You Ought to Have a Look: Publication Bias

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

The Expanding Store of Human Knowledge

The store of human knowledge continues to expand and so do the incremental improvements of our lives. Here are some of the stories that caught my eye last week:

Deleting genes could boost lifespan by 60 percent, say scientists

Scientists believe that making small tweaks to our genes could dramatically increase our lifespans. Experiments on yeast cells have identified 238 genes that increased lifespan when silenced. Since we share many of same genes, the next important task will be to identify similar genes in human beings. One of the candidates for future research is LOS1 – a gene linked to calorie restriction that could increase our lifespans up to 60 percent.

Pioneering surgical technique enabled surgeons to restore hand, arm movement to quadriplegic patients

A new surgical technique has restored hand and arm movement to patients paralyzed by spinal cord injuries in the neck. By redirecting peripheral nerves in a quadriplegic’s arms and hands to healthy nerves, conversation between the brain and muscles can be restored. While this technique is only effective for injuries on the lowest two vertebrae on the neck and physical improvements were often small, the psychological benefits were often profound.


The Real Bills Doctrine: A Short Response

Juan Ramón Rallo has thoughtfully replied (in English) to my earlier Alt-M post that discussed two versions of the real-bills doctrine and what I took to be his defense of a prudent-banking version of the doctrine. Here I offer a few comments on his reply.

  1. One topic under discussion is the common banking practice of borrowing short and lending long (aka maturity transformation). The practice is remunerative to the bank when short-term interest rates are lower than long rates, but it exposes the bank to risks that I previously discussed.

    In his latest piece Rallo suggests a categorical condemnation of the practice: “The banks that transform the maturities of their assets and liabilities are causing a discoordination between savers and investors. They are promising savers to redeem their liabilities much sooner than the moment when their assets will be paid by investors, i.e., they are promising savers the availability of some future goods before they are provided by the investors’ projects they are financing.” In my view, by contrast, whether there is a “discoordination” does not depend so much on the promises or contract terms, or what we may call the de jure maturities, as on the de facto maturities.

    As Rallo recognizes, holders of short-term liabilities have the option to roll them over. This is especially obvious for demand deposits that remain in the bank for longer than one instant. A one-year certificate of deposit that is renewed at an unchanged interest rate can be considered de facto a two-year (or longer, if renewed again) deposit. This means that a profit-seeking bank faces the challenge of estimating the distribution of actual times-to-withdrawal-or-repricing of its liabilities, which are longer than the de jure maturities.

A Tale of Two Studies

Academics and professional economists have critiqued many well known academic papers on immigration in the last year. The first was by Alan de Brauw and Joseph R.D. Russell and it replicates and expands a famous 2003 paper by Harvard University economist George Borjas entitled “The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market.” 

Borjas famously found that from 1960-2000 there was a  wage elasticity of -0.38, meaning that a 10 percent increase in the size of the labor force due to immigration in a particular skill-cell lowered the average weekly wages in that cell by 3.8 percent relative to workers in other skill-cells.  Borjas’ paper is an impressive piece of scholarship and has been the lynchpin of arguments to close the border in order to protect wages.  Many economists disagree with Borjas

De Brauw and Russell had three findings.  Their first finding was that the wage elasticity dropped to -0.22 when they extended Borjas’ study to 2010. That is an important finding by itself – if the Borjas model was correct then why would the impact of immigrants on wages decrease as more of them entered the labor force between 2000 and 2010? 

Their second set of findings is that small changes in variable definitions turned some of Borjas’ ideas into statistically insignificant results. While not definitive, that suggests that the conclusions in his paper are not reliable.     

That leads to De Brauw and Russell’s third set of findings. They looked at the relationship between annualized male and female wages in the skill-cells when women entered the workforce in significant numbers. The correlation turned out to be positive­, which means men and women with the same skill level are complementary.  Thus, they argued that Borjas’ model is misspecified as it assumed immigrants and natives in the same skill-cells are more substitutable than they really are. If this finding is true, it would call into question the assumptions Borjas’ built in to his model, namely that immigration and natives are substitutable rather than complementary.

I’m still eagerly awaiting Borjas’ response to De Brauw and Russell’s paper. The critique of Borjas’ paper was serious because it replicated his work, extended it another decade, and found the results didn’t hold up. Many academics have already contested Borjas’ claims in numerous ways as I document here and here but this challenge cuts deep.

Nobel Laureate Angus Deaton on Human Progress, Poverty and Aid

Princeton University economist Angus Deaton was awarded the Nobel prize in economics today. His work on carefully measuring consumption and other measures of well-being led him to understand development as a complex process not susceptible to improvement by technical or top-down interventions. For Deaton, knowledge is a key to development—even more so than income—and helps explain the tremendous progress humanity has experienced in the last 250 years when parts of the world we now call rich began their “great escape” from poverty and destitution.

In his book, The Great Escape: Health, Wealth And the Origins of Inequality, Deaton documents how that progress is now spreading around the globe and is the reason we are living longer, wealthier and healthier lives than at any time in history. (You can see him presenting the book at this Cato forum, and see a summary of that talk here.) Even countries with relatively low incomes have seen tremendous advances, largely as a result of the spread of scientific, medical and other kinds of knowledge. Though he is not deterministic, Deaton paints a largely hopeful picture of humanity reminiscent of the views of Julian Simon, whom he cites. He is also concerned with inequality, but recognizes that “Inequality is often a consequence of progress,” and distinguishes between inequality that helps humanity and the kinds that harm it (e.g., inequality that can lead to political inequality).

As his career progressed, Deaton joined the growing number of development experts who have become skeptical of foreign aid and consider that numerous other factors play a critical role in development. Citing pioneer development economist Peter Bauer, Deaton notes a foreign aid dilemma: “When the ‘conditions for development’ are present, aid is not required. When local conditions are hostile to development, aid is not useful, and it will do harm if it perpetuates those conditions.” In The Great Escape, Deaton goes on to document the myriad practical problems with foreign aid including corruption, the failure of loans conditioned on policy changes, the institutional incentives to lend, the divergence of donor country interests from recipient country needs, etc. Even when aid projects do good, he concludes:

The negative forces are always present; even in good environments, aid compromises institutions, it contaminates local politics, and it undermines democracy. If poverty and underdevelopment are primarily consequences of poor institutions, then by weakening those institutions or stunting their development, large aid flows do exactly the opposite of what they are intended to do. It is hardly surprising then that, in spite of the direct effects of aid that are often positive, the record of aid shows no evidence of any overall beneficial effect.

When thinking about aid, the developed world would do well by heeding Deaton’s advice and by not asking what we should do. “Who put us in charge?” Deaton rightly asks. “We often have such a poor understanding of what they need or want, or of how their societies work, that our clumsy attempts to help on our terms do more harm than good…And when we fail, we continue on because our interests are now at stake…”

Deaton provides a far better way of thinking about development:

What surely ought to happen is what happened in the now-rich world, where countries developed in their own way, in their own time, under their own political and economic structures. No one gave them aid or tried to bribe them to adopt policies for their own good. What we need to do now is to make sure that we are not standing in the way of the now-poor countries doing what we have already done. We need to let poor people help themselves and get out of the way—or, more positively, stop doing things that are obstructing them.

Governments Subsidize Disaster—and the Wealthy

The Wall Street Journal takes a look at hurricane threats to cities along the seacoasts. It’s an odd article because the author, Greg Ip, does not discuss the central role that governments play in encouraging people to live in hurricane-prone areas.

Ip does mention the “levee effect” of misguided development taking place in low-lying areas because people feel safer behind large sea walls. In the United States, federal spending by the Army Corps of Engineers has encouraged people to live in unsafe coastal areas, as I discuss in this essay. After Hurricane Betsy struck New Orleans in 1965, for example, the Corps extended levees to additional low-lying areas around the city, thus encouraging further development and exacerbating damage in subsequent storms.

Ip does not discuss federal and state flood and wind insurance subsidies, which also encourage people to live in harm’s way. I discuss federal flood insurance subsidies in this essay, and a new essay in Cato’s Regulation examines state wind insurance subsidies.

I note,

rather than reducing the nation’s flooding problems, the National Flood Insurance Program (NFIP) has likely made flood damage worse by encouraging more development in hazardous areas. Since 1970, the estimated number of Americans living in coastal areas designated as Special Flood Hazard Areas by FEMA has increased from 10 million to more than 16 million. Subsidized flood insurance has backfired by helping to draw more people and development into flood zones.

And the Regulation article notes, “Insurance, if priced accurately, provides an important service of signaling to people the risk cost of living near water. [But] subsidized insurance rates destroy the information value of full-risk premiums, thus suppressing the true cost of living in severe weather zones and creating an excessive incentive to populate attractive but dangerous locations.” The federal government subsidizes flood insurance, and the article notes that Florida subsidizes wind insurance. Partly as a result of these subsidies, the coastal population of Florida has soared in recent decades.

An interesting fact about flood and wind insurance subsidies is that they are welfare for the well-to-do. Politicians often talk about helping the poor, but many of their policies disproportionally benefit the well-off.

A 2010 study, for example, looked at flood insurance claims data over a 10-year period and concluded, “the benefits of the NFIP appear to accrue largely to wealthy households concentrated in a few highly-exposed states.”

Similarly, the Regulation article examines Florida wind insurance data and finds that the benefits “accrue disproportionately to affluent households and the magnitude of this regressive redistribution is substantial.”

Montana Bureaucrats: Religious Families Need Not Apply

Montana’s scholarship tax credit (STC) law was already crippled and now bureaucrats are attempting to issue the coup de grâce

Montana’s STC law offers individuals and corporations tax credits in return for donations to nonprofit scholarship organizations that help families send their children to the school of their choice. All Montana students are eligible to apply for a tax-credit scholarship and the value of the scholarships is capped at half the statewide average per-pupil expenditure at the district schools (just over $5,300).

The only catch is that donations are capped at $150 per donor, far lower than in any other state. That means it would take at least 34 donors to fund a single $5,000 scholarship–a monumental task for scholarship organizations seeking to fund thousands of students.

But even if the scholarship organizations manage to raise the requisite funds, families may not be allowed to use the scholarships at their preferred school due to Montana Department of Revenue’s proposed rule barring the use of tax-credit scholarships at religious schools

The proposed regulations would bar schools from participating in the program if they’re “owned or controlled in whole or in part by any church, religious sect, or denomination.”

The proposed regulations also note schools are barred if their accreditation comes from a faith-based organization. […]

Republican state Sen. Kristin Hansen, who supported the bill, said the department was out of bounds.

“It’s the opposite of the intent of the legislation,” she said. “When we drafted the bill, we intentionally drafted a substantial definition of who qualified, so there wouldn’t be any questions about who would be eligible. I think the department has exceeded its authority by adding its own interpretation … when the Legislature was very clear. Absolutely, I think this proposed rule exceeds the department’s authority on more than one level.”

The bureaucrats claim they’re just following the state constitution’s historically anti-Catholic Blaine Amendment, which prohibits the appropriation of “any public fund or monies” to churches, religious schools, and other religious institutions. However, as the U.S. Supreme Court and several state supreme courts have held, tax-credit scholarships constitute private funding, not public funding, because the funds never enter the state treasury. Constitutionally, tax credits are no different than tax deductions or tax exemptions. Has the Montana Department of Revenue prohibited donors to churches from receiving charitable tax deductions? Has it prohibited the churches themselves from taking property tax exemptions? If not, why is it treating the tax credit law differently?

The department will hold a hearing on its proposed rules on November 5th. Hopefully the bureaucrats will see the error of their ways and change course. If not, they are inviting a lawsuit–one they are likely to lose.