Convincing

Tyler asks, "What is the most ridiculous thing someone has ever tried to convince you of?"

It's rather more fun to ask, "What is the most ridiculous thing of which you've ever tried to convince someone?"*

Back in high school, I convinced a few folks in our chemistry class that Mount Rushmore had been carved by lightning and wind erosion. Sure, the sculptor did the fine details. But the old Indian name for it was "Mountain of Four Faces" for a reason, and that's why the sculptor picked that mountain for the monument.

Good times.

* Not ending sentences with prepositions also is fun.

I don't know who you are, but I like what you're doing!

Via a tweet from the Productivity Commission, I find a new NZ economics blog! I don't know who Donal is, but he's doing good work. I'm adding him* to Feedly.

Here he posts on the productivity symposium. Sectoral productivity in Oz is far ahead of us, it's mostly down to multifactor productivity and higher capital intensity there.

Geoff Mason from the UK's National Institute of Economics and Social Research, presented some highly detailed comparisons of sectoral productivity in New Zealand and Australia. For most industries, Australia is well ahead: on average we achieve only 62% of Australia's labour productivity. Geoff's been able to pinpoint how much is down to, broadly speaking, better ways of doing things in Australia ('multi factor productivity'), which explains 58% of the difference; how much is down to Australians working with more capital equipment than we do (39%); and how much is down to higher skill levels in Australia (very little, as it happens, only 3%).

If our labour productivity is only 62% of that in Oz, achieving wage parity with Oz would be rather destructive for overall employment.

Here he notes an insanity of the Overseas Investment Act: a land swap for an Auckland golf club has to route via the OIO because Fletcher's is majority foreign owned.

Here he gives a useful primer for those unfamiliar with the Stats NZ website and using Infoshare.

Here he excoriates the Greens' moneyprinting dreams. As he independently came to the same conclusion that Matt and I had, I conclude that he is very insightful.

Here he wonders why supermarkets bar arbitrage in baby formula. My working hypothesis has been that Fonterra underprices for the domestic market to avoid political pressure on other fronts; this breaks down where consumers then just ship the baby formula off to China.

Here's a wonderful anecdote about our GST.

Here he discusses firm pricing decisions in NZ. My take: maintaining parallel importing is especially important here!

Welcome to the NZ Econ Blogosphere, Donal, whoever you are! The full list, in case you've interested:

• Matt Nolan, James Zucollo and coauthors blog at The Visible Hand
• Seamus and I blog here at Offsetting
• Paul Walker blogs at Anti Dismal
• Bill Kaye-Blake blogs at Groping Towards Bethlehem
• Sam Richardson blogs at Fair Play and Forward Passes
• Aaron Schiff blogs at Aaron Schiff
• ...and now Donal at EconomicsNZ

Update: And don't forget!

• Brennan MacDonald at Reality-Based Analysis
• Brendan Moyle at Cthonic Wildlife Ramblings (beautiful nature photography interspersed with the economics of endangered species)

* Update: I originally followed the Google profile here that said "she", at least as of 5 July. Mike in comments below suggested he. I now expect that the author is Donal Curtin and have corrected the gender snafu. Update 2: Email confirmation: it's Donal Curtin. Welcome Donal!

Pick the separating equilibrium

College degrees vary pretty greatly in expected post-tertiary earnings. Some provide a lot of ephemeral benefits, others provide higher earnings. I'm agnostic about what students should pick, though I expect that government funding should be linked to likely positive external benefits from any particular degree rather than to the degree recipient's expected earnings.

Oregon's proposed a solution that's not far from what New Zealand had a few decades ago: free tuition, but high marginal tax rates.

Passed unanimously by the Democrat-controlled state Senate Monday after it had already cleared the also Democrat-controlled House, the bill would create a program called "Pay Forward, Pay Back" by which students wouldn't pay a dime at the time of study at any public institution for higher education in Oregon. Instead, students who qualify as Oregon residents would sign a binding contract that would require they pay a percentage of their post-college income back to the state every year for up to 24 years.

Students have some flexibility in choice of state. It's a bit of a hassle to get yourself registered as a state resident, but it's not crazy hard. I was in-state in Virginia.

If the contract is really binding, I expect that Oregon's Fine Arts and Social Work departments will see a pretty strong increase in student numbers while those wanting a degree in Finance will start heading out of state. Differences in tuition across majors are pretty small compared to differences in lifetime earnings.

When New Zealand ran this policy, they also ran a pretty exclusive university entrance policy: a rather smaller fraction of high school graduates were eligible for university. It will be interesting to see how things play out in Oregon.

Underlying factors

Three more for the "underlying factors cause most observed correlations" files.

Item the first: Limited numerical ability predicts mortgage default for reasons not related to choice of mortgage contract. That is, those who are bad at maths are more likely to default even after correcting for sociodemographic characteristics and other measures of cognitive ability.

Item the second: Men in the control group who remembered to take their placebos had higher survival rates than those in the control group who forgot to take their placebos.

Item the third (via Jason Collins): those higher in conscientiousness (as measured by survey question answers) also report higher happiness and life satisfaction (also as measured by answers to survey questions).

The first suggests that banks weren't really putting the "can't do maths" clients onto contracts that would ensure default but rather that those who are bad at maths wind up more likely to screw up things like figuring out whether they can afford a given mortgage or structuring their affairs such that they can consistently make their mortgage payments. If banks weren't able to lay off mortgage risk on the government, and if they were legally allowed to do it, they might then wish to administer a maths test for prospective mortgage clients and provide a bit more hand-holding and advice for those who fail.

The second follows on nicely from Linda Gottfredson's work suggesting that IQ is the fundamental underlying health determinant. Sure, low-income predicts poor health. But that's mostly because low IQ predicts low income. And low IQ or low conscientiousness seems likely to predict forgetting to take the full course of prescribed medicines, as well as a pile of other health-relevant behaviours. It also suggests that the returns from quality nurses are higher than the returns from doctors: having better nurses who can help low IQ clients understand and follow doctor's orders seems a worthwhile investment. Or at least one more likely to yield reasonable returns than using income redistribution as health policy.

Remember how Van Halen would hide a line about M&M provision in their concert rider as a way of checking whether the venue had followed all of their stage direction instructions? I wonder whether doctors mightn't add some markers to their prescriptions that aren't themselves necessarily medically useful but that would show up on a patient's tests afterwards to indicate whether they're likely following doctor's orders.

The third perhaps tells us something about links between income and happiness. If conscientiousness drives both income and happiness, then perhaps it isn't low income that's the sole driver of low happiness among those on low income. I'm always a bit sceptical about these studies: questions about conscientiousness are pretty loaded with "how I want to see myself" and social desirability confounds. But there's a reasonably simple (albeit limited) test: if the link between before-tax-and-transfer income and happiness is stronger than the link between after-tax-and-transfer income and happiness, that's pretty consistent with underlying type driving things. We can't rule out underlying type if it goes the other way though as the effects of the change in income could dominate the effects of type.

Limit fast food outlets?

Should we blame fast food outlets for obesity?

Canterbury student Alice Robertson thinks so. The University's press release on her internship project has been picked up in a few places (Herald, Press). Alice's paper isn't yet available, but I've been promised a copy when it is. It sounds like it's mainly a literature review; she notes Day and Pearce, 2011 as particularly relevant. That paper found clustering of fast food outlets around schools. Such clustering doesn't prove an obesity link, just that the kinds of places that wind up being decent venues for primary and intermediate schools are also the kinds of places where fast food outlets wind up locating.

Robertson suggests limiting the number of fast food outlets near schools.

Rachel Webb is a doctoral student in our Economics department. She's presenting some of her thesis work at this year's NZAE meetings. She hasn't sought any press releases on her work because she likes making sure everything's nailed down before talking to the press office. And so her paper still says "don't cite without permission". But she's said it's ok for me to post on what she's been up to.

She's investigating links between obesity and high birth weights. In her quest for instruments that might correlate with obesity risk but that should not have any independent effect on high birth weight risk, she thought about fast food venue concentration. There's some evidence that such venue concentration affects obesity. If if doesn't independently affect high birth rate risk, then it can be an instrument (subject to the usual validity tests).

The density of different categories of dining establishments with a particular focus on fast food restaurants within the Territorial Local Authority (TLA) area that the woman resides in comprises my next set of instruments. A significant relationship between fast food restaurant density and obesity has been a prominent finding by health researchers over recent times. Rosenheck’s (2008) systematic review of 16 studies concludes there exists a significant relationship between fast food restaurant density and obesity[21]. It is generally agreed that fast food proximity lowers the notional cost of eating high caloric food and can therefore lead to higher obesity risk though the causality of the relationship is disputed [22]. It should not have any direct effect on high birth weight risk. However, like with rurality, there are plausible factors which could correlate with both food venue type and concentration and high birth weight risk. For instance, if unhealthy food venue options tend to concentrate in areas where people tend to be less health conscious for reasons that transcend deprivation level, ethnicity, age, rurality, or wider region then food venue type and concentration may have an avenue of correlation with high birth weight risk outside of the effect on obesity that I am unable to control for and could invalidate its use as an instrument. It is also possible that food venue type and concentration may be correlated with high birth weight risk through the effect of weight gain during pregnancy. Validity tests are required to check the soundness of this instrument.

So Rachel wasn't interested in the effects of fast food restaurant density on obesity per se: she was just looking for plausible instruments. And she's found something rather interesting.

A curious finding from the first stage results was that the fast food restaurants density in a TLA did not have the expected effect on obesity measures. The majority of the fast food chains showed consistently negative coefficients in the first stage and particular chains such as Hell’s Pizza, Burger Wisconsin, and McDonalds frequently showed a significant negative relationship with the propensity to be overweight, obese, and morbidly obese. KFC and Pizza Hut were the only chains to have a generally consistent positive relationship with obesity risk. It is not clear what is driving these findings as both median income of the TLA and the deprivation level of the meshblock have been controlled for suggesting it is unlikely to be socio-economic status, nor could it be the effect of living in urban areas as rurality variables are also included. The overall number of fast food establishments per person in a TLA was generally insignificant so it doesn’t appear to be driven by substitution away from less healthy options such as fish and chips either. More research into the effect of fast food on obesity is warranted. 

So, fast food restaurant density, in her regressions on New Zealand data, tends to reduce the prevalence of obesity. When she'd first presented this to the Department, I'd wondered whether what she was picking up was that folks hitting McDonald's would otherwise have been going to a fish'n'chip shop and eating even worse food; she's checked that, as noted in the blockquote, and that wasn't driving things.

Rachel wouldn't draw policy conclusions from her thesis work. But I'll draw one: we shouldn't be too hasty to ban fast food outlets near schools. I'll draw a second one: had Rachel sought press releases about her work, there would have been less uptake. There's reasonable media demand for panics about fast food restaurants, and about alcohol, and about "the kids these days".

A simple argument in favour of polygamy

Will Wilkinson and Scott Adams provide nice arguments in favour of legalising polygamy.

Wilkinson draws a rather useful parallel with drug prohibition: existing observations will necessarily be from the fringe and can't be used to extrapolate to a legal environment:

As a former tour-guide at Mormon historic sites, I have encountered more than one fundamentalist Mormon family in which the strutting husband seems to regard his flock of servile wives like glorified property. We're not wrong to want to discourage this. Moreover, those remote compounds in which exile fundamentalist communities brainwash their girls and discard their surplus boys are intolerable horrors. But this is all the more reason to bring polygamy out from the margins of our society. As with sex work, the horrors here have little to do with anything inherent in the practice and almost everything to do with the fact that we've made it illegal and dishonourable. 

I'll make a different argument.

The division of labour is limited by the extent of the market. We've tended to model families as being machines for home production. The family member with a comparative advantage in market labour does more of that for wages while the one with a comparative advantage in home production does more of that; more wages get earned and more home production gets undertaken.

Marriage has been shifting away from complementarity in production towards complementarity in consumption. Read Wolfers & Stephenson on this point. If a couple are both really good at market labour, they'll wind up outsourcing most of the home production. Nannies, maids, laundry services - all of these take the place of home production for high-ability couples.

Now suppose that individuals are heterogeneous both in abilities and in preferences over home production. Some high ability people simply really enjoy spending lots of time with the kids rather than spending lots of time out of the house. Suppose further that there are non-contractable elements in home production that get nicely sorted out via the implicit contracts in marriage. Marriage requires a whole lot of trust. Once you've sunk all the fixed search costs and decided that you trust someone enough to marry them, you can trust them on a lot of margins. Outsourced home production requires a whole new set of trust evaluations. You have to find a cleaner you can trust with your house. A nanny requires far more trust. Within marriage, love sorts out the non-contractable elements and encourages good outcomes. More marriage partners opens up more scope for the division of labour on household and market production: more people who can spend the day at home if a kid's sick, more people who can take turns covering during school holidays, smaller burdens imposed when one partner needs to head off for a conference. And, more opportunities for complementarity in consumption as well.

The law against polygamy isn't a binding constraint for us as I rather doubt we'd seek to expand were the law changed. But I'm not sure why it should be illegal for others to enjoy the advantages.

Efficient etiquette

Rules of etiquette often seem designed to be inefficient. The point of the European "tines down" fork rule seems to be to hobble the eater, as I'd suggested a while back:

Etiquette rules, like the downward fork tines rule, that deliberately hobble the person making the display have a signalling value: it's the peacock's tail. Folks who've been able to spend hundreds of hours practicing how to eat in a deliberately hobbled fashion are then able to demonstrate finesse in that form of eating. Everyone else at the table will recognize them as being from the leisured class, whose parents either had sufficient servants to spend time drilling that technique into the children, or who invested that time in lieu of other pursuits in early adulthood. Either way, you're demonstrating that you've had time and leisure to spare.

It's nice to see an eloquent defence of my "tines up" alternative, and mocking of the tines-down types. Via @bkdrinkwater, here's Slate:

We’ve bastardized Euro-manners to make them still more convenient. Many Europeans stubbornly deploy their forks tines down—either as a spear, or, if the food isn’t stab-able, as a surface on which to awkwardly pile or smoosh food (awkward piling is particularly English—“How many peas can dance on the back of a fork?” asks Kate Fox, in Watching the English). But the pragmatic Americans who’ve abandoned the cut-and-switch almost always use the fork tines-up—i.e., as an efficient shovel—whenever it’s convenient to do so.

This hybrid style of eating is how Anna Post herself eats. But America’s lurch toward such modified Continental-style eating has been worryingly uneven. Nearly everyone I spoke with associated cutting-and-switching with older Americans and Midwesterners, and no-switching with younger and coastal diners.

Another culture war is just what we don’t need—especially one in which we’re all waving sharp implements, and both sides are open to plausible charges of unedifying Europhilia. Perhaps the best way to avoid open warfare is to formalize many Americans’ simplified take on Continental style (no fork-switching, but tines pointing any damn way you please) as itself an American creation—an efficient, relaxed blending of old and new worlds.

The "cut-and-switch" is the practice of switching the fork into the dominant hand after cutting; it's generally considered gauche by the Europeans and high-class Europhile Americans. Proper etiquette has the fork remaining in the left hand after cutting. But the Slate piece notes that the cut-and-switch is less efficient than the European standard of keeping the fork in the left hand.

This may be a problem for my "table etiquette is the peacock's tail" theory - especially if America switches entirely to "tines up, no-switching" - almost the most efficient form of food delivery. But note the almost: try bringing a spork along with you to a fancy restaurant. Drinkwater might call you a savage!