One reason why South Africa is difficult to govern (South Africa fact of the day)
South Africa holds the grim distinction of being the most unequal country on Earth. South Africa leads the global ranking with a Gini index of 0.63. Statista The richest 10% of South Africans hold 71% of the wealth, while the poorest 60% hold just 7%. World Population Review This extreme inequality is largely rooted in history — economists attribute it to historical land ownership laws, the lingering socio-economic impacts of apartheid, and an economy heavily reliant on undiversified natural resource extraction. Data Pandas
The World (Global Gini) is trickier to pin down, because it measures inequality across all of humanity rather than within a single country. Different scholars estimate the global Gini index to range between 0.61 and 0.68. Wikipedia Interestingly, when measured this way — treating every person on Earth as part of one big “country” — global inequality ends up being comparable to South Africa’s, because the gap between the world’s richest and poorest nations is enormous.
That is from Claude.
Who profits from prediction markets?
It seems execution beats foresight:
Retail traders correctly forecast asset price direction yet lose money. Using 222 million prediction market trades with observable terminal payoffs, we decompose returns into a directional component (did the trader pick the right side?) and an execution component (did the trader get a favorable price?). Traders with above-random accuracy earn negative returns because they arrive late and pay unfavorable prices; traders with near-random accuracy profit through superior execution. These two dimensions of skill are nearly orthogonal (ρ ≈ 0.13), and split-sample tests confirm both are persistent. What separates profitable from unprofitable traders is not forecasting ability but execution: automated traders pay 2.52 cents less per contract than casual traders, and this gap alone accounts for the sign of returns across trader types. Being right and making money are not the same thing.
That is from Joshua Della Vedova. Via John de Palma.
Rich Elliott on Cape Town (from my email)
Live in Cape Town long enough and you lose interest in the outside world. Visitors from more exciting cities start yawning at your dinner table, but I no longer care. They have no possible conception of the unbearable bliss of fine summer days when the sea is warm and the figs are ripe and you start the morning with a dive into a cool green rock pool, followed perhaps by coffee in one of those impossibly quaint cafes and a spot of light typing, if I can manage to ignore the drama outside my window – tides rising, whales blowing, birds diving, the boats coming back to Kalk Bay. The Contessa and I often walk down to meet them, come home with a fat Cape salmon or snoek. Come sundown, we set the fish to grill on an open fire, uncork a bottle of wine, and, yes, congratulate ourselves for living in the last corner of Africa that is immune to chaos and madness.
Tuesday assorted links
1. “Absolutely astounding figures from the NY state comptroller: spending on services for the NYC street homeless population ran to $81,705 per person last year, up from $28,428 pp 6yrs ago. Figures do not include all kinds of other spending, supportive housing, policing costs etc.” Link here.
2. Backlash against The Giving Pledge (NYT).
3. Poor weather when touring a college campus reduces a student’s chance of applying.
4. Where do AI agents settle their payments?
5. Even Nevada never had that much of a real estate bubble?
6. Prediction markets turn many people into unwilling referees. Good and interesting piece.
7. GPT Pro on the value of introspection. “The literature does not really say “successful people are introspective.” It says: successful people are better at turning reflection into accurate self-insight, external calibration, and better next actions.”
NB: The passing of Coetzee is now not confirmed.
The AI arms race
That is the topic of my latest column for The Free Press, here is the closing tag:
The biggest risk is not from the AI companies, but rather that the government with the most powerful AI systems becomes the bad guy itself. The U.S., on the world stage, is not always a force for good, and we might become worse to the extent we can act without constraint. The Vietnam War is perhaps the least politically controversial way of demonstrating that point.
So today we need an odd and complex mix of not entirely consistent ideologies for the current arms race to go well. How about some tech accelerationism mixed with capitalism, and then a prudent technocratic approach to military procurement, to make sure those advances serve national security ends? On the precautionary side, we need a dash of the 1960s and ’70s New Left and libertarian anti-war ideologies, skeptical of Uncle Sam himself. We do not want to become the bad guys.
Do you think we can pull that off? The new American challenge is underway.
Worth a ponder.
Claims about grade inflation
Average grades continue to rise in the United States, raising the question of how grade inflation impacts students. We provide comprehensive evidence on how teacher grading practices affect students’ long-run success. Using administrative high school data from Los Angeles and from Maryland that is linked to postsecondary and earnings records, we develop and validate two teacher-level measures of grade inflation: one measuring average grade inflation and another measuring a teacher’s propensity to give a passing grade. These measures of grade inflation are distinct from teacher value-added, with grade inflating teachers having moderately lower cognitive value-added and slightly higher noncognitive value-added. These twomeasuresalso differentially impact students’ long-term outcomes. Being assigned a higher average grade inflating teacher reduces a student’s future test scores, the likelihood of graduating from high school, college enrollment, and ultimately earnings. In contrast, passing grade inflation reduces the likelihood of being held back and increases high school graduation, with limited long-run effects. The cumulative impact is economically significant: a teacher with one standard deviation higher average grade inflation reduces the present discounted value of lifetime earnings of their students by $213,872 per year.
That is from a recent paper by Jeffrey T. Denning, Rachel Nesbit, Nolan Pope, and Merrill Warnick. Via Séb Krier.
The hyper-NIMBY of earlier Cape Town and South Africa
The most controversial of the forced removals occurred in the second half of the 1960s, with the expulsion of 65,000 coloureds from District Six, a vibrant inner-city ward of Cape Town, where whites, many of the slumlords, owned 56% of the property. Against their will, District Six residents were moved out to the sandy townships of the Cape Flats. In Johannesburg, the inner-city suburb of Sophiatown, where blacks could own freehold property, was another notorious site of forced removals. Often long-established community institutions such as churches and schools had to be abandoned.
That is from the very good book by Hermann Giliomee The Afrikaners: A Concise History.
Monday assorted links
Understanding Demonic Policies
Matt Yglesias has a good post on the UK’s Triple Lock, which requires that UK pensions rise in line with whichever is highest: wages, inflation, or 2.5 percent. Luis Garicano calls this “the single stupidest policy in the entire Western world” — and I’d be inclined to agree, if only the competition weren’t so fierce.
The triple lock guarantees that pensioner incomes grow at the expense of everything else, and the mechanism bites hardest when the economy is weakest. During the 2009 financial crisis wages fell and inflation declined, for example, yet pensioner incomes rose by 2.5 percent! (Technically this was under a double-lock period; the triple lock came slightly later — as if the lesson from the crisis was that the guarantee hadn’t been generous enough.)
Now, as Yglesias notes, if voters were actually happy with pensioner income growing at the expense of worker income, that would be one thing. But no one seems happy with the result. The same pattern is clear in the United States:
As I wrote in January, there is a pattern in American politics where per capita benefits for elderly people have gotten consistently more generous in the 21st century even as the ratio of retired people to working-age people has risen.
This keeps happening because it’s evidently what the voters want. Making public policy more generous to senior citizens enjoys both broad support among the mass public and it’s something that elites in the two parties find acceptable even if neither side is particularly enthusiastic about it. But what makes it a dark pattern in my view is that voters seem incredibly grumpy about the results.
Nobody’s saying things have been going great in America over the past quarter century.
Instead, the right is obsessed with the idea that mysterious forces of fraud have run off with all the money, while the left has convinced itself that billionaires aren’t paying any taxes.
But it’s not some huge secret why it seems like the government keeps spending and spending without us getting any amazing new public services — it’s transfers to the elderly.
The contradictions of “Elderism” are an example of rational irrationality. Individual voters bears essentially no cost for holding inconsistent political beliefs — wanting generous pensions and robust public services and low taxes is essentially free, since no single vote determines the outcome. The irrationality is individually rational and collectively ruinous. Voters are not necessarily confused about what they want; they simply face no price for wanting incompatible things. Arrow’s impossibility theorem adds another layer: even if each voter held perfectly coherent preferences, there is no reliable procedure for aggregating them into a coherent social choice. The grumpiness Yglesias documents may not reflect hypocrisy so much as the incoherence of demanding that collective choice makes sense — collective choice cannot be rationalized by coherent preferences and thus it’s perfectly possible that democracy can simultaneously “choose” generous pensions and “demand” better services for workers, with no mechanism to register the contradiction until the bill arrives.
Why you should work much harder RIGHT NOW
If strong AI will lower the value of your human capital, your current wage is relatively high compared to your future wage. That is an argument for working harder now, at least if your current and pending pay can rise with greater effort (not true for all jobs).
If strong AI can at least potentially boost the value of your human capital, you should be investing in learning AI skills right now. No need to fall behind on something so important. You also might have the chance to use that money and buy into the proper capital and land assets.
So…WORK HARDER!
Addendum: From Ricardo in the comments:
Suppose you are the best maker of horse carriages in Belgium around the time the automobile is invented. You might want to take on as many orders as possible for new carriages because you know your future is precarious. Or, maybe you get your hands on one of these new-fangled automobiles as soon as possible and learn how fix them. Both options require you to WORK HARDER but these seem to be the two best options available. Paradoxical but true.
Who is a victim?
Moral disagreement across politics revolves around the key question, “Who is a victim?” Twelve studies explain moral conflict with assumptions of vulnerability (AoVs): liberals and conservatives disagree about who is especially vulnerable to victimization, harm, and mistreatment. AoVs predict moral judgments, implicit attitudes, and charitable behavior—and explain the link between ideology and moral judgment (usually better than moral foundations). Four clusters of targets—the Environment, the Othered, the Powerful, and the Divine—explain many political debates, from immigration and policing to religion and racism. In general, liberals see vulnerability as group-based, dividing the moral world into groups of vulnerable victims and invulnerable oppressors. Conservatives downplay group-based differences, seeing vulnerability as more individual and evenly distributed. AoVs can be experimentally manipulated and causally impact moral evaluations. These results support a universal harm-based moral mind (Theory of Dyadic Morality): moral disagreement reflects different understandings of harm, not different foundations.
That is from a recent paper by Jake Womick, Emily Kubin, and Kurt Gray. Via the excellent, non-victimized Kevin Lewis.
What should I ask Toby Wilkinson?
Yes I will be doing a Conversation with him. He is one of the leading historians of ancient Egypt, and he has a recent book out on Ptolemaic Egypt, namely The Last Dynasty: Ancient Egypt from Alexander the Great to Cleopatra.
Here is his Wikipedia page, he also has served as Vice Chancellor of Fiji National University, and worked extensively as a development director for Cambridge. Here is his personal home page.
So what should I ask him?
Sunday assorted links
1. Henry Oliver has further thoughts on his CWT.
4. The post-Christian condition. One of the most interesting essays of this year. I am glad I started paying for his Substack.
6. Scott Sumner on the fiscal theory of the price level.
7. Thiel does Rome.
Robert Trivers, RIP
The greats have been falling…
A New Order of Things
Big infrastructure projects in the developing world for things like water and electricity are under-pressure. Chinese and US funding is down and these projects often fall apart due to corruption and political incentives to build but not maintain. It is possible to break old institutions and establish new ones, but “there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.” Connor Tabarrok gives a great example. Ek Son Chan in Cambodia:
In 1993, the Phnom Penh Water Supply Authority was a catastrophe. The city was emerging from decades of war and genocide. Only 20 percent of the city had connections at all, and water flowed for just 10 hours a day. 72 percent of the water was non revenue water. It was lost to leaks or stolen through illegal connections.
Into this mess walked Ek Son Chan, a young Cambodian engineer appointed as Director General. Over the next two decades he executed an incredible institutional turnaround.
Chan replaced corrupt managers with qualified engineers. He got rid of unmetered taps. Every single connection received a meter and was billed. The old system of manual billing was replaced with a computerized system, which cut down on low level employees giving out free water and receiving kickbacks. Bill collection rates went from 48 percent to 99.9 percent. These changes were intensely unpopular, and Chan faced fierce resistance from rent seekers, from freeloading customers to his own employees. He established an incentive system based on bonuses among the workers, introduced an internal discipline system with a penalty for violators, and set up a discipline commission for all levels of the organization to deal with corruption
He divided the distribution network into pressure zones with flow monitoring. A 24 hour leak detection team walked the streets at night with listening bars to identify underground leaks.
The institutional change dwarfed the infrastructural change, but was absolutely necessary to make the infrastructure investment worthwhile….
This commitment would not be untested. When Chan tried to enforce bill payment on Cambodia’s elite, and sent his team out to install a water meter on the property of a high ranking general who had been freeloading. The general refused the installation of a meter, so the team attempted to disconnect the water. The general and his bodyguards ran them off the property. When Chan heard of this, he decided not to back down, and mobilized his own team to dig up the pipe and install the meter. Always a leader from the front, Chan jumped in the hole to take a shift at digging. When he looked up, his team had fled, and he was facing down the general himself, pointing a gun at his head. In Cambodia in the 90s, consequences for such a high ranking official were unlikely. CHan didn’t give up. He mobilized the local armed police and returned with 20 men to standoff against the general, disconnected him from service and left him out to dry. Chan said this about the dispute:
”He had no water. My office was on the second floor and the general came in with his ten bodyguards to look for me. I said, “ No. You can come here alone, but with an appointment”. He couldn’t do anything. He had to return. He said, “Okay”! At that time we had a telephone, a very big Motorola. He came in to make an appointment for tomorrow. I said, “ Okay, tomorrow you come alone”. So he comes alone, we talk. “Okay. I’ll reconnect on two conditions. The first condition is that you have to sign a commitment saying that you will respect the Water Supply Authority and second, you need to pay a penalty for your bad behavior and you must allow us to broadcast the situation to the public, or no way, no water in your house”. So he agreed. “
….By 2010, coverage in the city went from 25 percent to over 90 percent with 24 hour service. The utility became financially self sustaining and turned a profit. It was listed on the Cambodia Securities Exchange in 2012. Chan won the Ramon Magsaysay Award in 2006.
By separating the utility company from the low-capacity local government, Ek and PPWSA proved that:
- Functional infrastructure relies on institutional quality and mechanism design.
- State capacity need not exist within the state
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