The NBER releases a new batch of working papers every Monday. Perusing them is among the most enjoyable aspects of my week. Here are some of interest this week:
- How important was “speculation” in driving the run-up and volatility in oil prices since 2004? Not much.
- Americans seem to be very financially illiterate. And it matters. Lusardi and Mitchell run through the empirical research on the costs of Americans being financially illiterate and it includes: a higher propensity to fall for scams and to make financial “mistakes”, lesser participation in retirement planning and other future oriented savings behavior, financially illiterate populations are less wealthy (note that these CONTROL for other factors that lead to wealth like schooling and occupation and family background, the point of these exercises is to try to isolate the causal effect of financial illiteracy on outcomes), the financially illiterate are more likely to realize paper losses even when they do not have to, they are more likely to have costly mortgages (between $50 billion and $100 billion more in expenses each year) and less likely to refinance mortgages, the financially illiterate demand less on-the-job training, and financial illiteracy seems to have important distributional impacts.For example the authors cite that half of wealth inequality in the US can be explained by financial literacy. Furthermore, American investors spend about $100 billion per year in foregone equity returns, fees, expenses and trading costs for trying to actively “beat the market” instead of investing in low-cost index-type products. (wintercow: is this an argument for banning gambling?) The financially illiterate also constitute a disproportionate share of users who incur late fees and other credit card penalties. There is much more in the paper. One wonders where the teachers in our K12 schools are in pushing for inclusion of financial literacy in the school curriculum?
- Did you know that mortality was pro-cyclical? Perhaps we should be thrilled we are living in the Great Recession. How much of this is driven by air pollution? Quite a bit, it seems (it’s state-level aggregate study).
- Does more trusting in an economy lead to less actual trust? An anti-McCloskeyean finding in China. Why? More trusting consumers (such as when they receive buyer protection) induces more scoundrels to start selling. I think this story has many parallels. See here for example.
- How much did Congress influence subprime mortgage lending? A new paper from Gabriel, Kahn and Vaughan finds that it had a considerable impact. This is not new to some of you, but what is wrongly criticized by classical liberals as “bad government” and what is wrongly criticized by modern liberals as “bad capitalism” is nothing of the sort. The marriage between big business and big government, call it crony-capitalism or perhaps corporatism, is almost always at play. And we’ve become quite the Corporatist nation. Scholarly research on the origins of this corporatism would be much appreciated. My sense is that the desire is always there for special privilege, so it is wise to examine what factors allow for this underling desire to be unleashed. Of course, this sort of analysis doesn’t fit anyone’s favorite narrative too easily, which is why I find it to be underexamined and underexplained. I put my money on World War I as one of the tipping points. Wars suck for many reasons, and this is one underappreciated one.
- What do strong family ties do to economic and political outcomes and attitudes? Here is a really interesting paper from Alesina and Giuliano. The abstract is below:
We study the role of the most primitive institution in society: the family. Its organization and relationship between generations shape values formation, economic outcomes and influences national institutions. We use a measure of family ties, constructed from the World Values Survey, to review and extend the literature on the effect of family ties on economic behavior and economic attitudes. We show that strong family ties are negatively correlated with generalized trust; they imply more household production and less participation in the labor market of women, young adult and elderly. They are correlated with lower interest and participation in political activities and prefer labor market regulation and welfare systems based upon the family rather than the market or the government. Strong family ties may interfere with activities leading to faster growth, but they may provide relief from stress, support to family members and increased wellbeing. We argue that the value regarding the strength of family relationships are very persistent over time, more so than institutions like labor market regulation or welfare systems.
wintercow’s question: whose narrative does this fit with?