Are young or old lives worth more?

Jeremy Horpedahl and Bryan Caplan debate this topic, with Jeremy pointing out that older, wealthier people can have just as high a willingness to pay to reduce risk, if not higher.

In all things Covid I usually agree with Jeremy, though in this case I side with Bryan’s conclusion (though he doesn’t explain well why he is correct).

For purposes of simplicity, let us consider purely selfish individuals and move to the case where the “p” of death will be equal to one if the “risk” is not avoided.  And make capital markets perfect.  Then both young and old will then pony up the full value of their prospective human capital to avoid death.  The lives with more human capital will be worth more, at least according to economic standards.  Young lives usually will be worth more than old lives, though of course highly productive older people might count for more if the higher productivity outweighs the smaller number of years left.  You might prefer to save fifty-year-old Thomas Schelling over the life of a forty-year-old who is doing less.

This is so far quite intuitive, again noting these are economic judgments not final moral judgments (which will be more contentious and bring in many additional considerations).  Furthermore, you can scale down these numbers, and adjust for risk-aversion, to cover mortality risks much lower than p = 1.

Now consider some older people who have a lot of wealth but very little human capital.  These (selfish) individuals still will pay a lot to avoid death or risk of death, but in essence there is an externality.  They treat their wealth as “disappearing with their death” when in reality that wealth simply is transferred to others.  Therefore they overspend to keep themselves around on planet earth, and they will overpay for risk reduction.

So the lives of high wealth, low human capital individuals, including older individuals, are overweighted by traditional economic metrics, given that “naive” WTP measures do not adjust for the “wealth transfer upon death” externality.  That is some but by no means all of the elderly.  Their willingness to pay for risk reduction may be as high as the WTP of the young, but in social terms that does not mean their lives are equally valuable.

In sum, check your WTP calculations against human capital intuitions.

The first version of this argument appeared in my dissertation, though it has surfaced a few times since, including in some QJE pieces.

And if you would like some homework for your spare time, try solving for the conditions under which selfish individuals, but living in families, can make intra-family trades to internalize these wealth transfer externalities.

Tuesday assorted links

1. MIE: Used AmEx card of Michael Jordan sells for 3k.

2. Criticisms of Galef.

3. AEA best paper prizes.

4. MIE: putting product placement in old classic movies.

5. Promising Young Woman is indeed a very good movie, at times hard to watch, and most of the reviews are either inarticulate or uncomprehending because few are willing to grasp and explain (part of) what makes it so interesting.

How will crypto wealth transform philanthropy?

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

If the price of Bitcoin were to reach $200,000, Coinbase Chief Executive Officer Brian Armstrong observed recently, half of the world’s billionaires would be crypto billionaires. Even at the lesser valuations that currently prevail, this crypto wealth has vast potential to reshape philanthropy. Expect a relative decline in the influence of longstanding nonprofit institutions — and more weird, stand-alone projects.

Bitcoin itself is a weird, stand-alone project. The true identity of its inventor, Satoshi Nakamoto, is still unknown, and the broader Bitcoin ecosystem is not owned or controlled by any company or institution. It has been self-sustaining since the beginning, and so it should hardly come as a surprise that Bitcoin billionaires take Bitcoin itself as a model for future institutions, including in philanthropy.

As philanthropists, Bitcoin and other crypto billionaires will likely look to support ideas that can launch in a dramatic way and quickly acquire escape velocity. They are unlikely to fund the ongoing labor costs of established cultural institutions.

Bitcoin and many other cryptocurrencies seem designed to stand independent of any government or mainstream financial institution. That too suggests that the philanthropic emphasis of crypto wealth will be on non-establishment, non-governmental organizations.

And:

Venture capitalist Paul Graham has pointed out that wealth is earned much more quickly nowadays, and that is all the more true in crypto, which after all is only 12 years old. Unlike many of the wealthy people in law or investment banking, these are not people who had to spend their lives working their way up, finally achieving a top position in their 60s. They either are founders of rapidly growing and scaling companies, or they bought large sums of the right crypto assets early on, or both. Either way, their temperaments are geared to expect immediate action and rapid results.

Nonprofits will have to adjust accordingly, even though speed is not typically their comparative advantage. That in turn suggests that the organizational structures of many nonprofits will have to change fairly radically. Many of them were designed or have evolved to be good at continuity, like the Cleveland Symphony Orchestra, which after all is still playing Beethoven with violins and cellos.

There is much more at the link.

Vox on BLM

VOX: From 2014 to 2019, Campbell tracked more than 1,600 BLM protests across the country, largely in bigger cities, with nearly 350,000 protesters. His main finding is a 15 to 20 percent reduction in lethal use of force by police officers — roughly 300 fewer police homicides — in census places that saw BLM protests.

Campbell’s research also indicates that these protests correlate with a 10 percent increase in murders in the areas that saw BLM protests. That means from 2014 to 2019, there were somewhere between 1,000 and 6,000 more homicides than would have been expected if places with protests were on the same trend as places that did not have protests. Campbell’s research does not include the effects of last summer’s historic wave of protests because researchers do not yet have all the relevant data.

…One other possible explanation for the increased murder rate is that law enforcement officials are the ones voluntarily reducing their interactions with the community and as a result emboldening criminal activity. One way to observe whether police are reducing their efforts is to see whether the share of property crimes cleared falls over this period. In other words, are police not trying as hard — either because they are demoralized or angry at public scrutiny of their behavior — to solve low-level crimes that are reported to them? Campbell observes a 5.5 percent decline in the share of property crimes cleared, which is consistent with police reducing their efforts immediately following the protests.

Based on this paper. The explanation is consistent with what happened in Baltimore after the Freddie Gray protests and riots, namely arrests went down and murders went up.

What should I ask Richard Prum?

I will be doing a Conversation with him, here is part of his Wikipedia page:

Richard O. Prum (born 1961) is William Robertson Coe Professor of Ornithology, and Head Curator of Vertebrate Zoology at the Peabody Museum of Natural History at Yale University.

Prum describes himself as “an evolutionary ornithologist with broad interests in diverse topics,” including phylogeneticsbehaviorfeathersstructural colorationevolution and developmentsexual selection, and historical biogeography.

Prum holds that birds are the living descendants of theropod dinosaurs, a once disputed finding that is now almost universally accepted in the ornithological and evolutionary biology scientific communities.

Prum grew up in rural Vermont and took his bachelor’s degree at Harvard in 1983, and received his Ph.D. in 1989 from the University of Michigan. After gradually losing his hearing throughout the early 1990s due to illness, Prum moved from primarily doing field work to conducting research on plumage pigmentation, feather evolution, and Darwin‘s sexual selection theory. He released a book in 2017 on the role of beauty in natural selection: The Evolution of Beauty: How Darwin’s Forgotten Theory of Mate Choice Shapes the Animal World – And Us.

So what should I ask him?

The forthcoming Facebook audio product

Facebook is making a push into audio, launching a suite of new features that will allow users to host audio conferences and podcasts, in a dash to compete with up-and-coming apps such as Clubhouse. Mark Zuckerberg, chief executive of the world’s largest social media company by users, said on Monday said that over the next three to six months it planned to roll out live audio rooms as well as new tools allowing users to search for, listen to and create podcasts.

In addition, its live audio rooms, which will be available on the main platform and its Messenger app, can be saved and turned into podcasts. Zuckerberg also announced the launch of a feature called “Soundbites”, where users can post or listen to short audio clips that will be showcased in a continuous feed, in a similar way to its Reels video feed in Instagram.

Facebook plans to allow users to earn money from the podcasts and audio rooms they create — for example, by allowing users to charge for access to a room by purchasing it individually or as part of a subscription.

Here is more from The Financial Times.

Risky Business Cycles

Is there any other major macroeconomic idea you hear so little about outside the halls of academia?:

We identify a shock that explains the bulk of fluctuations in equity risk premia, and show that the shock also explains a large fraction of the business-cycle comovements of output, consumption, employment, and investment. Recessions induced by the shock are associated with reallocation away from full-time permanent positions, towards part-time and flexible contract workers. A real model with labor market frictions and fluctuations in risk appetite can explain all of these facts, both qualitatively and quantitatively. The size of risk-driven fluctuations depends on the relationship between the riskiness and productivity of different stores of value: if safe savings vehicles have relatively low marginal products, then a flight to safety will drive a larger aggregate contraction.

That is from a new NBER working paper by Susanto Basu, GiacomoCandian, Ryan Chahrout, and Rosen Valchev, and you will find related ideas in my 1998 book Risk and Business Cycles and also the earlier work of Fischer Black.

Effective Altruism: An Introduction

Effective Altruism: An Introduction is a collection of ten top episodes of The 80,000 Hours Podcast, specifically selected to help listeners quickly get up to speed on the school of thought known as effective altruism.

They cover:

  • What effective altruism is — the use of evidence and careful analysis to do as much good as possible
  • The strategies for improving the world that are most popular within the effective altruism community, and why they’re popular
  • The key disagreements between researchers in the field
  • How to ‘think like an effective altruist’
  • How you might figure out how to make your biggest contribution to solving the world’s most pressing problems

The only thing I would say is that Robert Wiblin has a funny idea about “quickly get up to speed”! But you won’t go wrong with any of these podcast episodes.

*Nuclear Folly: A History of the Cuban Missile Crisis*

Although they did not know it at the time, the seamen of the USS Cony and other ships of the Randolph group were moments away from being killed or shipwrecked by the tremendous waves that a nuclear explosion would produce. Savitsky’s torpedo carried a warhead with 10 kilotons of explosive power.  If dropped on a city, that would suffice to kill everyone with a half-mile radius. Moreover, the torpedoes’ nuclear warheads were designed to create shock waves that would topple or incapacitate ships. The 20-kiloton load tried by the US Navy in the Baker underwater test in 1946 produced waves up to 94 feet high. The Soviets tested their T-5 torpedoes near Novala Zemlia in the Arctic in 1957 but never released the results. Any ship hit by the torpedo would almost certainly have been destroyed, while the rest of the Randolph group would have suffered significant damage.

That is from the new book on this topic by Serhii Plokhy.  An excellent book, with much more on the Soviet side than any other source I am aware of.

What is the proper framework for thinking about cybersecurity?

Long-time MR reader here. I have a question: what is the appropriate framework to think about incentives (economic or otherwise) for electric power utilities to beef up their cybersecurity?

The Biden administration is reportedly putting together a plan to “rapidly shore up the security of the US power grid” [1]. As we know from the Solarwids hack, our nation’s cyber defenses (whether private industry or government) are inadequate [2], especially when targeted by nation-states [3].

The Bloomberg article says “The White House plan, which is voluntary, lays out a series of possible incentives to get power companies to sign on, a less politically precarious route than mandating their participation through regulation.”

It seems to me that the government offering money to private entities to buy some cybersecurity software products is not the optimal, and certainly not the sustainable, solution. There are needed investments in research & development, workforce training, and much more. Simply deploying today’s tech won’t solve this going forward.

So, what’s the right way to approach this from an incentives perspective? It seem to me that this is a very nuanced problem. We have no easy “target” to shoot for; there is no miles per gallon efficiency metric that can be used as a carrot.

That is an email from Matthew Backes.

Sunday assorted links

1. Alaska to offer visiting tourists vaccines on arrival.

2. Harvard undergraduate general exam in economics, 1957.

3. Mundell stuff: they won’t let you be this way any more.

4. Carlos Reygadas, Our Time, imagine three hours running commentary on Bergman’s Scenes from a Marriage, but set on a Tlaxcala Mexican ranch with lots of bulls and a dash of visual Tarkovsky.  The director and his wife play the lead roles, most of you won’t like it but Scott Sumner did and he is almost always right about movies.

5. Italy (!) to run a massive fiscal stimulus.

Not everywhere needs another $1 trillion in stimulus

A McDonald’s in Florida is paying people $50 just to show up for a job interview. But it’s still not attracting many applicants.

Blake Casper, the franchisee who owns the restaurant, told Insider that a general manager and supervisor came up with the idea for the interview reward after he told them to “do whatever you need to do” to hire workers.

“At this point, if we can’t keep our drive-thrus moving, then I’ll pay $50 for an interview,” said Casper, who owns 60 McDonald’s restaurants in the Tampa, Florida area.

Here is the full story, via the excellent Samir Varma, excess unemployment insurance of course is an issue, and here is Scott Sumner on the summer of 2021.  So many data points about the rapid recovery and the prescience of Summers and Blanchard, right?