Thursday, December 31, 2020

Lessons from World War II Statisticians: Survivorship Bias and Sequential Analysis

During World War II, a Statistical Research Group was formed to assist the war effort. W. Allen Wallis, who was Director of Research, tells the story in in "The Statistical Research Group, 1942-1945" (Journal of the American Statistical Association, 75:370, June 1980, pp. 320-330, available vis JSTOR): "The Statistical Research Group (SRG) was based at Columbia University during the Second World War and supported by the Applied Mathematics Panel (AMP) of the National Defense Research Committee (NDRC), which was part of the Office of Scientific Research and Development (OSRD)." Wallis was Director of Research. Some prominent members of the group included Milton Friedman, Harold Hotelling, Leonard Savage, and Abraham Wald. Indeed, Wallis writes: "SRG was composed of what surely must be the most extraordinary group of statisticians ever organized, taking into account both number and quality."

The backstory goes like this. On behalf of himself and some other other Stanford statistics professors, Wallis wrote to the US government government in 1942, offering to help in some way with the war effort. He got a letter back from W. Edwards Deming, the engineer who later became a guru of industrial quality control, but who at this time was working in the US  Census Bureau. Deming wrote back "with four single- spaced pages on the letterhead of the Chief of Ordnance, War Department," and suggested that the statisticians prepare a short course for engineers and firms in how statistical methods could be used for quality control. As Wallis dryly noted in 1980: "The program that resulted from Deming's suggestion eventually made a major contribution to the war effort. Its aftermath, in fact, continues to make major contributions not only to the American economy but also to the Japanese economy."

By mid-1942, Wallis soon ended up moving to Columbia to run the Statistical Research Group. One bit of back-story is that, in those pre-computer days, "the computing ... was done by about 30 young women, mostly mathematics graduates of Hunter or Vassar. Some of the basic statistical tables published in Techniques of Statistical Analysis (SRG 1948) were computed as backlog projects when there was slack in the computing load."

The SRG carried out literally hundreds of analyses: how the ammunition in aircraft machine guns should be mixed; quality examination methods for rocket fuel; "the best settings on proximity fuzes for air bursts of artillery shells against ground troops"; "to evaluate the comparative effectiveness of four 20 millimeter guns on the one hand and eight 50 caliber guns on the other as the armament of a fighter aircraft"; calculating "pursuit curves" for targeting missiles and torpedoes. "Statistical studies were also made of stereoscopic range finders, food storage data, high temperature alloys, the diffusion of mustard gas, and clothing tests."

Several of the insights from the SRG have had a lasting effect in terms of statistical analysis. Here, I'll focus on two of them: survivorship bias and sequential sampling. 

"Survivorship bias" refers to a problem that emerges when you look at the results of data, not realizing that some data points have dropped out over time. For example, suppose you look at the average rate of return from stock market mutual funds. If you just look at the universe of current funds, you will be leaving out funds that did badly and were closed or merged for lack of interest. Or suppose you argue in favor of borrowing money to attend a four-year college by citing evidence about higher salaries earned by college graduates, but you leave out the experience of those who borrowed money and did not end up graduating.  In health care, the issue of survivorship bias can come up quite literally in studies of trauma care: before drawing conclusions, such studies must of course beware of the fact that the data of those who suffered and injury but did not end up in the trauma care unit, or those who died of the injury before arriving at the trauma care unit, will not be included in the study. 

In a follow-up comment on the main article, appearing in the same issue, Wallis describes the origins of the idea of survivorship bias: 
In the course of reviewing the history of SRG, I was reminded of some ingenious work by Wald that has never seen the light of day. Arrangements have now been made for its publication, although the form and place are yet undecided. Wald wrote a series of memoranda on estimating the vulnerability of various parts of an airplane from data showing the number of hits on the respective parts of planes returning from combat. The vulnerability of a part (engine, aileron, pilot, stabilizer, elevator, etc.) is defined as the probability that a hit on that part will result in destruction of the plane (fire, explosion, loss of power, loss of control, etc.). The military was inclined to provide protection for those parts that on returning planes showed the most hits. Wald assumed, on good evidence, that hits in combat were uniformly distributed over the planes. It follows that hits on the more vulnerable parts were less likely to be found on returning planes than hits on the less vulnerable parts, since planes receiving hits on the more vulnerable parts were less likely to return to provide data. From these premises, he devised methods for estimating the vulnerability of various parts.
In other words, just looking at damage on the planes that returns would not be useful, but when adjusting for the fact that the returning planes are the ones that survived, it can offer real insights. Wald's 1943 manuscript "A Method of Estimating Plane Vulnerability Based on Damage of Survivors," was published in 1980 by the Defense Technical Information Center

But clearly the most prominent statistical insight from the SRG was the idea of sequential analysis, which Wallis calls "one of the most powerful and seminal statistical ideas of the past third of a century." In his 1980 article, he reproduces a long letter that he wrote in 1950 on the subject. Doing quality control testing on potential new kinds of ordnance required firing thousands of rounds. Apparently, a general observed to Wallis that if someone "wise and experienced" was on hand, that person could tell within a few thousand or even a few hundred rounds if the new ordnance was either much worse or much better than hoped. The general asked if there was some mechanical rule that could be devised for when the testing could be ended earlier than the full sample. Wallis noodled around with this idea, and expressed it this way in his 1950 letter: 
The fact that a test designed for its optimum properties with a sample of predetermined size could be still better if that sample size were made variable naturally suggested that it might pay to design a test in order to capitalize on this sequential feature; that is, it might pay to use a test which would not be as efficient as the classical tests if a sample of exactly N were to be taken, but which would more than offset this disadvantage by providing a good chance of terminating early when used sequentially. 

Wallis remembers a series of conversations with Milton Friedman on the subject, after Friedman joined the SRG in 1943. They made some progress in thinking about tradeoffs between sample size and statistical power and what is learned along the way. But they also ended up feeling that the discovery was potentially important to the war effort and that they weren't well-equipped to solve it expeditiously. Wallis remembers a momentous walk:  

We finally decided to bring in someone more expert in mathematical statistics than we. This decision was made after rather careful consideration. I recall talking it over with Milton walking down Morningside Drive from the office to our apartment. He said that it was not unlikely, in his opinion, that the idea would prove a bigger one than either of us would hit on again in a lifetime. We also discussed our prospects for being able to work it out ourselves. Milton was pretty confident of our (his?) ability to squeeze the juice out of the idea, but I had doubts and felt that it might go beyond our (my!) depth mathematically. We also discussed the fact that if we gave the idea away, we could never expect much credit, and would have to take our chances on receiving any at all. We definitely decided that even if the credit situation turned out in a way that disappointed us, there would be nothing to do about it, 
They ended up getting permission to talk with Abraham Wald on the subject, which wasn't easy, because Wald's time was "too valuable to be wasted." 
At this first meeting Wald was not enthusiastic and was completely noncommital. ... The next day Wald phoned that he had thought some about our idea and was prepared to admit that there was sense in it. That is, he admitted that our idea was logical and worth investigating. He added, however, that he thought nothing would come of it; his hunch was that tests of a sequential nature might exist but would be found less powerful than existing tests. On the second day, however, he phoned that he had found that such tests do exist and are more powerful, and furthermore he could tell us how to make them.
It took a few more years for the underlying theory to be worked out, and Wald's book on Sequential Analysis is published in 1947. But the roots of the idea go back to an army general noting that someone with expert and informed judgment could sometimes make a faster decision than the existing quality control algorithms.

The SRG is an example of how ideas and statistical methods invented out of immediate practical necessity--like new methods of quality control--had longer-run powerful results. As this year draws to a close, I find myself wondering if some of the ideas and methods that have been used to create vaccines and to push back against COVID-19 will find broader applicability in the years ahead, perhaps in areas reaching well beyond health care.

Wednesday, December 30, 2020

Thomas Sowell on Editors and Writing

Thomas Sowell offers some autobiography and vivid examples in his 2001 essay, "Some Thoughts about Writing." He offers both a case for the importance of editing, and also some vivid frustrations about overly officious editors. He writes near the start: "People who want to be complimentary sometimes tell me that I have a `gift' for writing. But it is hard for me to regard as a gift something that I worked at for more than a decade—unsuccessfully—before finally breaking into print. Nor was this a case of unrecognized talent. It was a case of quickly recognized incompetence."

Here's Sowell on his own experience with editing academic writers (footnote omitted): 
To say that my relationship with editors has not always been a happy one would be to completely understate the situation. To me, the fact that I have never killed an editor is proof that the death penalty deters. However, since nowadays we are all supposed to confess to shameful episodes in our past, I must admit that I was once an editor. Only once. And I didn’t inhale.

It was the most painful kind of editing—editing academic writers. Too many academics write as if plain English is beneath their dignity and some seem to regard logic as an unconstitutional infringement of their freedom of speech. Others love to document the obvious and arbitrarily assume what is crucial. A typical work of this genre might read something like this:
As surely as the world is round (Columbus, 1492), and as surely as what goes up must come down (Newton, 1687), when Ronald Reagan was elected President (Cronkite, 1980) and then re-elected (Rather, 1984), it signaled a change in the political climate (Brinkley, 1980–88). Since then, we have seen exploitation (Marx, 1867) and sexism (Steinem, 1981) on the rise.
But no attempt to parody academic writing can match an actual sample from a scholarly journal:
Transnationalization further fragmented the industrial sector. If the dominant position of immigrant enterprises is held to have reduced the political impact of an expanding industrial entrepreneurate, the arrival of multinational corporations possibly neutralized the consolidation of sectoral homogeneity anticipated in the demise of the artisanate.
You can’t make that up.

If academic writings were difficult because of the deep thoughts involved, that might be understandable, even if frustrating. Seldom is that the case, however. Jaw-breaking words often cover up very sloppy thinking. It is not uncommon in academic writings to read about people “living below subsistence.” The academic writers I edited seemed to have great difficulty accepting my novel and controversial literary doctrine that the whole purpose of writing is so that people can read the stuff later on and know what you are trying to say. These professors seemed to feel that, once they put their priceless contributions to mankind on paper, a sacred obligation fell upon the reader to do his damndest to try to figure out what they could possibly mean.  
I've worked 34 years as an academic editor, so I enjoyed reading that passage. But I would also say that while the problems of academic writing are well-described here, my own experience is that authors are quite willing, and even grateful, to work with my editing in producing an improved draft. 

Sowell also conveys the horror of the kind of copy-editing that makes everything taste the same, or worse. He writes: 
But these are just two kinds of absurdities from the rich spectrum of the absurdities of copy-editors. Where Shakespeare wrote, “To be or not to be, that is the question,” a copy-editor would substitute: “The issue is one of existence versus non-existence.” Where Lincoln said, “Fourscore and seven years ago,” a copy-editor would change that to: “It has been 87 years since . . .” Where the Bible said, “In the beginning, God created the heavens and the earth,” a copy-editor would run a blue pencil through the first three words as redundant.

Pedestrian uniformity and shriveled brevity are the holy grail of copy-editors, the bureaucrats of the publishing industry. Like other bureaucrats, copy-editors tend to have a dedication to rules and a tin ear for anything beyond the rules. Seldom is there even the pretense that their editorial tinkerings are going to make the writing easier for the reader to follow, more graceful, more enjoyable, or more memorable.

Self-justifying rules and job-justifying busy work are the only visible goals of copy-editors.
My own approach here is that in the process of hands-on editing, I try to make all the small-scale copy-editing changes that are needed. Then the author has a chance to revise, and while authors may differ with other suggestions I offer, they hardly ever care about the copy-editing details like spelling out "United States" as a noun but using "US" as an adjective, whether to use a serial comma when listing more than two authors, and the like. But as a result, when authors see galley proofs, they have already seen and digested the copy-editing changes, so there aren't any last-minute surprises. 

Sowell's methods may not work for everyone. For example, he describes his usual approach of working on several books at once, and putting aside the ones where he doesn't feel inspired for years, before perhaps returning to them. 

Tuesday, December 29, 2020

Joseph Schumpeter: "Capitalism Stands Its Trial before Judges Who Have the Sentence of Death in their Pockets"

In my experience, relatively few of those who pretend to adjudicate between capitalism and socialism are interested weighing the evidence: instead, most of these discussions quickly turn into denunciations of the flaws of capitalism, apparently with the assumption that any un-capitalism would inevitably be an improvement. Joseph Schumpeter, in his classic 1943 book Capitalism, Socialism, and Democracy coined a memorable phrase to describe this prejudgement, when he wrote: 

"[C]apitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear ..."

It's part of a passage that includes another of my favorite acerbic Schumpeter comments: ""[P]ractically every nonsense that has ever been said about capitalism has been championed by some professed economist."

Here's the broader context for these comments, from pp. 143-145.
1. The capitalist process, so we have seen, eventually decreases the importance of the function by which the capitalist class lives. We have also seen that it tends to wear away protective strata, to break down its own defenses, to disperse the garrisons of its entrenchments. And we have finally seen that capitalism creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own; the bourgeois finds to his amazement that the rationalist attitude does not stop at the credentials of kings and popes but goes on to attack private property and the whole scheme of bourgeois values.

The bourgeois fortress thus becomes politically defenseless. Defenseless fortresses invite aggression especially if there is rich booty in them. Aggressors will work themselves up into a state of rationalizing hostility —aggressors always do. No doubt it is possible, for a time, to buy them off. But this last resource fails as soon as they discover that they can have all. ...

2. But, so it might well be asked—in fact, so it is being asked in naïve bewilderment by many an industrialist who honestly feels he is doing his duty by all classes of society—why should the capitalist order need any protection by extra-capitalist powers or extra-rational loyalties? Can it not come out of the trial with flying colors? Does not our own previous argument sufficiently show that it has plenty of utilitarian credentials to present? Cannot a perfectly good case be made out for it? And those industrialists will assuredly not fail to point out that a sensible workman, in weighing the pro’s and con’s of his contract with, say, one of the big steel or automobile concerns, might well come to the conclusion that, everything considered, he is not doing so badly and that the advantages of this bargain are not all on one side. Yes—certainly, only all that is quite irrelevant.

For, first, it is an error to believe that political attack arises primarily from grievance and that it can be turned by justification. Political criticism cannot be met effectively by rational argument. ... Just as the call for utilitarian credentials has never been addressed to kings, lords and popes in a judicial frame of mind that would accept the possibility of a satisfactory answer, so capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear ...

Second, the success of the indictment becomes quite understandable as soon as we realize what acceptance of the case for capitalism would imply. That case, were it even much stronger than it actually is, could never be made simple. People at large would have to be possessed of an insight and a power of analysis which are altogether beyond them. Why, practically every nonsense that has ever been said about capitalism has been championed by some professed economist. But even if this is disregarded, rational recognition of the economic performance of capitalism and of the hopes it holds out for the future would require an almost impossible moral feat by the have-not. That performance stands out only if we take a long-run view; any pro-capitalist argument must rest on long-run considerations. In the short run, it is profits and inefficiencies that dominate the picture. ... In order to identify himself with the capitalist system, the unemployed of today would have completely to forget his personal fate and the politician of today his personal ambition. .... Secular improvement that is taken for granted and coupled with individual insecurity that is acutely resented is of course the best recipe for breeding social unrest.

Monday, December 28, 2020

A Dose of Skepticism about Randomized Control Trials

When I was being socialized into economics, it was common to for professors to say something like" Economics cannot carry out experiments like the natural sciences, and thus we must turn to other standards of evidence." But the last couple of decades have shown that economists can indeed carry out experiments in the form of randomized control trials: that is, an experiment in which one group of participants selected at random gets a "treatment" of some kind and the other "control" group does not. 

Indeed, the 2019 Nobel prize economics was awarded “for their experimental approach to alleviating global poverty” to Abhijit Banerjee, Esther Duflo, and Michael Kremer. Going back a little farther, Vernon L. Smith received a share of the 2002 Nobel Prize "for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms." 

But as with all seismic shifts in what one group of economists do, some other economists push back. A collection of essays by prominent economists edited by Florent Bédécarrats, Isabelle Guérin, and François Roubaud, Randomized Control Trials in the Field of Development: A Critical Perspective, has just been published by Oxford University Press. Broadly speaking, the concerns are that the evidence from such trials can often be less compelling than their advocates claim, and that such trials may in some cases be more productive as a format for producing publishable economic research than for gaining a deeper understanding of the challenges of economic development. Here, I'll give a quick sample of some main points made in the first few essays, while recommending the book itself for additional discussion.  

The first essay, by Angus Deaton, is entitled "Randomization in the Tropics Revisited: A Theme and Eleven Variations." A sizeable portion of Deaton's argument focuses on treating randomized control trials as just another form of empirical study, with no presumption that it should be better or worse.  For example, Deaton writes (I draw here on the version of the essay published as NBER Working Paper No. 27600, issued in July 2020, footnotes omitted):
The RCT is a useful tool, but I think that it is a mistake to put method ahead of substance. I have written papers using RCTs. Like other methods of investigation, they are often useful, and, like other methods, they have dangers and drawbacks. Methodological prejudice can only tie our hands. Context is always important, and we must adapt our methods to the problem at hand. It is not true that an RCT, when feasible, will always do better than an observational study. This should not be controversial, but my reading of the rhetoric in the literature suggests that the following statements might still make some uncomfortable, particularly the second: (a) RCTs are affected by the same problems of inference and estimation that economists have faced using other methods, as well as by some that are peculiarly their own, and (b) no RCT can ever legitimately claim to have established causality. My theme is that RCTs have no special status, they have no exemption from the problems of inference that econometricians have always wrestled with, and there is nothing that they, and only they, can accomplish. Just as none of the strengths of RCTs are possessed by RCTs alone, none of their weaknesses are theirs alone, and I shall take pains to emphasize those facts. There is no gold standard. There are good studies and bad studies, and that is all.
However, Deaton also argues that randomized control trials have a particular disadvantage, which is that they are using people as experimental subjects. 
Yet some of the development RCTs seem to pose challenges to the most basic rules. How is informed consent handled when people do not even know they are part of an experiment? Is it OK to run experiments that might change the results of an election? Beneficence is one of the basic requirements of experimentation on human subjects. But beneficence for whom? Foreign experimenters or even local government officials are often poor judges of what people want. Thinking you know what is good for other people is not an appropriate basis for beneficence.  ...

My main concern is broader. Even in the US, nearly all RCTs on the welfare system are RCTs done by better-heeled, better-educated and paler people on lower income, less-educated and darker people. My reading of the literature is that a large majority of American experiments were not done in the interests of the poor people who were their subjects, but in the interests of rich people (or at least taxpayers or their representatives) who had accepted, sometimes reluctantly, an obligation to prevent the worst of poverty, and wanted to minimize the cost of doing so. That is bad enough, but at least the domestic poor get to vote, and are part of the society in which taxpayers live and welfare operates, so that there is a feedback from them to their benefactors. Not so in economic development, where those being aided have no influence over the donors. Some of the RCTs done by western economists on extremely poor people in India, and that were vetted by American institutional review boards, appear unethical, and likely could not have been done on American subjects. It is particularly worrying if the research addresses questions in economics that appear to have no potential benefit for the subjects. Using poor people to build a professional CV should not be accepted. Institutional review boards in the US have special protection for prisoners, whose  autonomy is compromised; there appears to be no similar protection for some of the poorest people in the world. There is an uncomfortable parallel here with the debates about pharmaceutical countries testing drugs in Africa. ...

 Working to benefit the citizens of other countries is fraught with difficulties. In countries ruled by regimes that do not care about the welfare of their citizens—extractive regimes that see their citizens as source of plunder—the regime, if it has complete control, will necessarily be the beneficiary of aid from abroad. ... The RCT is in itself a neutral statistical tool but as Dean Spears notes60, “RCTs provide a ready and high-status language” that allows “mutual legitimization among funders, researchers, and governments.” When the RCT methodology is used as a tool for “finding out what works,” in a way that does not include freedom in its definition of what works, then it risks supporting oppression. 
The next essay, by Martin Ravallion, asks "Should the Randomistas (Continue to) Rule?" He supports and offers his own angle on many of the questions about randomized control trials and statistical inference raised by Deaton, and adds concerns about how an overemphasis on RCTs may bias the research agenda. Here, I quote from the version of the paper released as NBER Working Paper 27554:
We are seeing a welcome shift toward a culture of experimentation in fighting poverty, and addressing other development challenges. RCTs have a place on the menu of tools for this purpose. However, they do not deserve the special status that advocates have given them, and which has so influenced researchers, development agencies, donors and the development community as a whole. ...  Despite frequent claims to the contrary, an RCT does not equate counterfactual outcomes between treated and control units. The absence of systematic bias does not imply that the experimental error in a one-off RCT is less than the error in some alternative non-random method. We cannot know that. Among the feasible methods in any application (with a given budget for evaluation), the RCT option need not come closer to the truth. Indeed, if the sample size for an observational study is sufficiently greater than for an RCT in the same setting, then the trials by observational study can be more often close to the truth even if they are biased. ...  Moreover, when we look at RCTs in practice, we see them confronting problems of mis-measurement, selective compliance and contamination. Then it becomes clear that the tool cannot address the questions we ask about poverty, and policies for fighting it, without making the same type of assumptions found in observational studies—assumptions that the randomistas promised to avoid. ... 

The questionable claims made about the superiority of RCTs as the “gold standard” have had a distorting influence on the use of impact evaluations to inform development policymaking. The bias stems from the fact that randomization is only feasible for a non-random subset of policies. When a program is community- or economy-wide or there are pervasive spillover effects from those treated to those not, an RCT will be of little help, and may well be deceptive. The tool is only well suited to a rather narrow range of development policies, and even then it will not address many of the questions that policymakers ask. Advocating RCTs as the best, or even only, scientific method for impact evaluation risks distorting our knowledge base for fighting poverty ...
Lant Pritchett follows with the third essay, "Randomizing Development: Method or Madness." (I draw here from the version of the paper at his website dated June 30, 2019). Pritchett emphasizes that "development" is a big picture concept. He writes: 
National development is a four-fold transformation of an intrinsically social grouping (country or region or society) to higher levels of capabilities in four dimensions: an economic transformation from lower productivity to higher productivity; a political transformation to governments more responsive to the broad wishes of the population, an administrative transformation to organizations (including those of the state) with higher levels of functional capability for implementation, and a social transformation to more equal treatment of the citizens of the country (usually with a sense of common identity and, to some extent, shared purpose). National development is about countries like Haiti or India or Bolivia or Indonesia achieving the high levels of economic, political, administrative, and social functional capabilities that Denmark or Japan or Australia possess
Pritchett argues that when you compare those big-picture goals to the very limited focus of the actual randomized control trials of the sort that often end up being published in economics journals, the comparison is somewhere between ridiculous and painful. He writes (footnotes omitted):
Bill Gates has recently been promoting chicken ownership to address poverty in Africa. In an open letter, Professor Blattman of University of Chicago pointed out that cash transfers may be more cost effective than chickens said: “It would be straightforward to run a study with a few thousand people in six countries, and eight or 12 variations, to understand which combination works best, where, and with whom. To me that answer is the best investment we could make to fight world poverty. The scholars at Innovations for Poverty Action who ran the livestock trial in Science agree with me. In fact, we’ve been trying, together, to get just such a comparative study started.” [emphasis added] 

I think it is important for the development community to stop and reflect on how we, as a development community, arrived at this two-fold madness. First the madness that Bill Gates, a genius, a humanitarian, an important public intellectual, could be even semiseriously talking about chickens. Second, the madness about method, that the response of Chris Blattman, also a genius, an academic at a top global university, and also an important public intellectual would respond not “Chickens? Really?” but rather that the “best investment” to “fight world poverty” is using the right method to study the competing program and design elements of chickens versus cash transfers. 

That this is madness is, I hope, is obvious. The top 20 most populous developing countries in the world are (in order): China, India, Indonesia, Brazil, Pakistan, Nigeria, Bangladesh, Russia, Mexico, Philippines, Ethiopia, Vietnam, Egypt, Iran, Turkey, DR Congo, Thailand, South Africa, Tanzania and Colombia. Together these countries have 4.6 billion people. Imagine gathering a couple of dozen of the leaders from any one of these countries (where “leadership” could be political, social, economic, intellectual, popular, mass movement, civil society, or any combination) and saying: “We, the experts in the development community, think ‘fighting world poverty’ is the center of the development agenda and we think that the ‘best investment’ we can make to promote development/fight poverty in your country [fill in the blank: Indonesia, Brazil, Nigeria, DRC, Tanzania, South Africa, Egypt, India] is a set of studies using the right method to resolve the questions of whether anti-poverty programs should promote chicken ownership or distribute cash and, within that, how best to design such chicken or cash transfer programs?” 

I imagine two responses from country leaders. One, how could you have come to such trivial and trivializing ideas about our country’s goals, aspirations, and challenge? How can we as [Indonesians/Indians/Nigerians/Egyptians/Tanzanians] not take as outright contempt the suggestion that either “chickens” or “studies about chickens” are the top priorities for our country? Two, we can easily list for you many pressing, urgent, if not crisis, development issues affecting the current and future well-being of the citizens of our country. These questions are important whether or not your preferred method for producing research papers can address them.
There is much more in these essays worth considering, and much more in the volume as a whole. Although I am here emphasizing the criticisms of this approach, I should also note that these issues are well-known and broadly debated, and the supporters of a randomized control trial approach have answers of their own. For example, for a discussion of how experiments can move from small-scale to larger-scale and eventually to public policy, one starting point is a three-paper symposium in the Fall 2017 issue of the Journal of Economic Perspectives
Here's the full Table of Contents for Randomized Control Trials in the Field of Development: A Critical Perspective, edited by Florent Bédécarrats, Isabelle Guérin, and François Roubaud: 

General Introduction, Florent Bédécarrats, Isabelle Guérin, and François Roubaud
0. Randomization in the Tropics Revisited: A Theme and Eleven Variations, Sir Angus Deaton
1. Should the Randomistas (Continue to) Rule?, Martin Ravallion
2. Randomizing Development: Method or Madness?, Lant Pritchett
3. The Disruptive Power of RCTs, Jonathan Morduch
4. RCTs in Development Economics, Their Critics, and Their Evolution, Timothy Ogden
5. Reducing the Knowledge Gap in Global Health Delivery: Contributions and Limitations of Randomized Controlled trials, Andres Garchitorena, Megan Murray, Bethany Hedt-Gauthier, Paul Farmer, and Matthew Bonds
6. Trials and Tribulations: The Rise and Fall of the RCT in the WASH Sector, Dean Spears, Radu Ban, and Oliver Cumming
7. Microfinance RCTs in Development: Miracle or Mirage?, Florent Bédécarrats, Isabelle Guérin, and François Roubaud
8. The Rhetorical Superiority of Poor Economics, Agnès Labrousse
9. Are the 'Randomistas' Evaluators?, Robert Picciotto
10. Ethics of RCTs: Should Economists Care about Equipoise?, Michel Abramowicz and Ariane Szafarz
11. Using Priors in Experimental Design: How Much Are We Leaving on the Table?, Eva Vivalt
12. Epilogue: Randomization and Social Policy Evaluation Revisited, James J. Heckman

Saturday, December 26, 2020

Charles Dickens on Management and Labor

There's a sort of parlor game that the economically-minded sometimes play around the Christmas holiday, related to A Christmas Carol, by Charles Dickens. Was Dickens writing his story as an attack on economics, capitalism, and selfishness? After all, his depiction of Ebenezer Scrooge, along with his use of phrases like "decrease the surplus population" and the sarcastic use of "a good man of business" would suggest as much, and a classic example of such an interpretation is here. Or was Dickens just telling a good story with distinct characters? After all, Scrooge is portrayed as an outlier in the business community. The warm portrayal of Mr. Fezziwig certainly opens the possibility that one can be a successful man of business as well as a good employer and a decent human being. And if Scrooge hadn't saved money, would he have been able to save Tiny Tim?

It's all a good "talker," as they say about the topics that get kicked around on radio shows every day. As part of my own holiday break, I republish this essay each year near or on Christmas day.

I went looking for some other perspectives on how Charles Dickens perceived capitalism that were not embedded in a fictional setting. In particular, I checked the weekly journal Household Words, which Dickens edited from 1850 to 1859. Articles in Household Words do not have authors provided. However, Anne Lohrli went through the business and financial records of the publication, which identified the authors and showed who had been paid for each article. The internal records of the journal show that Dickens was the author of this piece from the issue of February 11, 1854, called "On Strike." (Lohrli's book is called Household Words: A Weekly Journal 1850-59, conducted by Charles Dickens, University of Toronto Press, 1973. Household Words is freely available on-line at at site hosted by the University of Buckingham, with support from the Leverhulme Trust and other donors.)

The article does not seem especially well-known today, but it is the source of a couple of the most common quotations from Charles Dickens about "political economy," as the study of economics was usually called at the time. Early in the piece, Dickens wrote: "Political Economy was a great and useful science in its own way and its own place; but ... I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods." Later in the article, Dickens wrote: "[P]olitical economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it."

But more broadly, the article is of interest because Dickens, telling the story in the first person, takes the position that in thinking about a strike taking place in the town of Preston, one need not take the side either of management or labor. Instead, Dickens writes, one may "be a friend to both," and feel that the strike is "to be deplored on all accounts." Of course, the problem with a middle-of-the-road position is that you can end up being hit by ideological traffic going in both directions. But the ability of Dickens to sympathize with people in a wide range of positions is surely part what gives his novels and his world-view such lasting power. The article goes into a fair amount of detail, and can be read on-line, so I will content myself here with a substantial excerpt.

Here's a portion of the 1854 essay by Dickens:


Travelling down to Preston a week from this date, I chanced to sit opposite to a very acute, very determined, very emphatic personage, with a stout railway rug so drawn over his chest that he looked as if he were sitting up in bed with his great coat, hat, and gloves on, severely contemplating your humble servant from behind a large blue and grey checked counterpane. In calling him emphatic, I do
not mean that he was warm; he was coldly and bitingly emphatic as a frosty wind is.

"You are going through to Preston, sir?" says he, as soon as we were clear of the
CharPrimrose Hill tunnel.

The receipt of this question was like the receipt of a jerk of the nose; he was so short and sharp.


"This Preston strike is a nice piece of business!" said the gentleman. "A pretty piece of business!"

"It is very much to be deplored," said I, "on all accounts."

"They want to be ground. That's what they want to bring 'em to their senses," said the gentleman; whom I had already began to call in my own mind Mr. Snapper, and whom I may as well call by that name here as by any other. *

I deferentially enquired, who wanted to be ground?

"The hands," said Mr. Snapper. " The hands on strike, and the hands who help 'em."

I remarked that if that was all they wanted, they must be a very unreasonable people, for surely they had had a little grinding, one way and another, already. Mr. Snapper eyed me with sternness, and after opening and shutting his leathern-gloved hands several times outside his counterpane, asked me
abruptly, " Was I a delegate?"

I set Mr. Snapper right on that point, and told him I was no delegate.

"I am glad to hear it," said Mr. Snapper. "But a friend to the Strike, I believe?"

"Not at all," said I.

"A friend to the Lock-out?" pursued Mr. Snapper.

"Not in the least," said I,

Mr. Snapper's rising opinion of me fell again, and he gave me to understand that a man must either be a friend to the Masters or a friend to the Hands.

"He may be a friend to both," said I.

Mr. Snapper didn't see that; there was no medium in the Political Economy of the subject. I retorted on Mr. Snapper, that Political Economy was a great and useful science in its own way and its own place; but that I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods. Mr. Snapper tucked himself up as if to keep me off, folded his arms on the top of his counterpane, leaned back and looked out of the window.

"Pray what would you have, sir," enquire Mr. Snapper, suddenly withdrawing his eyes from the prospect to me, "in the relations between Capital and Labour, but Political Economy?"

I always avoid the stereotyped terms in these discussions as much as I can, for I have observed, in my little way, that they often supply the place of sense and moderation. I therefore took my gentleman up with the words employers and employed, in preference to Capital and Labour.

"I believe," said I, "that into the relations between employers and employed, as into all the relations of this life, there must enter something of feeling and sentiment; something of mutual explanation, forbearance, and consideration; something which is not to be found in Mr. M'CulIoch's dictionary, and is not exactly stateable in figures; otherwise those relations are wrong and rotten at the core and will never bear sound fruit."

Mr. Snapper laughed at me. As I thought I had just as good reason to laugh at Mr. Snapper, I did so, and we were both contented. ...

Mr. Snapper had no doubt, after this, that I thought the hands had a right to combine?

"Surely," said I. " A perfect right to combine in any lawful manner. The fact of their being able to combine and accustomed to combine may, I can easily conceive, be a protection to them. The blame even of this business is not all on one side. I think the associated Lock-out was a grave error. And
when you Preston masters—"

"I am not a Preston master," interrupted Mr. Snapper.

"When the respectable combined body of Preston masters," said I, " in the beginning of this unhappy difference, laid down the principle that no man should be employed henceforth who belonged to any combination—such as their own—they attempted to carry with a high hand a partial and unfair impossibility, and were obliged to abandon it. This was an unwise proceeding, and the first defeat."

Mr. Snapper had known, all along, that I was no friend to the masters.

"Pardon me," said I; " I am unfeignedly a friend to the masters, and have many friends among them."

"Yet you think these hands in the right?" quoth Mr. Snapper.

"By no means," said I; " I fear they are at present engaged in an unreasonable struggle, wherein they began ill and cannot end well."

Mr. Snapper, evidently regarding me as neither fish, flesh, nor fowl, begged to know after a pause if he might enquire whether I was going to Preston on business?

Indeed I was going there, in my unbusinesslike manner, I confessed, to look at the strike.

"To look at the strike!" echoed Mr. Snapper fixing his hat on firmly with both hands. "To look at it! Might I ask you now, with what object you are going to look at it?"

"Certainly," said I. " I read, even in liberal pages, the hardest Political Economy—of an extraordinary description too sometimes, and certainly not to be found in the books—as the only touchstone of this strike. I see, this very day in a to-morrow's liberal paper, some astonishing novelties in the politico-economical way, showing how profits and wages have no connexion whatever; coupled with such references to these hands as might be made by a very irascible General to rebels and brigands in arms. Now, if it be the case that some of the highest virtues of the working people still shine through them brighter than ever in their conduct of this mistake of theirs, perhaps the fact may reasonably suggest to me—and to others besides me—that there is some little things wanting in the relations between them and their employers, which neither political economy nor Drum-head proclamation writing will altogether supply, and which we cannot too soon or too temperately unite in trying to
find out."

Mr. Snapper, after again opening and shutting his gloved hands several times, drew the counterpane higher over his chest, and went to bed in disgust. He got up at Rugby, took himself and counterpane into another carriage, and left me to pursue my journey alone. ...

In any aspect in which it can be viewed, this strike and lock-out is a deplorable calamity. In its waste of time, in its waste of a great people's energy, in its waste of wages, in its waste of wealth that seeks to be employed, in its encroachment on the means of many thousands who are labouring from day to day, in the gulf of separation it hourly deepens between those whose interests must be understood to be identical or must be destroyed, it is a great national affliction. But, at this pass, anger is of no use, starving out is of no use—for what will that do, five years hence, but overshadow all the mills in England with the growth of a bitter remembrance? —political economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it. Gentlemen are found, in great manufacturing towns, ready enough to extol imbecile mediation with dangerous madmen abroad; can none of them be brought to think of authorised mediation and explanation at home? I do not suppose that such a knotted difficulty as this, is to be at all untangled by a morning-party in the Adelphi; but I would entreat both sides now so miserably opposed, to consider whether there are no men in England above suspicion, to whom they might refer the matters in dispute, with a perfect confidence above all things in the desire of those men to act justly, and in their sincere attachment to their countrymen of every rank and to their country.

Masters right, or men right; masters wrong, or men wrong; both right, or both wrong; there is certain ruin to both in the continuance or frequent revival of this breach. And from the ever-widening circle of their decay, what drop in the social ocean shall be free!

Friday, December 25, 2020

Charles Dickens on Seeing the Poor

 Charles Dickens wrote what has become one of the iconic stories of Christmas day and Christmas spirit in A Christmas Carol. But of course, the experiences of Ebenezer Scrooge are a story, not a piece of reporting. Here's a piece by Dickens written for the weekly journal Household Words that he edited from 1850 to 1859. It's from the issue of January 26, 1856, with his first-person reporting on "A Nightly Scene in London." Poverty in high-income countries is no longer as ghastly as in Victorian England, but for those who take the time to see it in our own time and place, surely it is ghastly enough. Thus, I repeat this post each year on Christmas day.

Economists might also wince just a bit at how Dickens describes the reaction of some economists to poverty, those who Dickens calls "the unreasonable disciples of a reasonable school." Dickens writes: "I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity ..."  Here's a fuller passage from Dickens:


On the fifth of last November, I, the Conductor of this journal, accompanied by a friend well-known to the public, accidentally strayed into Whitechapel. It was a miserable evening; very dark, very muddy, and raining hard.

There are many woful sights in that part of London, and it has been well-known to me in most of its aspects for many years. We had forgotten the mud and rain in slowly walking along and looking about us, when we found ourselves, at eight o'clock, before the Workhouse.

Crouched against the wall of the Workhouse, in the dark street, on the muddy pavement-stones, with the rain raining upon them, were five bundles of rags. They were motionless, and had no resemblance to the human form. Five great beehives, covered with rags— five dead bodies taken out of graves, tied neck and heels, and covered with rags— would have looked like those five bundles upon which the rain rained down in the public street.

"What is this! " said my companion. "What is this!"

"Some miserable people shut out of the Casual Ward, I think," said I.

We had stopped before the five ragged mounds, and were quite rooted to the spot by their horrible appearance. Five awful Sphinxes by the wayside, crying to every passer-by, " Stop and guess! What is to be the end of a state of society that leaves us here!"

As we stood looking at them, a decent working-man, having the appearance of a stone-mason, touched me on the shoulder.

"This is an awful sight, sir," said he, "in a Christian country!"

"GOD knows it is, my friend," said I.

"I have often seen it much worse than this, as I have been going home from my work. I have counted fifteen, twenty, five-and-twenty, many a time. It's a shocking thing to see."

"A shocking thing, indeed," said I and my companion together. The man lingered near
us a little while, wished us good-night, and went on.

We should have felt it brutal in us who had a better chance of being heard than the working-man, to leave the thing as it was, so we knocked at the Workhouse Gate. I undertook to be spokesman. The moment the gate was opened by an old pauper, I went in, followed close by my companion. I lost no
time in passing the old porter, for I saw in his watery eye a disposition to shut us out.

"Be so good as to give that card to the master of the Workhouse, and say I shall be glad to speak to him for a moment."

We were in a kind of covered gateway, and the old porter went across it with the card. Before he had got to a door on our left, a man in a cloak and hat bounced out of it very sharply, as if he were in the nightly habit of being bullied and of returning the compliment.

"Now, gentlemen," said he in a loud voice, "what do you want here?"

"First," said I, " will you do me the favor to look at that card in your hand. Perhaps you may know my name."

"Yes," says he, looking at it. " I know this name."

"Good. I only want to ask you a plain question in a civil manner, and there is not the least occasion for either of us to be angry. It would be very foolish in me to blame you, and I don't blame you. I may
find fault with the system you administer, but pray understand that I know you are here to do a duty pointed out to you, and that I have no doubt you do it. Now, I hope you won't object to tell me what I want to know."

"No," said he, quite mollified, and very reasonable, " not at all. What is it?"

"Do you know that there are five wretched creatures outside?"

"I haven't seen them, but I dare say there are."

"Do you doubt that there are?"

"No, not at all. There might be many more."

''Are they men? Or women?"

"Women, I suppose. Very likely one or two of them were there last night, and the night before last."

"There all night, do you mean?"

"Very likely."

My companion and I looked at one another, and the master of the Workhouse added quickly, "Why, Lord bless my soul, what am I to do? What can I do ? The place is full. The place is always full—every night. I must give the preference to women with children, mustn't I? You wouldn't have me not do that?"

"Surely not," said I. "It is a very humane principle, and quite right; and I am glad to hear of it. Don't forget that I don't blame you."

"Well!" said he. And subdued himself again. ...

"Just so. I wanted to know no more. You have answered my question civilly and readily, and I am much obliged to you. I have nothing to say against you, but quite the contrary. Good night!"

"Good night, gentlemen!" And out we came again.

We went to the ragged bundle nearest to the Workhouse-door, and I touched it. No movement replying, I gently shook it. The rags began to be slowly stirred within, and by little and little a head was unshrouded. The head of a young woman of three or four and twenty, as I should judge; gaunt with want, and foul with dirt; but not naturally ugly.

"Tell us," said I, stooping down. "Why are you lying here?"

"Because I can't get into the Workhouse."

She spoke in a faint dull way, and had no curiosity or interest left. She looked dreamily at the black sky and the falling rain, but never looked at me or my companion.

"Were you here last night?"

"Yes, All last night. And the night afore too."

"Do you know any of these others?"

"I know her next but one. She was here last night, and she told me she come out of Essex. I don't know no more of her."

"You were here all last night, but you have not been here all day?"

"No. Not all day."

"Where have you been all day?"

"About the streets."

''What have you had to eat?"


"Come!" said I. "Think a little. You are tired and have been asleep, and don't quite consider what you are saying to us. You have had something to eat to-day. Come! Think of it!"

"No I haven't. Nothing but such bits as I could pick up about the market. Why, look at me!"

She bared her neck, and I covered it up again.

"If you had a shilling to get some supper and a lodging, should you know where to get it?"

"Yes. I could do that."

"For GOD'S sake get it then!"

I put the money into her hand, and she feebly rose up and went away. She never thanked me, never looked at me— melted away into the miserable night, in the strangest manner I ever saw. I have seen many strange things, but not one that has left a deeper impression on my memory than the dull impassive way in which that worn-out heap of misery took that piece of money, and was lost.

One by one I spoke to all the five. In every one, interest and curiosity were as extinct as in the first. They were all dull and languid. No one made any sort of profession or complaint; no one cared to look at me; no one thanked me. When I came to the third, I suppose she saw that my companion
and I glanced, with a new horror upon us, at the two last, who had dropped against each other in their sleep, and were lying like broken images. She said, she believed they were young sisters. These were the only words that were originated among the five.

And now let me close this terrible account with a redeeming and beautiful trait of the poorest of the poor. When we came out of the Workhouse, we had gone across the road to a public house, finding ourselves without silver, to get change for a sovereign. I held the money in my hand while I was speaking to the five apparitions. Our being so engaged, attracted the attention of many people of the very poor sort usual to that place; as we leaned over the mounds of rags, they eagerly leaned over us to see and hear; what I had in my hand, and what I said, and what I did, must have been plain to nearly all the concourse. When the last of the five had got up and faded away, the spectators opened to let us pass; and not one of them, by word, or look, or gesture, begged of us.

Many of the observant faces were quick enough to know that it would have been a relief to us to have got rid of the rest of the money with any hope of doing good with it. But, there was a feeling among them all, that their necessities were not to be placed by the side of such a spectacle; and they opened a way for us in profound silence, and let us go.

My companion wrote to me, next day, that the five ragged bundles had been upon his bed all night. I debated how to add our testimony to that of many other persons who from time to time are impelled to write to the newspapers, by having come upon some shameful and shocking sight of this description. I resolved to write in these pages an exact account of what we had seen, but to wait until after Christmas, in order that there might be no heat or haste. I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity; and I address people with a respect for the spirit of the New Testament, who do mind such things, and who think them infamous in our streets.

Thursday, December 24, 2020

Gifts and Consumer Durables: A Meditation with Adam Smith

The end-of-year holidays are a time for giving gifts, which raises an ongoing question. Do you prefer experiences, like a restaurant meal, a kayak tour, a night at a bed-and-breakfast? Or physical objects with a limited life expectancy, like a sweater or a cooking pot, that will be consumed over a longer time? Or do you sometimes desire an object that will last for decades, even to the next generation? My family uses a dining room table that belonged to my grandmother: my wife has over the years picked up some vintage flapper dresses from the 1920s and 1930s in which she looks especially fabulous, and which have been on occasion loaned out for high school proms to fortunate members of the next generation; and we have a hallway in our house of family pictures, including some inherited from earlier generations. 

In thinking about tradeoffs of any kind, it will surprise no one who knows me that I find myself turning to Adam Smith's 1776 magnum opus, The Wealth of Nations. In Book II, Chapter III, Smith writes "Of the Accumulation of Capital, or of Productive and Unproductive Labour." As you might expect, Smith argues that spending on durable commodities, rather than things that are consumed immediately, is better for the economy. I quote here from the text at the Library of Economics and Liberty website:  
The revenue of an individual may be spent either in things which are consumed immediately, and in which one day’s expence can neither alleviate nor support that of another, or it may be spent in things more durable, which can therefore be accumulated, and in which every day’s expence may, as he chooses, either alleviate or support and heighten the effect of that of the following day. A man of fortune, for example, may either spend his revenue in a profuse and sumptuous table, and in maintaining a great number of menial servants, and a multitude of dogs and horses; or contenting himself with a frugal table and few attendants, he may lay out the greater part of it in adorning his house or his country villa, in useful or ornamental buildings, in useful or ornamental furniture, in collecting books, statues, pictures; or in things more frivolous, jewels, baubles, ingenious trinkets of different kinds; or, what is most trifling of all, in amassing a great wardrobe of fine clothes, like the favourite and minister of a great prince who died a few years ago.

Were two men of equal fortune to spend their revenue, the one chiefly in the one way, the other in the other, the magnificence of the person whose expence had been chiefly in durable commodities, would be continually increasing, every day’s expence contributing something to support and heighten the effect of that of the following day: that of the other, on the contrary, would be no greater at the end of the period than at the beginning. The former, too, would, at the end of the period, be the richer man of the two. He would have a stock of goods of some kind or other, which, though it might not be worth all that it cost, would always be worth something. No trace or vestige of the expence of the latter would remain, and the effects of ten or twenty years profusion would be as completely annihilated as if they had never existed.

As the one mode of expence is more favourable than the other to the opulence of an individual, so is it likewise to that of a nation. The houses, the furniture, the clothing of the rich, in a little time, become useful to the inferior and middling ranks of people. They are able to purchase them when their superiors grow weary of them, and the general accommodation of the whole people is thus gradually improved, when this mode of expence becomes universal among men of fortune. In countries which have long been rich, you will frequently find the inferior ranks of people in possession both of houses and furniture perfectly good and entire, but of which neither the one could have been built, nor the other have been made for their use. What was formerly a seat of the family of Seymour is now an inn upon the Bath road. The marriage-bed of James the First of Great Britain, which his queen brought with her from Denmark as a present fit for a sovereign to make to a sovereign, was, a few years ago, the ornament of an ale-house at Dunfermline.

In some ancient cities, which either have been long stationary, or have gone somewhat to decay, you will sometimes scarce find a single house which could have been built for its present inhabitants. If you go into those houses too, you will frequently find many excellent, though antiquated pieces of furniture, which are still very fit for use, and which could as little have been made for them. Noble palaces, magnificent villas, great collections of books, statues, pictures and other curiosities, are frequently both an ornament and an honour, not only to the neighbourhood, but to the whole country to which they belong. Versailles is an ornament and an honour to France, Stowe and Wilton to England. Italy still continues to command some sort of veneration by the number of monuments of this kind which it possesses, though the wealth which produced them has decayed, and though the genius which planned them seems to be extinguished, perhaps from not having the same employment.

The expence too, which is laid out in durable commodities, is favourable, not only to accumulation, but to frugality. If a person should at any time exceed in it, he can easily reform without exposing himself to the censure of the public. To reduce very much the number of his servants, to reform his table from great profusion to great frugality, to lay down his equipage after he has once set it up, are changes which cannot escape the observation of his neighbours, and which are supposed to imply some acknowledgment of preceding bad conduct. Few, therefore, of those who have once been so unfortunate as to launch out too far into this sort of expence, have afterwards the courage to reform, till ruin and bankruptcy oblige them. But if a person has, at any time, been at too great an expence in building, in furniture, in books or pictures, no imprudence can be inferred from his changing his conduct. These are things in which further expence is frequently rendered unnecessary by former expence; and when a person stops short, he appears to do so, not because he has exceeded his fortune, but because he has satisfied his fancy.

The expence, besides, that is laid out in durable commodities gives maintenance, commonly, to a greater number of people than that which is employed in the most profuse hospitality. Of two or three hundredweight of provisions, which may sometimes be served up at a great festival, one half, perhaps, is thrown to the dunghill, and there is always a great deal wasted and abused. But if the expence of this entertainment had been employed in setting to work masons, carpenters, upholsterers, mechanics, &c., a quantity of provisions, of equal value, would have been distributed among a still greater number of people who would have bought them in pennyworths and pound weights, and not have lost or thrown away a single ounce of them. In the one way, besides, this expence maintains productive, in the other unproductive hands. In the one way, therefore, it increases, in the other, it does not increase, the exchangeable value of the annual produce of the land and labour of the country.

I would not, however, by all this be understood to mean that the one species of expence always betokens a more liberal or generous spirit than the other. When a man of fortune spends his revenue chiefly in hospitality, he shares the greater part of it with his friends and companions; but when he employs it in purchasing such durable commodities, he often spends the whole upon his own person, and gives nothing to anybody without an equivalent. The latter species of expence, therefore, especially when directed towards frivolous objects, the little ornaments of dress and furniture, jewels, trinkets, gewgaws, frequently indicates, not only a trifling, but a base and selfish disposition. All that I mean is, that the one sort of expence, as it always occasions some accumulation of valuable commodities, as it is more favourable to private frugality, and, consequently, to the increase of the public capital, and as it maintains productive, rather than unproductive hands, conduces more than the other to the growth of public opulence.
Of course, there's no need to be inflexible here: the holidays (and life in general) are broad enough to encompass many types of consumption, from immediate pleasures to the long-lasting. But even when it comes to holiday consumption, the tradeoffs over time interest me. The young adults in my family, aided and abetted by their mother, sometimes spend an afternoon looking through the clothes, furniture, and household goods available in second-hand stores.  Like most people, we live in a "used" house, in the sense that we bought it from someone else several decades after it was built.

A few years back, we gave my parents a starter set of high-end pots and pans. They had been using the same set of pots and pans for decades: they were worn and dented and some of the lids were missing. The price was similar to taking the entire family out to dinner at a high-end restaurant for one night. But they have now used the pots and pans multiple times each week for years. I find myself wondering about what other decisions might be less flashy in the present, but would offer future smiles for their continued place in my day-to-day life.

 I fully intend during the holidays to enjoy the short-term pleasures of decorations, our annual homemade fudge and cookies, a family get-together for binge-watching something yet-to-be-determined, and so on. But after a stay-at-home year, I find that my thoughts of gifts often turn to making commitments about future plans or trips: that is, short-term consumption, but deferred into a less constrained future.  

Real vs. Artificial Christmas Trees: Comparing Environmental Effects

 The holiday season is full of resource consumption for gifts, food, decorations, entertainment, and travel. In that context, the environmental tradeoffs between either a real or an artificial Christmas tree are not actually of much importance. But for the more curious and/or obsessive readers of my wandering thoughts at this blog, the American Christmas Tree Association (the trade association for artificial Christmas trees) has hired WAP Sustainability Consulting to do a "Life Cycle Assessment:Comparative LCA of the Environmental Impacts of Real Christmas and Artificial Christmas trees" (March 2018). Here's a summary:

"For the real Christmas tree, cultivation (planting, fertilizing, watering, etc.) is the largest contributor of environmental impacts, with one exception. The end-of-life phase of the real Christmas tree results in the largest contribution of greenhouse gas emissions in the real Christmas tree’s life cycle. This difference is, in part, due to modeling decisions concerning the handling of carbon sequestration in the cultivation phase and carbon release in the end-of-life stage.

"For the artificial tree, the raw materials used in manufacturing, specifically polyvinylchloride followed by steel sheets, comprises the largest source of impacts in the artificial tree. Among the various life cycle phases, raw materials and transportation are seen to have largest impacts. Raw materials are primarily responsible for greenhouse gas emissions, eutrophication of water sources and use of non-renewable energy. Transportation mainly causes acidification of water, air and soil and smog in the atmosphere.

"Given the quantification of environmental impacts across both of the trees’ life cycles, a comparative assertion shows the breakeven point between the two trees is 4.7 years. That is to say an artificial tree purchased and used for at least 4.7 years demonstrates a lower contribution to environmental impact than 4.7 real Christmas trees purchased over 4.7 years." 
This calculation that an artificial tree used for more than five years has less environmental effect than a series of one-year natural trees is roughly consistent with previous research. My discussion of studies done a few years ago, including the previous time that the American Christmas Tree Association commissioned a life-cycle analysis on this question, is here.

Of course, any study like this is subject to questions and concerns. Are you buying a new tree stand each year, or reusing the same one? Does the life-cycle calculation for a natural tree take into account carbon that remains stored in the root system under the tree after the tree is cut?   Bert Clegg offers a nice discussion at "The Conversation" website under the title "Don’t stress about what kind of Christmas tree to buy, but reuse artificial trees and compost natural ones" (December 11, 2018). But the WAP report and Clegg both note, if you are someone who is worried about environmental effects of your choice of tree, your own behavior has a substantial effect. 

For example, if  you make a special trip and drive a long way to shop for either a real or an artificial tree, that is a meaningful addition to the environmental costs in either case. If you pick up either kind of tree as part of a trip you would have made anyway--say, a commute home from work or a shopping trip that would have happened regardless, then the environmental costs is lower. (The WAP study estimates that consumers make an additional trip to pick up either kind of tree.)  The environmental effects of lighting the tree, and of producing the lights and ornaments, would also need to be taken into account.

When it comes to disposal, Clegg argues that if a natural tree is chipped or composted, the carbon content remains largely in the soil, but if it is burned or send to landfill, the effect on greenhouse gases is much worse. For an artificial tree, the longer you use the tree--and thus postpone disposal--the better for the environment. In addition, many cities offer facilities for recycling artificial trees, rather than just adding them to landfill, at the end of their lives.

I confess that I come from a real tree family and have always had real trees. But I do live in a part of the country where real trees are easy to grow. For the country as a whole, the National Christmas Tree Association (the trade association for real Christmas trees) finds that about 45% of the trees purchased in 2017 were artificial ones. In the holiday spirit of putting aside small differences, I take no position here on the great debates over real vs. artificial trees. Many holiday celebrations in many places have aspects of environmental wastefulness--it's part of what makes them holidays, after all. The challenge is to celebrate heartily, whole-heartedly, and also in moderation. In the broader context of how Christmas is often celebrated, Christmas trees are only a modest indulgence.

[This is a slightly revised version of an essay previously published on December 23, 2018.]

Wednesday, December 23, 2020

What Should Be Included in Income Inequality?

Like many other concepts in economics, "income" is an idea that is only simple if you don't think about it too much. Moreover, one's measure of the inequality of income will depend to some extent on the measure of income that is chosen. 

One well-known example is whether income inequality is measured before taxes or after taxes. Another is whether income inequality is measured after including benefits of government programs, including not just cash payments like Social Security or Temporary Assistance to Needy Families or unemployment insurance, but also the value of noncash programs like Medicare, Medicaid, and food stamps. The Congressional Budget Office publishes regular reports showing income inequality adjusted in these various ways. 

As one either digs into these questions (or is slowly dragged into the swamp of these questions, depending on one's perspective), you are forced to face an overall question: In a very big-picture economic sense, what is produce in an economy in a given year as measured by gross domestic product is equal to the total income received in a year by parties throughout the economy. But when we measure inequality of "income"--even when we use a broad measure that includes taxes and the value of government transfers--it represents only a part of the economy. 

For example, if we start counting noncash government benefits as income, what about noncash benefits received by workers, like the value of employer-provided health insurance, employer-provided contributions to a pension or a retirement account, or an employer-provided life insurance plan. Economists point out that if you live in a house you own, you are--in effect--renting that house to yourself, and one could in principle count the "imputed income" you receive from yourself as part of your personal income, just like any other landlord is required to count rental income. After all, living rent-free because you own a house is a form of the capital income that you receive from home ownership. Or what about business owners who receive a benefit both from the annual salary they receive, but also from reinvesting company profits in a way that leads to a rising value of their business? 

With all of these ideas in mind, economists have been trying to develop "distributional national accounts," which try to figure out what income inequality would look like with everything included. Two leaders in this effort are Emmanuel Saez and Gabriel Zucman, and they lay out the state of play in this effort "The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts" (Journal of Economic Perspectives, Fall 2020, 34:4, pp 3-26). Saez and Zucman have been leaders in using tax data to estimate income inequality (instead of using data from household surveys), but they are now focusing more on forms of income that the tax data leaves out. They write: 

On the labor side, untaxed labor income includes tax-exempt employment benefits (contributions made by employers to pension plans and to private health insurance), employer payroll taxes, the labor income of non-filers, and unreported labor income due to tax evasion. The fraction of labor income which is taxable has declined from 80 to 85 percent in the post-World War II decades to just under 70 percent in 2018, due to the rise of employment fringe benefits—in particular the rise of employer contributions for health insurance, particularly expensive in the United States. Most studies of wage inequality ignore fringe benefits even though they are a large and growing fraction of labor costs. As for capital, only one-third of total capital income is reported on tax returns. Untaxed capital income includes undistributed corporate profits, the imputed rents of homeowners, capital income paid to pension accounts, and dividends and interest retained in trusts, estates, and fiduciaries.

Thinking about how to allocate all of these forms of income to specific individuals, and then to form an income distribution based on the results, is an enormous task. It necessarily involves a lot of judgement calls, which are discussed in some detail in the paper. But here's an example of one of their results. This figure shows the average tax rate paid by different parts of the US income distribution at different times--where "income" here is broadly defined to include everything, not just what people see on a pay stub or report on their taxes, and taxes include all taxes at the federal, state, and local level. 

Several patterns from this figure are especially striking. First, for most of the income distribution in most of these years, the tax burden looks relatively flat--that is, once you combine federal income rates (where those with high incomes pay a higher share of income) with all the other taxes and forms of income, the share of income paid in taxes rises a bit with income, but not a lot. Second, if you look at the far right-hand-side of the figure, focused on the upper 1% and smaller slices of the top 1%, the average tax rate paid looks to have declined sharply. The basic story here is that back in the 1950s,  corporate tax rates, capital gains tax rates, and the top marginal income tax rates were all higher. Now, those with very high income levels have figured out ways for that income to come in the form of capital gains, so that the tax rate is relatively low and taxes can be deferred until the capital gain is realized. 

But as I mentioned a moment ago, it takes a lot of assumptions to develop this data, and others have argued that the Saez-Zucman assumptions are in various ways biased toward showing greater inequality than in fact exists. Wojciech Kopczuk and Eric Zwick present some of the counterarguments in "Business Incomes at the Top" (Journal of Economic Perspectives, Fall 2020, pp 27-51). They focus in part on the distinction between wage inequality and business inequality. 

As a vivid example, think for a moment about some of the employer-paid benefits of being a top corporate executive some decades back in the 1960s and 1970s, like company-paid cars, country club memberships, meals and entertainment, gold-plated health insurance, bring-your-family "work" events and vacations, and personal assistants. At the highest level, there were perks like having a plane available for private use. Business owners can have the firm donate to charities, free of taxes, and then have salaried family members run those charities. And this doesn't include executive benefits which are contractual commitments made in the present but only paid in the future, like lavish retirement plans. All of these used to be counted as business expenses, not as income to the executives involved.  

These kinds of issues suggest a potential problem in comparing levels of income inequality over time, as is done in the figure above. It may be that in the past, top executives faced higher tax rates on the "income" that they reported for tax purposes, but also received much higher levels of "income" in various untaxed forms via employer-paid benefits. Now these patterns have changed. Top executives face lower tax rates than they did some decades ago on the income reported for tax purposes, but they also have fewer options for receiving such a wide array of untaxed employer-paid benefits. 

Kopzcuk and Zwick point out that there have been dramatic shifts in the administrative form in which business income is received in the economy. From the 1960s until into the mid-1980s, more than 80% of business income was typically received by C-corporations--the big companies with lots of stockholders that commonly referred to as "corporations." But since about 2000, it's been common for the C-corporations to receive about 40% of all business income, and even less in some years. Instead, a much larger share of business income is being received by "pass-through" companies, like partnerships, S-corporations and RICS and REITS, where all the profits earned must be passed through to the owners each year. These shifts in corporate ownership affect the ability to keep business income inside the company and thus delay paying income taxes on those earnings, but may also affect the other ways in which the owners of these companies can benefit personally from business expenses.   

Many other issues arise in thinking about what a full measure of income inequality would look like. There seems to be general agreement that the income inequality has risen in recent decades, pretty much however you measure it, but the specific amount will depend heavily on the measure of income used. The idea of multiple kinds of income inequality shouldn't be a shock: indeed, in some cases it's a feature rather than a bug. For example, in some cases you might want to know about the amount of inequality generated by market-paid wages, and the compare that to the inequality that remains after taxes are paid, and then compare that to the inequality that remains after transfer payments are made, and then dig into how all of these estimates are affected by the problems in measuring "income" described here. 

There also seems to be a consensus that these issues are still being worked out, and that it may take some time to work them out. For example, Saez and Zucman write:  

In time, we hope that our prototype distributional national accounts will be taken over by governments and published as part of the official toolkit of government statistics. Inequality statistics are too important to be left to academics, and producing them in a timely fashion requires resources that only government and international agencies possess. A similar evolution happened for the national accounts themselves, which were developed in the first half of the twentieth century by scholars in the United States (such as Simon Kuznets), the United Kingdom (such as James Meade and Richard Stone), France (such as Louis Dugé de Bernonville), and other countries, before being taken over by government agencies.

It may take decades before we get there. Economic statistics, like aggregate output or concentration of income, are not physical facts like mass or temperature. Instead, they are creations that reflect social, historical, and political contexts. How the data sources are assembled, what conceptual framework is used to combine them, what indicators are given prominence: all of these choices reflect objectives that must be made explicit and broadly discussed. Before robust distributional national accounts are published by government agencies, there are still many methodological choices to be debated and agreed on by the academic and statistical community. As part of that process, our prototype can be used to characterize the rise of inequality in the United States, to confront our methods and findings with those of other studies, and to pinpoint the areas where more research is needed.

I would be remiss in not mentioning  the third paper published in this same symposium in the Fall 2020 issue of JEP: Florian Hoffmann, David S. Lee, and Thomas Lemieux discuss "Growing Income Inequality in the United States and Other Advanced Economies" (pp. 52-78). These authors look at contributions of labor and non-labor income in contributing to rising income inequality. They focus on rising labor income disparities among different income groups, and some ways in which this plays out differently for men and women. They also show rising inequality of incomes in Germany, Italy, and the United Kingdom, although not in France. 

Monday, December 21, 2020

How Goethe Turned a Publishing Negotiation into a Second-Price Auction

Johann Wolfgang von Goethe (1749-1832) is one of the few writers of such historical prominence that those in the know refer to him just using his last name. I'm certainly no scholar. I remember enjoying The Sorrows of Young Werther in college, and I made it through the first part of his Faust. Here, the focus is on how Goethe tried to use some innovative mechanisms when signing a contract with publishers. Benny Moldovanu and Manfred Tietzel offer an overview of a couple of episodes in "Goethe's Second‐Price Auction" (Journal of Political Economy, 106: 4 (August 1998), pp. 854-859). 

In Goethe's time, writers were usually payed with a "sheet royalty." A sheet coming off the printing press would, after being cut up and bound into a book, be 16 pages. The author was paid by the sheet, independent of how many books were eventually sold--that is, without royalties. Also at this time, there was no copyright law governing the 314 different principalities that made up Germany, so the financial risks of actually paying an author (rather than just ripping off work already published) were quite real. 

Later in  Goethe's life, when it came time to publish his collected works, he ran an auction that attracted 36 publishers. This episode of interest here happened much earlier in Goethe's career in 1797, when he was seeking a publisher for his epic poem Hermann and Dorothea. On January 16 of that year, Goethe wrote to the publisher Vieweg with the following offer: 
I am inclined to offer Mr. Vieweg from Berlin an epic poem, Hermann and Dorothea,which will have approximately 2000 hexameters....Concerning the royalty we will proceed as follows: I will hand over to Mr. Counsel Böttiger a sealed note which contains my demand, and I wait for what Mr. Vieweg will suggest to offer for my work. If his offer is lower than my demand, then I take my note back, unopened, and the negotiation is broken. If, however, his offer is higher, then I will not ask for more than what is written in the note to be opened by Mr. Böttiger. 
Notice that the incentive here is for the publisher to bid with a true estimate of what the work is worth. The publisher need not fear bidding much more than would have been needed to secure Goethe's assent--because Goethe has promised that the publisher need not pay more than the figure in the sealed not. This is a form of what the modern auction theorists call a "second-price" auction--that is, the winner pays the second-highest bid (or in this case, the figure in Goethe's note), not the amount of the highest bid. 

But why would Goethe go to this trouble? Why not just make his demands explicit, and make the publisher a take-it-or-leave-it offer? Goethe's approach can be viewed as a way of reversing what he perceived as an asymmetry of information. If Goethe makes a take-it-or-leave-it offer, the publisher knows what Goethe wanted, but the publisher does not need to reveal any estimate of what the manuscript is likely to be worth. In Goethe's approach, the publisher needs to reveal an estimate of what the manuscript is worth, while Goethe's valuation remains secret. For an author considering what will happen in future contract negotiations, this information is valuable. 

What happened? Mr. Counsel Böttiger let Goethe down. He wrote a letter to Vieweg which said: 
The sealed note with the imprisoned Golden Wolf is really in my office. Now, tell me what can and will you pay? I put myself in your place, dear Vieweg, and feel what a spectator, who is your friend, can feel. Given what  Iapproximately know about Goethe’sfees from [other publishers Göschen, Bertuch, Cotta and Unger, let me just add one thing: you cannot bid under 200 Friedrichs d’or.
Vieweg bid as Böttiger directed, which by an enormous coincidence was the exact amount Goethe had written in  his "sealed" letter.  Moldovanu and Tietzel note that Goethe's fee was three or four times higher than the usual fee for popular authors of the time. But Hermann and Dorothea was a best-seller, and Vieweg kept printing copies until 1830, while making no further payments to Goethe. 

PPS: The 2020 Nobel prize was given for work with regard to auction theory. For an overview, see "A Nobel Prize for Auction Theory: Paul Milgrom and Robert Wilson" (October 12, 2020). 

Friday, December 18, 2020

Working Later in Life

When President Franklin Roosevelt signed the Social Security act into law in 1935, with the goal of providing old-age benefits to those over age 65,  average life expectancy in the United States was about 62 years: that is, the average person wouldn't live long enough to qualify for the program. Now, US life expectancy is about 79 years, and the average age of retirement is 60. It's no wonder programs to support the elderly are so politically powerful, nor that they have experienced rising costs. 

It's far from clear that all retirees want to retire as soon as they do. Sometimes people near the end of their working lives are caught in macroeconomic turmoil, like the Great Recession or the pandemic recession, and they end up losing out on a few years when they might have preferred to be remain attached to the workforce, earning some additional income. In other cases, older workers would be open to part-time or more flexible work arrangements, but when these don't seem to be available to them, they end up retiring instead. In still other cases, potential older workers get the message that employers are looking for someone younger.

In addition, as many people go to school longer, marry and have children at older ages, and keep good health until older ages, it seems plausible that working to older ages may become more common, too. There are more and more jobs that involve offering a service or doing digital work that are not physically taxing. 

In thinking about this report, it's perhaps a useful starting point to remember that we are not debating whether populations around the world and the potential working-age population will continue to age. Those changes are happening. The historical experience in the US is that many workplaces had a relatively larger number of younger workers in lower-level jobs, led by a relatively smaller number of older workers in high-level jobs. That pattern seems likely to shift to a more genuinely multigenerational workplace, with people of all ages at all levels.  The question is how to react: for individuals thinking about their life plans, for employers thinking about hiring and retention policies, and for countries thinking about solvency for their old-age support programs and economic growth more broadly.  With this vision in mind, the OECD has published Promoting an Age-Inclusive Workforce: Living, Learning and Earning Longer

Here are a few thoughts based on that report: 

The ratio of working-age population to total population is headed for decline in many countries, including the US. This pattern means that a smaller share of working-age people are going to be supporting a larger share of those outside their working age, like the elderly and children. The OECD calculates that in the United States, a rise in working age of four years, spread over the period from 2015-2050, would keep the ratio of working-age population to total population from falling. Indeed, since about 2000, labor force participation among those over 65 has been edging upward

Employers who are aware of this demographic shift to aging might want to keep some patterns in mind. One is that older workers tend to stay with a firm longer, and thus reduce costs of hiring and retention: "Worker turnover is lower for older workers than for prime-age and for younger workers and the presence of older workers makes fewer young colleagues leave as well. ... Employee turnover is 4% lower at a firm that has a 10% higher share of older workers than the average firm." 

Another is that older workers often have better skills when it comes to teamwork: "Teamwork is among
the most frequently used skills at work, in particular in Anglo-Saxon countries ... Networked
ways of working foster collaboration between co-workers from disparate parts of the organisation, both in terms of content and geographical location. Effectively, this sets up undefined work groups next to the traditional team structure, so-called “hidden teams”. Older workers that exhibit good moderation skills based on their long-standing experience play a vital role here. Yet, older workers may not be getting the credit they deserve for improving team performance ..." 

A multigenerational workforce may understand the market better: "Moreover, an age-diverse workforce may lead to better business-to-consumer and business-to-business relationships, as representing the age groups of the firm’s clients in the own workforce makes it easier to know what customers need. In fact, human resource professionals stress that enhanced customer service is one of the key benefits of age-diverse teams."

There are likely to be complementarities between younger and older workers: "Research on these kinds of co-worker complementarities between workers of different ages has been scarce, even though human resource professionals and workers themselves name knowledge sharing and having different perspectives the key benefits of age-diverse teams ... A key takeaway is that workers are more productive when they work with others who are of a different age, thanks to the complementarities between them."

A firm that is serious about facing the looming reality of a multigenerational workforce would need to make various changes. For example, it might think about how whether its recruiting for new workers is explicitly or implicitly aimed at the young, or if, for example, it is also appealing to "returners" who have been out of the workforce and are now rejoining it. It might think about phased retirement plans for older workers. 
Currently, however, few employers have policies in place that support a multigenerational workforce. This applies in all policy dimensions: from supporting mobilisation and management of a multigenerational workforce to making jobs attractive at all life stages and keeping skills up-to-date for a long and productive career. According to the AARP Global Employer Survey 2020, in no policy area have more than 6% of employers implemented policies that are targeted at supporting a multigenerational workforce, such as unbiased recruiting processes and return-to-work or phased retirement programmes ... 

Employers often talk about the need for continual retraining of workers, but they do not take advantage of how a multigenerational workforce may help with that process. The obvious example is when older employers mentor younger ones. But a less obvious example is that in a technology-driven world, younger employees may often be able to offer "reverse mentoring" to those who are older (citations omitted from quotation): 
Reverse mentoring, is inherently related to coaching and mentoring, and is of growing in prominence. Where mentoring and coaching open up learning opportunities for junior employees, reverse mentoring revolves around the transfer of knowledge and competences from junior employees to more senior ones. In the United States, a range of large organisations have implemented reverse mentoring including, e.g. General Motors, Unilever, Deloitte & Touche, Procter & Gamble, and IBM. Various stakeholders have discussed the advantages of this practice within the context of multigenerational teams. Reverse mentoring contributes to knowledge transmission between junior and senior employees, resulting in intergenerational learning. The many examples of this practice across a wide range of enterprises shows that companies recognise the importance and effectiveness of this approach. ... According to the OECD’s PIAAC data on adult skills, younger individuals score higher on average than older individuals on technological dexterity. In this context, reverse mentoring is a means for skills transfer between generations or different experiences. However, academics argue that the use of reverse mentoring can, and should, go beyond learning about technology; reverse mentoring can also be a means to learn about current issues related to diversity, and breakdown age-stereotypes. Higher levels of understanding, and better coordination of work processes all lead to higher commitment levels amongst employees, which benefits organisations.
Finally, one sometimes hears the complaint that older workers need to get out of the workforce so that younger workers can have their opportunity. There may be some situations where this hold true, but in a broad sense, there doesn't seem to be evidence for a social tradeoff that countries with fewer elderly people working see a pattern of benefits for younger workers. The OECD report notes: 
A conventional wisdom is that demand for labour is fixed so that older and younger workers compete for jobs. This is often referred to as the lump-of-labour argument. 30% of respondents to the 2015 ISSP survey said that employed people aged 60 or older take jobs away from the young. ... Such perceptions are nurtured by short-term crisis situations in which companies need to reduce or at least not expand their workforce while workers seek to remain in their jobs as the future seems uncertain. ... In general, the wisdom of the young and the old being substitutes rather than complements is a fallacy. The empirical literature that specifically analyses for many different countries the relationship between
younger workers’ employment and that of older workers does not find a crowding-out effect (OECD, 2013[14]). One indicator is the positive correlation between the employment rates of older and younger workers among OECD countries ... The reason is simple; younger and older workers differ in skills and experience, the closest substitute for an older worker is another older worker rather than a younger worker.  ...  As a consequence, past policies to promote early retirement in the hope of lifting youth employment in OECD countries have proven ineffective.
Of course, governments also have a role to play, in thinking about  how the rules for programs like Social Security or Medicare may discourage work. But my sense is that a lot of resistance to the idea of a multigenerational workforce is based in attitudes that reflect the demographics that used to be, not the demographics to come.