Month: February 2017

Why Noah Webster preferred Americans

It is very much a twist on Adam Smith’s argument about the division of labor:

One further remark however, which I cannot omit, is that the people in America are necessitated, by their local situation, to be more sensible and discerning, than nations which are limited in territory and confined to the arts of manufacture. In a populous country, where arts are carried to great perfection, the mechanics are, obliged to labour constantly upon a single article. Every art has its several branches, one of which employs a man all his life. A man who makes heads of pins or springs of watches, spends his days in that manufacture and never looks beyond it. This manner of fabricating things for the use and convenience of life is the means of perfecting the arts; but it cramps the human mind, by confining all its faculties to a point. In countries thinly inhabited, or where people live principally by agriculture, as in America, every man is in some measure an artist— he makes a variety of utensiles, rough indeed, but such as will answer his purposes— he is a husbandman in summer and a mechanic in winter— he travels about the country— he convenes with a variety of professions— he reads public papers— he has access to a parish library and thus becomes acquainted with history and politics, and every man in New England is a theologian. This will always be the case in America, so long as their is a vast tract of fertile land to be cultivated, which will occasion emigration from the states already settled. Knowledge is diffused and genius routed by the very situation of America.

That is from his Sketches of American Policy, #29.

Saturday assorted links

USA NBA fact of the day

Overall, I estimate that the average white player in the N.B.A. has a fan base that is 56.7 percent white and 22.7 percent black. The average black player has a fan base that is 46.7 percent white and 32 percent black, a significant difference…

If a white and a black player are similar on paper, it is the black player who will have more fans.

Among black Americans, black players are roughly twice as popular as comparable white players. But black players get a slight boost from fans of every racial group. Compared with white players who are similar to them in all ways I could think to measure, black players have more fans among white Americans, Hispanic Americans and Asian-Americans.

Honestly, I was blown away by the overall size of this advantage. Roughly speaking, I estimate that a white player would have to score 10 more points per game to have as big a fan base on Facebook as he would have if he were black.

That is from Seth Stephens-Davidowitz at the NYT, there is much more discussion at the link, though no mention of The Incandescent Rex.  In other words, if the styles of the black players are in some way more dynamic and thus more popular (Rex being an exception, Pete Maravich another), and if we could adjust for that variable, how much of the race effect would go away?

Where do sheepskin effects come from?

From a loyal MR reader:

I’m very curious about the macroeconomics of the sheepskin effects. Traditional productivity forecast research tends to assume the wage premium is entirely human capital. Eg, Bosler/Daly/Fernald/Hobijn use a mincer equation with five education dummies   Jorgensen’s approach dividing workers into types also assumes this is not an issue.

If sheepskin effects are purely relative status effects, then the impact on total output and income should be zero, right? This implies increasing educational attainment will have a much smaller impact on productivity and output than typical productivity forecasts imply.

But it seems to me like showing you are “high ability”, if that’s all it does, makes you able to be slotted into higher ability jobs, and that this won’t simply give you a leg up on other workers but increase the number of higher ability jobs filled.

Anyway, I’m sort of thinking out loud but would be curious to read a blog of your thoughts on this, so consider this a bleg!

In the simplest Spence signaling model, the output goes to workers, and if one more worker sends the signal and boosts his or her wage, the non-signaling workers will receive an equal amount less.  That is an equilibrium condition, but it makes less sense as an account of dynamics.  As a practical matter, it’s not clear why the employers should revise their opinion downwards for the marginal products of these less educated workers.  You could say that competition makes them do it, but it’s tough to have good intuitions about an equilibrium that is hovering between/shifting across a varying degree of pooling and separating.

As a more general extension of Spence, a richer model will have market power and payments to capital and labor.  If one more worker finishes school, that worker is paid more and the higher wage serves as a tax on production.  Yet it is a tax the boss does not perceive directly.  The boss thinks he is getting a better worker for the higher wage, but in the counterfactual with more weight on the pooling solution, the boss would have hired that same person, with the same marginal product, at a lower wage.  The “whole act of production” will be and will feel more costly, including at the margin, but the boss won’t know how to allocate those costs to specific factors.  By construction of the example, the boss however will think that the newly educated laborer is the one factor not to be blamed.  So he’ll cut back on some of the other factors, such as labor and land.  Labor in the company will be relatively more plentiful, and the marginal product of labor in that company will fall.  So the incidence of a boost in the sheepskin effect falls on the land and capital that have to move elsewhere, plus to some extent the declining marginal products and thus wages for the remaining workers in the firm under consideration.  Note that outside firms are receiving some influx of capital and land, and so in those firms the marginal product of labor and thus its wage will go up somewhat.

Or so it seems to me.  The trick is to find some assumptions where the hovering between/moving across a varying degree of pooling vs. separation is not too confusing.

North Korean tragedy markets in everything

The Indonesian woman arrested for suspected involvement in the killing of the North Korean leader’s half brother in Malaysia was duped into thinking she was part of a comedy show prank, Indonesia’s national police chief said Friday, citing information received from Malaysian authorities.

Tito Karnavian told reporters in Indonesia’s Aceh province that Siti Aisyah, 25, was paid to be involved in “Just For Laughs” style pranks, a reference to a popular hidden camera show.

He said she and another woman performed stunts which involved convincing men to close their eyes and then spraying them with water.

Here is the story, via Ray Lopez.

Edward Luce reviews *The Complacent Class*

That is in the FT, here is the closing paragraph:

In most other ways, Cowen’s thesis is deeply troubling. Democracy requires growth to survive. It must also give space to society’s eccentrics and misfits. When Alexis de Tocqueville warned about the tyranny of the majority, it was not kingly despotism that he feared but conformism. America would turn into a place where people “wear themselves out in trivial, lonely, futile activity”, the Frenchman predicted. This modern tyranny would “degrade men rather than torment them”. Cowen does a marvellous job of turning his Tocquevillian eye to today’s America. His book is captivating precisely because it roves beyond the confines of his discipline. In Cowen’s world, the future is not what it used to be. Let us hope he is wrong. The less complacent we are, the likelier we are to disprove him.

The review very well captures the spirit and content of the book.  Here is Barnes&Noble, here is Amazon.  Here are signed first editions, here is Apple.

The State Department plays “Telefon”

Senior state department officials who would normally be called to the White House for their views on key policy issues, are not being asked their opinion. They have resorted to asking foreign diplomats, who now have better access to President Trump’s immediate circle of advisers, what new decisions are imminent.

…“My nagging suspicion is that the White House is very happy to have a vacuum in the under-secretary and assistant secretary levels, not only at state but across government agencies, because it relieves them of even feeling an obligation to consult with experts before they take a new direction.”

Here is the article, solve for the equilibrium…

Online Education and Personalized Learning

Today I spoke at Brookings India on Online Education and India. One of the things I discussed was how online technology and AI can dynamically adjust content to the needs of an individual learner. An Indian firm, Mindspark, is a leader in mathematics education that is synchronized to an individual student’s actual ability regardless of grade. The ubiquitous Karthik Muralidharan with co-authors Abhijeet Singh and Alejandro Ganimian have an important paper doing a RCT on Mindspark, finding large gains in math ability and also in Hindi ability for students who win vouchers to the program. David Evans at Development Impact the World Bank blog has an excellent post on the Mindspark RCT.

I want to focus on a different issues: the personalization of education is especially important in India because classes often contain students of widely different abilities. Here’s a graph from Muralidharan et al. showing the student’s grade along the horizontal axis with the student’s actual ability on the vertical axis. The students are drawn from a sample of Delhi public schools.


The graph shows two things of importance. First, if most students were operating at grade level the dots/students would be clustered around the blue line. But very few students in grade 6 are operating at a grade 6 level–most are operating at a grade 3 or 4 level and some even at a lower level. The distribution of ability level in the same grade is extreme. No math teacher can be expected to teach students in the same class who are operating at grade levels 2-7. Even if the teacher teaches to the level of the average student the material will go over the heads of many. As a result, many students do not progress. Indeed, the second point is shown by the red line, the best-fit line for academic growth. The growth in achievement is slower than the growth in the standard. As a result, over time students fall further and further behind the standard.

Keeping all students in the same grade at a similar level of ability would be excellent and the best way to do this is by teaching to a student’s actual ability but the only way to do that on an economical basis is through online learning and AI technology.

Who should own the robots?

There’s two versions of this.

1. One or a small group of entrepreneurs owns the robots.

2. The government owns the robots.

I see how we get from where we are now to 1. How would we get to 2, and is 2 better than 1?

That is a comment and request from Mark Thorson.  It’s embedded in a longer thread, but I suspect you can guess the context.

I would focus on a prior question: what is government in a world where everything is done by the robots?  Say that most government jobs are performed by robots, except for a few leaders (NB: Isaac Asimov had even the President as a robot).  It no longer makes sense to define government in terms of “the people who work for government” or even as a set of political norms (my preferred definition).  In this setting, government is almost entirely people-empty.  Yes, there is the Weberian definition of government as having a monopoly on force, but then it seems the robots are the government.  I’ll come back to that.

You might ask who are the residual claimants on output.  Say there are fifty people in the government, and they allocate the federal budget subject to electoral constraints.  Even a very small percentage of skim makes them fantastically wealthy, and gives them all sorts of screwy incentives to hold on to power.  If they can, they’ will manipulate robot software toward that end.  That said, I am torn between thinking this group has too much power — such small numbers can coordinate and tyrannize without checks and balances — and thinking they don’t have enough power, because if one man can’t make a pencil fifty together might not do better than a few crayons.

Alternatively, say that ten different private companies own varying shares of various robots, with each company having a small number of employees, and millions of shareholders just as there are millions of voters.  The government also regulates these companies, so in essence the companies produce the robots that then regulate them (what current law does that remind you of?).  That’s a funny and unaccustomed set of incentives too, but at least you have more distinct points of human interaction/control/manipulation with respect to the robots.

I feel better about the latter scenario, as it’s closer to a polycentric order and I suspect it reduces risk for that reason.  Nonetheless it still seems people don’t have much direct influence over robots.  Most of the decisions are in effect made “outside of government” by software, and the humans are just trying to run in place and in some manner pretend they are in charge.  Perhaps either way, the robots themselves have become the government and in effect they own themselves.

Or is this how it already is, albeit with much of the “software” being a set of social norms?

Replacing social norms by self-modifying software –how big of a difference will it make for how many things?

Deutsche Bank speculation about the next Fed chair

Here are some names that could fit the bill according to the folks at DB:

Kevin Warsh – currently a visiting fellow at the Hoover Institution, he served on the Board of Governors from 2006 until 2011. The report described him as “an experienced private financial market practitioner with strong Republican credentials”.

Jerome Powell – a current Fed governor “viewed as having conventional/centrist views about the economy and markets with slightly hawkish leanings”.

John Taylor – an economics professor at Stanford whose views “would fit with Republican views for a more rules-based Fed.” But, the report added, “his policy leanings — more aggressive rate increases and the stronger dollar that would result — would work against Trump’s pro-growth agenda.”

John Cochrane – another professor, from the University of Chicago with conservative leanings, whose “recent research has delved into more unorthodox topics, such as whether Fed policy rates and inflation could be positively related, i.e., that low policy rates may lead to low inflation and vice versa.”

That is from Jessica Dye at the FT, expect the list of names to evolve with time.

*Exception Taken: How France Defied Hollywood’s New World Order*

That is the new and excellent book by Jonathan Buchsbaum, offering the first comprehensive history of the debates over free trade and the “cultural exception,” as it has been called.  It is thorough, readable, and goes well beyond the other sources on this topic.

To be sure, I disagree with Buchsbaum’s basic stance.  He views “advertising dollars” as something attached to Hollywood movies like glue, giving them an unassailable competitive advantage, rather than an endogenous response to what viewers might wish to watch.  The notion that French or other movie-makers could possibly thrive by innovating and exploring new quality dimensions seems too far from his thought.  And he writes sentences such as: “France sought quickly to regulate multiplex development,” yet without wincing.

Perhaps his best sentence is the uncharacteristic: “Other commentators during the 1980s observed wryly that the only real European films were U.S. films, for only U.S. films succeeded in crossing borders in Europe.”

He spends a fair amount of time criticizing me, usually a positive feature in a book.  Furthermore, he delivers very strongly on the basic history and narrative, and draws upon a wide variety of sources.  So this one is definitely recommended to anyone with an interest in these topics.

Comparing current automation to the Industrial Revolution isn’t actually so comforting

That is the theme of my latest Bloomberg column, here is the opening bit:

“Why should it be different this time?” That’s the most common response I hear when I raise concerns about automation and the future of jobs, and it’s a pretty simple rejoinder. The Western world managed the shift out of agricultural jobs into industry, and continued to see economic growth. So will not the jobs being displaced now by automation and artificial intelligence lead to new jobs elsewhere in a broadly similar and beneficial manner?


Consider, for instance, the history of wages during the Industrial Revolution. Estimates vary, but it is common to treat the Industrial Revolution as starting around 1760, at least in Britain. If we consider estimates for private per capita consumption, from 1760 to 1831, that variable rose only by about 22 percent. That’s not much for a 71-year period. A lot of new wealth was being created, but economic turmoil and adjustment costs and war kept down the returns to labor. (If you’re wondering, “Don’t fight a major war” is the big policy lesson from this period, but also note that the setting for labor market adjustments is never ideal.)

By the estimates of Gregory Clark, economic historian at the University of California at Davis, English real wages may have fallen about 10 percent from 1770 to 1810, a 40-year period. Clark also estimates that it took 60 to 70 years of transition, after the onset of industrialization, for English workers to see sustained real wage gains at all.

From that turmoil, we also received Marxism and agricultural subsidies for generations!  Do read the whole thing

Thursday assorted links

China penalty of the day

China has banned almost 7m people from taking flights and high-speed trains over the past four years as a penalty for not repaying their debts, the country’s Supreme Court has announced.

The penalty system is part of efforts to build a nationwide “social credit” system that will eventually rate every Chinese citizen by collecting big data on financial, legal or social misdeeds. The debtors’ travel ban has been touted as an important first step for building the structural links needed to implement such a comprehensive monitoring programme.

“We have signed a memorandum . . . [with over] 44 government departments in order to limit ‘discredited’ people on multiple levels,” Meng Xiang, head of the executive department of the Supreme Court, told state media on Wednesday.

…In addition to not paying debts on time, one can also be blacklisted for lying in court, hiding one’s assets and a host of other crimes. The Supreme Court said on Tuesday it was working on adding new forms of penalties.

Here is the FT story by Yuan Yang.  Keep in mind that the country does not have a real personal bankruptcy law, nor well-developed credit institution penalties, so this is viewed as one of the few options available.