Motu researchers on the political benefits of destruction, Bill's datatopia, why meddling governments make you happy, the productivity gap, the Fed and fiscal policy, scaling the depths of bad puns and more

Today's Top 10 (and an extra one for fun) is a guest post from Edmund Lou, Kate Preston, Loic Henry, Nathan Chappell and Wilbur Townsend at economic and public policy research house Motu. 

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

And if you're interested in contributing the occasional Top 10 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 10s here.

1. Riots

Lately, people have been thinking a lot about how to make political change happen. One option (that some consider under-explored) is the destruction of private property. This paper evaluates that option within a study of the 1992 Los Angeles riot. This riot followed the acquittal of four white police officers who had been filmed beating Rodney King, an African-American man. The riot resulted in roughly a billion dollars in property damage. The authors study the effects of the riot on referenda, which disproportionately benefit African American people, finding that the riot both mobilised black voters and increased support from white voters.

2. Bill English’s datatopia

Prime Minister Bill English is leading the push for evidence-based policy and social investment. This article has caused debate to rage within Motu. Self-described data nerd, Keith Ng, has two main worries. The first is that we’ll make the perfect enemy of the good; meaning government will follow a narrow focus on evidence-based policy that may degenerate into naïve ambivalence. However, in debates where we lack good data, there can still be better-justified positions based on institutional knowledge or qualitative research. Second, few people deeply understand statistical modelling. What happens when a policymaker defends her position by telling people to go read her model? Perhaps we need the public and policymakers to be better educated in statistics, and a broad recognition that statistical modelling is difficult and fraught with issues.

3. Citizens are happier in countries where the government intervenes more frequently in the economy

This study shows that citizens of industrialised democratic countries can be expected to have higher life satisfaction if their government intervenes more in the market. In particular, the measures of intervention considered include the size of the government; social welfare expenditure; generosity of the welfare system (e.g. ease of access to welfare benefits); and the degree of labour market regulation. The focus on gauging wellbeing outcomes, as opposed to material outcomes, has been gaining momentum for several years. However the self-reported measures of wellbeing often used are probably unable to capture all dimensions of wellbeing. A recent working paper highlights some of the challenges of building a more comprehensive measure of wellbeing.

4. The Best vs. the Rest: The Global Productivity Slowdown Hides an Increasing Performance Gap across Firms

Although aggregate productivity in OECD countries hasn’t increased significantly, some multinational firms and their foreign affiliates have recorded massive productivity gains. You could claim the productivity gains of few firms can benefit the whole economy through spillovers effects. However, this article highlights a potential persistent productivity gap. It becomes even more obvious when considering information and communication services where digitalisation has brought quick productivity gains for now established companies such as Google and Amazon. This could be a political issue in terms of market competition: is it possible for new firms to be credible competitors to these giants?

5. The Need for Different Classes of Macroeconomic Models

In recent years, there has been a never-ending polemic on the usefulness of dynamic stochastic general equilibrium (DSGE) models in macroeconomics. The key challenge to these math-heavy, computer-based models is their poor predictive performance, which is mainly due to a failed attempt to fit realistic data with intensive theoretical structure. This blog on the topic went viral in economic circles. Olivier Blanchard (previously head of the IMF), suggests a ‘simple’ resolution for the issue: have two separate types of model, DSGEs and policy models. The DSGEs should, while keeping their esoteric nature, help provide a platform which facilitates macroeconomic discussions despite not actually fitting the data. The policy models, however, should closely follow the real data and therefore have a satisfactory forecasting ability. Interestingly, the Reserve Bank of New Zealand had this idea before Olivier pointed it out (see here).

6. The economic impact of colonialism

Today we see massive economic inequalities that didn’t exist 500 years ago. Acemoglu and Robinson have authored this article that asks how colonialism contributed to these differences. The consequences were exploitation and poor institutions for areas with dense populations and environments hostile to Europeans, such as Africa and Latin America. For areas with fewer people and resources to exploit, the consequences were fairer and more inclusive institutions; the colonisers had to encourage Europeans to migrate and stay. One may question the authors’ more specific claims, such as geography’s irrelevance for development. This is based on statistical work which been challenged. But their broad historical narrative is compelling.

7. The atomic origins of climate science

Jill Lepore gives an overview of climate science’s fascinating links with atomic science, and the nuclear winter controversy. Climate science developed in part from studying the effects of atomic weapons - from measuring the ideal weather conditions for explosions, to the effects of nuclear explosions on the atmosphere. The nuclear winter hypothesis, spearheaded by Carl Sagan, is the idea that firestorms instil soot in the atmosphere which leads to severe global cooling. The modelling of a nuclear winter was controversial and full of uncertainties which weren’t always communicated. Lepore explores how nuclear winter sceptics later switched their attention and institutions to attack global warming.

8. Gender

Statistically, women are less likely to study subjects perceived as requiring innate brilliance -- philosophy, maths, and physics. This paper traces the gendered construction of brilliance in young children. While both 5 year-old girls and 5 year-old boys tend to associate brilliance with their own gender, girls stop doing so as they age. At the same time, boys become more likely to play a game said to be for “children who are really, really smart” while girls become less likely to do so. School seems to trap children within gendered expectations which they could otherwise have escaped.

9. The Fed and fiscal policy

Former chairman of the US Federal Reserve, Ben Bernanke explains why the Fed looks at Trump-backed fiscal expansion with a cold eye. The US economy is doing well, with a large employment increase in January. The unemployment rate is stabilising at about 4.8%, while the CPI climbed to 2.1% in December 2016. A large-scale fiscal stimulus today has a large probability to push inflation up higher. Overall, Trump administration’s fiscal plan may only speed up the Fed’s rise of interest rate.

10. Why is men’s life expectancy so high in Israel?

In 2013, men from Israel could expect to live for 81 years, compared to an average of 77.7 years among OECD countries. What is even more interesting, is that actual life expectancy in Israel is around seven years longer than the accepted contributors to life expectancy (factors relating to the level of development, access to health services, and demographic characteristics) can predict for the country. In this study, some additional controls are plugged into the life expectancy model, which together explain almost all of the deviation between Israel’s predicted and actual life-expectancy. Among these added variables, the most important contributor to life expectancy in Israel is compulsory military service. A probable mechanism for this effect is through physical fitness which reduces mortality rates from some diseases.

11. A Red Herring

The Economist triumphs, reporting on a serious issue while making terrible puns. We found 15, but there may be more.