Why is female labor force participation down?

by on November 17, 2016 at 1:26 pm in Economics, Law | Permalink

There have been so many blog posts on male labor force participation, it is time to give women some additional coverage.  So Kubota, a job market candidate at Princeton, has an excellent paper on this topic.

Child Care Costs and Stagnating Female Labor Force Participation in the US

The increasing trend of the female labor force participation rate in the United States stopped and turned to a decline in the late 1990s. This paper shows that structural changes in the child care market play a substantial role in influencing female labor force participation. I first provide new estimates of long-term measures of prices and hours of child care using the Survey of Income and Program Participation. Hourly expenditure on child care rose by 40% and hours of daycare used declined by 20%. Next, I build a life-cycle model of married couples that features a menu of child care options that captures important features of reality. The calibrated model predicts that the rise in child care costs leads to a 5% decline in total employment of females, holding all else constant. Finally, this paper provides two hypotheses and their supporting evidence about the causes of rising child care costs: (i) restrictive licensing to home-based child care providers, and (ii) the negative effect of expanded child care subsidies to lower income households on the incentives for those individuals to operate the home-based daycare.

I will be continuing my coverage of interesting job market papers, as more interesting ones come on line.

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Thursday assorted links

by on November 17, 2016 at 11:47 am in Uncategorized | Permalink

1. Might China have its own dot.com bubble burst?

2. Package X-Ray, from Amazon.

3. Some details on the Trump infrastructure plan.

4. Bannonism.  And everyone else is linking to this Scott Alexander post on crying wolf and racism, but I think it is naive, and suspect he has never really lived under deeply racist conditions.  Here is perspective from Larry Summers.  And Matt Yglesias is worried about the first one hundred days.

5. Data on fake news on Facebook.  And Leonid Bershidsky on related matters.  Are Danish people happier when they quit Facebook?

6. Spectator picks for best books of the year.  And Telegraph picks.

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What is the expected return on a stock?

by on November 17, 2016 at 3:15 am in Data Source, Economics | Permalink

Ian Martin and Christian Wagner have come up with something new (pdf), here is the abstract:

We derive a formula that expresses the expected return on a stock in terms of the risk-neutral variance of the market and the stock’s excess risk-neutral variance relative to the average stock. These components can be computed from index and stock option prices; the formula has no free parameters. We test the theory in-sample by running panel regressions of stock returns onto risk-neutral variances. The formula performs well at 6-month and 1-year forecasting horizons, and our predictors drive out beta, size, book-to-market, and momentum. Out-of-sample, we nd that the formula outperforms a range of competitors in forecasting individual stock returns. Our results suggest that there is considerably more variation in expected returns, both over time and across stocks, than has previously been acknowledged.

Here are some related slides; time will tell but this is possibly very important work.

For the pointer I thank the excellent Samir Varma.

Addendum: And here are newer slides.

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Which macroeconomic theories will rise and fall in status because of Donald Trump?

by on November 17, 2016 at 12:21 am in Current Affairs, Economics, Uncategorized | Permalink

It seems likely that Trump and a Republican Congress can agree on some big mix of tax cuts and spending.  Furthermore, there are plenty of rumors that Trump may push on the independence of the Fed and the ten-year yield leaped upon his election.  So odds are it will be a stimulus with some degree of monetary accommodation, and in that case even tax cuts for the wealthy can serve as an effective form of QE into the assets the wealthy invest in.

And yet 80% of economists are Democrats, many top economists signed a petition opposing Trump, and I can’t think of a single top economist who has endorsed Trump.  So clearly something has to give, and here are some theories that may rise or fall in status:

1. “The multiplier is high.”  That seems ready to decline in status.

2. “Even wasteful expenditures can boost demand and help pull us out of secular stagnation.”  Ditto.  “We need to do stimulus right” will make a comeback.  And I see “the distributional effects of stimulus really matter” lurking around the corner.

3. “Tax cuts aren’t as good as government spending.”  That actually may rise in status, especially if Congress gets the bargain they want — lots of tax cuts — rather than what Trump wants.

4. The notion of how a credibly irresponsible leader can improve macro performance won’t get cited as much.

5. Austrian-like theories of how there can be a boom in the short run, yet with great long-run dangers, will return to prominence, albeit with modifications to the original Austrian story.

6. Criticizing countries with trade surpluses will decline in status.

7. The efficient markets hypothesis will decline in status.  It imposes too much discipline on our judgments of leaders and their policies.  The more certain we are of our own judgments, the more that evidence contradicting those judgments should be downgraded.  Right?

Don’t get me wrong, I think most (not all) of these moves will be “economists coming to their senses,” and thus good news.  But let’s be clear about what is going on.  While I don’t expect many instances of people making claims they do not believe, in terms of what gets emphasized, stressed, and repeated, macroeconomic discourse is about to change.

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Wednesday assorted links

by on November 16, 2016 at 3:13 pm in Uncategorized | Permalink

1. Jonathan Haidt is down on social media.  And Renee DiResta on radicalization through Facebook.  And from 2010, but Gentzkow and Shapiro on ideological segregation on-line are still worth reading.

2. Scott Alexander on immigration.

3. Who owns a chess move?

4. Why the leaders of Bangladesh might have favored Trump.

5. It seems Finland will abolish all school subjects.

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Is America’s racism problem getting better or worse?

by on November 16, 2016 at 12:18 pm in Current Affairs, Education, History, Political Science | Permalink

That is the topic of my latest Bloomberg column.  Here is part of the optimistic case:

There is historical evidence that racist propaganda is most effective when communicated to young people and propagated through schooling. There isn’t such a danger in the U.S. now, when surveys show less prejudice among the young and schools promote multiculturalism. The cultural impact of millennials will increase as they age and more of the elderly die. Nor does American big business show interest in jumping on the pro-prejudice bandwagon — quite the contrary.

It’s worth remembering that attacks targeted at minorities are hardly new. In 2014, 59 percent of religiously connected hate crimes were directed at Jews. That’s no excuse for the current wave of anti-Semitic oratory, but maybe we’re just noticing it more because of the election. Smartphones, viral videos and social media will bring the worst events to our attention.

The broader historical data suggest that discrimination can persist across many generations, and of course the U.S. has a long history of prejudice toward many groups. The real lesson might be, “We’ve been worse all along,” rather than, “Things are getting worse again.” That’s not comforting, but it might imply greater sustainability for what we cherish in current American institutions. The 200-plus reported incidents in election week (an annual rate of about 10,400) have to be compared with the 293,900 hate crimes reported for 2012 (note that the two numbers do not use exactly the same counting metric).

Yet I don’t quite buy it, all things considered:

Overall, I find the pessimistic scenario to be more convincing.

Do read the whole thing to see why.

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My conversation with Fuchsia Dunlop

by on November 16, 2016 at 10:02 am in Books, Food and Drink, History, Philosophy, Travel, Uncategorized | Permalink

Here is the link to video, podcast, and transcript.  The Q&A segment was led by guests Ezra Klein, Megan McArdle, Mark Miller (Coyote Cafe), and Eva Summer.  Fuchsia speaks in perfect British sentences and she always had an answer ready, with charm and extreme intelligence.  Here is one excerpt:

COWEN: Three dishes one absolutely has to try are what?

DUNLOP: In Shanghai?

COWEN: In Shanghai. The city, not the region.

DUNLOP: I think you should have hong shao rou, red braised pork. Real home cooking. Delicious combination of soy sauce, rice wine, and sugar, and one of the favorite dishes.

I would recommend some Shanghainese wontons in soup stuffed with shepherd’s purse, which is a wild variety of the brassicas, and pork, just to show you the lighter, gentler side of Shanghainese cooking.

Then, perhaps, if we’re talking Shanghai, you might one to have one of these dishes that says something about Shanghai as being a mixing pot of different cultures.

There’s a very nice crab meat and potato and tomato soup served in some of my favorite Shanghainese restaurants. Which seems a little bit of a fusion with some European influences, the way they use potato and tomato in that soup with local seafood.

COWEN: As you know, the Michelin Guide recently has covered Shanghai, given some restaurants three, two, one star. There’s cheap places you can go. Conceptually, do they understand the food of Shanghai? To the extent they don’t, what are they missing?

DUNLOP: If you look at the restaurants they’ve selected, there’s a bit of a Cantonese bias. They do have some Shanghainese restaurants, but one thing that’s very conspicuous, there are some notable, some of the best Shanghainese local restaurants, which are missing from that list, in my opinion.

The reason is, I think, the methodology of Western food inspectors, which is they tend to go as individuals or small groups. Of course in many Chinese restaurants where you eat family style, to make the most of the restaurant, you have to eat as we’re doing now with a large group and a table full of dishes.

We cover much more, including her favorite parts of China, whether offal is an inferior good, whether one can acquire a taste for sea cucumber, what she thinks of Leonard Cohen, Dream of the Red Chamber, how newbies should approach Chinese food, what top Sichuan chefs thought of their trip to French Laundry, whether milk is overrated, whether Americans have done anything worthwhile with Chinese food, and her favorite Chinese movie.

Here is a short video excerpt from the Sichuan peppercorn tasting segment, namely what makes the very best peppercorns so good compared to the lesser peppercorns.

dunlop

Here you can order Fuchsia’s new and excellent book The Land of Fish and Rice.

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Deviations from covered interest parity, explained

by on November 16, 2016 at 2:13 am in Economics | Permalink

The new BIS working paper (pdf) by Stefan Avdjiev, Wenxin Du, Catherine Koch, and Hyun Song Shin really does seem to do the trick.  Here is the abstract:

We document the triangular relationship formed by the strength of the US dollar, cross-border bank lending in dollars and deviations from covered interest parity (CIP). A stronger dollar goes hand-in-hand with bigger deviations from CIP and contractions of cross-border bank lending in dollars. Differential sensitivity of CIP deviations to the strength of the dollar can explain cross-sectional variations in CIP arbitrage profits. Underpinning the triangle is the role of the dollar as proxy for the shadow price of bank leverage.

I would put it this way (my interpretation, not theirs): liquidity is more expensive than you think, and leverage is more expensive too, as are risk-free assets.  And hidden beneath the formal results of this paper is an optimistic message about the financial sector and also economic growth.  If “riskless” arbitrage is that hard to pull off, just imagine what losses economies must be suffering due to inadequate arbitrage across the borrowing rate on regular funds and the rate of return on capital.  And imagine how much gain there is to be had from making such (risky) arbitrage easier to pull off.  On the down side, the implication is that intermediation today is more fragile than we had thought.

Izabella Kaminska has an important post on all of this.  “The stronger dollar makes global financial intermediation more expensive” is an underrated idea that at least you should try on for size.

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In defense of Facebook

by on November 16, 2016 at 1:16 am in Current Affairs, Education, Political Science, Uncategorized, Web/Tech | Permalink

The NYT offers a variety of Facebook criticisms.  Probably you already have heard the latest:

Donald J. Trump’s supporters were probably heartened in September, when, according to an article shared nearly a million times on Facebook, the candidate received an endorsement from Pope Francis. Their opinions on Hillary Clinton may have soured even further after reading a Denver Guardian article that also spread widely on Facebook, which reported days before the election that an F.B.I. agent suspected of involvement in leaking Mrs. Clinton’s emails was found dead in an apparent murder-suicide.

There is just one problem with these articles: They were completely fake.

Just to be clear, while I have a Facebook profile, I am not a user of the service.  The interface confuses me, and I don’t like how strictly information is filtered through the prism of sharing and social connections.  In this sense I take the criticisms to heart and they influenced my behavior long ago.

But I wish to suggest a simple comparison: how does Facebook compare in this regard to email and forwarded emails?  I haven’t seen formal numbers,  but I strongly suspect emails have been a far more important source of misinformation about Hillary Clinton (and Trump) than was Facebook.  (I do recall Matt Yglesias tweeting an estimate, and it sounded brutal for email.)  That is especially likely to hold for the elderly, who use email far more than Facebook and furthermore were more likely to support Trump.

How about comparing Facebook to what other people tell you?  What a load of crock they are.  People, pshaw.  Just think about their algorithms.  At least Facebook has access to The Washington Post.

By the way, the presidency aside, were all of the other electoral results so truly radical?  It doesn’t seem so.

In other words, we are holding Facebook to an especially high standard.  If doing so leads to improvements in Facebook (NYT), so much the better.  Still, for purposes of perspective it is probably welfare-improving if people get more of their news from current, non-improved Facebook, compared to the relevant alternatives for most people.

Now if you are going to compare Facebook to me and Alex…well, then you need to side with us.  So there is still a case for spending less time on Facebook.  That is, unless you’re going to share our content there.

like-and-share

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Does Trump spell climate doom?

by on November 15, 2016 at 2:38 pm in Current Affairs, Law, Political Science, Uncategorized | Permalink

The Niskanen Center says no, Vox says yes.  Bailey and Bookbinder at Niskanen:

…while the Clean Power Plan is a dead letter for reasons explained below, every other such executive action will be litigated and delayed. The environmental NGOs’ law departments are getting back into their 2003-2006 mode even as we write this. Not only were the great majority of similar Bush agency actions overturned by the courts, but the current makeup of both the D.C. Circuit and the other federal appellate courts are significantly more favorable to environmental litigants than they were a decade ago.

…getting rid of the CPP is not going to have much of an effect on steadily-declining power sector emissions. As EPA has indicated, the CPP would have little real impact on emission paths in the early years, as low gas prices and state renewable mandates have done most of the work already. There is no sign either will change soon and technology (e.g. LED streetlights) is driving electricity demand reductions in ways that will probably continue.

Trump’s reputed interest in freeing-up permitting of energy infrastructure (e.g., gas pipelines and drilling on public lands, if indeed it can be achieved) may have the paradoxical effect of further reducing emissions. It could make it easier to get currently very cheap Marcellus / Utica gas into the center of the country and perhaps even increase overall natural gas output. This can have only one outcome; reduced national gas prices overall and less coal consumption.

Roberts and Plumer at Vox:

You can see a partial list of past House Republican bills here. In 2013, they proposed cutting EPA funding by fully one-third. GOP committees churned out bill after bill to cut research funding for renewable energy by 50 percent, block rules on coal pollution, block rules on oil spills, block rules on pesticide spraying, accelerate oil and gas drilling permits on public land, prohibit funding for creation or expansion of wildlife refuges, cut funding for the Advanced Technology Vehicle Manufacturing Loan Program, and … well, there are 61 items on the list.

The Senate GOP isn’t far behind: In 2015, they floated a bill to cut the EPA’s budget by 9 percent and block rules on everything from ground-level ozone pollution to climate change. There may be a few more moderate GOP senators who think global warming is a problem, like Susan Collins (R-ME). But they do not dominate the caucus: Fossil-fuel enthusiasts like Mitch McConnell and James Inhofe do.

There’s no indication that Trump will buck his party on these issues.

Overall I am more persuaded by the Niskanen analysis, but both pieces are worth reading.  Here is my earlier post on the same issues.

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Assorted Tuesday links

by on November 15, 2016 at 12:58 pm in Uncategorized | Permalink

1. Could TPP survive without the United States?

2. Dan Ariely has a new book coming out, Payoff.

3. Michael Lewis on Tversky and Kahneman.  Recommended, plenty of new information in the piece.

4. Fed chair rumors for 2018 (speculative).

5. Sam Tanenhaus on Dylan, including Springsteen vs. Dylan, a good piece on a topic with much chaff these days.

6. Nate Silver: “The Electoral College serves to constrain financial & ground game advantages, because you encounter diminishing returns in the swing states.”

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Making America Great Again–Term Limits

by on November 15, 2016 at 7:25 am in Economics, Political Science | Permalink

President-elect Trump wants to impose term limits on Congress–that would take a highly unlikely constitutional amendment but highly unlikely things do happen occasionally. Even if not imposed, the renewed demand for term limits provides further evidence for the conflict theory of term limits (and here).

Imagine that there are two rival coalitions in a region and that each fears the other will gain and hold on to power for an extended period of time. This fear can be motivated by two factors. First, the longer a coalition expects to be in power the more likely it is to exploit another coalition. Or, to put the issue the other way, the greater the expected rotation of power the less likely the presently ruling coalition is to exploit other coalitions. Until May of 1994 South African blacks had little legal political power. Nevertheless, as the prospect of future black political power increased the South African government became constrained in its actions towards South African blacks. The prospect of black power in the future moderated white power today. Second, if coalitions are risk averse they will prefer to rotate power with rival coalitions, and in this way share the spoils of governing rather than gamble upon winning or losing all political power for a lengthy period of time. Term limits are one method of increasing the rotation of political power.

When a politician’s term is over the election for the open seat is more competitive than it would be if an incumbent were running. By increasing the number of open-seat elections term limits increase the rotation of power….The probability of a rotation of power is five times more likely in the House and nearly three times more likely in the Senate in an open election than in an election with an incumbent. Thus, incumbency advantage has an enormous impact on party rotation. Term limits, in fact, were historically referred to as the “rotary system” or the principle of “rotation in office” (Benton 1854, Petracca 1992). From this perspective the benefit of term limits is not the termination or limitation of current politicians but rather the expectation that new politicians will rotate into power. The conflict theory does not connect support for term limits with dissatisfaction with current politicians and, in the conflict theory, voting against current politicians is not a substitute for term limits.

…The conflict theory implies that the more political conflict there is in a region the greater the demand for term limits.

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Making American Great Again–The FDA

by on November 15, 2016 at 7:19 am in Economics, Law, Medicine | Permalink

Does Donald Trump want to streamline the FDA and speed new drugs to patients? The Washington Post thinks that it can read the tea leaves:

A single sentence in President-elect Donald Trump’s health-care platform sends a strong hint to the drug and medical device industry that they may have an easier time getting their products on the market under his administration.

“Reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products,” his health plan states.

On the face of it, the bullet point may seem almost bland, but efforts to integrate patients’ preferences and encourage innovation often result in proposals aimed at speeding up the process for getting new medicines on the market by easing regulations. Critics argue that such efforts can erode standards that are in place to protect patients from drugs that don’t work and might even be harmful.

“The language … is industry code for deregulation and reducing of safety standards,” said Robert Weissman, president of Public Citizen, a consumer watchdog.

There is plenty of evidence that the FDA is too slow (see, for example, here, here, here and here) so I would support such a move. Senators Cruz and Lee proposed a reciprocity bill last term under which drugs approved in other developed countries would quickly be approved here; perhaps such a bill could find renewed interest in a Trump administration (Economists also support the idea of reciprocity.)

On the other hand, Trump has expressed support for Medicare being allowed to negotiate drug prices which is tantamount to price controls given the size of Medicare and that is potentially a disaster. Price controls could significantly reduce research and development in the pharmaceutical industry and end up greatly adding to the invisible graveyard. Trump’s advisers would seem to lean towards streamlining the FDA process rather than imposing price controls but it’s difficult to be certain.

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What should I ask Jhumpa Lahiri?

by on November 15, 2016 at 1:49 am in Books, Philosophy | Permalink

I will be interviewing her in a Conversations with Tyler, December 5th.  What should I ask her?  This will be a public event at 6 p.m., Arlington campus of GMU.

By the way, she has a new book out tomorrow, The Clothing of Books.

clothingofbooks

Please leave your questions in the comments, I thank you in advance for your suggestions.

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Trump probably won’t much reverse the current clean energy policies

by on November 15, 2016 at 12:51 am in Current Affairs, Economics, Political Science | Permalink

The reality is that clean energy has been booming in the United States for a whole bunch of reasons that don’t have much to do with climate change. Things such as health, security and innovation, which lead to high levels of support amongst Republicans – yes, Republicans – for harnessing the power of American water, wind and sun.

Those federal tax credits for wind and solar? They were passed last December by a Republican Congress with bipartisan support. Revoking them would require a legislative effort that may not be looked upon kindly by the many Republican lawmakers who have renewable energy manufacturing and development in their states. Lawmakers like Senator Chuck Grassley, an Iowa Republican, who said this summer: “If he wants to do away with it, he’ll have to get a bill through Congress, and he’ll do it over my dead body.” He won’t be the only one: looking across the country – and the electoral map – the top-10 wind-energy producing congressional districts are represented by Republicans.

Besides, much of the renewable energy boom has been driven by state policy. You might recall that back when he was governor of Texas, George W. Bush passed legislation requiring utilities to buy renewable energy.

It led to a building boom that has made the state the largest producer of wind power in the United States. Iowa, South Dakota, Kansas, Oklahoma and North Dakota lead the United States in the proportion of electricity generated by wind, and all are led by Republican governors. Ditto North Carolina, which trails only California in the development of new solar projects.

Up in New Hampshire, which also went for Mr. Trump, the newly elected Republican governor won on a platform that included support for the Northern Pass transmission line, which would move clean hydroelectricity from Quebec into New Hampshire and the New England power grid.

…Down in Florida, as Floridians delivered their support to Trump, they also voted to maintain unlimited opportunities for the expansion of rooftop solar. There are hundreds of state-level policies in red states and blue states that aren’t going to disappear, and they are driving significant investment in clean energy.

Just last year, the United States saw $56-billion (U.S.) in clean-energy investment, second only to China. That kind of investment creates a lot of jobs: Almost 210,000 Americans are now employed in the solar industry, double the 2010 figures. This represents more people than those employed in oil and gas extraction. The U.S. Bureau of Labor notes that wind turbine technician is the fastest-growing occupation in the country. Would Mr. Trump put these good jobs in jeopardy? Doubtful.

Looking at dollars and cents – and customers’ wallets – it’s also worth highlighting that the unsubsidized cost of wind and solar just keeps falling, down 61 per cent and 82 per cent respectively, between 2009 and 2015.

I’m not arguing those policies are good, bad, or “not nearly enough.”  The main point is simply that most of them are unlikely to change.

That is from The Globe and Mail, much more at the link, via Dina Pomeranz.

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