The Political Economist

In a  previous post I discussed the changing nature of the economics profession and the importance of achieving the experimental ideal in social science research. I briefly discussed the logic and even some methodological approaches that are useful in achieving randomization, or at least as-if randomization in order to make our treatment and control groups as similar as possible for comparison. In this post I'll use an example that I like to teach to students to illustrate how we can make causal inferences using natural experiment research designs. A quick reminder: natural experiments are not experiments per se. They only provide us a good way to exploit observational data to emulate an experimental setting.  Let's use the very basic example and look at the relationship between student grades and earnings – a topic is usually heatedly discussed among students – do better grades result in higher salaries? Consider the following correlation between grades and earn...

The New York Times brings the following interactive graphic (I encourage you to click on the link and try it out; you can track direct comparisons in performance by race and wealth - it's striking): Click to enlarge. Source:  NYT There appears to be a large positive correlation between race, money and school performance. Kids coming from rich, white districts significantly outperform kids coming from poorer and/or Hispanic and black neighborhoods. The graph maps every school district in the US and compares the school performance of six graders (in reading and math). Even this simple correlation is very unveiling. There are three clusters clearly separated by both wealth and race. White kids, coming from upper and upper middle class families tend to be the only group that outperforms the average in their school grades. In fact, the very top performers include no single black or Hispanic district. (Bear in mind that the comparison aren't people, but school districts - s...

I'm running behind with the reviews (still keeping track with the book readings though), so I'll publish the next two in space of only a week. Today it will be Gladwell's three books: Outliers , Tipping Point , and Blink (in the order that I've read them), while for next time it will be Roth's Who Gets What , and Surowiecki's Wisdom of Crowds .  Gladwell, Malcolm (2008) Outliers. The Story of Success . Little Brown Of all his books, in my opinion, this one ranks top. In Outliers, his third book, Gladwell wants to redefine our understanding of success. The brilliant writer that he is, he takes us through a fascinating journey linking together the little bits and pieces into an overreaching yet slightly simplistic theory about luck, opportunity, hard work, intelligence, heritage, and cultural legacy, all of which are important factors that explain why some people succeed (and are thus considered " outliers ").   Although this is far from a ...

In this blog post I will make a brief digression from my usual economics topics.  A year has passed since National Geographic published an issue with the following disturbing cover, featuring a couple of conjectures all too familiar and all too frustrating to professional scientists and science enthusiasts: "Why Do Many Reasonable People Doubt Science?" , National Geographic, March 2015 In a really good op-ed , author Joel Achenbach of the Washington Post goes through a variety of misconceptions and doubts modern science has to fight against. The most obvious examples are listed on the cover. These include - but are not limited to - (i) the non-existence of climate change (never mind the thousands of state-of-the-art research papers that proved otherwise. Don't trust Al Gore on this, check out for yourself here , here ,  here , or here ), (ii) that GMO is evil (what does this even mean? Again, the scientific evidence is quite clear on this), (iii) that th...

Is higher education worth it? According to the latest report from PayScale  (HT: The Economist ), the answer is: it depends on what you study. An obvious answer, but let's look at the data nonetheless: Source: The Economist  Here's the main result: "Engineers and computer scientists do best, earning an impressive 20-year annualised return of 12% on their college fees (the S&P 500 yielded just 7.8%). Engineering graduates from run-of-the-mill colleges do only slightly worse than those from highly selective ones. Business and economics degrees also pay well, delivering a solid 8.7% average return. Courses in the arts or the humanities offer vast spiritual rewards, of course, but less impressive material ones. Some yield negative returns. An arts degree from the Maryland Institute College of Art had a hefty 20-year net negative return of $92,000, for example." You can check out the distribution of all occupations in more detail on the following link . The ...

Another edition of the best from the rest in commentary, op-eds and blogs:  (1) Beaudry, Galizia & Portier: "Reconciling Hayek's and Keynes' views of recessions" , VoxEU . Can this be done? Apparently it can. Just recall the ideas of Austro-Keynesianism .  (2) Tyler Cowen: "How is income inequality correlated with wealth inequality" , MargRev Source: Marginal Revolution "Wealth inequality and income inequality may diverge for at least three reasons. First, savings rates may differ across societies. Second, locally available rates of return may differ. Third, the ups and downs of mobility may mean high income inequality in a given year but overall lower levels of wealth inequality." (3) Piketty's very detailed response to the FT at VoxEu . He goes figure by figure, handling one mistake at a time.  "I welcome all criticisms and I am very happy that this book contributes to stimulate a global debate about these imp...

From Washington Post  comes a very disturbing piece of information (HT:  Business Insider ). A couple of political scientists from Dartmouth, Harvard and Princeton did a survey of 2066 Americans (sampled in a usual way) and asked them what action they wanted the US to do in Ukraine. In addition, they've asked them to locate Ukraine on the map:  "We wanted to see where Americans think Ukraine is and to learn if this knowledge (or lack thereof) is related to their foreign policy views. We found that only one out of six Americans can find Ukraine on a map, and that this lack of knowledge is related to preferences: The farther their guesses were from Ukraine’s actual location, the more they wanted the U.S. to intervene with military force." Correlation doesn't imply causality, of course. However there is something to this - more ignorance implies further ignorance. I guess military interventions in Iraq can be justified the same way?   But anyway, what surpri...

This title is actually taken from Paul Krugman . For once I agree with him. Krugman's blog came as a response to a great text by this year's  John Bates Clark medal recipient  Raj Chetty from Harvard. Chetty wrote a column for the New York Times this weekend where he defended the field of economics on the basis of its scientific rigor. His text came as a reaction to many non-economists questioning the recent Nobel prize being awarded to two opposing theorists explaining the same phenomenon ( Fama and Shiller ), but also (I believe) to a series of texts about economics and philosophy started in the NYT back in August, initiated by two philosophers Alex Rosenberg and Tyler Curtain writing a text called  "What is Economics Good For?" . Their main resentment towards economics is the imprecision in its predictive abilities. Or in other words, economics, with all its new modern analytical tools, not only couldn't predict the crisis, but is also failing to solve it...

This day marks the second birthday of the "Don't worry, I'm an economist" blog. Last year's celebration was marked by stressing out some of the best and most popular posts. Back then I reminded the readers on why I started the blog, and how I was happy to see the entire idea unfolding into a platform which I hope was clarifying the argument in favour of structural reforms and a strong institutional environment. I claimed that the crisis wasn't an aggregate demand shock but a structural shock building up on declining productivity and an inability to adapt to technological changes in the past few decades. The essential message hasn't changed. However, the second year was marked by a wider variety of topics.  The largest focus was again on the recovery  (both in Europe and beyond), but this time I've put more emphasis on technology , institutions and political economy , all in the same goal of trying to emphasize the structural, instituti...

Education is, like the whole economy in this digital age, undergoing a structural change. The newest special report from  Scientific American , entitled "Learning in the Digital Age" finds that more and more universities and students are switching to online education, which offers the convenience of faster learning and is also considerably cheaper, particularly for those coming from developing countries. The quality of knowledge the online course-takers will receive is yet to be seen. This of course depends on the skills they wish to acquire and the career they wish to pursue. However, for some it presents a remarkable opportunity they would have never had the chance to obtain in their regular environment. And while many experts suggest that online education and new technologies will be welfare enhancing, particularly for the residents of developing economies, it is the change in the skill sets offered in online courses (in regular classes as well) that suggests the magnitud...