Early marijuana use and educational outcomes

Marijuana use is getting more and more accepted by the public and lawmakers. Indeed, many studies have shown that its effects are no worse that allowed addictive goods such as tobacco and alcohol, that it may in some cases even have a positive impact (foremost example: tolerating consequences of various deceases), and it is not even clear that it is addictive. However, there has been little study about the consequences of using marijuana early, that is, by children or teenagers who are still growing up. It is known for a variety of goods that consuming too early can have sometimes dramatic results.

Deborah Cobb-Clark, Sonja Kassenboehmer, Trinh Le, Duncan McVicar and Rong Zhang look at early adopters of marijuana and their educational outcomes. Studying this is not straightforward, as those who smoke early are clearly not a random draw from the population. They likely share characteristics that have an impact of educational outcomes. The study focuses on those 14 years or younger in Australia and how they complete high school and obtain university entrance scores. Marijuana use is obtained by survey, which may introduce additional difficulties, and is linked to an administrative data set on welfare use by their parents. The authors find strong penalties in high school completion from early marijuana uses, and stronger ones for intensive use and for those coming from a disadvantaged background. The impact on university entrance scores is milder, and this applies of course only to those who managed to complete high school. The penalty for welfare-recipient families is, however, dramatically higher in that case. In other words, even if marijuana gets legalized, it needs to be treated like alcohol and tobacco and early use needs to be strongly discouraged with campaigns that can be efficiently targeted toward welfare-recipients.

Update: An email correspondent tells me I am over-eager to reach policy conclusions given the large endogeneity issue which the authors also acknowledge. I think I was indeed too eager. But I would still pursue this policy. The potential risk appears too large for me.

Economy Sucks, Tunisian Islamists Give Up Power?

Yippee Arab Spring! Tunisia, another economic basket case for the IMF

This may be the ultimate application of Bill Clinton's principle of "it's the economy, stupid." It's no big secret that Tunisia is in dire economic straits. In the hands of the Islamist Ennahda party after the so-called Arab Spring, its economic plight has only worsened. At the moment, Tunisia is trying to convince IMF powers-that-be that its next tranche should be doled out soon as the natives become increasingly restless:

Tunisia's government, under pressure from protests over public spending cuts, said on Wednesday it had done enough to persuade the IMF to approve a $500 million loan tranche at meetings later this month. Strikes started in the southern and central towns of Kasserine, Thala and Gafsa on Tuesday and spilled over to the capital Tunis on Wednesday, after calls from transport and agricultural unions to protest over a vehicle tax hike. Riot police fired tear gas in some southern towns.

Ho hum, another post-Arab Spring economic failure; what else is new? Alike Egypt's Muslim Brotherhood-linked Freedom and Justice Party [sic], Tunisia's Islamist Ennahda has won every post-Arab Spring election. However, many Western commentators have been puzzled by its apparent willingness to give up power when (unelected) secularists confronted it--unlike its Egyptian counterpart. Why give in so easily when you have an "electoral mandate" in white people-speak?

The answer, perhaps, is that in the interests of self-preservation as the Tunisian economic is going to the dogs [arf-arf], Ennahda is willing to relinquish power as the IMF inevitably asks for more painful reforms. So here's how things may be happening in this version of events: The Islamists call for early elections, and then implicitly ask their supporters to refrain from voting for them. So, the secularists win and implement IMF austerity measures, causing widespread discontent. Eventually, unpopular IMF conditionalities undermine the popularity of secularists and make Tunisian voters welcome Ennahda again in the absence any real alternatives:

Another key factor behind Ennahda's decision to hand power to a transitional technocrat government, the journalist argued, is the rise in social tensions linked to Tunisia's ongoing economic malaise, which the Islamists want to distance themselves from before the next elections. Protests and strikes have multiplied, with unemployed youths demanding work, particularly in the country's impoverished interior, amid the prospect of unpopular taxes to fill the state's empty coffers.

"There are pitfalls everywhere. Ennahda's strategy of moderation also comes from a lack of alternatives. They know that the next government will have no magic wand, that they will still have the same problems, and they won't be able to say: 'You see, that wasn't our fault,'" Sellami said...

But government plans to meet IMF and the World Bank requirements are already threatening the fragile stability of the North African country. With the budget deficit expected to jump to 6.8 percent of gross domestic product for 2013, Tunisia's 2014 budget includes measure to raise one vehicle tax by 25 percent and to add another tax on big cars.

There are too many "what ifs" to say whether this ploy will work (or even if they will attempt it in the first place). That said--and their economic ham-fistedness aside--Ennahda is displaying more long-term political savvy than its more dogmatic Egyptian equivalent did. It may even start a trend of democratically elected governments giving up power voluntarily to ensure that the other guy takes the blame for the country going down the tubes absent any real chops in public economic management. 

As it so happens, the latter description fits Ennahda to a T.

When countries manipulate economic data

Conspiracy theorists have a field day whenever official statistics look conveniently better just before elections. Whether statistics are really manipulated for political gain is hopefully less frequent than what they assume. We know it is currently done in Argentina, was done by the Soviets and their allies, and used to be done by some countries to qualify as poor in the United Nations' eyes. Those cases were rather obvious, but how could you recognize the more subtle ones?

Tomasz Michalski and Gilles Stoltz use Benford's Law, the distribution of first digits in economic figures, to determine the likelihood of manipulation across a large set of countries. While this does not catch a country red-handed, it gives probabilities, and one can analyze this against a set of indicators to determine what would drive them to cheat. Michalski and Stoltz find that higher likelihood of cheating is associated with fixed exchange rates, high negative assets, negative current accounts or subject to capital flow reversals. So it seems that this kind of cheating is not for internal consumption, but rather to deceive international financial markets. The authors did the analysis on balance of payments data, though, so the picture may be quite different when looking at unemployment, GDP or inflation data.

On Corporate Tax Reform

An article out of the Richmond Fed offers a nice overview of the issues.

Two Latin Americas? MERCOSUR vs Pacific Alliance

Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe - unnamed Brazilian official

Think of the Wall Street Journal's op-ed pages as a confused bastion of conservative thinking and you won't go far astray. It whitewashes George W. Bush's free-spending ways and features his Fox News-inspired brand of flag-waving USA#1 boosterism, for instance. Such wooly thinking is evident in a recent piece about "The Two Latin Americas" that purportedly contrasts anti-enterprise, anti-trade and anti-American countries (Argentina, Brazil, Venezuela) with pro-enterprise, pro-trade, and pro-American countries (Mexico, Peru, Chile and Colombia). The former group is composed of MERCOSUR customs union members doing poorly, while the latter group is composed of the more recently formed group the Pacific Alliance doing better.

You do not need to convince me that Argentina and Venezuela are run by left-wing ideologues/nutters with few sane ideas about how to run their countries. Argentina is so pathetic that it blatantly falsifies inflation data, while Venezuela is suffering from uncontrolled crime, rampant inflation, goods shortages...you name it. Both like blaming everyone else for their myriad failings, but in the end, many rightly suspect the problem lies with them and not with anyone else if they keep blaming everyone except themselves for their problems. Brazil, though, I am not sure falls into the same category of economic mismanagement. True, it tries to strike a (my apologies) third way between populism and neoliberalism, but I think its current underperformance has more to do with a lack of diversification at a time of falling commodity prices than outright mismanagement.

Look past the WSJ op-ed pages' Manichaean, crusader-grade morality play [freedom good, markets good, America good!] and there is actually more to the story. In particular, the characterization of Chile is disingenuous. It probably would not fit into the mould of other Pacific Alliance countries as being led by staunchly conservative figures. Chile's leader Michelle Bachelet is an unapologetic socialist, and won their recent presidential elections on a platform of unabashedly redistributive policies that would make a WSJ op-ed page writer retch:

Bachelet ran on a platform of social policies to address a deep divide between rich and poor, and plans to raise the corporate tax rate. Chile, the world's top copper-exporting nation, is ranked the most unequal country in the 34-member Organisation for Economic Co-operation and Development (OECD).

So when did WSJ commentary start lauding a country run by some Latin American woman who talks like a commie campaigning on [heaven forbid] raising taxes? The morality play of pro-market, pro-American countries doing better plays to the choir--except that the one identified as one of the best-performing is actually rather leftist. Nor can they claim that Bachelet hasn't had the Obama-like opportunity to wreck Chile, since she was already its leader from 2006 to 2010 (this is her second term in office). Last I checked, Bachelet was also seeking to establish better ties with MERCOSUR nations and avoid precisely the kind of MERCOSUR - Pacific Alliance polarization the WSJ writer fetishizes about:

Chile under its next president, center-left Michelle Bachelet, is likely to cool toward Latin America's more conservative governments in favor of warmer relations with Brazil and other left-leaning countries in the region...But there is no indication it will withdraw from the Pacific Alliance, a nascent trade bloc that [her predecessor Sebastian] Pinera championed and that also includes Pacific-facing, investor-friendly nations Mexico, Colombia, and Peru.

However, there is concern in the Bachelet camp that Chile has forged those links at the expense of its relationship with other, left-leaning governments, particularly regional heavyweight Brazil and important neighbor Argentina.

That is something Bachelet wants to address. "We value the efforts of the Pacific Alliance integration, but we will focus on ensuring that our participation in it is not exclusive or antagonistic to other existing integration projects in the region," says Bachelet's campaign manifesto. "Chile has lost presence in the region, its relations with its neighbors are problematic, a commercial vision has been imposed on our Latin American links."

Hence, it's not really about creating "two Latin Americas":

Bachelet is keen to avoid any moves that would prove divisive for South America, said Michael Shifter, head of the Inter-American Dialogue think tank.

"I think we can expect that Bachelet will try to get a deeper relationship with Brazil under Dilma (Rousseff) and certainly avoid the sense that Chile is in one camp, Brazil is in another camp," Shifter said. His comments were echoed at a meeting of ex-presidents in Santiago last month, when former Brazilian head Luiz Inacio Lula da Silva and ex-Chile leader Ricardo Lagos called for closer regional integration.

It is important to avoid the sense that South America was being divided into two - with the more socialist Atlantic-facing countries like Argentina, Brazil and Venezuela in one camp and market-friendly Pacific-facing nations like Chile, Peru and Colombia in the other, said Lagos.

Nuff said. Read WSJ op-eds with a healthy dose of caution.

Reported returns on investment for artwork are too high

Art is something one may like to have for the enjoyment of it, but it is also often touted as an investment vehicle. Quite obviously, you would need to diversify heavily. "Experts" claim that art gets a good return on average and that it is viable investment option.

Arthur Korteweg, Roman Kräussl and Patrick Verwijmeren say it is not. The issue is that all the indexes out there are based on transactions, and art items that have higher returns tend to have a higher turnover. The resulting selection bias is not negligible: 7% instead of 11%. Given that high amount of risk, it thus does not look like art is a good investment, unless you enjoy it, of course.

H index and H University

A friend writes:

Glen Ellison has a very neat study (ungated version) of adjusted h-index measures of citation performance that he shows have great predictive power for where people end up getting tenure (among other things).

What I thought you would find more interesting is that:

i) Harvard comes out first in citations to its faculty members.  See table 5 page 84.
ii) Table 6, page 87, has a list of the top 5 economists by decade. In the two cohorts of people with PhDs after 1996, I was struck that 5 out of 10 have Harvard PhDs (with 3 MIT, 1 Chicago, and 1 Berkeley rounding the list).