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I’ll have to put this under the fold, because I can’t say anything without giving away everything… Read More →

Sunday assorted links

by on April 16, 2017 at 12:42 pm in Uncategorized | Permalink

Back in Gyeongju, Kim had the spy arrested, tortured, and executed…The rest of Kim’s story, as far as we know it, is true: He conquered Baekje in 660 and Goguryeo in 668 with the help of the Tang armies, then had to give the Tang the Manchurian half of Goguryeo.

Modern nationalist historians have criticized Silla for relying on China’s help in the first place, saying it set a historical pattern whereby Koreans instinctively call on outside powers to help solve internal problems.

That is from the new book by Michael Breen, The New Koreans: The Story of a Nation, a very good introductory treatment to that part of the world.

Saturday assorted links

by on April 15, 2017 at 12:38 pm in Uncategorized | Permalink

1. The butterfly killer is convicted.

2. “At Gujarat Technological University, Sachin Sharma and Dharmesh Shah have designed a visual animal detection system that uses algorithms based on histogram of oriented gradients and cascade classifiers running in OpenCV. Cow training data came from public image datasets (like the KTH Animal Dataset), and in total 900 images of cows were input into the classifier.”  Link here.

3. Excellent Adam Tooze post on the gravity equation and how to think about the course of globalization and trade over distance.  I agree there has been a growth in the relative ability to trade across borders, but still not, given that a border is crossed, a relative boost over greater distances.  The entry of some former “zeros” into the global trading system is a once-and-for-all effect due to internal reforms, and the preferred way of measuring the trade elasticity over distance is I think to exclude such cases.  These issues are all debated in the literature.

4. Canada signs free trade agreement with itself.

5. Advanced distribution jobs keep growing.

Friday assorted links

by on April 14, 2017 at 11:38 am in Uncategorized | Permalink

1. Eli Dourado offers advice to undergraduates.  And Scott Sumner tells it like it is.

2. The case for placebo politics.

3. Reemergence of some famine conditions around the world.  I take this to be another sign of a broader breakdown of global order.

4. David Brooks on the Cuomo free college plan (NYT).  Masterful analysis of an idea that otherwise is being passed around uncritically.

5. Jean Tirole speaks sense on the French election (FT).

6. Is there life on Enceladus, moon of Saturn?  I think so.  Hi out there!

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

Another economic approach would consider whether the private sector, when trying to accommodate customer demand, finds that speed bumps help or hurt business. That’s a kind of market test of the concept, and indeed I often see speed bumps in shopping mall parking lots, to slow down traffic and ease the risk of accidents, including to pedestrians. The mall and parking lot owners have decided that the benefits of greater safety will attract more customers than the inconveniences of driving more slowly, and other possible costs, will put customers off. That is a seat-of-the-pants cost-benefit test, and it suggests some role for the bumps in the broader world.

That said, my personal impression is that these private-sector speed bumps are smoother and gentler than the ones I often find in neighborhoods. When it comes to local roads, the residents are actively trying to keep outside drivers away, whereas the shopping mall and parking lot owners seek the best overall environment for commercial reasons. As a tentative conclusion, I think some speed bumps are a good idea, but many are too obstructive, and perhaps they are too numerous as well; this view is supported by some recent research.

Another angle of the speed bumps debate is how much it revolves around issues of symbolic value, and that in part explains why the discussion can become so heated.

By its very design, a speed bump is a deliberate obstruction with maximum transparency as such. It is sending a message that the social goals of safety or neighborhood quiet are sufficiently important that it is worth slowing people’s progress when they travel. There are many regulations that try to make our lives safer, but most of them are hidden, with nontransparent costs, such as auto-safety regulations as applied through crash tests. A speed bump, in contrast, can work only if people notice it each time. So to the extent a society accepts speed bumps, it is visibly advertising the notion that limits to fast transportation — a symbol of progress — are acceptable in the name of safety and cozy locality.

Do read the whole thing.

In a previous column on India, and how it suffered under colonialism, I mentioned:

If you are looking for the upside of British colonialism, you are more likely to find it in the wealthier and better-treated Singapore or Malaysia.

Why might this have been true?  Part of India’s colonial curse was its high population, which meant the British viewed it as a source of soldiers, and a captive market for goods, rather than an area whose value could be internalized through direct economic development.

When it comes the British history in India, I think of “letting the interior fester” as a big part of the core problem.  Most of India was and still is interior.  You might look at the coastal regions, but given that British policy forced India to accept free trade for British goods, without receiving the same privileges in return, the coastal regions became rent-seeking imperial clusters more than possible rivals to Hong Kong or for that matter Manchester.

Singapore, in contrast, was built around its port, and the British encouraged further developments in that direction, even as early as Raffles in the 1820s.  The city didn’t/doesn’t have much of an interior or for that matter much population (about 1,000 when the British took over).  Keeping the people servile didn’t seem worth the trouble, because they could neither fight nor buy in great numbers.  Instead, you can think of British policy as trying, selfishly, to maximize the value of Singaporean land to the British.  But that wasn’t such a nasty process, as the British Navy made Singapore more focal as a trade center, with a later boost from the opening of the Suez Canal.  Note that as late as the mid-1960s, just before independence, about 20 percent of Singaporean gdp was British defense spending.

Singapore as port and entrepot developed “the entire nation,” all the more as the induced spirit of enterprise later spread to manufacturing.  This in turn gave the territory the possibility of a relatively inclusive and egalitarian future.  Unlike with India, the British rulers never imagined a future where Singapore might threaten them economically, or politically, and so they could just let matters rip.  The British felt, more or less correctly (until the Japanese invasion), that improvements in the value of Singapore would be captured by them.

So it was “keeping an option on captive buyers and fighters” (India) vs. “maximizing the value of the land for Empire” (Singapore).  Both were selfish strategies, but the latter did better for the colony in question.  Hong Kong seems to fit comfortably into this framework, though other cases might be considered (Barbados vs. Guyana?  Ghana vs. Uganda?).

Singapore also benefited from having most of its relevant colonization come later, whereas India had a damaging East India Company period in the 17th and 18th centuries, when imperialism often was more brutal and less sophisticated.

Non-Singaporean Malaya/Malaysia would require a post of its own.  In that case, and also with Singapore more narrowly, an evaluation of British rule cannot be separated from major changes in the exports and also corresponding changes in the ethnic composition of the territory.  The Singaporean national anthem is still a song written in Malay, and by law it must be sung as such.

Thursday assorted links

by on April 13, 2017 at 1:36 pm in Uncategorized | Permalink

Wednesday assorted links

by on April 12, 2017 at 1:56 pm in Uncategorized | Permalink

Patrick is co-founder and CEO of Stripe, based in San Francisco.  I recently told a reporter he was one of the five smartest people I have known; he is so smart, in fact, that he asked to interview me rather than vice versa, and so he and I created a new episode of Conversations with Tyler (transcript and podcast at that link, alas no video, and note that was recorded in January so on a few points the timeline may feel off).

We discuss whether macro is underrated, what makes Silicon Valley special, optimal immigration policy, whether Facebook is beneficial for society, whether I might ever vote for Donald Trump, how to start a new religion, Peter Thiel, Brian Eno, where I differ from Thomas Schelling, Michel Houllebecq, how to maintain your composure in an age of Trump, the origins of this blog, how I read so much, why Twitter is underrated, and the benefits of having a diverse monoculture, among many other topics.

Here is one bit:

COLLISON: …You’ve written a lot about how the study of economics has influenced your appreciation for the arts, and for literature, and for food, and all of the rest. You haven’t written as much about the influence in the reverse direction. How has your appreciation for and study of the arts influenced your study of economics? And is this a version of that?

COWEN: This is a version of that. Here would be a simple example: If you think about Renaissance Florence, at its peak, its population, arguably, was between 60,000 and 80,000 people. And there were surrounding areas; you could debate the number. But they had some really quite remarkable achievements that have stood the test of time and lasted, and today have very high market value. Now, in very naive theories of economics, that shouldn’t be possible. People in Renaissance Florence, they didn’t produce a refrigerator that we’re still using or a tech company that we still consult.

But there’s something different about, say, the visual arts, where that was possible, and it was done with small numbers. So there’s something about the inputs to some kinds of production we don’t understand. I would suggest if we’re trying to figure out, like what makes Silicon Valley work, actually, by studying how they did what they did in the Florentine Renaissance is highly important. You learn what are the missing inputs that make for other kinds of miracles.

Ireland and writing would be another example.

…COWEN: And I worry now that people in Ireland hear too much American English, too much English English, and that style of writing, talking, joking, limericks, is becoming somewhat less distinct. Still many wonderful writers from Ireland, but again, it’s like an optimal stock depletion problem, and maybe we’ve pressed on the button a little too hard.

COLLISON: The transaction costs should be higher?

And here is another:

COLLISON: Do we just need a sufficiently obfuscated version of the UBI and then we’re fine?

COWEN: We call it “disability insurance.”

And:

COWEN: Well, I voted on each of these hires. I voted for them. For a lot of them, I was on the hiring committee. Robin Hanson’s a good example. When we hired Robin, he was much older than a typical assistant professor would be. And of course, we don’t practice age discrimination, and neither does anyone else, but . . .

[laughter]

COWEN: Robin was going to have a tough time being hired. And I gave Robin some of my papers to read. He came in. He was a little, actually, obnoxious to me. Though he’s one of the nicest people you’d ever want to meet. He sent me back comments on my papers, that they were all wrong.

[laughter]

COWEN: There was no preliminary politeness: ‘I thought this was interesting, but…’ I thought this was great. So I thought, “We need to hire Robin. Robin is different.” And Robin wrote papers I thought were crazy, but he clearly also was a genius. I pushed very hard to hire Robin, and he made a good impression on a lot of other people. He’s been with us ever since.

COLLISON: Were the papers in fact all wrong?

COWEN: Robin’s criticisms were all good points.

[laughter]

COWEN: But they weren’t entirely wrong.

Self-recommending!

I agree the man should have left the plane in the first place, the police should not have used violence, the CEO should have apologized right away, United (possibly) should have known earlier it needed to transport the employees, and a bunch of other things.  Perhaps United should have mimicked Ryan Air and charged people fifteen euros (or much more!) for dragging them off the flight.  But let’s put that behind us and consider some analysis:

United policy says:

The priority of all other confirmed passengers may be determined based on a passenger’s fare class, itinerary, status of frequent flyer program membership, and the time in which the passenger presents him/herself for check-in without advanced seat assignment.”

There is also an exception for disabilities.

From the passenger’s point of view, this operates like randomization, as customers were told “the computer will decide.”  An alternative of course is to eliminate the random shuffle and require cash payments to passengers no matter what, waiting until someone volunteers to give up his or her seat at the required high price.

One problem with using money to buy people out of queues is that it encourages more upfront queuing to begin with, and that involves negative externalities for passengers as a whole.  In any model of stochastic demand and fixed capacity in the short run, demand will sometimes be too high, and I don’t know of many retail markets that rely on price alone to ration quantity.  Given that reality, I am not sure why everyone is insisting the airlines should do things this way.  If Nordstrom starts to run out of their blue cooking pots on the day of the sale, so be it, they don’t raise the price toward the end of the day as supplies dwindle.  Paying $5 to each denied pot-buyer just ensures they are more likely to run out of pots the next time around.

You could spend many moons debating whether price-only solutions to short-run shortages lead to higher or lower upfront prices (and thus higher or lower deadweight loss) than price + quality adjustment solutions to short-run shortages.  As far as I know, this question hasn’t been settled, and quality adjustment is well-known as a means of enabling more upfront price discrimination.  If nothing else, it pushes more people into business class.  The subtler mechanism is that the airlines have plenty of reasons to favor their more loyal customers, if only because of market segmentation, and this is one of them.  The market segmentation effects brings more collusion, and higher prices, but the price discrimination effect tends to boost output.

To consider possible analogies, let’s say it was a queue to buy concert tickets, with more people in line than seats for the show.  One option is to give cash to those who can’t get tickets, rather than just turning them away, but I’ve never heard anyone argue this would be efficient.  The cash payments are a tax on product supply and also they encourage too much queuing in the first place.  Instead we send some people home without tickets, even if they have waited in line for a long time.  In essence, randomization is one factor behind who is sent home without a ticket, because no arrival, when deciding whether or not to show up, knows exactly how many other people will have been prior in line.  Don’t be surprised if the airlines sometimes use a similar system.

As Garett Jones points out, sometimes the ATM runs out of cash and you don’t get any bonus afterwards.  There are plenty of other examples.

Maybe United should allow for a secondary market for the doctor to stay on the plane by buying flying rights from some other passenger, one who wouldn’t take the United offer but who might take the doctor’s better offer.  That idea is worth consideration, though arranging the contract could be tricky unless the passengers belong to a common system with pre-arranged arbitration in place (Facebook could run it?  PayPal?)  With tickets this kind of resale works smoothly through StubHub and the like.  (By the way, once the guy proclaimed he was a doctor going to see his ailing patients, did any of the other passengers offer to get off instead?  Hmm…)

The “re-accommodation” seems much worse to many people because the doctor already was seated.  An endowment effect argument therefore might require that the airline use a full auction once seats are taken.  That would increase the incentive of the airline to spot demand-supply imbalances in advance of boarding, and it might well be a good idea.  On the other hand, the presence of an endowment effect can help make “removal” an especially effective pre-emptive demand tax in world-states of potential excess demand.  The more you hate being removed from your seat, the fewer people have to be removed to achieve a greater S-D balancing ex ante.  Furthermore, the highest valuation buyers will make sure to be loyal buyers, which presumably is what the airline wants.

The cynical, who have studied randomization in optimal tax theory (that is not I, I love human rights too much and spent my youth reading the Salamancans), would even say that the higher value are the trips, and the more people fear being manhandled, the more it makes sense to use stochastic pain as a deterrent for overbooking.  Think of it as a way to increase the degree of ex ante price discrimination, and limit cross-buyer externalities, at minimal cost in terms of actual output.

Finally, the United episode gets at a more general problem with algorithms.  Even if the selection of seat loser is “truly random,” it will not always look random to the outside world.  The bumping of the doctor has been a huge event on Chinese social media, and how many of those Chinese are thinking that the doctor was bumped because he was Chinese.  The international loss of reputation here is significant, and it damages the United States as a whole, not just United as a brand name.  In essence, individual companies under-invest in perceptions of fairness, and reliance on “truly random” algorithms can make this worse rather than better.  A deliberate human chooser might well have done better, if only by knowing that a public defense of the choice would have been required, and that might have nudged United back toward the full auction or some other solution.  In essence, companies may be oversupplying “reliance on randomness,” not taking the collective negative externality into account.  Counterintuitively, relying on algorithms can increase perceptions of unfairness, and many of the costs of unfairness come on the perceptions side, even if “the true model” is making choices using a fair process.

Two other factors are worth considering.  First, due to social media it will be increasingly difficult to write and enforce retail contracts with legal meanings very different from their “common sense” meanings.  Maybe I’ll write a separate post on whether that will raise or lower transactions costs, but I suspect a bit of both.

Second, given that the stock of United tanked after the incident, now airline customer service will improve rather rapidly.  In the long run of course that will translate into higher prices too, so the net effect of this shift will prove regressive.  The more you complain, the more you are redistributing wealth — through the medium of preferred price-quality configurations — away from lower earners and toward the wealthy.

I’m not saying that the United rules are efficient, either generally or in this particular case, but I do see many people not even willing to ask the question of under what conditions they might be efficient.  And that is indeed to correct way to start on analyzing this problem.

Addendum: This is also a story of price controls, on that let’s turn the microphone over to Air Genius Gary Leff:

More importantly, United didn’t do it because Department of Transportation regulations set maximum required compensation for involuntary denied boarding (in this case 4 times the passenger’s fare paid up to a maximum of $1350). So they’re not going to offer more than that for voluntary denied boardings, especially since the violent outcome here wasn’t expected and the United Express gate agent had no authority to do more.

Tuesday assorted links

by on April 11, 2017 at 12:42 pm in Uncategorized | Permalink

What I’ve been reading

by on April 11, 2017 at 1:19 am in Books, Uncategorized | Permalink

1. Philippe Desan, Montaigne: A Life.  Knotty, complex, and almost 800 pp., the bottom line nonetheless is that I will not liberate this book but rather keep it forever.  I’ve read only about 200 pp. so far, but it is one of the best guides to understanding its main topic, most of all when it comes to integrating how his written texts sprang from his actual life.

2. Dieter Helm, Burn Out: The Endgame for Fossil Fuels.  That’s not the right title, because most of this book covers the game rather than the endgame.  This is a careful and conceptual look at how different sectors of energy production are likely to evolve, taking good care to distinguish different parts of the world and stationary vs. mobile energy sources.

3. John F. Pfaff, Locked In: The True Causes of Mass Incarceration and How to Achieve Real Reform.  A very good and readable book on a much misunderstood topic.  Upon a close read of the data, it turns out the War on Drugs and private prisons are overemphasized as causes of overincarceration, whereas much of the actual blame should be placed on altered incentives for prosecutors.  Note that Pfaff also has a PhD in economics from the University of Chicago in addition to his JD.

4. Kevin N. Laland, Darwin’s Unfinished Symphony: How Culture Made the Human Mind.  If you read and profited from Joe Henrich’s The Secret of Success, this book is the next step.  Here are remarks by Robin Hanson on the book.

5. Edna O’Brien, August is a Wicked Month.  Irish fiction, 1967, old and old-fashioned enough that the sex in the story still sizzles, as does the comeuppance.  I will read more of her.

Nadia Hillard’s The Accountability State: US Federal Inspectors General and the Pursuit of Democratic Integrity, is a thorough and useful account of what the title promises.

Monday assorted links

by on April 10, 2017 at 12:54 pm in Uncategorized | Permalink

1. Interview with Amos Oz.

2. New Harvard student group dedicated to inviting controversial speakers.

3. Understanding loan aversion in education.

4. Profile of Leonard Leo.

5. The most underrated place in every state?

6. My macro-complacency podcast with David Beckworth, more of a macro angle on complacency ideas than anyone else has done.  I consider for instance why ngdp targeting is not more popular, and other such macro issues.

From Oswald Spengler’s The Decline of the West, vol.II, p.99, from “The Soul of the City”:

The stone Colossus “Cosmopolis” stands at the end of the life’s course of every great Culture.  The Culture-man whom the land has spiritually formed is seized and possessed by his own creation, the City, and is made into its creature, its executive organ, and finally its victim.  This stony mass is the absolute city.  Its image, as it appears with all its grandiose beauty in the light-world of the human eye, contains the whole noble death-symbolism of the definitive thing-become.  The spirit-pervaded stone of Gothic buildings, after a millennium of style-evolution, has become the soulless material of this daemonic stone-desert.

These final cities are wholly intellect.

And on p.107, these cities are described as:

Rootless, dead to the cosmic, irrevocably committed to stone and to intellectualism, it develops a form-language that reproduces every trait of its essence — not the language of becoming and growth, but that of a becomeness and completion, capable of alteration certainly, but not of evolution.

Good thing this is such a silly book!