Tim Harford The Undercover Economist

Articles published in October, 2015

The real benefits of migration

‘The supposed costs or benefits of immigration always omit one crucial group: the migrants themselves’

Woman with the guts to tell the truth over migrants,” applauded the Daily Mail. “All the compassion of stage 4 bone cancer,” sneered a columnist in The Guardian. It’s no surprise that when UK home secretary Theresa May gave a speech about migration that was designed to polarise opinion, she succeeded.

Among policy wonks and fact-checkers, one statement in the speech found the spotlight: “The evidence . . . shows that while there are benefits of selective and controlled immigration, at best the net economic and fiscal effect of high immigration is close to zero.” (Translation: immigration costs us nothing but we want to reduce it anyway.)

Is May’s summary of the evidence correct? Probably not, although there is room for reasonable people to disagree. What is clear is that the recent large and uncontrolled rush of working-age immigrants from the European Union has undoubtedly been positive for the public finances, unlike British natives, who have been a huge drain on the public finances for some time.

But there was a far bigger lacuna in May’s speech, and most commentators have missed it: the fact that these supposed costs or benefits always omit one crucial group. That group is the migrants themselves. They prosper hugely from being allowed to migrate yet that prosperity hardly ever figures in debates about immigration.

This is odd. I would not expect schools to fare well on a cost-benefit analysis if we ignored any gains to the under-18s. Nor would hospitals look like a good investment if we counted only the advantages to non-patients. Yet it seems that migration may still be mildly beneficial even after disqualifying any benefit to the people most likely to gain — the migrants. That is remarkable.

Of course, one might make the case that because migrants are foreign nationals, we are entitled to make their welfare a lower priority. My colleague Martin Wolf is one of the few commentators to bother asserting this openly; most simply seem to assume that foreigners count for nothing. In a world where we rightly abhor racial and sexual discrimination, discriminating against people because of their nationality is widely accepted. It is also a legal obligation for UK employers.

The assumption that foreigners don’t count is hard to square with the UK’s foreign aid budget of around £12bn. And as I hinted in last week’s column, being open to migration from poor countries is perhaps the best anti-poverty programme that rich countries can offer. Several economists have estimated the economic impact of radically liberalising immigration rules and allowing anyone to move anywhere — a typical estimate is that the world economy would roughly double in size.

Whether foreigners should count as sentient beings in a British cost-benefit analysis is something I’ll leave to the philosophers. Let’s accept for a moment that they do count, and thus that more open borders would greatly reduce global poverty. Yet an objection immediately arises: the “brain drain”, where the concern is not about migrants arriving in rich countries but about migrants leaving poor ones and denuding them of their skills.

Concerns about a brain drain are not new. In 1972, the Indian economist Jagdish Bhagwati argued for an extra income tax on skilled immigrants in rich countries, levied under the auspices of the UN to compensate the poor countries they had left. Nelson Mandela, the British Medical Association and the Royal College of Nursing have all worried about a brain drain since.

But how real a problem is this brain drain? Michael Clemens of the Center for Global Development argues that there are so many other factors at work in determining a country’s pool of skilled workers that the brain drain hardly comes into it.

“The most important reason that there are few physicians and scientists in Niger and Laos,” writes Clemens, “is that those countries have few physicians and scientists anywhere.” The idea that there is some vast pool of highly-trained Laotian expatriates working in the United States or Europe is, unfortunately, a myth.

Where developing countries do train large numbers of skilled workers — as with the Philippines, a world centre for nursing and midwifery — they also manage to keep a reasonable number of them at home. And those who leave may still be helping their home countries. Migrant remittances to developing countries total almost half a trillion dollars — that is three times as much as is sent in official development assistance. Migrant networks can help make trade flow smoothly too.

Then there is the simple matter of respecting individual liberties. We would not dream of telling young people from Hull that they couldn’t move to London because Hull needs them more. Nor would we insist that the UK’s National Health Service should refrain from recruiting British nurses because those nurses might do more good if they went to work in India. It is unfair to insist that foreigners should obey moral rules that we would find absurd to apply to ourselves.

If we have gained anything from the harrowing images of desperate refugees, it is an appreciation that they are human. Economic migrants are human too. They are not pheasants to poach; nor brains to drain.

Written for and first published at ft.com.

Development needed? Just give cash

‘A stack of research papers concludes that an excellent cure for poverty is simply to give poor people money’

Is this the most effective development programme in history?” asks Chris Blattman, a political scientist at Columbia University. He adds, “I think it’s a contender.”

The programme is simple enough to explain: give cash handouts of $50,000 to aspiring Nigerian entrepreneurs. Yes, you read that last sentence correctly — but more about the Nigerian cash drop in due course. It is merely the most eye-catching in a stack of research and policy papers to conclude that an excellent cure for the problem of poverty is simply to give poor people money.

That idea seems almost naive. Instinctively, we tend to feel that victims of famines and earthquakes need food and shelter rather than inedible cash. We may feel, also, that cash will be wasted — stolen, spent on drink, frittered away on treats or siphoned off by grasping relatives. Even if the money is well spent, will it generate self-sustaining economic growth? Yet an increasing number of development policy types are reaching the conclusion that cash beats many of the alternatives.

Ponder the most obvious objection first: that poor people will waste the money. David Evans and Anna Popova of the World Bank surveyed 19 randomised trials across the world studying cash transfers. Not one of them found evidence that spending on alcohol or tobacco had increased by a statistically significant amount. Poor people have better things to do with the money and often spend it well or even invest it successfully.

Blattman and his colleagues conducted what one might regard as a test-to-destruction of the “just give cash” policy. They handed out $200 at a time to homeless thieves and drug dealers in the slums of Liberia as part of a larger randomised trial. One could hardly think of a cash injection more likely to be squandered. And yet, on average, just $8 was spent on drinking or drugs; the rest was spent on rent, food, clothes and “business investments”. The most successful of these was a barrel full of strong drink that was resold by the cupful on the street.

What about the rather different idea of handing out cash in emergency situations — after earthquakes or famines or to refugees? (It is now possible to do this electronically through an ATM card or mobile phone.)

Clearly there will be times when cash is useless because there is nothing to buy. But if refugees have money, entrepreneurs will scramble to solve logistical problems and supply them with things to spend the money on. Except for a few cases, such as vitamins and vaccines, refugees are likely to understand their own needs best.

And while cash can be stolen, it is easier to keep electronic cash transfers secure than to ship food long distances through hostile terrain, with each warlord along the way extracting a cut.

Donor agencies are starting to experiment with cash transfers in humanitarian crises. A commission chaired by Owen Barder of the Center for Global Development recently made its recommendations to the UK’s Department for International Development. The first one: “Give more unconditional cash transfers. The questions should always be asked, ‘Why not cash?’ and ‘If not now, when?’”

So what about those Nigerian entrepreneurs? We already knew that small business grants could have big impacts. A few years ago I reported on an experiment conducted by David McKenzie, Suresh de Mel and Chris Woodruff in Sri Lanka after the catastrophic tsunami of 2004.

They gave out modest grants of around $100 to $200 to business owners, and found that on average these cash injections were invested with very high returns — around 10 per cent a month. But these were tiny one-person businesses.

Now David McKenzie has conducted this Nigerian trial of much larger handouts, with the aim of producing larger businesses with the potential to create jobs. The trial examined a business-plan competition — a policy wonk’s version of Dragons’ Den — that was funded by the Nigerian government and run by the World Bank and the Department for International Development. Several hundred applicants won outright but several hundred more were chosen by lottery from the runners-up. By comparing the lottery winners and the lottery losers, McKenzie could see the impact of the cash grant. It was large: three years on, the lucky winners were almost twice as likely as the losers to be running a business, and three times as likely to be employing more than 10 people. Such employers are exceedingly rare in Nigeria but a third of the lottery winners were among their ranks.

Of course, $50,000 is a lot of money and one might expect it to do some good — but McKenzie estimates that the cost per job created compares very favourably with popular entrepreneurship programmes such as mentoring or training. The truth is that while entrepreneurs in Nigeria and other poor countries are held back by corruption, red tape, poor roads and patchy electricity, they are also constrained by a lack of the funds needed to get their ideas off the ground. That is a solvable problem.

But does McKenzie agree with Blattman that he may have discovered the most effective development programme in history? No, he tells me with a chuckle. The most effective development programme, he says, is to let people move to another country. Now that’s a topic for another day.

Written for and first published at ft.com.

Should we trust the young Turkers?

‘MTurk may be something of an unknown quantity but it is more diverse than the traditional study pool’

Everyone knows that Amazon turns industries on their heads, from books and ebooks to cloud computing. But most people do not realise that Amazon is also upending social science research, thanks to a service called Amazon Mechanical Turk — often known as MTurk or Turk.

MTurk is an online labour marketplace, originally designed to recruit people to do small tasks that computers couldn’t manage — for example, training a spam filter by categorising emails, deciding whether a photograph matched its description, transcribing audio recordings or flagging adult content. Thanks to MTurk, an employer can hire freelancers to work cheaply on a wide variety of computerised tasks.

Psychologists, behavioural economists and political scientists have now realised that it is potentially far cheaper to pay MTurk workers — “Turkers” — to answer questionnaires and participate in activities than it is to assemble a bespoke online panel or to conduct the research in a laboratory filled with student participants sitting at computers. For just a few dollars and at very short notice, economists can look at competition and co-operation, psychologists can examine the way memory works and political scientists can investigate how our ideology skews our logic. The opportunities are vast and have been swiftly embraced.

“The majority of papers presented at the conferences I go to now use Turk,” says Dan Goldstein, a cognitive psychologist at Microsoft Research. Goldstein, an academic who has also worked at London Business School and Columbia University, has used MTurk in his own research, for instance, into the impact of distracting online display ads.

This stampede to MTurk has made some researchers uneasy. Dan Kahan of Yale Law School studies “motivated reasoning” — the way our goals or political opinions can influence the way we process conflicting evidence. He has written a number of pieces warning about the careless use of the Amazon Turk platform.

The most obvious objection is that Turkers aren’t representative of any particular population one might wish to examine. As an illustration of this, two political scientists hired more than 500 Turkers to complete a very brief survey on the day of the 2012 US presidential election. (Tellingly, the entire survey cost the researchers just $28 and the results arrived within four hours.) The researchers, Sean Richey and Ben Taylor, found that 73 per cent of their Turkers said they had voted for Barack Obama; 12 per cent had voted for “other” — compared with 1.6 per cent of all voters. Mitt Romney polled vastly worse with the Turkers than the US public as a whole. Relative to the general population, Turkers were also more likely to vote and be young, male, poor but highly educated. Or so they claimed; it is hard to be sure.

Another objection is that Turkers chat with each other on message boards about the work they’re doing. If a piece of research involves some sort of trick question, they may compare answers. If it measures the ability of workers to co-ordinate without communicating, that communication may be happening anyway through back channels. Researchers may pose clever questions designed to measure personality traits or to probe for logical lapses, not realising the Turkers have seen these questions before and yawn when they roll round again.

Kahan wants academic journals to show more scepticism of MTurk research, and to require researchers to justify their methods in some detail. MTurk may be cheap, says Kahan, but sitting at your desk and thinking through a thought experiment is even cheaper. It doesn’t make either method valid.

Other researchers evidently disagree — perhaps because, in a more purely psychological study, what matters is that Turkers are representatives of the human race rather than of a particular rainbow of American political opinion. Many familiar results from psychology have been replicated on MTurk without trouble.

There’s pragmatism at work here too. After all, the traditional piece of psychological research has been conducted on a small number of undergraduates at Ivy League universities. (Historically, such undergraduates were typically white and male, into the bargain.) MTurk may be something of an unknown quantity but it is more diverse than the traditional study pool. Research can be conducted on a much larger group of subjects, and quickly — no more must researchers wait for students to return after the summer break.

For Dan Goldstein, the downsides are manageable and the advantages enormous. The speed of the research means far more rapid progress and, because MTurk is so cheap, much larger samples can be used. He thinks it’s a big improvement on what went before.

“I think it is one of the most important and beneficial innovations in the history of psychology,” he says, before adding the obvious caveat that like any research tool, it must be wielded with skill.

The original Mechanical Turk was an 18th-century chess-playing “robot” that, in reality, concealed a human chess player. There is something of the Wizard of Oz about the idea — and after a few decades of creating wonderment, the Turk was eventually exposed as nothing more than a clever and seductive trick. For Turk-sceptic Dan Kahan, the analogy is delicious. Having been fooled by a Mechanical Turk once, he says, we should be ashamed to be fooled again.

Written for and first pblished at ft.com.

Copyrights and wrongs

‘Why don’t we see a more sensible system of copyright? Two words: Mickey Mouse’

“Happy Birthday to You” has long been a focal point for anger about copyright. The publisher Warner/Chappell Music has been making serious money by charging fees to use the song commercially on the stage, in films or on birthday cards. Legal scholar Robert Brauneis estimates those fees at $2m a year. And why not, if it owns the rights?

The trouble is that a US federal judge recently ruled that Warner/Chappell does not own the lyrics to “Happy Birthday to You” — nor the melody, which was penned in 1893 and has been in the public domain for decades.

Activists are delighted at the ruling. A simple song sung by and for children, “Happy Birthday” always seemed a jarring candidate for profiteering. Joel Bakan’s documentary The Corporation (2003) rails against corporate power by showing a child’s birthday party in silence, as though Warner/Chappell was putting the squeeze not only on documentary producers but on the children themselves.

But while the schadenfreude is real, the decision itself changes nothing important. This case was simply a dispute about whether Warner/Chappell owned the copyright at all. It was a murky question for the simple reason that copyright terms are so absurdly long that the relevant facts are poorly documented and many decades old.

The more important question is whether there’s a rational case for any prewar creative work to still be under copyright. The answer is no.

It’s worth remembering the purpose of copyright. Copyright is justifiable because it is very hard to write The Lord of the Rings but easy to copy it once Tolkien has written it. Copyright gives authors and other creators some ability to stop copycats, and thus it gives them an incentive to do the creative work in the first place. The longer intellectual property rights last, the greater that incentive is.

But there is a sharp trade-off here. In a world without copyright, creative works could be widely shared. New ideas could be adapted, remixed and improved. All this ensures a rapid spread of good ideas. The longer copyright lasts, the longer that spread will be delayed.

Because copyright terms are so long, few creative works are in the public domain. Some are — from the works of Shakespeare, Chaucer and Milton, to Victorian pornography or the earlier adventures of Sherlock Holmes. Even work with little commercial value in its original form can have a valuable afterlife as illustration, inspiration, cut-up, mash-up and sample. For example: Alan Moore’s League of Extraordinary Gentlemen pitched Dr Jekyll and Captain Nemo against Moriarty and Fu Manchu. Such remixed creativity is vastly easier when the original material is no longer under copyright.

A recent study commissioned by the UK’s Intellectual Property Office examined the value of the public domain, looking at the popularity of Wikipedia entries or Kickstarter projects that drew on art and writing in the public domain. That value is large and if more recent work entered the public domain, it would be far larger.

So, bearing in mind that this is a pragmatic question, how long should copyright last? The current answer is 70 years after the death of the author — typically about a century. That is absurd.

Most books, films and albums enjoy a brief window of sales. Both author and publisher will have reckoned on making whatever money is to be made within a few years. Some works, of course, are blockbusters that continue to be valuable for decades. In such cases a century of copyright is valuable — yet redundant for the purpose of encouraging innovators. (The cases where works lie undiscovered for decades before finally finding a vast audience are too rare to shape any rational rules on copyright.)

The truth is that 10 years of copyright protection is probably sufficient to justify the time and trouble of producing most creative work — newspapers, films, comic books and music. Thirty years would be more than enough. But we’re moving in the opposite direction, with copyright periodically and retroactively extended — as though Antoine de Saint-Exupéry or James Joyce could ever have been motivated by the anticipation that, long after their deaths, copyright terms would be pushed to yet more ludicrous lengths.

Why don’t we see a more sensible system of copyright? Two words: Mickey Mouse. That is an oversimplification, of course. But the truth is that a very small number of corporations and literary estates have a lot to gain from inordinately long copyright — and since it matters a lot more to them than to the rest of us, they will focus their lobbying efforts and get their way. Mickey Mouse will enter the public domain in 2024 — unless copyright terms are extended yet again. Watch this space.

So, a modest proposal: copyright should last a more-than-generous 30 years, and no longer. The Lord of the Rings would have been in the public domain in 1986, 13 years after Tolkien’s death. He would have been fine and his great trilogy would still have been written. Mickey Mouse would have been in the public domain in 1959. The Undercover Economist, my own first book, which continues to sell nicely enough, would enter the public domain in 2036. (I’d cope.)

A tiny minority of wealthy creators would be somewhat poorer under such a scheme. But our culture would be vastly richer.

Written for and first published at ft.com.


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