Month: August 2014

Average is Over update

Here is the latest, very consistent with what I argued in the book:

Automation and technology are replacing or reducing the menial tasks once associated with typical entry-level roles – those jobs that act as the first rung on a career ladder – so employers are raising the skills bar for their newest hires. Companies want those employees to arrive with sophisticated interpersonal skills, able to collaborate skillfully with colleagues and immediately interact with clients.

Weinberger examined later-life earnings of two groups of white men who completed high school and entered the workforce 20 years apart, one group in 1972 and the other in 1992. As a measurement of social skills, she looked at the men’s participation in high school sports, especially leadership roles on schools teams.

By examining wages seven years after high school graduation – in 1979 and 1999, respectively – and then looking at more recent Census and Department of Labor data to understand current labor-market outcomes, Weinberger found that later grads with impressive social skills as well as cognitive prowess experienced a seven percentage-point wage premium over those from the earlier group.

The paperback edition of Average is Over is out soon on August 26, you can order it here.

Assorted links

Ian Bremmer on Ukraine, and an observation on Putin’s food import ban

Putin’s Plan A: Long game, squeeze Ukraine, force deep federation, formalize Russian influence & primacy in SE

Plan B: Invade

The link to that tweet is here.  There is more from Ian here.

I find it worrying that Putin is suspending food imports from parts of the West.  (Note that the text of the ban may be deliberately ambiguous.)  Commentators are criticizing the economics of such a move, but I think of this more in terms of Bayesian inference.  Long-term elasticities are greater than short.  Under the more pessimistic reading of the action, Putin is signaling to the Russian economy that it needs to get used to some fairly serious conditions of siege, and food is of course the most important of all commodities.  Why initiate such a move now if you are expecting decades of peace and harmony?  Or is Putin instead trying to signal to the outside world that he is signaling “siege” to his own economy?  Then it may all just be part of a larger bluff.  In any case, Eastern Europeans do not take food supply for granted.

In Defense of Johns

Jim Norton writing in Time:

…When I first began soliciting sex for money, it never occurred to me that some of them are possibly forced into prostitution or have abusive pimps. I must have known it deep down on an intellectual level, but hadn’t witnessed anything to confirm it.

Until I did.

The only experience I’ve had with an element of violence being present was driving on 48th Street in New York once and talking to a girl through my passenger window….As we were speaking, a van full of girls stopped and a guy who I assume was her pimp, bounced her across the hood of my car and threw her in the van.

This is why I’m a firm believer that prostitution should be legalized and pimps should be thrown down an elevator shaft.

Law enforcement stings designed to shame men who pay for sex are nothing more than the state blowing its own morality horn. Being a comedian who is single allows me a luxury most johns don’t have, which is the freedom to discuss the topic openly. And not from a ‘case study’ point of view, but from the honest point of view of someone who has spent the equivalent of a Harvard Law School education on purchasing sex.

By keeping prostitution illegal because we find it “morally objectionable,” we allow (or, more accurately, you allow) sex workers to constantly be put into dangerous situations. Studies have shown that rapes and STDs dropped drastically between 2003 and 2009 in Rhode Island after the state accidentally legalized it. The American Journal of Epidemiology showed that the homicide rate for prostitutes is 50 times higher than the next most dangerous job for a woman, working in a liquor store. You don’t need a Masters in sociology to understand it would be much safer for sex workers if they were permitted to work in places that provided adequate security. Legalizing prostitution would also alleviate the fear a sex worker may have about reporting the abusive behavior of a john out of fear of arrest.

…Give sex workers rights. Give johns a break.

Will the recent decline in entrepreneurship be reversed by demographic forces?

Annie Lowrey documents that decline, Matt Yglesias offers a partially optimistic hypothesis:

…people are founding fewer new businesses. But why?

One possibility is that the link to population aging is quite literal. A study by Vivek Wadhwa, Raj Aggarwal, Krisztina Holly, and Alex Salkever that looked specifically at “high-growth” industries found that the typical successful founder is 40. Not someone who’s at the tail-end of his career, but not someone who’s fresh out of school either. That’s in part because “professional networks were important to the success of their current business for 73 percent of the entrepreneur,” and it takes time to achieve that success. Mark Zuckerberg founded a great company when he was in college, but that kind of super-young founder is the exception not the rule — most people need some practical experience and contacts to succeed.

And back in the early 1990s, there were a lot of people in their late-thirties and early forties…

Nowadays that cohort of people’s prime founding years are behind them. There is another large cohort of people coming up, but right now they’re too young to be peak entrepreneurs. This cool CNN graphic shows that the most common age in the United States right now is 22 and 23, and that’s followed by 53 and 52.

The story about aging is so well-known that people tend to neglect this sub-trend of the youth bulge. But right now we’re at a moment where a lot of inexperienced workers are entering the labor market, and 10 to 20 years from now we’ll be in a moment when a lot of experienced workers are founding new businesses. But for the past 10 years, we’ve been seeing a demographic trend that’s unfavorable to entrepreneurship.

There are a few relevant questions:

1. At any point in time, are there external benefits or external costs to having more new businesses founded?

2. As organizational capabilities increase with progress, does market equilibrium serve up larger and older firms?  It seems so.

3. What are the external social costs and benefits of that progression?

In poor, developing economies, I think of high levels of petty entrepreneurship as a negative, rather than a positive.  Might the United States be a bit the same way?  Yet the continuation of The Great Stagnation makes that a hard line to buy into enthusiastically.

I thank Robin Hanson for a useful conversation related to this blog post.

Will you lose your job to a robot?

The Upshot surveys some optimistic and pessimistic views.  I thought it would be useful to restate my views in a single, simple blog post, here is the enumeration:

1. The law of comparative advantage has not been repealed.  Machines take away some jobs and create others, while producing more output overall.

2. That said, some particular kinds of machines increase the relative return to skilled labor.  If the new jobs require working with computers, and working with computers effectively is hard, reemploying lower-skilled workers at good wages may be difficult.

3. Smart software, factor price equalization, and better measurement of value have all boosted income inequality.  Returns to working for low-skilled workers have fallen or stagnated in many regions (not North Dakota).  Returns for many higher skilled workers have risen, but most of them were working and working hard already.

4. Lower returns to unskilled labor mean (on average) that low-skilled laborers will work less.  This effect may interact with government benefits but sometimes people decide to work less or search less hard for a job for reasons unrelated to benefits.  These decisions may produce feedback which weakens pro-work norms in the broader culture.

5. The employment to population ratio will be lower than it otherwise would have been, because of “robots” but not only robots.  The natural rate of unemployment will be higher too.

6. Many of the new service sectors jobs will be better suited to women rather than the most unruly men.  Physical strength will matter less, conscientiousness and teamwork will matter more, and much of the burden of these adjustments will fall on lesser educated men.

7. Facebook makes it easier to get sex and keep friends without having a job.

8. There is good evidence for each of these propositions, although it may be questioned how great is their combined import.  In the meantime, yes robots may lower employment, although the catchphrase “robots are destroying jobs” is misleading rather than illuminating.

How do moles smell underwater?

Blowing Bubbles

I was pleased to see the mention of the star-nosed mole in Nick Richardson’s review of Ned Beauman’s latest novel (LRB, 17 July). Richardson informs us that this marvellous creature ‘can smell underwater’. True, but not thanks to the ‘nose’ that gives it its name. The 22 fleshy appendages that protrude from the mole’s face are not an olfactory organ at all, but a skin surface containing more than 100,000 sensory neurons – it’s the most acute touch organ of any mammal on the planet and about six times more sensitive than the human hand. In order to ‘smell’ underwater – a phenomenon long thought impossible in mammals – the mole exhales air bubbles over objects then reinhales them, allowing odorant molecules in the bubbles to pass over the olfactory receptors.

Sarah Murray
Esher

The link is here, pointer from Hugo Lindgren.

The age of the meta-bribe (the punishment that is Germany)

Bernie Ecclestone, is to make a $100m (£60m) payment to end his trial on bribery charges, a district court in Munich has confirmed.

Ecclestone, 83, went on trial in Munich in April over allegations that he bribed a former German banker as part of the sale of a major stake in the motorsport business eight years ago.

German law provides for some criminal cases to be settled with smaller punishments, such as fines, though the size of the payment in Ecclestone’s case has led some to question a system that effectively favours wealthy defendants.

The Munich court said in a statement that $99m would be paid to the German treasury and a further $1m to a German children’s hospice charity. The money will be paid within a week, after which time the trial will officially be abandoned.

The full story is here, not quite China punishment of the day.

For the pointer I thank Dan Jackson.

Stratfor on the Chinese anti-corruption campaign

That campaign is one of the more notable events going on in a busy and event-rich world, so it feels remiss not to cover it at all.  Here is John Minnich:

The anti-corruption campaign is one of those steps. It serves many overlapping functions: to clear out potential opponents, ideological or otherwise; to consolidate executive power and reduce bureaucratic red tape so as to ease the implementation of reform; to remind the Chinese people that the Communist Party has their best interests at heart; and to make it easier to make tough decisions.

Underlying and encompassing these, we see the specter of something else. The consensus-based model of politics that Deng built in order to regularize decision-making and bolster political stability during times of high growth and that effectively guided China throughout the post-Deng era is breaking down. It can no longer hold in the face of China’s transformation and the crises this will bring. Simply put, now that its post-1978 contract with Chinese society — a social contract grounded in the exchange of growth for stability — is up, the Party risks losing the public support and political legitimacy that this contract undergirded. A new and more adaptive but potentially much less stable model is being erected, or resurrected, from within the old. This model is grounded more firmly in the personality and prestige of the president and more capable, or so Chinese leaders seem to hope, of harnessing and managing the Chinese nation through what could well be a period of turmoil.

This does not necessarily mean a return to Imperial China, nor does it mean a return to the days and methods of the Great Helmsman, Mao. It doesn’t even mean the new model will succeed, even remotely. What it means will be decided only by the specific interplay of structure and contingency in the unfolding of history. But it is this transformation that serves as the fundamental, if latent, purpose for Xi’s anti-corruption campaign.

The full piece is here, and for the pointer I thank Jim Olds.  “Be careful what kind of anti-corruption campaign you wish for…”

China punishment of the day (Biblical)

Drivers caught using high beams inappropriately will now be offered on-the-spot training about the dangers of such practices, according to a posting on the Shenzhen Traffic Police’s verified account with Weibo.

Specifically, headlight-happy drivers will be forced to stare straight ahead into the glaring headlights of a police van for a period of several minutes.

“You still dare to use your headlights carelessly?” the Traffic Police posting asks. “If so, then starting from now we’ll make you stare at our high beams for five minutes.”

There is also a 300 yuan ($49) fine.  The policy is popular in some quarters:

Still, most people reacted positively to the Shenzhen Traffic Police’s approach.

“An eye for an eye, and a tooth for a tooth! This punishment should be popularized. When can it be used to deal with red-light running or hit-and-run?” wrote another.

More people in The Middle Kingdom need to read Gary Becker.  The full story is here.

Assorted links

Ebola and the FDA

The Telegraph reports:

The two American doctors who have caught Ebola have been treated with a new “secret serum” which could potentially save their lives.

…A source close to the Atlanta hospital, where Dr Brantly is being treated, told CNN: “Within an hour of receiving the medication, Brantly’s condition was nearly reversed. His breathing improved; the rash over his trunk faded away.”

One of his doctors reportedly described the events as “miraculous.”

…Dr Writebol was also administrated with the drug, which was transported to Liberia in a special sub-zero container. She showed a less remarkable recovery, but is hoped to travel to the US on Tuesday to continue her treatment.

According to CNN, the drug was developed by the biotech firm Mapp Biopharmaceutical, based in California. The patients were told that this treatment had never been tried before in a human being but had shown promise in small experiments with monkeys.

…health workers said drugs that could fight Ebola are not particularly complicated but pharmaceutical firms see no economic reason to invest in making them because the virus’ few victims are poor Africans.

Of course, pharmaceutical firms are not going to invest millions in getting a drug through FDA trials for a disease that has only killed a few thousand people since being discovered in 1976. Nevertheless, some people find this simple logic difficult to accept.

 Prof John Ashton, Britain’s leading public health doctor, termed the “moral bankruptcy” of profit-driven drugs developers.

The logic of profit-driven drug developers is no different than the logic of profit driving automobile manufactures. It isn’t profitable to make cars for people who can’t afford them but the auto firms are rarely called morally bankrupt for not giving cars away to the poor. Moreover, it’s not at all obvious why the burden of producing unprofitable drugs should fall on the drug manufacturers. To the extent that there is an ethical case for developing drugs for the poor it’s a burden that falls on all of us.

As Eric Crampton notes there are at least two possible solutions. Either ensure at taxpayer expense a return on investment by subsidizing, offering prizes (as I suggested in Launching) or publicly investing in orphan drugs or

ease up the FDA trials for drugs in this kind of category. Does it really make sense to mandate placebo trials for drugs hitting diseases with 60% fatality rates? We are condemning people to a very high risk of death for the sake of ensuring that there aren’t drug side effects and that the drugs are more effective than placebos (pretty easy to tell quickly where the fatality rate is otherwise 60%!).