In the bad old days, health care in poor countries was just terrible. It wasn’t only the poverty, lack of hospitals and pharmaceuticals, and unsanitary conditions. In addition, doctors gave very bad advice and they also didn’t work very hard, as outlined in this paper. Citizens suffered accordingly.
Those conditions have improved somewhat, but actual health outcomes have improved a lot. You still can’t trust the local medical advice in Tanzania, but guess what? You have much better vaccines, greater access to antibiotics, more NGOs running health clinics, and better health care information, sometimes through the internet. If your kid has diarrhea, let the kid drink water, even unclean water! As for antibiotics (NYT):
Two doses a year of an antibiotic can sharply cut death rates among infants in poor countries, perhaps by as much as 25 percent among the very young, researchers reported on Wednesday.
In other words, the quality of the most important part of health care treatments bypassed the rest of the problems in poor economies and grew rapidly, even in countries with only so-so economic growth. The rate of reduction in child mortality has tripled in many countries since the 1990s, and by no means are those locales major economic winners as say Singapore and South Korea were.
Therein lies one of the most important (and under-reported) global changes in the last twenty years. It is now possible to have a decent public health system in a country with poor or mediocre political and economic institutions.
In other words, public health is no longer such an O-Ring service, an O-Ring service being one where everything has to go right for the service to be of decent quality. And advances are much, much easier when the O-Ring structure no longer rules.
The O-Ring citation is to a famous Michael Kremer paper — a trip to the moon is definitely an O-Ring process, because if one step is off the whole mission probably is a failure. But tasty fish curry is not — you can get a splendid version in some pretty dumpy countries, maybe even a better version in poorer places.
Electricity, however, it seems is still an O-Ring service, as evidenced by the recent power blackouts in South Africa.
What else is likely to become less of an O-Ring good or service in the next few decades to come? And what can we do to hasten such progress? Is there any chance of quality software production making that same kind of transition? Or might some goods and services return to a greater connection with the O-Ring model?
For this post I am very much indebted to a conversation with Garett Jones.
Tyler posed these questions to Ezra and more, including thoughts on Silicon Valley’s intellectual culture, his disagreement with Jonathan Haidt’s Moral Foundations Theory, the limits of telecommuting, how becoming a father made him less conservative, his post-kid production function, why Manhattan is overrated, the “cosmic embarrassment” of California’s governance, why he loved Marriage Story, the future of the BBC and PBS, what he learned in Pakistan, and more.
Here is one bit:
COWEN: We would agree that what is called affective negative polarization is way up — professing a dislike of the other side, not wanting your Republican kid to marry a Democratic wife, and so on. But in terms of actual policy polarization, what if someone says, “Well, that’s down,” and they say this: “Well, the main issue in foreign policy today is China.” That’s actually fairly bipartisan. Or if people don’t agree, they don’t disagree by party.
Domestic spending, Social Security, Medicare — no one wants to cut those. That’s actually consensus. The other main issue is how we deal with or regulate tech. America has its own system. It’s happened through the regulators. It’s not really that partisan. One may or may not like it, but again, disagreement about it doesn’t fall along normal party lines.
So the main foreign policy issue, the main substantive social issue — we’re less polarized. And then, domestic spending, it seems, we all mostly agree. Why is that wrong?
KLEIN: I’m not sure it is wrong. Two things I would say about it. One, the word main is doing a lot of work in that argument. The question is, how do you decide what are the main issues? I wouldn’t say domestic regulation of tech is a main issue, for instance. I think it’s important, but compared to things like immigration and healthcare, at least in the way people experience that and think about that — or if you ask them what are their main issues, domestic regulation of tech doesn’t crack the top 10.
COWEN: But again, at any point in time, if positions are shifting rapidly — as they are, say, on trade — if you took all of GDP, even healthcare — that’s what, maybe 18 percent of GDP? But a lot of the system, a lot of people in both parties agree on, even if they disagree on Obamacare. Obamacare is part of that 18 percent. Over what percent of GDP are we more polarized than we used to be, as compared to less polarized? What’s your estimate?
KLEIN: I like that question. Let me try to think about this. I don’t think I have a GDP answer for you, but let me try to give you more of what I think of as a mechanism.
I think a useful heuristic here — people don’t have nearly as strong views on policy qua policy as certainly people like you and I tend to assume they do. The way that Washington, DC, talks about politics is incredibly projection oriented. We talk about politics as if everybody is a political junkie with highly distinct ideologies.
Political scientists have done a lot of polling on this, going all the way back to the 1960s, and it seems something like 20 to 30 percent of the population has what we would think of as a coherent policy-oriented ideology, where things fit together, and they have everything lined up. Most people don’t hold policy positions all that strongly.
What happens is that they do hold — to the extent they’re involved in politics — identity strongly, political affiliations quite strongly. They know who is on their side and who isn’t.
The pattern that I see here, again and again, is that when things are out of the spotlight, when they are not being argued about, when they are not the thing that the parties are disagreeing about, they’re actually quite nonpolarized. You’ll sit there in rooms of experts. There’ll be a panel here, George Mason, whatever it might be, and everybody will have some good ideas about how you can make the system better for everyone.
Then what will happen is, the Eye of Sauron of the American political system will turn towards whatever the policy issue is. Maybe it’s Obamacare, maybe it’s climate change. Remember, climate change was not that polarized 15–20 years ago. John McCain had a big cap-and-trade plan in his 2008 platform —
COWEN: If you could engineer your own political temperament, would you change it from how it is? Mostly, we’re stuck with what we’ve got, I would say, but if you could press the button — more passionate, less passionate, something else? Goldilocks?
KLEIN: I think I like my political temperament. Probably for the era of politics we’re moving into, and for my job, it would almost be better to be of a more conflict-oriented temperament than I am. I think that we are moving into something that, at least in the short term, is rewarding or is going to reward those who really like getting in fights all the time, and I don’t like that.
I’m more consensus oriented. I like hearing people out. I probably have a little bit more of a moderate temperament in that way. But I wouldn’t really change that about myself. I think it’s a shame that so much of politics happens on Twitter now, but that’s the way it is. I wouldn’t change me to operate to that.
Recommended, and again here is Ezra’s new book on polarization.
The show’s producer, the excellent Jeff Holmes, interviews me about what I thought of the year’s episodes (including most underrated), here is the audio and transcript, a very fun episode for me to do. We cover:
…who was most challenging guest to prep for, the most popular — and the most underrated — conversation, a test of Tyler’s knowledge called “Name That Production Function,” listener questions from Twitter, how Tyler has boosted his productivity in the past year, and whether his book and movie picks from 2009 still hold up.
And if you have enjoyed this year in Conversations, please consider donating here before the end of the year.
It’s often thought that what we have to fear from automation and AI is super-robots. Acemoglu and Restrepo make the useful point that what we actually should fear is mediocre robots, robots only slightly better than humans. Think about robots replacing labor in various tasks. A super-robot replaces labor but has an immense productivity advantage which generates wealth and increases the demand for labor elsewhere. A mediocre-robot replaces the same labor but doesn’t have a huge productivity advantage. As a result, the mediocre robot is the true jobs killer because it replaces labor without greatly increasing wealth. Think about automated phone systems or chat bots.
In an empirical breakdown, Acemoglu and Restrepo suggest that what has happened in the 1990s and especially since 2000 is mediocre-robots. As a result, there has been a net decline in labor demand with no big wealth increase. Thus, Acemoglu is more negative than many economists on automation, at least as it has occurred recently.
More generally, Acemoglu and Restrepo create a new type of production function and use that to reformulate how we think about production and how we measure what is happening in the economy with automation and AI. This is one of the most important new pieces on automation and the economy.
As I continue to do Conversations with Tyler, more people ask me about “the Tyler Cowen production function.” Well, here is one piece of it I don’t think I’ve written about or talked about before. I’m going to bring you there in slightly long-winded fashion, long-winded for a blog post that is.
I’ve long been convinced that “matters of culture” are central for understanding economic growth, but I’m also painfully aware these theories tend to lack rigor and even trying to define culture can waste people’s time for hours, with no satisfactory resolution.
So I thought I would tackle this problem sideways. I figured the best way to understand culture was to try to understand or “crack” as many cultural codes as possible. As many styles of art. As many kinds of music. As many complex novels, and complex classic books, and of course as many economic models as well. Religions, and religious books. Anthropological understandings. I also learned two languages in my adult years, German and Spanish (the former better than the latter). A bit later I realized that figuring out how an economic sector works — if only partially — was really not so different from cracking these other cultural codes. For instance, once I spent three days on a boat (as keynote speaker), exclusively with people from a particular segment of the shipping trade. It was like entering a whole new world and every moment of it was fascinating.
Eventually it seemed to me that problems of management were themselves a kind of cultural code, each one different of course.
And travel was the most potent form of this challenge, every new place a new culture to be unraveled and partially understood, and how much time was there to do that anyway?
It is very time-consuming — years-consuming — to invest in this skill of culture code cracking. But I have found it highly useful, most of all for various practical ventures and also for dealing with people, and for trying to understand diverse points of view and also for trying to pass intellectual Turing tests.
I am not recommending this you at any particular margin, or at the margin I have invested in. But if you ask me about the Tyler Cowen production function, every now and then I will tell you.
Addendum: It occurs to me that the number and diversity of cultural codes is increasing much faster than the ability of any individual to track them, much less master them. In this regard, an understanding of matters cultural is always receding from us.
We develop and estimate a joint model of the education and teacher-expectation production functions that identifies both the distribution of biases in teacher expectations and the impact of those biases on student outcomes via self-fulfilling prophecies. Our approach leverages a unique feature of a nationally representative dataset: two teachers provided their educational expectations for each student. Identification of causal effects exploits teacher disagreements about the same student, an idea we formalize using lessons from the measurement error literature. We provide novel, arguably causal evidence that teacher expectations affect students’ educational attainment: Estimates suggest an elasticity of college completion with respect to teachers’ expectations of about 0.12. On average, teachers are overly optimistic about students’ ability to complete a four-year college degree. However, the degree of over-optimism of white teachers is significantly larger for white students than for black students. This highlights a nuance that is frequently overlooked in discussions of biased beliefs: less biased (i.e., more accurate) beliefs can be counterproductive if there are positive returns to optimism or if there are socio-demographic gaps in the degree of teachers’ optimism; we find evidence of both.
This is the most important thing I will have to tell you today. Here is commentary from Vera.
I was very happy with how this turned out, here is the audio and transcript. Here is how the CWTeam summarized it:
Michael Pollan has long been fascinated by nature and the ways we connect and clash with it, with decades of writing covering food, farming, cooking, and architecture. Pollan’s latest fascination? Our widespread and ancient desire to use nature to change our consciousness.
He joins Tyler to discuss his research and experience with psychedelics, including what kinds of people most benefit from them, what it can teach us about profundity, how it can change your personality and political views, the importance of culture in shaping the experience, the proper way to integrate it into mainstream practice, and — most importantly of all — whether it’s any fun.
He argues that LSD is underrated, I think it may be good for depression but for casual use it is rapidly becoming overrated. Here is one exchange of relevance:
COWEN: Let me try a very philosophical question. Let’s say I could take a pill or a substance, and it would make everything seem profound. My receptivity to finding things profound would go up greatly. I could do very small events, and it would seem profound to me.
Is that, in fact, real profundity that I’m experiencing? Doesn’t real profundity somehow require excavating or experiencing things from actual society? Are psychedelics like taking this pill? They don’t give you real profundity. You just feel that many things are profound, but at the end of the experience, you don’t really have . . .
POLLAN: It depends. If you define profundity or the profound as exceptional, you have a point.
One of the things that’s very interesting about psychedelics is that our brains are tuned for novelty, and for good reason. It’s very adaptive to respond to new things in the environment, changes in your environment, threats in your environment. We’re tuned to disregard the familiar or take it for granted, which is indeed what most of us do.
One of the things that happens on psychedelics, and on cannabis interestingly enough — and there’s some science on it in the case of cannabis; I don’t think we’ve done the science yet with psychedelics — is that the familiar suddenly takes on greater weight, and there’s an appreciation of the familiar. I think a lot of familiar things are profound if looked at in the proper way.
The feelings of love I have for people in my family are profound, but I don’t always feel that profundity. Psychedelics change that balance. I talk in the book about having emotions that could be on Hallmark cards. We don’t think of Hallmark cards as being profound, but in fact, a lot of those sentiments are, properly regarded.
Yes, there are those moments you’ve smoked cannabis, and you’re looking at your hand, and you go, “Man, hands, they’re f — ing incredible.” You’re just taken with this. Is that profound or not? It sounds really goofy, but I think the line between profundity and banality is a lot finer than we think.
COWEN: I’ve never myself tried psychedelics. But I’ve asked the question, if I were to try, how would I think about what is the stopping point?
For my own life, I like, actually, to do the same things over and over again. Read books. Eat food. Spend time with friends. You can just keep on doing them, basically, till you die. I feel I’m in a very good groove on all of those.
If you take it once, and say you find it entrancing or interesting or attractive, what’s the thought process? How do you model what happens next?
POLLAN: That’s one of the really interesting things about them. You have this big experience, often positive, not always though. I had, on balance . . . all the experiences I described in the book, with one notable exception, were very positive experiences.
But I did not have a powerful desire to do it again. It doesn’t have that self-reinforcing quality, the dopamine release, I don’t know what it is, that comes with things that we like doing: eating and sex and sleep, all this kind of stuff. Your first thought after a big psychedelic experience is not “When can I do it again?” It’s like, “Do I ever have to do it again?”
COWEN: It doesn’t sound fun, though. What am I missing?
POLLAN: It’s not fun. For me, it’s not fun. I think there are doses where that might apply — low dose, so-called recreational dose, when people take some mushrooms and go to a concert, and they’re high essentially.
But the kind of experience I’m describing is a lot more — I won’t use the word profound because we’ve charged that one — that is a very internal and difficult journey that has moments of incredible beauty and lucidity, but also has dark moments, moments of contemplating death. Nothing you would describe as recreational except in the actual meaning of the word, which is never used. It’s not addictive, and I think that’s one of the reasons.
I did just talk to someone, though, who came up to me at a book signing, a guy probably in his 70s. He said, “I’ve got to tell you about the time I took LSD 16 days in a row.” That was striking. You can meet plenty of people who have marijuana or a drink 16 days in a row. But that was extraordinary. I don’t know why he did it. I’m curious to find out exactly what he got out of it.
In general, there’s a lot of space that passes. For the Grateful Dead, I don’t know. Maybe it was a nightly thing for them. But for most people, it doesn’t seem to be.
COWEN: Say I tried it, and I found it fascinating but not fun. Shouldn’t I then think there’s something wrong with me that the fascinating is not fun? Shouldn’t I downgrade my curiosity?
POLLAN: [laughs] Aren’t there many fascinating things that aren’t fun?
COWEN: All the ones I know, I find fun. This is what’s striking to me about your answer. It’s very surprising.
W even talk about LSD and sex, and why a writer’s second book is the key book for understanding that writer. Toward the end we cover the economics of food, and, of course, the Michael Pollan production function:
COWEN: What skill do you tell them to invest in?
POLLAN: I tell them to read a lot. I’m amazed how many writing students don’t read. It’s criminal. Also, read better writers than you are. In other words, read great fiction. Cultivate your ear. Writing is a form of music, and we don’t pay enough attention to that.
When I’m drafting, there’s a period where I’m reading lots of research, and scientific articles, and history, and undistinguished prose, but as soon as I’m done with that and I’ve started drafting a chapter or an article, I stop reading that kind of stuff.
Before I go to bed, I read a novel every night. I read several pages of really good fiction. That’s because you do a lot of work in your sleep, and I want my brain to be in a rhythm of good prose.
Defininitely recommended, as is Michael’s latest book How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression, and Transcendence.
David was in top form, and I feel this exchange reflected his core style very well, here is the audio and transcript.
We covered why people stay so lonely, whether the Amish are happy, life in Italy, the Whig tradition, the secularization thesis, the importance of covenants, whether Judaism or Christianity has a deeper reading of The Book of Exodus, whether Americans undervalue privacy, Bruce Springsteen vs. Bob Dylan, whether our next president will be a boring manager, and last but not least the David Brooks production function.
Here is one excerpt:
COWEN: Walt Whitman, not only as a poet, but as a foundational thinker for America. Overrated or underrated?
BROOKS: I’d have to say slightly overrated.
COWEN: Tell us why.
BROOKS: I think his spirit and his energy sort of define America. His essay “Democratic Vistas” is one of my favorite essays. It captures both the vulgarity of America, but the energy and especially the business energy of America. But if we think the rise of narcissism is a problem in our society, Walt Whitman is sort of the holy spring there.
COWEN: Socrates, overrated or underrated?
BROOKS: [laughs] This is so absurd.
BROOKS: With everybody else it’s like Breaking Bad, overrated or underrated? I got Socrates.
BROOKS: I will say Socrates is overrated for this reason. We call them dialogues. But really, if you read them, they’re like Socrates making a long speech and some other schmo saying, “Oh yes. It must surely be so, Socrates.”
BROOKS: So it’s not really a dialogue, it’s just him speaking with somebody else affirming.
COWEN: And it’s Plato reporting Socrates. So it’s Plato’s monologue about a supposed dialogue, which may itself be a monologue.
BROOKS: Yeah. It was all probably the writers.
And on Milton Friedman:
BROOKS: I was a student at the University of Chicago, and they did an audition, and I was socialist back then. It was a TV show PBS put on, called Tyranny of the Status Quo, which was “Milton talks to the young.” So I studied up on my left-wing economics, and I went out there to Stanford. I would make my argument, and then he would destroy it in six seconds or so. And then the camera would linger on my face for 19 or 20 seconds, as I tried to think of what to say.
And it was like, he was the best arguer in human history, and I was a 22-year-old. It was my TV debut — you can go on YouTube. I have a lot of hair and big glasses. But I will say, I had never met a libertarian before. And every night — we taped for five days — every night he took me and my colleagues out to dinner in San Francisco and really taught us about economics.
Later, he stayed close to me. I called him a mentor. I didn’t become a libertarian, never quite like him, but a truly great teacher and a truly important influence on my life and so many others. He was a model of what an academic economist should be like.
Recommended. (And I actually thought David did just fine in that early exchange with Friedman.)
There is a new study on this very important question:
We examine the effect of university education on students’ non-cognitive skills (NCS) using high-quality Australian longitudinal data. To isolate the skill-building effects of tertiary education, we follow the education decisions and NCS—proxied by the Big Five personality traits—of 575 adolescents over eight years. Estimating a standard skill production function, we demonstrate a robust positive relationship between university education and extraversion, and agreeableness for students from disadvantaged backgrounds. The effects are likely to operate through exposure to university life rather than through degree-specific curricula or university-specific teaching quality. As extraversion and agreeableness are associated with socially beneficial behaviours, we propose that university education may have important non-market returns.
These results seem broadly consistent with the 1960s “schooling of society,” conformist, Marxian critiques of education. It is striking that higher education does not have more of a notable, measurable impact on either openness or conscientiousness.
In passing, I would like to note that I am not crazy about the term “non-cognitive” in this context.
She is a philosopher at the University of Chicago, here is the transcript and audio. We covered Plato and Socrates, what Plato is on about at all, the virtues of dialog and refutation, whether immortality would be boring, Elena Ferrante, parents vs. gangsters and Beethoven vs. Mozart, my two Straussian readings of her book, Jordan Peterson, Shakespeare’s Hamlet, the best defense of reading the classics, and the Agnes Callard production function (physics to classics to philosophy), all in suitably informationally dense fashion.
Here is one excerpt:
COWEN: I have a friend who’s interested in longevity research…and he tells me there’s maybe a 10 percent chance that I actually will live forever due to possible scientific advances. I’m skeptical, but let’s just say I were to live forever. How bored would I end up, and how do you think about this question?
CALLARD: [laughs] I think it depends on how good of a person you are.
COWEN: And the good people are more or less bored?
CALLARD: Oh, they’re less bored. One thing is that you’re kind of having to live with yourself for a very long time if you’re immortal, or even just live for a couple thousand years, and a bad self, I think, is hard to live with. By bad, I don’t just mean sort of, let’s say, cruel to people or unjust. I also mean not attuned to things of eternal significance.
I think you can get by in a 100-year life not being too much attuned to things of eternal significance because there’s so much fascinating stuff out there, and one can go from one thing to the next and not get bored. But if we’re talking about eternity, or even thousands of years, you’d better find something to occupy you that is really riveting in the way that I think only eternal things are.
I think that what you’re really asking is something like, “Could I be a god?” And I think, “Well, if you became godlike, you could, and then it would be OK.”
COWEN: Let me give you a hypothesis. You can react to it. That which is cultural, say, listening to music, I would get bored with, even though wonderful music maybe continually will be created. But those activities which are more primeval, more biological — parenting, sex, food, sleep, maybe taking a wonderful shower — that are quite brute, in a way, maybe I would substitute more into those as an immortal? Yes?
CALLARD: I don’t see why you wouldn’t get just as bored of bodily pleasures.
COWEN: You’re programmed for those to be so immediate and riveting, right? You evolve to be maybe an 80-year-old being, or perhaps even a 33-year-old being, so you are riveted on things like reproduction and getting enough sleep. And that stays riveting, even when you’re on this program to live 80,000 years.
CALLARD: I think that at least some of those activities stay riveting for us over the course of our lives because their meaning changes…
COWEN: Let’s turn now to your new book, Aspiration: The Agency of Becoming. There’s a sentence from the book. Let me read it, and maybe you can explain it. “Proleptic reasons allow you to be rational even when you know that your reasons aren’t exactly the right ones.” What’s a proleptic reason?
This was my favorite part, though perhaps few of you will get the joke:
COWEN: On aspiration, what do you think of Jordan Peterson?
CALLARD: I had this odd feeling. He only became known to me quite recently, in the past couple of weeks. I was listening to him talk, and I was thinking he sounds a little bit like Socrates, but not Socrates. I was like, “Who is that? Who is he reminding me of?” And it’s Xenophon’s Socrates.
Here you can buy her just-published book Aspiration: The Agency of Becoming. You cannot follow her on Twitter.
The very very highly rated but still underrated Chris Blattman was in top form, here is the transcript and audio. We had a chance to do this one when he was in town for a week. We talked about the problem with cash transfers, violence, child soldiers, charter cities, Rene Girard, how to do an Africa trip, Battlestar Galactica, why Ethiopia is growing rapidly, why civil war has become less common, why Colombia and the New World have been so violent, the mysteries of Botswana, and Chris’s favorite Australian TV show, among other topics, including of course the Chris Blattman production function. Here is one excerpt:
BLATTMAN: There’s this famous paper on Vietnam veterans in the US where they find that being conscripted into fighting in Vietnam had positive effects on the wages of blacks and negative effects on the wages of whites. The reason was, it was really down to, what was your alternative labor market and training experience in the absence of this war?
We found something similar in Uganda, something eerily familiar, which is that the women economically weren’t so worse off. I wouldn’t say they were better off, but they weren’t necessarily affected adversely in an economic sense — they were adversely affected in other ways 5 or 10 or 15 years down the road — while the men were.
It spoke to just how terrible women’s options were. Being conscripted and abducted to be a rebel wife, to some degree, wasn’t that different than what your marriage opportunities looked like if there wasn’t a war.
For men, it just meant that you were out of the civilian labor market, getting a bunch of skills that had turned out not to be very useful. It was bad for them. A different war, a different context, and a different labor market, and that can switch.
COWEN: How many northern Ugandan child soldiers have you interviewed?
BLATTMAN: A few hundred. At least a couple hundred, maybe more. It depends if you count someone who’s involved for a month versus two years. Certainly, the long, long-term soldiers who were there for many, many years are few, maybe only a couple dozen.
COWEN: Those contacts, those conversations, how have they changed your outlook on life emotionally, intellectually, otherwise?
COWEN: True or false, most humans are bad at violence?
BLATTMAN: I think they learn quickly. Probably they’re bad at first.
COWEN: In the micro evidence on violence, and the more individual-level evidence, and then finally macro evidence — like will there be a civil war? — do you think there’s ultimately an overarching theory that ties these all together? Or are they just separate levels of investigation, where you have empirical results, and they stand somewhat separate, and they’ll always be distinct areas?
How optimistic are you about a grand unified theory of violence?
BLATTMAN: I think these individual, how I react in the moment, fight-or-flight-type mechanisms are quite distinct from the way that small groups or large groups or nations go to war. But once you get beyond that to the level of small groups and larger groups and nations, I see a lot of unity in the theory.
Do read or listen to the whole thing. By the way, he says the Canadian political system is overrated.
Here is the transcript and audio, Matt was in great form. We covered Uber, derivatives, crypto, Horace, Latin and the ancient world, neighborhoods of New York City, whether markets are volatile enough, Buffy the Vampire Slayer, whether IPOs are mispriced, Nabokov and modernist literature, Achilles and Homer, and of course the Matt Levine production function (“panic”).
Here is one excerpt:
…What I’d like the story to be is that financial markets have gotten smarter and they reacted less to news. So even though the news is noisier, they react less to that noisy news because it turns out not to affect asset prices in as noisy a way as you’d think by watching TV.
I think that there is something compelling to that because we actually have seen smart people build smart things that do a good job of making investing decisions. So you’d expect over time, as people build more rational investing tools, investing would become more rational.
The good counterargument to that is that investing is not a technological problem in the world that can be solved. It’s an interpersonal fight. Trading, in particular, is an attempt to be better than someone else. You can never make trading more rational because as you get better, someone else gets better. The residue will ultimately still be your human biases.
I’m biased towards the view that we have gotten smarter at decoupling our emotional reactions to the news from financial asset prices. Part of that is — whether or not that’s true globally — there’s a local sense in which the first day of Trump’s election everyone panicked. Then he said another crazy thing, and then he said another. Eventually you tune it out. That’s a form of this thing of financial assets reacting less to human reactions to the news.
Here is another:
COWEN: Do you have a single biggest worry [about asset markets], however tiny, tiny, tiny it may be?
LEVINE: I don’t think I do. I don’t think I do. The thing that I find weirdest is the lack of volatility in the face of a very strange and volatile world, but I’ve reconciled myself to that. This is my efficient markets optimism, where I assume that if something bad is happening, it would happen.
COWEN: But efficient markets is also a pessimism, right? It’s harder to make the world better than it already is because you can’t see past what others are seeing very easily.
LEVINE: Sure, it’s an efficient markets conservatism or something.
LEVINE: I have an idiosyncratic take on Book 9 of the Iliad. The Iliad is the story of Achilles is the great warrior on the Greek side in the Trojan War. He gets mad at some slight, and he goes back to his tent to sulk, and the Greeks start losing.
So then they send emissaries to his tent to say, “Please come back.” And he says, “No.” Then, the Greeks start losing some more.
Eventually, he comes back, and he gets killed. That’s basically the story of the Iliad. Book 9 is where they send the emissaries to say, “Please come back,” and he says, “No.”
He gives this speech, this response that is weird, where he says, effectively, “The prophecy is that if I go back to fight here, I will die here. My name will be immortal. If I don’t go back to fight, I’ll go home and live a long life and will be forgotten.” He chooses to go back and be forgotten. Then, later, he changes his mind because his friend gets killed.
I think the existential examination of this Greek warrior and this heroic culture that clearly valorizes heroism and deathless fame and everything, and who is, canonically, the most famous heroic warrior and the one with the most deathless fame, he’s the one who says, “Nah, I’d rather go back and live a long life on my farm.”
The forcing of that choice is the central point of the highest work of Greek art, sort of prefigures a lot of existentialist thought in the future, I think.
Do read and listen to the whole thing…
Enghin Atalay has a piece on that topic in the American Economic Journal: Macroeconomics, here is the abstract with emphasis added by me:
I quantify the contribution of sectoral shocks to business cycle fluctuations in aggregate output. I develop and estimate a multi-industry general equilibrium model in which each industry employs the material and capital goods produced by other sectors. Using data on US industries’ input prices and input choices,I find that the goods produced by different industries are complements to one another as inputs in downstream industries’ production functions. These complementarities indicate that industry-specific shocks are substantially more important than previously thought, accounting for at least half of aggregate volatility.
There is another recent paper, this one by Ernesto Pasten, Raphael Schoenle, and Michael Weber, an NBER Working Paper. From p.3:
…heterogeneity in price rigidities changes the identity of sectors from which aggregate fluctuations originate, and generates GDP volatility from sectoral shocks independent of the sector-size distribution and network centrality.
In other words, sector-specific shocks are underrated as causes of aggregate fluctuations, most of all in the economic blogosphere.
Yes, the Raj Chetty. Here is the transcript and podcast. As far as I can tell, this is the only coverage of Chetty that covers his entire life and career, including his upbringing, his early life, and the evolution of his career, not to mention his taste in music. Here is one bit:
COWEN: Which is one of his fields, right?
CHETTY: That’s right, my dad did a lot of early work in Bayesian econometrics with Arnold Zellner, and the academic environment was something I grew up with since I was a kid. I’m the last person in my family to publish a paper. My sisters are also in academia on the medical and bio side. Whether it’s statistics or thinking about scientific questions or thinking about how to change things in the world, that’s the environment in which I grew up from the youngest of ages.
We also discuss his famous papers on kindergarten teachers, social mobility, and the other topics he is best known for working on, including tax salience and corporate dividends. My favorite part is where Chetty explains what I call “the Raj Chetty production function,” namely why he has been part of so many very successful papers, but that is hard to excerpt. There is also this:
COWEN: In music, the group the Piano Guys, speaking of Mormons. Overrated or underrated?
CHETTY: Underrated. I love the Piano Guys.
CHETTY: I think the Piano Guys are great in terms of doing renditions of popular songs.
COWEN: Not too triumphalist? Do you mean the major chords?
CHETTY: Maybe in some cases, but I like them.
COWEN: Bhindi or okra. Overrated or underrated?…
Self-recommending, if there ever was such a thing.