Tuesday, January 15, 2019

The Flynn Effect (Rising IQ Scores Over Time) Reverses

The "Flynn effect" refers to a pattern observed by James Flynn, a professor at the University of Otago in New Zealand. It points out that for most of the 20th century, scores on IQ tests have been rising.  The reasons behind this pattern have been a subject of controversy.  For example, are the rising IQ scores a result of some factor like improved nutrition, both prenatally and for young children? Are they a result of improved schooling? Or a  job environment that puts greater emphasis on cognitive skills? Is there something about the design of IQ tests, perhaps combined with  that has made scores go up even if underlying intelligence hasn't moved?

It's clear that intelligence has a genetic aspect: studies that looked at twins who were separated at birth and raised in different environments show a high correlation of their IQ scores. But rising average IQ scores over a couple of generations is clearly not the result of a sharp genetic shift; instead, the Flynn effect strongly suggests that differences in measured intelligence are not purely genetic, but also have a strong environmental component.  However, the Flynn effect now seems to be moving in reverse.

As a starting point, Flynn offers a readable overview of his perspectives on IQ research  in "Reflections about Intelligence over 40 Years" (Intelligence, September-October 2018, 70: pp. 73-83). A few snippets (citations omitted): 
A few years later, I documented what became called the `Flynn effect'. The 20th century had been dominated by massive IQ gains from one generation to another. Americans had gained 14 IQ points on the standard IQ tests (Stanford-Binet, Wechsler) between 1932 and 1976; and 14 nations had made massive gains on a whole range of IQ tests, the largest on Raven's Progressive Matrices. ... This phenomenon now covers at least 34 nations and is accepted by all scholars. The 21st century may well be different, with gains tailing off or reversing in some nations beginning in 1995, although
not in the US. ... 
After a few years of inactivity, my Catholic Youth Organization (CYO) basketball team came back to play the current team. They killed us. They had all sorts of skills we lacked, they could shoot with either hand, could pass with either hand, do fade-away jump shots. I doubt that any of them had superior genes for basketball. Rather it was the passage of time that had given them a basketball environment a world away from our own. I take it that it is easy to apply this to the realm of cognition. Within  a cohort, genetic quality tends to dictate how you respond at school, how hard you work, whether you join a book club, how you will do in high school, what university you attend – your genetic quality will eventually tend toward a matching quality of environment for cognition. Between cohorts spaced over time, different forces operate.
Since the industrial revolution began, social change has caused new cognitive exercise ... more schooling, more cognitively demanding work, and more cognitively demanding leisure. These environmental factors initially triggered a mild rise in average performance, but this rise was greatly magnified by feedback mechanisms and over a century average IQ escalated. As the average years of schooling rose, the rising mean itself became a powerful engine in its own right as people chased it to keep up. ...

I want to make it clear that although enriched environment dominated the 20th century, IQ gains are not destined to persist like the law of gravity. Factors that were immediate triggers of IQ gains included more adults per child in the home, more and better schooling, more people at university, more cognitively demanding jobs, and better  health and conditions of the aged. There are signs that these are beginning to show diminishing returns.
What are some of the "signs" which Flynn is referring? For an overview of the recent findings about recent reversals in the Flynn effect, Flynn and Michael Shayer wrote "IQ decline and Piaget: Does the rot start at the top? (Intelligence, January–February 2018, 66: 112-121). They write:
The IQ gains of the 20th century have faltered. Losses in Nordic nations after 1995 average at 6.85 IQ points when projected over thirty years. On Piagetian tests, Britain shows decimation among high scorers on three tests and overall losses on one. The US sustained its historic gain (0.3 points per year) through 2014. The Netherlands shows no change in preschoolers, mild losses at high school, and possible gains by adults. Australia and France offer weak evidence of losses at school and by adults respectively. German speakers show verbal gains and spatial losses among adults. ...

After our analysis, we will suggest two tentative hypotheses. First, trends on conventional tests show those at most risk of IQ decline are high school students aged 14 to 18. However, Piagetian results in Britain imply losses at earlier ages. Second, Piagetian tests signal something extra: conflicting trends between top scorers (those at the highest or formal level of cognitive development) and those in the early stages of the next level (concrete generalization). Large losses at the formal level may be accompanied by gains at the concrete level.
A recent study from Norway struck me as especially interesting, because in Norway many men 18-19 years of age were given standardized IQ tests as part of assessment for compulsory national service. With data from 1970-2009, one can look both at trends for 18-19 year-olds, but also look link together the scores of fathers and sons--and include other variables about a given family.  Using this data, Bernt Bratsberg and Ole Rogeberga argue that the "Flynn effect and its reversal are both environmentally caused" (PNAS,  June 26, 2018, 115, #26).
The results show that large positive and negative trends in cohort IQ operate within as well as across families. This implies that the trends are not due to a changing composition of families, and that there is at most a minor role for explanations involving genes (e.g., immigration and dysgenic fertility) and environmental factors largely fixed within families (e.g., parental education, socialization effects of low-ability parents, and family size). While such factors may be present, their influence is negligible
compared with other environmental factors.
The questions of how intelligence translates into economic outcomes and into broader human well-being are big ones, and I won't make even a feeble gesture at tackling them here. But intelligence is a real thing, albeit hard to measure, and it shapes lives and society. What looks like a reversal of the Flynn effect, apparently for broad-based reasons environmental reasons that reach across families, is worth some thought.

Monday, January 14, 2019

What if Most Americans Don't Care That Deeply about Trade?

"In fact, recent public opinion polling uniformly reveals that, first, foreign trade and globalization are generally popular, and in fact more popular today than at any point in recent history; second, a substantial portion of the American electorate has no strong views on U.S. trade policy or trade agreements; third, and likely due to the previous point, polls on trade fluctuate based on partisanship or the state of the U.S. economy; and, fourth, Americans’ views on specific trade policies often shift depending on question wording, especially when the actual costs of protectionism are mentioned. These polling realities puncture the current conventional wisdom on trade and public opinion—in particular, that Americans have turned en masse against trade and globalization ..."

Thus argues Scott Lincicome in "`The “Protectionist Moment' That Wasn’t: American Views on Trade and Globalization," written as an installment of the Free Trade Bulletin from the Cato Institute (November 2, 2018).

If you disagree with the statements above, your disagreement isn't with Lincicome (or with me), it's with the array of polling data that Lincicome presents. For example, on the issue of how Americans feel about trade: 
  • Pew (May 2018) found that American support for free trade agreements rebounded to pre-2016 levels, only a couple percentage points off its all-time high in 2014.
  • WSJ/NBC News (March 2018) found “Americans overwhelmingly think trade is more of an opportunity to boost the economy than it is a threat to it . . . by a 66%–20% margin. And that feeling transcends party lines, as Republicans, independents and Democrats agree that foreign trade is an opportunity for economic growth.”
  • Gallup (March 2018) found that “[a] strong majority of U.S. adults (70%) see foreign trade as an opportunity for U.S. economic growth through increased exports rather than a threat to the economy from foreign imports (25%)”—down from an all-time high in 2017 of 72 percent. Before that, “no more than 58% had held the positive view of trade.”
  • Monmouth (June 2018) found that 52 percent and 14 percent, respectively, of Americans in 2018 think that “free trade agreements are good or bad for the United States” up dramatically from 24 percent good and 26 percent bad in November 2015.
But perhaps the deeper lesson of the polling data seems to be that American opinions about free trade do not seem especially strong or robust. For example, my own guess is that some of the rise in support for trade is a reaction against President Trump's anti-trade rhetoric and policies--but that some of the same people who express support for trade now could switch sides if tariffs were imposed on imports by a politician or party that they supported.  

This figure shows the range of opinions from "very strong opposition" to "very strong support" on a range of issues. The black line shows that a much larger share of the opinions about trade are in the "neither favor or oppose" category than is true for the other issues.
Also, while it's always true that the phrasing of questions in a survey will affect the results, this affect seems especially strong on trade issues. Here are a couple of examples from Bloomberg surveys. If you ask a trade question like this, you get a strongly protectionist answer: 
“Generally speaking, do you think U.S. trade policy should have more restrictions on imported foreign goods to protect American jobs, or have fewer restrictions to enable American consumers to have the most choices and the lowest prices?” 
But if you ask a trade question like this, you get a strongly free trade answer:
“Are you willing to pay a little more for merchandise that is made in the U.S., or do you prefer the lowest possible price?”
This difference also seems to reflect actual consumer/voter behavior. American may cheer for politicians who promise "to protect American jobs," but they aren't very eager to pay actual higher prices to make this occur. Lincicome summarizes the evidence this way:
"[P]rotectionist policies emanating from the United States government today are most likely a response not to a groundswell of popular support for protectionism but instead to discrete interest group lobbying (e.g., the U.S. steel industry) or influential segments of the U.S. voting population (e.g., steelworkers in Pennsylvania). Protectionism therefore remains a classic public-choice example of how concentrated benefits and diffuse costs can push self-interested politicians into adopting polices that are actually opposed by most of the electorate."
It's interesting that President Trump has a number of times defended his protectionist policies as a necessary negotiating step to greater free trade. From a trade policy perspective, this justification is the tribute that vice pays to virtue.

Friday, January 11, 2019

A Global Human Capital Index

Finding ways for people to be healthier and better-educated is both a useful goal in itself, and also an investment that increases future economic production. When I find myself worrying, as one does, that the world is falling to pieces, it's useful to remember basic facts: 
"The world is healthier and more educated than ever. In 1980 only 5 in 10 primary school-age children in low-income countries were enrolled in school. By 2015 this number had increased to 8 in 10. In 1980 only 84 of 100 children reached their fifth birthday, compared with 94 of 100 in 2018. A child born in the developing world in 1980 could expect to live for 52 years. In 2018 this number was 65 years."
This is from the start of Chapter 3 of the 2019 World Development Report from the World Bank, which focuses on the theme "The Changing Nature of Work."  The report contains chapters about technology, jobs, firms, and issues of social protection in an evolving economy. But I found myself drawn to the discussion of what economists call "human capital"--the investments in people that lead to future economic output. This version of the WDR introduces a "Human Capital Index," described in this way (footnotes and references to figures are omitted):
"The new index measures the amount of human capital that a child born in 2018 can expect to attain by age 18 in view of the risks of poor education and poor health that prevail in the country in which she was born. ... It has three components: (1) a measure of whether children survive from birth to school age (age 5); (2) a measure of expected years of quality-adjusted school, which combines information on the quantity and quality of education; and (3) two broad measures of health—stunting rates and adult survival rates."
On this figure, the horizontal axis measures countries of the world by per capita GDP. For those not used to reading per capita income levels converted to logarithms (!), $60,000 is equal to about 11. The vertical index scales human capital from zero to one. Here's how countries of the world look: 
It's perhaps useful to say a bit more about the components of this index. The first component, the share of children who survive to the age of 5, is fairly self-explanatory. 

The second component, based on education, has at least two issues worth noting. One issue is that, as emphasized in the 2018 World Development Report, many countries have succeeded in getting children to attend school but not necessarily in teaching them very much. Thus, the World Bank researchers wanted a measure of how much education was actually being achieved, not just how many butts were in the classroom seats. The report notes: 
"The World Bank Group and its partners are developing a comprehensive new database of international student achievement test scores covering  around 160 economies to benchmark what children learn. The database harmonizes results from international and regional testing programs so they are comparable. For the first time, learning is measurable in nearly all countries using the same yardstick. The differences in learning are dramatic. Country-level average test scores range from around 600 in the best-performing countries to around 300 in the worst-performing. To put these numbers in perspective, a score of roughly 400 corresponds to a benchmark of minimum proficiency set by the Programme for International Student Assessment (PISA), the largest international testing program. Less than half of students in developing countries meet this standard, compared with 86 percent in advanced economies. In Singapore, 98 percent of students reach the international benchmark for basic proficiency in secondary school; in South Africa, only 26 percent of students meet that standard. Essentially, then, all of Singapore’s secondary school students are prepared for a postsecondary education and the world of work, while almost three-quarters of South Africa’s young people are not."
A second point is that the index focuses on education level by age 18. Thus, a perfect score on this index would be someone who starts preschool at age 4 and attains 14 years of education by age 18.  As the report notes: "High enrollment rates throughout the school system bring many rich countries close to the 14-year benchmark. But in the poorest countries, children can expect to complete only half of that." This cutoff at age 18 of course means that higher education is not included in the figure. To put it another way, countries where a higher share of students attend school after age 18 get no boost in this figure, which tends to make the education gap between higher income countries and the rest look smaller. 

On the two proxies for health in the third component of the index, "adult survival rates" is fairly self-explanatory. As to the other measure, "Stunting measures the share of children who are unusually small for their age. It is broadly accepted as a proxy for the prenatal, infant, and early childhood health environment, and it summarizes the risks to good health that children are likely to experience in their early years—with important consequences for health and well-being in adulthood." 
There are worthwhile arguments to be had over how best to measure the education and health aspects of human capital, and even rthwhile arguments to be had over how to improve human capital in a given country. But at a deeper level, it's worth remembering that improved health and education represent greater social and economic empowerment and greater well-being--and that that there are considerable gains to be made in many countries, including the US, on both dimensions. 

Wednesday, January 9, 2019

Daniel Kahneman: "People Don't Want to be Happy"

The great utilitarian philosopher Jeremy Bentham famously argued that "it is the greatest happiness of the greatest number that is the measure of right and wrong." This principle was revolutionary in its own way. It treated people as equal. It did not emphasize the happiness of one gender over another, or one race or religion over another, or the happiness of nobles over commoners. It gave consideration to the happiness of the poor, prisoners and slaves. But it also opened up a number of deeper questions, like what actually makes people happy.

Daniel Kahneman (Nobel '02) is one of the progenitors of behavioral economics, which seeks to integrate economic analysis with insights from psychology. In several recent discussions and interviews, he has argued that "people don't want to be happy." For examples, see his 2010 TED talk, which has been viewed almost 5 million times. Or more recently, you can listen to his December 19, 2018, podcast with Tyler Cowen at "Conversations with Tyler." For some popular discussions of these arguments, Ephrat Livni writes in Quartz on "A Nobel Prize-winning psychologist says most people don’t really want to be happy" (December 21, 2018), Cassie Mogilner Holmes discusses in the Harvard Business Review "What Kind of Happiness Do People Value Most?" (November 19, 2018), and Amir Mandel writes in Haaretz "Why Nobel Prize Winner Daniel Kahneman Gave Up on Happiness" (October 7, 2018).

These articles and others describe a range of well-known paradoxes that arise when you ask people about their level of happiness. For example, people who experience a good thing (winning the lottery) or a bad thing (a disabling injury) often have a short-term movement in happiness, but then tend to rebound back to the level of happiness before the event. Our level of happiness with regard to a certain event can be quite different if we are anticipating a certain event, experiencing the event or looking back on the event. Our happiness is affected by what context or standard of comparison is being suggested to us at a certain time. As Kahneman says in his TED talk: "The word happiness is just not a useful word anymore because we apply it to too many different things."

In the HBR article mentioned above, Holmes writes:
Nobel Prize winner Daniel Kahneman described this distinction as “being happy in your life” versus “being happy about your life.” Take a moment to ask yourself, which happiness are you seeking?
This might seem like a needless delineation; after all, a time experienced as happy is often also remembered as happy. An evening spent with good friends over good food and wine will be experienced and remembered happily. Similarly, an interesting project staffed with one’s favorite colleagues will be fun to work on and look back on.
But the two don’t always go hand in hand. A weekend spent relaxing in front of the TV will be experienced as happy in the moment, but that time won’t be memorable and may even usher feelings of guilt in hindsight. A day at the zoo with one’s young children may involve many frustrating moments, but a singular moment of delight will make that day a happy memory. A week of late nights stuck at the office, while not fun exactly, will make one feel satisfied in hindsight, if it results in a major achievement.

In the interview with Cowen, Kahneman argues that people often don't make it a top priority to make time for doing the things that they say make them "happy," like spending time with family and friend. Instead, Kahneman argues, "They actually want to maximize their satisfaction with themselves and with their lives. And that leads in completely different directions than the maximization of happiness."

Livni writes in the Quartz article mentioned above:
"The key here is memory. Satisfaction is retrospective. Happiness occurs in real time. In Kahneman’s work, he found that people tell themselves a story about their lives, which may or may not add up to a pleasing tale. Yet, our day-to-day experiences yield positive feelings that may not advance that longer story, necessarily. Memory is enduring. Feelings pass. ... Still, it’s worth asking if we want to be happy, to experience positive feelings, or simply wish to construct narratives that seems worth telling ourselves and others, but doesn’t necessarily yield pleasure."
Or as Mandel taking with Kahneman in Haaretz:
"I gradually became convinced that people don’t want to be happy,” he [Kahneman] explained. “They want to be satisfied with their life.” A bit stunned, I asked him to repeat that statement. “People don’t want to be happy the way I’ve defined the term – what I experience here and now. In my view, it’s much more important for them to be satisfied, to experience life satisfaction, from the perspective of ‘What I remember,’ of the story they tell about their lives." 
This distinction captures many of my own feelings about  how I spend time and conduct my life. Many of the things I do are not necessarily "happy" in the moment, like dragging my butt out of bed to cook hot breakfast for the family each morning, but it gives me satisfaction and fits with a narrative I like to tell myself about my life. Actually writing the entries for this blog isn't necessarily "happy," but it gives me satisfaction to do so. 

Conversely, my sense is that a lot of the "unhappiness" in the modern world is often about a disruption of narrative. Most people don't mind working hard, and they are OK with the reality that they won't ever be rich or famous. They don't expect every day to be full of grins and giggles, either; they know there will be times of hardship, sadness, and loneliness.  Nonetheless, people want to know that they there is a pathway to life satisfaction, or at least to be within shouting distance of such a pathway.  If people don't see how their life and work and experiences fit into a broader and satisfying life narrative, they suffer grievously. 

Tuesday, January 8, 2019

Indonesia Rising

Everyone knows the two countries in the world with the largest populations: China and India. But what countries are next on the list? The United States is third, with 331 million people. And fourth in total population is Indonesia, with 265 million people. When it comes to total size of economy, Indonesia is now about 9th, similar to UK and France (using the purchasing power parity exchange rate). By 2050, Indonesia could also be the fourth-largest economy in the world, behind China, India, and the United States.

If this is making you feel as if you perhaps should know more about Indonesia's economy and prospects, a useful starting point is Realizing Indonesia’s Economic Potential, a 13-chapter book edited by Luis E. Breuer, Jaime Guajardo, Tidiane Kinda for the IMF (August 2018).  To wet your whistle, here are a few comments from the opening chapter, "Realizing Indonesia’s Economic Potential: An Overview," by Luis E. Breuer and Tidiane Kinda. As they explain, the country has carried out a number of economic reforms since the East Asian financial crisis back in 1998:
"A deep decentralization program replaced the system of centralized government and development planning, giving greater direct authority, political power, and financial resources to regencies and municipalities. Local governments’ responsibilities were expanded in health, primary and middle-level education, transport, agriculture, manufacturing industry and trade, capital investment, land, and infrastructure services. ...

"A wave of reforms reduced the dominant role of the government in the economy—a legacy of the postcolonial period—and began a shift toward a more market-based economy. Policy frameworks and toolkits were upgraded, including adoption of a floating exchange rate, fiscal rules that limited the deficit and capped public debt, and an inflation targeting regime. The banking sector was also restructured, and regulation and supervision were overhauled ... Various sectoral reforms were implemented to open up the economy and improve the business environment, including privatization of some state-owned enterprises, elimination of monopolies in some sectors, and reduction of general subsidies. More recently, fuel and electricity subsidies were more effectively targeted to low-income households; the land acquisition process for infrastructure projects was streamlined and made more flexible; the foreign direct investment (FDI) regime was partially liberalized, including for logistics, tourism, and agriculture; and the setting of the minimum wage was made more transparent and predictable ..." 
Here are some figures to illustrate the changes: 

Annual economic growth in Indonesia seems to have settled at about 5% recently. In the last 20 years, per capita GDP in Indonesia has risen by about 250%.
The source of that growth is not large trade surpluses; indeed, Indonesia has recently been running trade deficits. 

Indonesia's growth also doesn't come from government fiscal stimulus. The ratio of public debt/GDP has been falling in Indonesia. 
A number of East Asian countries have passed through a period of a "demographic dividend," when their economies got a boost because the size of the working-age population was relatively large compared to the rest of the population. Indonesia is still in that "demographic dividend" period, and expects it to last for another several decades. "Demographic trends are expected to increase Indonesia’s annual real GDP growth by close to 1 percentage point during 2020−50.5 This boost is substantial and positions the country relatively well compared with peers in Asia, many of
which are set to endure a reduction of real GDP growth as a result of adverse
demographic trends ..."

Finally, here is a list of some social indicators (trimmed down from a more extensive chart in the paper). Poverty and infant morality are way down, while education, life expectancy, and access to clean water, electricity, and the internet are on the rise. 

Indonesia of course faces a number of ongoing issues as well, and the chapters of the book discuss them in some detail. They include "rigid labor legislation," "low tax revenues and thin domestic financial markets," "the low level of FDI and low participation in global and Asian value chains, "one of the lowest internet penetration rate in the ASEAN region," and others. "[D]espite strong demographic tailwinds and steady capital accumulation, lower productivity growth has led to a decline in potential output growth in recent years." Indonesia's economy is somewhat vulnerable if/when China's economic growth slows down. Indonesia is a country spread out across thousands of islands, where hundreds of languages are spoken, so there is also inequality and outbreaks of ethnic tensions. There are concerns about challenges to Indonesia's democratic system. 

But the fact that economies face challenges isn't news. The fact that Indonesia's economy has performed so well in the last two decades in raising the standard of living, and and has plausibly promising prospects could be a welcome bright spot in the world economy for the next few decades. 

Monday, January 7, 2019

Some Economics of Gun Regulation

When it comes to regulate gun ownership, the ratio of confident predictions to actual research evidence can be distressingly high. A substantial report from the RAND think tank, which I wrote about last spring, spells out this theme in some detail ("The Distressingly Weak Lessons of Research on Gun Control", March 12, 2018).  The Regulatory Review, A Publication of the Penn Program on Regulation, has entered the fray with a series of nine short essays on "Bringing Expertise to the Gun Debate." which ran from November 5-15, 2018. Here are some points that caught my eye:

If the public policy goal is reducing gun violence and saving lives, it may be that direct regulations on guns are not the most cost-effective method to success. From "Gun Regulation Is Costly—and Not the Only Option," by Jennifer Doleac:
But, in general, the effect of gun regulations on public safety is less clear than many advocates on either side think ... It is difficult to disentangle the effects of gun laws from the effects of a community’s feelings about guns, from a community’s motivation to reduce gun violence, or from an increase in gun purchases that often comes before the laws take effect. ...   The significant time and money required to pass gun regulations—not to mention the time and money needed to enforce such laws through policing and incarceration—could be spent advocating for and implementing other programs. Are there other life-saving programs more deserving of these resources?
Several programs are at least worthy of consideration. Summer jobs programs for teens reduce mortality by 18 to 20 percent among participants. This effect is driven by a reduction in young men killed by homicide or suicide. Cognitive behavioral therapy for at-risk young men lowers violent crime arrests by 45 to 50 percent for participants. Access to Medicaid in early childhood decreases suicide by 10 to 15 percent later in life. Mandating that health insurance cover mental health benefits at parity reduces the suicide rate by 5 percent. Access to antidepressants also reduces suicide rates: An increase in antidepressant sales equivalent to one pill per capita reduced suicide by 5 percent.
In addition, repealing duty-to-warn laws for mental health providers—which require that they report a patient’s violent threats, perhaps causing patients to be less honest—could reduce teen suicides by 8 percent and decrease homicides by 5 percent. Repealing juvenile curfews could lower urban gunfire by two-thirds. And if the goal is to reduce mortality in general—not just gun deaths—then there are many more options policymakers should consider.
Some people will argue that policymakers can and should pursue all of these policy options—that pursuing gun control does not mean advocates cannot also lobby for summer jobs and mental health care—which may be true. But ... [i]n the war over gun deaths, vast armies have gathered to contest gun regulations, a territory of uncertain value. Meanwhile, other zones of clear value are available and virtually unguarded.
Guns are in some ways a magnifier of intentions. Thus, if you try to commit suicide, a gun means your attempt will be more likely to succeed. If you are involved in a violent altercation, a gun (and a larger-caliber gun) makes it more likely that the violence will cause death. From  "Reducing Information Asymmetry in the American Gun Market," by Amanda LeSavage:
Suicides constitute two-thirds of annual gun deaths in the United States. Individuals who live in homes with guns are approximately five times more likely to commit suicide by any means and approximately 17 times more likely to commit suicide with a gun than individuals who do not have guns in their homes. Despite these enhanced risks, gun owners and their family members are not more likely to engage in suicidal ideation or planning. This finding indicates that individuals who commit suicide with guns typically do not purchase their guns with the intention of committing suicide.
Suicide usually results from an impulsive decision that can come as a surprise even to the victim. If an individual has access to a gun in a moment of such crisis and attempts suicide with that gun, there is an 85 percent chance of death. But less than 10 percent of people who attempt suicide by any other means actually die. That statistic is why the United States, which possesses almost half of the civilian-owned guns that exist worldwide, suffers from an alarmingly high suicide rate.
From "Guns Do Kill People," Anthony A. Braga and Philip J. Cook:
Fifty years ago, law professor Franklin Zimring demonstrated that serious knife assaults are similar to shootings in many respects, including apparent determination to kill or injure the victim, yet the gun assaults had a much higher “case fatality rate.” In 1972, Zimring followed with an analysis comparing attacks with different types of guns. Once again, he demonstrated that nonfatal and fatal shootings were similar with respect to the circumstances and observed characteristics of the victims and assailants. He further found that the likelihood of death increased sharply with the caliber of the shooter’s firearm, as would be expected if the intrinsic power and lethality of the weapon mattered. Zimring concluded that there was a large random component to the outcome of gun assaults and that the firearm caliber was a systematic factor that influenced whether the victim lived or died. ... 
[W]e replicated the 1972 Zimring analysis but with better data and more sophisticated statistical techniques. We collected detailed Boston Police Department data on fatal and nonfatal shootings in Boston between 2010 and 2014. The working sample included all 221 gun homicides and 300 randomly selected nonfatal cases drawn from the 1,012 non-fatal gun assaults where the victim suffered a gunshot wound that occurred during the five-year period. Boston Police investigations determined firearm caliber in about 63 percent of nonfatal cases and about 83 percent of fatal cases. ... Comprehensive statistical analysis revealed that firearm caliber had no systematic association with the number of wounds, the general location of wounds, the circumstances of the assault, or victim characteristics. This lack of systematic association is what would be expected if caliber were “assigned” at random in these criminal assaults, akin to a natural experiment. Just as with Zimring’s findings, we found a strong positive association between death rate and caliber.
A lack of information about guns and gun ownership hinders research and sensible public discussion. From "A Call to Arms Research," by David S. Abrams:
But gun regulations are an area where even basic facts, such as annual gun sales, are not well known, which is a massive impediment to progress in the field. The lack of data has forced researchers to devise creative proxies for gun sales and ownership, because the true numbers are not generally available. For example, one of the best-known studies on the relationship between guns and crime, by Mark Duggan, uses sales of the magazine Guns & Ammo to proxy for the sales of guns. Another influential article on the topic, by Philip Cook and Jens Ludwig, uses the share of suicides committed with handguns as the proxy. Both are excellent papers that provide compelling evidence on the significant social cost of firearms. But serious policy-making in this area is still hamstrung by a lack of access to data.  ...  This lack of information could be remedied simply by a government effort to collect data on this important public health topic, as former Surgeon General Vivek Murthy and others have suggested.
From "Defining “Assault Weapons," by  David B. Kopel
Handgun control has always been about guns that are genuinely distinctive. Compared to rifles or shotguns, handguns are easier to conceal, faster to deploy, and more maneuverable, especially indoors. For this reason, handguns are the most preferred guns for lawful defense—as Justice Antonin Scalia pointed out in District of Columbia v. Heller—and are also “overwhelmingly” preferred by criminals—as Justice Stephen Breyer pointed out in his Heller dissent. ... [W]hen we discuss regulations for “handguns,” everyone understands the type of gun at issue. In contrast, “assault weapon” has no fixed meaning. ...  “Assault weapon” is just an epithet to stigmatize the largest possible number of guns and gun owners—the breadth of the definition of the moment depending on the politics of the moment.
From "Effective Gun Regulation Can Be Compatible with Gun Rights." by Robert J. Spitzer
The number of ATF agents charged with inspecting gun dealers has remained roughly the same since 1973. Thanks to a provision passed by Congress in the Firearms Owners Protection Act of 1986, agents are limited to one unannounced on-site gun dealer inspection every year, regardless of the dealer’s past record. The ATF is also barred by law from computerizing its records. Background checks are still conducted by hand, laboriously, by employees who must sift through paper records housed at its tracing center in Martinsburg, West Virginia. A routine trace takes about five days—a process that would take seconds by computer.

Saturday, January 5, 2019

When Alan Greenspan Worried about Overly Large Budget Surpluses

There was a time, less than 20 years ago, when a major concern for the US government was how it would deal with the problems of paying off all government debt, which was projected to happen by about 2010. Alan Greenspan, then chairman of the Federal Reserve, made it a major point in his "Outlook for the federal budget and implications for fiscal policy" when he testified before the US Senate Budget Committee on January 25, 2001. 

Here's Greenspan on what the budget projections looked like at that time:
"The most recent projections from the OMB indicate that, if current policies remain in place, the total unified surplus will reach $800 billion in fiscal year 2011, including an on-budget surplus of $500 billion. The CBO reportedly will be showing even larger surpluses. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs. The most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach before the end of the decade." 
But this good news of an unending future of budget surpluses did bring some issues to address. For example, when the federal government reached zero debt and stopped borrowing and became instead a holder of an ever-growing pile of financial assets, how would the decisions be made about which assets the government should hold?
"At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government. ... I believe, as I have noted in the past, that the federal government should eschew private asset accumulation because it would be exceptionally difficult to insulate the government's investment decisions from political pressures. Thus, over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise."
One possible option was to allow individual privatized accounts for Social Security, so that individuals rather than government would hold the growing mountain of these assets. In addition, the government would be wanting to pay off its long-term borrowing before the bonds were actually due--which might mean  paying a premium to bondholders.
"But the more important issue is the potentially rising cost of retiring marketable Treasury debt. While shorter-term marketable securities could be allowed to run off as they mature, longer-term issues would have to be retired before maturity through debt buybacks. The magnitudes are large ... Some holders of long-term Treasury securities may be reluctant to give them up, especially those who highly value the risk-free status of those issues. Inducing such holders, including foreign holders, to willingly offer to sell their securities prior to maturity could require paying premiums that far exceed any realistic value of retiring the debt before maturity."
The main emphasis was that the federal government needed to start thinking about an appropriate "glide path" to the brave new fiscal future of sustained budget surpluses, and the appropriate mixture of tax cuts and higher spending that was appropriate. Of course, there were a few paragraphs pointing out that this future also depended on avoiding "a major and prolonged economic contraction," as well as sustained rapid growth in productivity. 
"The reason for caution, of course, rests on the tentativeness of our projections. What if, for example, the forces driving the surge in tax revenues in recent years begin to dissipate or reverse in ways that we do not now foresee? Indeed, we still do not have a full understanding of the exceptional strength in individual income tax receipts during the latter 1990s. ... Indeed, the current economic weakness may reveal a less favorable relationship between tax receipts, income, and asset prices than has been assumed in recent projections. Until we receive full detail on the distribution by income of individual tax liabilities for 1999, 2000, and perhaps 2001, we are making little more than informed guesses of certain key relationships between income and tax receipts.
"In the end, the outlook for federal budget surpluses rests fundamentally on expectations of longer-term trends in productivity, fashioned by judgments about the technologies that underlie these trends. Economists have long noted that the diffusion of technology starts slowly, accelerates, and then slows with maturity. But knowing where we now stand in that sequence is difficult--if not impossible--in real time. As the CBO and the OMB acknowledge, they have been cautious in their interpretation of recent productivity developments and in their assumptions going forward. That seems appropriate given the uncertainties that surround even these relatively moderate estimates for productivity growth. ... That said, as I have argued for some time, there is a distinct possibility that much of the development and diffusion of new technologies in the current wave of innovation still lies ahead, and we cannot rule out productivity growth rates greater than is assumed in the official budget projections." 
A few thoughts on all of this.

1) "It is very hard to predict, especially about the future."  Economic projections depend on the underlying assumptions, and those are not written in stone.

2) The good news is that through strong bipartisan consensus since 2001, the US government has decisively addresses the problems of paying off all the government debt and running overly large budget surpluses for decades into the future. Here are a few snapshots to remind us of what happened, and where we now seem to be headed, taken from the "Selected Charts on the Long-Term Fiscal Challenges of the United States" published by the Peter G. Peterson Foundation (January 2019, largely based on Congressional Budget Office data and estimates).  

Here's federal spending and revenue expressed as a share of GDP. You can see that magic moment back in early 2001 when tax receipts were on the rise and spending was down. You can also see what happened when the dot-com boom ended in 2001: not only did taxes fall as the boom decreased, but tax cuts enacted both in response to the economic and stock market slowdown, but also in response to tax cuts that were intended both to help boost the economy out of the 2001 recession and also (I think) to reduce that pesky high tax take. Federal spending did remain below its  historical average through the early 2000s, but then shot up when the Great Recession hit later in the decade.

Interestingly, both federal spending and revenues are pretty close to their historical share of GDP over the last 40 years or so at present.
This figure shows total federal debt held by the public (as opposed to debt held internally by other agencies of government). Again, that downward feint in the debt level in the the late 1990s is clearly visible. Greenspan and others were definitely seeing something in the data! But you can then see the steep rise in government debt after the Great Recession, and the projected rise (assuming current legislation is unchanged) into the future. 
3) Greenspan's testimony is a reminder of how so many people thought and acted during the dot-com boom of the 1990s--that the surge of innovation and productivity growth at that time had a good chance of turning out to be permanent.

4) The experience since 2001 also points out that if the US government in its role as financial regulator and macroeconomic manager could at least minimize the size of the really bad recessions, like 2007-2009, it would have made a dramatic difference in the accumulated debt/GDP ratio. In addition, if there is a surge in productivity that lasts for some years, so many economic problems from budget deficits to wage growth become much more manageable. Without that surge of productivity growth, solutions to many of the same problems fall somewhere between "hard choices" and "politically impossible." There's no magic policy dial to turn up productivity growth. It's a matter of making the needed investments in human capital, physical capital and technology, in a context where there are incentives and rewards for those who seek out efficency and innovation.