Society

Doing Right Is Profitable

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At least according to a report by the non-profit research organization JUST Capital. As detailed in Forbes,

JUST Capital polls, on a continuous basis, more than 50,000 Americans, asking them over and over again a series of simple questions on what makes for a just company: Is pollution important? Are wages important? Do benefits matter?

These polls determine how JUST Capital measures corporate justness. The metrics range from worker pay and worker treatment, to leadership and ethics, job creation, customer treatment, supply chains and environmental performance. JUST Capital then proceeds to apply these metrics to individual companies to determine the most just companies in the nation — the 100 highest-ranking in measures of fair and responsible corporate behavior within its ranking of the largest 897 publicly-traded firms in the U.S.

Here’s what its most recent study found: Stock market indexes based on the leaders of JUST Capital’s 2016 rankings outperformed the Russell 1000 index throughout the decade ending in 2016 within a range of 1-4 percentage-points.

Most of these companies also:

• Generated 3.5% higher 5-year Return on Invested Capital.

• Pay roughly 20% more workers a living wage

• Have almost 17% more women board members

• Created 1.8x more jobs in America

• Provide employees more flexible working hours and paid time off

• Pay 8x fewer consumer-related fines

• Recycle about 3x more waste in % terms

• Are 2x more likely to have sound supply chain policies

• Donate about 2x as much of their profit to charity

The piece concludes,

What this all amount to is more than simply an exhortation to the American private sector to “do the right thing.” It’s not just a wake-up call to “do what’s best for your company long-term” but most importantly, it will do what will get this country booming for the top 20 percent of Americans as well as Wall Street. Our markets need the sort of demand our American consumers can fulfill with money they’ve earned — we need their spending power to drive all the growth we’re capable of creating. And to spend, they need to earn. Enlightened CEOs will making sure their employees will earn fair wages importantly because they are the true value creators of the 21stcentury.

At the Ethical Systems blog, they mention Milton Friedman’s (in)famous 1970 essay in connection with this report:

In 1970 Milton Friedman wrote a now famous essay in the NY Times Magazine declaring that the social responsibility of business is to increase its profits.  Since then, writers and researchers have been debating whether this accurately reflects the responsibilities of business in society.  In the decade since the Global Financial Crisis these debates have become particularly critical, with some participants questioning the basic principles of free market capitalism and whether they serve our current societal needs.

But what if the best way to do right by shareholders was to run a socially responsible business?

What’s funny is that Friedman wouldn’t object, as he clarified in a 2005 Reason essay. Comparing his and Whole Foods’ John Mackey’s philosophy, Friedman writes,

Here is how Mackey himself describes his firm’s activities:

1) “The most successful businesses put the customer first, instead of the investors” (which clearly means that this is the way to put the investors first).

2) “There can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors.”

Compare this to what I wrote in 1970:

“Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.

“To illustrate, it may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government….

“In each of these…cases, there is a strong temptation to rationalize these actions as an exercise of ‘social responsibility.’ In the present climate of opinion, with its widespread aversion to ‘capitalism,’ ‘profits,’ the ‘soulless corporation’ and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.

“It would be inconsistent of me to call on corporate executives to refrain from this hypocritical window-dressing because it harms the foundations of a free society. That would be to call on them to exercise a ‘social responsibility’! If our institutions and the attitudes of the public make it in their self-interest to cloak their actions in this way, I cannot summon much indignation to denounce them.”

…Finally, I shall try to explain why my statement that “the social responsibility of business [is] to increase its profits” and Mackey’s statement that “the enlightened corporation should try to create value for all of its constituencies” are equivalent.

Note first that I refer to social responsibility, not financial, or accounting, or legal…Maximizing profits is an end from the private point of view; it is a means from the social point of view. A system based on private property and free markets is a sophisticated means of enabling people to cooperate in their economic activities without compulsion; it enables separated knowledge to assure that each resource is used for its most valued use, and is combined with other resources in the most efficient way.

Of course, this is abstract and idealized. The world is not ideal. There are all sorts of deviations from the perfect market–many, if not most, I suspect, due to government interventions. But with all its defects, the current largely free-market, private-property world seems to me vastly preferable to a world in which a large fraction of resources is used and distributed by 501c(3)s and their corporate counterparts.

Does Increasing the Minimum Wage Raise Prices?

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According to a new job market paper, yes:

Minimum wage laws in the US typically institute a schedule of increases rather than one-off hikes. After the corresponding legislation is passed, the minimum wage increases in steps over several years to the final value set in the law. Especially the later steps are known long in advance, and firms may increase prices in anticipation of higher future minimum wages. To take this possibility into account, we estimate the minimum wage elasticity of grocery prices at the time future increases become known and when they are implemented. We collect legislation dates for every increase, and show that these dates capture a salient event at which people get information about future minimum wage hikes. We combine this data with monthly store-level price indices for about 2000 grocery stores during the 2001–2012 period, which we construct from grocery store scanner data. We find robust significant effects on grocery prices at the time of legislation, but not at the time of implementation of minimum wage increases. Our baseline estimate of the overall minimum wage elasticity of prices in grocery stores is about 0.02. The average minimum wage legislation increases binding minimum wages by about 20% over several years. Our estimates suggest that such an increase raises grocery prices by 0.4% over three months around the time legislation is passed, long before the final level of the new minimum wage is implemented. During these three months, price inflation in grocery stores almost doubles relative to its average rate.

In a second step, we estimate the minimum wage elasticity of grocery store cost using county-sector level data from the Quarterly Census of Employment and Wages and sectorlevel data on grocery stores’ labor cost share. We find that the minimum wage elasticity of costs is about the same size as the minimum wage elasticity of prices. Our results thus suggest a full pass-through of all future cost increases at the time minimum wage legislation is passed. This forward-looking behavior is qualitatively consistent with the predictions of pricing models with nominal rigidities.

Finally, we calculate the welfare cost of grocery stores’ price response based on consumption data from the Consumer Expenditure Survey. We show that low-income households are disproportionately affected, since they spend a larger share of their expenditures at grocery stores. In particular, the price response of grocery stores alone undoes at least 10% of the nominal income gains of the poorest households. For other income brackets, this number ranges between 3% and 13%. Overall, the price response reduces the nominal gains for all households, but also makes minimum wage increases less redistributive in real than in nominal terms (pgs. 1-2).

In short, the cost of minimum wage increases are passed on to consumers. What’s worse, poor consumers are hurt the most.

Do the Poor Eat More McDonald’s?

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According to the CDC, no. A 2017 study came to the same conclusions. As the authors explain at Vox,

Our research, recently published in the journal Economics & Human Biology, examined this assumption by looking at who eats fast food using a large sample of random Americans. What we found surprised us: Poor people were actually less likely to eat fast food — and ate it less frequently — than those in the middle class. And the poor are only a little more likely to eat fast food than the rich.

In other words, the guilty pleasure of fast food is shared across the income spectrum, from rich to poor, with an overwhelming majority of every group reporting having indulged at least once over a nonconsecutive three-week period.

…What we learned from our research is that pretty much everyone has a soft spot for fast food. We analyzed a cross-section of the youngest members of the baby boom generation — Americans born from 1957 to 1964 — from all walks of life who have been interviewed regularly since 1979. Respondents were asked about fast-food consumption in the years 2008, 2010 and 2012 — when they were in their 40s and 50s.

…The data also show middle earners are more likely to eat fast food frequently, averaging a little over four meals during the three weeks, compared with three for the richest and 3.7 for the poorest.

They continue:

Another problem with the stereotype about poor people and fast food is that by and large it’s not actually that cheap, in absolute monetary terms.

The typical cost per meal at a fast-food restaurant — which the US Census calls limited service — is over $8 based on the average of all limited service places. Fast food is cheap only in comparison to eating in a full-service restaurant, with the average cost totals about $15 on average.

Moreover, $8 is a lot for a family living under the US poverty line, which for a family of two is a bit above $16,000, or about $44 per day. It is doubtful a poor family of two would be able to regularly spend more than a third of its daily income eating fast food.

Many have argued that the poor don’t have access to healthy food. But as one writer notes,

Government data also shows that people on food stamps purchase soda (#1) and bag snacks (#4) at higher rates than non-SNAP households. It certainly seems possible that these unhealthy items are being purchased in larger quantities than they would absent food stamp (or “EBT”) income.

Now, there is an old argument that suggests that poor people eat unhealthy food because they cannot afford to eat healthy food. But I’ve always found this argument unpersuasive.

The America Farm Bureau Federation says the price of eggs, arguably the healthiest food on the planet, is $1.32 per dozen. Other highly nutritious foods – beans, rice, and bananas, to name a few – are similarly inexpensive. It seems more likely that most welfare recipients choose to eat unhealthy food because it’s easy (no prep), tastes good, is designed to be addictive, and they have the resources to buy large quantities of it thanks to their monthly government benefit.

Nonetheless, would access to healthier foods make a difference? Not really, according to the research. As Slate reports,

Obesity levels don’t drop when low-income city neighborhoods have or get grocery stores. A 2011 study published in the Archives of Internal Medicine showed no connection between access to grocery stores and more healthful diets using 15 years’ worth of data from more than 5,000 people in five cities. One 2012 study showed that the local food environment did not influence the diet of middle-school children in California. Another 2012 study, published in Social Science and Medicine, used national data on store availability and a multiyear study of grade-schoolers to show no connection between food environment and diet. And this month, a study in Health Affairs examined one of the Philadelphia grocery stores that opened with help from the Fresh Food Financing Initiative. The authors found that the store had no significant impact on reducing obesity or increasing daily fruit and vegetable consumption in the four years since it opened.

Earlier research suggesting that better fresh-food access improves diet and would therefore improve the health of people living in poverty was drawn from small samples or looked at store availability in narrow geographical slices—often without information about how or where the people who lived there shopped. “They never link the neighborhood characteristics to actual individuals,” explains Helen Lee, author of the Social Science and Medicine study. “Without that, all you have is speculation.”

Lee also notes in her study that, on closer inspection, food deserts don’t actually exist in the U.S., at least not as a national problem—on average, poor neighborhoods have more grocery stores than wealthier neighborhoods. Even before Obama’s Healthy Food Financing Initiative was announced in 2010, studies suggested that the food desert explanation for obesity wasn’t right. A report from Department of Agriculture researchers presented to Congress in 2009 also showed more grocery stores in poor neighborhoods. In 2012, USDA researchers crunched the data again and found once more that low-income neighborhoods had more—not fewer—grocery stores.

What’s more, the poor ignore “proven weight-loss strategies, relying instead on quick fixes like diet pills.” As The Atlantic explains,

For a new study published in the American Journal of Preventive Medicine, researchers from Concordia University looked at the incomes and health habits of more than 3,000 children and teens between the ages of 8 and 19 and more than 5,000 adults over the age of 20.

At least two-thirds of the study subjects reported attempting to reduce food intake or exercising in order to lose weight in the past year. Despite these efforts, the adults in the study gained an average of three pounds, while the youths gained about 12 pounds. The people in the lower income brackets gained about two pounds more than those in the highest one.

One reason for the disparity might have to do with the tactics they used to try to shed pounds: Compared to adults making $75,000 or more, those making less than $20,000 were 50 percent less likely to exercise, 42 percent less likely to drink a lot of water, and 25 percent less likely to eat less fat and sweets. And adults making between $20,000 and $75,000 were about 50 percent more likely to use over-the-counter diet pills, which aren’t proven to work.

The data for the young people were similar: The poorest among them were 33 percent less likely to exercise, but they were twice as likely to skip meals as the richest ones. Skipping meals, too, isn’t a sure-fire way to slim down.

The piece offers this more likely explanation:

…[I]t might be that the stressful lives of poor people make sticking to a diet and exercise plan more difficult. It’s hard to exercise when you live in an unsafe neighborhood. Stress leads to emotional eating. You can’t plan for gym time when you only know your work schedule three days in advance. 

An emerging body of research helps explain how the stress of poverty hampers the decision-making process. A study in Science last year found that poverty equates to a mental burden similar to losing 13 IQ points. Another study just published in the Journal of Personality and Social Psychology found that people who experienced economic uncertainty gave up on solving a difficult puzzle faster.

As Maria Konnikova wrote in the New York Times, living an unpredictable, erratic life can erode self-control: “If we’re not quite sure when the train will get there, why invest precious time in continuing to wait?”

Often, low-income people aren’t sure what tomorrow will bring. So why waste time trying to diet?

 

Are Democrats Outdoing Republicans When It Comes to Family Values?

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Not really, despite what Nicholas Kristof has recently claimed. As W. Brad Wilcox of the University of Virginia explains,

Here, Kristof is indebted to a book by family scholars Naomi Cahn and June Carbone, Red Families v. Blue Families, which makes the case that blue states have more successful and stable families than do red states. Arkansas, for instance, has one of the highest divorce rates in the nation, whereas Massachusetts has one of the lowest.

…But this state-based argument obscures more than it illuminates about the links between partisanship and family life for ordinary families in America. Scholars and journalists who have bought into the idea that red Americans are hypocrites on family values because some red states do poorly when it comes to family stability are committing what is called the “ecological fallacy” of conflating the family behaviors of individual conservatives with the family behaviors of states dominated by conservatives.

…Indeed, when we look not at states but at counties in the United States, we see that counties that lean Republican across the country as a whole have more marriage, less nonmarital childbearing, and more family stability than counties that lean Democratic. In fact, an Institute for Family Studies report I authored found, “teens in red counties are more likely to be living with their biological parents, compared to children living in bluer counties.” So, even at the community level, the story about marriage and family instability looks a lot different depending on whether or not one is looking at state or county trends. At the county level, then, the argument that Red America is doing worse than Blue America isn’t true.

Finally, when we turn to the individual level, the conservatives-are-family-values-hypocrites thesis really falls apart. Republicans are more likely to be married, and happily married, than independents and Democrats, as Nicholas Wolfinger and I recently showed in a research brief for the Institute for Family Studies. They are also less likely to cheat on their spouses and less likely to be divorced, compared with independents and Democrats. So, Donald Trump is the exception, not the norm, for Republicans.

He continues,

When it comes to family stability, Republican parents are less likely to be divorced. In fact, Republican parents who have ever been married are at least 5 percentage points less likely to have been divorced, compared with their fellow citizens. The 2017 American Family Survey also indicates Republicans are less likely to have their first child outside of marriage, compared with Democrats and independents. So, contra Kristof, it’s actually Republicans, not Democrats, who are more likely to enjoy a stable, happy family life anchored around marriage…When American parents are separated by whether or not they have a college degree, it turns out that Republican parents have about a 10-percentage-point advantage in the likelihood that they are in their first marriage. In both college-educated communities and less-educated communities, then, it looks like Republican parents are more likely to be raising their children in their first marriage…[E]ven [when] we limit our focus to whites, we still see that white Republican parents are more likely to be in their first marriage. Specifically, 62 percent of white Republican parents are in their first marriage, compared with 54 percent of white Democratic and 44 percent of white independent parents…When we break out parents by those who attend religious services frequently (several times a month or more) versus parents who attend infrequently or never, Republicans still have an advantage in both the more religious and less religious groups. In fact, in both groups, Republican parents are more likely to be in first marriages than their fellow citizens. Moreover, even after controlling for religiosity, as well as education, race, ethnicity, region and age, the data indicate that Republican parents are still more likely to be in their first marriage, compared with Democrats.

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“[B]ecause married parents are more prosperous and less dependent on government for their financial security,” he writes, “[Republicans] are less likely to gravitate to the Democratic Party and more likely to gravitate to the party of small government and lower taxes. Indeed, counties with large numbers of lower-income single parents are more likely to lean Democratic, partly because the Democratic Party supports policies designed to provide them with more financial security. The figure below is illustrative of the link between family structure and voting at the county level in 2016.”

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Wilcox highlighted this last point in a City Journal article back in July:

The problem with the progressive approach to poverty is that it denies the importance of culture and character to household prosperity—especially when it comes to marriage…Wendy Wang of the Institute for Family Studies and I recently co-authored a report, The Millennial Success Sequence, which demonstrates and quantifies the extent to which early life choices correlate with personal affluence. Though young people take a variety of paths into adulthood—arranging school, work, and family in a dizzying array of combinations—one path stood out as most likely to be linked to financial success for young adults. Brookings scholars Ron Haskins and Isabel Sawhill have identified the “success sequence,” through which young adults who follow three steps—getting at least a high school degree, then working full-time, and then marrying before having any children, in that order—are very unlikely to become poor. In fact, 97 percent of millennials who have followed the success sequence are not in poverty by the time they reach the ages of 28 to 34.

Sequence-following millennials are also markedly more likely to flourish financially than their peers taking different paths; 89 percent of 28-to-34 year olds who have followed the sequence stand at the middle or upper end of the income distribution, compared with just 59 percent of Millennials who missed one or two steps in the sequence. The formula even works for young adults who have faced heavier odds, such as millennials who grew up poor, or black millennials; despite questions regarding socioeconomic privilege, our research suggests that the success sequence is associated with better outcomes for everyone. For instance, only 9 percent of black millennials who have followed the three steps of the sequence, or who are on track with the sequence (which means they have at least a high school degree and worked full-time in their twenties, but have not yet married or had children) are poor, compared with a 37 percent rate of poverty for blacks who have skipped one or two steps. Likewise, only 9 percent of young men and women from lower-income families who follow the sequence are poor in their late twenties and early thirties; by comparison, 31 percent of their peers from low-income families who missed one or two steps are now poor.

…Young men and (especially) women who put “marriage before the baby carriage” get access to the financial benefits of a partnership—income pooling, economies of scale, support from kinship networks—with fewer of the risks of an unmarried partnership, including breakups. By contrast, millennials who have a baby outside of marriage—even in a cohabiting union—are likelier to end up as single parents or paying child support, both of which increase the odds of poverty. One study found that cohabiting parents were three times more likely to break up than were married parents by the time their first child turned five: 39 percent of cohabiting parents broke up, versus 13 percent of married parents in the first five years of their child’s life. The stability associated with marriage, then, tends to give millennials and their children much more financial security.

In a Hoover Institute interview, Yuval Levin commented, “Today’s progressivism–for all of its talk of communitarianism and of ‘we’ and of ‘You didn’t build that’–the purpose of it really is to liberate the individual from dependence on other people. It is in fact based on a very radical individualism that at the end of the day wants total moral individualism and is willing to abide some economic collectivism to get there.”[ref]On the flip side, Levin points out that American conservatives tend to borrow their political rhetoric from the most radical individualists in the revolutionary tradition (e.g., Jefferson, Paine), despite being more family-based in practice.[/ref] The data above seem to confirm this suspicion.

Political Opposition to Immigration

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From a recent job market paper:

In this paper, I exploit variation in the number of immigrants received by US cities between 1910 and 1930 to study the political and economic consequences of immigration. Using a leave-out version of the shift-share instrument (Card, 2001), I show that immigration had a positive and significant effect on natives’ employment and occupational standing, as well as on economic activity. However, despite these economic benefits, the inflow of immigrants also generated hostile political reactions, inducing cities to cut tax rates and limit redistribution, reducing the vote share of the pro-immigration party, and increasing support for the introduction of immigration restrictions.

Exploiting variation in immigrants’ background, I document that natives’ backlash was increasing in the cultural distance between immigrants and natives. These findings suggest that opposition to immigration may arise not only because of economic, but also because of cultural considerations. Moreover, they highlight the existence of a potential trade-o§. Immigrants may bring larger economic gains when they are more different from natives. However, higher distance between immigrants and natives may trigger stronger political backlash. Ultimately, by retarding immigrants’ assimilation, and favoring the rise of populism and the adoption of inefficient policies, natives’ reactions may be economically and socially costly in the medium to long run (pg. 38-39).

A 2016 paper found that accurate information regarding immigration can change minds, but I’m becoming less and less hopeful.

Sexual Abuse: Are Female Perpetrators More Common Than We Thought?

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Sexual Victimization by Women Is More Common Than Previously Known

From a recent Scientific American:

In 2014, we published a study on the sexual victimization of men, finding that men were much more likely to be victims of sexual abuse than was thought. To understand who was committing the abuse, we next analyzed four surveys conducted by the Bureau of Justice Statistics (BJS) and the Centers for Disease Control and Prevention (CDC) to glean an overall picture of how frequently women were committing sexual victimization.

The results were surprising. For example, the CDC’s nationally representative data revealed that over one year, men and women were equally likely to experience nonconsensual sex, and most male victims reported female perpetrators. Over their lifetime, 79 percent of men who were “made to penetrate” someone else (a form of rape, in the view of most researchers) reported female perpetrators. Likewise, most men who experienced sexual coercion and unwanted sexual contact had female perpetrators.

We also pooled four years of the National Crime Victimization Survey(NCVS) data and found that 35 percent of male victims who experienced rape or sexual assault reported at least one female perpetrator. Among those who were raped or sexually assaulted by a woman, 58 percent of male victims and 41 percent of female victims reported that the incident involved a violent attack, meaning the female perpetrator hit, knocked down or otherwise attacked the victim, many of whom reported injuries.

…We [also] found that, contrary to assumptions, the biggest threat to women serving time does not come from male corrections staff. Instead, female victims are more than three times as likely to experience sexual abuse by other women inmates than by male staff. Also surprisingly, women inmates are more likely to be abused by other inmates than are male inmates, disrupting the long held view that sexual violence in prison is mainly about men assaulting men. In juvenile corrections facilities, female staff are also a much more significant threat than male staff; more than nine in ten juveniles who reported staff sexual victimization were abused by a woman.

This information certainly does not diminish the claims of the women:

To the contrary, we argue that male-perpetrated sexual victimization remains a chronic problem, from the schoolyard to the White House. In fact, 96 percent of women who report rape or sexual assault in the NCVS were abused by men. In presenting our findings, we argue that a comprehensive look at sexual victimization, which includes male perpetration and adds female perpetration, is consistent with feminist principles in important ways.

…[T]he common one-dimensional portrayal of women as harmless victims reinforces outdated gender stereotypes. This keeps us from seeing women as complex human beings, able to wield power, even in misguided or violent ways. And, the assumption that men are always perpetrators and never victims reinforces unhealthy ideas about men and their supposed invincibility. These hyper-masculine ideals can reinforce aggressive male attitudes and, at the same time, callously stereotype male victims of sexual abuse as “failed men.” Other gender stereotypes prevent effective responses, such as the trope that men are sexually insatiable. Aware of the popular misconception that, for men, all sex is welcome, male victims often feel too embarrassed to report sexual victimization. If they do report it, they are frequently met with a response that assumes no real harm was done.[ref]In other words, “men don’t get raped.”[/ref]

The researchers conclude,

To thoroughly dismantle sexual victimization, we must grapple with its many complexities, which requires attention to all victims and perpetrators, regardless of their sex. This inclusive framing need not and should not come at the expense of gender sensitive approaches, which take into account the ways in which gender norms influence women and men in different or disproportionate ways.

Male-perpetrated sexual victimization finally came to public attention after centuries of denial and indifference, thanks to women’s rights advocates and the anti-rape movement. Attention to sexual victimization perpetrated by women should be understood as a necessary next step in continuing and expanding upon this important legacy.

Important stuff.

Are a Few Bad Apples Behind the Racial Discrimination in Law Enforcement?

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I did a summary of the data on racial bias and policing last year with an additional post a few months ago. Now, a new job market paper uses data from the Florida Highway Patrol to determine the extent of racial discrimination:

The large racial disparities in the criminal justice system have led many to claim discrimination as the root cause.[ref]Unfortunately, recent evidence confirms disparities in sentencing.[/ref] We argue in this paper that identifying discrimination at the level of the individual criminal justice agent is crucial for understanding the best policy for mitigating the disparities in outcomes. We study speeding tickets and the choice of officers to discount drivers to a speed just below an onerous punishment.

By using a bunching estimator approach that allows for officer-by-race measures of lenience in tickets, we can explore the entire distribution of both lenience and discrimination on the part of officers. We find that 90% of the gap in discounting can be attributed to discrimination. The rest of the gap is due to underlying differences in driving speeds across races. Officers are very heterogeneous in their degree of discrimination, with 40% of members explaining the entirety of the aggregate discrimination. We explore whether discrimination is predictable by regressing individual officers’ bias on demographic and personnel characteristics. We find that officers tend to favor their own race, older officers are more racially biased, and women and college-educated officers are less biased on average. Personnel information, such as failing an entry exam, receiving civilian complaints, and seeking a promotion, are not strongly informative about bias.

Using a model of driver speeding and officer decision-making, we confirm that while minorities drive faster on average, our officer-level estimates of bias are not confounded by differences in speeding across groups. We find that setting discrimination to zero across officers fails to remove the majority of the treatment gap, due to the fact that minorities tend to live in regions where officers are less lenient toward all drivers. Because of this fact, policies directed at reducing discrimination directly have a significant but modest effect on the treatment gap. Policies that instead target officers’ lenience, by reassigning lenient officers to minority neighborhoods, are much more effective at reducing the aggregate treatment disparity (pgs. 30-31; emphasis mine).

It really is a minority group (though a sizable one) of officers that are ruining it for everyone.

Myths About the 1 Percent

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Gallup’s Jonathan Rothwell has provided some important insights about inequality in the U.S., from zoning laws to a lack of competition among the elites. In a recent New York Times piece, he lays out the evidence against certain myths regarding the 1% in a succinct fashion. Here are some “common misconceptions” about income inequality:

  • Trade: “A rise in international trade — as a share of G.D.P., measured as either imports or exports using data from the Penn World Tables — is associated with equality, not inequality. The United States imports only a small fraction of the value of its total economy, whereas Denmark and the Netherlands are highly dependent on imports.”
  • Information Technology: “Countries with higher rates of invention — as measured by patent applications filed under the Patent Cooperation Treaty, an indicator of patent quality — exhibit lower inequality than those with less inventive activity. As it happens, tech industries in the United States have contributed just a tiny bit to the rise of the 1 percent, and the salaries of engineers and software developers rarely reach the 1 percent threshold of an annual income of $390,000.”
  • Decline of Unions: “Unions are thought to redistribute income from owners to workers, but there is no correlation across countries between the change in labor’s share of G.D.P. since 1980 and an increase in the income share of the top 1 percent. Britain saw an increase in the labor share of G.D.P. but also one of the sharpest increases in inequality. The Netherlands saw a large fall in labor’s share but no rise in inequality. Scandinavian countries are heavily unionized and egalitarian, but Denmark experienced a large decrease in the share of workers represented by unions from 1980 to 2015, according to O.E.C.D. data, and very little change in inequality. Unionization rates dropped precipitously in the Netherlands and especially New Zealand over the period, but inequality rose as much if not more in Spain, where unionization rates rose.“
  • Immigration: “There is no correlation between changing immigration shares since 1990 and rising top-income shares. In fact, the countries that have absorbed the most immigrants — on a per-capita basis — have seen overall income inequality (measured by the Gini coefficient) fall. An assumption implicit in this argument is that immigrants drag down earnings at the bottom of the distribution, making inequality worse. If this were an important factor, rising inequality should coincide with large gaps in income between foreign-born and native-born adults. It doesn’t. My analysis of data from the Gallup World Poll from 2009 to 2016 shows that foreign-born adults earn 37 percent less than native-born adults in the Netherlands, after adjusting for age and gender. This is the largest gap among O.E.C.D. countries, and yet, the country saw no change in top-income inequality. Canada (minus 8 percent) and Britain (minus 7 percent) have small gaps but high and rising inequality.”
  • Manager Compensation: “Most top earners in the United States are neither executives nor even managers. People in those occupations make up just over one-third of all top earners in the United States. This share has been falling — particularly for corporate executives — and is lower than in many other advanced countries. In Denmark, Canada and Finland, close to half of top earners are in managerial occupations, according to my analysis of data from the Luxembourg Income Study.”

So what gives?

Image result for the 1%The groups that have contributed the most people to the 1 percent since 1980 are: physicians; executives, managers, sales supervisors, and analysts working in the financial sectors; and professional and legal service industry executives, managers, lawyers, consultants and sales representatives.

…A new book, “The Captured Economy” by Brink Lindsey and Steven Teles, argues that regressive regulations — laws that benefit the rich — are a primary cause of the extraordinary income gains among elite professionals and financial managers in the United States and of a reduction in growth.

This year, the Brookings Institution’s Richard Reeves wrote a book about how people in the upper middle class have shaped both legal and cultural norms to their advantage. From different perspectives, Joseph Stiglitz, Robert Reich and Luigi Zingales have also written extensively about how the political power of elites has undermined markets.

Problems cited by these analysts include subsidies for the financial sector’s risk-taking; overprotection of software and pharmaceutical patents; the escalation of land-use controls that drive up rents in desirable metropolitan areas; favoritism toward market incumbents via state occupational licensing regulations (for example, associations representing lawyers, doctors and dentists that block efforts allowing paraprofessionals to provide routine services at a lower price without their supervision).

These are just some of the causes contributing to the 1 percent’s high and rising income share. Reforming relevant laws can make markets more efficient and egalitarian, and in contrast with trade, immigration and technology, the political causes of the 1 percent’s rise are directly under the control of citizens.

In short, populists (trade), conservatives (immigration, IT), and leftists (executive compensation, unions) are wrong. It’s protectionist regulations that are the problem.

Was the Clovis Culture the Second Wave of American Immigrants?

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So this is interesting:

It’s been one of the most contentious debates in anthropology, and now scientists are saying it’s pretty much over. A group of prominent anthropologists have done an overview of the scientific literature and declare in Science magazine that the “Clovis first” hypothesis of the peopling of the Americas is dead.

For decades, students were taught that the first people in the Americas were a group called the Clovis who walked over the Bering land bridge about 13,500 years ago. They arrived (so the narrative goes) via an ice-free corridor between glaciers in North America. But evidence has been piling up since the 1980s of human campsites in North and South America that date back much earlier than 13,500 years. At sites ranging from Oregon in the US to Monte Verde in Chile, evidence of human habitation goes back as far as 18,000 years.

In the 2000s, overwhelming evidence suggested that a pre-Clovis group had come to the Americans before there was an ice-free passage connecting Beringia to the Americas. As Smithsonian anthropologist Torben C. Rick and his colleagues put it, “In a dramatic intellectual turnabout, most archaeologists and other scholars now believe that the earliest Americans followed Pacific Rim shorelines from northeast Asia to Beringia and the Americas.”

Now scholars are supporting the “kelp highway hypothesis,” which holds that people reached the Americas when glaciers withdrew from the coasts of the Pacific Northwest 17,000 years ago, creating “a possible dispersal corridor rich in aquatic and terrestrial resources.” Humans were able to boat and hike into the Americas along the coast due to the food-rich ecosystem provided by coastal kelp forests, which attracted fish, crustaceans, and more.

No one disputes that the Clovis peoples came through Beringia and the ice free corridor. But the Clovis would have formed a second wave of immigrants to the continent.

What are the Effects of Short-Term Incentives?

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Image result for carrot and stick ceo

I’ve written about the negative effects of corporate “short-termism” before. A new study takes a look at the criticisms of short-term incentives. The researchers explain,

Critics of short-term incentives argue that they lead the CEO to take myopic actions that boost the short-term stock price at the expense of long-run value. These critics however, rarely back this up with rigorous evidence. This is partly confirmation bias – willingness to accept ‘evidence’ that confirms one’s prior belief, no matter how flimsy. Since the current political environment is distrustful of businesses, people may be more willing to accept ‘evidence’ that CEOs act in ways that destroy value for personal gain. For example, a recent McKinsey study showed that firms that invested more have enjoyed superior long-run returns, and interprets this finding as “finally, evidence that managing for the long term pays off” (Barton et al. 2017).

…In our most recent work on the topic (Edmans et al. 2017b), we study the long-term consequences of short-term incentives by examining two corporate actions with similarities to investment cuts, but whose long-run consequences could be measured more accurately:

  • Repurchases: These boost the short-term stock price (Ikenberry et al. 1995). CEOs with short-term concerns might have incentives to undertake them. Also like investment cuts, repurchases can either be myopic (if financed by scrapping valuable projects) or efficient (if financed by free cash that would otherwise have been wasted). The long-term stock return measures the return that the firm obtains from the repurchased stock. So, unlike investment cuts, the long-term stock return can be used to diagnose the value implications of the repurchase, even if the return was not caused by the repurchase.
  • M&A: This has different advantages to repurchases. First, M&A has an announcement date, allowing us to cleanly calculate short- and long-term returns. Second, M&A is a much more significant event than an investment cut (or repurchase) – it is arguably the most transformative corporate decision that a firm can undertake – and so it is likely that at least a significant portion of long-run stock returns would be attributable to the M&A. Indeed, prior research (e.g. Agrawal et al. 1992) has used long-run stock returns to assess the long-term value implications of M&A.

Studying “the relationship between vesting equity and repurchases, and vesting and M&A announcements, between 2006 and 2015,” the researchers found that

a one-standard-deviation increase in vesting equity is associated with a 1.2% increase in a firm’s likelihood of conducting a share repurchase in a given quarter, compared to the unconditional repurchase probability of 37.5%. This translates into $6.16m annualised, compared to the finding in Edmans et al. (2017a) of an annualised fall in investment of $1.8m. While economically meaningful, this magnitude is also plausible: a too-large, myopic repurchase may have prompted the board to step in and block it. We find similar results for M&A. A one-standard deviation increase in vesting equity is associated with a 0.6% increase in a firm’s likelihood of announcing an M&A in a given quarter, compared with the unconditional probability of 15.8%.

…A one-standard-deviation increase in vesting equity is associated with an annualised 0.61% higher return over the two quarters surrounding a repurchase, but a 1.11% (0.75%) lower return during the first (second) year after the repurchase. For M&A, the negative association with long-run returns persists for longer. A one-standard-deviation increase in vesting equity is associated with an annualised 1.47% higher return over the two quarters surrounding an M&A announcement, but a 0.81%, 0.35% (insignificant), 0.72%, and 0.62% lower return in the first, second, and third, and fourth subsequent years.

They conclude,

The results are consistent with Graham et al. (2005), who used a survey to find that 78% of executives would sacrifice long-term value to meet earnings targets. We studied a CEO’s actual behaviour and found that short-term incentives indeed have negative long-term consequences. The current debate on CEO pay typically focuses on how big it is. As a consequence, in the UK and US, there will soon be disclosure of pay ratios. Our results suggest that the horizon of CEO incentives is a more important dimension to reform.