Pundit.

Income, education, and ignorance

In my last post, I looked at the correlates of what I call "economic thinking".

Bryan Caplan asks for more details on the relative effects of income and education on economic thinking. Of course, in most work looking at political ignorance, education matters more than income. That's also what I found when I looked at the correlates of ignorance two posts ago. And, in Caplan's work, education matters a lot while income doesn't matter at all in explaining what makes people think like economists.

I re-ran the economic thinking regressions, dropping the ignorance variable to compare education and income. And, to make the comparisons stark, I'll set the baselines in each case as being the lowest level of education or of income. So, the null for education is "less than secondary", which includes "incomplete primary education/none" and "primary school completed"; for income, it's "household income less than $15,900", which includes "No income" and "less than $15,900". I only here report results on the education, income, and ignorance variable. Results will vary from the previous ones as my null has changed on the education and income indicator variables, and because I've fixed a rather trivial coding glich that has meant that the second decimal place on most of my coefficients has had to be updated.

What does that mean? It means that, in my sample, having the highest level of income does more to increase economic thinking than does having the highest level of education. But it's still not quite a fair comparison: while 16.5% of the sample has the highest level of education, only 9% of the sample has the highest level of income. The "University" variable will include folks with graduate degrees and folks with just a Bachelor's degree. I had previously aggregated different levels of education that seemed to have the same effect; let's move to the finer gradations. 7% of my sample has a postgraduate degree, for example. Here goes. Everything above again but this time, with finer differences in education levels.

I previously had aggregated together the two types of secondary school diplomas; we see here that they have the same effect on economic thinking (namely, none). I had aggregated together technical qualifications with incomplete university degrees: it looks like incomplete university degrees are more important than technical qualifications. And, I had previously aggregated together undergrad and postgrad degrees: the effects here seem pretty close to identical.

The effects of income and education are roughly comparable. The lowest levels of both have little effect. Middling levels of both have some effect. And the highest levels of each have a strong effect. Having an undergraduate university degree has a stronger effect than having the second-highest level of income, but being in the highest income bracket looks to have a stronger effect than being in the highest education category. Running some post-estimation tests, though, we can't reject that the coefficient on the highest income bracket is equal to the coefficient on the postgraduate degree. I do come closer to rejecting equality when the ignorance variable is included: the ignorance variable attenuates the effects of education much more than it does the effects of income.

So, the condensed version: income matters more in my sample than it does in Bryan's. I don't have a simple answer as to why. In Bryan's work, he controls for partisanship and ideology; I leave partisanship out because I want to use "economic thinking" as something that explains party choice rather than the other way round, but I did control for ideology. If I throw the different party vote intentions in as controls in these regressions, they only somewhat attenuate the effects of income on "economic thinking": they'll push the coefficient on the highest income category down to about 0.43, but no farther. Perhaps education matters a bit less here because of the nature of New Zealand university degrees. Undergrads here complete a three year programme with fewer electives. While most of the commerce students will take our introductory micro and macro papers, not many students from other disciplines come over. A quick chat with our stage one lecturer suggests about twenty percent of first year students at Canterbury take our stage one economics courses, and about eighty percent of those are going to do a Commerce discipline as a major. My impression is that a higher fraction of first year students in the US do stage one economics.

Saturday, March 7, 2009

What makes Kiwis think like economists?

In previous posts, I described how I constructed a measure of "economic thinking" and a measure of political ignorance. I also discussed some of the general contours of the debate about whether ignorance matters in the real world.

We'll now turn to the determinants of economic thinking.

The seminal work in this area has been done by Bryan Caplan. He finds that, in a survey of Americans and economists on questions of positive economics, the public is severely biased. Compared to economists, the public is very scared of foreigners, favor make-work schemes, pessimistic, and skeptical about business and markets. He finds that people with more education, higher income growth (not just higher income), and men think more like economists than do others, all else equal. There were of course other factors that reduced the extent of disagreement, but those were the big ones.

I checked correlates of my measure of "economic thinking" in the New Zealand Election Study. The results are in Table 3 of the full paper, available at SSRN.



You'll probably need to click the link to see the table properly.

The biggest absolute effect comes from having a very high income: being in the top income bracket increases your "economic thinking" score by 0.39 standard deviations. Second, Maori ethnicity reduces the score by 0.31 standard deviations. Next, having a university degree increases the score by 0.29 standard deviations. Being male increases the score by 0.25 standard deviations. Identifying with a left-wing ideology reduces the score by 0.2 standard deviations. Anything that has an effect close in absolute magnitude to having a university degree I count as being pretty important.

So, what about political ignorance? Well, a standard deviation decrease in political ignorance increases your economic thinking score by 0.23 standard deviations. Is this a big effect? If I re-run the specification so we can compare folks with a university degree to those with less than a high school degree, I find that the difference is 0.33 standard deviations: moving from the lowest possible education to the highest increases your economic thinking by a third of a standard deviation. How about moving from the highest amount of ignorance to the lowest? The difference between the highest and the lowest ignorance score is 4.9 units, so moving from the highest to the lowest level of ignorance increases economic thinking by more than a full standard deviation. That's a bigger effect than anything else in my specification. As a robustness check, I split the ignorance variable into the lowest, middle, and highest levels of ignorance (with anything more than 2 standard deviations above mean counting as highest and anything more than 1 standard deviations below mean counting as lowest). Compared to those with the highest levels of ignorance, those with the lowest are 0.46 standard deviations higher in economic thinking, an effect which still greatly dominates the effect of moving from the lowest level of education to the highest. I think this suggests that political ignorance is of substantial real-world importance.

Other fun facts on economic thinking. Caplan finds that expected income growth correlates with economic thinking. I similarly find that those with a better household financial situation as compared to the prior year also think more like economists (0.1 standard deviations), but those who expect the economy to do worse in the next year also think more like economists. As Caplan's study relied on data from 1996 and mine from 2005, perhaps those who think more like economists are better able to forecast economic trends. This is something I plan on testing in later work look back through prior iterations of the NZES.

Next time: ignorance, economic thinking, and policy preferences. Sneak peak: the politically ignorant really really like the death penalty.

Friday, March 6, 2009

Who's ignorant?

In previous posts, I described how I constructed a measure of "economic thinking" and a measure of political ignorance. I also discussed some of the general contours of the debate about whether ignorance matters in the real world.

The purpose of my study isn't so much to explain the things that correlate with ignorance as it is to be sure that I've controlled for all of the demographic characteristics that explain ignorance when I look to see whether ignorance has independent explanatory power. To do that second part, I have to find all of the things that correlate with ignorance.

Again, I'm using the 2005 New Zealand Election Study, which includes a rich set of demographic variables. Some variables I want to include because theory suggests they ought to be in there. Lots of studies have found that men have more political knowledge than women: I then expect women to score higher on my ignorance measure than men. We might reasonably expect that higher levels of education correlate with less political ignorance, simply because there's a greater chance that the respondent will have been exposed to classroom discussions of how the political system works. Those currently students might be in a similar position. Age may matter as respondents accumulate political information over time. Occupation may matter as different occupations may be differently sensitive to changes in public policy and so the benefits of having political information may vary by occupation. The same holds for income. Membership in various social organizations may matter by reducing the costs and increasing the benefits of acquiring political information. People whose parents expressed a preference among political parties might have learned a bit about the political system around the dinner table while young. Being a beneficiary might increase the benefits of political information but probably not by as much as the costs of processing political information are increased by being in that set.

So, I throw these variables and a kitchen sink of other variables into a regression where ignorance appears as the dependent variable. The regression lets us say what the independent effect of each of the independent variables is, holding all the others constant. In the table below, the numbers tell you the amount by which the ignorance score is expected to change with a unit move in each of the listed variables. Since the dependent variable is mean zero, standard deviation one, the coefficients tell us the proportion of a standard deviation move expected from a unit change in the dependent variable.



The table above (sorry, you'll have to hit it to zoom in; I don't know how to make tables in Blogger) lists the interesting variables that were associated with increases or decreases in ignorance. As the dependent variable is ignorance, a positive coefficient tells us that the variable is associated with an expected increase in ignorance (and vice versa for negative coefficients).

What does it all mean? All else equal, males are about a fifth of a standard deviation less politically ignorant than females; those from farming backgrounds are about 0.38 standard deviations less ignorant than those employed in manual labour; those with a university degree are 0.37 standard deviations less ignorant than those with less than a secondary degree. Having the highest level of income means you're about 0.3 standard deviations less ignorant than folks with the lowest household income. Ethnicity matters too: in this sample, Maori know less about how the political system works even after correcting for income, education, and all the other things in the table (as well as a bunch of other things not listed in the table but listed in the paper). Not being able to place yourself on a left-right spectrum correlates strongly with ignorance as well. A reasonable argument could be made that it should have been a component of ignorance in the first place, but I didn't want to rule out off-dimensional self-placement as something explaining support for parties that don't line up easily on the traditional spectrum.

All of those are about what I was expecting, at least in terms of direction of the effect and relative magnitudes. What did I find most interesting? Left-wingers are far less ignorant than centrists or right-wingers. The effect is almost as big as switching from the lowest level of education to the highest. So, props to our friends from the left. On the other hand, folks who reckoned the prior Labour government had put in a good inning's performance were about a tenth of a standard deviation more ignorant than others.

In my next post, I'll tell you the effects of ignorance on "economic thinking". Sneak preview: it doesn't help your economic thinking, even after controlling for all of the demographic covariates.

Measuring Economic Thinking

In previous posts, I discussed political ignorance and the measure of ignorance that I constructed using data from the New Zealand Election Survey. Let's now start looking at whether ignorance explains anything important about individuals' party and policy preferences. First, are the ignorant more or less likely to agree with economists on questions of economics? To answer that, we have to construct a measure of "economic thinking".

The New Zealand Election Survey includes eight policy preference questions that seem to me to address issues about which economists are generally on one side. They're not a perfect set of positive questions, like the ones Bryan Caplan is able to use in his work comparing the views of the public and economists on the economy, but they're not bad. While economists will disagree vehemently about the magnitude of the effects, most economists would agree that minimum wages reduce the creation of new jobs. In our survey, 983 respondents either strongly agreed or agreed that minimum wages reduce the creation of new jobs, 698 were neutral, and 1461 disagreed or strongly disagreed. So, I created a new variable with a score of +2 for those strongly agreeing, +1 for those agreeing, 0 for those neutral, -1 for those disagreeing, and -2 for those strongly disagreeing. Whaples' 1996 survey of economists found that 87% of labour economists agreed that minimum wages increase unemployment among the young and unskilled. This isn't identical to "minimum wages reduce the creation of new jobs", but it isn't far off.

Views as to the effects of minimum wages on job creation is my first measure of "economic thinking". What are the others?

"To solve New Zealand's economic problems, the government should control wages (prices) by law."
Most economists would violently disagree with both options. Here, 319 respondents strongly agreed that prices should be controlled, with a further 863 agreeing. 160 strongly agreed with wage controls, with a further 535 agreeing. The number disagreeing outweighed the number agreeing in both cases, but not by a lot.

"High income tax makes people less willing to work hard."
Economists are certainly divided as to the precise tax elasticity of the labour supply, and especially at current marginal tax rates, but few would disagree that high tax rates would induce a negative labour supply response: it would only run in the opposite direction if most workers were on the backward-bending portion of their labour supply curves. 916 respondents disagreed that high income tax reduces labour supply; a further 138 disagreed strongly.

"There should be a law to further reduce pay differences between women and men."
Most analyses of the matter have shown that gender pay differences disappear once you control for education, work experience, type of job and time outside of the workforce. Whaples (1996) found 83% of labour economists disagreed with such legislation. 773 respondents here strongly supported such legislation, with a further 1180 simply supporting. Only 900 either opposed or strongly opposed.

"The government should introduce import controls."
While some economists have made names for themselves by providing blackboard proofs of specific circumstances in which specific forms of protectionism might help particular countries (look up "terms of trade" argument), most economists would not expect these circumstances either to be identifiable ex ante or that actual tariff policy would ever be conducted in accordance with such theories. Fuller and Geide-Stevenson consequently find 92% of economists agreeing that tariffs and import quotas generally reduce welfare. Here, 518 strongly support import controls with a further 1075 simply supporting. Only 232 strongly opposed with a further 562 simply opposing.

"Immigration is good for the New Zealand economy."
Whaples found that 96% of labour economists agree that "the overall gains to American society from immigration exceed the losses." Here, 766 disagreed or strongly disagreed, with 1925 agreeing or strongly agreeing.

"The government should provide a job for everyone who wants one."
Economists tend to prefer transfers to the poor rather than job-creation schemes. Even in the context of current stimulus packages, most economists would agree that money should be spent only on projects that actually pass a cost-benefit analysis, rather than digging holes and filling them in again. This survey was conducted in the lead-up to the 2005 election, when such arguments would have been far from the front of voters' minds regardless. 738 respondents strongly agreed that it definitely is the government's responsibility to provide a job for everyone who wants one, with a further 1437 simply agreeing. 1060 said that government should not take on that responsibility, with a further 228 saying that it was definitely not the government's responsibility.

So, I have eight measures where I think economists' views are relatively one-sided. How to combine them? Again, I used a principal-component analysis to extract an underlying index of what I call "economic thinking". Like the ignorance measure, it provides an ordinal ranking of respondents' economic thinking, with mean zero and standard deviation one by construction.

Next up: What makes people think like economists? Sneak preview: Political ignorance doesn't help.

Footnote: My principal component measure loaded onto two factors. I re-did all of the analysis I'll later discuss using other ways of measuring economic thinking: first by using another principal component measure where I drop the two questions that load onto the second factor (effect of taxation; immigration), then by just using the sum of the measures. Not much changes.

Measuring ignorance

In my last post, I talked about what political ignorance is. In essence, it's the generalized inability to explain how one's political system works.

Because I later want to see whether ignorance matters in the real world, I have to check a survey that includes measures of ignorance, adequate demographic controls, and measure of party and policy preferences. The 2005 New Zealand Election Survey is just about perfect for my task. The survey asks about 3700 potential voters a battery of useful questions. Among these are several that can be used to benchmark a respondent's level of political ignorance.

The first set of questions addressing ignorance ask respondents to place political parties on a left-right spectrum. Now, it's of course going to be hard to place some parties: the Greens are to the left, but really are sitting on an orthogonal "environmental" dimension; the Maori Party are centrist, but really are sitting on an orthogonal "racial issues" dimension. New Zealand First seems to the right on social issues but to the left on economic issues. So, I won't hold it against respondents if they don't do well in placing those parties. Instead, I look at the obvious ones in 2005. Don Brash's National Party was about as right wing as National gets. Helen Clark's Labour Party was a classical labour-left party. United Future marketed itself as the sensible centre, with Peter Dunne constantly reminding voters that his centrist party could work with either side. So, I score respondents on whether they correctly identify National to the right of United Future, National to the right of Labour, and United Future to the right of Labour. A "don't know" response on any pairwise comparison counts as a wrong answer. Respondents then could score zero to three on my simple measure of ideological ignorance. 60% of survey respondents correctly placed the three parties in the right order. It would have been much much worse had I scored their ability to place the more difficult parties.

The second set of questions addresses a respondent's ignorance about how the Mixed Member Proportional electoral system works. I tallied up the number of wrong answers to the following set of questions: is the electoral vote more important than the party vote in determining the composition of Parliament; what are the conditions for a party's entry into Parliament; is the party with the higher fraction of the vote more likely to get a higher fraction of seats under First Past the Post or MMP. I added to that number a tally of inconsistent answers about MMP. It's not necessarily wrong to prefer MMP over First Past the Post...ok, at least it's something we can argue about over beer. But it's certainly wrong to say you prefer MMP but ALSO prefer single-party government. The two just don't go together. Similarly, it's wrong to prefer First Past the Post while preferring coalition governments or to prefer the current number of parties in Parliament while still preferring First Past the Post. Each of those combinations of preferences shows a basic lack of understanding of the mechanics of how the system works. I then had a tally of wrong answers to questions about MMP that ranged from zero to six. Folks really didn't seem to understand how their electoral system works. Only a little over half of respondents knew that the party vote is most important, that winning either 5% of the party vote OR an electorate is sufficient for entry into Parliament, or that MMP is more likely to generate a proportional outcome.

The third set of questions are simple quizzes about Parliament. True or false: is the term of Parliament 4 years? Is enrolling to vote compulsory? Are permanent residents allowed to vote? While 83% of respondents knew that the term of Parliament is three years, only 28% knew that non-citizens can vote. Scores ranged from zero to three.

The fourth set of questions asked respondents to identify the parties that formed government after the 2002 election. Again, there are a few hard questions. The Green Party wasn't a part of the governing coalition but abstained on matters of confidence and supply. So I didn't penalize respondents for answering the wrong way on what seems to me to be a judgement call. Instead, I tallied up as wrong each of the following: not indicating Labour as being part of the government; not indicating Progressive as being part of the government; identifying any of National, New Zealand First, Act, or the Maori Party as being part of the government. Scores ranged from zero to five. 83% of respondents knew that Labour was part of the government. 84 people thought that National was part of the government.

The final set of questions asked whether respondents could identify their district MP and that MP's party affiliation. Respondents could score from zero to three on this measure. How could you score three? By giving the name of a list MP instead of your district MP and getting that MP's party wrong. 44% of respondents could not name both their MP and that MP's party.

So, I have five different measures of ignorance, as shown below. The graph shows the number of incorrect answers for each measure of ignorance. So, a score of 5 or 6 on the "MMP" measure is pretty bad.

How to combine them into a single measure of overall ignorance? I tried a few different mechanisms, but they all wind up correlating very strongly with each other. I can just take the simple sum across all measures, but the measures run on different scales: the simple sum then accords more weight to the measures that run to a maximum of 6 than those running to 3, and we have no reason to think those measures should be accorded higher weight. I can normalize each score to mean zero and take the sum of respondent standard-deviation weighted distance from centre, but that forces all measures to have identical weight which may not be appropriate if one measure really is more important than others in identifying underlying ignorance.

Instead, I take a principal component measure. What principal component analysis does is examine the correlations between the different measures and extracts common factors. In this case, all of the ignorance measures "load" onto a single principal component. That means that most of the variance across the different measures can be explained by variance in this one underlying component, which I'll call ignorance. The method automatically decides how important each of the individual scores are in explaining overall ignorance: if having a high score on one measure didn't really correlate much with having a high score on other measures, it probably isn't picking up the same thing that the other measures are picking up and so loads mostly onto another factor. The method is pretty similar to what's used in the intelligence literature: individuals' scores on different intelligence tests correlate pretty strongly with each other and load on a single factor called g. Intelligence tests then can be evaluated by how strongly they load onto g. All reasonable intelligence tests correlate with g. Similarly here, all reasonable measures of ignorance load onto my single factor: the anti-g.

So, that's my measure of ignorance: the principal factor onto which scores on the five different measures load. By construction, this has a mean of zero and a standard deviation of one. So, it's an ordinal measure: it tells us how ignorant individual respondents are as compared to one another. In my next post, I'll discuss what sorts of demographic variables are associated with my measure of ignorance.

(Footnote: I've tried all of the later analysis with the other aggregate measures of ignorance and it doesn't really affect the results).

Thursday, March 5, 2009

Political ignorance - what is it?

I've recently completed a rather extensive study of political ignorance and its effects. Rather than putting up one long posting about all of my findings, I'll slice it up into several parts.

First, what is political ignorance?

Political scientists have for decades conducted surveys showing that voters know very little about their electoral systems. Dye and Zeigler show that fewer than a third of Americans know that the term of the US House of Representatives is 2 years; about the same proportion can name the Secretary of State. About two-thirds know which party holds a majority in the US House of Representatives. Less than half can name their member of Congress, and fewer than 40% can name both of their state's senators.
Ilya Somin's survey of the literature on political knowledge reveals that in 1964, only 38% of Americans knew that the Soviet Union was not a member of NATO, the organization founded to contain the Soviet threat. This was two years after the Cuban Missile Crisis in which the Soviets almost brought the world to nuclear war by placing nuclear missiles in Cuba.

Most surveys of political knowledge show that voters know remarkably little about the political system. Of course, Anthony Downs demonstrated half a century ago that it is rational to be ignorant: if it's costly to learn something and there are no personal benefits from the information gained, then ignorance is the best strategy. That's why I don't know anything about string theory. It would be expensive for me to figure it out, nothing in my life would change based on whether or not I understood string theory, and I have other things to do with my time.

For a rather long time, political scientists and economists have argued back and forth about whether voter ignorance really matters. The typical exchange runs as follows:
"Here's my survey: voters don't even know who their current MP is. How can they possibly vote competently when they don't know who the incumbent is? If voters have no clue what's going on, the political system will be entirely beholden to the small number of interest groups that really do know what's going on."
"It may well be true that voters fail quizzes. But why should we expect this to cause bad outcomes? If you surveyed car owners and showed that most can't find the sparkplugs on their engines, that doesn't meant that they can't be good drivers, it just means that they have to find a mechanic they trust. Same thing with voters. Who cares who your current representative is? If you've had personal contact with your MP and found him good, vote for him. If you've found him bad, vote against him. Folks who've had no contact with their MPs will just vote based on party identification, so it all works out: if the overall economy's performing well, folks re-elect the incumbent party and they punish the incumbent if the economy's performing poorly. Same way that you keep or fire your mechanic depending on how well your car seems to run. It's ridiculous to say that these surveys suggest anything like democratic failure."


Those are of course just my paraphrasings of the general terms of debate. Check Ilya Somin's excellent 1998 Critical Review article surveying the literature on voter knowledge as example of the first; check Don Wittman's "Myth of Democratic Failure" and Arthur Lupia's work as examples of the second.

Political ignorance then is ignorance about how the political system works in general rather than necessarily ignorance about any specific policy issue. The literature has shown very conclusively that voters really don't know very much; what we're less certain about is whether it matters.

In my next post, I'll discuss my measure of political ignorance. Later, I'll show why it matters.

Welcome!

I've held off starting my own blog for a few years. I had a stint as guest blogger for Bryan Caplan over at EconLog a couple of years ago -- 'twas great fun, but also very time consuming. In the meantime, I've lurked at a few of the less reputable parts of the blogging world, occasionally commenting. I'm now finally getting my own space rather than polluting other folks' pools.

First, a couple of notes by way of introduction.

I'm Eric Crampton, an economist at the University of Canterbury in Christchurch, New Zealand. I specialize in Public Choice, which lies at the intersection of economics and politics: we use economic methods to analyze political decision making. You can find links to my homepage and, from that, some of my research, by following the link in the right hand column.

I expect to post here infrequently, but with RSS readers, that doesn't matter as much. Expect future posts to highlight some of my current research and current thoughts on policy. I may also explain the blog's title picture sometime.