Month: January 2021

Consistency about elasticities

If you think “stimulus” is effective right now, presumably you think supply curves are pretty elastic and thus fairly horizontal. That is, some increase in price/offer will induce a lot more output.

If you think we should hike the minimum wage right now, presumably you think supply curves are pretty inelastic and thus fairly vertical.  That is, some increase in price for the inputs will lead not to much of a drop in output and employment, maybe none at all.  The supply curve is fairly vertical.

You might somehow think that supply is elastic with respect to output price, but inelastic with respect to input price.  Is there a model that can generate that conclusion?  It is the net profit on the marginal output units that should matter for decisions.  And did you start with that model, or develop it afterwards to justify your dual intuitions?

Do you right now favor both a lot of stimulus and a big minimum wage hike?  What are your assumptions about elasticities?  Show your work!

Do you favor a minimum wage hike, but also think a lot of immigrants to this country won’t lower real wages by very much if at all?  The latter view would seem to imply a fairly elastic demand for less skilled labor.  (The new labor can be absorbed into the market with only a small price change.)  Are your assumptions about elasticities consistent there as well?

Are your assumptions about elasticity with respect to stimulus and elasticity with respect to tax cuts consistent?

If you favor a minimum wage hike, do you criticize wage subsidies because inelastic demand for labor means most of the value of the wage subsidy will be captured by the employer? Or do you somehow want both policies at the same time, because they both involve “government helping people”?

If you favor a minimum wage hike because you think the demand for labor is inelastic, does that mean you don’t see “downward sticky wages” as a big problem?  After all, the demand for labor is inelastic, right?

What are your assumptions about elasticities?  And are those even the assumptions that actually matter to you?

How many economists do you know who start with beliefs about elasticities and then apply them consistently, before considering the politics of the conclusions?

How many of you actually think you are consistent across all of these views about elasticities?  How many of you think you actually have a jerry-rigged model (“increasing returns for me but not for thee?”) that holds it all together?

Inspired by these tweets from Garett Jones.

Felix Camilo Ayala, RIP

He was an indigenous, Nahuatl-speaking Mexican painter in the “Naive” tradition, working on board, amate paper, and ceramics.  Some of you will know that I was his biographer, along with his two brothers Marcial Camilo and Juan Camilo, both painters as well.  I spent many hours interviewing Felix Camilo (and his friends and relatives) about the events of his life, so it is especially sad for me to see such a tragic final episode, namely death by Covid in his mid-sixties.  He simply was not able to breathe any more, and then he died.

Felix was less ambitious than his brothers, but he had a natural eye for a lovely scene.  Pretty much everyone in San Agustin Oapan, his home village, liked or loved him, and such general popularity there is rare.  He worked hard to avoid faction, to stay on good terms with all, and to raise his children after his wife passed away almost thirty years ago.

Here is an update on the coronavirus situation in Mexico:

Officials reported 1,219 deaths Saturday, which was a near-record for one day, and 463 deaths Sunday.

Mexico has now seen over 1.64 million total infections and registered over 140,000 deaths so far in the pandemic. With the country’s extremely low testing rate, official estimates suggest the real death toll is closer to 195,000.

Here is some basic background on Felix Camilo, his village, and my involvement with it.  These days, one of my friends in Oapan estimates that about two percent of the village has died from Covid, and about half of those are relatively young.  There are many comorbidities and no medical care to speak of.

Here are a few other Felix Camilo images.  He was never a famous painter, but he played a significant part in capturing and communicating a culture that is vanishing rapidly.

Protection against dengue?

The dengue virus uses a particular protein, called Non-Structural Protein 1 (NS1), to latch onto the protective cells around organs. It weakens the protective barrier, allowing the virus to infect the cell, and may cause the rupture of blood vessels. The research team’s antibody, called 2B7, physically blocks the NS1 protein, preventing it from attaching itself to cells and slowing the virus’s spread. Moreover, because it attacks the protein directly and not the virus particle itself, 2B7 is effective against all four dengue virus strains.

That is cited by the excellent Jodi Ettenberg, from new January 2021 research.  If I  hear more I will let you know.

Monday assorted links

Elrond and the New Crypto Spaces

I’m an advisor to a number of firms, including several in the crypto space such as Elrond (eGLD coin). When I signed on as an advisor more than two years ago, Elrond was almost completely unknown, which wasn’t surprising as they were based in Romania. I thought the Romanian base was a positive, however, because it meant that Elrond could hire extremely well-educated computer scientists, mathematicians and software engineers at below Silicon Valley prices. Moreover, the blockchain world, true to its foundations, is decentralized. Like a modern day Erdos, Vitalik Buterin operates out of his suitcase. The Silicon Valley of the blockchain is the internet. Why the blockchain world has evolved differently than Silicon Valley is an interesting question (with implications for whether SV could loses its centrality) but because it is decentralized I thought location was less important than the quality of the team. And the team, led by hard-charging founder Beniamin Mincu, is excellent. In the last two years the Elrond team has built a completely modern blockchain from the ground up using secure proof of stake and sharding to achieve a potential throughput of upwards of 16 thousand transactions per second with 6s latency and $.001 transaction cost and a toolkit for developers. I was also impressed by the commitment Elrond had to security, including formal verification methods, and especially to making Elrond accessible to the masses. Today Elrond/eGLD is on a tear and by market cap it is one of the top 50 projects in the space with a strong upward trend.

Will Elrond take over the world? I hope so! But, of course, it is unclear. Aside from ranking Elrond versus other projects the space itself still doesn’t have a killer app for the masses. In 2017 near the peak of the market at that time, Vitalik Buterin tweeted:

So total cryptocoin market cap just hit $0.5T today. But have we *earned* it?

How many unbanked people have we banked?

How much censorship-resistant commerce for the common people have we enabled?

How much value is stored in smart contracts that actually do anything interesting?

The total market cap is now close to a trillion, about twice the level when Vitalik tweeted, and these are still good questions. Bitcoin has established itself as a new asset class that is rapidly supplanting gold as a store of value (gold is lame) but not as a payments platform. Ethereum, Elrond and competitors like Algorand were built for smart contracts, including things like stable coins which will be used for payments, but smart contracts are capable of doing much more. In theory, smart contracts let people cooperate in new ways, potentially unlocking trillions in value. But we aren’t there yet.

Decentralized finance or DeFi is one suggestive hint of where things are going. Already many billions of dollars are “lent” and “saved” using DeFi. The lending and saving, however, is almost entirely done in one cryptocurrency for another. In essence, the DeFi system is leveraging off of crypto speculation and trading.

Nevertheless, something interesting is happening in DeFi. The DeX’s or decentralized exchanges have shown that automated market makers can perform the services of market order books used by the traditional exchanges like the NYSE at lower cost while being easily accessible from anywhere in the world and operating 24/7/365. Thus, every exchange in the world is vulnerable to a DeX.

Also, although DeFi is a place where you can easily lose all your money to mistakes, scams, and bugs (not to mention changes in asset values), DeFi is rapidly developing state-of-the-art security. Only the paranoid survive on the blockchain which means that the systems that do survive are robust. Balaji Srinivasan recently tweeted that Bitcoin is the most powerful algorithm in the world and few algorithms have been as battle-tested as Bitcoin. In a similar way, DeFi will be secure or die and security in a blockchain world will be more secure than anywhere else.

Combining security with accessibility is what’s hard. It’s telling that Coinbase is one of the most successful firms in the crypto space despite performing services which are in some tension with the philosophical foundations of crypto. Satoshi Nakamoto would probably be a little disappointed to learn that people were depositing their Bitcoins in a bank! I can understand the impulse, however. It’s almost magical how you can move money on a blockchain without input or permission from any authority. But when you click the button and your money disappears it’s terrifying as you pray for the invisible hand of the miners to restore your money in another account. Elrond’s soon to be released Maiar app, a wallet that interacts with the Elrond blockchain using only a phone number, will be an interesting test of whether a blockchain platform can duplicate the ease of use of something like PayPal or Zelle.

The other interesting development in the space are zero knowledge proofs. Zero knowledge proofs let someone prove that they know a piece of information or the results of a computation without revealing the information. ZK proofs started in the academic literature but research in their uses and applications has exploded as computer scientists like Silvio Micali start blockchains and blockchains like ZCash hire computer scientists who advance the scientific literature (to give just one example). Truly anonymous digital cash is one application but more generally zero knowledge proofs let people buy and sell information in a way which has always been difficult and seemed impossible (how can you sell a piece of information without showing it to someone first but then having seen the information why would they buy it?).

Bottom line is that crypto is still waiting for the killer app which will make it 21st century infrastructure but there has been tremendous scientific progress in blockchains since the ur-date, 1/3/2009. Modern platforms like Elrond are faster, more robust, and more powerful than past platforms and the potential is there for transformative growth.

What I’ve been reading

1. Jan Golinski, Science as Public Culture: Chemistry and Enlightenment in Britain, 1760-1820.  One of the best books on the history of Enlightenment science, in addition to the core material it focuses on how the leading researchers went about creating public audiences for their investigations and for the scientific questions that interested them.  Indirectly, it is also a good book for understanding the importance of social media today.  And unlike many books of science, it properly places the “could you actually make a career out of doing this?” question in the forefront.

2. The Letters of T.S. Eliot, Volume 1: 1898-1922.  It is striking how quickly in his life Eliot is corresponding with very famous people, including Bertrand Russell, Ezra Pound, Conrad Aiken, Julian Huxley, Herbert Read, Wyndham Lewis, and others, all before Eliot himself is renowned.  I also enjoy the 23 March 1917 letter to Graham Wallas where Eliot boasts about his new job at Lloyds, praises the extraordinary nature of banking work, and roots for a salary boost.  Later Hermann Hesse and James Joyce and Virginia Woolf are added to the mix, and this is only volume one (out of eight).  I have ordered more.  Simply reading the short bios of the letter writers, at the end of the book, is better than most other books.

3. Lara Lee, Coconut and Sambal: Recipes from my Indonesian Kitchen.  Yes, I have been learning how to cook Indonesian food, a natural extension of my previous interest in cuisines from India, Malaysia, and Singapore.  This is an excellent book for several reasons, and a better book yet for a pandemic.  First, you can fold it open easily on the kitchen counter.  Second, the pages can take some wear and tear.  Third, the key ingredients are readily storable.  Galangal, turmeric, and narrow red chiles all freeze very well.  Refrigerated lemon grass stays good for at least a few weeks.  Shallots and garlic and coconut milk and cream are easy enough to buy and store.  This is actually the #1 issue for a cookbook, if like me you cannot so often plan your cooking in advance.  The Thai grocery in Falls Church has all the “marginal’ ingredients as well.  On top of everything, the resulting food product is yummy!

Sunday assorted links

1. The Economist on science, innovation, and R&D (and Fast Grants).

2. Milton Friedman cancel culture.

3. Phil Spector has passed away (music clip).  I say judge him by the body of work, which is very impressive.

4. Saliva tests do seem to be better.

5. “…while the most intuitive-seeming solution — having the driver and the passenger each roll down their own windows — was better than keeping all the windows closed, an even better strategy was to open the windows that are opposite each occupant. That configuration allows fresh air to flow in through the back left window and out through the front right window and helps create a barrier between the driver and the passenger.”  NYT Link here.

Let us not again forget knowledge of exponentials

New variants may change everything. They’ll be 1% of all cases by end of next week, with hot spots in Florida and Southern California. But doubling every week, they’ll be about 30% of all cases in 5 or 6 weeks. It’ll be harder to hide from them, schools will be more vulnerable.

That is from Scott Gottlieb.  And much of what you thought you knew about this pandemic may soon be obsolete.

Paying workers to vaccinate

Trader Joe’s is the latest business to offer an incentive for workers getting the COVID-19 vaccine.

The Monrovia, California-based grocery chain said Thursday it will give employees two hours of pay per dose for getting the vaccine and will also shift around schedules to make sure employees have time to get vaccinated.

Online grocery delivery company Instacart also announced Thursday it will begin paying its workers $25 to offset them taking time to get the COVID-19 vaccine.

The San Francisco-headquartered company, which has about 500,000 workers that shop to fill and deliver orders from more than 40,000 stores, said it will begin giving the vaccine support stipend Feb. 1 to eligible workers as the vaccination programs roll out across the U.S. and Canada…

Dollar General, which operates nearly 17,000 stores in 46 states, said Wednesday it will give employees the equivalent of four hours of pay if they get the vaccine.

Here is the full story, via Anecdotal.  Nudges of this kind often work, even when the explicit incentive appears to be small…

Repeat after me…

In Keynesian economics, “running the economy hot” boosts employment by lowering the real wage.

In Lucasian economics, “running the economy hot” boosts employment by fooling people into thinking that real wages are higher, when they are not.

In #thegreatforgetting economics, “running the economy hot” boosts employment and real wages by…boosting employment and real wages.

It is actually the much-maligned supply-side economics that, at least in principle, makes sense here.

Saturday assorted links

1. The power of suggestion things as they ought to be.

2. Economist William Allen has passed away.

3. The evolution of Ivor Cummins.

4. Ayn Rand on the Fairness Doctrine.

5. A critique of Tether (what would Milton Friedman have said?).

6. From July 2020: “The UK’s decision not to join an EU plan to distribute a potential coronavirus vaccine to its most vulnerable citizens has been described as “unforgivable” and condemned by health charities and opposition politicians.”  Or read this one from March.

7. Profile of Annie Duflo (WSJ).

Praise the British

Britain has fully vaccinated more people against #COVID19 than every other nation on earth combined.

Link and picture here.  That is as of January 13, at least.  You may recall my previous and much-attacked July Bloomberg column suggesting that along a number of dimensions the UK pandemic response actually was quite good.

Addendum: Numerical correction from Alex on America, though you still can praise the British.