Marginal Revolution

Should the IMF behave like a Sovereign Wealth Fund?

Stephen Jen says yes, here is one media story on his new paper:

With many of its members having already repaid their debts, the IMF's annual income from interest repayments has slumped to new lows recently, forcing it to make major cutbacks. New managing director Dominique Strauss-Kahn has announced a 15pc cut in staff levels and an overhaul of its non-core activities.

Mr Jen said such drastic cutbacks were unwise, since the IMF's role as a monitor of the world economy could be compromised.

"Retrenching now is tantamount to downsizing a fire department when there is a low incidence of fire," he said, adding that the Fund should sell some of its gold to reinvest in instruments with a reliable income. The Fund owns 103.4m ounces of gold, worth around $92bn (£47bn) at current prices - up from just $23bn five years ago. But while the cache of metal has appreciated in value, it does not bring in a regular flow of cash.

"The IMF has a great deal of scope to enhance its investment returns without exposing itself to undue market risk," said Mr Jen.

The result could be the creation of a supra-national fund worth as much as $100bn. Mr Jen predicted that it could be worth $130bn in 10 years' time. This would be of a size similar to Russia and Singapore's funds.

Here is a previous post on the IMF's funding problems.  Here is a previous post on whether we should abolish the IMF.  Jen's idea may not appeal to many people; the question is whether you can come up with something better.

My favorite things Spain, literature

Again lots of peaks but lots of patches too; the distribution is uneven.  Here are a few offhand remarks:

1. Cervantes: Book two of Don Quixote is much better than book one, just in case you never got that far.  The Trials of Persiles and Sigismuda is a nice try but ultimately it fails at being the undiscovered classic.

2. Calderon: Life is a Dream.  The piece of Spanish literature you are most likely not to have read that you should read.  Every smart, well-educated person should know this book.

3. Lope de Vega: If not for the commies he wouldn't be nearly so well-known.  He is still a good dramatist, though.

4. El Cid: More readable than you might think, and it makes you realize how close they came to being an Arabic society.

5. Miguel de Unamuno: I have some sympathies for him, but if someone tried to write this stuff today, could it even get published?  You could say the same about Jose Ortega y Gasset.  Some people say the two are polar opposites, but who outside of Spain really cares?

6. Federico Garcia Lorca: It might be wonderful on stage but I find it unreadable.

7. Javier Cercas: Soldiers of Salamis.  One of the best novels on wartime guilt, collective memory, and the ambiguous role of the author in a narrative.  Recommended, if you are willing to give it a suitably careful read.

8. Pérez-Reverte: It's fun stuff, but I don't know if it will draw attention twenty years from now.  Same with Shadow of the Wind.  If anything it is symbolic of the Americanization of European literature and I don't mean that in a favorable way.

9. Albert Sanchez Piñol: I loved Cold Skin, originally written in Catalan.  His book on the Congo awaits me.

10. Javier Marias is good, especially A Heart so White. 

The bottom line: Call me provincial, but I see 1660-1980 as a slow patch, at least for a country of Spain's historic stature. 

Maybe some will call for counting Orwell, Hemingway, and others inspired by Spain.  Will you argue for Pio Baroja?  Or perhaps The Family of Pascal Duarte?  In any case literary culture is strong here and I see the future as bright.  By the way, I'm always looking for recommendations in Spanish contemporary literature.  Is Julian Rios worth reading?

Payday loans

This afternoon, let's just do "Control-C" from Craig Newmark:

Paige Skiba (Vanderbilt Law School) and Jeremy Tobacman (Oxford), "The Profitability of Payday Loans":

Payday loans provide households with expensive, short-term liquidity. This paper studies the profitability of payday lending using standard financial data from CRSP and SEC filings and loan-level data from a payday lender. Despite charging e¤ective annualized rates of many percent, we find lenders' firm-level returns differ little from typical financial returns. The data are consistent with an interpretation that payday lenders face high per-loan and per-store fixed costs in a competitive market.

I'd bet a similar analysis applies to the rent-to-own industry.

Library of Lost Dreams

Dutch, a kind of archaelogist of recent America, takes us through the abandoned Detroit School Book Depository.

This is a building where our deeply-troubled public school system once stored its supplies, and then one day apparently walked away from it all, allowing everything to go to waste. The interior has been ravaged by fires and the supplies that haven't burned have been subjected to 20 years of Michigan weather. To walk around this building transcends the sort of typical ruin-fetishism and "sadness" some get from a beautiful abandoned building. This city's school district is so impoverished that students are not allowed to take their textbooks home to do homework, and many of its administrators are so corrupt that every few months the newspapers have a field day with their scandals, sweetheart-deals, and expensive trips made at the expense of a population of children who can no longer rely on a public education to help lift them from the cycle of violence and poverty that has made Detroit the most dangerous city in America. To walk through this ruin, more than any other, I think, is to obliquely experience the real tragedy of this city; not some sentimental tragedy of brick and plaster, but one of people.

Pallet after pallet of mid-1980s Houghton-Mifflin textbooks, still unwrapped in their original packaging, seem more telling of our failures than any vacant edifice. The floor is littered with flash cards, workbooks, art paper, pencils, scissors, maps, deflated footballs and frozen tennis balls, reel-to-reel tapes. Almost anything you can think of used in the education of a child during the 1980s is there, much of it charred or rotted beyond recognition. Mushrooms thrive in the damp ashes of workbooks. Ailanthus altissima, the "ghetto palm" grows in a soil made by thousands of books that have burned, and in the pulp of rotted English Textbooks. Everything of any real value has been looted. All that's left is an overwhelming sense of knowledge unlearned and untapped potential.

More pictures here.

Naughty tourism

I could use a more explicit three-letter word in the post title but I fear the software censors employed by our federal government will again block this web site from its bureaucratic readers.  On this topic, I was quite taken by this passage:

"Ingrid," I commented, "If you really think she [the Haitian woman who was propositioned for money] needs a choice then I suggest you give her one.  Why don't you offer to pay her thirty dollars not to come to my hotel room, but to go back to her son and cigarette stand?"

That is from Naked in Haiti: A...Morality Tale About Tourists, Prostitutes and Politicians, by Dan King.  This book has received very little notice but it's a more interesting look at human commodification than anything you'll find coming out of Harvard or Princeton.  I can only say that the author really seems to know what he is talking about, if you get my drift.  This work would not have been approved at university institutional review boards.  It's also one of the best books on "life on the ground" in Haiti, at least provided you can tolerate the author's numerous salacious yet nonetheless totally anti-erotic descriptions of his activities.

The author goes to Haiti, of course, not for the art, but because he wants to buy from women who are not (otherwise) "selling."  Of course that means that the level of poverty is quite desperate, as in Cuba, where the same phenomenon is common.  And often the women sell to benefit their children or parents, not themselves; surely some percentage of them are disgusted by what they end up doing.

If you're wondering about my point of view on the whole question, I am sufficiently Paretian that I don't find the exchange aspect of the relationship, or the passing of money, objectionable per se.  (Assuming, of course, that neither age nor coercion is a concern, and often both are.)  But it is still better, on the buying side, not to do it.  Once you are aware of the kind of human stories behind the other side of the market, I would think it is hard to maintain an unflagging interest in the proceedings at hand.  Nor do I think it would improve what happens in your life next.  Yes the transaction does benefit the seller in many cases, but apply the Modigliani-Miller theorem and rebundle your action into a different blend of charity and erotic self-satisfaction, all toward The Greater Good.

Or so I think.  If you offer your thoughts, please be polite in your rhetoric.

I thank an anonymous MR reader for the pointer to the book.

If the Beatles had sung Stairway to Heaven

It's late and I'm very tired out here in Barcelona.  Here's to silliness.  The pointer is from the ever-excellent Michael Blowhard.

What's new and exciting in economics?

David Leonhardt reports a clear winner:

I received dozens of diverse responses, but there was still a runaway winner. The small group of economists who work at the Jameel Poverty Action Lab at M.I.T., led by Esther Duflo and Abhijit Banerjee, were mentioned far more often than anyone else.

Ms. Duflo, Mr. Banerjee and their colleagues have a simple, if radical, goal. They want to overhaul development aid so that more of it is spent on programs that actually make a difference. And they are trying to do so in a way that skirts the long-running ideological debate between aid groups and their critics.

A simple idea for fighting global warming

Repeal the [should have read: "Institute an"] antitrust exemption for the airlines and approval all of their mergers, no matter what.

Higher P, lower Q.  And maybe some groups outside the traditional green coalition would support such a change.

By no means a full solution, but maybe better than doing nothing.

*Crunch*, by Jared Bernstein

The book is the latest attempt to write a populist, Progressive economics tract.

There is a chapter called "Why do economists seem to fear inflation?  And why do prices always go up, never down?"

Imagine trying to answer those questions without ever writing the two words: "money supply."  Yes, there is talk of the Fed changing interest rates to affect the price level.  But in an odd converse to the famous joke about Milton Friedman, Bernstein just can't bring himself to utter the "M word."  At first I thought it was a semantic oversight but when I came to the passage describing "the wage-price spiral" as "economists' biggest inflationary nightmare" I realized I was wrong.

The chapter on the Fed does mention the money supply but in the context of describing the views of others and even then only in passing.

Yes I know that the broader monetary aggregates are endogenous and yes I know that it is somewhat of a mystery, in theoretical terms, exactly why open market operations are effective.  It is fine to acknowledge those complexities.  But still, it is no answer to give your readers Hamlet without the Prince or even any mention of his absence.

I would like to see Jared Bernstein called up on The Colbert Show and asked to do nothing but utter those two little words: "money supply."

How high is the U.S. poverty rate?

Here is some wisdom, from the non-libertarian, non-right-wing,  never-asked-to-contribute-to-the-WSJ-Op-Ed-page Lane Kenworthy:

Poverty comparisons across affluent nations typically use a “relative” measure of poverty. For each country the poverty line — the amount of income below which a household is defined as poor — is set at 50% (sometimes 60%) of that country’s median income. In a country with a high median, such as the United States, the poverty line thus will be comparatively high, making a high poverty rate more likely...

Using a relative measure, the U.S. poverty rate is higher than Romania’s and only slightly lower than Mexico’s (see here). Similarly, Mississippi’s relative poverty rate is the same as Connecticut’s.

So when you hear that the U.S. poverty rate is about 20 percent, keep this in mind.  Here is more, including links to research.  Here is a response from Paul Krugman.  Note that Krugman's initial Op-Ed stresses how the measured rate has not fallen over (some periods of) time, but his response simply cites a ranking of the U.S. among other wealthy nations, based on an absolute poverty rate.  Have the time series comparisons been jettisoned or should we stand by them?

Here is more useful information.  It's also worth noting that poverty rate numbers do not take into account food stamps, housing subsidies, the Earned Income Tax Credit, and Medicaid, among other benefits.  Not to mention black market income and underreported income (often for EITC reasons); yes it is worth referring back to consumption data which show that the poor do quite a bit better than income data alone would indicate.  That said, a very good case can be made that we overinvest in fighting the poverty of the elderly and underinvest in fighting the poverty of children.

The bottom line: Be very suspicious when you hear talk about the poverty rate.  The real question, as stressed by James Heckman, is what rate of return we can hope to achieve from feasible interventions in favor of poor, young children.  That's a much harder question to argue.  Heckman of course finds a high rate of return, so I suspect the key question centers around what is "feasible" given the imperfections of politics.  It's worth noting that many federal anti-poverty programs have in fact failed, or so changed that we don't even call them anti-poverty programs any more.  At the end of the day that calls for "better action" rather than inaction, but softening people up with overly pessimistic and uncritically presented numbers will probably make a good program less rather than more likely. 

Cherrypicking health care anecdotes

Yikes.  I know there is much more to the policy question than this story, but it is worth keeping in mind:

One such case was Debbie Hirst’s. Her breast cancer had metastasized, and the health service would not provide her with Avastin, a drug that is widely used in the United States and Europe to keep such cancers at bay. So, with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment.

By December, she had raised $20,000 and was preparing to sell her house to raise more. But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor. “He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,’ ” Mrs. Hirst said in an interview...

Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.

Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.

And that is The New York Times.  Is Atlas Shrugging?

Addendum: More discussion here.

How honeytrappers work

Here are the rules, at least for the high-class guys:

...Martinez has "rules of engagement": The target must not be drunk, there must be no touching, and the relative attractiveness of the trapper to the target must be equal.

"It's got to be a fair test," he explains. "So we make sure that we don't set a very attractive honey trapper on a not so attractive target, and vice versa."

"The customer needs a fair answer to the question of whether their husband or girlfriend is loyal."

So those who fail an "unfair" test count as loyal?  But since eighty percent of all those approached fail, maybe the point is simply to drive home the decisive nature of the infidelity.  A related question is whether the customer (usually the spouse) wants the target to pass or fail the test.  Furthermore what does the customer want to think about the customer's own motives?  Here is the full story, and thanks to Jeffrey Ely for the pointer.

Getting oneself in hot water

I am surprised by all the opposition to my argument for not burning the unpublished Nabokov manuscript.  I say this: we limit all sorts of destructive transactions for the living, so why not every now and then a limitation upon the wishes of the dead?  I was not staking out the extreme (but possibly true) position that the wishes of the dead should count for nothing.

I might add that the status quo is permitting the Nabokov manuscript to be published and that civil society has not collapsed.  Nor are people panicking that their gravestones will be overturned three years hence and sold to finance the expansion of the EITC.

In any case I propose a thought experiment.  If you disagree with me, you should never have read Kafka or Virgil, nor should you set foot in the British Museum, go to an ancient Egyptian art exhibit, or for that matter visit any ethnographic museum.  Lots of that stuff was taken from graves.  They probably didn't want "the public" to look at it and yes that includes you.  How many of the nay-sayers will pledge they have behaved this way or even that they are much bothered they didn't? 

Nor are you allowed to hear Doors tribute bands, remixed or recombined Beatle vocals (would John have approved?) and who knows about late Schubert or Mahler's 10th?  Better safe than sorry and that goes for unapproved translations and editions as well, or how about any religious compendium that refers to the Hebrew Bible as "The Old Testament"?  Don't even pick it up.  I do in fact regard Sussmayr's completion of Mozart's Requiem as an aesthetic crime but not a moral one; it is better to hear the work unfinished.  The really sad thing is how many people like the revised version.

My favorite things Spain, music

I need to do this country in pieces, starting with music:

Classical guitarist: Segovia, starting with his recordings of Bach.  It's not just amazing technique, these are some of the best musical interpretations of Bach by anyone playing any instrument.  They are what I call lifetime choices for one's collection.

Spanish pianist, playing Spanish music: Alicia de Larrocha is the obvious choice.  Her Albeniz and Granados recordings remain unsurpassed. 

Composer: Varese sounds much better live than on disc.  I've seen Amèriques twice and both were experiences to remember; here is a bit on YouTube.  Chailly and Boulez understand the music very well but the sounds and textures and rhythms simply don't all come through if you're not there.  (Addendum: Whoops!  Varese was born in France.)  The number two pick is tough but Rodrigo is underrated by many serious listeners, in part because of his exposure through classical pops.  Try his solo guitar pieces and throughout keep him in mind as a precursor of ambient music.  Tomás Luis de Victoria is an underrated Spanish Renaissance composer.

Cellist: It's hard not to pick Pablo Casals, who had extraordinary depth in his phrasing.  I still feel duty bound to point out that most of his recordings are unlistenable, if only because of the scratching.  The Bach is of historic importance but for actual pleasure his Schubert is your best bet.  Most of all the recording of the String Quintet.

Album about: Miles Davis, Sketches of Spain.  One of my three or four favorite Miles CDs, so an easy pick.  Admittedly the move toward an "acoustic-electric" sound does not appeal to all jazz fans, so this album remains underappreciated.

Opera singer: Lots of riches.  Placido Domingo is a good pick though you could argue for many other names as well.

Popular music:  Help!

Flamenco: I love it in small clubs but not on disc or even in mid-sized university music halls. 

The bottom line: There are plenty of peaks but overall I am struck by the unbalanced nature of the distribution.

Many people embarrass themselves over Fidel Castro

Here is one menagerie, with Brad DeLong parrying ably.  A simple checklist would start with the question of whether an apologist has visited both the Dominican Republic and Cuba.  And a non-communist Cuba could have done much better than the DR.  It is a fascinating place for visitors, but right now the quality of life in Cuba isn't close to that of the DR or for that matter Honduras, the second-biggest Latino mess in the hemisphere.  While we're at it, let's not forget northern Mexico or even central Mexico.  It's time to stop apologizing for communist dictatorships; are you really so taken with the idea of confiscating property as to overlook decades of tyranny, impoverishment, and human misery?  Yes I am familiar with the UN social indicators; I say you need to visit each of these countries, preferably speaking Spanish, and then report back to me.

Who said England doesn't have serious deposit insurance?

The evidence is here.

Assorted links

1. Talking travel with Tyler Cowen

2. Good review of Dan Ariely and also Thaler and Sunstein's Nudge

3. Quotation of the day

Why no Industrial Revolution in China?

John Darwin gives it a shot:

The best answer we have is that it [Kiangnan and China] could not surmount the classic constraints of pre-industrial growth.  By the late eighteenth century it faced steeply rising costs for food, fuel and raw materials.  Increasing population and expanding output competed for the produce of a more or less fixed land area.  The demand for food throttled the increase in raw cotton production.  Raw cotton prices probably doubled in the Yangtze delta between 1750 and 1800.  The demand for fuel (in the form of wood) brought deforestation and a degraded environment.  The escape route from this trap existed in theory.  Kiangman should have drawn its supplies from further away.  It should have cut the costs of production by mechanization, enlarging its market and thus its source of supply.  It should have turned to coal to meet the need for fuel.  In practice there was little chance for change along such lines.  It faced competition from many inland centres where food and raw materials were cheaper, and which could also exploit China's well-developed system of waterway transport.  The very perfection of China's commercial economy allowed new producers to enter the market with comparative ease at the same technological level.  Under these conditions, mechanization -- even if technologically practical -- might have been stymied at birth.  And, though China had coal, it was far from Kiangnan and could not be transported there cheaply.  Thus, for China as a whole, both the incentive and the means to take the industrial "high road" were meagre or absent.

In other words, who really knows?  The excerpt is from Darwin's new book After Tamerlane: The Global History of Empire Since 1405, which should be read by anyone...who...reads books with titles like that.  It is most interesting on the Indian and Arabic collapse of the 18th century and on fitting the Russian conquest of Central Asia into the more general history of European imperialism.  I didn't find any revelations in the book, but it was consistently interesting and readable throughout.

A simple ethical conundrum

A few days ago I was in a London taxicab when I noticed a possibly expensive purse in the seat next to me.  I climbed out of the cab and without much thought (shame on me) gave it to the driver.  I explained someone had left it there.  Of course I was intent on treating the driver like a decent human being.  But wait, I know I am honest and maybe he isn't.  But wait, maybe I couldn't have gotten the purse to the woman very easily.  But wait, I could have posted notice on this blog and had you help me track her down.  But wait, isn't it my obligation to simply leave the woman no worse off than she was in the first place?  But wait, what is the default point for defining "in the first place"?  But wait, what would the driver have thought if he saw me taking the purse out of his cab?  But wait, isn't a purse really really important?  But wait, what if the purse belonged to the driver?

What I really think of the new popular economics books

I recently published an article in the Swiss arts magazine Du on the wave of popular economics books.  Yes I am an economist but I am also interested in the implicit philosophies and theologies of these books.  My piece is in German and not on-line but here are a few bits from it.

About Freakonomics I wrote:

The implicit theology of Freakonomics is that of original sin. The book is full of stories of liars: “people lie, data don’t” can be taken as the book’s motto...

Levitt and Dubner seek to puncture naïve optimism. It is the reader who needs reforming, and the proposal is to drive naivete out of our systems. We must recognize original sin (recall the bite into the apple on the book’s cover), give up on utopian dreams, and stick to what can be proven by science. That means an acceptance of ongoing human depravity, but Freakonomics goes further. It preemptively protects us against encountering that depravity and lying in our own lives. We have been warned, and we need no longer fear disappointment from our encounters with the real world.

It should come as no surprise that Dubner – the one who actually wrote the book – also penned an entire book about his personal theology. Dubner is ethnically Jewish but his parents had converted to Catholicism and raised him as a Catholic. Over the course of his life he rediscovered his Jewish heritage and religion and chronicled that process in his fascinating Choosing My Religion: A Memoir of a Family Beyond Belief. It is theology, Dubner’s main obsession, which gave him the background to write a popular economics book that touched so many Americans.

And how about Tim Harford?

Harford’s voice is always gentle, sometimes cynical, and usually whimsical and reassuring in his language. He points to the ironies of life. He is hardly one to deny that people lie, but such peccadilloes are a sideshow rather than the center of his moral universe. We still can make our way in the world and carve out a small piece of personal happiness and perhaps a small bit of virtue as well. Harford often reminds us that hedonism has its place in human affairs; his latest book opens with a discussion of the prospect of “a rational [you-know-what].”

In other words, Harford serves up British secularism rather than American original sin. Harford’s “Dear Economist” column...views human foibles as inevitable yet endearing; in Harford’s world no judgment is ever too harsh or too one-sided.

As an economist, Harford seems more interested in “invisible hand mechanisms” than are Dubner and Levitt. Freakonomics informs us that what appears to be ordinary is in fact full of corruption. Harford’s Undercover Economist is keener to show that the apparently corrupt can, at the macro level, lead to entirely acceptable and indeed sometimes humane results.

There is much more, here is one final bit:

Popular economics books reveal their true colors most clearly when they talk about sex. In Freakonomics sex is not holy but rather sex and reproduction lead to the birth of criminals...For Harford sex is a slightly naughty pleasure, and a pleasure to be mocked, but at least it is a real pleasure; this American reviewer again cannot help seeing the British tinge of his work.

Northern Rock has been nationalized

The media here seem more shocked than I am.  But imagine -- a country dedicated to liberal economics (more or less) nationalizes one of the largest firms in its most vibrant economic sector.  Martin Wolf has a good piece on the event.  The real question is whether the UK (and other countries) will feel compelled to move to a system of regularized depositor liquidity rights and larger deposit insurance guarantees.  Right now British depositors receive a lower guarantee, both de jure and de facto, and can wait for months for access to their funds from a failed bank; read more here.  For all its drawbacks and screwy incentives, arguably the biggest advantage to deposit insurance is simply that it makes bank nationalizations unlikely.  Simply letting the bank fail is not always a credible alternative, because of contagion effects, bank runs, and the simple workings of democracy.  The bank did face an offer from Richard Branson but it seems that the numbers did not add up and the government would have been left holding the bag anyway.  Felix Salmon adds commentary.

Book Forum: Harford and Kevin Grier on Cities

Kevin Grier at Kids Prefer Cheese continues our book forum on the Logic of Life with a discussion of The World is Spiky.

Here is my summary of Tim’s argument. Cities are expensive, and that expense is above and beyond paying the necessary rents to gain access to their unique amenities. Cities are marked by knowledge spillovers, a positive externality (don’t get mad Bryan) where human capital grows faster when one is around more humans. And the internet, rather than reducing the positive effects of cities on productivity, actually enhances them. Thus, rather than subsidizing rural areas, perhaps we should consider subsidizing cities.

Luckily for Tim and his prospective book sales, he tells this story in a much more entertaining way than I just did. But I still have some questions, suggestions, and quibbles.

The claim is made that salary differences don’t match up with cost of living differences and the reason for this is knowledge spillovers, but it is not spelled out exactly how that would work. An alternative seems to me that zoning restrictions create these big rents and pre-existing property owners are sucking a lot of the consumer surplus out of people with high valuations on cool experiences.....

Tim discusses “failing cities” and describes (correctly I think) why people still live there, but gives no explanation for why they failed if indeed cities produce these positive externalities. There is no discussion of some of the very biggest cities in the world; Mexico City, Lagos, Jakarta. It would be nice to know where the argument works, where it doesn’t and how to know which is which...

More here.

The Power of Vouchers

Many studies of education vouchers have looked at the achievement of children who are given vouchers and who transfer to private schools.  Generally these studies have found small but meaningful improvements (e.g. here and here).  A voucher program, however, is about much more than transferring students from lousy public schools to better private schools it's about creating incentives to improve the public schools.

Florida's Opportunity Scholarship Program rated schools.  Students at schools that received an F in multiple years became eligible for a voucher that allowed them to attend a private or higher-rated public school.  In Feeling the Florida Heat? (ungated version) a paper sponsored by the Urban Institute Rouse et al. look at what happened at failing schools.

...we find that schools that received a grade of “F” in summer 2002 immediately improved the test scores of the next cohort of students, and that these test score improvements were not transitory, but rather remained in the longer term. We also find that “F”-graded schools engaged in systematically different changes in instructional policies and practices as a consequence of school accountability pressure, and that these policy changes may explain a significant share of the test score improvements (in some subject areas) associated with “F”-grade receipt.

Thus, this paper shows two things.  First, that the test scores of the students in the public schools improved when vouchers gave the schools better incentives to perform.  Second, at least some of the improvement comes from changes in how students are taught.  The author's note, for example:

...we find that schools receiving an “F” grade are more likely to focus on low-performing students, lengthen the amount of time devoted to instruction, adopt different ways to organize the day and learning environment of the students and teachers, increase resources available to teachers...

It is not true that "nothing can be done to improve the schools."  Incentives matter.

Notice that Florida's program worked even though the program was very weak.  It offered vouchers only to students in the worst schools and only after those schools received F grades in multiple years.  The vouchers were relatively small and could not be topped up.  In addition, the program lasted only a few years before it was declared unconstitutional by Florida's supreme court.

A true voucher program would be national, would not discriminate among students, would offer funding equal to that spent on students in public schools and would be permanent. Competition in such a system would be more intense and even more productive than in Florida's program.

Assorted links

1. How much economic freedom is needed for economic growth?

2. Profile of economist Ben Olken; via BookForum.com.

3. Identical twins aren't so genetically identical.

4. "Love economics"; I am not sure how serious they are.

5. The economics and psychology of personality traits.

6. Tyler Cowen on travel.

Markets in everything: Canine edition

Songs that only dogs can hear:

A Very Silent Night, recorded at a frequency only dogs can hear, was so popular among owners it hit number one at Christmas, but has been receiving mixed responses from listeners.

When they say "number one," they mean "number one in New Zealand."  Thanks to John de Palma for the pointer.

London

That's by Peter Doig, who has a big show on at the Tate.

Marginal Revolution?

A project founded by Los Angeles-based actress and writer Tamara Krinsky advocates a simple change that anyone can believe in: By altering the printing margin preference for Microsoft Word documents from the standard 1.25 inches to 0.75 inch, Americans can save a whole lot of paper -- and trees, and money.

Plus you don't have to kill your dog.

It's an Election, not a Revolution

That's the title they gave my latest NYT column.  Excerpt:

To put it simply, the public this year will probably not vote itself into a much better or even much different economic policy. To be sure, the next president — whoever he or she may be — may well extend health care coverage to more Americans. But most of the country’s economic problems won’t be solved at the voting booth. It is already too late to stop an economic downturn. Health care costs will keep rising, no matter who becomes president or which party controls Congress. China is now a bigger carbon polluter than the United States, so don’t expect a tax or cap-and-trade rules to solve global warming, even if American measures are very stringent — and they probably won’t be, because higher home heating bills are not a vote winner. A Democratic president may propose more spending on social services, but most of the federal budget is on automatic pilot. Furthermore, even if a Republican president wanted to cut back on such mandates, the bulk of them are here to stay.

Yes, the election does matter. Even small differences on economic issues affect millions of Americans. But the record of the Bush administration should prove sobering to all those who expect the American political economy to turn around in the next four years.

Many conservative and libertarian economists supported President Bush, thinking they would be getting policy drawn from the work of Milton Friedman and Martin Feldstein, two respected market-oriented economists. Instead, in economics, the Bush years have brought an increase in domestic government spending, and some poorly-thought-out privatization plans. For all the talk of an extreme right-wing revolution, government transfer programs like Social Security and Medicare have continued to grow. And despite big mistakes involving the Iraq war, Mr. Bush wasn’t punished by voters in 2004.

There is much more, and it is a more political column than I usually write.  My final conclusions:

And if you’re still worrying about how to vote, I have two pieces of advice. First, spend your time studying foreign policy, where the president has more direct power, and the choice of a candidate makes a much bigger difference. Second, stop worrying and get back to work.

And there are points I could not cover for reasons of space, such as the constraining need to provide an AMT fix, or the ability of a party to sound more intelligent when it is out of power.

Addendum: Here is coverage from Mark Thoma and commentators; do they support or contradict Mark's last sentence?  And here is commentary from John V.