How much time do American kids spend doing homework?

The American Time Use Survey is valuable dataset operated by the Bureau of Labor Statistics. Each year it asks a large, representative sample of Americans to keep time-diaries, writing down exactly what they do during the day.

I am going to rely on time survey data to give us hints about PISA test-scores. PISA is taken only by those aged 15-year, but let's examine all kids aged 15-18, both to increase the sample size and because high-school is more important. I will only include 15-18 year olds who are enrolled full time in high-school.


I think the graph and the implications for educational outcomes are pretty self-explanatory, even though I will admit that I was (again) surprised by just how large the differences are.

The only thing I would like to caution is not to assume a 1-1 causal relationship between input and output: kids who are better at school anyway may also study more, getting a double-advantage so to speak.

This graph is worth keeping in mind next time you read that the Asian school system rather than Asian culture explains Asian educational outcomes. These are Asian-Americans under (largely) the same American public school system that the media has decided is the cause of Americas problems. With American teachers, American teacher unions, with typical American levels of education funding, and facing the same American lack of school choice.

The Asian school system was if I understand the history correctly originally a carbon-copy of western school systems. They may have retained more class-room discipline, and more memorization, but other than that there appears nothing magic about the schools themselves.

We have to look at the society outside the classroom if we want to explain the differences in outcome. Instead of mindlessly assuming all variation in output is due to education policy, one single input of the human capital production function.

The amazing truth about PISA scores: USA beats Western Europe, ties with Asia.

What I have learned recently and want to share with you is that once we correct (even crudely) for demography in the 2009 PISA scores, American students outperform Western Europe by significant margins and tie with Asian students. Jump to the graphs if you don't want to read my boring set-up and methodology.

The main theme in my blog is that we shouldn’t confuse policy with culture, and with demographic factors.

For instance, education scholars have known for decades that the home environment of the kids and the education levels of the parents are very important for student outcomes. We also know that immigrant kids have a more difficult time at school, in part because they don’t know the language.

Take me as an example. The school me and my brother attended was in a basement in Tehran, had no modern resources, and largely focused on religious indoctrination. But we had a good home background. Our father attended a college in the west a few years (our mother didn’t, despite stratospheric scores test scores, because at the time you didn’t send a good Kurdish girl to another city to study). So we did well in school. Conversely, the first few years in Sweden I had bad grades, in part because I didn’t master the language.

The point I am trying to make is that the school in Sweden was objectively superior to the school in Iran. But I scored lower in Sweden, because of factors outside the control of the education system. If you want to compare the effect of the school, you have to isolate those external factors and make an apples-to-apples comparison.

However, this is not at all how the media is presenting the recent PISA scores. For example there is a lot of attention of the score of the kids in Shanghai, the according to the NYT is supposed to “stun” us or something.

It's dumb to compare one of the most elite cities in a country with entire nations, and to draw policy-inference from such a comparison. Shanghai has 3 times the average income of China! It is also naive to trust the Chinese government when they tell us the data is representative of the entire nation. Either you compare Shanghai to New York City, or you compare the entire country of China, including the rural part, with other large nations. Most of the news and policy conclusions we read about PISA-scores in the New York Times is thus pure nonsense.

1. Correcting for the demography:

In almost all European countries, immigrants from third world countries score lower than native born kids.

Why? No one know exactly why. Language, culture, home environment, income of parents, the education level of the parents and social problems in the neighborhood and peer groups norms are among likely explanations. But it is generally not true that the schools themselves are worse for immigrants than natives. In welfare states, immigrants often (thought not always) go to the same or similar schools and have as much or likely more resources per student.

So the fact that immigrant students in mixed schools do worse than Swedish kids used to a few decades ago in homogeneous schools does not it out of itself prove that Swedish public schools have become worse.

Of course, the biggest myth that the media reporting of PISA scores propagates is that the American public school system is horrible.

The liberal left in U.S and in Europe loves this myth, because they get to demand more government spending, and at the same time get to gloat about how much smarter Europeans are than Americans. The right also kind of likes the myth, because they get to blame social problems on the government, and scare the public about Chinese competitiveness.

We all know that Asian students beat Americans students, which "proves" that they must have a better education system. This inference is considered common sense among public intellectuals. Well, expect for the fact that Asian kids in the American school system actually score slightly better than Asian kids in North-East-Asia!

So maybe it’s not that there is something magical about Asian schools, and has more to do with the extraordinary focus on education in Asian culture, with their self-discipline and with their favorable home environment.

There are 3 parts to the PISA test, Reading, Math, and Science. I will just make it simple and use the average score of the 3 tests. This is not strictly correct, but in practice it doesn’t influence the results, while making it much easier for the reader. (the reason it doesn't influence the results is that countries that are good at one part tend to be good at other parts of the test.)

The simplest thing to do in order to get an apples-to-apples comparison is to at least correct for demography and cultural background. For instance, Finland scores the best of any European country. However first and second generation immigrant students in Finland do not outperform native Swedish, and score 50 points below native Finns (more on this later).

On PISA, 50 points is a lot. To give you a comparison, 50 points is larger than the difference between Sweden and Turkey. A crude rule of thumb here is that 50 points is 0.5 standard deviations.

The problem is that different countries have different share of immigrants. Sweden in 2009 PISA data had 17%, and Finland 4%. It’s just not fair to the Swedish public school system to demand that they must produce the same outcome, when Sweden has many more disadvantaged students. Similarly schools with African-American students who are plagued by racism, discrimination, crime, broken homes, poverty and other social problems are not necessarily worse just because their students don’t achieve the same results as affluent suburbs of Chicago. In fact, the most reliable data I have seen suggests that American minority schools on average have slightly more money than white schools. It’s just that the social problems they face are too much to overcome for the schools. It is illogical to blame the public school system for things out of its hands.

So let’s start by removing those with foreign background immigrants from the sample when comparing European countries with each other. I define immigrants here as those with a parent born outside the country, so it includes second generation immigrants. This is fairly easy for Europe.

In the case of America, 99% of the population originates from other countries, be they England, Italy, Sweden, India, Africa, Hong-Kong or Mexico. If we want to isolate the effect of the United States public school system, we should compare the immigrant groups with their home country. For those majority of Americans whose ancestors originate from Europe, we obviously want to compare them with Europe. For some groups, such as Indians, this is inappropriate. The reason is that mainly the most gifted Indians get to migrate to America to work or study.

However, as I have argued previously, there is strong reason to believe that this problem of so called biased selection does not apply to historic European migration to the United States at the aggregate level. The people who left Europe were not better educated than those who stayed. Immigrants were perhaps more motivated, but often poorer than average.

So similar to my comparison of GDP levels, let us compare Americans with European ancestry (about 65% of the U.S population, and not some sort of elite) with Europeans in Europe. We remove Asians, Mexicans, African-Americans and other countries that are best compared to their home nations. In Europe, we remove immigrants.

The results are astonishing at least to me. Rather than being at the bottom of the class, United States students are 7th best out of 28, and far better than the average of Western European nations where they largely originate from.



The mean score of Americans with European ancestry is 524, compared to 506 in Europe, when first and second generation immigrants are excluded. So much for the bigoted notions that Americans are dumb and Europeans are smart. This is also opposed to everything I have been taught about the American public school system.

For Asian-American students (remember this includes Vietnam, Thailand and other less developed countries outside Northeast Asia), the mean PISA score is 534, same as 533 for the average of Japan, South Korea, Singapore and Hong Kong. Here we have two biases going in opposite directions: Asians in the U.S are selected. On the other hand we are comparing the richest and best scoring Asian countries with all Americans with origin in South and East Asia.


2. Policy-Implications

Libertarians in the United States have often claimed that the public school system (which has more than 90% of the students) is a disaster. They blame this on government control and on teachers unions. However, it is completely unfair to demand that a public school in southern California where most of the students are recent immigrants from Mexico whose parents have no experience in higher education (only 4% of all Mexican immigrates have a college degree, compared to over 50% of Indian immigrants) should perform as well as a private school in Silicon Valley.

The libertarians have no answer why European and Asian countries that also have public school systems score higher than the United States (unadjusted for demography). Top scoring Finland has strong teacher unions, just as California.

Similarly, the left claims that the American education system is horrible, because Americans don’t invest enough in education. The left has no answer when you point out that the United States spends insanely more than Europe and East Asia on education. According to the OECD, the United States spends about 50% more per pupil than the average for Western Europe, and 40% more than Japan.



Another policy implication is that Europe can learn from American public schools, which appear to be better than most European countries. I can only compare Sweden with the U.S, but I can tell you that from my experience, the American system is superior. I always thought this was just anecdotal evidence, but I am beginning to realize that American schools are indeed better.

For example, we don’t have any real equivalent to Advanced Placements classes. We have cheaper and worse textbooks. The teachers on average have far less education. I could go on.

Nor is it any longer a mystery to me why Americans spend so much more on education and (falsely appear) to get out less in output.

But of course the biggest implication is that most Europeans and all American liberals have lost the bragging right about their side being smarter than Americans.

3. Immigrant PISA scores compared to natives

This is again the mean difference of the 3 parts of PISA.


Australia is the only country with a negative gap, which means Australian immigrants actually score better than natives. Canada is similar. The Australian-Canadian skill based migration system is at work here, generating less inequality (even short term).

The other pattern appears to be that the gap is almost constant in the remaining Western European countries. This may be important to keep in mind, whenever people claim that uniquely Swedish policies are causing poor immigrant educational outcomes.

The new 2012 electoral map after 2010 reapportionment

A Constitutional principe is that the Census determines the number of electoral votes for each state. The 2010 census numbers are now out.

The net result is that Republicans gain about 6 electoral seats, or one Nevada sized state.

Let us analyze the 2012 electoral map that I drew with the new electoral votes:


If the election is not close, such as in 2008, these details will not matter. But what if the election is close again?

I start with the Bush-Kerry 2004 map. It’s anyone’s guess what the swing states will be in 2012, and the colors in this map reflects mine.

Since Obama only managed to carry Ohio and Florida with small margins in a very Democratic year, and given his approval rating in those two states, I assume Ohio and Florida will be lost to him if the election is close (he will of course take them again if he wins with a large national margin again).

Republicans have targeted Pennsylvania, Wisconsin, Michigan and Washington State in the last elections. Since they failed every time, let’s assign those to Obama. I added New Hampshire to possible Republican pickups, because Bush is not on the ballot anymore.

The Red and Red-leaning States, plus the 6 new electoral votes after reapportionment, leave the Republicans with 253 electoral votes.

Since Republicans are likely to control the house in 2012, they need 269 electoral votes to win. So they need to get 16 electoral votes from the states in light purple (or from Pennsylvania, Wisconsin, Michigan or Washington) to defeat Obama.

Assuming they keep the red states, plus Virginia, the Republicans need to win only one of the following swing states:

Colorado (Cook Partisan index 0), or
Nevada (D+1), or
Iowa (D+1), or
New Hampshire (D+2), or
New Mexico (D+2)

For the first half of 2010, Gallup has calculated Obama's approval rating by state. I will just compare each state with the national average:

New Hampshire (-8).
Colorado (0)
Iowa (-1)
Nevada (-1)
New Mexico (+2)

Without reapportionment, the GOP would have to win two of the mid-sized ones, but now only one is enough. It seems New Hampshire and Colorado are the most likely swing states. If Obama carries all of those states; he also need to hold Pennsylvania and Michigan and Wisconsin and Washington. If he does this, he is re-elected.

Let me also give you the Cook partisan index and current approval rating for the less likely but still possible pickups mentioned above:

Wisconsin: Obama Approval (-1). Cook index (D+2)
Pennsylvania: Obama Approval (-1). Cook index (D+2)
Michigan: Obama Approval (+2). Cook index (D+4)
Washington: Obama Approval (+2). Cook index (D+5)

If the Republicans keep the core states plus Virginia (Cook R+2, Obama approval -1), and miss all of purple CO,NH,IO,NV and NM, they will still win by just carrying one of the four blue states above.

Here is a another way of understanding the effect of the 2010 reapportionment:

Before this, if Republicans would have won all the States with a Cook Partisan Index that leans Republican and the Democrats all the states that lean Dem, the Republicans would get 260 electoral votes, Dems 269, and 9 neutral. With must-have Colorado (which is the only state currently with a completely neutral partisan leaning), the Republicans would get 269 and win the presidency *if* they control the house.

Thus the Republicans had a slight structural disadvantage, the combined red and red-leaning states had 9 fewer electoral votes than the blue and blue-leaning states.

After reapportionment, winning the Cook republicans leaning states would give the Republicans 266, and the dems 263. If the Republicans also win neutral Colorado, they would have 275. The Republicans now enjoy a slight structural advantage over Democrats.

First of all, the Republicans no longer need to control the house in order to win with just the red states. Second, reapportionment gives them the strategic possibility to “trade” Colorado with one of the smaller light blue states such as New Hampshire, Nevada, New Mexico or Iowa. With reapportionment Colorado is no longer a must-have.

Lastly this is the list of States losing and winning, plus the Cook measure of how they lean (for example Texas got 4 more electoral votes, and has been +10 points more Republican than the national average in the two last presidential elections). The second number reflects the change in the number of house seat for the State, which naturally also leads to the same change in the number of electoral votes.


Republican Leaning states:
Utah (20R) +1
Texas (10R) +4
South Carolina (8R) +1
Georgia (7R) +1
Arizona (6R) +1
Florida (2R) +2
Louisiana (10R) -1
Ohio (1R) -2
Missouri (3R) -1

Democrat leaning States:
Washington (5D) +1
Massachusetts (12D) -1
New York (10D) -2
Illinois (8D) -1
Michigan (4D) -1
New Jersey (4D) -1
Pennsylvania. (2D) -1

Swing States
Iowa, (1D) -1
Nevada (1D) +1

Did Karl Rove manipulate Fredrik Reinfeldt to get Julian Assange arrested?

Today the Huffington Post, the flagship of the American liberal left, has an article claiming that Karl Rove had Sweden arrest Julian Assange.

It is clearly written by someone who understands little about Sweden:

1. The article claims that Karl Rove is a paid advisor to Fredrik Reinfeldt. This is simply not true.

Karl Roves involvement with the Swedish Conservative happened in the beginning of the 1980s, when Fredrik Reinfeldt was a teenager. Rove visited Sweden a couple of days to teach them about fundraising. This is according to Aftonbladet, Sweden’s largest anti-Reinfeldt paper.

Karl Rove also traveled to the Swedish vacation island of Gotland a couple of days in 2008 as a publicity stunt of the Swedish right-libertarians (Timbro). In fact, I was in the audience and chatted with Rove for a few minutes. However Fredrik Reinfeldt had absolutely nothing to do with this, and was not even present at the conference.

This trip appears to be the height of Karl Rove’s connection with Fredrik Reinfeldt!

If Rove has been an advisor to Reinfeldt, that would be huge news in Sweden. So where are links to the legitimate news stories? The “source” for the Huffington post is instead speculation from some paranoid Swedish leftist blogger.

2. The Huffington post gives their readers the impression that Reinfeldt is some sort of Swedish Republican, or at least very Republican friendly (which would make cooperation with Karl Rove realistic). This is an ignorant claim.

Reinfeldt is popular because he took the Swedish conservative party to the left, even changing the name to the “The New Moderates”. He famously cleansed the party of the right, abandoned the opposition to the welfare state, and changed its policy platform and rhetoric to the center (and obviously the center in Sweden is to the left of the center in the U.S).

The Huffington post is correct that Reinfeldt wrote a book criticizing the Swedish welfare state. However they neglect to tell their readers that he did this when he was 28, and that Reinfeldt repudiated his positions when he years later came to power .

4. Reinfeldt has always presented himself as a fan of President Obama, perhaps partially because Fredrik Reinfeldt himself has some black American ancestry, which he likes to point out.

When asked directly on TV before the 2008 election who he would prefer as the president of the United States, Reinfeldt alone of the seven Swedish party leaders said Barrack Obama. Everyone else prefered Hillary (naturally McCain got zero votes).

That Reinfeldt would prefer the Democrats is just logical, since Swedes both on the right and the left love Barrack Obama and hate George W Bush. Swedes are not only economically left, they are ultra-secular as well as pacifist.

When the Swedish public was polled in 2008 about Obama vs. McCain, the two party divide was 91% Obama vs. 9% McCain. Does that sound like a country where Karl Rove has a lot of influence over the judiciary?

5. The women who accuse Assange of rape are both anti-American, feminist activists. That’s how Assange met them.

I suppose it is theoretically possible for Karl Rove (directly or through Reinfeldt) to bribe two socialist Swedish girls to seduce Assange. But is that a realistic theory? Does Karl Rove control a privately owned espionage agency which has more reach than the CIA? For example, what if one of the leftist women Karl Rove approached would have chosen to reveal the operation instead?

So, where exactly is the E V I DE N C E for The Huffington Post's unlikely theory?

You still need evidence to make extraordinary claims, right?

If the Huffington Post has this evidence, I for one would love to read it. If they don’t, it’s a useful story to keep in mind the next time the Huffington Post decides to write about “The Paranoid Right” or about the “the paranoid, conspiracy-laden, resentful, self-hating troglodytes that form the foundation of the modern GOP”.

P.S

Picture from Sweden 2008, Almedalen Gotland (I am the second person from the left).

Iranian academic achievements

As a result of recent Iranian success in science and engineering there is some discussion about Iranian educational outcomes in the blogosphere.

Two semi-related comments:

1. Iranians in Sweden are currently the only major immigrant group that significantly outperforms native Swedes in higher education. Of course this is partially or entirely due to selection, but most other immigrant groups are also selected, and do not perform as well.

About 45% of native Swedes start college. The figure is a little over 30% for non-european immigrants as a whole. By contrast, 60% of Iranian immigrant kidds in Sweden start college. The figure for Iraqi immigrants is 26% and for Somali immigrants 16%.


Iranians are also overrepresented in selective programs, such as in medical school and in engineering. About 4% of all of Sweden's medical students and 2% of Sweden's PhD students originate from Iran.

Naturally, the success of this single non-European immigrant group (the exception) is used by the Swedish media as an argument to take in more unskilled immigrants from unsuccessful countries such as Iraq and Somalia (the rule). Classical Bait and Switch.

2. For some reason a lot of Americans are under the impression that Azeris constitute some sort of Iranian intellectual elite.

It is certainly true that Azeris are not second class citizens in Iran. It is also true that they are as stanchly nationalistic as most other Iranians and have little separatist tendencies (in both cases unlike Iranian Kurds).

But in my opinion it is misleading to describe Azeris as an elite.


The Mede provinces of Iran - Azeri and Kurdish - both have lower than average per capita income, even excluding the oil producing provinces.

Furthermore, I have never seen any evidence that Azeris are over-represented in Iranian academia, and some evidence that they are under-represented.

According to Iran’s Statistical Yearbook, the Azeri provinces are underrepresented in their national share of college students. This alone doesn’t tell us much since they could move to other cities to study, and because those Azeris who have already migrated to Tehran are not included.

Azeris are a little less than 20% of the population. The American estimate of 25% is often circulated, but self-identified survey data shows a smaller share. Non-Farsi speakers are probably a little less than half the population. Yet, according to this guy, research by Alireza Sarafi shows that only 10% of Iranian PhD students are non-farsi speakers.

Obviously Iranian official statistics is not all that reliable. However we need more than anecdotal evidence to claim that Azeris are over-represented among the Iranian elite.

My job market page

I will be done with my PhD by the summer of 2011, so I am going on the job market this year. I am looking for academic jobs and for think tank positions.

Here is the link to my job market page. It includes the current version of my dissertation which I have been working on the last year, which is called: "Self-Employment does not measure Entrepreneurship".

Innovative Entrepreneurship and the growth of new firms is believed to be important by economists and by policy makers. However we generally lack good quality data on entrepreneurship, while there is plenty of data on self-employment. Therefore economists use the later to test theories on the former.

But how well does self-employment do as an empirical tool? During the two lasts years I have attempted to assemble two new datasets of entrepreneurship in order to contrast it with self-employment.

The first dataset is the per capita number of self-made billionaires who became rich by founding a new company. I investigate the source of wealth for around 1700 billionaires on Forbes list of the world's richest, identifying 996 entrepreneurs in 53 countries.

Second, as part of a large Swedish survey on twins, I added questions about aversion towards ambiguity (economists believe that entrepreneurs face more ambiguity or incalculable risk than salaried workers) as a question where I ask business owners to self-identify as entrepreneurs or self-employed based on the ambition to grow and innovate. Surprisingly, 80% of the self-employed do not consider themselves entrepreneurs.

What I find is that in many important applications, using self-employment as a proxy often gives you the opposite result you would get from using entrepreneurship data. Across countries, the rate of entrepreneurship is reversely related to the rate of non-agricultural self-employment.

Here is a picture for industrialized countries (the pattern is the same across all available countries).







The United States has 4 times higher rate of per capita entrepreneurs as western Europe. Using a different metric, 31% of the largest American firms were founded by individual entrepreneurs since World War II, compared to only 7% of the largest western European firms.

In contrast, the self-employment rate of western Europe is twice that of the United States.

Taxes, the level of regulations, the level of trust and the quality of institutions are examples of variables that are related in reverse ways between entrepreneurship and self-employment.

Within the United States, I point out that geographic locations with lots of entrepreneurship such as Silicon Valley and Boston have lower rates of self-employment, fewer employed in small firms, lower entry into business start up and lower firm density than the national average.

I find that immigrants, who tend to have higher rates of self-employment, have lower rates of high-impact entrepreneurship. 11% of Americas most successful entrepreneurs were born outside the U.S, even though the workforce is 16% foreign born.

While self-identified Swedish entrepreneurs indeed have higher tolerance of ambiguity than salaried workers, the self-employed do not. This is not that surprising once you consider that innovative entrepreneurship is faced with hard to calculate uncertainty about technology and demand, while self-employed, who are predominately carrying out familiar tasks, have higher risk but probably not much higher ambiguity as ordinary workers.

I develop a model to account for some of the patterns, pointing out that successful entrepreneurship tends to reduce self-employment as part of the process of economics development. This happens as more productive entrepreneurial firms absorb less productive self-employed. Similarly, in countries with business-friendly policies, the most talented individuals and firms grow and absorb many of the mom-and-pop operations, increasing entrepreneurship and reducing self-employment.

Similarly, when taxes are high and the economy regulated, it will be more difficult for entrepreneurial companies to emerge, and to grow rapidly and absorb less efficient companies. Instead such economies have lots of self-employed (who can more easier evade taxes and regulations). The empirical regularity that high tax levels and a heavy regulatory burden tend to be associated with high levels of self-employment (think of southern Europe and third world economies) should not be miss-interpreted as implying that taxes do not effect entrepreneurship.

Rather than treating small business and innovative Schumpeterian entrepreneurship as more or less synonymous, policy makers should be aware that they face a trade-off: either we pursue policies that give us more small business or we aim to encourage entrepreneurship.

The Decline of the Left in Europe

As America has been moving left, Europe is taking the opposite course. Social-Democratic parties have lost some of their dominance.

These two maps plot political power. For countries with coalition governments, the holder of the Prime Minister or being the largest party in the coalition is used.

Purple is where the Prime Minister and President are from different blocks (for countries where the President has some actual power).

I follow European tradition by using the color red to signify leftwing control. In November 2000, the center-right controlled only countries representing 16% of the population in west and central Europe (with divided power in France and Poland).


In November 2010, the right holds power in countries that constitute 83% of the population(!). A different map of Europe, to say the least.


Spain and tiny Iceland are the only country that went from right to left control between these two dates.

Germany, UK, Italy, France, Poland, Czech Republic, Netherlands, Denmark, Finland, and Sweden switched from full or partial left control to complete right control. Even in Switzerland, a decade ago the largest political party was the Social Democrats. As of the last election, the largest party is the ultra-conservative Swiss People’s party.

So why has this been happening?

Part of it is cyclicality and coincidence. Particularly in Central Europe there is still a lot of chaos in terms of who gets to be in power (voters are constantly dissatisfied and vote out most governments). And because of reversion to the mean in competitive political systems, the more countries your side control compared the historical average; the more likely are you to lose some in the following elections.

Still, a large portion of the decline is systematic, with 3 trends that comes to mind:

1. Working class voters have less class consciousness, and don’t vote as a block to the same extent.

2. Voters are punishing the left as a reaction to the failures of mass immigration and multiculturalism.

3. Middle of the road voters as well as the European elites are ideologically abandoning Social Democratic economic policy.

The last tendency crucially depends on the center-right parties accepting the popular parts of the welfare state (a safety net for the poor, publically financed health care and higher education) but opposing the less popular ones (long term welfare dependency, high tax level, deficits).

During the last decade, the expansion of size of the government in Europe stopped, and even slowly started to reverse. The main exception is the U.K, where the welfare state expanded rapidly during Blair/Brown. But if we look at the other traditional western European welfare states (Germany, France, Italy, Spain, Portugal, Greece, The Netherlands, Belgium, Austria, Sweden, Norway, Denmark, Finland and Iceland), the government is in full retreat, decreasing its share of the economy in 10 out of the 14 above mentioned countries.

As a whole, total government expenditure in these countries decreased from 49% of GDP to 47% of GDP during the last decade. In Sweden, total government expenditure declined from 59% of GDP to 52% of GDP.

Needless to say, it is quite ironic for the left in America and in Europe to champion an Europeanization of the American economy during the same period when Europe is abandoning those exact same policies.

The Iranian Economy

It’s common to read western analysis about Iran's economic situation, especially in the context of foreign policy. While the level of interest is natural, there are many misperceptions about the Iranian economy.

In my opinion, on the whole it is not true that the Iranian economy is getting worse. While the standard of living fell sharply after the turmoil of the 1978-1979 revolution and Saddam Hussein’s subsequent invasion of Iran, it is forgotten the economy eventually recovered. Iran currently enjoys the same or higher standard of living than before the Islamic Revolution.

Here is per capita income as measured by the late Angus Maddison, in purchasing power adjusted numbers.


The economy grew rapidly from 1950-midd 70s, declined until the end of the Iran-Iraq war, but recuperated since. The end of the war coincided with a period of free-market and fiscal reform, lauded for example by the IMF. Obviously the last few years of growth is closely linked to increasing oil prices (although the volume of oil exports has stagnated).

1. If Iran’s economy is growing, why do we constantly hear about the problems in the Iranian economy, but not about the progress?

One reason is mismanagement and squandering of the nation’s wealth. Having zero per capita growth for 30 years is nothing to be proud of, and all around you in Iran you observe signs of misallocation, poor policies, rationing, inflation, asset bubbles and corruption. The cost of family formation is prohibitively high for some young people in larger cities. Iran’s economy is doing relatively well despite, not because of Iranian economic policy.

Another reason may be that the group that was most hard hit economically by the revolution was the educated middle class, who are the people who moved to the west and whose voice is heard loudest. The biggest benefactors were islamists followed by the rural and urban poor. These are not exactly groups well represented in western media.

A third, probably most important reason is the ratio of expectations and outcome. The standard of living in Iran is growing, but nowhere near as rapidly as people want it to.

The Iranian middle class for example has rapidly expanded, as many more people have entered the middle class. With being middle class comes middle class values and middle class expectations.

This growing group and their growing complains have been misinterpreted by westerners as a sign of Iranians being increasingly squeezed.

Lastly there may be an element of wishful thinking behind some of the more negative assessments about Iran’s economy by foreign policy hawks.

2. Oil is very important, but it’s not all about oil. Oil prices started to be high in 1973, yet Iran was growing at a rapid rate throughout the 1950s and 1960s.

One factor that is now virtually completely forgotten is the foreign aid Iran received during this period as an important regional ally against the Soviet Union, mostly from the U.S. If I remember correctly for a long period this aid was as important as oil exports.

Also, Iran is not Saudi Arabia or Kuwait. There are too many people to live completely off oil. On the other hand you have a large labor force that (unlike Gulf Arabs) has no problem doing hard manual labor. Iran is more similar to a slightly less developed version of Mexico or Russia, which is to say an oil economy + a large lower middle income economy.

During the 1960s, when Iran’s growth was second only to Japan, there was a lot of industrial development, and a great deal of non-oil entrepreneurship.

Since than Iran has developed its service economy. If you have lots of oil to export, it is not as crucial to be able to compete in global markets with reasonably high quality manufactured goods (which Iran is still not capable of). You have enough currency to important high tech products, capital goods and whatever else you can’t produce at reasonable prices yourself.

Instead the remaining capacity of the economy is geared towards what Iran can compete in, namely import substitution and local services.

3. Iran has experienced a dramatic expansion of physical and human capital. Most importantly, Iran’s rise as a regional power cannot be understood without taking into the expansion of the educated workforce. This process started before the revolution, but was a priority of the leadership and continued afterwards.

The investment rate recreated during the decade of turmoil following the revolution, but later recovered to very high levels, closer to that of China than to the West.


The gross saving rate has now been around 40% for two decades.


I have further downloaded some statistics on education levels from the World Bank. Public education expenditure is currently 5% of GDP in Iran, above the world average, partially because the population is so young. This figure is in comparison 3% in Turkey, 3.7% in Egypt and 2.8% in Pakistan, other large Middle Eastern countries with many young people.

Part of the explanation for is the strong tradition of learning in Iran relative to other countries in the region, dating to pre-Islamic times.

The illiteracy rate witnessed an astonishing decline from 63% in 1976 to only 18% in 2006.

The share of the working age population with completed territory education quadrupled from about 2% in 1975 to about 10% in 2010 (it's about 20% in the west). Iran now has around 9 million college graduates to replace the two million or so expatriates. Meanwhile the share with at least completed high scool roughly increased from 19% to 64%.


This kind of explosion in human capital would transform any economy. Notice also the type of education. The share of college graduates in Iran who study engineering and manufacturing was 31% is, one of the highest in the world (in comparison the figure is 14% in Turkey and 7% in the U.S).

It is perhaps in part because of all these new technically educated individuals that Iran has been able to regionally challenge the U.S.

4. Social indicators have improved following the revolution.

The absolute poverty rate has declined (click on this link) from about 30% to a little over 10%.

The mortality rate for children under 5 declined at impressive and fairly steady pace before and after the revolution. It went from 0.29 in 1960 to 0.155 in 1975 to 0.032 in 2008.

Life expectancy continued to increase, again it appears with little interruption, after the revolution. Health expenditure as a share of GDP is also fairly high in Iran at 6.4% of GDP. Some of this is private spending and under-the-table payment to doctors, but the poor do have access to health care.


Illiteracy was targeted both before and after the revolution, and is largely gone.


Electricity production was more than ten times higher in 2007 than 1977, in a period when the population doubled. This is interesting for two reasons. First, if you don’t trust GDP estimates in a country such as Iran, electricity production is a reasonably objective measure of economic activity (although keep in mind that energy is heavily subsidized in Iran).

Second, much of rural Iran did not have electricity until about a generation ago. They do now, as the regime made this into a priority. Anecdotally, when my father installed an electric generator for his horse breeding farm just prior to the revolution that was the first time anyone in that Kurdish village had any electricity. Having access to electricity for the first time in your life is a concrete and sizable improvement in the standard of living. One third of Iran’s population is still rural.

5. The Iranian economy is dysfunctional, but has some safety valves. Corruption is a huge problem, but it does grease the wheels on occasion and the high degree of corruption, nepotism and overall inefficiency in the state is ironically one of the reasons that Iran is not a totalitarian country (it is “merely” authoritarian).

Furthermore, Iranians adjust their behavior in response to poor policies. For example, the labor market is heavily regulated, and (like many developing countries) you have a constant problem of underemployment.

However, this major inefficiency is mitigated by the very high rate of self-employment. Iran has a remarkable rate of non-agricultural self-employment of 37% according to the ILO.

If regulations and poor institutions make work in large organizations difficult, people can sell their labor directly through self-employment.

Granted, this motivation for self-employment is not a sign of health for the economy. However it is what economists refer to as a second best solution. Sure, Iran would be richer if the 500 best entrepreneurs and managers in the country got to expand their firms and absorbed much of the remaining mom-and pop operations, small scale family firms and the like (or if large, efficient foreign firms increased their presence in Iran). But having all these tiny firms is clearly superior to the alternative, which is unemployment induced by regulations and poor institutional quality.

Again, for all the talk about there being no jobs, the employment to population ratio in Iran has remained fairly constant during the last 20 years, increasing from 46% in 1991 to 49% in 2008.

Comparatively little is known about the Iranian economy. One obvious reason is the lack of hard data, but another reason is pervasive misinformation. We would learn and understand more about Iran’s economy, future growth perspectives, investments opportunities and similar issues if Irans economy was analyzed more by disinterested parties. Furthermore, it would be preferable if the discussion on Irans economy was decoupled from the sensetive and ideological foreign policy debate.

Median Voter Theorem winner of the 2010 election, Extreme left and Tea Party losers.

Turning sharply to the left in rhetoric and economic policy cost the Democrats over 60 house seats.

Nominating under-qualified rightwing extremists in Delaware, Nevada, Colorado, Alaska and West Virginia cost the Republicans 4 Senate seats or 5 if Murkowski caucuses with the Democrats.

Meanwhile, moderate and qualified Republicans won in Illinois, New Hampshire and North Dakota. A Moderate Republican did unexpectedly well in blue Washington state, on a night when most Republican Senate candidates underperformed.

The first lesson is that most of the time, going to the center wins you votes. There are some exceptions, such as if you need a clear message to be percieved as an alternative or if you are winning anyway, like Rubio. But the rule works, on average.

The second lesson is that 100% of the time, with no exception, you win by nominating qualified candidates. Nominating individuals with little ability and second-rate cognitive skills such as Christine O'donnell and Sarah Palin always costs you votes. This is particularly true if these candidates combine this with extremist positions on social issues.

I hope the 2010 results at least means Sarah Palin has less power and is less likely to run for President.

Some demographic trends in the 2010 election.

Looking at the CNN exit polls from this and the last two elections, here are a couple of interesting fact:

Compared to 2006, the share of Hispanic voters has not increased (8% of voters in both years). Don’t pundits keep telling us the Hispanic vote is going to be dominant any day now?

Compared to 2006, African American turnout has not increased (10% of voters in both years). We all knew those voters they would be less enthusiastic than 2008. But in 2010 Obama did not manage to enthusiast African American voters relative to the pre-Obama period.

In the last midterm, 32% of voters identified as Conservative. This year it is 41%.

In 2008, first time voters went an amazing 69% to Obama compared to 30% for McCain. This year Republicans actually won first time voters, 48%-47%.

Compared to 2006, the youth vote has decreased, from 12% to 10% of the vote. In 2008 it was 18% of the vote! Even John Stewart didn’t manage to engage the youth vote.

Krugman Wrong About Cause of Growing Deficits

Paul Krugman asks why deficits have grown. He gives the impression that the explosion in the deficit is due to tax revenue being too low, rather than spending being too high.

I have re-created the graph on his homepage using BEA data. From 2008 we observe tax revenue plummet, whereas spending just seems to continue its “natural” historical trend.


Looks pretty convincing, right? But we hopefully have the dear-bought wisdom at this point not to trust data from this particular source.

In fact, lower tax revenue - because of the recession, not because tax rates are lower - explain only one third of the increase in the deficit. Two thirds of the increase in the deficit is due to more spending. I will try to convince you of that in a moment.

First, let’s understand how Krugman's trick works.

Most importantly, notice that the graph is in nominal dollars. Krugman neglects to adjust for the overall size of the economy.

Here is the same exact graph, in terms of % of GDP, not cutoff to make small changes look bigger, and starting at the year 2000 rather than 2005 (which obscures longer trends).


Notice that the “natural” increase in spending isn’t there anymore. Between 2000 and the period of the crisis in late 2007, spending is essentially flat, while revenue decreases (thanks to the IT-bubble bursting and the Bush tax cuts). Between late 2007 and now however, spending rises sharply as a share of GDP.

This brings us to the most subtle trick Krugman uses. Go back to the original picture. Notice that during the crisis, tax revenue in nominal dollars drop, whereas spending just continued its path.

But wait a second. During the crisis, the American economy was shrinking rapidly. This helps explains why tax revenue dropped. Yet, government spending continued to increase at the same rate it did before the crisis! This political choice to continue expanding the government despite a shrinking economic base is what explains the lion share of the increase in the deficit.

Now it’s one thing to agree with this policy. I certainly believe the government should spend more during recessions. It is something quite different to – once you discover that the deficit spending policy you were the main cheerleader for was not popular – trying to trick people into believing it just never happened.

Here is the exact same graph Krugman used, with the same period, and the only difference that I plot Revenue and Spending as a share of GDP, rather than in nominal dollars.

I have plotted what would happen if the U.S. would be spending at late 2007 rates, as a share of GDP. The difference constitutes the share of the deficit due to increase in spending (red) and due to less revenue (blue). Remember that there was a deficit already there in 2007, which is not counted as an increase.


It is hopefully clear from the picture that Krugman is trying to hide why the U.S has such a big deficit: Mostly due to more spending. Particularly compare the size of the red and the blue line I added at the end.

Let me also give you the figures so you don’t have to trust a picture.

In the third quarter of 2007, according to the Bureau of Economic Analysis seasonally adjusted figures as a share of GDP spending was 31.4%, Revenue 29.6%, and the deficit 2.2%.

In the second quarter of 2010, the latest they report data for, spending was 36.1%, Revenue 27.0%, and the deficit 9.2%.

So the deficit grew by 7.0%, out of 4.7% was increase in spending and 2.7% a decline in Revenue.

So simple arithmetic tells us that 67% of the increase in the deficit as share of GDP between late 2007 and mid 2010 was due to spending going up.

Second generation Immigrants in Europe are de-assimilating

An important policy question about immigration is to what extent the children of immigrants assimilate. Not only does this tell us a lot about the forces at play, but because of the numbers second generation immigrant outcomes help determine our future.

I just read an important new paper about immigration and assimilation in Europe, that (if the information in it is correct) contains surprising results. The paper includes data on employment rate of first and second generation non-European immigrants in the 3 major European countries of France, Germany and U.K (the 4th largest European country - Italy - has few non-European immigrants).

Looking carefully at the data in some of the tables, we can see that non-European immigrants in Europe are de-assimilating, with the second generation doing worse than the parents.

I focus on the share of immigrants that work compared to the natives, and only on non-European immigrants (we all know that European immigrants usually assimilate).

First the data confirms that both first generation and second generation immigrants in all 3 countries work much less than natives, both for men and women.

For women, the second generation is slowly assimilating. Whereas the first generation works 35% less than natives, the second generation works 27% less than natives, an improvement of 8 percentage points. (the figures are the non-weighted, arithmetic mean of the 3 countries, below I have put data in each one).

For men however the trend is the opposite. The second generation non-European immigrants are less likely to work than the previous generation! While the first generation work 10% less than natives, the second generation works 24% less, a deterioration of 14 percentage points.

So things are getting worse in the 3 largest European countries, not better. (The paper had no data on second generation immigrants to Sweden, but I am pretty sure they do better than the first generation).

Why is this happening? One reason may be that the first generation contains people who moved to Europe in order to work. Because they were selected on this trait, they have above average work ethic for their group. The second generation only has some of this advantage left.

Perhaps these are not actually parent-children pairs, and the only cause of the results is that the composition of first generation immigrants changed for the better before they had time to have children (I doubt this).

Another, more troubling possibility is that the second generation are assimilating into a completely new culture. This is not the standard, successful western-European culture, but a new kind of mixed ghetto culture that emphasizes grievances, hostility to the host society, weak norms and a lack of a work ethic.

What the trends suggests is happening that for men, the immigrant culture that has emerged in Europe is worse even than the culture they brought with them from Turkey, Algeria etc. Women instead are less oppressed, and work more than their mothers.


Appendix

Comparing Second generation male immigrant relative employment rates with the first generation immigrants:

UK -10%
France -13%
Germany -19%

Comparing Second generation female immigrant relative employment rates with the first generation immigrants:

UK +15%
France +8%
Germany +2%

Employment rates (the figure in the parenthesis compared immigrants to the native born):

U.K

Native Men: 79.0%
First generation non-European immigrant Men: 67.8% (-14%)
Second generation non-European immigrant Men: 60.0% (-24%)

Native women: 66.5%
First generation non-European immigrant Women: 43.3% (-35%)
Second generation non-European immigrant Women: 53.5% (-20%)



France

Native Men: 66.3%
First generation non-European immigrant Men: 61.6% (-7%)
Second generation non-European immigrant Men: 53.0% (-20%)

Native Women: 58.9%
First generation non-European immigrant Women: 37.6% (-36%)
Second generation non-European immigrant Women: 42.4% (-28%)



Germany

Native Men: 75.3%
First generation non-European immigrant Men: 68.5% (-9%)
Second generation non-European immigrant Men: 53.9% (-28%)

Native women: 65.8%
First generation non-European immigrant Women: 42.5% (-35%)
Second generation non-European immigrant Women: 43.8% (-33%)

Immigration to Europe is not a human right

A democratic principle shared by most people is that sovereign countries have the right to determine their immigration policy. The elites are increasingly abandoning this position. Swedish bishop Eva Brunne in her opening of the parliament made statements that have been celebrated by the Swedish media:


"Yesterday evening thousands of people gathered in Stockholm and in various parts of the country to make their voices heard. To call out their disgust at that which divides people. The racism which says that you don’t have as much worth as I do; that you shouldn’t have the same rights as me; aren’t worthy of living in freedom, and that is the only reason – that we happen to born in different parts of our world – that is not worthy of a democracy like ours to differentiate between people."

Reading this carefully you will see that the text extolled by the Swedish elite contains a radical left agenda that denies the nation any sovereign rights. She is saying it is "racism" to tell people that they don't have the same right to live in Sweden as someone born to Swedish parents, because they "happen" to be born somewhere else.

But Sweden is the collective property of Swedish citizens, just as Brazil belongs to Brazilians, just as GM belongs to its shareholders and just as a condo-association belongs to the owners. While there are human rights that are inalienable, (such as the right to live your life in peace without oppression), there is no "right" to come live in Sweden because your own country is bad.

Intellectuals noticed that when Socialists allocated more and more "rights" to people, they were simultaneously taking the freedom away from the people who were assigned the responsibility to fulfill those rights. Positive rights such as the right to a job doesn't increase freedom, it reduces freedom because it imposes on others the obligation to create a job for you.

The "right" to immigrate to Sweden similarly forces Swedish people to give away their property right (to the collective assets of Sweden, such as its land), forces Swedes to finance the living standard of poor immigrants, up to Swedish levels, and most importantly forces Swedes to give away much of their own political power, because the immigrant is given the right to vote, with the vote carrying the power of political coercion.

The classic socialists wanted to give away private property that successful people had created to the poor in our own nations who had not managed to create wealth of their own. The modern, multi-culturalist socialists (including many who call themselves liberal, classically liberal or libertarian) demand that we give away the collective property that the west has created (wealthy, free societies with a high standard of living) to the poor in the rest of the world that have not managed to create good societies of their own.

This absurdity is what happens when you take concepts designed for one society (the "right" to freedom and a good life) and apply them to everyone everywhere.

This is why deep philosophers such as Friedrich von Hayek who thought carefully about the issue defined individual "rights" as relevant within a society, not across societies. Within a society rights, even positive rights, can be absolute (say the right not to starve), but between societies, rights are reciprocal, and we decide what right we grant others. As free people we simply do not have an obligation to, say, invade and pacify Somalia in order provide Somalians with the right to live in peace.

These "rights" that Eva Brunne so generously bestowed on the entire world dramatically reduced the rights and freedoms of Sweden.

As a side note, the example of Somalia above is not merely made in jest. George Bush's argument, for instance, was simple: If people in another country lack "freedom", then they have the right to expect that the west will fix that problem for them, either through migration or invasion.

Proving Bo Rothstein wrong: Why do Swedes trust more? Culture, not welfare state policy.

Sweden and Scandinavia have some of the highest rates of trust in the world, higher than the United States. Trust is not merely fluff to scoff at. Trust and trustworthiness are both signs of a well functioning society and important lubricants for the economy in their own right. Countries with high levels of trust tend to have higher quality of life.

Swedish political science professor Bo Rothstein is one of the people who has claimed that welfare state policies is the cause for high levels of trust in Sweden and Scandinavia. Since trust is good for the economy and society, this would, if true, indeed be a powerful argument in favor of the welfare state.

Rothstein thus writes:

"it is obvious that the countries that score highest on social trust also rank highest on economic equality, namely the Nordic countries, the Netherlands, and Canada. Secondly, these are countries have put a lot of effort in creating equality of opportunity, not least in regard to their policies for public education, health care, labor market opportunities and (more recently) gender equality."

I am going to show to you with a few data points that Bo Rothstein is most likely wrong in his explanation of the the source of Nordic trust.

This paper by other Swedish researchers provides the values for trust for 63 countries from the world value survey.

Sweden has 27% higher trust than the average for the United States. The average of the Nordic countries (Sweden, Norway, Denmark and Finland) have 21% higher trust than the United States.

So far so good for Rothstein's policy-based theory. Welfare state policies and a kind and forgiving society have made trust levels in Sweden and Scandinavia high, whereas Americans living in a brutal market economy cannot trust each other.

My standard critique of this explanation is that it ignores culture, norms and selection. Culture, broadly defined, is tremendously important, and countries with different cultures are likely to have both different outcomes and different policies, without this being an evidence that one caused the other.

So now let's look at trust levels within the U.S, using the General Social Survey (The General Social Survey has large enough sample size to make measurement of small groups meaningful). Millions of Americans are descendants of Scandinavian immigrants. They have lived in the U.S for generations, and their lives are as much influenced by the American (relatively) small government economic system as other Americans.

The results are striking. Americans of Swedish descent have 33% higher trust than average for the United States. Americans of Nordic descent have 39% higher trust than the average for the United States.

How is this possible if the explanation is:

"policies for public education, health care, labor market opportunities and (more recently) gender equality"?

If we notice that Scandinavians in welfare state Scandinavia and Scandinavians in the free-market U.S share the trait of being more trusting than other groups, the most likely explanation is to be found in cultural differences rather than economic policy.

The treatment effect of those policies is virtually identical for all Americans, regardless if their grandfather was Swedish or not. It's not like Americans from Scandinavia living in the Midwest get to enjoy lots of secret welfare state programs that Italians in New Jersey don't have access too. Same country, more or less the same policies. Yet levels of trust are very different within the U.S depending on your cultural heritage.

Once again not accounting for selection ruins the Social Democratic theory: Which states that develop a welfare state is not random. The high trust states have lower costs of doing so. And once again, I show that demography and culture can be more important explanatory variables than policy differences.

Here is a graph plotting trust in countries, with the trust level of people from that country in the U.S (remember, overwhelmingly these are recent not immigrants, but American born people who originated from these countries generations ago).

Both series normalize the average U.S trust level at 1.

Reapportionment after the 2010 census

One purpose of the census is to give us population data in order to determine the relative political power of the states .

A new estimate of the 2010 census is out, calculating which states lose or gain house seats and therefore electoral votes.

The list is (the parenthesis indicated the Cook Partisan Voting Index of how Republican or Democrat the state is):

Utah (20R) +1
Texas (10R) +4
South Carolina (8R) +1
Georgia (7R) +1
Arizona (6R) +1
Florida (2R) +2
Nevada (1D) +1
Washington (5D) +1

Massachusetts (12D) -1
New York (10D) -2
Illinois (8D) -1
Michigan (4D) -1
New Jersey (4D) -1
Pennsylvania. (2D) -1
Iowa, (1D) -1
Louisiana (10R) -1
Ohio (1R) -2
Missouri (3R) -1

Basically you have Republican states getting net +6 seats and the Democrat states losing -6. This means 1 more Kansas sized state to the Republicans.

Another way of counting is that solidly Republican states gain 7, solidly Democrat states lose 5, and battleground states lose 2.

In a 2008-style major victory, none of this matters. But if we in 2012 get an even year like 2000 or 2004, this redistribution of power might influence the outcome.

You need 270 for a majority (269 if your party controls the house). Start with the 2004 map.

Bush got 286, taking three Democrat states of Iowa, Nevada and New Mexico. With the new figures, he would have gotten 294.

This means a Republican aiming for the Bush map in 2012 can afford to lose 24 electoral votes. For example he can win even though losing:

New Mexico and Iowa and Nevada and 7 more electoral votes
New Mexico and Iowa and Colorado and 4 more electoral votes
Ohio + either Iowa or Nevada or New Mexico

There are 3 reasons political power is shifting. One reason is that Democrat states have a lower rate of reproduction, and lose people. This is a pure republican win.

Another reason is immigration. Since immigrants are leftwing, this means that while the red states are getting larger, they are also getting less red (witness Nevada that is trending to the Democrats). It is not clear who this benefits, sometimes the Republicans, sometimes the Democrats. Over the long run I think the Democrats.

Lastly you have native Americans moving between states. It would be interesting to study how this effects political views.

Are the people who are moving on average republicans sick of the expensive, high tax blue states? That could make the new states even more red (for example there is the notion that out of California migrants did this in the Rocky Mountain states).

Are they typical liberal blue state voters who bring their values with them? That would make the red states more blue. This seems to have happened in New Hampshire where Democrats from Massachusetts settled.

A last possibility that I suspect has some explanatory power is that the (on averge) more blue voters in time will be effected by the social pressures and information in their new states to move rightwing.