For over ten years, the economist Angus Deaton has been writing thought-provoking essays for the Royal Economic Society newsletter. I hadn’t realised they were online, but… they are.

Great post by Justin Wolfers over at Freakonomics:

A naïve reading of polls suggests an Obama landslide; a sophisticated reading points to a dead heat. Prediction markets are somewhere in the middle, suggesting a two-in-three probability that our next president will be a Democrat. Yet it is the naïve reading of the polls … that dominates media headlines.

Wolfers has always been a prediction markets man, so:

Given Bob’s model, he should be willing to accept an even money bet: say a bottle of wine for a bottle of wine. Given the markets, I should be willing to bet my two bottles against his one. And so we compromised: I’ve bet three bottles that Obama will win against his two bottles on McCain.

Bob tells me I’ve got the upper hand in this bet… But he tells me he is willing to accept the bet for another reason: “If McCain wins, I could use that wine.”

The whole post is here.

A London-based event later today:

THE EMERGENCE OF CHINA AND INDIA IN THE WORLD ECONOMY

This Friday, 4 July, 4.30-6pm, the Centre for Economic Performance at the London School of Economics is hosting a panel discussion on the policy implications of China and India’s emergence in the world economy for both developed and developing countries - for growth, inequality and the future of globalisation.

The speakers will be:

Athar Hussain, Asia Research Centre, LSE
Peter Schott, Yale School of Management
John Van Reenen, director, Centre for Economic Performance, LSE
Alan Winters, University of Sussex and recently appointed chief economist, Department for International Development
Martin Wolf, Financial Times

Details of the LSE venue here; I’ve checked, and am told that although the conference is registration only, this event is open to anyone to walk in.

At the weekend, I wrote:

The economist Erik Hurst has recently calculated that while most American households do cut back on spending after retiring, that does not literally mean tightening their belts: the cutbacks mean spending less on commuting and work clothes. Spending on food also falls, but the retirees eat just as well: they simply spend more of their plentiful leisure time cooking at home. Spending on entertainment and donations to charity increase. No sign there of a penurious dotage.

An admired analysis of retirement saving was published in 2006 in the Journal of Political Economy by John Karl Scholz and two colleagues. They concluded that more than 80 per cent of Americans seemed to be on track to retire with enough money in the bank; the remainder were mostly not far short of sensible savings.

In other words, while government and corporate pension provision may lack credibility, personal pension provision seems to be just fine.

Now I’ve received an email from Martin Weale, director of the National Institute for Economic and Social Research. He is not so sanguine, and not convinced by Scholz et al:

The US study makes two questionable assumptions which could be regarded as biasing its findings. First of all, it assumes that people’s life expectancies are defined by 2002 mortality rates. There is no provision for rising life expectancy. Secondly, it is assumed that DB schemes continue in existence. In the UK the ending of DB schemes has been associated with reductions in employers’ and therefore total contributions. Some people who had planned on the basis of continuing DB schemes in 2002 would now find they have not been saving enough.
There is a third point over the definition of savings adequacy. The study assumes that housing wealth is available to fund retirement. In one sense this is true. However, housing wealth includes the value of land which has increased sharply in price. Society as a whole cannot finance its retirement out of rising land prices, except by imposing an extra burden on future generations. Thus financing retirement out of rising land prices is much like doing so by issuing national debt. If the overall question of adquacy of national saving is explored then the effects of rising land prices have to be left out of the equation. On that basis the United Kingdom currently has a substantial savings shortfall, and it is in considerably a worse position than France and Spain.

Martin Weale’s own paper is here; he concludes that the UK is short of savings.

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.

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.

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.

Those in shouting distance of London may be interested in this:

‘Why Economics Matters’: The New Palgrave Public Lecture 2008

Chair: Evan Davis
Speakers: Tim Harford, Martin Wolf, Professor Klaus Nielsen and Professor Franscesco Caselli

Date: Tuesday 20 May 2008
Time: 6.30-8pm
Venue: Old Theatre, Old Building, London School of Economics and Political Science

My experience suggests that the place will be full long before the start time - do turn up early. The New Palgrave dictionary of economics website is here.

As Greg Mankiw wittily observes, a young fogey reviews an old turk:

The excesses of the 1960s are forgotten and once again, the government is seen as society’s savior. For people of all political stripes, it is worthwhile returning to “The Affluent Society,” and pondering what Galbraith got right and what he got wrong.

While I am a staunch supporter of free markets, I agree with Galbraith that there is much the public sector needs to do. Private firms do not automatically provide safe streets, good roads, and clean water. Even more important, Galbraith was dead right in arguing that we need more effective schools. Human capital is our best tool against poverty and economic stagnation.

Galbraith’s great failure was that he never really understood how much society is strengthened by a free and competitive private sector. “The Affluent Society” argues that a lack of regulation made American homes inferior to those in European social democracies. That view was wrong in 1958 and is completely untenable today.

The whole review is here, and there is more of interest beyond the left-wing right-wing stuff I quote. My sympathies lie with Glaeser, who was a big influence on two chapters of “The Logic of Life“.