Month: November 2016

Carlsen > Karjakin

1. Karjakin played some of the best defensive chess ever, finding resources where there appeared to be none.

2. Carlsen had become a bit lazy, relying too much on his stamina advantage to beat opponents (yes I do understand that is an odd notion of lazy!).  Yet he had no real stamina advantage over Karjakin, who is of the same age and came to the match in very good physical shape.  So Carlsen simply could not grind him down, and it took Carlsen the entire match to realize that.

3. Karjakin made very few attempts to achieve demonstrable, sharp advantages.  That limited his total number of victories to one.

4. In the rapid tie-breaker — four consecutive games in the final day — Carlsen couldn’t try to win on stamina and simply showed he was the better player across many dimensions of the game.  Karjakin posed him no problems at all in these contests.

5. Karjakin played as Carlsen’s equal for the twelve regular time control games.  Yet I don’t think he will be back as a challenger.  His style is too “drab” (Kasparov’s description) to get through all of the risk-rewarding tournaments to reach the final championship match again.

6. Perhaps rapid chess is the future of chess as a spectator sport.  Four games in a row, each twenty-five minutes per player, plus increments.  It was thrilling, and I watched on the train.

7. Putin finally lost one this year, let’s hope this reverses the trend.

Here is the Chessbase account, here is the quite good NYT story.

The Intel anthropologist on why we are afraid of AI

Here is a separate bit from that interview:

I’m interested in how animals are connected to the internet and how we might be able to see the world from an animal’s point of view. There’s something very interesting in someone else’s vantage point, which might have a truth to it. For instance, the tagging of cows for automatic milking machines, so that the cows can choose when to milk themselves. Cows went from being milked twice a day to being milked three to six times a day, which is great for the farm’s productivity and results in happier cows, but it’s also faintly disquieting that the technology makes clear to us the desires of cows – making them visible in ways they weren’t before. So what does one do with that knowledge? One of the unintended consequences of big data and the internet of things is that some things will become visible and compel us to confront them.

And on the main question at hand:

What we are seeing now isn’t an anxiety about artificial intelligence per se, it’s about what it says about us. That if you can make something like us, where does it leave us?

Here is the full interview with Genevieve Bell.

Women Working: What’s the Pill Got to Do With It?

I think this is one of the best videos that we have ever done at MRUniversity–it combines history, technology and economics with a great story that links it all together. It’s the final video in the section of our Principles of Macroeconomics class covering unemployment and labor force participation. As always, the videos are free to use and they pair exquisitely well with the best principles textbook, Modern Principles.

Addendum: The video is based on some great papers, here are links: The Power of the Pill by Claudia Goldin and Lawrence Katz and Martha Bailey’s papers “Momma’s Got the Pill”: How Anthony Comstock and Griswold v. Connecticut Shaped US Childbearing and More Power to the Pill.

Trump’s pledge to keep investment from leaving the United States

That is the topic of my latest Bloomberg column, here is just one bit from it:

In other words, the Trump program for protectionism could go far beyond interference in international trade. It also could bring the kind of crony capitalist nightmare scenarios described by Ayn Rand in her novel “Atlas Shrugged,” a book many Republican legislators would be well advised to now read or reread.


The biggest irony of this whole Trump initiative is that it likely would lead to higher U.S. trade deficits. Economists stress the offsetting nature of trade flows and capital flows. As the accounting identities are constructed, a higher trade deficit corresponds to higher capital inflows, and a lower trade deficit corresponds to higher capital outflows. (To see the nature of these balanced transactions, imagine China selling goods and accumulating Treasury bills in return, a form of investment in this country.) So a Trumpian plan to limit capital outflows, through whatever means, is also — if only indirectly and without such intent — a plan to boost the trade deficit.

Do read the whole thing.

Which kind of countercyclical fiscal policy is best?

Miguel Faria-e-Castro, on the job market from NYU, has a very interesting paper on that question.  Here are his findings:

What is the impact of an extra dollar of government spending during a financial crisis? How important was fiscal policy during the Great Recession? I develop a macroeconomic model of fiscal policy with a financial sector that allows me to study the effects of fiscal policy tools such as government purchases and transfers, as well as of financial sector interventions such as bank recapitalizations and credit guarantees. Solving the model with nonlinear methods allows me to show how the linkages between household and bank balance sheets generate new channels through which fiscal policy can stimulate the economy, and study the state dependent effects of fiscal policy. I combine the model with data on the fiscal policy response to assess its role during the financial crisis and Great Recession. My main findings are that: (i) the fall in consumption would had been 1/3 worse in the absence of fiscal interventions; (ii) transfers to households and bank recapitalizations yielded the largest fiscal multipliers; and (iii) bank recapitalizations were closest to generating a Pareto improvement.

Bank recapitalizations — just remember that the next time you hear someone talking about “G” in the abstract.

See also this new Alesina NBER paper, indicating that the how of fiscal adjustment is much more important than the when.  No tax hikes!

Tuesday assorted links

Assorted Links with Commentary

1. Due to massive inflation, shops in Venezuela are now weighing money rather than counting it–a true paper standard.

2. As the economy collapses, Venezuelan’s are turning to bitcoin–using free electricity to mine the coins–but the secret police are hunting the miners.

3. Larry White and Shruti Rajagopolan note that India’s demonetization is really an expropriation that will transfer wealth to the government. Whether the wealth transfer is of black market holdings or not remains to be seen.

4. George Borjas remember’s Castro’s demonetization:

Castro quickly found a simple way of confiscating “excess” cash. The currency was changed overnight. And everyone had to turn in their old paper currency for the new paper currency, with some limits being imposed on the amount of the transactions. There was a miles-long line on what I think was a Saturday morning, as the entire Cuban population was turned into beggars for the new currency.

5. Alex Bellos looks at Newcomb’s Problem. The answer is obvious.

6. Steven Pearlstein on Four tough things universities should do to rein in costs. I liked this bit of history:

In 2002, George Washington University President Stephen Trachtenberg noticed that the school owned roughly $1 billion worth of facilities that sat idle for at least a third of the year. If he could reconfigure the academic calendar for year-round operation, he reasoned, he could enroll thousands more students without having to build new classrooms, labs, dorms or athletic facilities.

Doing so, however, would have required some professors to periodically teach during the summer, which didn’t sit well with the Faculty Senate. Its report on the matter reads like a parody of self-interested whining by coddled academics dressed up as concern for the pedagogical and psychological well-being of their students.

Prices aren’t rising because costs are rising, however, costs are rising because prices are rising.

7. Evolution is amazing. By acting as selective breeders, poachers are changing the genetics of African elephants.

In some areas 98 per cent of female elephants now have no tusks, researchers have said, compared to between two and six percent born tuskless on average in the past.

Airport Privatization

Airports in the United States need investment and improvements in operations efficiency and are thus ripe for privatization. Privatization is not a radical concept, around the world today many airports are run by private corporations or in public-private partnerships. In their latest report, The Ownership of Europe’s Airports, the Airports Council International writes:

Today, over 40% of European airports have at least some private shareholders – and these airports handle the lion’s share of air traffic. This year, about 3 out of every 4 passenger journeys will be through one of these airports…it is only a matter of time before fully publically-owned airports become a minority in the EU.

Moreover, even the public airports are typically structured as corporations that must pay their own way:

[Europe’s] airports – be they public or private – are to be run as businesses in their own right, strongly incentivised to continuously improve and underpinned by the principle that users pay a reasonable price to cover the cost of providing the facilities and services that they benefit from. There is no denying the tangible benefits that this approach has brought the EU – significant volumes of investment in necessary infrastructure, higher service quality levels, and a commercial acumen which allows airport operators to diversify revenue streams and minimise the costs that users have to pay – all of which are fundamental requirements to boost air connectivity.

The biggest restriction on airport privatization is that if a state or local government sells an airport it must use all of the proceeds to fund airport infrastructure–which makes the procedure pointless from their point of view. As I mentioned earlier, there is an Airport Privatization Pilot Program (APPP) which lifts this restriction but only if 65% of the air carriers serving the airport agree to the privatization. The APP is also slow and includes other restrictions. The Congressional Research Service has a good run down.

[Restrictions] include the need for 65% of air carriers serving the airport to approve a lease or sale of the airport; restrictions on increases in airport rates and charges that exceed the rate of increase of the Consumer Price Index (CPI), and a requirement that a private operator comply with grant assurances made by the previous public sector operator to obtain AIP [Federal] grants. In addition, after privatization the airport will be eligible for AIP formula grants to cover only 70% of the cost of improvements, versus the normal 75%- 90% federal share for AIP projects at publicly owned airports. This serves as a disincentive to privatize an airport, because it will receive less federal money after privatization.

The airlines are lukewarm on privatization. Although they would benefit from better operational efficiency, they are big recipients of the explicit and implicit subsidies and they use their effective control over airports to limit competition.

The main danger of privatization is that of monopoly power–it wouldn’t be a good idea to sell all of a city’s airports to the same corporation, for example. Thus, privatization should be accompanied by steps to increase competition. There are over 5000 non-commercial airports in the United States and some of the “National” General Aviation Airports already serve international flights (mainly corporate jets) and could be expanded to allow more commercial traffic.

Privatization should not be thought of as just a transfer of ownership but rather as a changing of the rules of the game to allow for many more private airports.

Addendum: Michael Sargent at Heritage has a useful and detailed plan. Robert Poole and Chris Edwards from Cato offer a good overview.

The bright side, from the options market, Trump and trade

Market prices do convey important information about changing risks. For example, option prices suggest that Mexican assets are expected to deliver larger gains than losses, implying Trump won’t seek to impose headline-grabbing sanctions on the country. Although less pronounced, options market indicators are similar for China, Japan and emerging markets.

In short, the options market does not appear to view Trump as a protectionist but rather as someone who understands the value and importance of global trade.

That is from Myron Scholes in the FT.  Here is my earlier dialogue with Bob Zoellick on trade and Trump.

What I’ve been reading

1. Incarnations: A History of India in Fifty Lives, by Sunil Khilnani.  A highly readable introduction to Indian history, structured around the lives of some of its major figures.  I passed along my copy to Alex.

2. Haruki Murakami, Absolutely on Music: Conversations with Seiji Ozawa.  More for classical music and Ojawa fans than Murakami readers, this is nonetheless an easy to read and stimulating set of interviews for any serious classical music listener.  They are most interesting on Mahler.

3. Elsa Morante, History.  In America, this is one of the least frequently read and discussed great European novels of the 20th century.

4. Miriam J. Laugesen, Fixing Medical Prices: How Physicians are Paid.  Will people still care about these issues for the next four years?  I hope so, because this is the best book I know of on Medicare pricing and its influence on pricing throughout the broader U.S. health care system.

My copy of Joel Mokyr, A Culture of Growth: The Origins of the Modern Economy has arrived.  It is a very good statement of how political fragmentation and intensified intellectual competition drove modernity and the Industrial Revolution.

I have only perused John H. Kagel and Alvin E. Roth, Handbook of Experimental Economics, volume 2, but it appears to be an extremely impressive contribution.

Marc Levinson’s An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy details what made the post World War II era so special in terms of its economics and income distribution and why it will be so hard to recreate.

Chris Hayes’s A Colony in a Nation, due out in March, he argues that racial equality really hasn’t improved much since 1968.

Guillermo A. Calvo, Macroeconomics in Times of Liquidity Crises is a useful book on sudden stops and related ideas.

Arrived in my pile is Yuval Noah Harati, Homo Deus: A Brief History of Tomorrow.

Will economic populism sweep the Democrats to a new set of victories?

Maybe not:

Interestingly enough, in two of those crucial Midwestern states that flipped to Trump, Democratic Senate candidates campaigned on economically populist platforms — but they did notably worse than Hillary Clinton. Russ Feingold underperformed Clinton by 2.4 points in Wisconsin, and Ted Strickland underperformed her by 12.8 points in Ohio. Feingold amassed a populist record of challenging big money and special interests when he was in the Senate, and Strickland harshly condemned trade deals during his campaign against Rob Portman (who served as George W. Bush’s US trade representative).

Meanwhile, the two Democratic Senate candidates in competitive races who outperformedClinton the most both self-consciously presented a moderate image rather than running as liberal firebrands. In Missouri, Jason Kander overperformed Clinton by 15.9 points, and in Indiana, Evan Bayh did 9.6 points better than her (though they both lost).

Here is more from Andrew Prokop at Vox.

Upward Mobility and Discrimination: Asians and African Americans

Asians in America faced heavy discrimination and animus in the early twentieth century. Yet, after institutional restrictions were lifted in the late 1940s, Asian incomes quickly converged to white incomes. Why? In the politically incorrect paper of the year (ungated) Nathaniel Hilger argues that convergence was due to market forces subverting discrimination. First, a reminder about the history and strength of discrimination against Asians:

Foreign-born Asians were barred from naturalization by the Naturalization Act of 1790. This Act excluded Asians from citizenship and voting except by birth, and created the important new legal category of “aliens ineligible for citizenship”…Asians experienced mob violence including lynchings and over 200 “roundups” from 1849-1906 (Pfaelzer, 2008), and hostility from anti-Asian clubs much like the Ku Klux Klan (e.g., the Asiatic Exclusion League, Chinese Exclusion League, Workingmen’s Party of CA), to an extent that does not appear to have any counterpart for blacks in CA history. Both Asians and blacks in CA could not testify against a white witness in court from 1853-73 (People v. Hall, 1853, see McClain, 1984), limiting Asians’ legal defense against white aggression. The Chinese Exclusion Act of 1882 and the “Gentlemen’s Agreement” in 1907 barred further immigration of all “laborers” from China and Japan.

…Asians have also faced intense economic discrimination. Many cities and states levied discriminatory taxes and fees on Asians (1852 Foreign Miner’s Tax, 1852 Commutation Tax, 1860 Fishing License, 1862 Police Tax, 1870 “queue” ordinance, 1870 sidewalk ordinance, and many others). Many professional schools and associations in CA excluded Asians (e.g., State Bar of CA), as did most labor unions (e.g., Knights of Labor, American Federation of Labor), and many employers declined to hire Asians well into the 20th century (e.g., Mears, 1928, p. 194-204). From 1913-23, virtually all western states passed increasingly strict Alien Land Acts that prohibited foreign-born Asians from owning land or leasing land for extended periods. Asians also faced laws against marriage to whites (1905 amendment to Section 60 of the CA Civil Code) and U.S. citizens (Expatriation Act 1907, Cable Act 1922). From 1942-46, the US forcibly relocated over 100,000 mainland Japanese Americans (unlike other Axis nationalities, e.g. German or Italian Americans) to military detention camps, in practice destroying a large share of Japanese American wealth. In contrast, blacks in CA were eligible for citizenship and suffrage, were officially (though often not de facto) included in CA professional associations and labor unions that excluded Asians, were not covered by the Alien Land Acts, and were not confined or expropriated during WWII.

Despite this intense discrimination, Asian (primarily Japanese and Chinese) incomes converged to white incomes as early as 1960 and certainly by 1980. One argument is that Asians invested so heavily in education that convergence has been overstated but Hilger shows that convergence occurred conditional on education. Similarly, convergence was not a matter of immigration or changing demographics. Instead, Hilger argues that once institutional discrimination was eased in the 1940s, market forces enforced convergence. As I wrote earlier, profit maximization subverts discrimination by employers:

If the wages of X-type workers are 25% lower than those of Y-type workers, for example, then a greedy capitalist can increase profits by hiring more X workers. If Y workers cost $15 per hour and X workers cost $11.25 per hour then a firm with 100 workers could make an extra $750,000 a year. In fact, a greedy capitalist could earn more than this by pricing just below the discriminating firms, taking over the market, and driving the discriminating firms under.

If that theory is true, however, then why haven’t black incomes converged? And here is where the paper gets into the politically incorrect:

Modern empirical work has indicated that cognitive test scores—interpreted as measures of productivity not captured by educational attainment—can account for a large share of black-white wage and earnings gaps (Neal and Johnson, 1996; Johnson and Neal, 1998; Fryer, 2010; Carruthers and Wanamaker, 2016). This literature documents large black-white test score gaps that emerge early in childhood (Fryer and Levitt, 2013), persist into adulthood, and appear to reflect genuine skills related to labor market productivity rather than racial bias in the testing instrument (Neal and Johnson, 1996). While these modern score gaps test-scoreshave not been fully accounted for by measured background characteristics (Neal, 2006; Fryer and Levitt, 2006; Fryer, 2010), they likely relate to suppressed black skill acquisition during slavery and subsequent educational discrimination against blacks spanning multiple generations (Margo, 2016).

…A basic requirement of this hypothesis is that Asians in 1940 possessed greater skills than blacks, conditional on education. In fact, previous research on Japanese Americans in CA support this theory. Evidence from a variety of cognitive tests given to students in CA in the early 20th century suggest test score parity of Japanese Americans with local whites after accounting for linguistic and cultural discrepancies, and superiority of Japanese Americans in academic performance in grades 7-12 (Ichihashi, 1932; Bell, 1935).

Hilger supplements these earlier findings with a small dataset from the Army General Classification Test:

…these groups’ cognitive test performance can be studied using AGCT scores in WWII enlistment records from 1943. Remarkably, these data are large enough to compare Chinese, blacks and whites living in CA for these earlier cohorts. In addition, this sample contains enough young men past their early 20s to compare test scores conditional on final educational attainment, which can help to shed light on mechanisms underlying the conditional earnings gap documented above.

Figure XII plots the distribution of normalized test score residuals by race from an OLS regression of test z-scores on dummies for education and age. Chinese Americans and whites have strikingly similar conditional skill distributions, while the black skill distribution lags behind by nearly a full standard deviation. Table VIII shows that this pattern holds separately within broad educational categories. These high test scores of Chinese Americans provide strong evidence that the AGCT was not hopelessly biased against non-whites, as Neal and Johnson (1996) also find for the AFQT (the successor to the AGCT) in more recent cohorts.

From Hilger’s conclusion:

Using a large and broadly representative sample of WWII enlistee test scores from 1943 both on their own and matched to the 1940 census, I document the striking fact that these test scores can account for a large share of the black, but not Asian, conditional earnings gap in 1940. This result suggests that Asians earnings gaps in 1940 stemmed primarily from taste-based or some other non-statistical discrimination, in sharp contrast with the black earnings gap which largely reflected statistical discrimination based on skill gaps inherited from centuries of slavery and educational exclusion. The rapid divergence of conditional earnings between CA-born Asians and blacks after 1940—once CA abandoned its most severe discriminatory laws and practices—provides the first direct empirical evidence in support of the hypothesis of Arrow (1972) and others that competitive labor markets tend to eliminate earnings gaps based purely on taste-based but not statistical discrimination.

Hilger’s other research is here.