I’ve updated my webtool that helps potential students determine how much financial aid they can get for college to cover the 2018-19 school year. You can find the tool here.
The trick: how to think about IV’s without getting too confused
Suppose z is your instrument, T is your treatment, and y is your outcome. So the causal model is z -> T -> y. The trick is to think of (T,y) as a joint outcome and to think of the effect of z on each. For example, an increase of 1 in z is associated with an increase of 0.8 in T and an increase of 10 in y. The usual “instrumental variables” summary is to just say the estimated effect of T on y is 10/0.8=12.5, but I’d rather just keep it separate and report the effects on T and y separately…
If there’s any problem with the simple correlation, I see the same problems with the more elaborate analysis–the pair of correlations which is given the label “instrumental variables analysis.” I’m not opposed to instrumental variables in general, but when I get stuck, I find it extremely helpful to go back and see what I’ve learned from separately thinking about the correlation of z with T, and the correlation of z with y. Since that’s ultimately what instrumental variables analysis is doing.
Hal Varian adds
You have to assume that the only way that z affects Y is through the treatment, T. So the IV model is
T = az + e
y = bT + d
It follows that
E(y|z) = b E(T|z) + E(d|z)
Now if we
1) assume E(d|z) = 0
2) verify that E(T|z) != 0
we can solve for b by division. Of course, assumption 1 is untestable.
An extreme case is a purely randomized experiment, where e=0 and z is a coin flip.
I’ve created a new webtool that tracks resource prices over time. Partially inspired by the famous bet between Julian Simon and Paul Ehrlich, I was able to vastly expand both the number of resources included as well as the time frame examined. You can find the tool here.
Most of the policies being mooted by the supposedly socialist left today – Medicare-for-all, better social safety nets, et cetera – are well within the bounds of neoliberalism – ie private property and capitalist economies should exist, but the state should help poor people. “Socialism” should be reserved for systems that end private property and nationalize practically everything. I’m worried that people will use the success of neoliberal systems in eg Sweden to justify socialism, and then, socialism having been justified, promote actual-dictionary-definition socialism. To a first approximation, Sweden is an example of capitalists proving socialism isn’t necessary; Venezuela is an example of socialism actually happening.
Research by the University of Sydney’s David Goodman has found that around 84% of today’s elite are direct descendants of the elite from pre-1949. This suggests that six decades of Communism may not have a dramatic impact upon the elites, who have the advantage of decades of capital accumulation — including economic, cultural and social capital — which have apparently continued to benefit them under the party-state system…
Remember that we have run two very careful randomised controlled trials to see if full-blown socialism or half-hearted free enterprise works better. One in the Korean peninsula, the other in Germany. And the results were unambiguous. Socialism was a humanitarian catastrophe.
Communism was not really a new or radical idea, even in 1917. It was simply a clever repackaging of the old, old story that the king knows best. That the state should decide how to plan and run society. It matters not whether his name is Rameses or Augustus or Suleiman or Henry or Napoleon or Adolf or Vladimir or Josef or Mao or Fidel or Kim or Hugo. It’s the same recipe…
Is it not bizarre, after the 20th century, that people are so forgiving of the state and so mistrustful of the market?…
Now the commencement speakers will typically also wish you good luck and extend good wishes to you. I will not do that, and I’ll tell you why. From time to time in the years to come, I hope you will be treated unfairly, so that you will come to know the value of justice. I hope that you will suffer betrayal because that will teach you the importance of loyalty. Sorry to say, but I hope you will be lonely from time to time so that you don’t take friends for granted. I wish you bad luck, again, from time to time so that you will be conscious of the role of chance in life and understand that your success is not completely deserved and that the failure of others is not completely deserved either. And when you lose, as you will from time to time, I hope every now and then, your opponent will gloat over your failure. It is a way for you to understand the importance of sportsmanship. I hope you’ll be ignored so you know the importance of listening to others, and I hope you will have just enough pain to learn compassion. Whether I wish these things or not, they’re going to happen. And whether you benefit from them or not will depend upon your ability to see the message in your misfortunes.
There’s an old story about when heavyweight boxing champion Joe Louis decided to enlist in the U.S. Army in 1942. A friend of his objected, and said: “It’s a white man’s Army, Joe, not a black man’s Army.” But Joe Louis had observed the Nazi propaganda machine close up, as the result of his two epic fights against the German Max Schmeling (who was not a Nazi, but whom the Nazis attempted to exploit). So Louis told his friend: “Lots of things wrong with America, but Hitler ain’t going to fix them.”
In that spirit, I’d say lots of things are wrong with America, but often, the best answers for what’s wrong with America are a bigger dose of what’s right with America…
over the past 26 years, average real state funding per student has fallen by $780, while tuition revenue has increased by more than $3,500. This means that cuts in state funding can only explain about 22 per cent of the increase in tuition over the past quarter century.
But there is a second empirical problem… when you plot tuition rises against changes in state funding, for every year since 1992, a $1 change in state funding per student is rarely associated with a $1 increase in tuition…
When looking at the past quarter century, on average, a $1 change in state funding is associated with only an $0.08 change in tuition…
Check out the full piece here.