Month: December 2016

“Folding Beijing”

It is an extraordinary short story, one of the best things I’ve read all year, and it’s proof positive of how rapidly China is becoming a society supercharged with creativity.  I am pleased to see it received a Hugo Award for best novelette.

The author is Hao Jingfang and it’s on-line here.  Did you know she is a macroeconomics researcher at a quango in Beijing?  One key part of the plot and premise revolves around macroeconomic theory, here is an excerpt:

“Hard to say.” Lao Ge sipped the baijiu and let out a burp. “I suspect not. You have to understand why they went with manual processing in the first place. Back then, the situation here was similar to Europe at the end of the twentieth century. The economy was growing, but so was unemployment. Printing money didn’t solve the problem. The economy refused to obey the Phillips curve.”

He saw that Lao Dao looked completely lost, and laughed. “Never mind. You wouldn’t understand these things anyway.”

I cannot excerpt more without giving away spoilers.  Definitely recommended, and for the pointer I thank Eva.

Measuring the Trump presidency as it evolves, three economic indicators to watch for

Hardly anyone I know is calibrating their rhetoric to observed asset market prices.  Here is one bit from my latest Bloomberg column:

Along these lines, my first nomination for a Trump-related market indicator is an index of Baltic stocks, namely the OMX Baltic Benchmark Index. It is a common and serious worry that the connections of the Trump administration to Russia will lead the U.S. to forsake the North Atlantic Treaty Organization and cave to the demands of President Vladimir Putin. If that is the case, the Baltics are likely to be among the biggest losers.

The good news is that Baltic stocks are up roughly 20 percent over the last year and generally have been rising. While they dipped following Trump’s election, they have since regained that ground and then some.

That doesn’t prove relations with Russia will move along a good track, but it is a calming sign.

Hysterical tweets should be accompanied by asset price contemplation and indeed asset price Auseinandersetzung.  In addition to laying out two other economic indicators for the Trump years, I wrote this too:

Looking across the board, I find some of the above data puzzling, because the rosy read from the first two indicators does not reflect my strongest worries about the forthcoming Trump administration. U.S. stock indices are up, too.

I’ll be watching these indicators with interest because I know that someone is going to be proven wrong, and that is what science — and investing — is all about.

I also consider that a strong and rising dollar could in fact be the biggest problem for the global economy, do read the whole thing.

Will Sylvester Stallone chair the National Endowment for the Arts?

So suggests the Daily Mail:

Donald Trump has drawn ‘first blood’ in the search for his incoming administration’s senior arts role – by tapping up Rambo legend Sylvester Stallone.

Sources have told the president-elect sees Hollywood icon Stallone as the perfect choice to make art great again.

The likely position would be Chairman of the National Endowment for the Arts, a federal agency that doles out funds to aspiring artists and creative projects.

Here are my earlier suggestions for how Trump could improve government support for the arts.  Here is an article on Stallone as painter, with photos.  Furthermore, Raphael once painted Stallone.  His favorite perfume is Bijan for Men by Bijan.  I say this is probably a good pick, as it would bring glamor and attention to a much-neglected agency.

Addendum: Judge Dredd is an excellent movie!

Lawrence Kudlow is in contention to head the CEA

Here is the WSJ piece, or try this, excerpt:

Mr. Kudlow is a strong supporter of supply-side economics, a prevailing economic philosophy of the Reagan administration that says reducing marginal tax rates will spur growth, create jobs and boost tax revenue for the government. Last week, he said the U.S. should issue debt with a maturity of up to 100 years to lock in low borrowing costs, supporting a view echoed by other Trump economic advisers.

Kudlow (formerly a senior fellow at GMU and Mercatus) is also pro-trade, and on monetary policy he has expressed sympathy for market monetarism and nominal gdp targeting.  And Scott Sumner comments on Kudlow’s earlier recommendations for the Fed.

Update: Many informal sources are suggesting this will indeed happen, though there is not yet a formal announcement.  I would consider this still unconfirmed.

Thursday assorted links

1. Great Patrick Collison chat with Ezra Klein.

2. New Classical.

3. Does singing promote cooperation?

4. Inside Quebec’s great maple syrup heist.

5. Building photos, 2016.  And massive Stonehenge-like complex found in the Amazon (NYT), the region whose history is perhaps least well understood.  Here is short, non-gated coverage.

6. Glenn Loury on Thomas Schelling.  Working link for Klein on Schelling’s politics you will find here.

Some simple economics of mercantilism and import taxation

If you tax imports and subsidize exports, the nominal exchange rate adjusts so that those policies don’t end up improving the real exchange rate at all, and thus the trade balance will not improve.  In other words, you get a stronger dollar and indeed we already see that.

This can be shown with offer curves (think of international trade as a kind of barter, and think of imposing two offsetting taxes on that barter; does anyone know of an on-line demonstration of this?).  Do note there are possible ambiguities due to the complexity of actual, real world forms of taxation, and furthermore real world exchange rate determination is not well understood, neither are changes in exchange rates.  That said, those ambiguities could just as easily work against the mercantilist proposal as for it.

Since many of Trump’s proposals, such as import-taxing tax reform, seem to involve versions of this idea, those proposals probably will not work.

The economic benefits of fracking

The new NBER paper by Erik Gilje, Robert Ready, and Nikolai Roussanov shows some truly impressive economic benefits:

We quantify the effect of a significant technological innovation, shale oil development, on asset prices. Using stock returns on major news announcement days allows us to link aggregate stock price fluctuations to shale technology innovations. We exploit cross-sectional variation in industry portfolio returns on days of major shale oil-related news announcements to construct a shale mimicking portfolio. This portfolio can explain a significant amount of variation in aggregate stock market returns, but only during the time period of shale oil development, which begins in 2012. Our estimates imply that $3.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be explained by this mimicking portfolio. Similar portfolios based on major monetary policy announcements do not explain the positive market returns over this period. We also show that exposure to shale oil technology has significant explanatory power for the cross-section of employment growth rates of U.S. industries over this period.

Do note that $3.5 trillion figure is not a measure of social value.  It does not count the losses to coal companies for instance, nor does it measure the consumer surplus or the “greener energy” benefits from fracking, among other factors.

Charles Darwin’s reading habits

Exploration and exploitation of Victorian science in Darwin’s reading notebooks.

Murdock J, Allen C, and DeDeo S


Search in an environment with an uncertain distribution of resources involves a trade-off between exploitation of past discoveries and further exploration. This extends to information foraging, where a knowledge-seeker shifts between reading in depth and studying new domains. To study this decision-making process, we examine the reading choices made by one of the most celebrated scientists of the modern era: Charles Darwin. From the full-text of books listed in his chronologically-organized reading journals, we generate topic models to quantify his local (text-to-text) and global (text-to-past) reading decisions using Kullback-Liebler Divergence, a cognitively-validated, information-theoretic measure of relative surprise. Rather than a pattern of surprise-minimization, corresponding to a pure exploitation strategy, Darwin’s behavior shifts from early exploitation to later exploration, seeking unusually high levels of cognitive surprise relative to previous eras. These shifts, detected by an unsupervised Bayesian model, correlate with major intellectual epochs of his career as identified both by qualitative scholarship and Darwin’s own self-commentary. Our methods allow us to compare his consumption of texts with their publication order. We find Darwin’s consumption more exploratory than the culture’s production, suggesting that underneath gradual societal changes are the explorations of individual synthesis and discovery. Our quantitative methods advance the study of cognitive search through a framework for testing interactions between individual and collective behavior and between short- and long-term consumption choices. This novel application of topic modeling to characterize individual reading complements widespread studies of collective scientific behavior.

Wednesday assorted links

India Sentence(s) of the Day

Praveen Chakravarty writing at Live Mint about India’s Demonetisation for behavioural change:

It was a “shock and awe” action that was originally described as a war against illicit wealth and black money. Over the last several weeks, the narrative has shifted and the demonetisation exercise is now being desperately positioned as a move for India to become a cashless society.

…Let’s be clear, 61% of rural India defecating in the open is a far more serious and significant problem than India’s 12% cash to gross domestic product ratio.

My Conversation with Joe Henrich

Here you will find the transcript, podcast, and video of the chat, Joe of course was in top form.  In addition to a wide-ranging conversation on cultural and social evolution, we touched on topics such as Star Trek, Hayek’s atavism theory, what he learned from the Mapuche, the pleasures of cooking in coconut milk, why WEIRD matters, whether Neanderthals were smarter than humans, and whether Joe is a conservative after all.  Here is one bit:

COWEN: The Flynn effect in the short run puzzles me more than in the long run. If I compare today to the 18th century, I can see where the difference might be. But in many countries, it seems the Flynn effect hasn’t stopped. Nutritional gains probably are over.

The environment — smartphones are newer than the Flynn effect, but it doesn’t seem to be changing now compared to a generation ago. They both seem quite complex. We’ve had TV for a while. People have books, market society. What exactly is the difference over the last generation in the short run?

HENRICH: It’s a cultural-evolutionary treadmill. One place where you see this is the complexity of television shows. Now, you have an ensemble cast and 20 different plots going on. You’ve got to track all these different plots. That wasn’t the television of the 1950s. It was one plot, one thing after another. Simple. The whole world is getting more complex, at least in terms of your need for analytic thinking.

COWEN: Some of that in your view is the supply-side effect. It’s not that we got smarter and they made TV better, it’s also they made TV better and that made some of us smarter.

HENRICH: Coevolutionary.

COWEN: Coevolutionary. This is going to make you out to be quite an optimist, then, because TV is going to get better and better. We’re just going to keep on getting smarter.

HENRICH: Yeah, of course.


COWEN: You’re an anthropologist. You’ve spent a lot of time with economists — coauthored, worked with Paul Romer, Colin Camerer, others. As an anthropologist, what do you find strange about the tribe known as econ? [laughs]

HENRICH: I had a real opportunity. I was very fortunate in my career to be a professor of psychology and a professor of economics at the same time but to be neither in some deep sense. I would get to go back and forth from seminars in economics and psychology.

In economics, there’s this really competitive culture. The way I like to describe it: If you’re giving a seminar in economics, the crowd — everybody’s trying to show who’s the smartest guy in the room. Just on your first slide, someone will raise their hand. (I’m like, I haven’t said anything yet!) Then they’ll try to ask the killer question which undercuts your whole talk so that they can get you right at the beginning.


HENRICH: Whereas psychologists, they’ll sit quietly. They watch your talk. You go through your whole PowerPoint. You probably touched a lot of different research projects.

Then there’ll be question time; at first no hands will go up. Then someone will be like, “I got a question.” Then they say, “I just have one small question. I mean, it was a great talk and this is just a very minor thing.”

Then it could be a killer question at that point when they’ve done the preface. It’s a very strong cultural difference between the econ tribe and the psychology tribe.

I’ve always wanted to write an ethnography: My Life among Two Strange Tribes: The Psychologists and the Economists.

Do read, hear, or watch the whole thing.

Here you can order Joe’s book The Secret of our Success: How Culture is Driving Evolution, Domesticating Our Species, and Making us Smarter.

My scuffle with Matt Yglesias

“Why is the Rent So Damn High?”, you can watch the video here:

I should note that the debate nature of this video is for instructional purposes, and I do in fact agree with Matt more than I let on in the exchange itself.  We also debate cities vs. suburbs, and you can guess which side I take on that one, no preference falsification there!

Here is a Soundcloud podcast version, here is iTunes.