Urban Elite Capture and US Growth

Hsieh and Moretti have a new working paper identifying how land market rigidities and NIMBYist rent seeking (in both housing and labor markets...) have retarded growth:

The increase in spatial wage dispersion is driven at least in part by cities like New York, San Francisco and San Jose, which experienced some of the strongest growth in labor productivity over the last five decades (Moretti (2012)). These cities also adopted land use restrictions that significantly constrained the amount of new housing that can be built. As described by Glaeser (2014), since the 1960s coastal U.S. cities have gone through a property rights revolution which has significantly reduced the elasticity of housing supply: “In the 1960s, developers found it easy to do business in much of the country. In the past 25 years, construction has come to face enormous challenges from any local opposition. In some areas it feels as if every neighbor has veto rights over every project.” 

Misallocation arises because the constraints on housing supply in the most productive US cities effectively limit the number of workers who have access to such high productivity. Instead of increasing local employment, productivity growth in housing-constrained cities primarily pushes up housing prices and nominal wages. The resulting misallocation of workers lowers aggregate output and welfare of workers in all US cities. 

... 

We use data from 220 metropolitan areas in the US from 1964 to 2009 to perform two calculations. First, we quantify the effect of spatial misallocation. We find that most of the increased spatial dispersion in the marginal product of labor is due to the growing spatial dispersion in housing prices. In turn, the growing spatial dispersion of housing prices is largely driven by strict zoning laws in cities such as New York and the San Francisco Bay Area with strong productivity growth. We find that the increased spatial misallocation of labor due to housing supply constraints in cities with high productivity growth rates lowered aggregate growth by almost 50% between 1964 and 2009.

One of my favorite ways of summarizing what it's like to live in the Bay is that LinkedIn says there are 127,000 open jobs and Zillow says there 11,000 open units.

The Lost Returns to Diversity Suppressed

How much have oppressive norms been hurting US growth?

In 1960, 94 percent of doctors and lawyers were white men. By 2010, the fraction was just 62 percent. Similar changes in other highly-skilled occupations have occurred throughout the U.S. economy during the last fifty years. Given that innate talent for these professions is unlikely to differ across groups, the occupational distribution in 1960 suggests that a substantial pool of innately talented black men, black women, and white women were not pursuing their comparative advantage. We examine the effect on aggregate productivity of the remarkable convergence in the occupational distribution between 1960 and 2010 through the prism of a Roy model. About one-quarter of growth in aggregate output per person over this period can be explained by the improved allocation of talent.

The paper is "The Allocation of Talent and U.S. Economic Growth" by Chang-Tai Hsieh and coauthors. 

Building Back Worse

It's sometimes hypothesized that after a natural disaster, populations "Build Back Better," meaning that the reconstruction of damaged infrastructure leaves the population better off after the disaster than they were before it struck.  There is some economic logic to this hypothesis, since we know that populations don't always update expensive capital investments when they should.  If capital is outdated, then an exogenous shock that motivates the population to replace the old capital with new capital might end up increasing the economy's output in the long-run.  Many of us are familiar with the example of a cell phone that is old and frustrating, but we don't feel like its worth replacing until we drop it in the pool by mistake -- and then find that upgrading to the latest smartphone makes us much more productive.

Politicians in the US, it seems, are required to tell the local population that they will "build back better" after a disaster strikes.  After Hurricane Sandy, we heard a lot of leaders talking about how the tri-state area will be stronger and better than it ever was, probably in part because nobody wants to hear otherwise and in part because this kind of logic is important for obtaining reconstruction funding.  Healy and Malhotra have a nice article (here) demonstrating that obtaining this kind of funding for reconstruction is important for an incumbent's re-election (recall: Hurricane Sandy -> Federal relief funding -> NJ Governor Christie's endorsement -> Obama earns votes in reelection).  And just before the Superbowl, I saw this video about the Superdome's post-Katrina reconstruction, which is not shy about endorsing the BBB hypothesis.

Importantly, though, the BBB hypothesis still remains a hypothesis, and there is no robust empirical evidence that populations actually do build back better, in aggregate, after catastrophic events. To remind that we shouldn't take the anecdotes and political rhetoric above too seriously, Amir Jina points us to an interesting IRIN report that suggests populations affected by Typhoon Bopha are building back worse:

Implementation capacity matters when scaling up

Paul Niehaus was presenting at USF's seminar yesterday and mentioned the following working paper by Bold, Kimenyi, Mwabu, Ng'ang'a and Sandefur:

Interventions & Institutions: Experimental Evidence on Scaling up Education Reforms in Kenya

Abstract: The recent wave of randomized trials in development economics has provoked criticisms regarding external validity and the neglect of political economy. We investigate these concerns in a randomized trial designed to assess the prospects for scaling-up a contract teacher intervention in Kenya, previously shown to raise test scores for primary students in Western Kenya and various locations in India. The intervention was implemented in parallel in all eight Kenyan provinces by a non-governmental organization (NGO) and the Kenyan government. Institutional di erences had large e ffects on contract teacher performance. We find a signifi cant, positive eff ect of 0.19 standard deviations on math and English scores in schools randomly assigned to NGO implementation, and zero eff ect in schools receiving contract teachers from the Ministry of Education. We discuss political economy factors underlying this disparity, and suggest the need for future work on scaling up proven interventions to work within public sector institutions.

 The paper is openly hosted here, and the Center for Global Development has an interview with Sandefur here. The introduction to the paper gives a particular succinct summary of its motivation:

The recent wave of randomized trials in development economics has catalogued a number of cost-eff ective, small-scale interventions proven to improve learning, health, and other welfare outcomes. This methodology has also provoked a number of criticisms regarding the generalizability of experimental findings, including concerns about external validity, general equilibrium eff ects, and the neglect of political economy in much of the evaluation literature (Acemoglu 2010, Deaton 2010, Heckman 1991, Rodrik 2009). These criticisms are particularly relevant when randomized trials of pilot projects run by well-organized and monitored NGOs are used as the basis for policy prescriptions at the national or global level. As noted by Banerjee and Duflo (2008), what distinguishes possible partners for randomized evaluations is competence and a willingness to implement projects as planned. These may be lost when the project scales up. [. . . ] Not enough e ffort has taken place so far in trying `medium scale' evaluation of programs that have been successful on a small scale, where these implementation issues would become evident." 

In this paper we employ the methodology of randomized trials to assess these substantive concerns about political and institutional constraints and measure precisely how treatment eff ects change when scaling up...

Is it true that "Everyone's a winner?" Dams in China and the challenge of balancing equity and efficiency during rapid industrialization

Jesse and I both come from the Sustainable Development PhD Program at Columbia which has once again turned out a remarkable crop of job market candidates (see outcomes from 2012 and 2011). We both agreed that their job market papers were so innovative, diverse, rigorous and important that we wanted to feature them at FE.  Their results are striking and deserve dissemination (we would probably post them anyway even if the authors weren't on the market), but they also clearly illustrate what the what the Columbia program is all about. (Apply to it here, hire one of these candidates here.) Here is the third and final post.

Large infrastructure investments are important for large-scale industrialization and economic development. Investments in power plants, roads, bridges and telecommunications, among others, provide important returns to society and are compliments to many types of private investment. But during rapid industrialization, as leaders focus on growth, there is often concern that questions of equity are cast aside. In the case of large-scale infrastructure investments, there are frequently populations ("losers") that suffer private costs when certain types of infrastructure are built -- for example, people whose homes are in the path of a new highway or who are affected by pollution from a power plant.

In public policy analysis and economics, we try to think objectively of the overall benefits of large investments to an entire society, keeping in mind that there will usually be some "losers" from the new policy in addition to a (hopefully larger) group of "winners."  In the cost-benefit analysis of large projects, we usually say if that a project is worth doing if the gains to the winners outweigh the loses to the losers -- making the implicit assumption that somehow the winners can compensate the losers for their loses and continue to benefit themselves. In cases where the winners compensate the losers enough that their losses are fully offset (i.e. they are no longer net losers), we say that the investment is "Pareto improving" because nobody is made worse off by the project.

A Pareto improving project is probably a good thing to do, since nobody is hurt and probably many people benefit. However, in the case of large infrastructure investments, it is almost guaranteed that some groups will be worse off because of the project's effects, so making sure that everyone benefits from these projects will require that the winners actually compensate the losers. Occasionally this occurs privately, but that tends to be uncommon, so with large-scale projects we often think that a central government authority has a role to play in transferring some of benefits from the project away from the winners and towards the losers.

But do these transfers actually occur? In a smoothly functioning government, one would hope so.  But the governments of rapidly developing countries don't always have the most experienced regulators and often pathologies, like corruption, lead to doubt as to whether large financial transfers will be successful.  Empirically, we have little to no evidence as to whether governments in rapidly industrializing countries (1) accurately monitor the welfare lost by losers in the wake of large projects and (2) have the capacity necessary to compensate these losers for their loses. Thus, establishing whether governments can effectively compensate losers is important for understanding whether large-scale infrastructure investments can be made beneficial (or at least "not harmful") for all members of society.

Xiaojia Bao investigates this question for the famous and controversial example of dams in China. Over the last few decades, a large number of hydroelectric dams have been build throughout China. These dams are an important source of power for China's rapidly growing economy, but they also can lead to inundation upstream, a reduction in water supply downstream, and a slowed flow of water that leads to an accumulation of pollutants both upstream and downstream.

Bao asks whether the individuals who are adversely affected by new dams are compensated for their losses. To do this, she obtains data on dams and municipal-level data on revenue and transfers from the central government.   She uses geospatial analysis to figure out which municipalities are along rivers that are dammed and also which are upstream, downstream or at the dam site.  She then compares how the construction of a new dam alters the distribution of revenues and federal transfers to municipalities along the dammed river, in comparison to adjacent municipalities that are not on the river.

Bao finds that the Chinese government has been remarkably good at compensating those communities who suffer when dams are built.  Municipalities upstream of a dam lose the most revenue both while the dam is being built and after it become operational. But at the same time, the central government increases transfers to those municipalities sufficiently so that these municipalities suffer no net loss in revenue. In contrast, populations just downstream look like they benefit slightly from the dam's operation, increasing their revenue -- and it appears that the central government is also good at reducing transfers to those municipalities so that these gains are effectively "taxed away." The only group that is a clear net winner are the municipalities that host the actual dam itself, as their revenue rises and the central government provides them with additional transfers during a dam's construction.

These findings are important because we often worry that large-scale investment projects may exacerbate existing patterns of inequality, as populations that are already marginalized are saddled with new burdens for the sake of the "greater good." However, in cases where governments can effectively distribute the benefits from large projects so that no group is made worse off, then we should not let this fear prevent us from making the socially-beneficial investments in infrastructure that are essential to long run economic development.

The paper:

Dams and Intergovernmental Transfer: Are Dam Projects Pareto Improving in China?
Xiaojia Bao  

Abstract: Large-scale dams are controversial public infrastructure projects due to the unevenly distributed benefits and losses to local regions. The central government can make redistributive fiscal transfers to attenuate the impacts and reduce the inequality among local governments, but whether large-scale dam projects are Pareto improving is still a question. Using the geographic variation of dam impacts based on distances to the river and distances to dams, this paper adopts a difference-in-difference approach to estimate dam impacts at county level in China from 1996 to 2010. I find that a large-scale dam reduces local revenue in upstream counties significantly by 16%, while increasing local revenue by similar magnitude in dam-site counties. The negative revenue impacts in upstream counties are mitigated by intergovernmental transfers from the central government, with an increase rate around 13% during the dam construction and operation periods. No significant revenue and transfer impacts are found in downstream counties, except counties far downstream. These results suggest that dam-site counties benefit from dam projects the most, and intergovernmental transfers help to balance the negative impacts of dams in upstream counties correspondingly, making large-scale dam projects close to Pareto improving outcomes in China.

In figures...

In China, Bao obtains the location, height, and construction start/stop dates for all dams built before 2010.

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For every dam, Bao follows the corresponding river and calculates which municipalities are "upstream" and which are "downstream." She then computes finds comparison "control" municipalities that are adjacent to these "treatment" municipalities (to account for regional trends). Here is an example for a single dam:

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Bao estimates the average effect of dam construction (top) and operation(bottom) on municipal revenues as a function of distance upstream (left) or downstream (right).  Locations just upstream lose revenue, perhaps from losing land (inundation) or pollution. Locations at the dam gain revenue, perhaps because of spillovers from dam-related activity (eg. consumer spending). During operation, downstream locations benefit slightly, perhaps from flood control.

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Government transfers during construction/operation upstream/downstream. Upstream locations receive large positive transfers. Municipalities at the dam receive transfers during construction. Downstream locations lose some transfers (taxed away).

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Transfers (y-axis) vs. revenue (x-axis) for locations upstream/downstream and at the dam site, during dam construction. Locations are net "winners" if they are northeast of the grey triangle. Upstream municipalities are more than compensated for their lost revenue through transfers.   Municipalities at the dam site benefit through revenue increases and transfers.

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Same, but for dam operation (after construction is completed). Upstream locations are compensated for losses. Benefits to downstream locations are taxed away. Dam-site locations are net "winners".

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Were the cost estimates for Waxman-Markey overstated by 200-300%?

Jesse and I both come from the Sustainable Development PhD Program at Columbia, which has once again turned out a remarkable crop of job market candidates (see outcomes from 2012 and 2011). We both agreed that their job market papers were so innovative, diverse, rigorous and important that we wanted to feature them at FE.  Their results are striking and deserve dissemination (we would probably post them anyway even if the authors weren't on the market), but they also clearly illustrate what the what the Columbia program is all about. (Apply to it here, hire one of these candidates here.) This is the first post.

Good policy requires good cost-benefit analysis. But when we are developing innovative policies, like those used to curb greenhouse gas emissions, it's notoriously difficult to estimate both costs and benefits since no analogous policies have ever been implemented before.  The uncertainty associated with costs and benefits tends to make many forms of environmental policy difficult to implement in part because the imagined costs (when policy-makers are considering a policy) tend to exceed actual costs (what we observe after policies are actually implemented). Kyle Meng develops an innovative approach, linking Intrade predictions about the success of Waxman-Markey with stock-market returns and abrupt political events, to measure the cost of the bill to firms as predicted by the market. This is very different from standard technocratic approaches used by the government to assess the cost of future policies, which rely on parameterized models of technology and econometric models of behavior ("structural models").

By relying on the market, Meng infers what players in affected industries actually expect to happen in their own industry. The result is a bit surprising: Meng estimates that standard costs-estimates for WM (produced before it failed to pass) are 200-300% larger than what players in the industry actually expected it to cost them.  But this still didn't stop industry players from fighting the bill -- one of the ways that Meng validates his approach is to use lobby records to show that firms which expect to suffer more from the bill (as recovered using his approach) spend more money to fight it.

It's tough to tell whether Meng's approach or the structural models are more accurate predictors of firm-level costs since WM was never brought into law, so the outcomes will remain forever unobserved. But he does show that for several similar laws (eg. the Montreal Protocol), the structural predictions tended to overestimate the actual costs of implementation (which were observed after the law was implemented and outcomes observed) by roughly a factor of two. This doesn't prove that Meng's approach is more accurate, but it shows that his estimate for the bias of the structural approach (with regard to WM) is consistant with the historical biases of these models.

The paper:

The Cost of Potential Cap-and-Trade Policy: An Event Study using Prediction Markets and Lobbying Records
Kyle Meng

Abstract: Efforts to understand the cost of climate policy have been constrained by the limited number of policies available for evaluation. This paper develops an empirical method for forecasting the expected cost to firms of a proposed climate policy that was never realized. I combine prediction market prices, which reflect market beliefs over regulatory prospects, with stock returns in order to estimate the expected cost to firms of the Waxman-Markey cap-and-trade bill, had it been implemented. I find that Waxman-Markey would have reduced the market value of a listed firm by an average of 2.0%, resulting in a total cost of $165 billion for all listed firms. The strongest effects are found in sectors with greater carbon and energy intensity, import penetration, and exposure to U.S. product markets, and in sectors granted free allowances. Because the values of unlisted firms are not observed, I use firm-level lobbying expenditures within a partial identification framework to obtain bounds for the costs borne by unlisted firms. This procedure recovers a total cost to all firms between $110 and $260 billion. I conclude by comparing estimates from this method with Waxman-Markey forecasts by prevailing computable general equilibrium models of climate policy.

In figures...

Abrupt political events that affect the expected success of WM are quantified by looking at expectations in Intrade markets:

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When WM appears more likely, the stock prices of CO2 intensive firms falls on average:

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Firms that are more CO2 intensive are affected more strongly:

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Firms whose stock prices are more responsive to WM lobby harder against it:

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How these cost estimates compare with structural cost estimates, and similar statistics for historical regulations that actually passed into law.

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Take home summary: Cap and trade in the USA probably would have been cheaper to implement than we thought, according to the firms it was going to regulate. 

Median Voter Theorem: proof by data visualization

The "median voter theorem" is a game-theoretic solution to democratic politics. It basically says that in equilibrium for a two party system, both candidates will have platforms that reflect the values of the median voter (in this election, Ohio). The second prediction is that both parties get almost exactly 50% of the vote, with very small changes in voting behavior near the median voter determining who wins.

Co.Design points us to an excellent data visualization by Felix Gonda of 156 years of voting behavior in the US (for president, the Senate and the House of Representatives). Run the little scroll-bar for years and you'll see the power of the median voter [theorem].

Check it out.

Hurricanes and the social safety net in US counties

The social safety net catches people after a hurricane, but this cost to society is generally not accounted for in standard estimates of a hurricane's economic impact.

The Role of Transfer Payments in Mitigating Shocks: Evidence from the Impact of Hurricanes
Tatyana Deryugina

Abstract: Little is known empirically about how aggregate economic shocks are mitigated by social safety nets. I examine the effect of hurricanes on US counties. While I find no significant changes in population, earnings, and the employment rate 0-10 years after landfall, there is a substantial increase in non-disaster government transfers. An affected county receives additional non-disaster government transfers totaling $654 per capita, which suggests that the lack of changes in basic economic indicators may be in part due to existing social safety nets. The fiscal costs of natural disasters are also much larger than the cost of disaster aid alone.

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Deryugina writes:

The number of construction firm locations (establishments) declines by 1.6% each year with no change in the mean. Construction employment is on average 7.6% lower in the ten years following the hurricane, and declines by 2.0% per year. The overall decline in employment suggests a drop in construction demand. This is confirmed by estimates of per capita single family housing starts, which are 8% lower on average. Wages increase by an average of 6.8%, but then fall by 0.9% each year, suggesting there may be a temporary change in the composition of construction labor demand (e.g., more demand for specialized workers) or lower labor supply… 

One possible interpretation of the decline in the local construction sector is spatial: the con- struction industry may have simply moved to nearby counties without any net effect on the sector. The implications of spatial changes, while non-trivial for the local economy, are different than if there’s a widespread capital shock. However, the fall in per capita housing starts provides evidence of a significant decrease in construction demand. Thus, the downturn in the local construction sector is not solely driven by spatial shifts in construction activity. 

There is no change in the employ- ment rate or per capita net earnings. Using 95% confidence bounds, I can rule out a decrease in mean earnings greater than 1.8% and a decrease in the mean employment rate greater than 0.5% The mean shift test for transfers indicates a 2.1% average increase in per capita government to individual transfers, equivalent to about $69 per person per year. Per capita business to individ- ual transfers in the eleven years following the hurricane are estimated to be 4.8% higher than the pre-hurricane transfers, or about $3.9 per year. There are no significant changes in the trends of any of these variables. Assuming a 3% discount rate, the present discounted value (PDV) of all government transfers is about $654 per capita, and the PDV of transfers from businesses is $37 per capita. Thus, post-hurricane transfers from general social programs are larger than transfers from disaster-specific programs and much larger than insurance payments. Because the non-disaster transfers are still significantly larger 10 years after the hurricane, the estimate of $654 per capita should be viewed as a lower bound.

The subcomponents of total government transfers to individuals are: retirement and disability insurance benefits (which includes workers’ compen-sation), medical benefits (which includes Medicare and Medicaid), income maintenance (which includes Supplemental Security Income, family assistance, and foot stamps), unemployment ben- efits, veterans’ benefits, and federal education assistance. A separate analysis of each of these components (following the same procedure as for total transfers) reveals that increases in medical and unemployment benefits explain the overwhelming majority of the net increase in total non- disaster transfers. Specifically, public medical benefits increase significantly by $435 per capita in PDV, of which $106 is Medicare spending. The estimated change in Medicare spending is not significant. 18 Because there is no significant increase in Medicare spending, the increase in pub- lic medical spending is likely due to changes in the number of people eligible for public medical benefits rather than increased medical spending on existing recipients. 

Unemployment benefits increase by about $280 per capita in PDV. There is no significant change in aggregate income maintenance (although some subcomponents, such as family assis- tance, do increase slightly) and no significant change in retirement and disability insurance bene- fits, per capita federal education assistance, or per capita veteran benefits. Thus, the majority of the increase in transfers is accounted for by unemployment insurance and public medical benefits.

Will Hurricane Sandy affect the US presidential election?

The literature says: yes. Now let's see if Ohio get's a disaster declaration...

The Political Economy of FEMA disaster Payments 
(non-paywalled working paper)
THOMAS A. GARRETT and RUSSELL S. SOBEL

ABSTRACT: We find that presidential and congressional influences affect the rate of disaster declaration and the allocation of FEMA disaster expenditures across states. States politically important to the president have a higher rate of disaster declaration by the president, and disaster expenditures are higher in states having congressional representation on FEMA oversight committees. Election year impacts are also found. Our models predict that nearly half of all disaster relief is motivated politically rather than by need. The findings reject a purely altruistic model of FEMA assistance and question the relative effectiveness of government versus private disaster relief.

Myopic Voters and Natural Disaster Policy

ANDREW HEALY & NEIL MALHOTRA

ABSTRACT: Do voters effectively hold elected officials accountable for policy decisions? Using data on natural disasters, government spending, and election returns, we show that voters reward the incumbent presidential party for delivering disaster relief spending, but not for investing in disaster pre- paredness spending. These inconsistencies distort the incentives of public officials, leading the government to underinvest in disaster preparedness, thereby causing substantial public welfare losses. We estimate that $1 spent on preparedness is worth about $15 in terms of the future damage it mitigates. By estimating both the determinants of policy decisions and the consequences of those policies, we provide more complete evidence about citizen competence and government accountability.

BLIND RETROSPECTION ELECTORAL RESPONSESTO DROUGHT, FLU, AND SHARK ATTACKS
Christopher H. Achen and Larry M. Bartels

ABSTRACT: Students of democratic politics have long believed that voters punish incumbents for hard times. Governments bear the responsibility for the economy in the modern era, so that replacing incompetent managers with capable alternatives appears to be a well-informed, rational act. However, this vision of a sophisticated retrospective electorate does not bear close examination. We find that voters regularly punish governments for acts of God, including droughts, floods, and shark attacks. As long as responsibility for the event itself (or more commonly, for its amelioration) can somehow be attributed to the government in a story persuasive within the folk culture, the electorate will take out its frustrations on the incumbents and vote for out-parties. Thus, voters in pain are not necessarily irrational, but they are ignorant about both science and politics, and that makes them gullible when ambitious demagogues seek to profit from their misery. Neither conventional understandings of democratic responsiveness nor rational choice interpretations of retrospective voting survive under this interpretation of voting behavior.  

Strategic contamination of science by industry

I found this gem in the American Journal of Public Health. If you apply a mental "find-replace" to any of many industries, this should sound familiar.  Brandt is a science historian, for any readers who might otherwise be skeptical.

Inventing Conflicts of Interest: A History of Tobacco Industry Tactics
Alan M. Brandt

ABSTRACT: Confronted by compelling peer-reviewed scientific evidence of the harms of smoking, the tobacco industry, beginning in the 1950s, used sophisticated public relations approaches to undermine and distort the emerging science. 

The industry campaign worked to create a scientific controversy through a program that depended on the creationofindustry–academic conflicts of interest. This strategy of producing scientific uncertainty undercut public health efforts and regulatory interventions designed to reduce the harms of smoking. 

A number of industries have subsequently followed this approach to disrupting normative science. Claims of scientific uncertainty and lack of proof also lead to the assertion of individual responsibility for industrially produced health risks.

Brandt writes:

By late 1953, the tobacco industry faced a crisis of cataclysmic proportions. Smoking had been categorically linked to the dramatic rise of lung cancer. Although health concerns about smoking had been raised for decades, by the early 1950s there was a powerful expansion and consolidation of scientific methods and findings that demonstrated that smoking caused lung disease as well as other serious respiratory and cardiac diseases, leading to death. These findings appeared in major, peer- reviewed medical journals as well as throughout the general media. 

As a result, the tobacco industry would launch a new strategy, largely unprecedented in the history of US industry and business: it would work to erode, confuse, and condemn the very science that now threatened to destroy its prized, highly popular, and exclu- sive product. But this would be no simple matter. After all, in the immediate postwar years–the dawn of the nuclear age–science was in high esteem. The industry could not denigrate the scientific enterprise and still maintain its public credibility, so crucial to its success… 

 What is so upsetting is the level of intentional manipulation and coordination [emphasis is mine]:

By the early 1950s, the emerging science on tobacco’s harms documented in the elite peer- reviewed literature, especially the causal linkage to lung cancer, threatened to undo more than a half century of unprecedented corporate success. With considerable anxiety and rancor within the tobacco industry, the industry’s highly competitive CEOs came together in December 1953 at the Plaza Hotel in New York City to map a strategy. They realized that the threat they now faced was unprecedented and would require new, collaborative approaches and expertise. Not surprisingly, given their history, they turned again to the field of public relations that had served them so well in the past. They called upon John W. Hill, the president of the nation’s leading public relations firm, Hill & Knowlton. 

The public confidence the industry required could not be achieved through advertising, which was self-interested by definition. It would be crucial for the industry to assert its authority over the scientific domain; science had the distinct advantage of its reputation for disinterestedness. Hill shared with his public relations predecessor Bernays a deep skepticism about the role of advertising in influencing public perceptions of tobacco. To those schooled in public relations, advertising ran the risk of exposing corporate self-interest. Good public relations relied on scrupulous behind-the-scenes management of media. As Bernays had demonstrated in the 1920s and 1930s, the best public relations work left no fingerprints. 

Hill offered the companies powerful advice and guidance as they faced their crisis. Hill understood that simply denying emerging scientific facts would be a losing game. This would not only smack of self-interest but also ally the companies with ignorance in an age of technological and scientific hegemony. So he proposed seizing and controlling science rather than avoiding it. If science posed the principal–even terminal–threat to the industry, Hill advised that the companies should now associate themselves as great supporters of science. The companies, in his view, should embrace a sophisticated scientific discourse; they should demand more science, not less. 

Of critical importance, Hill argued, they should declare the positive value of scientific skepticism of science itself. Knowledge, Hill understood, was hard won and uncertain, and there would always be skeptics. What better strategy than to identify, solicit, support, and amplify the views of skeptics of the causal relationship between smoking and disease? Moreover, the liberal disbursement of tobacco industry research funding to academic scientists could draw new skeptics into the fold. The goal, according to Hill, would be to build and broadcast a major scientific controversy. The public must get the message that the issue of the health effects of smoking remains an open question. Doubt, uncertainty, and the truism that there is more to know would become the industry’s collective new mantra…. 

The very nature of controlling and managing information in public relations stood in marked contrast to the scientific notion of unfettered new knowledge. Hill and his clients had no interest in answering a scientific question. Their goal was to maintain vigorous control over the research program, to use science in the service of public relations. Al- though the tobacco executives had proposed forming a cigarette information committee dedicated to defending smoking against the medical findings, Hill argued aggressively for adding research to the committee’s title and agenda. ‘‘It is believed,’’ he wrote, ‘‘that the word ‘Research’ is needed in the name to give weight and added credence to the Committee’s statements.’’ a Hill understood that his clients should be viewed as embracing science rather than dismissing it…. 

Hill & Knowlton had successfully produced uncertainty in the face of a powerful scientific consensus. So long as this uncertainty could be maintained, so long as the industry could claim ‘‘not proven,’’ it would be positioned to fight any attempts to assert regulatory authority over the industry. Without their claims of no proof and doubt, the companies would be highly vulnerable in 2 crucial venues: regulatory politics and litigation…. 

In their work to control the science, the companies had also found that they had secured considerable advantages in the realms of media, law, and public opinion. All of this was dependent on maintaining the notions of controversy, uncertainty, and doubt. In 1961, Hill & Knowlton celebrated its successes on behalf of its tobacco client. The total number of cigarettes sold annually had risen from 369 billion in 1954, the company’s first full year of service to the industry, to 488 billion. Per capita consumption had risen from 3344 a year in 1954 to 4025 in 1961, the highest ever. ‘‘From a business stand- point,’’ Hill & Knowlton crowed, ‘‘the tobacco industry has weath- ered this latest spate of health attacks on its products.’’ In less than a decade, the in- dustry had been stabilized and was thriving… 

And finally, why we need to devise some kind of institution to prevent this:

The story of the tobacco ‘‘controversy’’ and the industry’s deliberative attempts to disrupt science is now, fortunately, fairly well known. In large measure, this story emerged only as a result of whistle blowers and litigation that led to the revelation of millions of pages of internal tobacco documents that both laid out this strategy and documented its implementation. But what has often gone over- looked in the assessment of the tobacco episode was the highly articulated, strategic character of seizing the scientific initiative, the engineering of science. This, however, was a factor well understood by John Hill and the public relations teams that advised the companies. They carefully documented what the scientific investment would buy and how best for the companies to protect and defend that investment. 

A wide range of other industries have carefully studied the tobacco industry strategy. As a result, they have come to better understand the fundamentals of influence within the sciences and the value of uncertainty and skepticism in deflecting regulation, defending against litigation, and maintaining credibility despite the marketing of products that are known to be harmful to public health. Also, they have come to understand that the invention of scientific controversy undermines notions of the common good by emphasizing in- dividual assessment, responsibility, and judgment.

There are so many research ideas in here that I'm not even going to bother trying to list them.  But the field is wide open. I don't think I know more than one or two people who work on the political economy of science.

Elinor Ostrom on cities and sustainability

Elinor Ostrom passed away this week, and in doing so deprives the world of one its great political economists. To wit: this thought provoking op-ed, published post-humously, on the role of decentralized policy making in sustainability:

Much is riding on the United Nations Rio+20 summit. Many are billing it as Plan A for Planet Earth and want leaders bound to a single international agreement to protect our life-support system and prevent a global humanitarian crisis. 

Inaction in Rio would be disastrous, but a single international agreement would be a grave mistake. We cannot rely on singular global policies to solve the problem of managing our common resources: the oceans, atmosphere, forests, waterways, and rich diversity of life that combine to create the right conditions for life, including seven billion humans, to thrive.  

We have never had to deal with problems of the scale facing today’s globally interconnected society. No one knows for sure what will work, so it is important to build a system that can evolve and adapt rapidly. 

Decades of research demonstrate that a variety of overlapping policies at city, subnational, national, and international levels is more likely to succeed than are single, overarching binding agreements. Such an evolutionary approach to policy provides essential safety nets should one or more policies fail.

Emphasis is my own. The rest is worthwhile.

Another reason to love/hate elections

While reading about different reasons why climate might influence conflict, I ran into this interesting find from PNAS 2010:

Irrelevant events affect voters’ evaluations of government performance
Andrew J. Healy, Neil Malhotrab, and Cecilia Hyunjung Mo

Abstract: Does information irrelevant to government performance affect voting behavior? If so, how does this help us understand the mechanisms underlying voters’ retrospective assessments of candidates’ performance in office? To precisely test for the effects of irrel- evant information, we explore the electoral impact of local college football games just before an election, irrelevant events that government has nothing to do with and for which no government response would be expected. We find that a win in the 10 d before Election Day causes the incumbent to receive an additional 1.61 percentage points of the vote in Senate, gubernatorial, and presidential elections, with the effect being larger for teams with stronger fan support. In addition to conducting placebo tests based on postelection games, we demonstrate these effects by using the betting market’s estimate of a team’s probability of winning the game before it occurs to isolate the surprise component of game outcomes. We corroborate these aggregate-level results with a survey that we conducted during the 2009 NCAA men’s college basketball tournament, where we find that surprising wins and losses affect presidential approval. An experiment embedded within the survey also indicates that personal well-being may influence voting decisions on a subconscious level. We find that making people more aware of the reasons for their current state of mind reduces the effect that irrelevant events have on their opinions. These findings underscore the subtle power of irrelevant events in shaping important real-world decisions and suggest ways in which decision making can be improved.

Reminds me of this one on beliefs regarding global warming, and this one on whether to go to college.

Setting technological goals for political feasibility in US climate legislation

In Nature Climate Change:

Willingness to pay and political support for a US national clean energy standard
Joseph E. Aldy, Matthew J. Kotchen & Anthony A. Leiserowitz

Abstract: In 2010 and 2011, Republicans and Democrats proposed mandating clean power generation in the electricity sector. To evaluate public support for a national clean energy standard (NCES), we conducted a nationally representative survey that included randomized treatments on the sources of eligible power generation and programme costs. We find that the average US citizen is willing to pay US$162 per year in higher electricity bills (95% confidence interval: US$128–260), representing a 13% increase, in support of a NCES that requires 80% clean energy by 2035. Support for a NCES is lower among non-whites, older individuals and Republicans. We also employ our statistical model, along with census data for each state and Congressional district, to simulate voting behaviour on a NCES by Members of Congress assuming they vote consistently with the preferences of their median voter. We estimate that Senate passage of a NCES would require an average household cost below US$59 per year, and House passage would require costs below US$48 per year. The results imply that an ‘80% by 2035’ NCES could pass both chambers of Congress if it increases electricity rates less than 5% on average.

Political implications of perceived agreement on climate change

Support for climate policy and societal action are linked to perceptions about scientific agreement
Ding Ding, Edward W. Maibach, Xiaoquan Zhao, Connie Roser-Renouf & Anthony Leiserowitz

Abstract: Although a majority of US citizens think that the president and Congress should address global warming, only a minority think it should be a high priority. Previous research has shown that four key beliefs about climate change—that it is real, human caused, serious and solvable—are important predictors of support for climate policies. Other research has shown that organized opponents of climate legislation have sought to undermine public support by instilling the belief that there is widespread disagreement among climate scientists about these points—a view shown to be widely held by the public. Here we examine if this misperception is consequential. We show that the misperception is strongly associated with reduced levels of policy support and injunctive beliefs (that is, beliefs that action should be taken to mitigate global warming). The relationship is mediated by the four previously identified key beliefs about climate change, especially people’s certainty that global warming is occurring. In short, people who believe that scientists disagree on global warming tend to feel less certain that global warming is occurring, and show less support for climate policy. This suggests the potential importance of correcting the widely held public misperception about lack of scientific agreement on global warming.

I suppose this is more rational than this, but that's not saying much...

Networks of the economic elite

In graph theory, the set of companies and their board members is a classic example of a bipartite graph: individual board members sit on the boards of different companies, "linking" them in an abstract sense.  Similarly, different board members are "linked" to one another by sitting on the same board of a specific company.

I recently ran across this very nice visualization of board members and companies for the United States. The visualization project is aptly titled "They Rule" and was purportedly built to improve political-economic transparency:

Overview

They Rule aims to provide a glimpse of some of the relationships of the US ruling class. It takes as its focus the boards of some of the most powerful U.S. companies, which share many of the same directors. Some individuals sit on 5, 6 or 7 of the top 1000 companies. It allows users to browse through these interlocking directories and run searches on the boards and companies. A user can save a map of connections complete with their annotations and email links to these maps to others. They Rule is a starting point for research about these powerful individuals and corporations.

Context 

A few companies control much of the economy and oligopolies exert control in nearly every sector of the economy. The people who head up these companies swap on and off the boards from one company to another, and in and out of government committees and positions. These people run the most powerful institutions on the planet, and we have almost no say in who they are. This is not a conspiracy, they are proud to rule, yet these connections of power are not always visible to the public eye.

The visualization uses the API of the data collection group littlesis.org, which is itself also worth checking out.  It seems like a data set ripe for network-based analysis of our country's political economic structure.

What's causing the English riots?

Rioting in London has now spread to several other cities in England. After starting in Tottenham, North London (where 26 years ago the Broadwater Farm riots started) the riots are now in their 3rd or 4th day and have already resulted in multiple deaths and a huge amount of destruction. Notable losses thus far include a warehouse housing much of the English music and film industry's product stock, which many fear may bankrupt uninsured firms throughout the industry. So, what's causing the riots?

As always, it depends on what you mean by "cause." The proximate reason was the shooting death of unarmed father of four and / or alleged drug dealer Mark Duggan. The small but long-running empirical literature on riots reveals what I imagine most of us already suspect: these sort of events are common triggers but seem to serve a roll much more akin to catalyst than true cause. Much has been said in the mean time about the role of social media and easy cellular communication in advancing the riots, but much as Jared Cohen of Google Ideas said about the Arab revolts of this past year, it's hard to argue that either of those factors is really making a difference in whether the riots occur so much as simply helping rioters coordinate (for a particularly good write up of the role of social media in the riots, and the source of that Cohen Op-Ed, see this post at Gigaom).

So what's causing the riots and what can we learn from it? It obviously depends on the type of riot but a running theme is a simultaneous interaction between poverty, economic disparity, and political disenfranchisement. That's clearly not always the case, but this echoes a lot of what we know from the empirical literature on conflict, especially internal conflict. You're not likely to have a civil war if you have homogeneous social groups or an established political system respected by the public, and you're not likely to have riots if you have the same.

All of which is to say that riots generally seem to be very human expressions of discontent and powerlessness that are difficult to ascribe to purely thuggish motivations like a desire to loot. As more stories pour in ( "I saw 3 or 4 young women looting Tesco Express for nappies and milk tonight" "In Enfield most of those who gathered in the town centre were white. The youngest looked about 10-years-old" "No kids don't want to go to college no more coz they don't get paid") it's becoming clear that the English rioting seems to be driven by that same combustible mixture of poverty, inequality, and lack of options. Given that those factors seem to only worsening around the world, it seems wise to view the English riots not as a freak event but rather as part of a larger global trend.

Death threats for climate researchers

Australia's already ugly debate over a carbon tax has just gotten uglier, with a host of climate scientists reporting that they are receiving death threats:

The revelation of the death threats follows a week of bitter exchanges between the government and the opposition in the wake of a pro-carbon price TV advert featuring actor Cate Blanchett.

The Australia National University (ANU) in Canberra said that it has moved a number of its climate scientists to a secure facility after they received a large number of threatening emails and phone calls.

Ian Young, ANU's vice-chancellor, told ABC national radio that the threats had worsened in recent weeks.

"Obviously climate research is an emotive issue at the present time," he said.

Unfortunately, I doubt that this phenomenon is somehow uniquely Australian. And given the similarity between the US and Australia (especially in media coverage...) it makes me feel more than a bit queasy about the path to carbon regulation on our end.

Reconsidering the war on drugs

Last week, the Global Commission on Drug Policy published their Report which argues that a "War on Drugs" policy is an inefficient use of public resources.  The commission is an impressive group (which includes, among others, Kofi Annan, Paul Volcker and Richard Branson) but the report has been [predictably] rejected by leaders in the US and Mexico (despite the comission being convened by Latin American leaders that include former Mexican President Ernesto Zedillo).  I was intrigued by the fact that these leaders were explicitly trying to maximize social welfare subject to budget constraints, so I took a look for myself.  I particularly appreciate the report's first "principle":

Drug policies must be based on solid empirical and scientific evidence. The primary measure of success should be the reduction of harm to the health, security and welfare of individuals and society. 

In the 50 years since the United Nations initiated a truly global drug prohibition system, we have learned much about the nature and patterns of drug production, distribution, use and dependence, and the effectiveness of our attempts to reduce these problems. It might have been understandable that the architects of the system would place faith in the concept of eradicating drug production and use (in the light of the limited evidence available at the time). There is no excuse, however, for ignoring the evidence and experience accumulated since then. Drug policies and strategies at all levels too often continue to be driven by ideological perspectives, or political convenience, and pay too little attention
to the complexities of the drug market, drug use and drug addiction....  

click to enlarge

This reminds us that drug policies were initially developed and implemented in the hope of achieving outcomes in terms of a reduction in harms to individuals and society – less crime, better health, and more economic and social development. However, we have primarily been measuring our success in the war on drugs by entirely different measures – those that report on processes, such as the number of arrests, the amounts seized, or the harshness of punishments. These indicators may tell us how tough we are being, but they do not tell us how successful we are in improving the ‘health and welfare of mankind’.

I found the report thoughtful and the overall conclusions eerily reminiscent of John D. Rockefeller Jr.'s 1932 remark during Prohibition

When Prohibition was introduced, I hoped that it would be widely supported by public opinion and the day would soon come when the evil effects of alcohol would be recognized. I have slowly and reluctantly come to believe that this has not been the result. Instead, drinking has generally increased; the speakeasy has replaced the saloon; a vast army of lawbreakers has appeared; many of our best citizens have openly ignored Prohibition; respect for the law has been greatly lessened; and crime has increased to a level never seen before.

and reflected in this simple wikipedia graph

I don't think any of this is surprising to economists.  The demand for drugs is highly inelastic, so prices will rise dramatically if supply is restricted.  The burden of "taxation" (in this case, the energy the drug industry must expend to evade tough policies) is easily passed from suppliers onto consumers in the form of higher prices.  No surprises here, just basic principles from public finance.

Below are the key findings of the report.

Our principles and recommendations can be summarized as follows: 
End the criminalization, marginalization and stigmatization of people who use drugs but who do no harm to others. Challenge rather than reinforce common misconceptions about drug markets, drug use and drug dependence.

Encourage experimentation by governments with models of legal regulation of drugs to undermine the power of organized crime and safeguard the health and security of their citizens. This recommendation applies especially to cannabis, but we also encourage other experiments in decriminalization and legal regulation that can accomplish these objectives and provide models for others.

Offer health and treatment services to those in need. Ensure that a variety of treatment modalities are available, including not just methadone and buprenorphine treatment but also the heroin-assisted treatment programs that have proven successful in many European countries and Canada. Implement syringe access and other harm reduction measures that have proven effective in reducing transmission of HIV and other blood-borne infections as well as fatal overdoses. Respect the human rights of people who use drugs. Abolish abusive practices carried out in the name of treatment – such as forced detention, forced labor, and physical or psychological abuse – that contravene human rights standards and norms or that remove the right to self-determination.  

Apply much the same principles and policies stated above to people involved in the lower ends of illegal drug markets, such as farmers, couriers and petty sellers. Many are themselves victims of violence and intimidation or are drug dependent. Arresting and incarcerating tens of millions of these people in recent decades has filled prisons and destroyed lives and families without reducing the availability of illicit drugs or the power of criminal organizations. There appears to be almost no limit to the number of people willing to engage in such activities to better their lives, provide for their families, or otherwise escape poverty. Drug control resources are better directed elsewhere.

Invest in activities that can both prevent young people from taking drugs in the first place and also prevent those who do use drugs from developing more serious problems. Eschew simplistic ‘just say no’ messages and ‘zero tolerance’ policies in favor of educational efforts grounded in credible information and prevention programs that focus on social skills and peer influences. The most successful prevention efforts may be those targeted at specific at-risk groups.

Focus repressive actions on violent criminal organizations, but do so in ways that undermine their power and reach while prioritizing the reduction of violence and intimidation. Law enforcement efforts should focus not on reducing drug markets per se but rather on reducing their harms to individuals, communities and national security. 

Begin the transformation of the global drug prohibition regime. Replace drug policies and strategies driven by ideology and political convenience with fiscally responsible policies and strategies grounded in science, health, security and human rights – and adopt appropriate criteria for their evaluation. Review the scheduling of drugs that has resulted in obvious anomalies like the flawed categorization of cannabis, coca leaf and MDMA. Ensure that the international conventions are interpreted and/or revised to accommodate robust experimentation with harm reduction, decriminalization and legal regulatory policies.

Break the taboo on debate and reform. The time for action is now. 

What it means to be in a nondemocratic developing country

Like I assume most of the people who read this blog, I've been watching events unfold in Egypt with a mix of (mostly) hope and (some) worry. Ignoring for the moment possible outcome trajectories, the specifics of what's been going on, the response from other countries, and everything else, I think it's interesting to focus for a second on why and how Egypt got here:

"... a carnival atmosphere descended on the square, where vendors offered food at discount prices and protesters posed for pictures in front of tanks scrawled with slogans like, '30 years of humiliation and poverty.'"

That's from an online NY Times article from yesterday that's been getting continuously updated (and now no longer shows the original quote). The set of events that have to go down to bring about the kind of social unrest we're seeing in Egypt aren't trivial. People routinely toss around the idea of "revolution" when discussing topics like a change in US political party or new regulations (e.g., of gun control, carbon taxation, health care...) but the costs of revolution, in particular in terms of the uncertainty of its outcome, are huge. So I think it bears thinking about for a second:

30 YEARS of humiliation and poverty. Notoriously brutal secret police. Elite capture. Enough frustration to push your way across a bridge guarded by hundreds of cops willing to turn a water cannon on you.

We often talk about development, its constraints, and the various political, economic, and historical forces which result in countries being "developed" or not. Sometimes those conversations can get very abstract. It's worth remembering that being in a typically underdeveloped, undemocratic country means dealing on a day to day basis with issues so debilitating and frustrating that you're motivated to spray paint your grievances on the side of a tank.

*Note: the graffiti on the side of the tank says "Down with Mubarak," and comes from Ramy Raoof's flickr stream, here.

Strategic dissent in the PRC

Yale's Chris Blattman, whose blog on development and violence is one of the more fun academic blogs out there, points to an excellent interview in the New York Review of Books with Yang Jisheng, the author of recent book called Tombstone about China's Great Famine, a.k.a. the three years of hunger and deprivation caused by the Great Leap Forward. The book is noteworthy for the fact that Yang basically went around gathering a variety of records about how horrific the famine was under the pretense of doing agricultural work. If it strikes you as odd that the notoriously secretive Chinese government kept files on things like cannibalism, well:

Ian Johnson: I wondered when reading Tombstone why officials didn’t destroy the files. Why did they preserve all this evidence?

Yang Jisheng: Destroying files isn’t up to one person. As long as a file or document has made it into the archives you can’t so easily destroy it. Before it is in the archives, it can be destroyed, but afterwards, only a directive from a high-ranking official can cause it to be destroyed. I found that on the Great Famine the documentation is basically is intact—how many people died of hunger, cannibalism, the grain situation; all of this was recorded and still exists.

That potentially very embarrassing records don't generally get destroyed once they're in the system (a) makes one wonder what else is in there and (b) gives hope that at some point (hopefully in the not-too-distant future) some bright young researcher will get a nice fat chunk of data out of those records and be able to write some very cool papers.

That said, what I find even more compelling is this: given the notoriously repressive regime, how does Yang operate? He runs a "reform-oriented" journal Annals of the Yellow Emperor and not only keeps it from getting shut down, but manages to publish a very controversial (enough to be subsequently banned) book. How?

Why do you think your magazine seems to enjoy more leeway than other Chinese publications?

Because we know the boundaries. We don’t touch current leaders. And issues that are extremely sensitive, like 6-4 [the June 4th Tiananmen Square massacre], we don’t talk about. The Tibet issue, Xinjiang, we don’t write about them. Current issues related to Hu Jintao, Jiang Zemin and their family members’ corruption, we don’t talk about. If we talk just about the past, the pressure is smaller.

Now, as a total non-sinologist, and probably falling too much into the classic economic style of reasoning, I read this in two ways:

• The first is that there's a reputational cost associated with stifling dissent (of course), and it's one that I suspect is increasing in the apparent harmlessness of the dissenter. For all the noise other governments make about human rights, everyone knows that China censors its internal critics and to a certain real-politik extent accepts it. But if China is seen as being unnecessarily repressive ("why are you going after this guy? He's writing about events that happened two generations ago") then it undermines their censoring practices in general, and they don't want that.
• The second hews more closely to the limited amount of work I've read on how the Chinese elite views change, which is to say that many are in favor of making China less repressive but think it needs to be done piecemeal lest the country fly apart. In this light, and ignoring those in power who are more interested in elite-capture (which may, admittedly, be a dumb thing to do), people like Yang are actually *very* valuable to the ruling class. They allow a slower, more controlled and more co-optable approach towards reform. Looking at how long it takes even democratic governments to admit prior mistakes and wrong doing (Japan and WWII atrocities; the US's treatment of indigenous peoples) this seems to make a lot of sense. For China to up and say "you're right, we shouldn't have cracked down so hard at Tiananmen" would be hugely disruptive and likely terrifying for those in power, but admitting that their forebears made deadly policy mistakes much less so while still moving the country further towards openness and democracy.

In either event, the interaction displays strategic behavior on both sides: Yang recognizes there are certain subjects about which he'd like to write that he ignores because the costs are too great, and the regime recognizes that some types of dissent are either too valuable or too costly to repress. Something to keep in mind when one thinks about authoritarian rule, its limits, and their drivers, especially in places like Russia where allowable dissent seems even more circumscribed than in China.