Monthly Archives: May 2008

Alistair Darling did something rather strange recently, to baffling applause from his own backbenchers, and cries of “bribery” from the opposition: he announced a tax on teenagers.

Darling’s plan – for those who missed it – is to cut income taxes temporarily for all but the most prosperous taxpayers. The apparent windfall is £120 a head. A similar plan is already in place in the US, where a temporary “tax rebate” began to arrive in the bank accounts of a grateful nation about a month ago.

But there is no such thing as a free lunch: since neither the UK nor US governments plans to alter its spending plans, these tax holidays will be funded by government borrowing – borrowing that must eventually be repaid. That will require taxes to go up in the future, or not to fall when they otherwise might.

Who should celebrate? Not the typical taxpayer, that is for sure. The tax cut makes no difference to her. If she – assume she is British – had wanted an extra £120 right now, she could already have it in her pocket, either by withdrawing it from savings or by borrowing the money. If she did that, of course, she would later have to repay £120 plus interest. But that is exactly what Darling’s successor as chancellor will require of her. To look at it another way, the rational taxpayer should save the £120 windfall now, keeping it to pay the higher taxes that are surely on the horizon.

The remainder of this column can be read here. Please post comments below.

My employer has just instituted a new mentoring scheme and as a relatively new recruit I’m eligible. I can’t make up my mind whether this is an important opportunity to learn or a colossal waste of everybody’s time.
Any thoughts?
Ben Harmison

Dear Ben,

Some new research by Jonah Rockoff, an economist at Columbia University, is possibly of interest to you. Rockoff studied an acclaimed mentoring programme for New York City teachers. He adjusted for confounding factors – such as the fact that duff teachers may get more mentoring help, making it seem that mentors reduce teaching standards.

Rockoff found some evidence that the programme encouraged teachers to stay in their jobs and improved the achievements of their students. If his results apply more widely, they suggest that the thing you are most likely to learn from a mentor is how to operate in your particular company, rather than picking up transferable skills.

But the effects seem rather modest. Why, then, is mentoring so popular? Rockoff finds that teachers are convinced that their mentors have helped their teaching skills, even if the effect is not obvious from their students’ results. Overall, I’d suggest that you go for this mentoring scheme. It will make you look co-operative and you might even learn something – but even if it is useless, you’ll still convince yourself it was time well spent.

Questions to economist@ft.com

Gib Metcalf and four co-authors write:

First, a low starting tax rate combined with a low rate of growth in the tax rate will not reduce emissions significantly. Second, the costs of GHG reductions are reduced with the inclusion of non-CO2 gases in the carbon tax scheme.  Third, welfare costs of the policies can be affected by the rate of growth of the tax, even after controlling for cumulative emissions.  Fourth, a carbon tax — like any form of carbon pricing — is regressive. However, general equilibrium considerations suggest that the short-run measured regressivity may be overstated.  Additionally, the regressivity can be offset with a carefully designed rebate of some or all of the revenue.  Finally, the carbon tax bills that have been proposed or submitted are for the most part comparable to many of the carbon cap-and-trade proposals that have been suggested.  Thus the choice between a carbon tax and cap-and-trade system can be made on the basis of considerations other than their effectiveness at reducing emissions over some control period.

That sounds sensible. The difference between cap-and-trade and a carbon tax is much exaggerated.

The Chronicle of Higher Education reports on how the American Economic Association is investing its portfolio. Intriguingly they took steps towards reducing home-country bias only a year ago. The discussion:

So the intellectual stakes were presumably high when the ad hoc committee — which included Martin S. Feldstein, chairman of the Council of Economic Advisors during the Reagan administration — made its recommendations last April. According to the minutes of the association’s budget committee, the meeting provoked “a lengthy discussion about whether economists should use economics to guide investment decisions.”

The result:

As satisfying as it might be to see economists fail at this endeavor, we’re obliged to report: The portfolio gained 10.2 percent in 2007, easily beating the S&P 500 index, which gained 5.49 percent.

HT: Greg Mankiw.

Her new NBER paper says:

5. Hepatitis B Does Not Explain Male-Biased Sex Ratios in China
by Emily Oster, Gang Chen

Earlier work (Oster, 2005) has argued, based on existing medical literature and analysis of cross country data and vaccination programs, that parents who are carriers of hepatitis B have a higher offspring sex ratio (more boys) than non-carrier parents. Further, since a number of Asian countries, China in particular, have high hepatitis B carrier rates, Oster (2005) suggested that hepatitis B could explain a large share – approximately 50% – of Asia’s “missing women”. Subsequent work has questioned this conclusion. Most notably, Lin and Luoh (2008) use data from a large cohort of births
in Taiwan and find only a very tiny effect of maternal hepatitis carrier status on offspring sex ratio. Although this work is quite conclusive for the case of mothers, it leaves open the possibility that paternal carrier status is driving higher sex offspring sex ratios. To test this, we collected data on the offspring gender for a cohort of 67,000 people in China who are being observed in a prospective cohort study of liver cancer; approximately 15% of these individuals are hepatitis B carriers. In this sample, we find no effect of either maternal or paternal hepatitis B carrier status on offspring sex. Carrier parents are no more likely to have male children than non-carrier parents. This finding leads us to conclude that hepatitis B cannot explain skewed sex ratios in China.

I am impressed. It is always inspiring to see a scientist change her mind because of the facts – Emily Oster originally won renown for (apparently) demonstrating the opposite result.

I know that’s how science is supposed to work, but not often enough, I fear. Here are Levitt and Dubner on the idea that Oster has now disproved for herself. Here is my earlier, mildy critical, article about Emily Oster’s work on AIDS transmission. Here is Daniel Hamermesh on the only-some-what-related subject of replication in economics. Tyler is also impressed.

I wrote a few weeks ago about research showing that nationally regulated pay in the National Heath Service seemed to be lowering standards in high wage areas, such as London. Pay regulation kills

That research, and several other interesting papers, are summarised in a special edition of Research in Public Policy. Here is one highlight:

Hugh Gravelle and co-authors look at a recent attempt to introduce greater incentive pay into public sector wages, in this case for doctors since 2004.This new contract (called the ‘quality and outcomes framework’) offers incentives for doctors to hit treatment targets.

The authors explore first whether the new contract has led to higher pay and job satisfaction – both affirmative – and then its behavioural consequences, both intended and unintended. The intended impact on treatment outcomes is at best unclear, partly due to poor data on the situation before the reform was introduced.

But there is much clearer evidence of ‘gaming’ by doctors to maximise pay without increasing treatment. This mirrors other evidence of incentive payments often having unintended consequences when the contracts or targets are not perfectly aligned with objectives.

The full feature is here, and there is more here too.

The final installment of this series of “More or Less” returns to stress and heart disease, investigates the street price of drugs, and asks why Stephen Eckett believes this coming Friday, 30th May, is a bad day for the UK stock market.

Most importantly, we return to the question of which town has the best ratio of pubs per person – and an apologia for why we think this is important.

4.30pm BST, Radio 4 – or thereafter streaming from the website. And we’ll be back in the Autumn.

The Financial Times has been calling for a credible price to be put on carbon emissions, either through a carbon tax or a serious cap-and-trade scheme. Most economists – including this one – would agree.

The textbook argument is that putting a price on carbon would raise the cost of everything we consume that contributes to carbon dioxide emissions. The result would be that consumers and businesses would waste less energy and would switch to lower-carbon alternatives, while businesses would develop new low-carbon technology.

That is all fine in theory.

In practice, would it happen? It’s important to find out. For one thing, politicians remain unconvinced, often insisting – probably because of political cowardice – that consumers do not respond to such taxes. 

The remainder of this column can be read here. Please post comments below.

Dear Economist,
In some countries, mothers and their newborn babies are kept in hospital for many days, while in others they are discharged quickly. Which is right? I’m pregnant, and I want to know whether I should be lobbying for a long stay or for early release after my baby is born.
Michelle, north London

Dear Michelle,

A simple analysis won’t answer you, because we would expect more complicated or worrying cases to stay longer in hospital. But that does not imply that long hospital stays cause complications and worry.

Instead, we need to observe what happens to mothers and babies sent home early or late for no good reason.

Fortunately, there is no shortage of such cases. Californian insurers will pay for a certain number of nights in hospital, but the clock starts at midnight. A baby born at one minute past midnight has nearly 24 hours before clocking up one night in hospital; a baby born two minutes earlier will clock up her first night in hospital within seconds. The economists Douglas Almond and Joseph Doyle used such comparisons to examine whether the extra night was helpful.

They looked at whether mother and baby survived, and whether they had to be readmitted later. There was no evidence that longer hospital stays were helpful.

My experience is that an extended stay for mother and baby is a welcome respite – for the father.

Questions to economist@ft.com

I’ve never really understood the idea that oil prices are being driven higher by speculators (James Hamilton, who’s forgotten more about the subject than I’ll ever know, discusses in detail here). Seems to me quite simple: if there’s a speculative premium (or a terror premium, as people used to say back in 2005 when terrorist activity in Saudi Arabia was in plain view) then that means people are paying for oil that they’re not burning. (If they’re burning all the oil they buy, in what sense is there any kind of premium?)

That’s possible – but if so, where are the rising inventories? News of low stocks in the US was what drove prices to $135 yesterday..

By the way, if the speculators are any good, they’ll stabilise the oil prices. Profitable speculators buy low (driving up the lows a little) and sell high (moderating the highs). It’s exactly what a benevolent deity would do. If the speculators are incompetent, then they can exacerbate oil prices spikes – but we can take the modest consolation that they’ll wipe themselves out while doing it.

Lots more here.

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Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
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