Blogwatch: October 2022
Econ degrees, riveters, Luddites, pig-wrestling; and life & death among the Econ
Great returns to an economics degree
On the AEA website, Tyler Smith interviews Zachary Bleemer on a subject dear to all our hearts, the returns to an economics degree. The interview revolved around
a paper in the American Economic Journal: Applied Economics, [in which] authors Zachary Bleemer and Aashish Mehta identify the causal effects of choosing one major over another by analyzing the outcomes of a policy at the University of California, Santa Cruz, that prevented students with low grades in introductory economics courses from declaring an economics major. They found that studying economics boosted annual early-career wages by [US]$22,000 compared to students' second-choice majors—a return roughly as large as enrolling in college in the first place.
Are returns of a similar magnitude available to economics students in New Zealand? I wonder…
Tyler Smith also looks at work by Steve Cicala, who studied an extended period of market-based reforms to determine how they affected electricity generation in over half of the United States.
In his paper in the American Economic Review, Cicala says that the market reforms resulted in significant cost reductions and efficiency improvements. The findings highlight the benefits of using market designs to improve the efficiency of public utilities.
The fate of Rosie the Riveter
George Selgin has yet three more posts in his long-run series The New Deal and Recovery at the Alt-M blog. In the first, The Phantom Depression, he writes:
As the Second World War drew to a close, the nation's leading economists feared that, once the armed services demobilized, at least 8 million men and women, perhaps many more, would be unemployed.
But that didn’t happen. Why? In Coda: The Fate of Rosie the Riveter Selgin notes:
And yet, despite all these indisputable truths, the discouraged women workers story, understood to mean that millions of women left the labor force involuntarily as the armed services demobilized, doesn't bear scrutiny.
Selgin’s third post examines the Happy days of the late 40s and 50s. Just when the Great Depression ended is hard to say, but by 1948 few doubted that they'd seen the last of it.
Also at Alt-M, Larry White asks How Common Has Private Currency Been? His answer: a lot more common than you might think.
Post-Covid inflation
Inflation rates in many countries, including New Zealand, are higher than they have been for many years. Inflation in the UK and USA is now at its highest levels in over 30 years. At VoxEU.org, Lena Anayi, Nicholas Bloom, Philip Bunn, Paul Mizen, Gregory Thwaites and Ivan Yotzov look at Firming up Inflation. They used firm-level data from the Decision Maker Panel to study inflation dynamics in the UK, looking, in particular, at the period since the beginning of the Covid-19 pandemic.
They report an asymmetric effect of the pandemic on inflation: positive demand shocks increased prices at the firm level by more than negative demand shocks lowered them. In addition to the rise in price growth, the dispersion and (positive) skewness of prices as well as within-firm price uncertainty have all increased sharply since the beginning of 2021.
A steam-powered rebuke to the Luddites
When one thinks back to the Luddites, it’s clear that fears about the effects of mechanisation on societies are nothing new. But are such fears justified? Leonardo Ridolfi, Carla Salvo and Jacob Weisdorf at VoxEU.org consider The impact of mechanisation on wages and employment: Evidence from the diffusion of steam power. Their column looked at the rise and spread of steam power in 19th century France in an effort to examine the influence of mechanisation on labour outcomes.
Rather than cutting jobs and wages, the authors found that the industries that adopted steam power ended up employing up to 94% more workers than their non-steam-adopting counterparts and paid wages that were up to 5% higher on average. So we can all put our inner-Luddites aside, and sleep a little easier tonight.
Biased methods — or just unpalatable answers?
Timothy Taylor writes on Robert Solow: Is Economics Disqualified by Ideological Bias? at the Conversable Economist.
Every economist is familiar with the complaint that too many of the results of economic studies are decided in advance by free-market ideology. For those familiar with actual academic economists, rather than cardboard cutouts, the complaint that they are exclusively committed to free markets will be risible. Moreover, a number of those who complain about what they perceive as the ideological bias of economics are actually complaining not about the existence of bias, but rather than they would prefer a different kind of bias.
Taylor notes that Robert Solow gave a more sophisticated answer to concerns over value-free social science and ideological bias in a 1970 essay Science and ideology in economics. Solow noted that a sympathetic description of the critics of economics and the other social sciences is that
if the ethos of objective science has led us to where we are, things can hardly be worse if we give it up. A more impatient version might be: what good is research to someone who already knows? The critics, whether from the New Left or elsewhere, do not criticize on the basis of some new discovery of their own, but on the basis that there is nothing worth discovering—or rather that anything that is discovered is likely to interfere with their own prescriptions for the good society.
Never wrestle with a pig
Mike Makowski has a paper with Patrick Warren on ’Firearms and Lynching’ coming out in the Journal of Law and Economics. The paper’s main result is
greater access to firearms in the Black community reduced the rate of lynching in the Jim Crow South. In a context where you are excluded from the institutions of governance and public safety, where terrorism against you is condoned, the tools of self-defense matter.
Makowski discovered that the paper had been covered in the Wall Street Journal. At the Economist Writing Every Day blog he writes about Firearms, research, and controlling the narrative. Parts of his experience of media attention were not fun.
The key to surviving this process is accepting that a scholar, even those of tremendous standing inside and outside of the academy, has little to no control over the narrative that emerges around their work. Holding strong preferences over the surrounding narrative is folly varying only in consequences. You can try to fight the narrative, which typically results in the world either ignoring you or, worse, joyfully inviting you to wrestle in the mud. [Good rule of political discourse: never wrestle with a pig. You can’t win, you end up covered in mud, and the pig loves it.] Some scholars, though not as many as the more skeptical fear, prefer to shape the research to serve a narrative from the outset. This, of course, is no longer research, it’s advocacy masquerading as science. Don’t do this. And lastly, some create great research, only to apologetically bear the burden of the unintended narrative that emerges around their work. If you recognize yourself in this description, my only advice is a) don’t apologize and b) go easy on the sauce.
Life and death among the Econ
Roger Farmer writes at VoxEU.org an obituary of Axel Leijonhufvud — the author of Life Among the Econ, one of the greatest papers ever written on the economics profession. If you have not read that paper, stop reading now and go and do so. And if you have, now’s a good time to read it again.
Farmer discusses Leijonhufvud’s work on Keynes and Keynesian economics; on agent-based modelling; his insistence that good macroeconomists need to understand the past before they can understand the present or the future; his view that modern macroeconomics is a degenerative research programme that took a wrong turn in the 1950s; and his many contributions to policy discussions on during the Global Financial Crisis and the ensuing Great Recession.
By Paul Walker
