Is America Moving Toward a Less Upwardly Mobile Future?

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Source of book image: http://catholicexchange.com/wp-content/uploads/2012/07/Coming-Apart.jpg

(p. C6) The future as described by Charles Murray in “Coming Apart” is bleak enough to have been imagined by George Orwell. Unfortunately, “Coming Apart” is nonfiction, meticulously documented and depressingly real. Mr. Murray examines America as it moves away from an upwardly mobile, socially mobile country with shared purpose and shared identities to a country dividing into two isolated and disparate camps.

For the full review essay, see:
Jeb Bush (author of passage quoted above, one of 50 contributors to whole article). “Twelve Months of Reading; We asked 50 of our friends to tell us what books they enjoyed in 2012–from Judd Apatow’s big plans to Bruce Wagner’s addictions. See pages C10 and C11 for the Journal’s own Top Ten lists.” The Wall Street Journal (Sat., December 15, 2012): passim (Bush’s contribution is on p. C6).
(Note: the online version of the review essay has the date December 14, 2012.)

The book under review, is:
Murray, Charles. Coming Apart: The State of White America, 1960-2010. New York: Crown Forum, 2012.

Ending College Affirmative Action Would Only Cause Minor Lowering in Black Admissions

(p. 113) This research examines the determinants of the match between high school seniors and postsecondary institutions in the United States. I model college application decisions as a nonsequential search problem and specify a unified structural model of college application, admission, and matriculation decisions that are all functions of unobservable individual heterogeneity. The results indicate that black and Hispanic representation at all 4-year colleges is predicted to decline modestly–by 2%–if race-neutral college admissions policies are mandated nationwide. However, race-neutral admissions are predicted to decrease minority representation at the most selective 4-year institutions by 10%.

Source of abstract:
Howell, Jessica S. “Assessing the Impact of Eliminating Affirmative Action in Higher Education.” Journal of Labor Economics 28, no. 1 (January 2010): 113-66.

“Rome’s Rise Is a Story of Economic Growth, Not Divine Intervention or Native Virtue”

(p. C7) In chronicling the decline and fall of the Roman Empire, Edward Gibbon declared that “if a man were called to fix the period in the history of the world during which the human race was most happy and prosperous, he would, without hesitation, name that which elapsed from the death of Domitian to the accession of Commodus.” Gibbon himself elegantly narrated how happiness and prosperity withered after this flowering between 96 and 180 A.D. But what about the near-millennium of Roman history that came before? “What was it,” as Anthony Everitt asks in “The Rise of Rome,” “that enabled a small Italian market town by a ford on the river Tiber to conquer the known world” and thereby made Gibbon’s golden years possible?
. . .
Most of that economic activity, whether it developed autonomously as a result of lower costs or was driven by the coercive rule of the state, was catalyzed by the Mediterranean, with which even the sophisticated Roman road network could not compete. Yet in the period from the middle of the third century B.C. to the middle of the first, Mr. Everitt, following his literary sources, directs our attention to Hamilcar, the Carthaginian general; and to Hannibal, his hot-tempered son, leading elephants first across the Pyrenees and then the Alps. Both are important, and, had they not been defeated, Rome would have had a very short “rise” indeed. But the real action was on the Mediterranean. As the number of shipwrecks datable to these years attests, it was being crossed by trading vessels with a frequency never yet seen and never again matched–including the halcyon years hymned by Gibbon.
Sometimes the data can preserve an astonishingly precise record of a trade route. For example, storage containers–probably for wine–salvaged from the spectacular wrecks at Grand Congloué, off Marseilles, bear the stamp “SES.” Archaeologists have confidently linked this mark with a certain Sestius, who must have manufactured the wares at the villa we know he owned in southwestern Tuscany, no mean distance away.
When the shipwreck data, which suggest increased economic activity, are considered alongside the population contraction that Rome suffered in its bloody military campaigns, a tentative but rich answer to Mr. Everitt’s question begins to emerge: Rome’s rise is a story of economic growth, not divine intervention or native virtue. And although even this account, like all our conclusions about the distant past, must be provisional, it is at least anchored in an empirical model of how income gains from trade and lowered transaction costs were not swallowed up by an ever-expanding population.

For the full review, see:
BRENDAN BOYLE. “BOOKSHELF; The Economy of Empire; The rise of the world’s greatest empire is as much a story of shipping and markets as of divine providence and individual virtue.” The Wall Street Journal (Sat., September 22, 2012): C7.
(Note: ellipsis added.)
(Note: the online version of the article was dated September 21, 2012.)

Social Scientists Prefer Articles that Contain Bogus Math

MathBiasGraphic2013-01-12.jpgSource of graphic: online version of the WSJ article quoted and cited below.

(p. A2) . . . research has shown that even those who should be especially clear-sighted about numbers–scientific researchers, for example, and those who review their work for publication–are often uncomfortable with, and credulous about, mathematical material. As a result, some research that finds its way into respected journals–and ends up being reported in the popular press–is flawed.

In the latest study, Kimmo Eriksson, a mathematician and researcher of social psychology at Sweden’s Mälardalen University, chose two abstracts from papers published in research journals, one in evolutionary anthropology and one in sociology. He gave them to 200 people to rate for quality–with one twist. At random, one of the two abstracts received an additional sentence, the one above with the math equation, which he pulled from an unrelated paper in psychology. The study’s 200 participants all had master’s or doctoral degrees. Those with degrees in math, science or technology rated the abstract with the tacked-on sentence as slightly lower-quality than the other. But participants with degrees in humanities, social science or other fields preferred the one with the bogus math, with some rating it much more highly on a scale of 0 to 100.
“Math makes a research paper look solid, but the real science lies not in math but in trying one’s utmost to understand the real workings of the world,” Prof. Eriksson said.

For the full story, see:
CARL BIALIK. “THE NUMBERS GUY; Don’t Let Math Pull the Wool Over Your Eyes.” The Wall Street Journal (Sat., January 5, 2013): A2.
(Note: ellipsis added.)
(Note: the online version of the story has the date January 4, 2013,)

A pdf of Eriksson’s published article can be downloaded from:
Eriksson, Kimmo. “The Nonsense Math Effect.” Judgment and Decision Making 7, no. 6 (November 2012): 746-49.

Fiscal Stimulus Packages Did Not Stimulate

(p. 686) An empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases. Households largely saved the transfers and tax rebates. The federal government only increased purchases by a small amount. State and local governments saved their stimulus grants and shifted spending away from purchases to transfers. Counterfactual simulations show that the stimulus-induced decrease in state and local government purchases was larger than the increase in federal purchases. Simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount. These results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago.

Source:
Taylor, John B. “An Empirical Analysis of the Revival of Fiscal Activism in the 2000s.” Journal of Economic Literature 49, no. 3 (September 2011): 686-702.

Fragile Governments Cling to Failed Foreign Aid

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Source of book image: http://si.wsj.net/public/resources/images/OB-VL312_bkrvta_DV_20121122124330.jpg

(p. C12) Nassim Nicholas Taleb’s “Antifragile” argues that some people, organizations and systems are resilient in the face of stress because they are able to alter themselves by adapting and learning. The converse is fragility, embodied in entities that are immovable even when faced with shocks or adversity. To my mind, an obvious example is how numerous governments and international agencies have clung to foreign aid as a tool to combat poverty even though aid has failed to deliver sustainable growth and meaningfully reduce indigence. And nation-states, which rest on one unifying vision of the nation, tend to be fragile, while city-states that adjust, adapt and constantly evolve tend to be antifragile. Mr. Taleb’s lesson: Embrace, rather than try to avoid, the shocks.

For the full review essay, see:
Dambisa Moyo (author of passage quoted above, one of 50 contributors to whole article). “Twelve Months of Reading; We asked 50 of our friends to tell us what books they enjoyed in 2012–from Judd Apatow’s big plans to Bruce Wagner’s addictions. See pages C10 and C11 for the Journal’s own Top Ten lists.” The Wall Street Journal (Sat., December 15, 2012): passim (Moyo’s contribution is on p. C12).
(Note: the online version of the review essay has the date December 14, 2012.)

The book under review, is:
Taleb, Nassim Nicholas. Antifragile: Things That Gain from Disorder. New York: Random House, 2012.

Governments Use “Financial Repression” to Lower Their Interest Payments on Debt

(p. 229) Carmen M. Reinhart, Jacob F. Kirkegaard, and M. Belen Sbrancia make a case for “Financial Repression Redux: Governments Are Once Again Finding Ways to Manipulate Markets to Hold Down the Cost of Financing Debt.” “Financial repression occurs when governments implement policies to channel to themselves funds that in a deregulated market environment would go elsewhere. . . . One of the main goals of financial repression is to keep nominal interest rates lower than they would be in more competitive markets. Other things equal, this reduces the government’s interest expenses for a given stock of debt and contributes to deficit reduction. (p. 230) However, when financial repression produces negative real interest rates (nominal rates below the inflation rate), it reduces or liquidates existing debts and becomes the equivalent of a tax–a transfer from creditors (savers) to borrowers, including the government . . .” “Financial repression contributed to rapid debt reduction following World War II. . . . It seems probable that policymakers for some time to come will be preoccupied with debt reduction, debt management, and efforts to keep debt servicing costs at a reasonable level. In this setting, financial repression, with its dual aims of keeping interest rates low and creating or maintaining captive domestic audiences, will continue to find renewed favor, and the measures and developments we have described and discussed are likely to be only the tip of a very large iceberg.”

Reinhart et al as quoted in:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 25, no. 4 (Fall 2011): 223-30.
(Note: ellipses added by Taylor.)

For the full Reinhart et al paper, see:
Reinhart, Carmen M., Jacob F. Kirkegaard, and M. Belen Sbrancia. “Financial Repression Redux.” Finance and Development 48, no. 2 (June 2011): 22-26.

Is Economics Major Nuts to Have Left Investment Banking?

BravermanJeffreyAndFatherUncleCousinNutBusiness2013-01-12.jpg “Jeffrey Braverman, right, stepped away from Wall Street to join his father, uncle and cousin in the family’s New Jersey nut business.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B8) Ten years ago, Jeffrey Braverman was living the dream of many business school graduates. With a freshly minted bachelor’s degree in economics, he landed a job in 2002 at the Blackstone Group, a Wall Street firm specializing in private equity and investment banking.
Less than a year later, however, Mr. Braverman stepped away from Wall Street and returned to his family’s New Jersey nut business, the Newark Nut Company. It struck some as an odd choice: the family-owned company, which had been started by Mr. Braverman’s grandfather, Sol Braverman (known as Poppy), and had once employed 30 people, was down to two employees and two family members, Mr. Braverman’s father and his uncle.
Located in an indoor mall in a desolate part of Newark, the nut shop’s retail sales were fading and its wholesale business was, at best, stagnant. But Mr. Braverman harbored entrepreneurial ambitions.
At the beginning, he agreed to work with his father and uncle for a salary tied directly to how much new business he attracted. He focused on Internet sales and before long, they began to dwarf the existing business.
Now based in Cranford, N.J., the company has grown to more than 80 employees with more than $20 million in revenue, 95 percent of it online. The following is a condensed version of a recent conversation.
Q. Who leaves investment banking to work at a struggling family nut company?
A. Only someone nuts, right? My dad and my uncle both thought I was crazy. I was making more than they were at the time.
Q. Then why?
A. Have you ever read the book “Monkey Business”? It’s a fairly accurate profile of what it’s like to be in investment banking, at least at a junior level. You know, there’s this economic concept called deadweight loss, and I think a lot of investment banking is like that: it doesn’t really add anything to the world, to the economy. I just wanted to do more.
Q. I assume your father and uncle made you take a pay cut.
A. The one thing I did was, I didn’t want to take anything away from them. I structured it so that my compensation was 100 percent based on incremental profit improvement. So from their perspective, there wasn’t very much risk. I also got a small piece of the business. But at the time the business was worth nothing, book value. No one would have bought it.
Q. Did you have any experience in Internet sales?
A. In 1999, I was a freshman in college and I started our Web site, Nutsonline.com. I spent my second semester of freshman year working on that thing four or five hours a day. It kind of just trickled along. In 1999, very few people were buying from Amazon, so they certainly weren’t going to buy from Nutsonline. In 2000, I remember I set a goal: I wanted to do 10 orders a day.

For the full version of the condensed conversation, see:
IAN MOUNT. “Forsaking Investment Banking to Turn Around a Family Business.” The New York Times (Thurs., April 19, 2012): B8.
(Note: bold in original.)
(Note: the online version of the conversation has the date April 18, 2012.)

BravermanSolNutBusinessEarly1930s2013-01-12.jpg “Sol Braverman, Jeffrey’s grandfather, in the early 1930s.” Source of caption and photo: online version of the NYT article quoted and cited above.

ExxonMobil’s “Honorable If Rigid Corporate Culture”

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Source of book image: online version of the NYT review quoted and cited way below.

(p. C12) From Indiana to Indonesia, ExxonMobil is the multinational corporation that people love to hate. John D. Rockefeller’s creation is famed and feared for its discipline, its disregard for public opinion and its ability, year after year, to pump out the largest profits of any corporation on the planet. In “Private Empire,” Steve Coll provides a rare exploration of what makes a modern corporate giant tick and shows why the world looks different to the executives in the “God Pod” at ExxonMobil’s Texas headquarters than it might to you or me.

For the full review essay, see:
Marc Levinson. “Boardroom Reading of 2012.” The Wall Street Journal (Sat., December 15, 2012): C12.
(Note: the online version of the review essay has the date December 14, 2012.)

From another review of the same book:

“Private Empire” is meticulous, multi-angled and valuable. It is also, perhaps surprisingly, despite all the dark facts I have dumped above, impartial. Mr. Coll and his phlegmatic research assistants have interviewed more than 400 people, including Exxon Mobil’s longtime chief executive Lee R. Raymond, a legendarily hard character.

It’s among this book’s achievements that it attempts to view a dysfunctional energy world, as often as not, through Exxon Mobil’s eyes. The company is portrayed here, some egregious missteps aside, as possessing an honorable if rigid corporate culture that seeks to supply a product (unlike tobacco companies, to which it is often compared) that a functioning society actually must have.

For this full review, see:
DWIGHT GARNER. “Oil’s Dark Heart Pumps Strong.” The New York Times (Sat., April 27, 2012): C25 & C32(?).
(Note: the online version of the review essay has the date April 26, 2012 and has the title “BOOKS OF THE TIMES; Oil’s Dark Heart Pumps Strong; ‘Private Empire,’ Steve Coll’s Book on Exxon Mobil.”)

The book under review, is:
Coll, Steve. Private Empire: ExxonMobil and American Power. New York: The Penguin Press, 2012.

Economics Should Be in “Broad-Exploration Mode”

(p. 85) What does concern me about my discipline, . . . , is that its current core–by which I mainly mean the so-called dynamic stochastic general equilibrium approach–has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one. This is dangerous for both methodological and policy reasons. On the methodology front, macroeconomic research has been in “fine-tuning” mode within the local-maximum of the dynamic stochastic general equilibrium world, when we should be in “broad-exploration” mode. We are too far (p. 86) from absolute truth to be so specialized and to make the kind of confident quantitative claims that often emerge from the core. On the policy front, this confused precision creates the illusion that a minor adjustment in the standard policy framework will prevent future crises, and by doing so it leaves us overly exposed to the new and unexpected.
. . .
(p. 100) Going back to our macroeconomic models, we need to spend much more effort in understanding the topology of interactions in real economies. The financial sector and its recent struggles have made this need vividly clear, but this issue is certainly not exclusive to this sector.
The challenges are big, but macroeconomists can no longer continue playing internal games. The alternative of leaving all the important stuff to the “policy”-types (p. 101) and informal commentators cannot be the right approach. I do not have the answer. But I suspect that whatever the solution ultimately is, we will accelerate our convergence to it, and reduce the damage we do along the transition, if we focus on reducing the extent of our pretense-of-knowledge syndrome.

Source:
Caballero, Ricardo J. “Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome.” Journal of Economic Perspectives 24, no. 4 (Fall 2010): 85-102.
(Note: ellipses added.)

David Koch Institute for Integrative Cancer Research

LangerRobertResearchLab2013-01-12.jpg “Dr. Robert Langer’s research lab is at the forefront of moving academic discoveries into the marketplace.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) HOW do you take particles in a test tube, or components in a tiny chip, and turn them into a $100 million company?

Dr. Robert Langer, 64, knows how. Since the 1980s, his Langer Lab at the Massachusetts Institute of Technology has spun out companies whose products treat cancer, diabetes, heart disease and schizophrenia, among other diseases, and even thicken hair.
The Langer Lab is on the front lines of turning discoveries made in the lab into a range of drugs and drug delivery systems. Without this kind of technology transfer, the thinking goes, scientific discoveries might well sit on the shelf, stifling innovation.
A chemical engineer by training, Dr. Langer has helped start 25 companies and has 811 patents, issued or pending, to his name. More than 250 companies have licensed or sublicensed Langer Lab patents.
Polaris Venture Partners, a Boston venture capital firm, has invested $220 million in 18 Langer Lab-inspired businesses. Combined, these businesses have improved the health of many millions of people, says Terry McGuire, co-founder of Polaris.
. . .
(p. 7) Operating from the sixth floor of the David H. Koch Institute for Integrative Cancer Research on the M.I.T. campus in Cambridge, Mass., Dr. Langer’s lab has a research budget of more than $10 million for 2012, coming mostly from federal sources.
. . .
David H. Koch, executive vice president of Koch Industries, the conglomerate based in Wichita, Kan., wrote in an e-mail that “innovation and education have long fueled the world’s most powerful economies, so I can’t think of a better or more natural synergy than the one between academia and industry.” Mr. Koch endowed Dr. Langer’s professorship at M.I.T. and is a graduate of the university.

For the full story, see:
HANNAH SELIGSON. “Hatching Ideas, and Companies, by the Dozens at M.I.T.” The New York Times, SundayBusiness Section (Sun., November 25, 2012): 1 & 7.
(Note: ellipses added.)
(Note: the online version of the story has the date November 24, 2012.)