Economics of the End Times

The excellent William Watson, in a post entitled "Why I love economics", today points us to an interesting sounding IMF working paper.

"Irrational Exuberance in the U.S. Housing Market: Were Evangelicals Left Behind?"

IMF Working Paper No. 09/57

CHRISTOPHER CROWE, International Monetary Fund (IMF)

Abstract: The recent housing bust has reignited interest in psychological theories of speculative excess (Shiller, 2007). I investigate this issue by identifying a segment of the U.S. population—evangelical protestants—that may be less prone to speculative motives, and uncover a significant negative relationship between their population share and house price volatility. Evangelicals' focus on Biblical prophecy could account for this difference, since it may enable them to interpret otherwise negative events as containing positive news, dampening the response of house prices to shocks. I provide evidence for this channel using a popular internet measure of "prophetic activity" and a 9/11 event study. I also analyze survey data covering religious beliefs and asset holding, and find that 'end times' beliefs are associated with a one-third decline in net worth, consistent with these beliefs providing a form of psychic insurance (Scheve and Stasavage, 2006a and 2006b) that reduces asset demand.

I love the irreverence, but I remain confused. If I believed that the end-times were at hand, shouldn't I shift from investment goods like houses to consumption? What's end-game if you think the rapture closer at hand and you have an evangelical's utility function? I'd guess selling capital stock and using the cash to make a last ditch effort to save heathens, but it's hard for me to tell. It would just seem odd that the proposed response is to spend more on housing. He finds that areas with more evangelicals see an upward trend in housing prices in the wake of 9/11 while the heathen areas see a downturn. Is it possible that the cross-sectional effects are instead picking up the region's likelihood of being the next terrorist target? Or, perhaps, outmigration of those proportionately-few evangelicals in the big cities back to the Bible Belt as the rapture seems closer, bidding up the price of housing in those places?

I keep thinking about the old Heckman paper on the effects of prayer on God's attitude to mankind and Jack Van Impe's prognostications of the end times. Should the latter count any the less as satire just because they don't mean it to be so?

Sachs smackdown

Jeff Sachs last week delivered an ugly attack on Bill Easterly on The Huffington Post in which he accused Easterly of seeking to pull the ladder up behind him and deny aid to folks in Africa. A nasty cheap shot, and without foundation.

Easterly replies today, rebutting Sachs' accusations using bits of Easterly's own work previously cited by Sachs.

Sachs accuses me of such a hard heart as to deny "$10 in aid to an African child for an anti-malaria bed net." Sachs offers: "Here are some of the most effective kinds of aid efforts: support for peasant farmers to help them grow more food, childhood vaccines... roads, .. safe drinking water...."

Sachs likes a lot more another writer whom he quoted in his book Common Wealth:
"Put the focus back where it belongs: get the poorest people in the world such obvious goods as the vaccines,... the improved seeds, the fertilizer, the roads, the boreholes, the water pipes...." Wait, that was me!

Sachs was earlier quoting from my book, The White Man's Burden, which far from wanting to deny an African child bed nets, denounces the tragedy of aid impunity, in which "The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families."

Sachs complained that "most Americans know little about the many crucially successful aid efforts, because Moyo, Easterly, and others lump all kinds of programs -- the good and the bad -- into one big undifferentiated mass." Sachs again prefers another writer whom he quoted in Common Wealth: "Foreign aid likely contributed to some notable successes on a global scale, such as dramatic improvement in health and education indicators in poor countries."

You guessed it -- that was me again, illustrating how aid COULD work if only aid agencies were accountable for their actions.

Easterly then goes on to highlight some of the cases of "aid impunity" against which he's been fighting.

Easterly's Aid Watch is on my RSS reader; add it to yours if you haven't.

American disappointments

I drove from Winnipeg, Manitoba to Fairfax, Virginia late in the summer of 1998 to start grad school at George Mason. I remember stopping in Pennsylvania (80% sure it was PA...it was a long drive) at a Sheetz gas station to fill up and finding a petition next to the gas bowser. Customers were invited to take away a form to mail to their Congressman protesting Pennsylvania's proposed move to mandate minimum gas prices, which Sheetz (a discount brand) rightly recognized as an attempt by the big guys to squeeze out the discounters. I was crushed. The Canadian press likes to paint the US as some horrible jungle of rampant individualism where government stays out of folks' way; I hadn't fully believed it, but I'd hoped for it.

Kiwis are experiencing similar disappointment currently. New Zealand had started talking about a free trade agreement with the US under each country's prior administration; things seemed to be moving forward with the change in administrations. And then the US pushes through massive dairy export subsidies. Says prominent Kiwi economics commentator Bernard Hickey:

I have previously argued in this piece “Why an American Free Trade is a ludicrous and dangerous idea” that it would be a mistake for New Zealand to negotiate a Free Trade Agreement with America. It would open the door for the lobby groups for US agriculture, pharmaceutical and movie/music interests to gut any deal so it was worthless, or even worse, force us to change our copyright laws and shut down Pharmac.

I said Americans lie and cheat on trade policy. They protest they want free trade, but regularly act to restrict trade and subsidise their exporters. Lobbyists dominate the trade agenda in America. Here is more proof of that.

Things I'd never considered: Talmudic law edition

The National Post hosts a podcast today, and accompanying print edition, highlighting the procedures necessary for Orthodox Jews contemplating in vitro fertilization. Unsurprisingly, it's pretty complicated. The prohibition on masturbation, combined with the prohibition on condom use, make semen collection difficult. The solution?

"According to Jewish law, a man cannot ejaculate and spill his seed, he cannot waste his seed," Rabbi Jacobson explained. "To accommodate this, the couple can engage in intercourse using a special pierced condom," he said. The special condom captures the sample, while also leaving room for the possibility of conception.

Tyler likely would have tagged this "Markets in everything: Kosher pierced condoms".

The podcast has details not covered in the print story, for those who need all the details.

Update: the more I think about this, the more I think about cheating at solitaire....

On the other side, the article notes a low low price of about $100-$500 for a service that watches your gametes like a hawk and makes extra sure of no mixups. Seems like a bargain that anyone in that market would grab. If the notional cost of a mixup is say $7 million (pulled out of the air based just on VSL measures; I have a hard time imagining the compensating differential that would make me equally happy across world-states), seems pretty cheap even if the baseline probability of mixup is pretty low.

Afternoon roundup

• Radley Balko points to Curtis Melvin's efforts to harness the power of the internets to peel back the veil from North Korea: distributed intelligence.
• Bryan Caplan explains the problem with the Human Development Index:

  Scandinavia comes out on top according to the HDI because the HDI is basically a measure of how Scandinavian your country is.

• Via Reason, Lomborg on the Climate Industrial Complex. Of course, Cowen would argue this is the only way the sausage can be made.
• Bruce Schneier talks sense on the recent terrorism arrests in the US.
• Lee Gomez on privacy regulation: expensive and ineffective.
• How meerkats know when to ease their young off welfare. But wouldn't any individual pup have an evolutionary advantage if its voice stayed higher for longer?

Welfare and animal welfare: NZ pork edition

The Kiwi econ blogosphere, namely Paul, Matt and Brad, has been abuzz with discussion of pigs. As background, some animal rights activists broke into a pig barn in the middle of the night, frightened the animals, took a video of the frightened animals, and aired it on the news. The video ignited discussion of the desirability of farrowing crates as compared to free-range options among those who've never been in a pig barn. [Update: Of course, I'm here referring to the popular outrage expressed in the press; the econ discussion subsequent to the popular outrage has been rather good, as noted below.]

Brad Taylor points out that domestic pig farmers are making the best of some bad press by using the video in a bootleggers-and-baptists move: they argue that they're forced to use crates despite their better wishes because of the existence of foreign competition; if only tariffs protected them, they could change their methods. Paul Walker argues that the foreign competition angle is a red herring so long as barn raised pork is the cheaper production method; even with an import ban, producers would have a strong incentive to choose the cheaper option. Matt Nolan suggests that separate markets in free-range and barn raised pork solves most issues insofar as we only count animals' utility as it enters into human utility functions; if animals have intrinsic rights then a Pigovean tax (he calls it an externality tax, but Pigovean seems uniquely appropriate) on animal suffering solves things in the absence of Coasean bargaining.

A few years back, Tyler Cowen wrote an interesting piece on animal welfare. Relevant points:

• If animals can be shifted among sectors of varying welfare, then a tax on meat-eating is of ambiguous consequence: there's no apriori reason to expect more to shift to the higher welfare sector than to the lower.
• If regulation specifies a minimum standard of animal welfare such that we'd all view those animals as being happier having lived and been eaten than never having lived at all, vegetarianism is strictly harmful: fewer animals get to be born (and later eaten) when the demand curve is closer to the origin than it could be if vegetarians did their part in helping to defray these animals' costs of existence.

  "Some animal advocates argue for both mandatory care standards and for taxes or restrictions on meat consumption. But in fact, if we are at a care standard where animal lives are worth living, mandatory care standards should be combined with subsidies to animal breeding, not taxes on animal breeding."

• If regulation specifies a minimum standard of animal welfare much higher than the animal enjoying epsilon utility, there's a tradeoff between number of animals and happiness of animals (imagine Parfit's repugnant conclusion, but with the conclusion as starting point and working backwards).

I'd follow up on Matt's argument by suggesting that the two-sector model (people who care about animal welfare buy free-range; others buy barn-raised) isn't sufficient to induce efficiency where folks who care about animal welfare care not only about the animals they themselves eat (or abstain from eating if vegetarian) but also have Pareto-relevant preferences concerning the animals eaten by others. In that case, they'd be willing to pay some money to subsidize barn-pork consumers to switch to free-range. Presumably a charitable organization could achieve that end. However, if there are some people who now don't eat meat because they can't afford the free-range variety and are unwilling to eat barn-raised for ethical reasons, and if vegetarians with Pareto-relevant preferences concerning animal welfare would prefer that nobody eat meat but that any meat eaten be free-range, then the charity doesn't unambiguously solve the problem for them: the negative effects on the extensive margin, as they see it, may outweigh the positive effects on the intensive margin. Unclear that there are enough vegetarians with Pareto-relevant preferences (ie willing to put their money where there mouths aren't) for the latter bit to be a major issue, in which case the charitable organization would be sufficient, but fun to ponder.

Gender gaps

Studies of male-female wage differentials tend to find that differences disappear once you control for standard things job type, experience, and time out of the workforce. To the extent that residual differences remain, they seem reasonably well explained by maternity risk among women of childbearing age: so long as firms bear some of the costs of an employee taking maternity leave, wages for those at higher risk of taking such leave will be lower. After controlling for everything for which we have data, some folks then interpret the gender coefficient as an upper bound measure of discrimination.

The National Post reports on a new study of the Canadian medical field finds that female physicians provide about 14% fewer hours of direct patient care as compared to their male colleagues: an average of 30 hours per week to mens' 35 hours. The report warns that increased proportions of female physicians at lower average work hours requires the hiring of greater numbers of physicians to cover the same number of patient care hours. Of course, the study's authors are now on the defensive:

Dr. Mark Baerlocher, the study's lead author, acknowledged he is tackling a thorny issue, but stressed he does not favour curbing the number of female physicians. Instead, the study calls for greater increases in medical-school enrolment to offset the phenomenon.

"It's not meant to be a negative paper in any way," he said in an interview. "It's meant to take an objective, hard look at the work-hour differences that most people would agree are very real.... You can't simply ignore it because it's a sensitive issue."
...
Dr. Baerlocher, a radiology resident at the University of Toronto, said he agrees women should not be blamed, lamented a general reluctance in the medical profession to examine controversial issues, such as gender differences and abortion.

"There are a lot of topics that aren't adequately studied, because it's deemed a socially sensitive topic."

It seems pretty important if you're trying to plan out future staffing requirements to know things like this.

From a broader perspective, here we have another source of unobserved heterogeneity that can give rise to average salary differentials: hours worked by salaried staff. In salaried professions where you don't punch a clock, hours worked can vary a fair bit across individuals; the harder workers are more likely to be promoted or given a raise. If hours worked vary by gender, then we expect average salary differences across genders. If we don't have observations on hours worked, average differences then show up in the coefficient on gender in a wage regression. One more reason that the gender coefficient is only an upper bound measure of discrimination rather than a good measure of overall discrimination.