Walker

Walker joined Difficult Run as an editor in August 2013. He graduated from the University of North Texas with an MBA in Strategic Management and a BBA in Organizational Behavior and Human Resource Management. He's currently a grad student in Government at Johns Hopkins University. He has been published in SquareTwo, BYU Studies Quarterly, Dialogue, Graziadio Business Review, and Economic Affairs. He also contributed to Julie Smith's (ed.) 'As Iron Sharpens Iron: Listening to the Various Voices of Scripture'. His other online writing can be found at Worlds Without End and Times & Seasons. He lives in Denton, Texas, with his wife.

Are Patents Slowing the Productivity of Some Firms?

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According to Noah Smith, a 2015 OECD report “looked at productivity not at the global or national level, but at the corporate level. Different companies have different technologies, different management systems and different levels of talent…At a small number of companies, productivity growth hasn’t slowed at all. If you look at only these “global frontier” companies, there has been no productivity slowdown at all! This is especially true in services industries…The top performers have blazed ahead, while other companies have stagnated or even become less productive.”

Smith offers a number of possibilities for this difference, but the most interesting one revolves around patents:

[I]ntellectual property law is making it harder for companies to use ideas developed at other companies. There has been an explosion in the number of patents granted in the U.S. since the early 1980s. In Japan the increase has been even more dramatic. Some of the fastest growth has been in patents for business methods — exactly the kind of thing that ought to diffuse across companies and equalize productivity. In earlier ages, businesses could freely copy each other’s way of doing things; now, it is often illegal. 

Some level of patent protection, of course, is necessary to encourage innovation. But many economists believe that we now give out far too many patents, often for innovations of questionable originality.[ref]Economist Alex Tabarrok has criticized the mismatch between patent law and patent theory.[/ref] This is something we would expect to increase the gap between the most productive companies and the rest. 

Whatever the reason for the divergence between companies, we need to find it and fix it if we can. The divergence could be affecting a lot more than productivity. A torrent of research in the past decade suggests that much of the increase in wage inequality in developed countries is due to differences in wages between different companies — work for a good company and you get better pay, work for a bad one and you’re out of luck. Fixing the productivity divergence might help us fight inequality as well. 

Interesting stuff.

Reducing Poverty & Improving Economic Mobility

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A 2015 Brookings report written for the campaign season is still relevant today. Researcher Isabel Sawhill lays out a few major ideas candidates could use to reduce poverty and improve economic mobility. Three hurdles necessary for climbing out of poverty are:

  1. Graduating high school
  2. Working full-time
  3. Delaying parenthood until they in a stable, two-parent family

Sawhill proposes a number of policies aimed at helping people achieve these objectives:

Sawhill 1118002

  • To support work, make the Child and Dependent Care Tax Credit (CDCTC) refundable and cap it at $100,000 in household income. Because the credit is currently non-refundable, low-income families receive little or no benefit, while those with incomes above $100,000 receive generous tax deductions. This proposal would make the program more equitable and facilitate low-income parents’ labor force participation, at no additional cost.
  • To strengthen families, make the most effective forms of birth control (IUDs and implants) more widely available at no cost to women, along with good counselling and a choice of all FDA-approved methods. Programs that have done this in selected cities and states have reduced unplanned pregnancies, saved money, and given women better ability to delay parenthood until they and their partners are ready to be parents. Delayed childbearing reduces poverty rates and leads to better prospects for the children in these families.

Check out the full paper.

Nobel Economist on Inequality

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ANGUS DEATON | ‘Some of the enormous riches we’re seeing at the top in the U.S. today are coming from activities whose social value is in doubt.’

I found this two-year-old WSJ interview with Angus Deaton while I was combing through some saved posts. I thought it was worth highlighting. Here are a few excerpts that convey Deaton’s thoughts on inequality:

[Inequality] could [even] be people at the bottom versus people in the middle. One of the things that has happened is that at the very bottom there may actually be some squeezing up of those gaps partly because people in the middle may be being replaced by offshoring and so on. Whereas people at the bottom who are mainly in service jobs really can’t be, so they’re doing relatively well.

…I both love inequality and am terrified of it. Inequality is partly a marker of success, so that if someone thinks of something, some new innovation that benefits us all, and the market works properly, they get richly rewarded for that.

And that’s just terrific. And that creates inequality. So some of the greatest inequalities in the world have come from the greatest successes.

The terror part is—well, there are several different things. One that I worry about is that some of the enormous riches we’re seeing at the top in the United States today are coming from activities whose social value is in doubt.[ref]One of those activities could very well be cronyism. Cronyism, according to economist David Henderson, is “negative-sum. That is, in the process of redistributing wealth, cronyism destroys wealth” (pg. 7).[/ref] So some of the activities that are going on in Wall Street that are occupying some of the smartest of our young minds, it’s not entirely clear that their society really wants them to be doing that as opposed to innovating in the private sector, or curing cancer. The other thing that I worry about is the political power that comes with extreme wealth.

He also discusses some alarming findings from his most recent research:

We’ve seen mortality rates falling for the best part of 100 years, maybe even longer. When we looked at the total mortality rates for this middle-aged group from 45 to 55 and we saw they were rising—I mean, this is something that’s been falling forever.

And then about 1998 it just turns and starts going the other way. So, there’s this increase in mortality. And it’s almost entirely for white non-Hispanics. Black mortality rates are falling even faster than they’d ever been, Hispanic rates are falling on track.

The rates in middle age for all European countries are falling exactly as they have been, as they were in the U.S. up until 1998. But for this group, this middle-aged, white non-Hispanics, this mortality rate is going up. If you look at the causes of death that are most rapidly rising, it’s suicides, the biggest one is poisonings…And of course that’s what they’d call accidental overdoses. A lot of it is from prescription painkillers and a lot of it is from illegal drugs, and then a lot of it’s from alcohol.

…This is much worse among those who have a high-school education or less. These are the people who just have not benefited from the positive changes that have happened in the economy as a whole…That doesn’t explain everything, because there are people being left behind in Europe, too. The two explanations that have been floated are that Europe has a more elaborate safety net than we have. And most European countries do not allow overprescription of heavy-duty, dangerous painkillers the way we do here.

Check it out.

How the Economy Works: Pepperdine Lecture by Roger Farmer

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This is part of the DR Book Collection.

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Anyone familiar with my posts knows that economics is a major interest of mine. Hence, my interest in UCLA economist Roger Farmer’s book How the Economy Works: Confidence, Crashes, and Self-Fulfilling Prophecies. Farmer provides a nice, succinct overview of the history of major economic ideas, from Adam Smith to John Maynard Keynes to Robert Lucas. He then provides an interesting merge between the principles of classical and Keynesian economics for economic recovery. Ronald Johnson of the U.S. Bureau of Labor Statistics summarizes Farmer’s position better than I can:

He believes that fiscal policy might help, but it should not involve an increase in government expenditures. However, he also believes that fiscal policy acts more slowly than monetary policy, which he clearly prefers. Since 1951, the Federal Reserve has reacted to recessions by lowering the interest rate it charges to commercial banks. Following the 2008 financial crisis, central banks throughout the world engaged in an unprecedented set of new and unconventional policies known collectively as quantitative easing. This strategy involved the purchase of a kind of asset other than government bonds, namely, mortgage-backed securities. Farmer believes that quantitative easing was the right approach, but that it should have gone further. He proposes qualitative easing, which he defines as a change in the composition of the central bank’s assets. Specifically, he would have the central bank prevent large stock movements, both up and down, from adversely affecting the economy. The bank would assert this control by the use of an index fund, the intent of which would be to manage the value of national stock market wealth by targeting the rate of growth of the fund. The Fed would announce a price path for its index funds, and the central bank would stand by ready to buy and sell the funds each day at the announced price.

Farmer concludes his book with the following:

There is much to be admired in the market system. It is the single most powerful engine of economic growth that human beings have devised. But we have not lived in a free market system for at least a century. The question is not whether to regulate the market—it is how to regulate it. As we learn more about market systems perhaps we will understand better not just why they work well but also how they occasionally fail. It is my hope that we can learn to control the economy that we live in without killing the goose that lays the golden egg (pg. 166-167).

I found Farmer’s ideas interesting, if somewhat unconvincing. The book is useful nonetheless.

You can see a five part lecture by Farmer at Pepperdine University below:

Desiring the Kingdom: Lecture by James K.A. Smith

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This is part of the DR Book Collection.

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I’ve written about James K.A. Smith’s work before, especially his You Are What You Love. According to Smith, that was what he thought he was writing when it wrote Desiring the Kingdom: Worship, Worldview, and Cultural Formation. Instead, he ended up needing to write a popular introduction to the Cultural Liturgies project, the first of which was Desiring the Kingdom. To recap, Smith argues against the modern idea that we are simply “brains on a stick” and that Christian life is achieved by downloading the right spiritual data into our heads. We are not so much thinking creatures as we are lovers, i.e. creatures of desire and habit. He points out the gap between what we think and what we actually want. More disturbingly, he notes that we may not actually love what we think. Our wants are often shaped by what he calls “secular liturgies”: repetitive practices and rituals that orient our desires and shape our habits. Take for example (as Smith does) the mall: the mall doesn’t tell you what to think. It doesn’t hand out a tract with a list of propositions that the mall believes. Instead, it shapes your consumerist desires as it assaults your senses with sights, smells, comforts, etc. This is why Christian liturgy is important and necessary. Christianity is not just a rival worldview, but a rival set of desires. And those desires are shaped through repetition.

The book is excellent and one of my favorites so far this year. It is far more in depth; the academic approach to the ideas found in You Are What You Love. As someone who is drawn to religious liturgy, but often bored by my own faith’s offerings of it, this was a much-needed read on a personal level.

You can see a lecture by Smith below.

What is the Cost of Corporate Short-Termism?

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Some claim that corporate “short-termism“–or what Hillary Clinton called “quarterly capitalism“–has negative effects on the economy. But is there any evidence for the claim? A new McKinsey report answers in the affirmative:

  • From 2001 to 2014, the revenue of long-term firms cumulatively grew on average 47 percent more than the revenue of other firms, and with less volatility. Cumulatively the earnings of long-term firms grew 36 percent more on average over this period than those of other firms, and their economic profit grew 81 percent more on average.
  • Long-term firms invested more than other firms from 2001 to 2014. Although they started this period with slightly lower research-and-development spending, cumulatively by 2014, long-term companies on average spent almost 50 percent more on R&D than other companies. More important, they continued to increase their R&D spending during the financial crisis, while other companies cut R&D expenditure; from 2007 to 2014, R&D spending for long-term companies grew at an annualized rate of 8.5 percent versus 3.7 percent for other companies.
  • Long-term companies exhibit stronger financial performance over time. On average, their market capitalization grew $7 billion more than that of other firms between 2001 and 2014. Their total return to shareholders was also superior, with a 50 percent greater likelihood that they would be in the top decile or top quartile by 2014. Although long-term firms took bigger hits to their market capitalization during the financial crisis than other firms, their share prices recovered more quickly after the crisis.
  • Long-term firms added nearly 12,000 more jobs on average than other firms from 2001 to 2015. Had all firms created as many jobs as the long-term firms, the US economy would have added more than five million additional jobs over this period. On the basis of this potential job creation, this suggests, on a preliminary basis, that the potential value unlocked by companies taking a longer-term approach was worth more than $1 trillion in forgone US GDP over the last decade; if these trends continue, it could be worth nearly $3 trillion through 2025.

2001-2015 performance of long-term and short-term companies on earnings, revenue, and market cap

The report concludes that “the potential value that could have been unlocked had all US publicly listed companies taken a long-term orientation exceeded $1 trillion over the past ten years” (pg. 7).

How do the researchers determine that a company is “long-term”? Their Corporate Horizon Index consists of five financial indicators:

In a Harvard Business Review article, the researchers explain,

After running the numbers on these indicators, two broad groups emerged among those 615 large and midcap U.S. publicly listed companies: a “long-term” group of 164 companies (about 27% of the sample), which were either long-term relative to their industry peers over the entire sample or clearly became more long-term between the first half of the sample period and the second half, and a baseline group of the 451 remaining companies (about 73% of the sample). The performance gap that subsequently opened between these two groups of companies offers the most compelling evidence to date of the relative cost of short-termism — and the real payoff that arises from managing for the long term.

…While we can’t directly measure the cost of short-termism, our analysis gives an indication of just how large the value of what’s being left on the table might be. As noted earlier, if all public U.S. companies had created jobs at the scale of the long-term-focused organizations in our sample, the country would have generated at least five million more jobs from 2001 and 2015 — and an additional $1 trillion in GDP growth (equivalent to an average of 0.8 percentage points of GDP growth per year). Projecting forward, if nothing changes to close the gap between the long-term group and the others, then the U.S. economy could be giving up another $3 trillion in foregone GDP and job growth by 2025. Clearly, addressing persistent short-termism should be an urgent issue not just for investors and boards but also for policy makers.

How we manage matters.

Do Violent Protests Produce Social Change?

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Image result for Drop Your Weapons When and Why Civil Resistance Works

Not usually. As Reason summarizes,

When it comes to enacting social change, are broken windows and displaced limousine drivers merely the cost of doing business? No. In fact, violent and destructive protesting is less efficient than nonviolent protesting, according to the research.

“Why Civil Resistance Works,” a study written by Maria J. Stephan and Erica Chenoweth,[ref]The authors have an excellent article in Foreign Affairs about their research as well.[/ref] found that nonviolent tactics were much more effective than violent tactics. Researchers surveyed anti-governmental resistance movements in the 20th century in a variety of countries: nonviolent means achieved their aims 53 percent of the time, while the violent means worked only 26 percent of the time.

“Whereas governments easily justify violent counterattacks against armed insurgents, regime violence against nonviolent movements is more likely to backfire against the regime,” wrote the authors. “Potentially sympathetic publics perceive violent militants as having maximalist or extremist goals beyond accommodation, but they perceive nonviolent resistance groups as less extreme, thereby enhancing their appeal and facilitating the extraction of concessions through bargaining.”

Another study, by Princeton University Assistant Professor of Politics Omar Wasow, found that violent extremist movements in the United States in the 1960s and ’70s inspired a conservative backlash that helped elect Richard Nixon to the presidency. Nonviolent protests, on the other hand, did not provoke a backlash.

“In the 1960s, black-led protests that escalate to violence cause increased conservatism in white voters who live nearby,” Wasow wrote in an email to Reason. “Conversely, I find that proximity to black-led nonviolent protests, particularly those in which the state engages in brutal repression, are associated with increased liberalism among white voters.”

The science isn’t exactly settled: Wasow said other scholars have found that violent protests occasionally prompt the government to implement favorable social policies as a means of de-escalating the violence.

“If the recent modest amount of protest-related property damage remains an outlying event, I’d expect very little effect,” wrote Wasow.

Still, violent tactics—such as those displayed against Spencer—run a risk of provoking a conservative counter-reaction. Historically, authority figures have known this. When President Nixon was informed by an aide that campus violence was expected to increase in the coming year, his response was, “Good!” Nixon understood what too many leftists do not: Violent resistance is often the health of the state.

The article concludes,

The Women’s March sent a message that Trump is unpopular. The black bloc rioting likely accomplished the exact opposite: undermined public sympathy for Trump resistors.

It certainly seems like the organizers of the Women’s March chose the more tactically effective route. Wasow said the march might have the same kind of lasting effect as the Tea Party movement, which accomplished many of its political goals…I won’t say violence never works as a means of advancing social progress, but the Women’s March is powerful evidence that orderly resistance is the better tactic for the struggles that lie ahead. And recall that during the primaries, when protesters shut down Trump’s speeches, this made Republican voters more favorably disposed toward Trump.

With that, enjoy this rap battle between two advocates of nonviolent resistance.

Should We Avoid the News?

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trump donald trump media president trump fake news

“By and large,” writes economist Bryan Caplan, “I think news is a waste of time.  If I want to increase my factual knowledge, I read history – or Wikipedia.  News, I like to say, is the lie that something important happens every day.” With the influence of “fake news” being overblown, is this really a legitimate claim on Caplan’s part? To help make his case, he links to a paper by Swiss writer Rolf Dobelli entitled “Avoid News.” In Dobelli’s view, “News is to the mind what sugar is to the body” (pg. 1). He lists the following reasons:

  1. News misleads us systematicallyImage result for news gif
  2. News is irrelevant
  3. News limits understanding
  4. News is toxic to your body
  5. News massively increases cognitive errors
  6. News inhibits thinking
  7. News changes the structure of your brain
  8. News is costly
  9. News sunders the relationship between reputation and achievement
  10. News is produced by journalists
  11. Reported facts are sometimes wrong, forecasts always
  12. News is manipulative
  13. News makes us passive
  14. News gives us the illusion of caring
  15. News kills creativity

What does Dobelli suggest instead? “Go without news. Cut it out completely. Go cold turkey…If you want to keep the illusion of “not missing anything important”, I suggest you glance through the summary page of the Economist once a week” (pg. 10). He notes that if there is indeed “some bit of information is truly important to your profession, your company, your family or your community, you will hear it in time – from your friends, your mother-in-law or whomever you talk to or see” (pg. 10). But the clincher is the following:

Read magazines and books which explain the world – Science, Nature, The New Yorker, The Atlantic Monthly. Go for magazines that connect the dots and don’t shy away from presenting the complexities of life – or from purely entertaining you. The world is complicated, and we can do nothing about it. So, you must read longish and deep articles and books that represent its complexity. Try reading a book a week. Better two or three. History is good. Biology. Psychology. That way you’ll learn to understand the underlying mechanisms of the world. Go deep instead of broad. Enjoy material that truly interests you. Have fun reading (pg. 10).

This is akin to what Hans Rosling said: “You can’t use media if you want to understand the world.” You need to use data. It’s also similar to my blogging style here at Difficult Run. And while I’m not sure if I’m completely convinced by Dobelli, it’s worth reflecting on.

Does Kicking Out Immigrants Raise Wages and Employment?

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During Kennedy’s presidency, writes The Economist,

the Mexicans were participating in the bracero programme, which allowed almost half a million people a year to take seasonal work on America’s farms. But the parallels with the present are plain. Donald Trump has also complained that immigrants are keeping Americans from good jobs and has promised to do something about it (another parallel: not since Kennedy has America seen such an astonishing presidential coiffure). So it is a good moment for a bracing new assessment of the bracero scheme and its demise.

Did it work? According to a new study, the answer is ‘no’:

We find that bracero exclusion had little measurable effect on the labor market for domestic farm workers. Pre- and post-exclusion farm wages and farm employment were similar in states highly exposed to exclusion—which lost roughly one third of hired seasonal labor—and in states with no exposure. Bracero workers were not substantially replaced in the years immediately following exclusion with domestic workers, unauthorized Mexican workers, or authorized non-Mexican foreign workers. We find instead that employers adjusted to exclusion, as predicted by the theory of endogenous technical change, with large changes in technology adoption and crop production. We reject the semielasticity of wages to labor scarcity implied by the model in the absence of endogenous technical change, and oer direct evidence of induced technical advance. These findings suggest that new theories of technological change can inform the design and evaluation of active labor market policy (pg. 2).

They conclude,

The exclusion of Mexican bracero workers was one of the largest-ever policy experiments to improve the labor market for domestic workers in a targeted sector by reducing the size of the workforce. Five years after bracero exclusion, leading agricultural economist William E. Martin uncharitably assessed the advocates of exclusion in a little-read book chapter. Those who had believed exclusion would help domestic farm workers “were obviously. . . extremely naïve”, he wrote, and the hoped-for effects in the labor market never arrived because “capital was substituted for labor on the farm and increased effort was exerted by the agricultural engineers in 30 providing the farmers these capital alternatives” (Wildermuth and Martin 1969, 203).

…The theory and evidence we discuss here contradicts a long literature claiming, largely without quantitative evidence, that bracero exclusion succeeded as active labor market policy. We find that bracero exclusion failed to raise wages or substantially raise employment for domestic workers in the sector. The theory of endogenous technical change suggests a mechanism for this null result: employers adjusted to foreign-worker exclusion by changing production techniques where that was possible, and changing production levels where it was not, with little change to the terms on which they demanded domestic labor (pgs. 30-31).

Top 10 Films of 2016

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The Oscar nominations for 2016’s Best Picture have been announced. I’ve seen all the nominees and while my list is very similar, I have a few changes. Here is my top 10 list for 2016:[ref]Based on what I’ve seen, obviously.[/ref]

*Update: I’ve changed the order since the original posting, moving Your Name to the top. I saw it for the second time this week since it was released in the U.S. over the weekend. Not only was it the best of 2016, but it’s one of the best films of the 2010s.*

 

1. Your Name: One of the most unique films I’ve seen in some time, mixing elements from romantic comedies, coming-of-age dramas, fantasy, and disaster films. The film is gorgeous to look at and the meditations on time, longing, and connection stay with you long after the credits have rolled.

2. Manchester by the Sea: A quiet, humorous yet heart-wrenching look at grief, love, and family. Affleck’s subtle, aching performance is fantastic as he navigates this case study of the fractured human condition and the burdens of mortality we all have to bear.

3. Moonlight: Much like the two films above, this explores the desire for human connection and, with it, the need for identity. The brokenness of the main character’s life–from adolescence to adulthood–triggers our own cravings for belonging and awakens us to the completion and healing we find in even the most unlikely of people.

4. Zootopia: Tackles the subject of prejudice—from the explicit to the more subtle—and the barriers and suspicions it creates: all done with humor, emotion, superb animation, and a message of inclusion and friendship. A thoroughly entertaining and moving slam-dunk from Disney.

5. La La Land: A charming, nostalgic homage to classic musicals with a modern twist and uncommon finale (for Hollywood musicals, at least). Gosling and Stone both give strong performances, exuding wonderful chemistry. Justin Hurwitz’s jazzy score is both foot-tapping and grand, complementing the more fantastical elements of the movie.

6. Arrival: A thinking person’s sci-fi movie exploring the themes of language and communication. Drawing on the controversial Sapir-Whorf hypothesis, the film probes questions about how language shapes our understanding and experience of the world around us and our interpretations of those different from us. Less about aliens and more about us.

7. The Wailing: This disturbing South Korean film is one of the best horror films I’ve seen in a long time. Most modern horror films rely on cheap scares, rehashed plots, and/or an excessive amount of gore (“torture porn”). This instead offers an atmospheric slow burn wrapped in a foreboding sense of dread and haunting ambiguity, driven by powerful performances, particularly those of Kwak Do-won and Kim Hwan-hee.

8. Lion: An uplifting true tale of courage and resilience that doesn’t shy away from the grim realities of poverty and child homelessness in India. The two strikingly different halves are woven together by the concepts of home and identity, resulting in a tear-inducing, ultimately satisfying whole.

9. Silence: The majority of modern Christian films–Fireproof, God’s Not Dead, Left Behind–are superficial fluff; the equivalent of what Jeffrey Holland referred to as “a kind of theological Twinkie.” But Martin Scorsese’s latest engages subjects like faith vs. doubt, discipleship vs. orthodoxy, belief vs. action, and the problem of evil. In essence, it’s what lived religion looks like.

10. Hidden Figures: No doubt sentimental and perhaps formulaic, this is nonetheless an incredibly well-done, feel-good, family-friendly film. Henson, Spencer, and Monae each deliver stirring performances, which in turn bolster the already incredible story. While it doesn’t break new artistic ground,[ref]New ground isn’t always good ground.[/ref] it’s about as pitch-perfect as a lighthearted crowdpleaser can be.

 

And there you have it. Go watch them.

Honorable Mentions:

Train to Busan

Fences

Hacksaw Ridge

A Monster Calls

Sing Street

Moana

The Witch

Rogue One

Still Need to See:

The Nice Guys

Midnight Special

Loving

The Edge of Seventeen

Jackie

The Handmaiden