Month: November 2020

Bt Eggplant is Great

A very important result from Ahmed, Hoddinott, Abedin and Hossain in The American Journal of Agricultural Economics. Bt eggplant offers a 51% increase in yield, a 37.5% decrease in pesticide use, increased farmer profits and decreased farmer sickness. Wow!

We implemented a cluster randomized controlled trial to assess the impact of genetically modified eggplant (Bt brinjal) in Bangladesh. Our two primary outcomes were changes in yield and in pesticide costs. Cultivation of Bt brinjal raises yields by 3,564 kg/ha. This statistically significant impact is equivalent to a 51% increase relative to the control group. There is a statistically significant fall in pesticide costs, 7,175 Taka per hectare (85 USD per ha), a 37.5% reduction. Yield increases arise because Bt farmers harvest more eggplant and because fewer fruits are discarded because they are damaged. Bt brinjal farmers sell more eggplant and receive a higher price for the output they sell while incurring lower input costs, resulting in a 128% increase in net revenues. Bt brinjal farmers used smaller quantities of pesticides and sprayed less frequently. Bt brinjal reduced the toxicity of pesticides as much as 76%. Farmers growing Bt brinjal and who had pre‐existing chronic conditions consistent with pesticide poisoning were 11.5% points less likely to report a symptom of pesticide poisoning and were less likely to incur cash medical expenses to treat these symptoms. Our results are robust to changes in model specification and adjustment for multiple hypothesis testing. We did not find evidence of heterogeneous effects by farmer age, schooling, or land cultivated. Bt brinjal is a publicly developed genetically modified organism that conveys significant productivity and income benefits while reducing the use of pesticides damaging to human and ecological health.

Hat tip: Marc Bellemare.

The Chilean pension system is in crisis

Chile’s celebrated $200bn private pensions system has served as a model for dozens of emerging markets since it was introduced in the 1980s. Now, it faces an existential crisis as public support for the model fades and populist politicians allow savers to withdraw funds during the coronavirus crisis.

The lower house of congress voted to allow Chileans to withdraw another 10 per cent of their pension funds last week, following a similar measure in July that saw withdrawals of some $17bn.

Congress could yet approve a third withdrawal next year, putting at risk a pool of savings that has driven the growth of Chile’s capital markets and jeopardising future returns.

That is from Benedict Mander and Michael Stott at the FT.  Of course you can say “Ah, they shouldn’t do that!”  And they should not.  Still, at the end of the day if you leave surpluses sitting around to be grabbed or handed out, don’t be surprised if they are grabbed or handed out.  Arguably the famed Chilean scheme has been shown to be time-inconsistent.  It was, however, nice while it lasted.

Erasmus Darwin, apostle of progress

Erasmus Darwin plunged into popular scientific poetry.  Cantering along in the style — if not with the elegance — of Alexander Pope, he never aspired to greatness.  His verses, however, were remarkable for their vivid pictures of evolution interlaced with stirring accounts of the advancement of science, technology, and human culture during the late eighteenth century, the very epitome of optimistic entrepreneurial thought applied to the natural world in the bright glow of the prerevolutionary era.

It is hard to recapture the full extent of the fame these writings, virtually forgotten today, brought him.  Yet for many readers of the 1790s, Darwin was the poet for the age of liberty and social advance: an advocate of industrialisation and cultural improvement; an avid admirer of the power of steam; a discipline of the French philosophes, revealing his Jacobin-like fervour for change and transformation at every turn, and deliberately provocative in taking as his publisher the radical Joseph Johnson, the Londoner who printed William Godwin and friends; at all times a poet of progress, with such an obvious sense of humor that his zest for life could not fail to amuse.

Erasmus Darwin (1731-1802) was of course the grandfather of Charles Darwin and also of Francis Galton.  And that passage is from the truly excellent biography Charles Darwin Voyaging, by Janet Browne.

Tuesday assorted links

1. I did a Firewall podcast with Bradley Tusk.

2. Complacency and American girl dolls.

3. In China, “grey market” vaccine doses are going for $600-$1500.

4. Who are the greatest right-wing literary authors?

5. Canadian clustering.

6. The rise of undrafted NBA talent.  A good piece and of general interest.

7. Reduce event size rather than general lockdowns: “Our model predicts that a small minority of “superspreader” POIs account for a large majority of infections and that restricting maximum occupancy at each POI is more effective than uniformly reducing mobility.”

Post-Covid, is the U.S. falling behind China?

I don’t think so, as I argue in my latest Bloomberg column, here is one bit:

If you are wondering whether China or the U.S. with its allies is more likely to make a big breakthrough, in, say, quantum computing, ask yourself a simple question: Which network will better attract talented immigrants? The more that talent and innovation are found around the world, the more that helps the U.S.

And:

Perhaps most important, the European Union has evolved from seeing China primarily as a customer to seeing China primarily as a rival. Even Germany, a longstanding advocate for closer ties with China, has become more skeptical. Furthermore, most European nations have ended up agreeing with the U.S. that Chinese telecom giant Huawei be kept out of the critical parts of their communications infrastructure.

It is also worth noting that GPT-3 came out of the Anglosphere, not China, even though we have been hearing for years that China may be ahead in AI.

Platform Economics in Modern Principles

Why is Facebook free? Why are credit cards less than free? Why do singles bars sometimes have women drink free nights but never men drink free nights? All of these questions are in the domain of platform economics. Platform economics is new. Tirole and Rochet practically invented the field with a seminal paper in 2003–and that paper was one of the reasons Tirole won the Nobel prize in 2014. Despite being new, platform economics deals with goods which are fundamental to the modern economy. Thus, Tyler and I thought that it was incumbent upon us to teach some of the intuition behind platform economics in Modern Principles of Economics. But students have enough new material to learn, so we set ourselves a challenge–explain the intuition of platform economics using principles that the students already know. Surprisingly, platform economics can be taught with just two principles: externalities and elasticities.

In our chapter on externalities we offer the students a puzzle. Why do some firms offer their workers free flu shots? The answer, as memorably illustrated in this video, is that the firm “internalizes the externality.” When one worker gets a flu shot, other workers at the firm are less likely to get sick. In principle, the workers could subsidize one another to achieve the efficient outcome but transactions costs makes that solution impractical (the Coase theorem). The firm, however, is already involved in transactions with all the workers and, as a result, it can subsidize flu shots and reap the benefits of workers taking fewer sick days. How much the firm should subsidize flu shots depends on the elasticity of flu shots with respect to the price and on the elasticity of sick days with respect to vaccinated workers.

Now what does this have to do with Facebook? Well think about seeing ads as a bit like getting a flu shot–seeing ads has a benefit to you but it’s also a bit of a pain so if you had a choice you might not watch that many ads. But advertisers want you to see ads–in other words, Facebook users who see ads create a positive externality for advertisers. The platform firm, Facebook, internalizes this externality and that means subsidizing ad-seeing by selling Facebook at a zero price to readers and instead charging advertisers. As we put it in Modern Principles:

Imagine that Facebook begins with a positive price for both readers and advertisers (PR>0 and PA>0). Readers, however, are likely to be sensitive to the price so a small decrease in price will cause a large increase in readers (very elastic demand). Thus, imagine that Facebook lowers the price to readers and thus increases the number of readers. With more readers, Facebook can charge its advertisers more, so PA increases. Indeed, if the demand for advertisers increases enough, it can even pay Facebook to lower the price to readers to zero! Thus, the key to Facebook’s decision is how many more readers it will get when it lowers the price (the reader elasticity), how much those readers are worth to advertisers (the externality of readers to advertisers) and how high can it increase the price to advertisers (the advertiser elasticity).

More in the textbook!

More immigrant founders and co-founders, in this case Moderna

Noubar Afeyan, co-founder and chairman of Moderna, is a two-time immigrant. He was born to Armenian parents in Lebanon and immigrated with his family in his early teens to Canada. After attending college, Afeyan came to the United States and earned a Ph.D. in biochemical engineering at the Massachusetts Institute of Technology (MIT). He started his first company at age 24 and ran it for 10 years, during which time he founded or co-founded five additional companies.

…Moderna’s CEO is Stéphane Bancel, who immigrated to America from France. He earned a master of engineering degree from École Centrale Paris (ECP), and came to the United States as an international student, receiving a master of science in chemical engineering from the University of Minnesota and an M.B.A. from Harvard Business School.

Here is the story, there will be more like it…

LaMelo Ball What Price Fame?

Ball, though, wasn’t content with just having been a solid player in Australia. Instead, he raised some eyebrows last spring when he attempted to buy his former team.

The talks eventually fizzled out.

It wasn’t a typical move for a teenager, but Ball isn’t a typical teenager. He has already lived on different continents, starred in his own reality show, worn his own signature sneaker and watched both of his brothers play professional basketball.

And at age 19, with only limited playing experience or credentials:

…he is already more famous than most professional athletes, with more Instagram followers than the majority of N.B.A. players. His highlights had been viewed by millions on social media before he was old enough to drive a car.

Of course the NCAA should pay its players.  This year it is possible that at least half of the top ten draft picks will have bypassed the NCAA altogether, Ball included.  Arbitrage!

Here is the NYT article.

Monday assorted links

1. State capacity: Italian Police Use Lamborghini To Transport Donor Kidney 300 Miles In Two Hours.

2. St. Helena golf club.

3. This source argues there was no real foreign election interference.

4. “A fact that was never mentioned ahead of time. If we had reached complete suppression vaccine development would have been impossible. Depends, on the math but I think this means that *if* a vaccine is out there slow burn saves lives compared to suppression that eventually snaps”  From Karl Smith.

5. “Student loan debt forgiveness likely has a multiplier close to zero. Forgiveness is taxable. If this negative cash flow effect outweighs interest savings would even be net negative. And wealth effect small in short run. Arbitrary/regressive $1T for ~$0 GDP, not a great idea.”  From Jason Furman.

6. The new Swedish public events restrictions.

Modern Principles, New Edition!

The new edition of Modern Principles is here! We take our title, Modern Principles of Economics, seriously. Other textbooks stick with the market for ice cream year after year but when it comes to new editions we don’t just add a box or two–we rewrite entire chapters with new examples and applications and we cut older material to make way for the new.

In the new edition we introduce platform economics and we use it to explain why Facebook is free; we have new material applying the elasticity of supply to understand why housing is so expensive in some cities; we have rewritten the chapter on trade to take into account the China shock and the China trade-war shock including the implications for politics; we have new material on pollution and a carbon tax; new material on the declining labor force participation rate of men and new material on supply chains and bottlenecks. Of course, there is also new material on pandemics although we had material on pandemics in the very first edition!

Modern Principles of Economics is by far the best textbook for teaching online (or offline!). Not only do you get over a hundred professionally produced videos, like this one on price ceilings and price coordination, you also get Achieve, the excellent new course management system that integrates e-book, tutorials, quizzes, exams, assessment and much more so that you can get up and running online overnight.

I’ll be covering some of the new material in Modern Principles this week.

Intertemporal substitution remains underrated (Covid in Scotland)

He suggested the announcement that the roll-out of a vaccine within weeks had persuaded people to break the rules and take risks.

“People maybe think the battle is over because the vaccine is coming…”

Here is the Times of London story.  Of course economics suggests the exact opposite course of action, namely that when a good vaccine is coming you should play it safer in the meantime.  Beware!

Economics and epidemiology, revisited

The Economist was kind enough to reference my earlier blog post on this topic, from April 12, so I thought we should look at it again.  Please do reread it!  Here are my first two points:

1. They [epidemiologists] do not sufficiently grasp that long-run elasticities of adjustment are more powerful than short-run elasticites.  In the short run you socially distance, but in the long run you learn which methods of social distance protect you the most.  Or you move from doing “half home delivery of food” to “full home delivery of food” once you get that extra credit card or learn the best sites.  In this regard the epidemiological models end up being too pessimistic, and it seems that “the natural disaster economist complaints about the epidemiologists” (yes there is such a thing) are largely correct on this count.  On this question economic models really do better, though not the models of everybody.

2. They do not sufficiently incorporate public choice considerations.  An epidemic path, for instance, may be politically infeasible, which leads to adjustments along the way, and very often those adjustments are stupid policy moves from impatient politicians.  This is not built into the models I am seeing, nor are such factors built into most economic macro models, even though there is a large independent branch of public choice research.  It is hard to integrate.  Still, it means that epidemiological models will be too optimistic, rather than too pessimistic as in #1.  Epidemiologists might protest that it is not the purpose of their science or models to incorporate politics, but these factors are relevant for prediction, and if you try to wash your hands of them (no pun intended) you will be wrong a lot.

And:

I have not yet seen a Straussian dimension in the models, though you might argue many epidemiologists are “naive Straussian” in their public rhetoric, saying what is good for us rather than telling the whole truth.

Many people took umbrage at my points, but:

On this list, I think my #1 comes closest to being an actual criticism, the other points are more like observations about doing science in a messy, imperfect world.

I also queried about the political orientation of epidemiologists (among other matters), and that occasioned a great deal of pushback and outrage. Yet we saw during the summer that many of them were explicitly political and favoring the Left, willing to abandon their earlier recommendations to endorse demonstrations for a cause they strongly favored.  I am not sure how big was the resulting boost in cases or fatalities, but it did seem the American people concluded that you could ignore the rules if something was sufficiently important to you.  Like visiting your relatives for Thanksgiving, and we will be reaping that harvest rather soon.

Asking for a friend

What is the current take on foreign interference in the 2020 presidential election?  I hardly hear anyone mentioning this.  Was there much?  And if not, why not?  Our sagest minds were warning of this for years, and I heard several nat sec experts warn me of this but a few weeks ago.  There have been hundreds of media articles about the topic.  So what is up?  I see a few options:

1. There was lots of foreign interference (again), but things turned out OK so it is not a major issue.  “Never mind.”

2. President Donald Trump ensured election integrity through vigilance, good policy, and cooperation with Vladimir Putin.

3. Local election authorities were alert this time around, and they choked off each and every instance of foreign election interference.

4. The major tech companies were alert this time around, and they choked off each and every instance of foreign election interference.  They didn’t even let the Russkies spend 60k on Facebook ads.  Those are such great companies.

5. Foreign election interference was never much of a significant issue to begin with.  “Never mind.

6. Foreign powers are now all, in each and every country, committed to free and fair American elections, and they acted accordingly.

To be clear, I am not asking which is true.  I am asking which one I am supposed to believe.

Sunday assorted links

1. Andrew Gelman on driving and the stock market.

2. Covid and complexity (Scott Sumner, I would note that much of Africa seems to fit this same story).

3. Sanity about Sweden (both sides were wrong).

4. Diane Coyle book list.

5. China Belgium fact of the day: racing pigeon sells for $1.9 million.

6. It seems Al Zajeera has better coverage of Ethiopia?

7. Covid in Milan in September 2019? (speculative).  Here is the paper.  Cross-contamination, or might this be Cowen’s 17th Law: Most phenomena have origins earlier than you are at first inclined to think.  It is true for “the marginal revolution” as well!