Month: March 2018

Zoning Increases the Price of Housing in Australia by a Lot

Researchers at the Reserve Bank of Australia estimate that house prices in major Australian cities are pushed well above the cost of production, including the land, by zoning regulations such as floor space index (video link) restrictions.

Zoning regulations provide benefits, but they also restrict housing supply and hence raise prices. This paper quantifies their importance by comparing prices to the marginal costs of supply at different points in time. For detached houses, marginal costs comprise the dwelling structure and the land that other home owners need to forego. Relative to our estimates of these costs, we find that, as of 2016, zoning raised detached house prices 73 per cent above marginal costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth. Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney. We emphasise that this is not the amount that housing prices would fall in the absence of zoning. The effect of zoning has increased dramatically over the past two decades, likely due to existing restrictions binding more tightly as demand has risen.

Hat tip: Matt Yglesias.

Ten favorite science fiction novels

That is from a reader request, please note I am not saying these are the best (that would be a separate query).  Here goes, noting I am engaging in some bundling of volumes and sequels:

1. Olaf Stapledon, Last and First Men, Star Maker.  Who needs characters and plot when such a compelling mega-Hegelian take is on the table?  His other novels are underrated as well.

2. Isaac Asimov, original Foundation Trilogy.  But no, the books didn’t want to make me become an economist and in fact when I read them at age fourteen (?) I recoiled at their historicist, anti-Hayekian, and anti-Popperian nature.  I, Robot is actually a more important book, and one of the most influential of its century, but it is less fun to read.

3. Stanislaw Lem, Solaris, doubles and erotic guilt, with a touch of Girard, check out the Tarkovsky film as well.

4. Ursula LeGuin, The Left Hand of Darkness, her masterpiece, sadly I find The Dispossessed pretentious and unreadable.

5. Arthur C. Clarke, Childhood’s End.  In for a penny, in for a pound, as they say.  And once again, why haven’t they turned this into a movie?

6. Dan Simmons, Hyperion and Fall of Hyperion.  I’m not sure these are important science fiction, but they sure hold your interest.

7. Larry Niven, Ringworld.  Read this one through the lens of Dante.

8. China Mieville, Embassytown.  It demands serious attention, but worth a try even if you don’t enjoy his other books.

9. Liu Cixin, The Three-Body Problem trilogy.  Again note the first volume is tough sledding for quite a while.

10. Orson Scott Card, Ender’s Game trilogy, it only gets great at the end of the first volume, nonetheless deeply worth it.

Assorted notes: I would have said Dune, except that last year I tried to reread it.  John Wyndham deserves a lifetime achievement award.  Philip K. Dick is “idea rich,” but basically a bad and overrated writer.  And don’t kid yourself, Neuromancer, while important, isn’t that much fun either.  A big chunk of Verne and H.G. Wells is worth reading, more than just the famous ones.  I’m a fan of Neal Stephenson, but not sure my favorite works of his count toward this category.  Huxley’s Brave New World would make the list if it counts.  Gene Wolfe is OK, but no need to lecture me about him in the comments, same for Ray Bradbury.  Some Heinlein holds up fine, but most does not.  Vonnegut no, but I like Neil Gaiman’s Sandman series if it counts as science fiction.  There is also Iain Banks.

Honorable mentions: Joe Haldeman, The Forever War; Greg Bear, Eon; Octavia Butler Xenogenesis trilogy; Mary Shelley’s Frankenstein.  My dark horse pick might be Michel Faber’s The Book of Strange New Things, or Audrey Niffennegger’s The Time Traveller’s Wife, if that one counts as belonging to the genre.  High marks to Stephen King’s Dark Tower series, and The Stand, again if they count.  Any of these mentions could make the top ten without shame.

What if all businesses were politically polarized?

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

Imagine a “right-wing” supermarket chain and a “left-wing” alternative. The right-wing chain could offer discounts for NRA members and send money to the Republican Party. The left-wing version might have a commercial relationship with Planned Parenthood, sell more vegan products and take special care to promote women up through the ranks.

Maybe that sounds implausible, but many retailers have already segmented their markets through frequent buyer programs. You get better deals from the companies you patronize regularly, most of all from airlines and hotels. It requires only some stretch of the imagination to think that more of those programs could be organized around ideology. After all, if you are going to be “a Hilton customer” or “a Westin customer,” maybe politics could play a role. You personally don’t have to be very ideological; you simply might accept an ideological division over one that is purely arbitrary. Once in place, the continuing existence of the better deal from your preferred supplier will make this arrangement self-enforcing, just as I keep on flying United because of all my accumulated miles.

And:

Social media accounts tie companies to ideologies more tightly than in the past. Who would have thought Delta Air Lines was a “left-wing” company? Maybe it isn’t really deep down, but it’s all over Facebook and Twitter that the airline revoked a discount for NRA members and just lost a tax break from the state of Georgia. At some point, the company might start acting out a left-wing persona to cultivate their available allies, whether or not it reflects the company’s true views.

Do read the whole thing.

Thursday assorted links

1. The best can openers.  You can just assume them, or if you want buy them too.

2. Scenarios for Ukraine?

3. Jeff Lonsdale thinks about food.

4. Ross Douthat on the decline of the Oscars.

5. “But Joe Cordell, the founder of Cordell & Cordell, which specializes in divorce law, said that about a third of the 270 lawyers at his firm, which is spread across 40 states, said that they have seen an increase in custody battles over whether a child should be allowed to play football.” (NYT)

6. My NPR bit on John Stuart Mill’s Autobiography.

People expect happiness improvements that don’t quite arrive

Among the young, expectations for future well-being run far ahead of reported well-being today. The gap diminishes with age, and in the rich countries, the lines cross around age 65 after which the future is expected to be worse than the present. Except for this, people appear to be perpetually optimistic about their futures even though this optimism is perpetually frustrated by actual outcomes.

…This (unjustified) optimism seems to happen everywhere in the world…

That is from a new paper by Angus Deaton.

What is the real value of academic conferences today?

RV puts in a query:

What do you see as the real value of academic conferences today, given that working papers and the internet have made it very easy to disseminate works in progress, get feedback, and collaborate? As a mid-career economist, certainly not a superstar by any metric, my impression is that conferences are largely social in nature, affording me the opportunity to spend time with my friends from grad school and from earlier stages of my career.

I would say there are a few kinds of conferences.  Let’s say you go to a top-level NBER event.  In part, you are going to receive some of the very best comments you ever might get – ever heard Bob Hall rip someone’s paper to bits?  Or maybe praise one or two parts of it? Alternatively, you might be there to signal that you are worthy of this circuit, which is of high value.

Or let’s say you are untenured junior faculty, presenting at the yearly AEA meetings.  You know you might meet some of the senior people in your field at your session, and you can get to know them a bit. You can show them you are not a jerk, and you can signal to them that you are willing to trade favors with them throughout your career.  That makes them more likely to write a positive tenure evaluation for you.

Yet another scenario is that you are a mid-career economist, say at a school ranked #60.  You’d like to move to another school ranked about #60, but maybe in a better area, or where you don’t hate your colleagues quite as much.  Someone has to end up having you in a mind for a slot, and this is more likely if they have met you at conferences and do not hate you.

So yes, many of the major purposes of conferences are “social.”  But the social functions are not so distinct from career-relevant functions either.

That all said, I believe these conferences could be improved significantly.  First, we could have fewer of them.  Second, we could ban long paper presentations, which bore everybody, and move to many more shorter presentations.  For many sessions, the commentator should have more time than the paper presenter, or perhaps equal time.  Third, we could have fewer of them.  Some of the currently existing big conferences are too unwieldy, but they could be rethought to give smaller in-groups more chances to interact with each other.

Did Facebook depolarize America?

Based on selective exposure and reinforcing spirals model perspectives, we examined the reciprocal relationship between Facebook news use and polarization using national 3-wave panel data collected during the 2016 US Presidential Election. Over the course of the campaign, we found media use and attitudes remained relatively stable. Our results also showed that Facebook news use was related to a modest over-time spiral of depolarization. Furthermore, we found that people who use Facebook for news were more likely to view both pro- and counter-attitudinal news in each wave. Our results indicated that counter-attitudinal news exposure increased over time, which resulted in depolarization. We found no evidence of a parallel model, where pro-attitudinal exposure stemming from Facebook news use resulted in greater affective polarization.

That is from Beam, Hutchens, and Hmielowski.  I thank an anonymous correspondent for the pointer.

Massive share buybacks are just fine, and other mistakes in economic reasoning

I am intrigued by the idea that opinion articles, blog posts and tweets can have “give away” phrases that reveal more bias than the author intends, or perhaps are correlated with errors in economic reasoning. I have a candidate for such a phrase: “massive share buybacks,” or the variation, “massive share repurchases.” The words sound innocuous enough, but such talk ought to raise red flags in your mind.

That is from my latest Bloomberg column, the defense of massive share buybacks then follows.  Of course the share buybacks just push around money, they don’t have to draw real resources away from investment or for that matter a wage boost.  As this piece was coming out I also saw this excellent complementary treatment by John Cochrane.

What are other such “red flag” phrases?  “The big tech companies are selling your data” is a recent one.  I’ve already outlined my “law of gut“: beware anyone who tells you that a particular government program is being “gutted.”  Another bad one is when a review or critique is described as a “takedown.”  That’s a sign that either the reviewer, or the reviewer of the review, is trying to lower the status of somebody rather than to learn from them.

One smart guy’s frank take on working in some of the major tech companies

This is from my email, I have done a bit of minor editing to remove identifiers.  It is long, so it goes under the screen break:

Background

I joined Google [earlier]…as an Engineering Director. This was, as I understand it, soon after an event where Larry either suggested or tried to fire all of the managers, believing they didn’t do much that was productive. (I’d say it was apocryphal but it did get written up in a Doc that had a bunch of Google lore, so it got enough oversight that it was probably at least somewhat accurate.)

At that time people were hammering on the doors trying to get in and some reasonably large subset, carefully vetted with stringent “smart tests” were being let in. The official mantra was, “hire the smartest people and they’ll figure out the right thing to do.” People were generally allowed to sign up for any project that interested them (there was a database where engineers could literally add your name to a project that interested you) and there was quite a bit of encouragement for people to relocate to remote offices. Someone (not Eric, I think it probably was Sergey) proposed opening offices anyplace there were smart people so that we could vacuum them up. Almost anything would be considered as a new project unless it was considered to be “not ambitious enough.” The food was fabulous. Recruiters, reportedly, told people they could work on “anything they wanted to.” There were microkitchens stocked with fabulous treats every 500′ and the toilets were fancy Japanese…uh…auto cleaning and drying types.

And… infrastructure projects and unglamorous projects went wanting for people to work on them. They had a half day meeting to review file system projects because…it turns out that many, many top computer scientists evidently dream of writing their own file systems. The level of entitlement displayed around things like which treats were provided at the microkitchens was…intense. (Later, there was a tragicomic story of when they changed bus schedules so that people couldn’t exploit the kitchens by getting meals for themselves [and family…seen that with my own eyes!] “to go” and take them home with them on the Google Bus — someone actually complained in a company meeting that the new schedules…meant they couldn’t get their meals to go. And they changed the bus schedule back, even though their intent was to reduce the abuse of the free food.)

Now, most of all that came from two sources not exclusively related to the question at hand:

Google (largely Larry I think) was fearless about trying new things. There was a general notion that we were so smart we could figure out a new, better way to do anything. That was really awesome. I’d say, overall, that it mostly didn’t pan out…but it did once in a while and it may well be that just thinking that way made working there so much fun, that it did make an atmosphere where, overall, great things happened.

Google was awash in money and happy to spray it all over its employees. Also awesome, but not something you can generalize for all businesses. Amazon, of course, took a very different tack. (It’s pretty painful to hear the stories in The Everything Store or similar books about the relatively Spartan conditions Amazon maintained. I was the site lead for the Google [xxxx] office for a while and we hired a fair number of Amazon refugees. They were really happy to be in Google, generally…not necessarily to either of our benefit.)

I was there for over ten years. Over time, the general rule of “you get what you incent” made the whole machine move much less well and the burdens of maintaining growth for Wall Street have had some real negative impact (Larry and Sergey have been pushing valiantly for some other big hit of course).

So, onto the question at hand:

I know bits and pieces about Google, Facebook, Apple, and Amazon. I’ve known some people who’ve worked at Netflix but generally know less about them. Google I know pretty well. I’ve worked at a bunch of startups and some bigger companies. I haven’t worked for a non-tech company (Ford) since I was 19 (when I was an undergrad I worked in the group that did the early engine control computers…a story in itself).

I think the primary contributions the tech companies make to organizational management are:
significantly decreasing the power that managers hold
treating organization problems as systems problems to be designed, measured, optimized, and debugged [as a manager, I, personally, treat human and emotional problems that way also]
high emphasis on employing top talent and very generous rewards distributed through the company*

*only possible in certain configurations of course.

What also went well at Google: Google avoided job categories that were, generally, likely to decrease accountability:

Google avoided the job class of architect — which was both high status and low accountability, making it an easy place for pricey senior people to park and not have much impact (Sun Microsystems was notorious for having lots and lots of architects)

Google avoided the category of project manager, which would have allowed engineering managers to avoid the grungy part of their job (and be out of touch with engineering realities). I don’t know the history of that particular orientation — we did have something called a TPM (“technical program manager”) who were intended to make deep technical contributions, not just keep track of projects.

Google exploited “level of indirection” to avoid giving managers power over their employees or the employees excess emotional bonds to their managers.

hiring committees who would remove the managers from the process of hiring and (mostly, especially in the early days) project assignment

promotion committees who would judge promotion cases, removing the power of promotion from the manager (didn’t scale well, as indicated by the link I sent you)

raises had a strong algorithmic component; promotions and bonuses were both linked to performance ratings in a way such that getting high scores (at the current level) led to big bonuses, so if an employee’s case wasn’t perfect for promotion they wouldn’t feel they were incurring a financial penalty. That gave promotion committees more liberty to say “no by default” and managers less incentive to fight like badgers to get their people promoted.

What didn’t go so well
The industry has its own weird relationship to business:

product managers can be valuable if they have either strong business skills or a deep instinct for something amazing that should be built to create a business. Google (and others) explicitly treated product managers as “mini-CEOs” so they attracted a lot of people who…wanted to be a mini-CEO…but weren’t necessarily cut out for a CEO role. (At this point I have a generally low opinion of product managers and people who aspire to product management, with notable exceptions of course.)

Google- and software industry-specific: lots of developers want to make free software, lots of developers only know how to make things for other developers, so trying to be in a business where there’s deep domain knowledge required, or lots of actual business competition (where marketing, awareness, and business strategy are key) mean that overfocus on really, really smart software engineers as the almost exclusive hiring target makes it difficult to succeed.

Selling ads…I’m not in favor of it as an engine of commerce. Amazon has profound and distinguished power accrued over time by ruthless exploitation of scale in low margin industries where everyone is “making it for a dollar, selling it for two…” which makes them very dangerous for every competitor.

You get what you incent
product managers were rewarded for launching, which means they’d tend to launch and ditch
it’s hard not to reward managers for group size; Google was no different — this was the place where it was hardest to avoid fiefdoms that come with centralization of power

What degraded over time at Google:

Some things having to do with too much money, not necessarily related to tech management in particular:

sense of company mission vs. sense of entitlement.

pursuing company mission vs. individual advancement.

influx of people responding primarily to financial rewards (related).

Some things related to scale that might work better in an organization based on tight, interpersonal relationships (the opposite of the decreased manager power referenced above):
some processes implicitly dependent on people largely knowing one another or being one degree of separation apart (e.g., promotion)
the ability to reward creative, risky work; the ability to reward engineering work that had little visible outcome.

Other companies in bits and pieces

As indicated I’m very admiring of Amazon’s strategic approach and its business-first focus. Google did a lot of awesome stuff, but it had incalculable waste and missed opportunities because of the level of pampering and scattershot approach. If you want a real tech company model, I’d pick Amazon (even though I’m not sure I’d ever work there).

Facebook is kind of nothing. It’s a product company and I (personally) don’t think the product is very compelling. I think they hit a moment and will see the fate of MySpace in time. I can’t pick out product innovations that were particularly awesome (other than incubating on college campuses and exploiting sex more or less tastefully). And, their infrastructure is pretty crude which means they’ll run into the problem, eventually, hiring the kind of people who can do the kind of scaling they’re going to need.

Apple — I don’t know a ton about them currently, but they’re old. Real old. I interviewed there some time ago and they told me they like to set arbitrary deadlines for their projects because once people are late they work harder. I didn’t pursue the job further, although I have no idea if that’s any sort of a broad practice or a current practice. What they *do* epitomize is the notion that new business models are more important than new technologies so things like flat rate data plans, $.99 songs, not licensing their OS, are real, interesting tech company contributions — I haven’t seen much of that sort of thing since Steve Jobs died, but I’m also not that close to them. That’s obviously not exclusive to tech companies, but something that may be more possible where you have new inventions.

Microsoft — the epitome of high pressure big software, abuse of market dominance, decline, and then pivot into new relevance. IBM II. I don’t know that there’s much about their culture or current business that’s particularly admirable. They’ve got this “partner” system that’s insane where they’ve set up a high stakes internal competition that just looks terrible for any kind of team cohesion or morale. I wouldn’t want to work there, either, although (like Amazon) I have a number of friends I really respect who work there. Generally, there are tradeoffs for having an environment with lots of competition for material rewards — I don’t personally like them so they won’t attract people like me… so I’d like to believe they’re terrible for business…although I’m not at all sure that’s true.

Netflix — little info, really. Competent and pivoting but I don’t know much good or bad.

Amazon — totally admirable, really scary, really effective, and very business-focused. Changing capex into opex via Cloud was one of those changes in business mode that I saw in Apple, along with “sell close to cost using Wall Street money so that no one can compete while you push down costs via scale so no one new can afford to enter the market.” They also are willing to ditch products that don’t work. It sounds like a hard place to work.

===

Challenges I see in other industries: low imagination, fiefdoms / politics, inefficiency, communication problems…all could benefit from tech company input. If you’re in a low margin, low revenue business…it’s just going to be hard without the ability to attract and retain top talent, which is usually going to have a money component. But, best practices certainly help along with awareness of the importance of things like business model, systems design within the business, communication and culture, relationships to power, politics, and incentives…

Remaining challenges in tech industry: scaling and incentives (and incentives at scale :). I also see a major extrovert bias, which might seem a little funny for tech. But, again, product managers (or, God forbid, Sales people) are all really subject to the “let’s just get some people in a room” style of planning and problem resolution. I firmly believe some massive amount of productivity is squandered from people choosing the wrong communication paradigm — I think it’s often chosen for the convenience or advantage of someone who is either in an extrovert role or who is just following extrovert tendencies. Massive problem at Google, which is ironic given their composition. Amazon had some obvious nods to avoiding these sorts of things (e.g., “reading time”) but I don’t know how pervasive they were or how effective people believed them to be.

I thank the author for taking the time to do this, of course I am presenting this content, not endorsing it.

Which are the most dangerous animals in America?

Beware the snake, the spider and the scorpion. But know this: You are much more likely to be killed by a bee or a dog.

Of the 1,610 people killed in encounters with animals between 2008 and 2015, 478 were killed by hornets, wasps and bees, and 272 by dogs, according to a study published in Wilderness & Environmental Medicine. Snakes, spiders and scorpions were responsible for 99 deaths over the eight years.

Using a database published by the Centers for Disease Control and Prevention, researchers found that 72 people annually were killed by “other mammals,” which includes horses, cattle and pigs.

Only six people a year died from snakebite, and six after being bitten by a venomous spider. Two people were killed by marine animals over the eight-year period, and no one was killed by a rat.

That is from Nicholas Bakalar at the NYT, via Michelle Dawson.

Growth Mindset Replicates!

A lot of psychological research has failed to replicate, throwing cold water on the entire field. “Grit” and the “growth mindset”, the two taglines of superstar researchers Angela Duckworth and Carol Dweck, checked all the boxes for predictive failure including the requisite TED talks (Duckworth, Dweck), best-selling popular books (Duckworth, Dweck) and genius awards and, to be sure, there has been lots of puffery about the “incredible potential” and “profound impact” of grit and the growth mindset. But, to their great credit, Duckworth and Dweck have taken the replication crisis to heart and have sought to address it. Working with a large team (PI David S Yeager), the authors have tested a growth mindset intervention in 65 randomly chosen schools with over 12,000 students representative of the United States grade 9 population.

Here is what is notable: The analyses were pre-registered, the data were collected by independent researchers and key parts of the model were analyzed by independent statisticians in a blinded dataset.

To achieve arms-length independence, a research firm not involved in designing the materials or study hypotheses drew the sample, recruited schools, facilitated treatment delivery, obtained administrative data, and cleaned and merged data. Data were processed blind to treatment status.

…A random sample of schools, rather than a convenience sample, meant that it represented the full array of the U.S. public educational contexts.

Data were analyzed following a pre-registered analysis plan (the so-called “preregistration challenge,” osf.io/afmb6/) that was developed by an interdisciplinary team, including one external evaluator. All analyses were “intent to treat” (ITT); data were analyzed as long as students saw the first page of the randomized materials.

independent statisticians reproduced the key moderation findings by estimating a hierarchical, nonlinear Bayesian model using a blinded dataset that masked the identities of the variables, to further reduce the possibility of chance findings.

Ok, so what were the results?

Based on administrative records, 9th grade adolescents assigned to the growth mindset
intervention, as compared to the control activity, earned slightly higher GPAs in core classes at
the end of 9
th grade. On a 4-point grade metric (“A” = 4.0, “B” = 3.0, etc.), the average treatment
effect was 0.03 grade points,
SE = .01, N = 12,542 students, k = 65 schools, t = 3.09, P = .003.

In other words, a small, positive effect. But this small effect is coming from a small intervention, two online survey/interventions of 25 minutes each that could be easily scaled to the entire country or even worldwide. We have come a long way from the “mindset revolution” but who am I to discount a marginal revolution? Moreover, the average effect hides heterogeneity, the effect was bigger on the students who needed it most.

as expected, average effects were small because many students
are already doing well, do not have motivational issues, or are not in environments that
encourage or support growth-mindset behaviors. When we take account of such factors, more
noteworthy effects emerge. The improvements in the gateway outcome of 9
th grade GPA were
concentrated among adolescents who are at significant risk for compromised well-being and
economic welfare: those with lower levels of prior achievement attending relatively lower achieving schools. The finding that an intervention can redirect this adolescent outcome in this
sub-group, in under an hour, without training of teachers, and at scale (i.e. in a random sample
of nation’s schools), represents a significant advance.

Overall, this is a very impressive study and one that I suspect will be used to mark the beginning of the post-replication-crisis era.

The ending of the post-replication-crisis era also makes another trend clear–the future of social science will be even more hierarchical and unequal–future social science will be done by large, well-funded teams, run by superstar researchers at top universities. This study, for example, had 10 co-authors from multiple universities and probably cost well over a million dollars. The smaller the effect the bigger the team that will be needed to find it.

Addendum: A big meta-analysis out today also finds very small effects for growth mindset (correlation of growth mindset with achievement=.01) but the effects are probably real especially for academically high-risk students and low-SES students and perhaps they could be magnified by better interventions.

Hat tip: Stuart Richie.