Economics 13/02/2010: Inflation targets and What's in a name?

One interesting observation – Oliver Blanchard in yesterday interview with Wall Street Journal suggests (here) that “If I were to choose inflation target today, I’d strongly argue for 4%. But we have started with 2%, so going from 2% to 4% would raise issues of credibility. We should have a discussion about it.”

I have argued for some time now that a combination of

• continued tightness in the credit markets,
  
• long-term stickiness of European unemployment and
  
• massive national deficits and debt issuance since 2008 imply the need for inflationary reductions in debt levels accumulated by the euro area states, especially those members of the APIIGS club

will mean continued need for unprecedented liquidity injections by the ECB through 2010. The three forces mean that the ECB will have no option but to shift away from its current ‘below 2%’ target for inflation and move on to 4% target.

Good to see serious heavy hitter in policy economics, like Oliver Blanchard, also thinking the same.



Now, to more ‘fun’ economics.

Remember Shakespeare’s “What’s in a name? / That which we call a rose by any other name would smell as sweet.” (Romeo and Juliet).

In the world where information moves much faster and where uncertainty is much higher – in other words, in the world we inhabit today – this view is no longer true, for what is in the name does tell us much about what is in the name bearer.

A recent paper by Aura, Saku and Hess, Gregory D., What’s in a Name?, Economic Inquiry, Vol. 48, Issue 1, pp. 214-227, January 2010 (link here) shows exactly this.

“Expectant parents lie awake at night, consult books, and some even hire a consultant to choose their new child’s name. Is it similar to the process that manufacturers undertake when branding a new product? Viagara pretty much speaks for itself, but to what extent does Gregory, Saku or even Jamaal convey information and/or meaning.”

The study attempts to answer two main questions:

1. does a person’s name convey information about their background?
2. does a person’s name have an impact on the person’s long run economic outcomes, such as income, education, fertility, social standing, happiness or prestige?”
   

“In our dataset, this would mean comparing the outcomes of otherwise similar individuals with a name like Mark (exclusively a white name in our data) with Marcus (exclusively a black name in our data) or comparing Alice (white name) with Tanisha (black name)…

…More specifically, we investigate the extent to which a respondent’s first name features affect his or her years of formal education, self reported financial relative position as well as social class, to have a child before 25, and occupational prestige. …we can examine the gender differences between lifetime outcomes and first name features.”

There are broadly speaking three main findings:

1. there is a strong empirical relationship between an individual’s first name and their background;
2. there is a weaker (but still significant) empirical relationship between an individual’s lifetime outcomes and their first names. Taken together, these first two findings imply that names do convey information about an individual’s labor market productivity. A rose is not quite a rose by any other name.
3. both non-black non-whites with ‘blacker’ names as well as blacks with more popular (i.e. predominantly ‘whiter’) names have significantly worse financial outcomes. “This last piece of evidence can be interpreted in light of a subtle form of discrimination: namely, while black names come with discrimination and identity costs and benefits for black individuals, non-black non-whites with ‘blacker’ names face the costs of such names though not the benefits. A similar identity/discrimination channel would also hold for blacks with more popular (i.e. whiter) names, …though it does not provide conclusive proof of discrimination.”
   

First, names indicate a great deal of information on

• gender (and this conclusion is not based on linguistic gender of the name, but on standard phonetic characteristics);
• the year when one was born,
• a respondent’s higher parental education background "can be partially inferred from higher popularity, fewer syllables, more standard spellings, fewer ‘oh’ endings, not starting with a vowel, ending with a consonant and having a lower Blackness Index (the extent to which a given name is race-specific). This latter result …is actually quite large: moving from a purely non-black name to a fully black name is associated with a Father having 2 fewer years of formal education and a Mother having 1 year less.”
• more popular names are associated with better lifetime outcomes: that is, more education, occupational prestige and income, and a reduced likelihood of having a child before
• names with higher values for Blackness Index are “associated with poorer lifetime outcomes: that is, less education, occupational prestige, happiness, social class and income, and an increased likelihood of having a child before 25".
• ‘ah’ and ‘oh’ ending sounds in a name are also related to poorer lifetime outcomes, though popularity is related to better lifetime outcomes.
  

So first names just by themselves convey information about a respondent’s lifetime outcomes. But does "your first name features affect one’s lifetime outcomes after learning information that may be readily available in a job resume".

It turns out that when this is controlled for,

1. Name popularity remains a significant explanatory variable in education outcomes, but not in financial outcomes;
2. Blackness Index is statistically significant again in the class determination, and whether or not a person has higher happiness quotient in the future, as well as in educational attainment: “Higher values for BIND lead to a lower assessment of social class, happiness and an increased chance of having children before 25. However, as with POPULARITY, BIND is now no longer statistically significant in the income responses. Again, the role of education and labor market experience is clearly soaking up the role that POPULARITY and BIND played in the income response” in earlier analysis.
   

“It would thus seem that first names retain a strong role overall in determining lifetime outcomes even after controlling for a respondent’s labor market experience.”

“There is the further possibility that these quasi economic outcomes may also be correlated with labor productivity: simply unhappy workers and those that feel that they are lower class (or even upper class) may have differential labor productivities. Based on the findings… controlling for a myriad of exogenous family background characteristics, a first name’s popularity and/or ‘blackness’ appear to have an impact on intermediate economic outcomes that are likely correlated with labor productivity but not on actual economic outcomes. It would thus appear that …the ‘blackness’ of a name is correlated with factors that can affect labor productivity which could in turn be reflected in discrimination at the resume level [but not at face-to-face level]. As we demonstrate, however, this potential channel of discrimination does not have an impact on pure economic outcomes in our sample.”

In general, this explains why past immigrants to the US – from Europe and elsewhere – tended to automatically adopt most popular local names for their children to ‘assimilate’ into the American mainstream.

It also shows that, for example in the case of Ireland, one would expect past emigrants to be selected on the basis of those with more common names experiencing more favorable in outcomes. Furthermore, currently, within the country, Irish first names might provide for better outcomes - as they serve as more acceptable norms here, while at the same time placing children at relative disadvantage to their peers if they should emigrate out of Ireland.

Lastly, when looking at the trends in names, since the onset of recession, more mainstream names have moved up the popularity chain in Ireland with more Gaelic-derived names becoming less popular. This too might be explained by the findings - when times are tough, implicitly, parents tend to focus more on real economic and social outcomes than on the feeling of being in tune with Eamon O Cuiv's 'national culture'.


Overall, instead of the Shakespeare’s idea that it is the inherent subject characteristic that matters, not the name, is no longer true. Instead, modern relationship between the name and the person is probably better described by a different quote – from Johnny Cash’s (1969), A Boy Named Sue: “So I give ya that name and I said goodbye / I knew you’d have to get tough or die / And it’s that name that helped to make you strong”.