Month: May 2023

When reading about controversial topics in economics (and I assume in other fields), it’s common to have the uncomfortable feeling that if you know what the authors argued in a previous paper, you will also know what they are arguing in the current paper. One interpretation of this pattern is that authors have biases that influence their results. If you think this may be a problem, one way to push back is through an “adversarial collaboration,” which means that authors who have previously found different results agree to publish a paper together–and not in some pro-and-con format of disagreements, but actually to write the paper such that they can all agree with it.

Stephen J. Ceci , Shulamit Kahn, and Wendy M. Williams rise to the challenge in “Exploring Gender Bias in Six Key Domains of Academic Science: An Adversarial Collaboration” (Psychological Science in the Public Interest, published online April 26, 2023). In this area of research, previous work by Ceci and Williams tends to find little evidence of gender bias in academia, while Kahn has published a number of studies suggesting bias in economics, in particular. Here’s a sense of their process:

This article represents more than 4.5 years of effort by its three authors. By the time readers finish it, some may assume that the authors were in agreement about the nature and prevalence of gender bias from the start. However, this is definitely not the case. Rather, we are collegial adversaries who, during the 4.5 years that we worked on this article, continually challenged each other, modified or deleted text that we disagreed with, and often pushed the article in different directions. Although the three of us have exchanged hundreds of emails and participated in many Zoom sessions, Kahn has never met Ceci and Williams in person.

Here’s the broad takeaway of their results from the abstract:

We synthesized the vast, contradictory scholarly literature on gender bias in academic science from 2000 to 2020. In the most prestigious journals and media outlets, which influence many people’s opinions about sexism, bias is frequently portrayed as an omnipresent factor limiting women’s progress in the tenure-track academy. … We evaluated the empirical evidence for gender bias in six key contexts in the tenure-track academy: (a) tenure-track hiring, (b) grant funding, (c) teaching ratings, (d) journal acceptances, (e) salaries, and (f) recommendation letters. We also explored the gender gap in a seventh area, journal productivity, because it can moderate bias in other contexts. We focused on these specific domains, in which sexism has most often been alleged to be pervasive, because they represent important types of evaluation, and the extensive research corpus within these domains provides sufficient quantitative data for comprehensive analysis. Contrary to the omnipresent claims of sexism in these domains appearing in top journals and the media, our findings show that tenure-track women are at parity with tenure-track men in three domains (grant funding, journal acceptances, and recommendation letters) and are advantaged over men in a fourth domain (hiring). For teaching ratings and salaries, we found evidence of bias against women; although gender gaps in salary were much smaller than often claimed, they
were nevertheless concerning.

But what if I’m interested less in the overall picture of academic as a whole than in my specific field of economics. The study is broadly focused, but on those occasions when it singles out economics, it’s typically because economics looks worse with regard to gender bias.

For example, one way to look at bias in tenure-track hiring is to compare the share of women getting PhDs in a given field to the share of women who are hired as assistant professors in that field and the share of women who become tenured professors in that field. In many of the fields they study, the share of women becoming tenured professors is higher than the share of women who received doctorates in the field. Economics is the exception:

Thus, these cohort analyses offer little support for the claim of widespread gender discrimination in tenure-track hiring in GEMP [the authors’ acronym for the mathematics-intensive fields of geoscience, engineering, economics, mathematics, computer science, and physical science], even before 2000. Economics is the exception …[T]he percentage of women among tenure-track assistant professors (within 7 years after obtaining their PhDs) was similar to the percentage of women among PhDs only through 2004; for the next eight PhD cohorts, however, the percentage of female assistant professors stagnated, despite growth of newly minted female PhDs.

Here’s a description of another study about hiring, in which economics was different:

Williams and Ceci (2015) studied a stratified national sample of 872 faculty from two GEMP fields (engineering and economics) and two LPS fields (biology and psychology) to determine preferences for identically qualified men and women possessing outstanding credentials. …[I]in the authors’ main experiment (N = 363), faculty expressed a significant preference
for hiring women. This pro-female preference was similar across fields, types of institution, and gender and rank of faculty. The only group in which the preference did not appear was male economists, who showed no gender preference.

“No preference” is not an obviously bad thing. But it does make economics stand out. There is some evidence that has been interpreted to argue that women in economics need higher-quality research to publish their papers. This evidence is not based on a lower rate of acceptance of research by women at academic journals, but on the later pattern of citations of that work.

Card et al. (2020) argued that although there was no gender difference between acceptance rates [at economic journals] in their study, even after controlling for factors such as numbers
of past publications, this might not ensure that the quality of men’s and women’s accepted articles are similar. Instead, they argued that only subsequent citations to the accepted articles signal quality. Analyzing citations, Card et al. found that in economics, accepted women’s articles had higher subsequent citations, and from this they concluded that bias against women exists, despite no gender differences in acceptance rates. There might indeed be some gender bias in economics publication evaluation, particularly given that there is evidence from another study showing that the quality of writing in published articles in economics by women was higher than in articles by men, whereas the time until women’s articles were finally accepted was longer, suggesting bias (Hengel, 2022).

But this type of evidence is a bit slippery. As the essay points out, if women’s published research being cited more often is evidence of bias in economics, does that mean that if research by women was cited less often (as is true in some other fields and journals), this would prove that research by women was of lower quality? There are a variety of forms of bias that might have an effect here: bias by journal reviewers in what gets published, bias by readers in what they choose to study, and bias by future authors in what they choose to cite. There is also a possibility that women in economics tend to favor quality over quantity in their research choices. Disentangling these possibilities won’t be easy.

Other research suggests that men have an overall productivity advantage in economics. The authors describe another study this way:

In social sciences besides psychology, two fields stand out as opposites. Political science had a large female advantage in annualized publications and a 3.3-ppt female advantage in total impact (Huang et al., 2020). … In contrast, Huang et al. found that in economics, men had a 28% productivity advantage in early careers and a 50% advantage in midcareers. Ceci et al. found that the productivity gap among economists increased from 1990 to 1995 to 2005 to 2008 (from 22% to 52%), a concerning trend.

A few years back, the Journal of Economic Perspectives, where I work as Managing Editor, published a three-paper symposium on the situation of women in economics. To me, the articles make a prima facie case that economics has problems in this area–even if some of its problems, like bias against women in student ratings of teachers–seem shared across fields.

• “Women in Economics: Stalled Progress,” by Shelly Lundberg and Jenna Stearns
• “Variation in Women’s Success across PhD Programs in Economics,” by Leah Boustan and Andrew Langan
• “Fixing the Leaky Pipeline: Strategies for Making Economics Work for Women at Every Stage,” by Kasey Buckles

But I also think that some of the vexed relationship between gender and economics starts a lot sooner than academic hiring. If you go back to high school AP exams, the standard pattern is that females are more likely to take the exams and to do well on them. Economics is an exception. Males are more likely to take the AP micro and macro economics, and also to get higher scores on them. In undergraduate programs, about one-third of economics majors are women–a percentage that hasn’t changed much in recent decades–even though women are an overall majority of college students. In thinking about the pipeline for future professors of economics, It might prove useful to think about reasons behind these earlier gender differences.

The idea of using a national retail sales tax to replacing pretty much all of the federal tax structure–that is, instead of the federal individual income tax, corporate income tax, payroll tax, and estate and gift tax–has some elements of broad appeal. There’s an old Greek legend of the “Gordian knot,” where whoever could untangle the knot would become a great conqueror. Alexander the Great reputedly just cut the Gordian knot with a sword. The modern tax code may be a Gordian knot for our own time, where untangling it is impossible but cutting through it can achieve the goal. As an individual or someone running a business, imagine never filling out a tax form again.

Thus, a Fair Tax proposal has been introduced in every Congress since 1999 to replace other federal taxes with a national sales tax. It’s not likely to pass, now or in the future, but the thought experiment is intriguing. For those of us who prefer to root around in the policy details rather than to make sweeping gestures with swords, what are the tradeoffs and issues here? William G. Gale and Kyle Pomerleau discuss “Deconstructing the Fair Tax” (Tax Notes Federal, March 27, 2023, p. 2169+).

How high would the national sales tax rate need to be?

Of course, the answer to this question depends in part on what is counted as “sales.” The Fair Tax takes a broad perspective here: for example, it includes pretty much all goods and services, including rent on housing, purchasing a newly built home, health care spending, and even interest payments and fees for credit cards and mortgage debt (which is viewed as a kind of “service” payment).

There’s also a bit of terminology here that needs exploring. Say that something costs $100, and there is a 30% tax added, so when you get to the cash register, you pay $130. Most people would think of that tax rate as 30%. But if you wanted to make the tax rate sound lower to people, you might instead calculate the tax rate as 30/130–that is, the tax divided by the total price after-tax, not the price before tax. That’s called the “tax-inclusive” rate, and your added 30% has suddenly changed to a 23% tax rate. The supporters of the Fair Tax promise a 23% tax-inclusive rate, which is the same a 30% tax-exclusive rate.

But Gale and Pomerleau point out that the 23% rate is likely to be a considerable understatement, as well. When they dig into the underlying calculations, they find, for example, that the authors of the Fair Tax are assuming that a positive rate of inflation will push up collections from the Fair Tax over time, but also that government spending will not experience any inflation rate at all. Obviously, this kind of assumption (and there are others like it) makes it easier for the 23% tax-inclusive rate to cover future spending.

What if inflation affects both taxes and government spending in the same way? Then Gale and Pomerleau calculate that to maintain current spending levels would require a tax-exclusive rate of 39% (which is a tax-inclusive rate of 28%.

But the Fair Tax supporters also assume that there would not be a black-market economy where these sales taxes are often evaded, understated, and avoided. If you build in an assumption that 17% of a national retail sales tax will be avoided or evaded–which matches the assumption of current levels of avoidance and evasion–then the necessary tax rate to maintain current spending levels would be a tax-exclusive rate of 51% (or a tax-inclusive rate of 34%).

If you think that future Congresses would be likely to rule that certain items should not be included in the national sales tax, then the tax rate on everything that remains included would need to be higher still. In short, the national sales tax doesn’t come cheaply. And remember that the national sales tax would be on top of any state and local sales taxes.

What about progressivity and taxing those with high incomes?

An obvious concern with a national retail sales tax is that everyone pays the same tax rate, no matter their income. There’s a bit of a political challenge here for those who would like those with high incomes to pay more in taxes, but who tend to overstate their case by saying that those with high incomes currently pay little or nothing in the current tax system. If you believe that, then a national sale tax would raise taxes on the rich! But in fact, those with high incomes do in fact pay more in taxes (whether they should pay still more is a question I leave in abeyance here). Thus, a national sales tax by itself would raise taxes on those with lower incomes and reduce taxes on those with higher incomes.

To their credit, the supporters of the Fair Tax recognize this issue and offer a suggested fix, called a “family consumption allowance.” It works similarly to a universal basic income, but the idea is only to offset the national retail sales tax, not to provide enough to live on. Eevery household would get a monthly check from the government. The amount of the check would be determined by multiply the poverty-level income for that household times the tax-inclusive tax rate.

How much might this payment be? For a family of three, the US poverty line is $24,860 in 2023. Multiplied by 23%, and then divided into 12 monthly checks, this works out to $477 per month. Again, this is not intended to be enough to live on. The Fair Tax proposal doesn’t make any changes to existing programs to support the poor. It’s just intended to offset the national sales taxes paid on poverty-level income.

This part of the proposal would make the national retail sales tax less of a burden to the poor than to the non-poor. But it would not come close to making the overall federal tax rate as progressive as it currently is.

What about interactions with other tax issues?

A national retail sales tax would have unpredictable interactions with a number of other policies. For example, 42 states (and a number of cities) have income taxes. Under current law, these taxes can piggyback on the federal income tax, and make a few idiosyncratic changes. But if no federal income tax existed, a lot of people and companies would presumably get pretty grumpy about retaining the state and local income taxes. In addition, income taxes are used for a number of public policies. Getting rid of the income tax means getting rid of all tax deductions, including mortgage interest. It means getting risk of income tax breaks for, say, buying an electric vehicle.

Of course, government could still provide subsidies in these areas. But instead of providing the subsidies in the form of tax breaks, which have the effect of spending but don’t look like spending, it might need to do so by actually cutting checks for such subsidies.

There are also a number of administrative issues in shifting to the collection of a national retail sales tax that I’ll skip over there, but they aren’t trivial.

There’s an old joke among economists about value-added taxes, which function as a sort of national sales tax. The joke goes: “America has not enacted a value-added tax because the Democrats fear that it’s not progressive and the Republicans fear that it would become a money machine for the government to raise taxes. However, America will enact a value-added tax as soon as the Republicans realize that it’s not progressive and the Democrats recognize that it can be a money machine for raising taxes.”

Transferring all of the US tax burden to a national retail tax seems an unwise idea, and an idea where the marketing of a 23% rate overpromises what it can deliver. The proposal for a national sales tax is interesting, in part, because it potentially opens the door to some ideas that have had very little traction in national-level American politics, like a universal income payment and a national value-added tax.

May 5 is the birthday of Karl Marx. I published a version of this post five years ago, on the occasion of the 200th anniversary of Marx’s birth. This is a very slightly updated version.

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Here’s a characteristic little taste of Karl Marx’s writing that I ran across the other day. It’s from Economic and Philosophical Manuscripts, a set of essays written in 1844, not necessarily intended for publication themselves, but an early attempt at sorting through ideas and themes later developed in in Capital. This is from the Third Manuscript on “Private Property and Labor.” Marx wrote (what follows was all part of one paragraph, and I’ve inserted the paragraph breaks for ease of blog-post reading):

“Political economy, this science of wealth, is therefore at the same time the science of denial, of starvation, of saving, and it actually goes so far as to save man the need for fresh air or physical exercise. This science of the marvels of industry is at the same time the science of asceticism, and its true ideal is the ascetic but rapacious skinflint and the ascetic but productive slave. 

“Its moral ideal is the worker who puts a part of his wages into savings, and it has even discovered a servile art which can dignify this charming little notion and present a sentimental version of it on the stage. It is therefore – for all its worldly and debauched appearance – a truly moral science, the most moral science of all. Self-denial, the denial of life and of all human needs, is its principal doctrine. 

“The less you eat, drink, buy books, go to the theatre, go dancing, go drinking, think, love, theorize, sing, paint, fence, etc., the more you save and the greater will become that treasure which neither moths nor maggots can consume – your capital. The less you are, the less you give expression to your life, the more you have, the greater is your alienated life and the more you store up of your estranged life. 

“Everything which the political economist takes from you in terms of life and humanity, he restores to you in the form of money and wealth, and everything which you are unable to do, your money can do for you: it can eat, drink, go dancing, go to the theatre, it can appropriate art, learning, historical curiosities, political power, it can travel, it is capable of doing all those thing for you; it can buy everything: it is genuine wealth, genuine ability. But for all that, it only likes to create itself, to buy itself, for after all everything else is its servant. And when I have the master I have the servant, and I have no need of his servant. 

“So all passions and all activity are lost in greed. The worker is only permitted to have enough for him to live, and he is only permitted to live in order to have.”

The quotation has the tone of prophetic certainty that is so enticing in Marx. You can almost hear someone preaching at you from behind a lectern, voice rising and falling, waving their arms and pointing for emphasis. You may want to punch your fist up in the air while reading it.

But for any economist, the specific ideas here are ostentatiously incorrect. For example, the statement that “the true ideal is the ascetic but rapacious skinflint and the ascetic but productive slave” is profoundly wrong. Capitalism is not built on misers and workaholics, and the US economy is not built on asceticism and self-denial (!). Instead, economics is about the interactions that arise when people in their role as consumers are searching around to buy the products they prefer, when people in their role as workers are thinking about how to acquire skills and contribute to production, when people in their role as managers and entrepreneurs are thinking about how to produce and innovate, and yes, when people in their role as savers and investors direct the flow of capital to provide security for their families and eventual retirement for themselves.

Moreover, economists tend to argue that we all wear many hats: not just consumer, worker, and saver, but also spouse, parent, child, community member, church member, cultural participant, book club member, hobbyist, vacationer, and many others. As to  Marx’s list of activities that economic forces are supposedly discouraging–“eat, drink, buy books, go to the theatre, go dancing, go drinking, think, love, theorize, sing, paint, fence”–explicit economic activity certainly interacts with these activities, but it does not particularly seek to limit them.

Marx is openly disbelieving that political economy can be detoxified. He views  descriptions of buying and selling as a cover story for oppression; moreover, it’s a kind of oppression that takes over participants, separating people from their true selves.  He wrote elsewhere that the division of labor itself–that is, the idea of people having jobs–is a form of enslavement. In the passage above, money becomes the master, with people as the servants. Again, these Marxist views seem to me categorically wrong as a description of the subject of economics.

But as a description of how people can feel in a world of choices and scarcity, Marx seems to me to be touching on some deeper truths, even if his tone feels off-kilter to me: he is using drums and trumpet blasts to play a theme that would play better on string instruments in a minor key. Marx’s words echo with the doleful insight that many people do indeed live through weeks, months, and longer when their job feels like a burden that they cannot put down. Many people do wish that they could spend their time in other ways. Many people would like to have more consumption in various forms. Many people worry about having enough money in the bank to cover an emergency, or enough for retirement.  These economic pressures and worries and fears can shape what kind of people we are and how we act, sometimes in unpleasant ways.

But when Marx’s viewpoint focuses only on the burdens and pressures of economic life, it has little to say about more positive aspects. Yes, it’s fun to “eat, drink, buy books, go to the theatre, go dancing, go drinking, think, love, theorize, sing, paint, fence, etc.” as Marx writes. But it’s also rewarding to do a good day’s work, to have camaraderie at work, to build up skills and a higher level of responsibility, to save up some money, to support one’s family, to support a local business, to buy gifts for friend or a treat for oneself, and generally to have some sense of responsibility and ownership and control over one’s economic life.

Of course, it would be silly to get dewy-eyed while romanticizing some potentially positive aspects of economic life. But frankly, it’s also silly when Marx describes economic interactions as if they were a Gothic horror story. Contra Marx, our economies worries are don’t arise because money is our master and jobs are enslavement. Instead, it’s all just tradeoffs, just reality, just various aspects of the human condition.

We should all know enough history to have an idea of what “masters” and “enslavement” really mean, and working at a US job in the modern economy doesn’t qualify.  For those of us living in the United States 200 years after Marx was born, it’s worth keeping the perspective that the economic stresses in our lives are first-world problems.

I have been the Managing Editor of the Journal of Economic Perspectives since the first issue in Summer 1987. The JEP is published by the American Economic Association, which decided about a decade ago–to my delight–that the journal would be freely available on-line, from the current issue all the way back to the first issue. You can download individual articles or entire issues, and it is available in various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Spring 2023 issue, which in the Taylor household is known as issue #144. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the few weeks, as well.

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Symposium on Spatial and Urban Economics

“Economic Activity across Space: A Supply and Demand Approach,” by Treb Allen and Costas Arkolakis

What do recent advances in economic geography teach us about the spatial distribution of economic activity? We show that the equilibrium distribution of economic activity can be determined simply by the intersection of labor supply and demand curves. We discuss how to estimate these curves and highlight the importance of global geography—the connections between locations through the trading network—in determining how various policy relevant changes to geography shape the spatial economy.

Full-Text Access | Supplementary Materials

“Neighborhood Change, Gentrification, and the Urbanization of College Graduates,” by Victor Couture and Jessie Handbury

We study changing trends in within-city sorting by education over the last 40 years. We show that neighborhoods closest to the centers of large US cities rose from having the lowest levels of college attainment in 1980 to the highest in 2017. We discuss the determinants of changes in sorting patterns, focusing on the role of transportation technology and income growth. We outline various consequences of the recent urbanization of college graduates on neighborhood amenities, house prices, and segregation. We highlight the tendency of college graduates to cluster into select central neighborhoods, likely limiting opportunities for interactions across educational lines.

Full-Text Access | Supplementary Materials

“Constraints on City and Neighborhood Growth: The Central Role of Housing Supply,” by Nathaniel Baum-Snow

The US urban population increased by almost 50 percent between 1980 and 2020, with this growth heavily concentrated in the Sun Belt and at the fringes of metropolitan areas. This paper considers the role of housing supply in shaping the growth of cities and neighborhoods. Housing supply constraints have meant that demand growth has increasingly manifested as price growth rather than as increases in housing units or population in larger and denser metropolitan areas and neighborhoods. New housing is provided at increasingly higher cost in areas that have higher intensity of existing development and more restrictive regulatory environments. Both forces have strengthened over time, making quantity supplied less responsive to growing demand, driving housing price growth in many areas, and pushing housing quantity growth further out into urban fringes. As a result of such pressures on the cost of new construction, the United States has recently experienced more rapid price growth and a declining influence of new construction on the housing stock.

Full-Text Access | Supplementary Materials

“Quantitative Urban Models: From Theory to Data,” by Stephen J. Redding

Economic activity is highly unevenly distributed within cities, as reflected in the concentration of economic functions in specific locations, such as finance in the Square Mile in London. The extent to which this concentration reflects natural advantages versus agglomeration forces is central to a range of public policy issues, including the impact of local taxation and transport infrastructure improvements. This paper reviews recent quantitative urban models, which incorporate both differences in natural advantages and agglomeration forces, and can be taken directly to observed data on cities. We show that these models can be used to estimate the strength of agglomeration forces and evaluate the impact of transportation infrastructure improvements on welfare and the spatial distribution of economic activity.

Full-Text Access | Supplementary Materials

Symposium on Universal Health Insurance

“Achieving Universal Health Insurance Coverage in the United States: Addressing Market Failures or Providing a Social Floor?” by Katherine Baicker, Amitabh Chandra and Mark Shepard

The United States spends substantially more on health care than most developed countries, yet leaves a greater share of the population uninsured. We argue that incremental insurance expansions focused on addressing market failures will propagate inefficiencies and will fail to facilitate the active policy decisions needed to achieve socially optimal coverage. By instead defining a basic bundle of services that is publicly financed for all, while allowing individuals to purchase additional coverage, policymakers could both expand coverage and maintain incentives for innovation, ensuring universal access to innovative care in an affordable system.

Full-Text Access | Supplementary Materials

“The Prices in the Crises: What We Are Learning from 20 Years of Health Insurance in Low- and Middle-Income Countries,” by Jishnu Das and Quy-Toan Do

Governments in many low- and middle-income countries are developing health insurance products as a complement to tax-funded, subsidized provision of healthcare through publicly-operated facilities. We discuss two rationales for this transition. First, health insurance would boost fiscal revenues for healthcare, as post-treatment out-of-pocket payments to providers would be replaced by pre-treatment insurance premia to health ministries. Second, increased patient choice and carefully designed physician reimbursements would increase quality in the healthcare sector. Our essay shows that, at best, these objectives have only been partially met. Despite evidence that health insurance has provided financial protection, consumers are not willing to pay for unsubsidized premia. Health outcomes have not improved despite an increase in utilization. We argue that this is not because there was no room to improve the quality of care but because behavioral responses among healthcare providers have systematically undermined the objectives of these insurance schemes.

Full-Text Access | Supplementary Materials

Symposium on the Economics of Mental Health

“America’s Continuing Struggle with Mental Illnesses: Economic Considerations,” by Richard G. Frank and Sherry A. Glied

Mental illnesses affect roughly 20 percent of the US population. Like other health conditions, mental illnesses impose costs on individuals; they also generate costs that extend to family members and the larger society. Care for mental illnesses has evolved quite differently from the rest of health care sector. While medical care in general has seen major advances in the technology of treatment this has not been the case to the same extent for the treatment of mental illnesses. Relative to other illnesses, the cost of care for mental illnesses has grown more slowly and the social cost of illness has grown more rapidly. In this essay we offer evidence about the forces underpinning these patterns and emphasize the challenges stemming from the heterogeneity of mental illnesses. We examine institutions and rationing mechanisms that affect the ability to make appropriate matches between clinical problems and treatments. We conclude with a review of implications for policy and economic research.

Full-Text Access | Supplementary Materials

“Depression and Loneliness among the Elderly in Low- and Middle-Income Countries,” by Abhijit Banerjee, Esther Duflo, Erin Grela, Madeline McKelway, Frank Schilbach, Garima Sharma and Girija Vaidyanathan

We combine data from longitudinal surveys in seven low- and middle-income countries (plus the United States for comparison) to document that depressive symptoms among those aged 55 and above are prevalent in those countries and, unlike in the United States, increase sharply with age. Depressive symptoms in one survey wave are associated with a greater decline in ability to carry out basic daily activities and a higher probability of death in the next wave. Using additional data from a panel survey we conducted in Tamil Nadu with a focus on elderly living alone, we document that social isolation, poverty, and physical health challenges are strongly correlated with depression. We discuss potential policy interventions in these three domains, including some results from our randomized control trials in the Tamil Nadu sample.

Full-Text Access | Supplementary Materials

Articles

“An Introductory Guide to Event Study Models,” by Douglas L. Miller

The event study model is a powerful econometric tool used for the purpose of estimating dynamic treatment effects. One of its most appealing features is that it provides a built-in graphical summary of results, which can reveal rich patterns of behavior. Another value of the picture is the estimated pre-event pseudo-“effects”, which provide a type of placebo test. In this essay I aim to provide a framework for a shared understanding of these models. There are several (sometimes subtle) decisions and choices faced by users of these models, and I offer guidance for these decisions.

Full-Text Access | Supplementary Materials

“Retrospectives: Edgar Sydenstricker: Household Equivalence Scales and the Causes of Pellagra,” by Philip Clarke and Guido Erreygers

In the early part of the 20th century the disease pellagra, now almost unknown, affected and killed thousands of people in the United States. Some claimed it was an infection, while others maintained it was due to a dietary deficiency. The economist Edgar Sydenstricker (1881–1936), who was a member of a US Public Health Service team examining the disease, argued it was critical to understand how pellagra varied by levels of income. Collecting survey data, he realized equivalence scales were needed to adjust household incomes. His research demonstrated that there was a strong negative correlation between the incidence of pellagra and equivalized household income. Further analysis of the dietary differences between households suggested that a dietary deficiency associated to a restricted availability of animal protein food was the cause of pellagra. This was confirmed more than a decade later when a deficiency of vitamin B-3 was identified as the cause.

Full-Text Access | Supplementary Materials

“Recommendations for Further Reading,” by Timothy Taylor

Full-Text Access | Supplementary Materials

Back in 2018, AT&T merged with Time Warner. The merger was challenged on antitrust grounds by the US Department of Justice, the case went to court, and the government lost–which means the merger was allowed to proceed. Now, a few years later, we can see what happened.

As I pointed out in a post a few weeks ago, when big mergers are litigated, there is often a clash between dire predictions of what will happen if the merger is allowed to proceed from one side, confronted by arguments asserting the enormous social gains that are sure to happen if the merger is allowed. In the case of AT&T/ Time Warner, the original idea behind the merger was to combine the AT&T broadband and wireless networks (including ownership of DirecTV) with the content and of Time Warner (which was made up of Warner Bros., HBO and Turner Broadcasting). At a deeper level, the idea was that AT&T would be able to use its vast customer database to see how people were actually interacting with shows–and thus guide the content providers to more popular fare.

On the other side, the antitrust concern here is about a “vertical” merger. Most people are used to the idea of a “horizontal” merger, in which two firms are selling similar products, so if the two firms merge–and there is not an array of other competitors also in the market–the merged firm could have power to raise prices. But in vertical merger, one firm (in this case, Time Warner) is providing an input to another firm (in this case, AT&T). The antitrust concern is that this kind of merger can lead to less competition if one firm locks up access to a key input. The concerns over reducing competitiveness are harder to enunciate in a vertical merger: indeed, the AT&T/Time Warner merger was the first vertical merger to be litigated by antitrust authorities in the last 40 years.

The AT&T merger turns out to be another case where neither the rosy predictions of its supporters nor the gloom-and-doom of its opponents quite came to pass. The merger was announced in October 2016. The court decision allowing the merger happened in June 2018. By May 2021, AT&T announced that it was selling off TimeWarner, a deal that closed in April 2022.

The merger clearly failed in business terms: for a discussion of the strategy and culture clashes between the firms, the New York Times ran a story last November with the title, “Was This $100 Billion Deal the Worst Merger Ever?” But of course, the job of the antitrust authorities is not to second-guess whether a merger is a good business idea, but only to make sure consumers and competition are protected. Given that the merger evaporated in three years, it’s hard to make a case that this merger allowed AT&T to rake in higher profits in a way that caused injury to consumers and competition were injured.

The case is interesting to economists in part because litigation over vertical mergers is so rare, and in part because high-powered economists consulted for both sides and testified before the court. From the side favoring AT&T and the merger, Dennis W. Carlton, Georgi V. Giozov, Mark A. Israel, Allan L. Shampine have written “A Retrospective Analysis of the
AT&T/Time Warner Merger” (Journal of Law and Economics, November 2022, pp. S461-S497). From the side supporting the US government and opposing the merger, Carl Shapiro has written “Vertical Mergers and Input Foreclosure Lessons from the AT&T/Time Warner Case”
(Review of Industrial Organization 2021, pp. 303–341.

Shapiro explains the government case that the AT&T merger with Time Warner would reduce content available to other “multichannel video program distributors” like Comcast, Dish Network, Sony Vue, and others. Carlton and his co-authors make the case that competition would not be injured. The arguments get into the details of what Shapiro called a “raising rivals costs” model and what the Carlton group calls a “bargaining leverage over rivals” model can captures the interactions in this kind of market and how the vertically-merged firm might lead to higher costs for competitors–which in turn could be passed along to consumers.

I won’t relitigate the arguments and evidence here, except to note that details end up mattering a lot. For example, if AT&T ended up negotiating with other firms over distributing the TimeWarner content, is it better to model these negotiations over as one-shot or multi-stage? How might negotiations with one firm affect outcomes with other firms? In what ways did evidence from previous mergers apply here–in particular, when Comcast National purchased NBC Universal in 2011, which included the NBC network, along with Universal Pictures  and cable channels such as Syfy, CNBC and MSNBC.

As one example of the kinds of issues that arise, in the Comcast/NBC Universal case, which involved a consent decree but did not go to litigation, the US Department of Justice required that the newly merged firm agree to binding arbitration. In the AT&T case, the rule would have been that if some outside distributor wanted access to the TimeWarner content, AT&T would not be allowed just to deny that content while a negotiation was underway, but instead would need to provide the content and submit to binding arbitration over the price. Presumably, this provision makes it harder for the vertically-merged firm to exploit its access to the key input. Given that the US Department of Justice had required this form of binding arbitration in the previous case, the government was then in the awkward position of arguing that it was not a sufficient safeguard in the AT&T case.

What are the main takeaways from all of this? Vertical mergers are hard for the antitrust authorities to challenge, and losing this high-profile case makes them harder. Modeling how a merger will come out is an inexact science: this holds whether the model is done by the firms involved in the merger or by those supporting or opposing the merger. Antitrust is about preserving competition, not about preventing firms from making deals that turn out to be unwise in a business sense. But at a broad level, antitrust also seeks to shape where businesses look for the opportunity to make profits. It seeks to push firms away from looking for profits by squeezing consumers, and instead to push them toward looking for profits by providing more desirable products and services. The next time a vertical merger is challenged, it is likely to involve the details of a different industry in a different time and place, and the antitrust arguments for and against may play out differently, too.

One of the big-picture strategies for reducing carbon emissions into the atmosphere goes under the shorthand “electrify everything.” The basic idea is that if sufficient electricity could be generated in carbon-free ways, it could replace fossil fuels in many uses–not just in generating electricity, but also as fuel for transportation, for home heating, for industrial uses, and so on. What would be required over the next few decades to make this this happen? For a useful starting point on the basics, a group of authors at the Hamilton Project at the Brookings Institution have written a background paper “Ten Economic Facts about Electricity and the Clean Energy Transition” (April 27, 2023). Here are a few of their facts that caught my eye.

The composition of sources for electricity generation has changed substantially in the last decade.

The big shift, as the graph shows is a decline in the share of electricity produced from coal and a rise in the share produced from natural gas. An optimist will note that electricity from natural gas emits only about half the carbon of a coal-fired plant; a pessimist will note that electricity from natural gas still produces about half the carbon of a coal-fired plant. Toward the bottom of figure, you can also see the substantial rises in electricity generated from wind-power and from grid-scale solar.

Is the existing growth rate of wind and solar sufficient for these sources of energy to serve as the basis for an “electrify everything” scenario?

The answer is “no.” As the graph above shows, it will take decades at the current pace for solar and wind to provide sufficient electricity to dominate the electricity grid. But in the US economy only about 27% of greenhouse gas emissions come from electricity. A similar share of carbon emissions comes from transportation, and a similar share again from industry uses, with the rest of emissions coming from commercial/residential real estate and from agriculture. For the “electrify everything” agenda to work (even with whatever energy conservation efforts are possible), the US electricity grid will need to be dramatically larger than it currently is–and the needed expansion of wind and solar would need to be much larger, too. Of course, an upturn in nuclear power would reduce the need for expanding wind and solar, as well as providing baseline energy for nights when the wind isn’t blowing.

Solar has become the cheapest way to generate electricity–at least on sunny days in the right locations.

The authors of the report note:

Solar is, on a levelized cost (meaning apples-to-apples) basis, the cheapest source of new energy today and is likely to play a central role in the buildout of a zero-carbon grid. It is cost-effective to have more solar generation because the production costs are lower: although costs can vary substantially based on a variety of factors, the average cost to produce one megawatt-hour of utility-scale solar energy ranges between $28 and $41 compared to between $45 and $74 and between $65 and $152 for the equivalent amount of energy from natural gas and coal, respectively (Lazard 2021). As a result, new construction of solar far outpaces new natural gas plants and there is no new coal under construction in the United States (EIA n.d.e). The growth of solar will need precise planning to fully exploit the benefits of its lower cost while accommodating its intermittency.

The quotation points to several major issues with solar and wind power. One is that they are intermittent sources of energy, so backup power is needed for say, frigid windless winter nights in Minnesota, where I live. Another is that solar and wind power are somewhat location-specific: that is, you can build a natural gas-burning electricity plant pretty much anywhere, but the cost-effectiveness of solar and wind depends on whether they are located in sunny or windy locations.

The problem of intermittent power from solar and wind isn’t just day-to-day–it’s also an annual fluctuation.

The dashed blue line in the figure shows month to month consumption of electricity in 2022, compared to January. Notice that demand for electricity drops off a little in January and February, then rises in the summer with the demand for air-conditioning, and then drops off again in the fall. This consumption pattern is more-or-less matched by fluctuations in solar power, which is at its lowest in the shorter, colder days of January, and much higher by mid-summer. (It’s important to be clear that the graph shows percentage changes compared to January, not quantities. Thus, the graph does not say that solar produces a high enough quantity to cover all consumption!) Wind power drops off in the summer. Different parts of the country are more likely to use either electricity from natural gas or from coal, which helps to explain the seasonal movements in these electricity sources.

The “electrify everything” agenda requires a dramatic increase in mining and processing of minerals, for uses like solar panels, wind turbines, and batteries of electric vehicles.

The report notes: “A typical electric car uses more than five times more minerals than an internal combustion engine-powered car, which raises issues around where US companies source those minerals. Similarly, relative to energy produced by coal and natural gas, wind and solar energy are also mineral intensive, relying on significant quantities of zinc and silicon …”

The “electrify everything” doesn’t just require generating the electricity, but also requires transmitting it across potentially long distances from the solar panels or the windmills to the users.

To make the “electrify everything” agenda work, you need to imagine a dramatically larger quantity of electricity than is currently produced being moved on average longer distances–from south to north, from windy to not windy. This step involves not just a financial cost and a need for minerals and materials to expand the grid, but also plans and political power to build new right-of-way for these many new electricity lines all around the country. Sure, some of these can be expansions of transmission lines along existing right-of-way. But remember that the new solar and wind generation will be at the locations naturally best-suited to generate power, which in many cases is not going to be where existing electricity-generating capacity is located. So dramatic expansions of right-of-way are going to be needed, too.

The “electrify everything” agenda isn’t impossible. But it’s daunting. And a number of those who favor the agenda in theory are not eager to support many of actual specific steps needed to make it happen. It won’t be possible to dramatically expand generating capacity, mineral production, and transmission lines without some noticeable tradeoffs.