From a longer post:

A closer look reveals that different stocks responded differently to the poll news. Two transportation companies, FirstGroup and Stagecoach Group, lost virtually nothing, and Aggreko, which rents temperature control systems, lost absolutely nothing. Financial and energy/power companies were pounded. An engineering company closely linked to the oil industry, the Weir Group, took a more modest 1.0% loss.

How to sum up?

So far capital markets seem to be telling us that the economic costs of independence to Scotland would be significant but not catastrophic, and that they would be virtually nil to the rest of Britain. How much of those costs are due to the policies Scotland would implement after independence, rather than secession as such? It is difficult to know, but the differential returns to particular firms give us a clue. Transportation companies have closer links to the state, so a more statist policy regime might not hurt them. Financial companies might lose because of the lender of last resort issue (Scotland might not have a credible one). Energy and engineering companies might lose because nationalists want to tax oil heavily to fund social programs. Also, stricter environmental laws may hurt the electric utility SSE, which lost heavily on Monday.

Speculatively, then, capital markets seem to be telling us that the costs of secession as such are modest, but that the costs of dramatically different economic policies are substantial.

But I find this earlier bit less optimistic:

What would happen to these firms’ value if independence were dead certain? Expected utility analysis helps us here. They lost $800 million in value on an increase in the probability of independence of 5.5+2.7=8.2%. We can infer that an increase from 20% to 100% would wipe out $800 million*8/.6=$7.8 billion. That’s a fair proportion of their existing value: about 16%.

There is more here, and for the pointer I thank Chaim Katz.

Assorted links

by on September 9, 2014 at 12:38 pm in Uncategorized | Permalink

1. Progress on making graphene more commercially viable.

2. The chocolate teapot (there is no great stagnation).

3. Podcast of Ray Dalio and Larry Summers (I haven’t heard it yet myself).

4. Why the current campaign against inversion will prove counterproductive.

5. Pearlstein on crony capitalism.

6. “Smart genes” are hard to find.

Roving Bandits

by on September 9, 2014 at 7:22 am in Uncategorized | Permalink

Yesterday, Tyler linked to an important report from the Washington Post showing how “aggressive police take hundreds of millions of dollars from motorists not charged with crimes.” The report and video are shocking.

The aggressive tactics documented by the Post have mostly been deployed against motorists who are unlucky enough to be stopped for a moving violation. An apparently leaked document, however, shows that these programs are likely to expand far beyond motorists.

I believe Josh Barro started this mess of a debate.

I would emphasize the endogeneity of transaction costs.  The airlines could do a lot to encourage Coasean bargaining between fliers, but they don’t.  How about handing out little cards?: “Have a friendly haggle with the person behind you.  Last year the average price for a non-reclined seat was $16.50.”  They could print up standardized contracts, like how they distribute customs forms, including contracts for trading seat assignments or distance from the bathrooms or how you shush your child, or not.  Imagine being nudged toward a deal through the in-flight internet system, so you don’t have to turn around to face the other party in the bargain.  They could take a cue from Alvin Roth and his matching algorithms or help you set up complex multi-party deals, like how the Denver Nuggets used to construct (and then dismantle) their rosters.


The disutility of bargaining in this environment is high relative to the value at stake.  The chance of irritation or hurt feelings is non-negligible, and perhaps people on a flight are crankier anyway.  So the airlines deliberately keep the transactions costs high, as the gains from the potential bargain are low relative to the ickiness of the process.  The airlines wish to keep a lot of people away from the process altogether, if only out of fear of having to arrest people, divert flights, and so on.

That implies the more we debate this problem, the worse it becomes.  It also gives us the true Coasean answer to what is best.  Relative to current norms, who does more to make the whole question “an issue” — the seat recliner or the purchaser of the recliner-blocker?  Clearly it is the purchaser of the blocker and thus Josh Barro is broadly in the right, the norm should continue to allow people to recline their seats as that minimizes fuss, which is more important than getting the right outcome with the seat itself.

If you don’t like that, United does sell coach seats with extra space, which makes the recline of the person in front of you less bad.

Assorted links

by on September 8, 2014 at 2:39 pm in Uncategorized | Permalink

1. Very good Krugman column on why Scottish independence is a dangerous idea.

2. History of the Darien Project.

3. “They’re manipulating all of us.”

4. Do limited health network plans in fact control costs?

5. Larry Summers on secular stagnation and the importance of the supply side.

6. Is American military spending equal to that of the rest of the world?

7. What would happen if we liberalized U.S. oil exports?

This one is so simple it is stupid, yet you hardly ever hear it.  If anything it is mocked, but I will go on record:

Eat at 5 p.m. or 5:30.

The quality of the food coming out of the kitchen will be higher.  Only the very top restaurants (and even then not always) can maintain the same quality at say 8 p.m. on a Saturday night.  It is also the easiest time for getting a reservation.

The best time to eat at @ElephantJumps is 4:20 p.m.  They’re all just sitting around, waiting to cook for you.

Oyamel is a good example of a D.C. restaurant which can be quite iffy, but is tasty and consistent first thing in the evening.

There is a beauty to having a restaurant all to yourself.  And if you don’t like the timing, have no more than an apple for lunch.

This is also a better system for getting work done, if the nature of your workplace allows it.  Few people who do the 7:30 dinner work through to 11 p.m.  If you have  dinner 5-6:30, you are ideally suited to get back into the saddle by 7:15.

But please, I hope not too many of you follow this advice.  The funny thing is, you won’t.  You will leave the low-hanging fruit behind, you strange creatures you.

A sentence to ponder

by on September 7, 2014 at 4:21 pm in Uncategorized | Permalink

The average age to receive NIH research grants has gone from 38 in 1980 to 51 today.

That is Ben McNeil, via Arnold Kling.

It seems culture and training matter a great deal.  T.M. Luhrmann reports:

Recently, a team of anthropologists and psychologists at the Max Planck Institute for Psycholinguistics and Radboud University, both in Nijmegen, the Netherlands, set out to discover how language and culture affected sensory awareness. Under the leadership of Asifa Majid and Stephen C. Levinson, they made up a kit of systematic stimuli for the traditional five senses: for sight, color chips and geometric forms; for hearing, pitch, amplitude and rhythm variations; for smell, a set of scratch-and-sniff cards; and so forth. They took these kits to over 20 cultural groups around the world. Their results upend some of our basic assumptions.

For example, it’s fairly common, in scientific literature, to find the view that “humans are astonishingly bad at odor identification and naming,” as a recent review of 30 years of experiments concluded. When ordinary people are presented with the smell of ordinary substances (coffee, peanut butter, chocolate), they correctly identify about half of them. That’s why we think of scent as a trigger for personal memory — leading to the recall of something specific, particular, uniquely our own.

It turns out that the subjects of those 30 years of experiments were mostly English-speaking. Indeed, English speakers find it easy to identify the common color in milk and jasmine flowers (“white”) but not the common scent in, say, bat droppings and the leaf of ginger root. When the research team presented what should have been familiar scents to Americans — cinnamon, turpentine, lemon, rose and so forth — they were terrible at naming them. Americans, they wrote, said things like this when presented with the cinnamon scratch-and-sniff card: “I don’t know how to say that, sweet, yeah; I have tasted that gum like Big Red or something tastes like, what do I want to say? I can’t get the word. Jesus it’s like that gum smell like something like Big Red. Can I say that? O.K. Big Red, Big Red gum.”

When the research team visited the Jahai, rain-forest foragers on the Malay Peninsula, they found that the Jahai were succinct and more accurate with the scratch-and-sniff cards. In fact, they were about as good at naming what they smelled as what they saw. They do, in fact, have an abstract term for the shared odor in bat droppings and the leaf of ginger root. Abstract odor terms are common among people on the Malay Peninsula.

I am good at smelling curries.

Zeynep Tufekci on Medium.com says no.  It seems Twitter is considering (instituting?) a method that would ignore strict reverse chronology, and if a user hasn’t accessed his or her timeline in a while, the more popular tweeters would be given some kind of priority in the queue.

She considers how the tweets about the death of Osama bin Laden spread so effectively, and from the account of a user (Keith Urbahn) who did not have many followers:

I honestly doubt that there is an algorithm in the world that can reliably surface such unexpected content, so well. An algorithm can perhaps surface guaranteed content, but it cannot surface unexpected, diverse and sometimes weird content exactly because of how algorithms work: they know what they already know. Yet, there is a vast amount of judgement and knowledge that is in the heads of Twitter users that the algorithm will inevitably flatten as it works from the data it has: past user behavior and metrics. I have witnessed Twitter network’s ability to surface unexpected content again and again, from matters small to large.

I suspect the really big news will get out very quickly under just about any reasonable algorithm.  The broader question is what kind of model we should use to consider Twitter curation.  Believe it or not, I am led to the thought of Ronald Coase.

As a reader, I seek an algorithm which weeds out some repetition.   For instance I sometimes see a Vox.com article in my feed from three different sources — it would suffice to see it once, along with a color shading indicating that some other people in my feed were tweeting the same thing.  I also would like blocks on tweets about the Super Bowl, Academy Awards, and so on.

That said, from a Coasean perspective, the tweeters may wish to impose these messages on me nonetheless.  Allowing users to create their perfect filters would in equilibrium mean that those sources send fewer other tweets through the system.  Some might leave Twitter altogether.  They are producing a service for free, and the ability to impose the bundle on me and other readers is part of what they value.  And indeed I also send self-promoting tweets (a justifiable practice provided it is not abused), and that is for me one reason to be on Twitter.  In other words, a major goal is to keep tweeters interested in supplying content, not to give every reader a perfect experience, and those two variables often conflict.

At the margin, should Twitter institute queuing rules to encourage the tweeters with many readers or the tweeters with relatively few readers?  The answer is not obvious.  The major tweeters produce more social value through their greater number of followers, but they may be reaping such high returns from being on Twitter that they don’t need added encouragement at the margin.  One approach is to prioritize well-regarded tweets, regardless of the number of followers of the tweeter.

For myself, I believe the ideal algorithm is to prioritize tweets from those who are “like” me in the sense of following similar people.  Or perhaps using similar grammatical constructions, or having tweeted similar links in the past.

Within these rules there are further opportunities for Coasean bidding for attention, using the @ function and also direct messages.

A separate issue is whether Twitter may wish to remedy the “overfishing” of the common pool of our attention which occurs when too many people tweet at peak time, and not enough people tweet at off peak times.  I suspect the demand for immediate gratification is too high for there to be gains from reshuffling the supply of tweets across time.

Overall I don’t see why company-regulated customization has to be a negative.  Tufekci put her anti-curation piece on Medium, which itself seems to have algorithms of curation, which in this case (fortunately) led me to her argument, wrong though it may be.

Assorted links

by on September 6, 2014 at 12:10 pm in Film, Uncategorized | Permalink

1. Bill Gates and The Big History Project.

2. The economics of Amazon.

3. Negativity bias sucks.

4. Claudia Sahm now has a blog.

5. Cyranoids.

6. The One I Love is a pretty amazing conceptual movie, with nods to Lem, Albee, Shakespeare, Saramago, and Rod Serling, among others.

Assorted links

by on September 5, 2014 at 11:39 am in Uncategorized | Permalink

1. The hair transplant robot.

2. Greg Clark on immigration and inequality.

3. Peter Thiel disagrees with you.

4. Is pretesting useful?

5. What price guaranteed Ivy League admission?

6. The Goldman Sachs aluminum conspiracy lawsuit is over.

7. New RAND corporation study on medical innovation (pdf).

8. Are there superforecasters who can predict the future?

9. Adam Smith and the romance novel.

America facts of the day

by on September 5, 2014 at 2:13 am in Data Source, Economics, Uncategorized | Permalink

A longer-term perspective shows that the median American family income has declined about 12.4 per cent since the peak in 2004…

There is also this:

For a brief time, the Midwest was the best-off region but median incomes there have fallen by a staggering 23 per cent since 2001…

Median net worth is down forty percent from its peak (“we’re not as wealthy as we thought we were”), yet the top three percent has done quite well.  And in case you are thrilled about the recent economic recovery:

The most striking finding is that the median American family earned 5 per cent less in 2013 than in 2010 after inflation even though the average American family took home 4 per cent more.

None of this is especially new, but these are the latest numbers and it is remarkable how much they confirm some of the more pessimistic readings of recent American history.

From Matthew C. Klein at FTAlphaville, there is more here.

Noahpinion writes:

But if you have one big, high-profile redistribution program, you can get enough popular support to overcome the concentrated opposition of the rich people footing the bill. As an example, look at the minimum wage, which gets big popular support. The Democrats can go back to the minimum wage again and again as a populist issue.

But that’s not true for the whole array of redistribution programs we currently have. If the Democrats want to increase the strength of the safety net as a whole, they have to mount a populist campaign for each one of its components. That’s hard to do. So a lot of the components of the safety net get left behind, or killed by Republicans when no one is looking.

Such a fate would never befall a Basic Income. It would be in the spotlight all the time.

In fact, by endorsing Basic Income, libertarians are walking right into a trap. Anti-redistributionists’ great fear has always been that the masses will use the power of majority rule to simply vote themselves more money. As things stand, the fragmentation of our redistribution programs makes it easier for the anti-redistributionists to punch holes in the safety net. If the fragmented system were replaced with one universal, high-profile program, the result would be a huge political gift to redistributionists.

My view is not the same.  I say we have so many small, distributed anti-poverty initiatives because no one of them was ever so popular, for better or worse.  That is also why we don’t have a Basic Income.

But let’s say a historical accident swept Basic Income proponents into power for a term and they passed that legislation.  Over time those income transfers would prove larger, more visible, and they would at least appear superficially more anti-work than the public stomach for them.  I predict they would be restricted along a number of possible dimensions, starting with (partial) work requirements for the able-bodied.

Under most plausible assumptions about the Basic Income level, most people would not be recipients, nor would they expect to be potential net gainers from the program.   And in general voters put much more importance on common sense notions of “desert” than do economists.  So I think the “why send money to people who aren’t working?” intuition will crowd out the “I want to think of myself as someone who helps other people” feeling.

So, unlike Noah, I don’t think the political future of a Basic Income would be especially strong.

The architect of the present era of globalisation is no longer willing to be its guarantor. The US does not see a vital national interest in upholding an order that redistributes power to rivals. Much as they might cavil at this, China, India and the rest are unwilling to step up as guardians of multilateralism. Without a champion, globalisation cannot but fall into disrepair.

And yes a lot of the news is bad:

Then came the crash. Finance has been renationalised. Banks have retreated in the face of new regulatory controls. European financial integration has gone into reverse. Global capital flows are still only about half their pre-crisis peak.

As for the digitalised world, the idea that everyone, everywhere should have access to the same information has fallen foul of authoritarian politics and concerns about privacy. China, Russia, Turkey and others have thrown roadblocks across the digital highway to stifle dissent. Europeans want to protect themselves from US intelligence agencies and the monopoly capitalism of the digital giants The web is heading for Balkanisation.

The open trading system is fragmenting. The collapse of the Doha round spoke to the demise of global free-trade agreements. The advanced economies are looking instead to regional coalitions and deals – the Trans-Pacific Partnership and the Transatlantic Trade and Investment Pact. The emerging economies are building south-south relationships. Frustrated by a failure to rebalance the International Monetary Fund, the Brics nations are setting up their own financial institutions.

That is from Philip Stephens at the FT.

Assorted links

by on September 4, 2014 at 12:46 pm in Uncategorized | Permalink

1. The Milky Way is a suburb (no wonder it has good ethnic food).

2. Marginal revolution.  Really.

3. Emmanuel Todd on the new German empire and those who do not like Russia (in French).  The map is here large-scale.

4. Baidu’s “smart chopsticks” can (partially) test the safety of your food.

5. Michael Heise in the FT with the case against QE for Europe (not my view but a good piece).  And background on the European ABS market.