Failing the giggle test

British Prime Minister Gordon Brown says failure to reach a deal at the Copenhagen climate conference may trigger an economic disaster equivalent to the combined effects of the two world wars and the Great Depression.

Today's headline from Radio New Zealand.

Any of the folks talking about a twenty percent drop in GDP are talking about projections a century from now relative to a baseline where global warming didn't exist. They're not talking about the Great Depression tomorrow. And, you have to weigh the costs of that loss a century from now against the reduction in economic growth you'd have today if we implemented very costly measures against warming today. If you set the discount rate to zero, or if you care a lot about guarding against the lower chance of the worst outcome, then spending more now makes sense; otherwise, it doesn't.

But Brown's presenting it as though the policy alternative is costless and the costs of inaction are incurred very soon. Given that the mean expected economic costs of global warming at reasonable discount rates aren't that far from the mean expected economic costs of implementing carbon mitigation regimes, you could just as easily predict economic disaster from a carbon tax. Small reductions in economic growth rates have large cumulative effects....

Growthgate and Climategate

William Easterly notes parallels between climate research and research on economic growth.

There were three steps in the the great History of Evolving Cluelessness:

1. Economists spent the past two decades trying every possible growth determinant in sight. They found evidence for 145 different variables (according to an article published in 2005). That was a bit too many in a sample of only about one hundred countries. What was happening is there would be evidence for Determinants A, B, C, and D when tried one at a time to explain growth. But the evidence for A disappeared when you also controlled for some combination of B, C, and D, and/or vice versa. (Interestingly enough, foreign aid never even merited inclusion in the list of 145 variables.)


2. The Columbia economist Xavier Sala-i-Martin and co-authors ran millions of regressions on all possible combinations of 7 variables out of the many possible determinants of growth. Skipping a lot of technical detail, they essentially averaged out the millions of regressions to see which determinants had evidence for them in most regressions. There was hope: some were robust! For example, the idea that malaria prevalence hinders growth found consistent support.


3. This new paper by Ciccone and Jarocinski found that every time the growth data are revised, or if the sample is changed to another equally plausible one, the results vanish on the “robust” variables and new “robust” variables appear. Goodbye, malaria, hello, democracy. Except the new “robust” determinants are no longer believable if minor differences between equally plausible samples changes what is robust. So nothing is robust.

There are two possible ways to describe what had happened over the past two decades:

1. The growth research was at least partially fraudulent, in that we researchers were searching among many different econometric exercises till we got the “determinants of growth” we wanted all along.


2. There was a good faith effort by us researchers to test different theories of growth, which led to some results. We didn’t realize until later that these results were not robust.

Description (1) would be a “GrowthGate,” but since so many people would be guilty (of “data mining”), and since we really can’t tell for any individual study or researcher whether it was (1) or (2), “GrowthGate” never became a story.

It's rather worrying if the Sala-i-Martin variables prove non-robust across new iterations of the Penn World Tables. Minor errors in data seem to blow the technique apart.

Genetic distance in war and economics

It turns out that folks kinda hate their genetic neighbours.

Enrico Spolaore was one of the keynote speakers at the Australasian Public Choice Society Meetings in Melbourne last week. I'd not before seen his work on genetic distance, but it's rather interesting.

Genetic distance measures the number of generations back you have to go before two populations share common ancestors. So if two populations diverged only a very short time ago, like the Danes and the English, their measured genetic distance is short; if they diverged a very very long time ago, like the Australian aborigines and the Mbuti Pygmies of Africa, their measured distance is long. While this is related to geographical distance, it's far from perfectly correlated: Canada's Inuit are closer to Tibetans than they are to any of the other Amerindians; the English are closer to the northern Indians than they are to the Lapps (Finish); the Mongols are closer to the Japanese than they are to the Chinese; the Indians of south east India are closer to the Italians than they are to the Thai people or the South Chinese.

Spoloare and Wacziarg find that this measure of genetic distance predicts whether two populations will go to war, after controlling for the usual set of determinants of conflict like geographical proximity, shared borders, income differences, religion, language, and so on. All else equal, the more two populations are genetically proximate, the more likely they are to go to war and the less likely they are to vote together at the UN. If current patterns of war have affected measured genetic distance, then causality may be wrong, but they use genetic distance as of year 1500 as an instrument.

I'd worried that results might be drawn from a few places that have been strategically important going back well before 1500. For example, if the bridge from Africa to Asia Minor via Sinai and Israel has been strategically important for thousands of years and if similar populations have lived around there for a long time, then the correlation of genetic distance and conflict could have things the wrong way round: frequent conflicts in strategic regions bring genetic mixing, and if the regions' strategic importance continues from well prior to 1500 to present, then it wouldn't be that folks want to fight with their genetic neighbours, but folks who fight a lot become genetic neighbours. Controlling just for having a common border or just for geographical distance wouldn't quite cut it. But they find that the effect also holds for country pairs that do not share a border.

Why might we fight more with our nearer than our more distant cousins? Spolaore suggests that genetic closeness makes it more likely that we'd be in conflict over rivalrous resources. I wonder whether we couldn't imagine a pleistocene explanation: if there's a fertility advantage to outbreeding but not too far (the sweetspot between inbreeding depression and outbreeding depression), then our ancestors 90,000 generations back on the Savannah who raided more closely related neighbours would have had a slight advantage over those who raided groups too genetically distant. Run the mechanism for 90,000 generations, and you've a population that's keyed to want to raid folks who are more like them.

In the May QJE, Spolaore and Wacziarg found that genetic distance from the United States explains cross country income differences after correcting for geographical distance, climate, transportation costs, and measures of social distance (historical, religious, linguistic). Again, they argue that genetic distance may be the best measure of "slowly changing genealogically transmitted characteristics, including habits and customs" - the bits of culture we can't adequately otherwise measure. That's certainly possible, and cuts against my evolutionary biology explanation above, mostly because it's hard to come up with an ev bio explanation of why genetic distance from the US would correlate with income differences. The best explanation I'd have would be that it's proxying for differences in average IQ: also somewhat genetic, but at some of the more depressed ends of the scale almost certainly highly environmentally influenced). But that would be a bit of a wash: there are genetically distant places above the US (Hong Kong) and far below the US (Equatorial Guinea) in reported average national IQ. Spolaore's culture explanation seems the more plausible.

Spolaore gave one of the best plenary addresses I've ever seen. If you get a chance to see him give a talk, go.

Real wages and growth

Growth measures always understate welfare gains when new products are of superior quality; quantifying the gains from categories of goods previously unavailable is even tougher. One example: the introduction of sugar, tea and coffee into Britain in the 1600s-1700s.

Using historical data on prices and quantities for these “new luxuries”, we estimate their value to consumers. It turns out to have been very large. By 1850, English consumers were better off by 15-20% as a result of new goods. The Age of Discoveries boosted peoples’ well-being – not by changing the quantities or prices of goods that Europeans already knew in 1500, but by expanding the range of goods that consumers could buy.

Comparing these gains to more recent new goods, we find that – from a welfare perspective – sugar, tea, and coffee mattered more back then than did the recent introduction of the internet, computers, satellite television, and mobile phones combined.

They find that sugar, coffee and tea went from 0% of household budgets ('cause they weren't available) to 7.2% of household budgets, with rich and poor alike enjoying the benefits of increased product diversity. Their results suggest Greg Clark's work understates true increases in real incomes over the period.

Call me a cornucopiaist if you like, but life just keeps getting better. Or, as Don Boudreaux asks, would you rather live in 1960 with 2009's median income, or in 2009 with 1960's median income? Pick up an old catalog from the 60s and figure out what you'd be missing....

Update: Paul Walker also likes this one.