Ep. 72: A textbook bank run

The COVID-19 pandemic highlighted the importance of vaccines, but it also underscored the reservations and low take-up rates among US citizens. In a paper in the American Economic Journal: Economic Policy, authors Marcella Alsan and Sarah Eichmeyer tested several approaches to improving messages aimed at boosting vaccine demand. Their main finding was that messages delivered by laypersons were more effective than those delivered by persons perceived to be doctors.  Eichmeyer says that video messages delivered by experts who were of the same race or were perceived as empathetic can be effective for some types of viewers, but for the most hesitant, ordinary citizens may be the best positioned to dispel myths about vaccines.  She recently spoke with Tyler Smith about the design of her and Alsan’s experiment and what their results imply about vaccine messaging.

In the middle of the day on Friday, March 10, 2023, bank regulators swiftly shut down Silicon Valley Bank (SVB), arguably averting a wider panic. Compared to past financial crises, it was not especially economically significant, but it stands out as an important, illustrative example of the economics of banking. In a paper in the Journal of Economic Perspectives, author Andrew Metrick explains the causes behind SVB’s failure and how the government responded. He says that understanding the collapse of SVB is a stepping stone to making sense of more complicated financial crises such as the Global Financial Crisis. Metrick recently spoke with Tyler Smith about why Silicon Valley Bank failed and what policymakers can do to prevent financial crises.

Before Silicon Valley became a byword for innovation, Route 128, outside of Boston, was America's technology highway, connecting the country’s premier technology companies and research facilities. However, this first American high-tech cluster likely would not have developed as it did without one of the biggest shocks to federal R&D funding in US economic history. In a paper in the American Economic Review, authors Daniel P. Gross and Bhaven N. Sampat explain how a World War II research effort jump-started innovation hubs like Route 128 across the United States. Gross and Sampat recently spoke with Tyler Smith about the history of R&D funding in the United States, and the lessons policymakers can take from it.

Numerous studies have highlighted the importance of effective teachers for student achievement. But new research suggests that school counselors may be just as critical as teaching staff for some students. In a paper in the American Economic Review, author Christine Mulhern found that effective high school counselors can significantly improve the chance that students graduate from high school and attend a four-year college. She says that although it is challenging to predict which counselors will have these large positive impacts, the effects are comparable to many popular education interventions. Mulhern recently spoke with Tyler Smith about the role that counselors play in students' choices, which students benefit the most from counseling, and the lessons administrators and parents can take away from her findings.

Some social scientists have postulated that governments are designed for the purpose of helping the powerful take resources from the less powerful. But while there have been many exploitative governments throughout history, states may have actually started to form as a means of facilitating cooperation. In a paper in the American Economic Review, authors Robert C. Allen, Mattia C. Bertazzini, and Leander Heldring found that in ancient Mesopotamia, states were more likely to form when large-scale irrigation projects were needed after losing access to a river. They argue that the pattern observed in the archeological records is best explained by small settlements banding together to cooperate through new institutions. Heldring recently spoke with Tyler Smith about the economic origins of government, the nature of archaeological evidence for ancient state formation, and parallels to modern-day institutions.

Seven years before the 1954 Brown v. Board of Education decision ended the legal segregation of Black schoolchildren, California ended the legal segregation of Mexican American schoolchildren. That decision, known as Mendez v. Westminster, had a rapid impact across the state and led to significant educational benefits, according to a paper in the Journal Economic Literature.  Authors Francisca M. Antman and Kalena E. Cortes found that in areas more likely to practice segregation, the Mendez decision caused Mexican American children to significantly increase their years of schooling. Antman recently spoke with Tyler Smith about the history of Mexican American school desegregation and the lessons the authors’ work provides for policymakers.

The bulk of education research focuses on the benefits of the traditional K–12 and higher education systems, while non-traditional programs are relatively understudied. But economists are starting to shine a light on the large returns to investing in adult education. In a paper in the American Economic Journal: Economic Policy, authors Blake H. Heller and Kirsten Slungaard Mummafound large earnings gains and more civic engagement among immigrants who participated in an adult program teaching English as a second language (ESL). The benefits of these programs also led to a sizable return for taxpayers. Heller suggests that, in spite of the polarized space of immigration politics, ESL programs are likely to find traction on both sides of the political aisle because they combine the appeal of people working hard to improve themselves with a social safety net appeal. He recently spoke with Tyler Smith about the need for more research on adult education and the benefits of English language programs.

The United States spends over a billion dollars a year on housing programs that give recently released prisoners a place to stay and modest support before reintegration into society. Yet there is little causal evidence that these programs work. In a paper in the American Economic Journal: Applied Economics, author Logan M. Lee estimated whether residential housing programs in Iowa kept prisoners from returning to prison. He found that instead of reducing recidivism, prisoners assigned to halfway houses appeared to have higher rates of reincarceration than those who were paroled.  Lee recently spoke with Tyler Smith about how he arrived at his estimates and whether or not residential housing programs should be scaled back in the United States.

The costs of Alzheimer’s disease are significant. In 2021, it affected nearly 6 million Americans and accounted for an estimated 8 percent of total US health-care spending—about as much as cancer and heart disease combined. And those numbers are only expected to increase as the population ages. In a paper in the Journal of Economic Literature, authors Amitabh Chandra, Courtney Coile, and Corina Mommaerts explain how economists can help provide insights into the numerous policy issues that Alzheimer’s disease raises. However, Mommaerts says that the disease also challenges core assumptions in the standard economics tool kit. She recently spoke with Tyler Smith about cognitive constraints, incentives for providers, and encouraging more innovative treatments for Alzheimer’s disease.

For decades US policymakers have tried to achieve the universal health insurance coverage that many other developed countries enjoy. But despite incremental reforms, based on tweaking health insurance markets, America's uninsured population has remained stubbornly high. In a paper in the Journal of Economic Perspective, authors Katherine Baicker, Amitabh Chandra, and Mark Shepard argue that economists should move away from the paradigm that has inspired these past reforms and toward an approach that encourages wholesale change. They say that proposals should start from a basic, mandatory health insurance package, which can then be supplemented in markets for health insurance.  Shepard recently spoke with Tyler Smith about the success of health care systems using this framework in other developed countries and why economists need to rethink their approach to health insurance reform in the United States.