Month: January 2017

Books for bots Goodhart’s Law edition?

Two employees at the East Lake County Library created a fictional patron called Chuck Finley — entering fake driver’s license and address details into the library system — and then used the account to check out 2,361 books over nine months in 2016, in order to trick the system into believing that the books they loved were being circulated to the library’s patrons, thus rescuing the books from automated purges of low-popularity titles.

Library branch supervisor George Dore was suspended for his role in the episode; he said that he was trying to game the algorithm because he knew that these books would come back into vogue and that his library would have to spend extra money re-purchasing them later. He said that other libraries were doing the same thing.

Data falsification will be one of the biggest stories of the next five years.  That is from BoingBoing, via Ted Gioia.

China WeChat fact of the day

WeChat’s ability to create a bustling payments economy echoes the general success of its parent company. In September, Tencent became China’s largest company by value, surpassing state-owned China Mobile, when it reported its third-quarter revenue: $6 billion, up 52% year over year. How much of that can be attributed to Wallet and WePay was not specified: WeChat, China’s most popular messaging app, makes money largely from online gaming, advertising, and selling sticker packs. But Tencent—which began with the instant messaging app QQ and is now pursuing artificial intelligence and electric cars alongside investments in a range of companies, including China’s dominant ride-sharing operation, Didi Chuxing—did cite WePay as a major reason for its “other” businesses’ growth, which increased $726 million in the third quarter, or 348% over the same period last year. According to estimates by HSBC, based on current tech company valuations, WeChat could already be worth more than $80 billion, about half of Tencent’s market capitalization.

That is from Eveline Chao at Fast Company, and for the pointer I thank Dan Wang.  The article offers other points of interest.

Rising prices and falling demand: why did print newspapers become more expensive?

Yes, I still subscribe to the paper versions.  I found this study by Pattabhiramaiah, Sriram, and Sridhar interesting:

Between 2006 and 2011, daily print newspapers in the U.S. lost 20% of their paid subscribers, partly due to increasing availability of alternative sources of news, such as free content provided on newspaper websites and by news aggregators such as Yahoo. However, contrary to the expectation that firms respond to softening demand by lowering prices, newspapers increased subscription prices by 40-60% during this period. In this paper, we explain and quantify the factors responsible for these price increases. We calibrate models of readership and advertising demand using data from a top-50 U.S. regional print newspaper. Conditional on these demand models, we calibrate the newspaper’s optimal pricing equations, and assess whether the increase in subscription prices are mainly rationalized by: a) the decline in readers’ willingness to pay (WTP) in the presence of heterogeneity among subscribers, or b) the newspaper’s reduced incentive to subsidize readers at the expense of advertisers, due to softening demand for newspaper advertising. We find that the decline in the ability of the newspaper to subsidize readers by extracting surplus from advertisers explains most of the increase in subscription prices. Of the three available subscription options (Daily, Weekend, and Sunday only), subscription prices increased more steeply for the Daily option, a pattern consistent with the view that newspapers are driving away low valuation weekday readers while preserving Sunday readership and the corresponding ad revenues. Thus, our research augments theoretical propositions in two-sided markets by providing a formal empirical approach to unraveling the relative importance of the role played by agents on the subsidy and demand side in determining prices.

For the pointer I thank the excellent Kevin Lewis.

Why won’t more men take service sector jobs?

Lawrence Katz, an economist at Harvard, has a term for this: “retrospective wait unemployment,” or “looking for the job you used to have.”

“It’s not a skill mismatch, but an identity mismatch,” he said. “It’s not that they couldn’t become a health worker, it’s that people have backward views of what their identity is.”

That is from a longer and interesting piece by Claire Cain Miller (NYT).

Chuck Norris Versus Communism

Chuck Norris Versus Communism is a great documentary about art, the power of heroes, and the end of communism in Romania. After the communist regime was established in 1948, travel was restricted, the media were censored and the secret police watched everyone. Romania was cut off from the rest of the world. In the mid-1980s, however, smuggled VHS tapes of American movies began to circulate. Underground groups would gather together to watch samizdat movies like Rocky and Lone Wolf McQuade.

lonewolfmcquade_quadFor many of the young boys (now men) featured in the documentary the West’s action heroes became role models of endurance, independence and fortitude. I too remember running home filled with enthusiasm after seeing Rocky but in Romania the message was all the more powerful because there was so little else to compete with Hollywood’s images and watching was itself a kind of heroic snubbing of the regime.

The action was exciting but perhaps even more revealing were the ordinary scenes of supermarkets stocked with food, at a time when Romania was racked with severe rationing. City lights, beautiful cars, and the ordinary freedoms of worship and belief casually portrayed, all impressed on the Romanian viewers the starkness of their own situation.

Almost all of the movies were dubbed (technically voice over translated) into Romanian by one woman who took on all the roles. Few people knew her name but her voice became entwined with that of the heroes she translated and she became a national symbol of freedom. Irina Nistor is revealed as a real hero who despite great personal risk continued to translate hundreds of movies because that is when she felt most free.

There’s also a mystery that the documentary discusses but does not fully answer. How did the mastermind of the smuggling operation, Teodor Zamfir, get away with it? At least some of the authorities had some idea of what he was doing but perhaps due to bribery, perhaps because there were no longer any true believers, perhaps because the authorities thought the movies would provide an escape valve from the harshness of Romanian life, they allowed the operation to continue. Zamfir also appears to have had immense personal charisma, so much so that he somehow turned an undercover operative to his side. It’s a remarkable story.

Chuck Norris Versus Communism is available on Netflix.

Hat tip: Dan Klein and also Emily Skarbek’s excellent post.

2016 was not an especially volatile year for equities

Cliff Asness reports:

Maybe it’s just me but a lot of end-of-year commentary about financial markets in 2016, implicitly and sometimes explicitly, makes it sound as if it was a crazy year. It wasn’t. In fact, it was amazingly normal. This is true of at least the S&P 500 (I’m not going to be more ambitious here) which is what I think many of these commentators are talking about.1,2

Annualized daily volatility during 2016 came in at 13.1%. Based on rolling same-length periods going back to 1929 this falls at the 47th percentile.3 You say you don’t want to compare to the craziness of the Great Depression? Maybe that leads to everything else looking calm and you don’t think that’s meaningful. That’s reasonable. Well, that same value of 13.1% is at the 54th percentile since WWII and the 42nd percentile since 1990. Pretty darn normal. Maybe people are comparing to very recent times (I would argue in error) and have been lulled into a false sense of calmness now shattered by 2016? Nope, it’s still only at the 54th percentile when compared to the last five years. Realized daily volatility simply was not high in 2016 compared to pretty much any prior period (it certainly wasn’t exceptionally low either).

And:

The S&P 500 was +9.5% in price return in 2016.

Here is the source, there is further evidence and discussion of the metrics at the link.

How do Nigerian drivers enter the road and make U-turns?

In the United States, if I am trying to accelerate and enter the road from say a parking lot, I try to minimize the number of misleading movements my car might make.  I don’t “edge out” just for the heck of it, for fear this may spook the other drivers and cause them to suddenly switch lanes in a dangerous (for them) fashion.  Furthermore, I might misjudge and move the car out too far into the lane, leading to a collision.

In Lagos, it seems the practice is to announce your intentions with as many little forward “nudges” of your car as possible.  They seem to mean “I am thinking of going sometime soon.”

After enough such nudges, the oncoming cars either go far away into the left lane, or perhaps they stop for you altogether and let you go.  Or maybe they slow down a bit and you decide you can beat them and so you pull into the lane.

A higher discount rate (for entering the road) is one way to rationalize this behavior, but in a variety of other contexts I have noticed Nigerians who were not massively upset at being ever so slightly late.  So might there be some other explanation?

Maybe there is greater variability in rational assumptions about the other drivers.  You may not know how well their cars can brake, accelerate, and perhaps their lane-switching plans and propensities are harder to predict.  So by nudging your car out in successive bits, you may be “taking the temperature” of the other drivers on the road.  Keep in mind that they, too, may not have a good sense of how well your car can accelerate (furthermore some of the vehicles are tuks-tuks, not cars).  A willingness to make more nudges may be telling the other drivers that your engine is pretty good and your will is strong.

So they read your nudging pattern, and you draw inferences from their lane-switching and stopping responses.  Ex post (one hopes), everyone has a better sense of what the other cars and drivers are capable of doing.

Of course this is speculative.  The key point here is that greater variability in potential performance creates a case for sending more and smaller bits of the signal in advance.

Wednesday assorted links

Can Nigeria teach the West a thing or two?

That is the topic of my latest Bloomberg column, here is one excerpt:

The reports of Boko Haram and terror killings are well known, and they reflect the interlocking and sometimes deadly combinations of regional, religious, sectarian and ethnic identities in the country, not to mention extreme inequalities of income and opportunity. Yet Nigeria has about 180 million people and is larger than Texas. The violence is the most frequently reported story in the West, but the underlying reality is far more complex and shows positive features.

For instance, the city of Lagos is in many regards a marvel of religious tolerance. Nigeria is about 50 percent Muslim and 40 percent Christian, and the area surrounding Lagos is also highly mixed in terms of religion. That may sound like a recipe for trouble, but in matters of religion Lagos is almost entirely peaceful. Religious intermarriage is common and usually not problematic, as is the case in many (not all) other parts of Nigeria as well. Many top Nigerian politicians have married outside their religion, kept two separate religions in the family and enjoyed continued political success.

Consider the scale and speed of this achievement. Lagos, with a population of about 20 million, is larger than many countries. It is the most commercially oriented part of Nigeria, and it grew so large only in the last few decades, as it attracted entrepreneurially minded people from many parts of Nigeria and other African countries. By one estimate, 85 new residents arrive every hour. That may sound chaotic, but in essence Nigeria has in a few decades created an almost entirely new, country-sized city built on the ideals and practice of religious tolerance. The current president, Muhammadu Buhari, is a Muslim who was supported in his election by many Christian leaders, on the grounds that he would fight corruption more effectively. His running mate served as a Pentecostal pastor.

There are several other points, including an assessment of on the ground safety (better than you might think), do read the whole thing.

Should Iceland join the euro?

That may not be in the cards anytime soon, but at least it has surfaced as a potential option, along with EU membership, to be considered by Icelandic referendum.  Matt Yglesias questions whether this might be a mistake.

I see the creation of the euro as a big mistake, and in general I favor flexible exchange rates, but on this question there is a plausible case for Iceland joining up with the euro.

First, Iceland cannot defend itself and does not want to rely only on the United States.  European Union membership helps out on that front, and the EU has at least been claiming that new members also will be euro-using members.  Fishing rights are a big deal for Iceland, and maybe the country will decide it does better within EU structures.

Second, and more to the macroeconomic point, very small countries do not always do well with floating rates.  For instance, no one suggests that every household should have its own currency.  Iceland, with a population of about 330,000, may be small enough to make this comparison at least a bit apt.  Keep in mind the biggest exports are tourism, fish, and aluminum products, not much else.  Using the euro may help tourism a bit, while I suspect the fisheries and aluminum smelters can get by with a mix of a) not employing that much labor anyway, and b) making wages more flexible if need be, rather than needing a floating rate to stay competitive.

Another way to put the point is this: floating rates are most useful as a protection against nominal shocks, not real shocks.  But when an economy is sufficiently small, real shocks tend to be the more significant problem because usually there is not so much diversification.

On the macro front, so what if Iceland becomes the north Atlantic version of how Panama, Ecuador, and El Salvador stand pegged with respect to the U.S. dollar?  Those economies have various troubles, but fixed exchange rates are fairly low on those lists.

Not long ago, the Icelandic economy was hit by a massive shock from capital flight, which in turn stemmed from a banking and real estate collapse.  Capital controls were imposed, in part because the flow of funds whiplash was so large relative to the size of the Icelandic economy.  Relying on continental, euro-denominated banking from Dutch, German, and other suppliers may well be a better option.  A true EU banking union, if one ever comes, would be better for Iceland yet.  In other words, in the eurozone Iceland might be better protected against at least some real shocks.

I don’t have a firm view here, so it is fine to think of my conclusion for Iceland as agnostic.  I ‘m just saying you can be a euro skeptic, and favor Icelandic euro membership, without fear of contradiction.  The European countries that should not be in the eurozone, such as Italy and Greece, are much bigger than Iceland and are also more economically diversified.

iceland

Books on liberty-oriented economics for young people

I receive requests for recommendations in this area fairly often.  I don’t feel I am qualified to judge the outputs, but here are three that have come across my path as of late and seem to me very good:

Connor Boyack, illustrated by Elijah Stanfield, The Tuttle Twins and The Road to Surfdom.  Recommended ages 5-11.

I.M. Lerner and Catherine L. Osornio, The Secret Under the Staircase, and The Hidden Entrance.  Here the age range seems to be higher, maybe 10-12?  I feel I could have read them younger than that, however.

Someone should write a bibliographic essay on the books in this category.  What else can you recommend?

Tuesday assorted links

The polity that is Singapore cybersecurity

This was decided earlier in the year:

All computers used officially by public servants in Singapore will be cut off from the Internet from May next year, in an unprecedented move to tighten security.

A memo is going out to all government agencies, ministries and statutory boards here about the Internet blockade a year from now, The Straits Times has learnt.

There are some 100,000 computers in use by the public service and all of them will be affected.

“The Singapore Government regularly reviews our IT measures to make our network more secure,” a spokesman for the Infocomm Development Authority (IDA) said when contacted.

The move is aimed at plugging potential leaks from work e-mail and shared documents amid heightened security threats.

Trials started with some employees within the IDA – the lead agency for this exercise – as early as April. Web surfing can be done only on the employees’ personal tablets or mobile phones as these devices do not have access to government e-mail systems. Dedicated Internet terminals have been issued to those who need them for work.

The Straits Times understands that public servants will be allowed to forward work e-mails to their private accounts, if they need to.

Here is the article.  Here is Catherine Rampell on Trump and cybersecurity, she seems to be critical of what is possibly a Trump idea to have a White House without computers (without internet?).  That to me seems the only good procedural/bureaucratic idea I have heard from the incoming Trump administration.  Note that the government in Singapore is one of the smartest, forward-looking, and sophisticated in the world.  On this they are ahead of the curve (by the way I write more on the broader question here in my forthcoming The Complacent Class).