Stephen Moore Visits UIUC

Filed Under (Uncategorized) by admin on Apr 28, 2017

On Thursday, April 20, 2017, Stephen Moore, Contributing Editor for The Wall Street Journal and Senior Economic Advisor to the Trump administration, visited his Alma mater, the University of Illinois at Urbana-Champaign to present on Economic Policy within the new administration.

His presentation can be seen here.

What the NRA is Assuming (and Why They are Wrong)

Filed Under (Other Topics, Uncategorized) by Jeffrey Brown on Dec 21, 2012

Like millions of Americans, I was deeply shaken by the horrible tragedy that unfolded at Sandy Hook elementary school in Newtown Connecticut one week ago today.  As a father, as an American – simply, as a human being – I was horrified by the thought that anyone could be capable of gunning down innocent and helpless children.  My rage toward the killer was outweighed only by the terrible sadness for the children and deep sympathy for their families.

As the hours and days have gone by, however, my raw emotional response has slowly – if not fully successfully – made some room for my inner economist to begin to examine the situation from an analytical perspective.

Today, Wayne LaPierre, the head of the NRA, stated that “the only thing that stops a bad guy with a gun is a good guy with a gun.” This is a provocative statement, so I thought it was time to examine this issue more closely.

So let me ask a simple question: “Would America’s children be safer if we had more guns, or fewer guns?”

I would like to assume that, with the exception of a few sociopaths, everyone wants our children to be safer.  I do not subscribe to the extremist rhetoric from either side that assumes they are the only ones with the moral high ground and that the “other side” is somehow anti-kids.  Rather, I think both sides agree on the goal – to keep our kids safe – but have a very different view of how to get there.

But who is right?  Would our children be safer with more guns or fewer guns?

To provide some insight, I would like to adapt a simple model that is used to discuss tax policy (stay with me here!) – the “Laffer curve.” (Click here for information on the Laffer curve). 

If there were zero guns available in the U.S., then by definition there would be zero gun-related deaths.  Starting from zero, as the number of guns increases, the frequency of gun related deaths would surely rise, at least initially.  But it probably would not rise forever as shown in this graph.

gun graph

Why?  Consider the other extreme – the vision of the NRA – where virtually every citizen was armed.  Teachers, professors, airline pilots, nurses, truck drivers, accountants … everyone.

According to the NRA, in such a world, criminals would be reluctant to commit a crime because they know that they would be putting themselves in grave danger.  Or even if they did, an armed good guy would stop them.

What this means is that if gun violence is low at low levels of gun ownership, and also low at high levels of gun ownership, then there must be a horrible “peak” in between where the number of gun-related deaths is at its highest (the peak).

We have over a quarter of a billion guns in the U.S. The question is whether this is above or below the peak.  If it is below the peak, then more guns cause more gun-related deaths, and deaths would decline if we had more effective gun control laws.  In contrast, if we are above the Peak, then small decreases in the number of guns can actually cause more deaths.  Relatedly, if we are above the Peak, then increasing the number of guns can reduce the number of gun-related deaths.  This is what the NRA seems to believe.

This is a simplistic model.  But it does provide an important insight: theoretically, gun control could make us safer or it could make us less safe.  Gun control advocates are implicitly assuming we are to the left of the peak.  Gun rights advocates are implicitly assuming we are to the right of the peak.

So, what does the evidence say?

The good news is that it is possible to test this.  The bad news is that it is very hard to do it well.  One cannot simply assert that “in country X, they have tighter gun control laws and also fewer gun deaths, so therefore fewer guns causes fewer deaths.”  To do so would be to ignore countless other factors – cultural, religious, legal, economic, demographic – that might cause country X to have fewer deaths and also cause them to pass more stringent gun control laws.

Fortunately, some economists have written good papers on gun control.  (Sadly, other economists have written bad papers on gun control, meaning that they are sloppy, confuse correlation with causation, and therefore should not be used to guide policy debates.)

University of Chicago economist John Lott is the most well-known researcher on the issue.  His findings are easily summarized by the name of his book “More guns, less crime.”  In other words, Lott believes we are way past the peak and that people would likely be safer if we had fewer restrictions on guns.  As is often the case when someone writes something so provocative, Lott’s research has come under attack.  A summary of the controversies and criticisms can be found here.

Aside from just attacking Lott’s work, others have tried to examine this issue on their own.  In my opinion, the single best study on this topic was conducted by Prof. Mark Duggan, a Harvard-trained Ph.D. in economics who is now a professor at the Wharton School at the University of Pennsylvania.  His paper, “More Guns, More Crime” was published in one of the most elite peer-reviewed economics journals in the world.  He finds that “changes in homicide and gun ownership are significantly positively related” (thus, his title – more guns lead to more crime.)  Importantly, he also finds that “this relationship is almost entirely driven by the relationship between lagged changes in gun ownership and current changes in homicide.”  This is really important because it is evidence that this correlation comes about because guns lead to more homicides, rather than an increase in homicides leading more people to buy guns.

The Duggan study also specifically examines the Lott study.  He agrees that, theoretically, concealed carry laws could increase the likelihood that potential victims could carry a gun, and thus reduce the homicide rate (my simple model above).  However, he concludes that he finds “no evidence that counties with above-average rates of gun ownership within CCW states experienced larger declines in crime than low-ownership counties did, suggesting either that gun owners did not increase the frequency with which they carried their guns or that criminals were not being deterred.”  In other words, there is no evidence to support the NRA’s view.

I came into this debate over the past week with an open mind.  My reading of the evidence, however, suggests that more guns cause more crime, and that concealed carry laws would not reduce crime.

Our nation may still decide not to restrict guns because of the Second Amendment.  But if so, let’s at least do it with our eyes open.  We should not be pretending that we are helping kids by promoting gun ownership.

Professor Tenure as Insurance: What the Wall Street Journal Debate Missed

Filed Under (Uncategorized) by Jeffrey Brown on Jun 25, 2012

Today’s Wall Street Journal carried a piece called “Should Tenure for College Professors Be Abolished?”  It pitted two individuals with strongly held views against each other on the issue.  As so often happens when people are advocating rather than analyzing, both sides selectively examined the issue.

In favor of abolishing tenure, the WSJ featured Naomi Schaefer Riley, a critic of the tenure system who appears to believe that teaching is the only worthwhile activity in which academics engage.  It was a bit ironic for me to read this on a day in which I am sitting at an academic conference on consumer financial decision-making in Boulder, exchanging ideas with some of the nation’s top scholars from a diverse set of fields (including law, economics, marketing, psychology, law and public policy) regarding new research that is both widely read and enormously impactful in the real world.  As but one example, the conference was kicked off yesterday by Shlomo Benartzi at UCLA, who reminded audience members how academic research led to a revolution in retirement policy in the U.S., improving the retirement security of millions of Americans by increasing participation and contribution rates to 401(k) plans by leveraging the insights of psychology and behavioral economics.  Apparently, Ms. Riley does not believe that such activities add much value and that we academics should just stay on campus and teach.

Defending the tenure system was Dr. Cary Nelson, an English professor at my own academic institution (the University of Illinois) and President of the American Association of University Professors.  Dr. Nelson seems to believe that tenure is “the ultimate quality check” and that academic freedom would crumble if people were not granted lifetime tenure.  I am unaware of any compelling evidence supporting such claims, although I cannot refute them either.

As an economist, I think that both authors – neither of whom I found particularly persuasive – missed an obvious way to frame this issue.  Namely, tenure is a form of insurance.  And like any insurance, it has both positive and negative effects.  Here are a few:

  1. Tenure reduces the cost of hiring faculty.  Tenure – insurance against job loss – is highly valuable, and therefore substitutes for other forms of compensation. In a competitive labor market (and, contrary to what many non-academics believe, the market for faculty is extremely competitive), tenure means that institutions do not have to pay faculty as much in the form of cash or benefits.  If we abolish tenure, the new market equilibrium would result in higher average salaries, thus further increasing the cost of education.
  2. Tenure creates moral hazard:  Moral hazard is the well-established phenomenon that people behave differently when they have insurance than when they do not.  Because tenure provides insurance against the loss of a job  – in spite of Dr. Nelson’s protests to the contrary – tenure can have the effect of making some faculty members reduce effort.

To be clear, I honestly do not believe this reduction in effort is the case with the vast majority of the tenured faculty members that I know – in fact, most of us lament the fact that, post-tenure, our work hours and the demands on our time increase.  Indeed, I think the selection effect is huge – gaining tenure is so difficult at the top institutions that the only people who make it are, by their nature, extremely driven individuals.  Most of these people do not shut-down after tenure – it is simply not in their DNA.  So, one way to view the tenure process is that it creates enormously strong incentives to excel for during the probationary, pre-tenure period (that typically lasts anywhere from 6-10 years).  This is not all that different from many partnerships – law firms, accounting firms, etc. – that work their junior associates to the bone in exchange for eventually becoming a partner.  I am not suggesting that partners have indefinite tenure, only that the incentive effects early in one’s career make untenured assistant professors some of the hardest working people I have ever met.

However, although it is the exception rather than the norm, all of us in the academy know members of the faculty – thankfully, far fewer in numbers than most non-academics imagine – that take advantage of their protected status by slacking.  Their research productivity declines, they spend less time preparing for classes, and they are less engaged in their departments and professions.  This “dead wood” – while not exceedingly common – is exceedingly costly when it occurs.  Most of us in universities would love to rid ourselves of this problem.

I may be in a minority of faculty, but I would personally not mind having a conversation about abolishing tenure and replacing it with a system of, say, 5-year renewable contracts, but not for the naïve and misguided reasons that Ms. Riley states.  Rather, I believe that for the highly productive among us, our salaries would increase and we would have an effective tool for eliminating the deadwood in our ranks.

Granted, the “tenure as insurance” framework is far from the only set of factors that ought to be considered.  Some of the issues raised by Ms. Riley and Dr. Nelson – how tenure affects risk-taking, teaching quality, and so forth – are incredibly important considerations.  It would just be nice to have some solid empirical evidence on the size and direction of these effects before taking a final stand on the issue.  Until I see it, I am going to head back downstairs to the behavioral decision-making context to see some of the research that I honestly believe is going to help improve lives.

How to tell your Leaders from your Legends.

Filed Under (Uncategorized) by Nolan Miller on Sep 22, 2011

I’ve had ample time to get over what I like to call “worst-division-names-ever-gate,” i.e., the Big Ten’s announcement last December that starting this year its teams would be split into two divisions, the “Legends” and the “Leaders.”   It is difficult to imagine coming up with something worse than this, but perhaps one should have low expectations for a twelve-team Big “Ten,” anyway.  They should have just gone with Division A and Division 1, which would have been equally as informative and no less random.  At least they could have gone with any two seven letter words with fewer than five letters (including the first and last) in common.  But, what are you going to do?

The time to complain is gone.  Now there is nothing left to do but try to figure out which division is which.  Here’s a helpful guide:

First: what are the divisions?

The Leaders: Indiana, Illinois, Ohio State, Purdue, Penn State, Wisconsin.

The Legends: Iowa, Minnesota, Michigan, Michigan State, Nebraska, Northwestern.

Next: how do I remember who goes where?

1.  The “Leaders.”  The leaders division forms a smile on the map (maybe even an “L” shape), from Wisconsin down to Illinois to Purdue and Indiana to Ohio State and finally to Penn State.  If you’re not smiling, you’re probably a Legend.

2.  The “Legends.”  The Big Ten tried its hardest to make sure there was no rhyme or reason to the divisions. But, it missed one.  Alphabetical order.  By some twist of fate, the Legends are the six teams in alphabetical order, starting with Iowa: Iowa, Michigan, Michigan State, Minnesota, Nebraska, Northwestern.  Also, except for Iowa, they all start with M or N.  So, you may just want to remember “MNMNMIowa!” as your rallying cry.  As many of our leaders have trouble with alphabetical order, it is a good thing they’re not Legends.

Now, that may help you remember which teams are grouped together, but it still doesn’t help you remember which ones are the Legends or which ones are the Leaders.  To that I respond: Really?  Who cares?

But, maybe you do.  So, here are some tips.  First, the Leaders actually lead the alphabet, with Illinois and Indiana.  Next, the Legends (which has a “n” in it) contains the teams that start with N.

I have a feeling this may be the most important post I write this year.

What’s for dinner? An open call to the FDA to improve import inspections

Filed Under (Environmental Policy, Uncategorized) by Kathy Baylis on Jun 24, 2011

In the shadow of the deadly EU e-coli outbreak, the FDA released a report on its plans to inspect the growing amount of imported food and drugs.  Imports have increased dramatically, with shipments growing 4-fold in the last decade.

Despite our large domestic agricultural industry, Americans rely on imported food.  The report notes that “between 10% and 15% of all food consumed by United States (U.S.) households is imported from abroad.  Nearly two-thirds of the fruits and vegetables–and 80% of seafood–eaten domestically come from outside the U.S.” While we may have an image of scientific sampling of import shipments, as the NY times article notes, “currently less than one pound in a million of imported seafood even gets a visual inspection.”.

The report goes on to talk about developing more international cooperation and how the current inspection system is starved of resources.  Numerous authors have made the comparison between the FDA who is in charge of inspecting most imported food, and the USDA who has many more resources to inspect imported meat products.  Why does an imported steak get much less scrutiny if it comes from a foreign tuna than from a foreign cow?  While the lack of resources is real, and greater international cooperation is helpful, there are a number of things that the FDA could do to better target its few resources to import products that are truly a risk.

A couple of years ago, a few of us looked at US import refusal data and compared it to known risk factors and variables that could capture political influence (Baylis, K., A. Martens and L. Nogueira.  2009. “What drives import refusals?” American Journal of Agricultural Economics 91(5), 1477-1483. ).  While imported food can carry real risks, there is evidence that the FDA can get used as a political instrument to protect domestic interests (Vietnamese catfish anyone?).  We wanted to see what product and exporter characteristics led to a greater level of inspections and refusals.

I found pouring through the data telling. Import inspections and refusals are often triggered by red flags, known as “alerts”, that identify certain products and shippers that are perceived to be of concern.  Inspectors use these alerts as a way of targeting their efforts.  But three-quarters of the alerts in place in 2009 have been in place longer than 10 years, and more than one quarter were generated 20 years ago.  For example, a 1994 alert flagged cheese coming from the Azores as having been found to have microbial contamination three years earlier.  One rather hopes that in the intervening 20 years, Portuguese dairy processors have figured out the problem, but that alert is still active, presumably leading to more attention being paid to any cheese imported from these islands.  We saw evidence that old problems seemed to generate many more refusals than brand new exporters.  We also saw evidence that things like anti-dumping or other evidence of domestic protectionism led to higher refusals.  Thus, while risk variables did play a part, we found that political variables were also associated with higher levels of import refusals, which seems to say that energies could better be allocated to dealing with products risky to health, not those risky to domestic industry.  (I should note that we are currently looking at EU food import refusals and finding the same thing – so this is not just an American habit).

Last, as a complaint by a data geek, the refusal and alert data was collected and compiled in a way that made it incredibly difficult to use or to match against trade information or other country-level data.  So simply changing the way information is collected could go a long way to facilitating a better risk-management.  I am glad that the FDA is trying to improve the system and applaud their efforts to collaborate internationally.  That said, a few changes at home might go a long way.

Around the Web in Public Policy

Filed Under (Uncategorized) by CBPP Staff on May 22, 2011

Top Paying Jobs

According to the Bureau of Labor Statistics, the time to be in the health care field has never been better as 9 of the 10 top paying jobs in America are found within the medical field.  Surgeons and anesthesiologists are at the top of the field.  The highest paying job outside of medicine?  Chief Executives.

Election News

The Republican field for 2012 is slowly taking shape.  The field thus far is former Minnesota Governor, Tim Pawlenty, Heman Cain, a former pizza magnate and Mitt Romney who ran in 2008 and is making plans to run again in 2012.  In recent weeks, we have seen a plethora of candidates dropping out of the race ranging from Donald Trump, Mitch Daniels and Mike Huckabee while potential candidates such as Sarah Palin have yet to declare their plans.  With primary voting set to begin in approximately eight months, the field currently mounting is certainly an interesting one.

Federal Pension System

Federal officials from both parties are beginning to examine the Federal pension system as a way to make a dent in the nations debt.  In bi-partisan talks, both parties are in agreement that raising the amount that employees pay into their pension plan ought to be raised.  The article makes extensive comparisons between public and private pension systems as a method of framing the issue.  Regardless, it begs the question, will this actually make a significant impact on the national debt or will it be more symbolic than anything.

Endangered Species and Markets

Filed Under (Uncategorized) by Larry DeBrock on May 17, 2011

In an earlier post, I talked about the Great Hamster of Alsace. These hamsters thrive in fields of wheat and alfalfa.  Unfortunately for the hamsters, contemporary French farmers have switched to more profitable crops such as wine and corn.  These crops do not provide the shelter for the hamsters and the population of these creatures is plummeting.  In response, the French government is considering a policy to force farmers to return to the less lucrative uses of their land so that the hamsters will be protected.

If you are thinking that such interventions seem to be growing, you would be correct.  The Thursday April 21, 2011 edition of the New York Times carried the following story concerning U.S. experiences with endangered species.
The Fish and Wildlife Service is so overwhelmed by the explosion in requests to add species to the endangered list that it has told Congress it has become paralyzed and unable to perform its tasks. Adding to the mounting problem is a concurrent explosion in litigation against the Fish and Wildlife Service for missing multiple deadlines in each application, deadlines written into the Endangered Species Act passed in 1973.

The groups filing these numerous requests for intervention are trying to be the voice for the unrepresented species.  They ask for government intervention to restrict market outcomes, arguing that the socially optimal outcome demands incorporating the costs imposed on these species (how these “costs” are measured is a different and very complex issue).   The April 13, 2011 issue of the New York Times ran a story about the recent efforts in Congress to remove a species from the endangered list.

This is notable because it is the first time Congress has directly intervened on the endangered species list.  Environmental groups are alarmed at this “political” intervention.   But, as the amount of economic activity impacted by the endangered list grows, you can expect to see more and more such congressional scrutiny.

The Scarity of Water

Filed Under (Environmental Policy, Uncategorized) by Larry DeBrock on May 11, 2011

I think it is safe to say that water allocation decisions will become a much more important policy topic in the years to come.

On his New York Times blog titled “Economix,” David Leonhardt posted (May 3, 2011) an interview with Charles Fishman about how we have treated water allocation in the past and, more importantly, the implications of those policies on usage patterns today and going forward.

The interview is quite revealing. Currently, the average U.S. homeowner pays a monthly water bill of $34 and uses about 300 gallons of fresh water per day. That amounts to a price of about $.004 (4 tenths of a cent) per gallon. As the column indicates, that is “free” water when compared to the $7.70 per gallon you pay when you buy a bottle of water at the Kwik-E-Mart.

Economic theory tells us that when something is under-priced, it will be inefficiently over-used. To quote from the Leonhardt column:

Free water — water so cheap you never think about cost when making water use decisions — is a silent disaster. When something is free, the message is: It’s unlimited.

Free water leads to constant waste and misallocation. Farmers and factory managers, hotels and gardeners never consider how much water they are using, and whether they are using it smartly — because the water bill itself sends no signal to be careful. (Half the water used by farmers worldwide is wasted.) There’s no incentive for efficiency.”

The Fundamental Law of Demand

Filed Under (Uncategorized) by Larry DeBrock on May 3, 2011

In considering the demand for, say, widgets, there are many things to consider.  And, we know that one of the key factors in the demand for widgets would be changes in prices of markets for goods economists call substitutes or complements.   Economic theory predicts that if the price of a substitute for widgets increases (decreases), the demand for widgets will increase (decrease).  And, of course, any changes in a complementary product’s price will have the opposite effect on the demand for widgets.

The following story is from the March 29, 2011 business section of the New York Times.

Most travelers need to carry clothing and supplies to their destination, and there are substitute methods to accomplish this transport.  You can check your bag or you can take extra carry-on bags.  This story shows dramatically how the increase in the price of checking your bag has lead to a large increase in demand for a substitute to checking your bag: carry-ons.  And, if you were to read the story you would find examples of the negative externality effect of congestion.  Each person who increases his or her carry-ons is adding to an overall social cost of congestion, both at the TSA lines and in the nerve wracking boarding process where people try to fit bags seemingly twice their body size into the overhead compartments.

Bin Laden is Dead …

Filed Under (Uncategorized) by Jeffrey Brown on May 1, 2011

Osama bin Laden, the mass murderer behind the 9/11 attacks that took so many innocent lives, is dead.  I will admit – I have never been so happy to hear of the death of another human being. My excitement is tempered only by the sad memories of the lives shattered by 9/11.

Of course, it raises many questions … first in my mind: if he was indeed just outside Islamabad, as is being reported, then is it remotely credible that the Pakistani government did not know? But for tonight, let’s celebrate!