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Sensemaker: Noble economics

Sensemaker: Noble economics

Tuesday 12 October 2021

What just happened


Long stories short

  • The UK’s first parliamentary report on the government’s response to Covid called it one of the country’s worst ever public health failures (more below). 
  • Spain’s government said it will consider stopping the promotion and subsidy of bullfighting at the 40th Federal Congress in Valencia next week.
  • DC Comics said its latest incarnation of Superman, Jon Kent, will be bisexual.

Key number: €16.4 billion – the total value of scams or fake offers by intermediaries to sell large quantities of Covid vaccines to governments in the EU. “The aim of the fraudsters is to convince public authorities to make large down payments to secure the sale,” the European Anti-Fraud Office tells Sensemaker, “and to disappear with the money.”

Noble economics

Three economists shared this year’s Nobel Prize. The award committee said the men “revolutionised empirical research” by using chance events or policy decisions to mimic the kind of clinical trials used in medical research. Their work, conducted over decades, has relevance to our current debates over wages and immigration.

Cuban refugees head towards Key West, 1980

Here are two of the main examples:

1)That immigrants from poor countries depress the wages of native workers was a central assertion of Donald Trump’s presidential campaigns – and strong residues remain among Republican politicians. It also remains a key assertion of Britain’s pro-Brexit politicians. The logic that a supply of cheap labour lowers wages is compelling, but hard to test because you’d need a large, sudden wave of low-skill immigrants to arrive in one place and then to be able to compare its effects on wages with a similar place that didn’t receive immigrants.

David Card at the University of California, Berkeley, who took half of the prize (£419,000), found one such “natural experiment”. He compared the effects of the 1980 Mariel boatlift, when 125,000 mostly low-skill immigrants arrived in Miami from Mariel Bay in Cuba after Fidel Castro briefly lifted an emigration ban, on the city’s wages to other cities’ wages. He found no negative effects on wages or employment for low-skilled Miami residents – even though the influx increased the city’s labour force by 7 per cent. The reasons are less clear – it could be because Cubans’ own demand for goods and services created just as many jobs as they filled – but Card’s finding was the first serious challenge to prevailing wisdom. Card did the same thing for our understanding of the minimum wage. 

2) If politicians are really worried about immigration depressing wages, they can put a floor on wage levels. Up until the early 1990s, the prevailing wisdom was that introducing a minimum wage would increase unemployment as employers would find it too expensive to keep people on their payroll or to hire more people. The logic was so compelling that few countries had a minimum wage at the time and the ones that did kept it low.

Card and his late co-author Alan Krueger observed that in 1992 New Jersey increased its minimum wage but neighbouring Pennsylvania didn’t. The closeness of the two states, they reasoned, meant that whatever other factors were affecting fast food restaurants – an easily comparable sector because of its standardised menus, wages, and work forces – in one state would very likely be influencing them in the other. He found the higher wage in New Jersey may have actually boosted employment. The likely reason: a higher wage gives people more money to spend, which creates more demand and so more jobs. Card’s work was used by then chancellor Gordon Brown and his then economic adviser Ed Balls to justify a UK national minimum wage, which was finally introduced in 1999.

But what makes this research really important is the clarity of its methods. And it was this that won the prize committee over. It cited Joshua Angrist at MIT and Guido Imbens at Stanford – who each got a quarter (£209,500) of the Nobel Prize – because of their similar empirical work, applying clear statistical models to real-world problems. 

The claims around Brexit and rhetoric on immigration are examples of feelings being prioritised over facts. The Covid pandemic showed us how misinterpreting statistics can be dangerous. In this context, the latest Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, as it’s formally known, brings us back to reality.


Belonging identity, society, beliefs, countries

Noor Mukadam
Pakistan’s elite faces growing calls for accountability after the brutal killing of 27-year-old Noor Mukadam. The daughter of an ex-diplomat, Mukadam was allegedly raped, killed and beheaded by Zahir Jaffer, an acquaintance and the son of one of Pakistan’s wealthiest businessmen. Pakistani police reported that Jaffer had been deported from the UK for his alleged involvement in a rape and sexual harassment case. Campaigners have seized on Mukadam’s murder as a prime example of abuse of power by Pakistan’s elite, as well as of endemic violence against women. Pakistan ranks 153 out of 156 in the World Economic Forum’s 2021 Gender Gap index and the Human Rights Commission Pakistan recorded 363 victims of honor killings in 2020. Efforts to introduce stronger laws to protect women from violence and killings have been met with resistance from ministers and lawmakers. Jaffer’s indictment for the murder of Mukadam will be held on Thursday.


New things technology, science, engineering

Giga-fest
Sensemaker sadly missed the invite to Elon Musk’s carnival in Germany to celebrate his first gigafactory in Europe. First used to describe a giant dedicated battery plant in the Nevada desert, “gigafactory” has become a catch-all term to describe giant Tesla facilities building electric cars as well as batteries. Over the weekend, 9,000 locals and Tesla fans were invited to the site in Gruenheide to ride a ferris wheel, eat vegetarian food, dance to music produced by Tesla coils and go on a 90-minute tour of the factory. Technically it isn’t open yet. Tesla is waiting for final approval after environmental groups raised concerns about the 300 hectare site’s impact on local water supplies and wildlife. One protestor said he would rather Musk “fly to Mars” than build electric cars. But local government officials are confident the factory will open this month and deliver a significant boost to the economy – a boost the UK missed out on in 2019 because of uncertainties Musk linked to Brexit. Musk told the crowds he estimated that the German factory could eventually produce between 5,000 and 10,000 vehicles a week and generate 50 gigawatt hours (GWh) of battery capacity a year – a step up on Volkswagen’s biggest factory, a 40 GWh facility in Salzgitter. 


The 100-year life health, education, living, public poliCY

Covid response failure
The UK’s Covid response was “one of the most important public health failures the United Kingdom has ever experienced”, according to a joint report by the House of Commons’ health and science select committees. The word “failure” appears 17 times in 150 pages of analysis, evidence and recommendations. The report has positive things to say about the vaccine roll-out and patient care but is damning on the government’s early response, emphasising 1) ministers’ “fatalistic” approach to the virus in the place of rigorous efforts to stop its spread; 2) the decision to stop community testing early in the pandemic; 3) a test and trace programme that was “slow, uncertain and often chaotic”; 4) a failure to acknowledge risks in social care and the decision to move infectious people back into care homes from hospitals, leading to thousands of deaths; and 5) the virtual absence of good Covid data in a country with world-beating data analysis facing its biggest health crisis in a century. This first major report on the Covid response comes from committees chaired by two senior Conservatives, one of whom, Jeremy Hunt, was notably reluctant to assign blame this morning. The UK’s Covid death toll currently stands at 137,763. 


Our planet environment, natural resources, geopolitics

Prince of Fails
From the gardens of his house on the Balmoral estate in Aberdeenshire, Prince Charles told the BBC he’s worried world leaders will “just talk” when they meet at Cop 26 in Glasgow next month. He fears business executives still don’t give environmental issues the priority they need. He said young people are right to be worried about global warming, but “haven’t quite got to the top to make a fundamental difference”. He thinks activists are right to be frustrated with slow progress, but they risk alienating people when they protest. And governments can mobilise a lot of money to fight the climate crisis, but not as much as businesses. What about himself? He said he’d converted his favourite car, a vintage Aston Martin, to run on “surplus English white wine and whey from the cheese process”.


Wealth investment, fairness, prosperity

Asos struggles
As the Asos fast fashion giant faces the consequences of global supply chain struggles and increasing shipping costs, its chief executive Nick Beighton has quit, saying it was “the right time” to go. The announcement was part of a board shake-up as the company said that despite a 20 per cent growth in revenue to £3.9 billion, its pre-tax profit in 2022 is expected to fall from over £190 million to £110–£140 million. Shares fell by 14 per cent on the news. Although Asos did benefit from consumers switching to buying online during the pandemic, especially goods like loungewear and tracksuit bottoms that were less likely to be returned, old buying patterns are already returning. On top of that there is increasing scrutiny of fast-fashion brands’ sustainability and ethics – something that Asos’ competitor Boohoo knows all too well

Paul Caruana Galizia
@pcaruanagalizia

Phoebe Davis
@phoebe_ivy

Produced and edited by Phoebe Davis. 

Photographs Noah Berger/AP/Shutterstock, Andrew Parsons/No 10 Downing Street, Vuk Valcic/SOPA Images/LightRocket, Getty Images