Here are some interesting articles that I ran across. First one from the Economist on the real (actual) minimum wage—zero:
Perhaps not coincidentally, the number of unpaid internships has grown just as hiring has become riskier, pricier and more complex. In recent years anti-discrimination and unfair-dismissal rules have been tightened, and minimum wages raised, in many rich countries. The growing cost of benefits such as pensions, health care and maternity leave makes employees more expensive. Interns have therefore become an appealing alternative.
I’ve recently argued that CEOs should be paid far more than they were paid in the 1960s, because their jobs are much more consequential. Here’s evidence that they are not overpaid:
So, if the shares rise on an executive’s death, that means he was overpaid; if they fall, he was not. By this measure only 42% of the bosses studied were overpaid; furthermore, those with the most eye-popping rewards were found to be giving the best value for money, as measured by the share-price slump when they passed away.
The study also reckons that of the increase in value that results from a firm hiring an executive, he gets 71% and the shareholders therefore get 29%. In the sense that investors at least get some positive reward from the relationship, executives as a whole are not overpaid.
Followers of Mr Piketty are unlikely to be convinced. They would say that even when bosses add more value than the amount by which their pay exceeds the average, they are still overpaid because the average is itself excessive; and that it is inherently indecent for bosses to get such a big share of the gains from their relationship with their firms.
Yeah, they would say that, wouldn’t they?
Recently I did a long post at Econlog saying education wasn’t very important (at the margin in developed countries) and that spending more money wouldn’t have much impact. I did point to one strong counterargument, a study showed that having a single good teacher at a young age can substantially impact a person’s life outcome. I found that result quite surprising, but now it looks false:
Estimates that adjust for changes in students’ prior achievement find evidence of moderate bias in VA scores, in the middle of the range suggested by Rothstein (2009). The association between VA and long-run outcomes is not robust and quite sensitive to controls.
Also check out Bryan Caplan’s excellent post on the dubious merits of compulsory attendance laws.
Update: Tyler Cowen cites a study that conflicts with my prior belief. But is it scalable? And does it go beyond improving test scores, to improving life outcomes?
I’ve also argued that most anomaly studies in finance are merely data mining, and hence are essentially worthless. Look at the last sentence in this abstract:
Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0. However, what hurdle should be used for current research? Our paper introduces a multiple testing framework and provides a time series of historical significance cutoffs from the first empirical tests in 1967 to today. Our new method allows for correlation among the tests as well as missing data. We also project forward 20 years assuming the rate of factor production remains similar to the experience of the last few years. The estimation of our model suggests that a newly discovered factor needs to clear a much higher hurdle, with a t-ratio greater than 3.0. Echoing a recent disturbing conclusion in the medical literature, we argue that most claimed research findings in financial economics are likely false.
I’m skeptical of proposals to “regulate” the financial system. Here’s one example:
“DON’T bail out the big banks on Wall Street another time,” thundered Richard Durbin, an American senator, “Once in a political lifetime is enough!” His amendment to the Dodd-Frank financial reform of 2010 capped the fees banks can charge merchants to process debit-card transactions, on the grounds that banks were gouging businesses and their customers. But the limits on “interchange fees”, as the financial jargon has it, have not worked out as planned. They have resulted, by one calculation, in the transfer of between $1 billion and $3 billion annually from poor households to big retailers and their shareholders. These were not the beneficiaries Mr Durbin had in mind when the amendment came into effect three years ago this week. . . .
Meanwhile the banks, which are in even worse shape, have tried to make up for the lost revenue with higher charges for other things, including monthly fees for having a debit card, or even a current account. In 2009 banks provided 76% of America’s current accounts free of charge; last year the figure was only 38%. The higher charges in turn, have pushed 1m Americans out of the formal financial system””not the result Mr Durbin was aiming for.
I predicted that Hollande’s socialist policies would fail, and he’d do a U-turn just like Mitterrand:
The new team is engineering a shift in economic policy not unlike that under Mitterrand, who made a sharp U-turn in 1983, also after two years in office. Like Mitterrand, Mr Hollande has so far spent most of his time making matters worse. Having declared during his campaign that the “world of finance” was his enemy, and promised his 75% top tax rate, Mr Hollande increased taxes by â‚¬30 billion ($40 billion) in his first year. He reversed some of Mr Sarkozy’s popular work-friendly policies, such as tax-free overtime. He sent out mixed messages to foreign investors and entrepreneurs. He failed to curb public spending. And he brought in new rules that choked growth in sectors such as construction.
On Mr Hollande’s watch, the overall tax take grew from 43.7% of GDP in 2011 to 46% in 2013. Annual income growth in 2012-14 has averaged a mere 0.4%. Unemployment, which Mr Hollande had promised to bring down, edged up to over 10%. Confidence collapsed, investment was put on hold, and many of the rich left for Brussels or London. To take but one example of the damage Mr Hollande has wrought, new rent-control rules designed by Ms Duflot (who refused to serve under Mr Valls because she considered him too right-wing) have battered the construction industry. In the two years to January 2014, new housing starts fell by nearly a quarter.
Now the government has gone into reverse. It has embraced a business-friendly mix of policies in a bid to revive the private sector. This may stop short of what the economy needs to get back on its feet, but it contains a decent dose of common sense. In 2015 a cut in the hefty social charges paid by employers will come into full effect, in an attempt to encourage hiring. Savings of â‚¬21 billion will be squeezed out of public spending, including â‚¬9.5 billion from the social-security system. Perhaps most symbolic of all, the 75% top tax rate, set up initially as a temporary two-year measure, will be quietly allowed to die.
If the Piketty/Krugman soak the rich policies won’t work under a socialist government in France, when and where will they work?
In other posts, I’ve expressed concern over eco-terrorists (think unibomber) who believe the world is overpopulated. Soon they’ll have a weapon:
Nearly 50 cities, mostly in America and Europe, are now home to groups of biohackers or amateur laboratories where they can meet and experiment. Besides Open Wetlab, these include Biocurious in Sunnyvale, California, Genspace in New York and La Paillasse in Paris. The number of biohackers around the world is anybody’s guess, but the movement’s main online-mailing list boasts nearly 4,000 members and is growing rapidly.
What drives the movement is the belief that “biology is technology” (to quote the title of a book by Rob Carlson, a DIYbio pioneer): that DNA is a form of software that can be manipulated to design biological processes and devices. But some people worry that amateur laboratories could create killer bugs or provide training for bio terrorists. For the moment, at least, such fears seem premature.
For the moment . . .
Someday I’ll change my mind, and stop being so dismissive of new theories that challenge my prior beliefs. But not today.
HT: Tyler Cowen