Don't let Don Boudreaux or Thomas Sowell trick you on the sequester

Here and here.

As a hypothetical classroom exercise in public choice theory what they propose is totally fine. They ask, if an agency with responsibilities for (1.) building statues of Benedict Arnold, or (2.) providing medicine to children has to cut its budget, what will it cut first? The answer is the medicine because that will cause the public outrage to get the funding restored.

It's fine as a hypothetical, and the extent to which it describes real bureaucratic behavior is an empirical one (and a reasonable empirical question to look into), but don't let them trick you into misunderstanding what sequester does.

With very few exceptions, the administration has no latitude for shifting around what it cuts. In its report on sequester, the OMB writes:

"The percentage cuts in this report, and the identification of non-exempt accounts, reflect the requirements of the laws that the Administration is applying. With the single exception of military personnel accounts, the administration cannot choose which programs to exempt, or what percentage cuts to apply. These matters are dictated by a detailed statutory scheme. The Administration does not support these cuts, but unless Congress acts responsibly, there will be no choice but to implement them."

Later in the report they discuss the fact that the parliamentarian of the Senate agrees with this interpretation that there are no rules in the act allowing shifting of the burden across discretionary budget accounts (of which there are apparently over 1,200 that have to take the same hit).

If you skim the appendix and look through all the different accounts it's clear that the special exemption rules indeed apply to very feew accounts.

*****

Now, given these stupid policies is the administration making the stupidity of it all very public in the hope of doing something about it? Of course. That's what I'd do too. That's what I've done to a certain extent on this blog. But what they're not doing is deliberately cutting the most sensitive stuff to get a reaction. They have to by law.

It's bad enough that we have the sequester in the first place. I find it disgusting that economics professors are either distorting what's going on or even cheering it.

House high skilled immigration hearing today at 10 am

You can get the link to watch it here.

Bruce Morrison is the only witness I know by name - he was at the Georgetown conference on high skill immigration I went to this past summer. I sat across from him at dinner - quite a character.

Note to self

In the future, when submitting a proposal to the graduate student research conference at AU (because, what the hell - why not) make your colleagues submit some proposals too.

Just got informed I was accepted - but I'm on a panel with two education presentations with me talking about my job creation tax credit research. Most of the applicants look like humanities and some anthropology/women's studies/sociology type stuff.

It's OK - I'll probably think up motivating slides about patterns in labor demand for low education workers, wage trends for these workers, etc. to segue into policy responses. But it would have been great to have a lot of econ students so there could be a proper economics panel.

Putting together a simple professional website

Here.

Not much on there yet.

I decided I don't like Google sites (which I had used before), and I really need a more professional platform than F&OST to point people to. Wordpress also has the prospect of upgrading to a .com and some nicer themes in the future, but this is perfect for now.

Not that there's much variability, but let me know what you like to see in a professional website.

Working papers of interest

What Are We Weighting For?

Gary Solon, Steven J. Haider, Jeffrey Wooldridge

NBER Working Paper No. 18859
Issued in February 2013
NBER Program(s):   CH   DEV   ED   HC   HE   LS   PE   TWP 

The purpose of this paper is to help empirical economists think through when and how to weight the data used in estimation. We start by distinguishing two purposes of estimation: to estimate population descriptive statistics and to estimate causal effects. In the former type of research, weighting is called for when it is needed to make the analysis sample representative of the target population. In the latter type, the weighting issue is more nuanced. We discuss three distinct potential motives for weighting when estimating causal effects: (1) to achieve precise estimates by correcting for heteroskedasticity, (2) to achieve consistent estimates by correcting for endogenous sampling, and (3) to identify average partial effects in the presence of unmodeled heterogeneity of effects. In each case, we find that the motive sometimes does not apply in situations where practitioners often assume it does. We recommend diagnostics for assessing the advisability of weighting, and we suggest methods for appropriate inference.

 

Heterogeneous Economic Returns to Postsecondary Degrees: Evidence from Chile

Loreto Reyes, Jorge Rodríguez, Sergio S. Urzúa

NBER Working Paper No. 18817
Issued in February 2013
NBER Program(s):   ED   LS 

We analyze the economic returns to different postsecondary degrees in Chile. We posit a schooling decision model with unobserved ability, observed test scores and labor market outcomes. We benefit from administrative records to carry out our empirical strategy. Our results show positive average returns to postsecondary degrees, especially for five-year degrees. However, we also uncover a large fraction of individuals with realized negative net returns. Although psychic benefits of postsecondary education could rationalize this result, we argue this might also suggest that individuals lack information at the time schooling decisions are made. Finally, our findings illustrate the importance of allowing for heterogeneous treatment effects when making policy recommendations.

Some labor links

- Christina Romer with an excellent op-ed on the minimum wage. I agree with most of what she writes here, as people ought to know by now. I do find the constant comparison with the EITC interesting. The reason is presumably that higher wages are intended to increase the amount of labor supplied and the primary alternative labor supply policy for low income workers is the EITC. Another way of looking at it, though, is that the minimum wage is an attempt to raise wages because labor demand is insufficient to raise them to the level that we desire. In some ways this is the more natural alternative to reach for (it's odd to think about raising wages for workers with supply side policies), and yet it's always the EITC that we hear about. Maybe the alternative to the minimum wage ought to be a proper labor demand policy.

- Nancy Folbre discusses the relationship between the minimum wage and family formation.

- Bryan Caplan discusses supply restrictions on doctors. I really need to get into work on this labor market.

This one's for you, Congress

This is a scheduled post - I went to bed a couple hours ago.

If they did an eleventh hour deal, they still get the finger for waiting so long.

I'm guessing they didn't, though.

Good feeling on a problem set

Often problem sets are of the form "Given X, now show Y". So you know your end point.

Sometimes you know the route pretty intuitively, sometimes it's not intuitive at all and you just do a bunch of manipulations of X until you think you see the route.

Sometimes you don't see the route and it just looks more and more complicated and you're wondering if you're really up to doing this sort of thing.

And then you glance at it, and you see how to reorganize to let 90% of the monstrosity drop out, leaving you Y.

It's a good feeling. Knowing the route intuitively is a good feeling, but it's very encouraging to trudge through a mess of greek letters and operators - not knowing your route at all and just hoping you haven't messed something up - and then realizing at the end that you actually stayed accurate the whole way through.

Hoover: an austerity president in whose footsteps Congress and the President are following

Don Boudreaux is exactly right (savor that one - it's not said often here) that Hoover did not cut spending.

Nevertheless, a Hoover analogy is perfect for our situation on the eve of the economic stupidity that is the sequester. As many have been frantically exclaiming, there's not a lot of budget cutting if your reference point is spending in the recent past. All cuts are relative to a baseline. So like Hoover we're not cutting per se but we're imposing substantial austerity on the economy just when it's starting to look fragile. Why? Because in our case government spending is being pushed well below trend growth. I'm not sure what trend growth in Hoover's case looked like (I do know his budgets came in under Harding's - so I'm not sure why Tom Woods loves Harding so much but mocks Hoover), but they were definitely below the level that would be consistent with full employment.

I have Hoover's spending increases below. The early 1930s was a period of monetary and fiscal austerity. Congress is making the same mistake today. Who cares if spending ticks up a little bit relative to last year? Look at what it's doing relative to some counterfactual that actually matters in an economic sense rather than a political talking point sense.

Nobody that knows their economics supports a gold standard

Just in case that was an open question to anyone.