Economics

The Greek economy is projected to grow 1.8 per cent this year, against an earlier forecast of 2.7 per cent according to the proposal…

Of course that’s not great, especially with all the catch-up they could be doing (but please don’t assume that all or even most of the output gap represents potential catch-up).  Still, the Greek economy is not shrinking, even though Keynesian fiscal theories predict it should be:

“We accept that there will need to be a 3.5 per cent primary surplus until the end of the [bailout] programme [in 2018] but after that it should come down to something like 1.5 per cent to allow for more capital expenditure to lift the Greek economy.”

Here is the FT article by Kerin Hope and Claire Jones.  I said it before, I’ll say it again: the 2008-2012 period was a very special one, with a very high risk premium (sorry, Scott!) and with massive contractions in bank intermediation in some of the key affected countries.  We draw broader conclusions from it at our peril.

That was then, this is now

by on May 14, 2017 at 2:58 am in Economics, Law, Web/Tech | Permalink

Several of London’s largest banks are looking to stockpile bitcoins in order to pay off cyber criminals who threaten to bring down their critical IT systems.

The virtual currency, which is highly prized by criminal networks because it is difficult to trace, is being acquired by blue chip companies in order to pay ransoms, according to a leading IT expert.

That is from October of last year, via Brian S.  I wonder how much such “precautionary demand” has pushed up the price of Bitcoin?

There are two striking facts about China.  First, the country is quite large.  Second, the country was remarkably large early in its history, compared to most other political units.  For instance, here is China in 200 AD:

How did this happen?

Or consider a modern version of the puzzle: currently there are over one billion Chinese in one political unit, and a bit of scattering.  And there are over one billion Europeans, spread in fairly significant numbers across about fifty political units.  How did such a fundamental difference come to pass?

I can think of many instructive explanations for China’s early size and unity that are nonetheless derivative.  For instance perhaps a common language for writing played a key role, or perhaps the civil service and the exam system bound the country together.  I don’t mean to gainsay those claims, but they are not fundamental.  In part they are simply alternative descriptions of China’s relatively early unity.  And there still ought to be reasons why those factors were the case, and some of them seem to postdate unity.  On top of that, ideally we would like the explanation to account for China’s periodic descents into fragmentation and sometimes warring chaos.

I can think of a few factors that might count as fundamental, and often they involve economies of scale:

1. There may be greater economies of scale in Chinese agriculture.  One specific hypothesis is that China’s “hydraulic” system of rice irrigation favored a centralized despotic authority (Karl Wittfogel, though I’ve never found this particular view convincing, see also earlier takes on “Oriental Despotism”).

2. There may be economies of scale for fighting land battles with horses.  Alternatively, when it comes to naval warfare — more common for Europe — small countries have a chance to punch above their weight, witness  England and Portugal.

3. China had lower climate volatility than did Europe, and that made it easier for a more stable equilibrium to emerge.  (Or the kinds of climate volatility China had mattered less for its agriculture.)  Big changes in climate, in contrast, periodically overturn political equilibria, most of all when agriculture was a huge chunk of gdp.

4. China has two main, navigable rivers running east to west, the Yellow and Yangtze rivers.  It also has a large space of relatively flat plains.

5. China was formed when the prevailing technologies favored size and scale, and thus size and scale were imprinted onto early Chinese political DNA.  This is a bit like the “inflation” theory of the universe.  (NB: This part of the explanation is arguably “accidental” rather than “fundamental.”)

6. China and Rome are with regard to size and early unity not so different, but China did a better job absorbing the “barbarians” and thus persisted as a larger political unit.

What else?  With some mix of those (and other) factors in place, the more traditional detailed explanations then kick in to promote China’s size as China.

Ideally, an explanation for China’s early size and unity, and why that size and unity bounced back from so many periodic bouts of warring states, should address the following:

a. Why the mountainous Tibet also ended up as a more or less coherent nation-state, and why that too happened fairly early.  That seems to militate against purely rice-based explanations.

b. Why Yunnan was absorbed into China at a relatively late date — the 17th century — but once attached did become a stable part of the country in a manner that other parts of southeast Asia did not mimic.

c. Why Korea remained separate.

d. Why the Khmer empire proved unstable and perished, despite a high level of sophistication and state capacity.

e. Why the Aztec Triple Alliance grew to a much larger size than any political unit in North America at the same time.

What else?

I am grateful to a presentation by Debin Ma, and to comments from the Washington Area Economic History Seminar (recommended!), from a seminar last night.  None of them are implicated in what I have written.  I look forward to Debin’s paper on this topic (here is his earlier 2012 work), and Kenneth Pomeranz is writing an entire book on the question.

Addendum: Here is the Ko, Koyama, and Sng piece (pdf).

An email from Alebron:

Might it be worth revisiting this, since it’s been 3 years?

http://marginalrevolution.com/marginalrevolution/2014/06/is-there-a-paradox-of-low-market-volatility.html

Vol is low right now, lots of hand-wringing about it. Some possible factors:

– Shiller used to say the puzzle was that equity vol was so high (at least in the context of plausible DCF models). More money is now in the hands of “smart” market participants (certainly as a fraction of total trading volume this is true), and they overreact less to news.

– Stagnation/complacency. Or alternatively, all the action is in private firms (unicorns and the like). Firms only go/stay public if they are boring/stable.

– Consider a model where an industry has n firms, and some of them are mismanaged but investors don’t know which ones. Then any news about one of them reveals something about which are the good/bad ones. Suppose that the spread of (a) management consulting, (b) corporate regulation, and (c) efficiency due to information technology brings everyone towards the mean. Bad companies aren’t as bad as they used to be (they have access to competitors’ good ideas, Dodd-Frank/SOX/etc prevent egregious mis-management/mis-reporting, etc), and good ones aren’t as good (their good ideas leak out, they get saddled with unavoidable costs due to Dodd-Frank/SOX/etc). Thus, the value of news decreases, vol decreases.

– Trump of course. Pro-business, but more accurately pro-big-business, or pro-rent-seeking? I’m inclined to mostly dismiss this, since it’s not like vol cratered when he got elected. Vol has been pretty low for most of the last 5 years.”

– Does 1990s low-vol Japan have lessons?
Curious if you have other thoughts…

The excellent Samir Varma sends me this new article on VIX and volatility.  We all know there are models where volatility begets further volatility, if only because the initial big price moves make investors more wary, less willing to hold some positions, and more willing to bail out of others.  Perhaps we need a more in-depth study of how non-volatility begets further non-volatility.  When prices just aren’t moving by very much, maybe certain kinds of information get drained away, and it becomes harder to conclude that some position other than your status quo default position makes sense.

That is the topic of my latest Bloomberg column.  It does not focus on single payer, but that is the part I will pass along to you:

Another way to manage health-care subsidies would be a single-payer system, and some commentators suggest that is where the Democratic Party is headed. I wouldn’t be so sure. Obama made his (partially incorrect) “if you like your health care plan, you can keep it” promise for a reason. The Americans who get health insurance through their jobs often enjoy privileged access to doctors and benefit from superior reimbursement rates.

If the price of covering the sick is for millions of wealthier and more influential people to give up those advantages, I don’t see that happening. The health-insurance industry and other medical lobbies will be opposed, too, with doctors fearing that a single-payer system would bargain down their reimbursement rates. Even a relatively progressive state such as Vermont could not make a single-payer system happen.

You can think of current debates over health policy as a game of hot potato in which “who loses?” and “who pays?” are questions nobody finds easy to answer but also questions that no party can ultimately avoid. Obamacare didn’t come up with a sustainable answer; neither, so far, have the Republicans.

Do read the whole thing.

Yes, the Garry Kasparov, here is the link to the podcast and transcript.  We talked about AI, his new book Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins, why he has become more optimistic, how education will have to adjust to smart software, Russian history and Putin, his favorites in Russian and American literature, Tarkovsky, his favorite city to play chess in, his match against Deep Blue, Ken Rogoff, who are the three most likely challengers to Magnus Carlsen (ranked in order!) and who might win.  Here is one excerpt:

GK: The biggest problem, and I’ve been talking about for quite a while, that we’re still teaching very specific knowledge in the schools. Instead of teaching what, we have to teach how because this knowledge may be redundant 10 years from now. We are preparing kids for the world that will change dramatically. By the way, we already know it will look different. So what’s the point of trying to teach kids at age 10, 11, 12 without recognizing the fact that when they finish college, when they will become adults looking for jobs, the job market will be totally different?

And:

COWEN: …If we look back on centuries of Russian history, do you think there’s something in Russian geography or demographics or geopolitics — what has it been that has led to such unfree outcomes fairly systematically?

Where do you find the roots of tyranny in the history of Russia? Is it a mix of the size of the country, its openness to invasion, its vulnerability, something about being next to a dynamic Europe, on the other side, China? What is it?

KASPAROV: It’s a long, if not endless, theoretical debate based on our interpretation of certain historical events. I’m not convinced with these arguments about some nations being predetermined in their development and alien to the concept of democracy and the rule of law.

The reason I’m quite comfortable with this denial . . . We can move from theory to practice. While we can talk about history and certain influence of historical events to modernity, we can look at the places like Korean Peninsula. The same nation, not even cousins but brothers and sisters, divided in 1950, so that’s, by historical standards, yesterday.

And:

Let’s look at Russia and Ukraine, and let’s look, not at the whole Ukraine, but just at eastern Ukraine. Eastern Ukraine is populated mostly by ethnic Russians. In the former Soviet Union, the borders between republics were very nominal. People could move around, it was not a big deal. Even after the collapse of the Soviet Union, the official state border between Russia and Ukraine was respected, but people still could move around. They didn’t need special visas.

When we look at ethnic Russians born and raised in Kursk and Belgorod on the Russian side and across the border, say in Kharkiv and Dnipropetrovsk on the Ukrainian side, there were people that could be hardly separated anything. They read the same newspaper, Pravda, watched the same television, spoke the very same language, not even accents. But somehow, in 2014, after Putin’s annexation of Crimea and invasion of eastern Ukraine, we saw a huge difference. Most of ethnic Russians in Ukraine signed for the Ukrainian army, fighting against Putin’s invasion, against the same Russians that came from the other side.

It could be a long debate, but I would say that one of the main reasons is that Ukraine experienced in 1994 a gradual transition of power from one president to another after sitting president Leonid Kravchuk lost elections and walked away. Ukrainians somehow got an idea that power is not sacred, and government can come and go, and they can remove it by voting.

And even despite the fact that Ukraine never experienced higher living standards than Russia, people realized that keeping this freedom, keeping this ability to influence their bureaucrats and government through the peaceful process of voting and, if necessary, striking, far more effective than Russia’s “stability” where the same leader could be in charge of the country with his corrupt clique for a long, long time.

On computer chess, I most enjoyed this part of the exchange:

KASPAROV: But I want to finish this because what we discovered in this process . . . I wouldn’t overweight our listeners with all these details. I don’t want just to throw on them the mass information.

COWEN: It’s amazing what people will enjoy, though. You’d be surprised.

Self-recommending!  We cover many other topics as well, again you can read or listen here.

And I strongly advise that you buy and read Garry’s wonderful new book Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins.

Let’s say you’ve read and loved Julian Simon, who stressed mankind’s indefatigable power of creation and innovation.  I certainly have.  Simon stressed that the cost of producing real resources likely would fall, thereby spreading wealth across mankind.  The bad news is that probably should make you a Malthusian.

The classical economists understood very well that the wages to labor cannot for very long exceed the cost of production to labor.  And if you are an optimist about the cost of producing copper, tin, and steel, you probably should be an optimist about the cost of bringing more humans into the supply chain for labor.  this could happen through:

1. Developing more and better IT to ease outsourcing.

2. Lowering the costs of raising children, so families choose to have more niños.  Or subsidize births, just for the heck of it.

3. Building human-like robots, or smart software that performs human-like functions.

4. Encouraging current individuals to work more hours or retire later in life, etc., or just taking in more immigrants of the kind who will compete with native workers and lower their wages.

5. Robin Hanson’s Ems.

6. 120 years from now, corporations build artificial wombs and create babies in large numbers in East Timor, for factory work, or military reasons, or to satisfy idiosyncratic philanthropic visions.  Or maybe just as gaming companions.  They will be bred or drugged so as to enjoy their lives, thereby brunting external criticisms, besides how many of you worry about Mauritania as it is?

7. What else?  Chimeras?  Aliens?  Imports from parallel universes?  Of course it is fine to focus on #1-4 and stick with the more commonsensical scenarios.

The Simon fan should not be a pessimist about this broad panoply of alternatives, even if he rejects some of the options as implausible.  Whether you like it or not, they all imply various forms of downward pressure on wages in the wealthier countries.  There is simply no reason for the technological optimist to think the cost of reproducing labor and labor substitutes should remain high forever.  The higher are real wages, the greater the pressures for such innovation!  Just visit Nevada — why should all that land remain empty, Australia all the more so?  Markets will create more surplus, but the best default presumption is that will be eaten up by the numbers, and not by your special privileged position as a natural-born North American, or whatever you may be.

Of course the optimists wish to have it both ways, but I say no, if you are an optimist about the cost of producing non-human resources, apply similar analysis to the cost of producing substitutes for humans.  The classical economists were a lot smarter than they are given credit for these days.

For a useful conversation related to this topic, I thank Bryan Caplan, John Nye, and Robin Hanson, can you guess which one disagreed with me most?

This is Africa’s third biggest city. At 12 million, its population is bigger than London’s. Yet it has almost no connections to the outside world. On normal days, there are only 11 international flights out of Kinshasa per day. At Heathrow, the figure is around 1,400. Apart from the airport, the only other way into this vast megacity is the rickety ferry from neighbouring Congo-Brazzaville. If you were extremely brave, you could try the road to the Atlantic Ocean. But that’s about it. Kinshasa can burn and most of the world doesn’t notice, because Kinshasa is only slightly better connected to the global economy than the North Pole.

And yet somehow it is one of the world’s fastest growing cities. Kinshasa is a particularly extreme example of how Africa is urbanising without globalising. Sixty years ago the whole of sub-Saharan Africa had no cities with a population of more than a million people. Now it has dozens.

But unlike the English peasants who moved to factory cities in the 19th century, or Chinese ones in the 20th, the people moving to African cities are not moving to new global metropolises. Africa’s urbanisation is not driven by economic growth. Instead, people are moving to miserable mega-cities, with crumbling infrastructure and corrupt political systems, and which export almost nothing. Two thirds of Africa’s urban population growth is accounted for by slums.

That is from Daniel Knowles, via Tom Murphy.

It still was a mistake, most of all for Greece and Cyprus.  Yet overall its prospects are looking up, as I argue in my most recent Bloomberg column.  Here is the most revisionist passage:

I now think of the 2008-2012 period as unwinding a long-term bubble of overinvestment in the EU periphery, and thus those were special circumstances when virtually all economic policies were radically underperforming. Given that a recurrence of such conditions is unlikely, the euro will do much better in the future.

Along related lines, compare the performance of fiscal austerity now with that earlier period. Greece has been going through an unprecedented fiscal adjustment, with a primary surplus running at 3.9 percent of gross domestic product; yet Greek output, while ailing, has remained roughly stable. Portugal has been cutting back drastically on public sector investment, dropping its public sector deficit from 4.4 percent of GDP to 2.1 percent. Rather than imploding, the economy grew by 1.4 percent.

Of course, fiscal austerity didn’t perform nearly as well in the earlier part of this decade, and neither did the euro. The economic implosion from the unwinding of the bubble was simply too strong, so we should not overgeneralize from the very negative performance during those years.

Here is the most important passage:

One of the original goals of the euro was to tie countries to the European Union and its rules for free trade and free migration. The major EU country that eschewed euro adoption, the U.K., has now voted itself out the union altogether, to its detriment. Estonia and Latvia, which adopted the euro in part for political reasons to tighten their bonds with the EU, still seem secure against potential Russian aggression. The biggest political trouble spots seem to be Hungary and Poland, neither of which are euro members. That may be a coincidence, but it may also reflect a very real psychological tie resulting from the currency adoption.

Do read the whole thing, there are several other arguments at the link.

raudat_tahera_01You won’t find the Raudat Tahera, a beautiful mausoleum for two holy leaders of the Dawoodi Bohra sect of Ismaili Muslims, on any of the standard tourist guides to Mumbai. In part that is because the Raudat isn’t ancient (but like the Akshardham Temple people will be coming to this shrine for hundreds of years so why wait?) and in part because it isn’t a tourist site but an active and revered part of the Dawoodi Bohra community. Not many people seem to know about the Raudat Tahera and today it is literally hidden under a tarp to protect it from nearby construction (more about that later). Nevertheless, the Raudat Tahera is without question one of the best things to see in Mumbai and arguably in all of India.

The marble for the mausoleum was quarried from the same grounds as that used for the Taj Mahal. Most spectacularly, the entire Quran has been inscribed in golden letters on the inside walls with each of the ‘Bismillah’ inscribed using diamonds, emeralds, rubies and other precious stones. The interior is austere and beautiful but hard to capture in photographs (which aren’t permitted except for official purposes). Although of low-resolution the image below actually gives the best feel.

raudat_tahera_02I visited with my wife and son. We came in the morning and we were told to return later that afternoon. When we returned we were treated very courteously and provided a guide, a student from Saudi Arabia. The local community is proud of the mausoleum and although they don’t encourage tourists I believe they were pleased that foreigners wanted to see it. Both men and women need to cover their head.

Aside from the architectural awe and religious interest my pilgrimage to the Raudat was motivated by economics. One of Mumbai’s great problems is that a lot of land is locked up in low-value uses. Rusted factories and ports generate little value on land worth billions, slums look out onto million dollar sea-views, land that could house thousands in sky rise apartments instead holds dozens in dangerously dilapidating structures. The complexity of ownership (who owns a second floor apartment that has been occupied by the same family for generations?), the chaotic land-titling system, the slow court system and the politicization of everything means that solving these problems requires little short of a miracle. Enter Syedna Mohammed Burhanuddin, the holy leader of the Dawoodi Bohra.

Burhanuddin built the Raudat Tahera for his father, the previous Dawoodi leader, and they are now buried there together. Burhanuddin was not just a spiritual leader. He was an astute businessperson and before he died be presented his vision to rebuild the Bhendi Bazaar, the 150 year old warren of crowded and narrow streets and shops behind the Crawford bazaar (hence “b hend i” bazaar) where a majority of the residents are Dawoodi.

ET: To an outsider, [Bhendi Bazaar] holds an old-world charm…But the neigbourhood is so congested and some streets so narrow that cars cannot enter. Virtually every open or unoccupied space has turned into a garbage dump. And almost all the 280 buildings in Bhendi Bazaar look shaky and dilapidated (80% have been declared unsafe).

Burhanuddin’s visionary redevelopment plan requires thousands of people to sell their homes and businesses to the Saifee Burhani Upliftment Trust. Trust, being the operative word. Then they will move out of their crumbling structures into temporary quarters while some 250 buildings spread across 16.5 acres will be torn down and redeveloped. After completion, the old owners will move back in to (part) of the now much larger and better planned area. It’s a big-push plan and, remarkably, it seems to be working.

So far, the Trust has bought 87% of the buildings in the area and construction is active (hence the Raudat Tahera being under a tarp). Holdouts can be a problem but every Dawoodi child who comes of age has to swear loyalty to the Dawoodi leader (now Syedna Mufaddal Saifuddin, son of Burhannudin and the 53rd in the line) and disobedience brings pressure and social boycott.

It’s no accident that the Raudat Tahera is the focal point of the planned new development. Towers of apartments and offices will rise from the Raudat in order of ascending height, framing the Raudat forever and giving everyone a visual reminder of where true power lies.

raudat_tahera_03

It’s only a slight exaggeration to say that all of India is looking to the Bhendi Bazaar redevelopment project and praying that it will succeed. Although the billion dollar plan is being funded and run by the private Trust, the Maharashtra state government and Prime Minister Modi have thrown their support behind the plan. The plan, of course, cannot be easily replicated. The Dawoodi are a small, close-knit, geographically concentrated, spiritual group devoted to a holy, charismatic and visionary leader and all of that has been key to solving the holdout problem and creating the trust necessary for large-scale cooperation. Many of the Dawoodi are also successful and well-connected business people. Adil Zainulbhai, former head of McKinsey India and consultant to the Modi government, for example, is counted among their members and sits on the board of the Trust. Nevertheless, even if the Bhendi Bazaar redevelopment plan cannot be easily replicated, if it succeeds the demonstration value of the wealth that can be unlocked with cooperation will be tremendous.  And if the plan fails…well that is why people are praying.

Hat tip: David Moo.

Let’s say that somehow Britain had let its opportunity pass by (lost the wrong war?), or perhaps never had been in the right position at all (no Gulf Stream?).  When would the world have seen an Industrial Revolution?  Keep in mind Song China came relatively close to having a break through of some kind, but still did not pull it off; some commentators suggest the same about the Roman Empire.

My initial presumption is that “industrial revolutions,” if we can even make the term plural in that way, are remarkably difficult to see through.  I offer a few points:

1. Mankind spent about a hundred thousand years before making enough progress to attain the civilizations of Sumeria and Mesopotamia.  Along the way, people discovered how to tame fire and use various stones and metals, but still it was a long, tough slog to a point that still was almost 6000 years short of an industrial revolution.

2. I see, in world history, only two regional units being in a position at all to make a run at an industrial revolution, namely Rome and its offshoots, and China.  That is discouraging, especially because each of those required a fairly large, semi-unified territorial area.  (As an aside, I view “how did China get so big so quickly?” as one of the most under-discussed questions of world history.  Try it sometime, it’s better than arguing about Trump or ACA.)

2b. Were the Roman Empire and China actually independent events?

3. I fear what I call “the James C. Scott dead end,” namely that many territories will develop strong enough “state capacity-resistant” units that further Chinas and Romes will be difficult to achieve in terms of the size of the political unit.  Imagine a world like Laos or northern Thailand.  You may think that is a “mountains effect,” but neither the Great Plains nor Africa developed a China or Rome equivalent in earlier times, or much in the way of a very large or effective political unit.  By the way, when is the next James C. Scott book coming out?

4. I also fear the “energy dead end.”  The Aztec empire and its precursors created an amazing time, most of all for biotechnology — they bred corn out of a crummy weed, one of mankind’s greatest achievements, and without external grants.  Tenochitlan may have been larger and more impressive than any European city, and the residents probably ate better too.  Yet they used the wheel only for children’s toys and, more importantly, they stuck with direct uses of solar power.  There is no evidence of them coming remotely close to a major deployment of fossil fuels.  They did burn coal for fuel, and to make ornaments, but seemed to have no idea of how to put the pieces together to make it an energy source for powerful machines.  For most of their purposes, solar energy seemed to work remarkably well, and Mexico had plenty of it.  It nourished their food and kept them warm.

5. The economic historian R.C. Allen overrated the role of coal in the British Industrial Revolution, and this has kept many people away from seeing #4.  Don’t assign coal a dominant monocausal role in the Industrial Revolution, just have an n-factor model where fossil fuels are one of the binding constraints; circa 2017 we still need them!  By the way, here is an Allen essay on the Britishness of the Industrial Revolution, closely related to this blog post.  I agree with most of his sentences as stand-alone claims, though he vastly underrates the role of non-energy factors in the bigger picture.

6. The Incas also had a remarkably advanced civilization, in select areas ahead of Europeans and spanning a fairly large geographic area at its peak with plenty of state capacity.  They too seemed to be in a cul-de-sac with respect to an industrial revolution, energy again being one factor as best we can tell.

7. Many people fear internecine warfare as preventing an industrial revolution in alternative locales, and while that is a factor, I worry more about “the James C. Scott dead end” and “the energy dead end.”  What other possible dead ends are there?

8. At what point was a European/British industrial revolution “in the bag”?  1740?  1600?  1050?  If the Brits had failed us, at what point would Japan or Bohemia have picked up the ball and run with it?  Seventy years later?  Three hundred years?  Never?

9. The optimistic perspective is gained from studying the history of the arts.  Then one sees European culture as having a series of mini-industrial revolutions, starting in late medieval times and rapidly accelerating progress in painting, sculpture, perspective, bookmaking, goldsmithing, musical instruments, musical notation, paper-making, and many other areas, most of all in northern Italy and also Franco-Flemish territory and a bit later Germany.  Bach came before the British “Industrial Revolution” and his genius had a lot of preconditions too!  The “special” thing about the British IR is that it overturned Malthusian assumptions, but from the point of view of understanding how the inputs related to the outputs, and how so many new, complex innovations were possible all at once, that is arguably of secondary import.  Study Monteverdi, not coal!

For this post I am thankful to a recent lunch conversation with John Nye, Bryan Caplan, and Robin Hanson, of course implicating none of them in these views, though can you guess who disagreed the most?

It’s now well known that many findings in social psychology fail to replicate. Social psychologists have often discovered noise rather than fundamental aspects of behavior. A new paper suggests that many market anomalies also fail to replicate. Hou, Xue and Zhang write:

The anomalies literature is infested with widespread p-hacking. We replicate the entire anomalies literature in finance and accounting by compiling a largest-to-date data library that contains 447 anomaly variables. With microcaps alleviated via New York Stock Exchange breakpoints and value-weighted returns, 286 anomalies (64%) including 95 out of 102 liquidity variables (93%) are insignificant at the conventional 5% level. Imposing the cutoff t-value of three raises the number of insignificance to 380 (85%). Even for the 161 significant anomalies, their magnitudes are often much lower than originally reported. Out of the 161, the q-factor model leaves 115 alphas insignificant (150 with t < 3). In all, capital markets are more efficient than previously recognized.

Here is a link to the download and partial transcript, Russ is one of the very best interviewers and of course he is a pioneer in the podcast genre.  Here is one excerpt:

Tyler Cowen: And I think overall academics are among the most complacent of the complacent groups in American society.

Russ Roberts: Fair enough.

There is more…

Several African countries have tried in the past to become tailors and cloth-makers to the world. Nigeria’s northern cities of Kaduna and Kano were once home to textile mills that employed 350,000 people. Yet these factories are now rusting, and employ perhaps a tenth of that number.

This mirrors a wider trend. In 1990 African countries accounted for about 9% of the developing world’s manufacturing output. By 2014 that share had slumped to 4%.

That is from The Economist.

They are:

Johnny Rogan, The Byrds: Timeless Flight Revisited, The Sequel, get the full-length edition, not the much shorter 1980 volume.

Chris Twomey, XTC: Chalkhills and Children.

…in addition to the very recent Dreaming the Beatles, which I just reviewed.

NB: These are music books and I am not even recommending them to most of you.  These books only make sense if you already know a good deal about the careers of the artists involved.

Here is my advice on how to find excellent management books and management advice: pick some areas you know fairly well, be it music, sports, military campaigns, a scientific discovery, the making of a historic plane flight, or whatever.  Read a very detailed book about that.  Think through the lessons of that book(s).  Unfortunately, books about corporations so often filter their management information through homilies, hidden agendas, NDAs, ego boosts, paybacks, and other forms of…bullshit.  Music and sports books won’t, as they are too concerned with other kinds of stupid filters.  But you will get the lowdown on management for the most part.

There are some special reasons why I find the Byrds and XTC fruitful areas for reading for management advice, above and beyond my knowledge of the history and the musical content.  Neither group was massively profitable in a sustained manner, though they had their successes.  The two histories contain both triumphs and some major mistakes.  The main creators worked very consistently at their music for decades, and were not afraid to take chances or to operate with a long time horizon.  Nor did they destroy themselves, even though they were fatally flawed as creators.  Both histories are also studies in small group dynamics, including their eventual collapse; the Byrds are more a story of changing personnel and its costs.  Both histories embody tales of retreat and also return, and an ongoing evolution of styles and media.  Both stories have (relatively) happy endings, but only for those who kept at work rather than partook in indulgences.  Those features may or may not apply to your own personal circumstances, choose your management books accordingly, but I those kinds of stories more interesting than say books about the Rolling Stones.

If you can find books such as these, they are among the most valuable you will read.  Yet it is very hard to find them through recommendations, given the idiosyncratic nature of the content and its relevance.  Of course that is precisely why they have such high marginal value.