Economics

There is a new paper in the JPE on this, with encouraging results:

A Pari-Mutuel-Like Mechanism for Information Aggregation: A Field Test inside Intel
Benjamin Gillen, Charles Plott & Matthew Shum
Journal of Political Economy, August 2017, Pages 1075-1099

Abstract:
A new information aggregation mechanism (IAM), developed via laboratory experimental methods, is implemented inside Intel Corporation in a long-running field test. The IAM, incorporating features of pari-mutuel betting, is uniquely designed to collect and quantize as probability distributions dispersed, subjectively held information. IAM participants’ incentives support timely information revelation and the emergence of consensus beliefs over future outcomes. Empirical tests demonstrate the robustness of experimental results and the IAM’s practical usefulness in addressing real-world problems. The IAM’s predictive distributions forecasting sales are very accurate, especially for short horizons and direct sales channels, often proving more accurate than Intel’s internal forecast.

Hat tip goes to the excellent Kevin Lewis.  Here are earlier, ungated versions.

Here’s the video of the Heritage session on occupational licensing. All the talks were good; short and to the point. Maureen Ohlhausen, Acting Chairman of the Federal Trade Commission leads off, Paul Larkin discusses some of the legal issues and legislation, my comments begin around 28:20 followed by Dexter Price who talks about his personal experience trying to get a DC license–he is more than qualified for his job in property management but DC requires that in order to manage property he needs a very expensive and time consuming realtor’s license even though he has no interest in buying and selling property.

That is the topic of my latest Bloomberg column, here is one bit:

…consider the general logic of labor substitution. Machines and software are often very good at “making stuff” and, increasingly, at delivering well-defined services, such as when Alexa arranges a package for you. But machines are not effective at persuading, at developing advertising campaigns, at branding products or corporations, or at greeting you at the door in a charming manner, as is done so often in restaurants, even if you order on an iPad. Those activities will remain the province of human beings for a long time to come.

How much is this shift of labor into marketing a step forward? To be sure, a lot of commercial persuasion is useful. Marketing informs consumers about new products and their properties, or convinces them that one product is better for them than another. It was marketing that got me to stop watching baseball and switch to the more exciting NBA. Sometimes the very existence of an ad — even apart from any direct informational value — makes a product more enjoyable. If a particular basketball sneaker is associated with LeBron James, through an endorsement and TV commercials, some people will enjoy wearing that sneaker more.

That all said, a lot of marketing is a zero- or negative-sum game. Each business tries to pull customers away from the other brands, and while the final matching of customers to products is usually closely attuned to what people want, more is spent on these business battles than is ideal for social efficiency. My bank might make me feel better about being a customer there, but its services just aren’t much superior to those of the nearest competitor, if at all. Maybe Coke really is better than Pepsi, or vice versa, but it’s not that much better — and billions are spent trying to persuade consumers to make one switch or the other.

I don’t take the Galbraithian view, but still consumers only enjoy extra marketing so much.  I conclude with this:

Don’t be surprised if you see a lot of robots in daily life, and in news stories, but not huge productivity gains in the published statistics. That’s exactly the American economy right now.

Do read the whole thing.

A good sentence fragment

by on July 26, 2017 at 1:27 pm in Economics, Medicine | Permalink

Nothing in Arrow predicts higher expenditures. In fact, it predicts fewer expenditures because markets will partially breakdown (not exist)

That is from Jeremy Horpedahl on Twitter.

From the Museum of Anatolian Civilizations in Turkey via a post on twitter from Isobel Finkel.

1. “For over a century, incomes across states converged at a rate of 1.8% per year…The convergence rate from 1990 to 2010 was less than half the historic norm, and in the period leading up to the Great Recession there was virtually no convergence at all.”

2. After subtracting housing costs, janitors in NYC now earn less than they do in the Deep South.  This was not the case for most of American history.

3. For NYC janitors, housing costs measure at 52% of their income.

4. Income differences across states are increasingly capitalized into housing prices.

5. “…income convergence declined the most in areas with [land] supply constraints.”

6. “Had [cross-state] convergence continued apace through 2010…the increase in hourly wage inequality from 1980 to 2010 would have been 8% smaller.”

That is from a new NBER working paper, “Why has Regional Income Convergence in the US Declined?”, by Peter Ganong and Daniel W. Shoag.  Here are earlier ungated versions.

Note that this paper contains “…the first national panel measure of land use regulations in the US.”

Notice that if a U.S. corporation earns a profit from affiliate operations abroad, the profit will be added to the numerator of CPATAX/GDP, but the costs will not be added to the denominator, as they should be in a “profit margin” analysis.  Those costs, the compensation that the U.S. corporation pays to the entire foreign value-added chain–the workers, supervisors, suppliers, contractors, advertisers, and so on–are not part of U.S. GDP.  They are a part of the GDP of other countries.  Additionally, the profit that accrues to the U.S. corporation will not be added to the denominator, as it should be–again, it was not earned from operations inside the United States.  In effect, nothing will be added to the denominator, even though profit was added to the numerator.

General Motors (GM) operates numerous plants in China.  Suppose that one of these plants produces and sells one extra car.  The profit will be added to CPATAX–a U.S. resident corporation, through its foreign affiliate, has earned money. But the wages and salaries paid to the workers and supervisors at the plant, and the compensation paid to the domestic suppliers, advertisers, contractors, and so on, will not be added to GDP, because the activities did not take place inside the United States.  They took place in China, and therefore they belong to Chinese GDP.  So, in effect, CPATAX/GDP will increase as if the sale entailed a 100% profit margin–actually, an infinite profit margin.  Positive profit on a revenue of zero.

Here is much more, with many visuals and further details at the link, including a treatment of how to measure corporate profits accurately.

For the pointer, I thank @IronEconomist.

I would like to see building deregulators pay more attention to this aspect of the problem:

The next step would be transferring ownership of these assets to what Detter and Fölster call an “urban wealth fund”. Ideally, all publicly owned assets in a given city would be placed in the fund, regardless of whether they technically belong to the county, the city, the school system, the state or some other entity. The local governments would each have shares in the fund proportionate to the value of the assets they contributed. These shares would be reported as assets on the municipal balance sheets.

Independent managers with experience in real estate and finance would be charged with maximising the value of the portfolio. Cities would receive dividends from their stakes in these commercial properties and have the option to borrow against or sell their shares if desperate for cash.

Public officials would then have to decide whether it makes sense to pay fair market rents to stay in their properties. Moving offices might be inconvenient for government workers but the potential gains for taxpayers and citizens who depend on government services would be far greater. Leasing space in subway stations to shops might detract from the “historic” character of the US’s barbarous public transit systems, but the revenues could fund needed improvements, such as ventilation, without the need for debt or higher passenger fares.

That is from Matt Klein at the FT.  Note that profit maximization does not have to be the sole goal of such funds.

I am in Delaware only briefly.  I have not covered the state before, so here are some of my picks:

1. Chemicals manufacturer: I think that one has to go to the Duponts, I enjoyed the Gerard Zilg biography of the Dupont family and history.

2. Economic historian: Alfred Chandler.

3. Monetarist who studied policy instruments and uncertainty: William Poole.

4. Semi-libertarian journalist: Dave Weigel.

Hmm…music?  I don’t like George Thorogood.  A quality novelist?  How about a painter or sculptor?  Some big time NBA star?  Biden is my favorite of Obama’s VPs.  It is claimed that the movie Fight Club is set in Delaware.  So many special dishes too, in the local cuisine.

The bottom line: Small wonder it is!

That is the topic of my latest Bloomberg column, here is one excerpt:

As outlined by the blog Random Critical Analysis, U.S. health-care expenditures go well beyond what the U.S.’s relatively high per capita GDP might lead us to expect. But viewed through the lens of consumption behavior, American health-care spending is typical of this nation’s habits and mores. Relative to GDP, Americans consume a lot more than Europeans, and our health-care spending is another example of that tendency.

And to channel Megan McArdle:

Furthermore, we shouldn’t take the lower health-care spending in many European nations as a sign of better health-care policy. It’s a reflection of a broader cultural difference. If the U.S. someday did move to a single payer system for health care, it probably would be a relatively expensive version of that idea. The U.S., of course, does have a partial single payer system through Medicare, and it is still more expensive per beneficiary than its European equivalents.

Keep in mind that high consumption expenditures also help explain various “anecdotes of outrage,” such as billings for $400 band-aids and the like.  To some extent such charges are fraud, and to some extent they are simply an unusual allocation of fixed costs.  Both practices are more likely in a non-Spartan society keen on spending a lot of money on health care and the very latest.

Here is the abstract of a new paper by Davide Cantoni, Jeremiah Dittmar, and Noam Yuchtman:

The Protestant Reformation, beginning in 1517, was both a shock to the market for religion and a first-order economic shock. We study its impact on the allocation of resources between the religious and secular sectors in Germany, collecting data on the allocation of human and physical capital. While Protestant reformers aimed to elevate the role of religion, we find that the Reformation produced rapid economic secularization. The interaction between religious competition and political economy explains the shift in investments in human and fixed capital away from the religious sector. Large numbers of monasteries were expropriated during the Reformation, particularly in Protestant regions. This transfer of resources shifted the demand for labor between religious and secular sectors: graduates from Protestant universities increasingly entered secular occupations. Consistent with forward-looking behavior, students at Protestant universities shifted from the study of theology toward secular degrees. The appropriation of resources by secular rulers is also reflected in construction: during the Reformation, religious construction declined, particularly in Protestant regions, while secular construction increased,especially for administrative purposes. Reallocation was not driven by pre-existing economic or cultural differences.

For the pointer I thank the excellent Kevin Lewis.

Here is the podcast and transcript (no video), Atul was in top form.  We covered the marginal value of health care, the progress of AI in medicine, whether we should fear genetic engineering, whether the checklist method applies to marriage (maybe so!), whether FDA regulation is too tough, whether surgical procedures should be more tightly regulated, Michael Crichton and Stevie Wonder, wearables, what makes him weep, Knausgaard and Ferrante, why surgeons leave sponges in patients, how he has been so successful, his own performance as a medical patient, and much more.

Here is one excerpt:

COWEN: A lot of critics have charged that to get a new drug through the FDA, it takes too many years and too much money, and that somehow the process should be liberalized. Do you agree or disagree?

GAWANDE: I generally disagree. It’s a trade-off in values at some basic level. In the 1950s, we had no real FDA, and you had the opportunity to put out, to innovate in all kinds of ways, and that innovation capability gave us modern cardiac surgery and gave us steroids and antibiotics, but it also gave us frontal lobotomies, and it gave us the Tuskegee experiment and a variety of other things.

The process that we have regulation around both the ethics of what we’re doing and that we have some safety process along the way is totally appropriate. I think a lot of lessons about when the HIV community became involved in the FDA process to drive approaches that smoothed and sped up the decision-making process, and also got the public enough involved to be able to say . . . That community said, “Look, there are places where we’re willing to take greater risks for the sake of speed.”

People are trying to treat the FDA process as a technical issue. When what it is, is it’s an issue about what are the risks we are genuinely willing to take, and what are the risks that we’re not?

And:

COWEN: The idea of nudge.

GAWANDE: I think overrated.

COWEN: Why?

GAWANDE: I think that there are important insights in nudge units and in that research capacity, but when you step back and say, “What are the biggest problems in clinical behavior and delivery of healthcare?” the nudges are focused on small solutions that have not demonstrated capacity for major scale.

The kind of nudge capability is something we’ve built into the stuff we’ve done, whether it’s checklists or coaching, but it’s been only one. We’ve had to add other tools. You could not get to massive reductions in deaths in surgery or childbirth or massive improvements in end-of-life outcomes based on just those behavioral science insights alone. We’ve had to move to organizational insights and to piece together multiple kinds of layers of understanding in order to drive high-volume change in healthcare delivery.

Definitely recommended, this was one of my favorite “episodes.”

No, I don’t approve of the second Putin-Trump meeting, but I’d like to consider this as a game theory problem without its current political connotations.

Why is it bad to attend such a meeting without your own translator?

Let’s say I meet with a Greek, to talk about debt renegotiation, and don’t bring my own translator.  You might think I am at the mercy of the other translator, the one hired by my Greek peer.

But how so?  If the Greek speaker wishes to mislead me, he doesn’t need a biased translator to do so.  He can just lie to me or otherwise mislead me in the original Greek.  Either translation, from an American or Greek translator, will communicate the same lie or deception.

Alternatively, assume I believe there is some “noise” between the Greek statement and its translation into English.  Some of this may stem from the imperfections of the translation process itself, or perhaps the translator has her own agenda.

If I bring my own translator, that removes the influence of the agenda of the Greek translator, but probably keeps the noise and imperfections.  But is that good or bad on net?

1. I now face risk from the agenda of my own translator.  That may be more biased or skewing than the agenda of the Greek translator, especially since it may relate to splits within American rather than Greek politics.

2. It might be better if I am fooled by a Greek translator who to some extent wishes to subvert the interests of her own government.  For instance, the Greek translator might wish to keep smooth relations by not communicating all of the cuss words behind a threat.

3. The Greek speaker might in fact know he is regularly subverted by his own translator, and adjust his words accordingly.  The “subverted” communication, as conveyed by the Greek translator, may in fact be the intended message, and thus there is little harm from the subversion.

4. By not having your own translator present, you are keeping as private information what and when you will reveal to your own countrymen.  That may put you in a stronger bluffing or bargaining position.

4b. In the other direction, note you may wish to have your own translator so that your negotiating partner can do without his!  That may put him in a stronger position with respect to his home interest groups and thus facilitate a deal.

Overall, it is not obvious that I am so much better off having my own translator.  In fact, it seems your own translator is there, to some extent, to constrain you, as is evident from some of the discussion of the Putin-Trump meeting.  For instance, it is being claimed Trump might have wanted to say things to Putin that no American functionary could be allowed to hear.  If that is true, it might be bad for America, but it need not be bad for Trump’s self-interest.

On this question, the economics of having your own note-taker, or your own taping mechanism, might be very different from that of translator, but that would be another post.

“The message from the leadership last weekend was very clear — financial stability is now regarded as an important element of national security,” said Raymond Yeung, the Hong Kong-based chief economist at Australia & New Zealand Banking Group Ltd.

An editorial in the Communist Party’s People Daily newspaper on Monday pointed to the seriousness of the campaign, warning of potential “gray rhinos” — a variation on the black swan events popularized during the global financial crisis, with the difference that the danger from a charging rhino is more immediate and the animals are less rare.

Here is the Bloomberg story, via Bill Bishop’s excellent China newsletter.

A coffin-making community group has popped up in Tasmania’s north-west, allowing people to make their caskets dirt cheap.

The Community Coffin Club meets once a week at the Ulverstone Community Shed, where mentors help people make coffins for themselves and their family.

Sheree Whittington has been working on her coffin for the past month.

“I’ve always had a bit of a morbid side to me and loved the Addams family and that sort of thing,” Ms Whittington said.

“When I found out about the Coffin Club I thought what better way: make my own coffin.”

Ms Whittington said she planned to put her coffin to good use before she needed it.

“It is going to be a coffin for when my time eventually comes, but in the meantime I’m going to have shelves put in it so I can use it as a CD and DVD rack.”

“It’s an actual, functional piece of furniture.”

Is this true?:

Facing death ‘easier if you’ve got coffin ready’

Maybe so:

“I don’t know what the funeral directors think about it, but we can make them for probably a tenth of the cost.”

When Mr Game’s is finished, his casket will have cost less than $200 to make.

Here is the full story, via NinjaEconomics.