Month: December 2024
Technological Disruption in the US Labor Market
Deming, Ong and Summers have a good overview of long-run and very recent changes in the US labor market. Using a measure of occupational titles the authors find:
The years spanning 1990-2017 were the most stable period in the history of the US labor market, going back nearly 150 years.
It’s a bit too early to distinguish an AI revolution from a COVID shock but the last four years look to be more disruptive than any since the 1970s and over a slightly longer period there are trends including a decline in retail, as consumers shift to online shopping and delivery, and a decline in office work, the latter especially suggesting an AI effect:
There were 850,000 fewer retail sales workers in the US in 2023 compared to 2013 even though the US economy added more than 19 million jobs over this period.
There are nearly five hundred thousand fewer secretaries and administrative assistants in the US labor force now than there were a decade ago. At the same time, management and business occupations have grown very rapidly. There were four million more managers and 3.5 million more business and financial operations jobs in the US in 2023 than there were in 2013.
Keep in mind that these changes are occurring as employment and wages overall are rising.
o1 is still doing well on monetary economics
This is one of these “don’t bother reading through everything unless you already know what I am talking about” posts.
Scott Sumner has a long rebuttal to o1 on monetary theory, offering many criticisms. He does not like the quality of the answer given by the AI. But I view the AI more positively here, at least relative to the current state of the research literature, which admittedly is not so satisfying. I think Scott, a’la Kasparov, is being spooked by “the machine,” and his usual clarity of thought is not always present in this exchange. Here are a few points in response to Scott:
1. Nominal relationships seemed much clearer in the age of Milton Friedman and now they are extremely murky (and yes economists may have been wrong in Friedman’s time about this, but that is not the point). Scott seems to deny this, and I am not sure why. The Monetary History persuaded a significant batch of highly intelligent economists that there was a pretty stable relationship between the monetary aggregates and nominal income. Hardly anyone holds this view today. o1’s portrait of this change seems to me more accurate than Scott’s insistence that inflation has become easier to predict over time.
2. Scott in his criticisms is focused mainly on whether inflation prediction has become harder over time, but mainly o1 is answering why it is so hard today to explain inflation dynamics. (Revisit the question: “Please write an essay on how current macroeconomists find inflation dynamics so very difficult to predict, and why that has made them reject various forms of monetarism, even as approximations of what is going on behind price level behavior.”) So he is grading it on the wrong issues.
3. Scott writes “It [o1] mentions a bunch of irrelevant stuff like QE, and misses the key point that the payment of interest on reserves and the zero lower bound problem have made the money multiplier far more unstable.” Inflation forecasting has been a problem before and after the ZLB. And the payment of interest on reserves was a huge one-time problem for forecasting, but the literature rightly ignores or downplays this as a general issue over time, because it isn’t. So here o1 is closer to the research consensus than Scott is.
4. Most of all, Scott goes out of his way to avoid presenting or even citing a better approach to inflation dynamics. You might look at this 2011 post from Scott on inflation dynamics. It endorses the quantity theory, which I think is true sometimes, but doesn’t go into why the evidence has gone so badly in the other direction.
4b. More seriously, Scott seems to dismiss the price level concept altogether. For instance he once wrote: “In the past, I’ve frequently argued that inflation is an almost meaningless and useless concept. I’m not even aware of any coherent definitions of the concept.” I don’t think this is a defensible point of view, and you have to compare Scott’s criticisms of the o1 model to his own approach, which is fairly nihilistic. And I think wrong. If inflation were higher and someone offered Scott an inflation-indexed contract to sign, would he be unable to evaluate such a transaction? Obviously not.
5. As a side note, I think o1 also did better than the varied observations by Krugman on inflation dynamics over the years. Most recently I recall Krugman arguing that we didn’t have a recession the year before because the initial inflation was almost entirely about supply side shocks. That view has been refuted by a number of recent research papers, some of those cited on MR, showing it was both a supply side and demand side phenomenon.
More generally, here is one recent model of price level dynamics, you can read through the model and results. Real wages matter in many of these investigations, which Scott dismisses and o1 endorses. Here is an attempt to forecast price inflation for 2024, again you can look at the model, which is not so simple and I would also say not super-impressive (I intend no criticism of the authors here, the questions are hard). It is still a puzzle why inflation rates were not even lower during the 2008-2010 period. In other words, interest on reserves may have mattered less than models would suggest.
I understand full well that “kitchen sink” approaches are unsatisfying to many economists. Yet when there is in fact a clear theoretical answer to an economics problem, usually o1 gives it to you.
If you ask o1 Scott’s oil and price theory question, it gets the right answer. The second sentence is: “Whether that quantity is higher or lower than before depends on why the price rose.” In other words, it does not reason from a price change.
So I think Scott is seriously underrating o1 as a reflection of what the profession believes on inflation dynamics. Scott has a right to disagree with that consensus, but I don’t see he has put up the evidence to establish a better view. In any case, on these issues o1 beats both Sumner and Krugman, noting that each is putting forward a fairly extreme point of view. Notably, o1 pro, a yet more advanced model, comes up with a better answer yet. Or you can ask it to spend at least 5000 logic tokens answering the question. Yes people it is worth $2500 a year.
Arnold Kling comments. And Kasparov did eventually come around.
Zakir Hussain has indeed passed away
I saw him perform maybe…a dozen times? I was set to go again this spring, and would have kept on going for as long as possible. His two concerts with Shakti I attended were among the very best of my life. No video clip can do justice to percussion, unfortunately. He also seemed so young, and so alive. He was such a magnet for the talent and efforts of others, and radiated that with every movement and word onstage. If you wanted to study the connection between charisma and talent, he would be Exhibit A. And how many other people have had a plausible claim to be the world’s greatest musician?
I am sad to hear of his passing. He was always in motion, and it seems not exactly right to wish him to “rest in peace.”
Sunday assorted links
1. NoVa Civil War NIMBY buffs vs. new data centers.
2. “We propose a mechanism by which accumulated scientific knowledge determines the capacity of nuclear reactors, and find that some 55 billion tons of CO2 emissions, 2.3 million premature deaths, and 14 trillion USD in health costs could have been avoided, had we displaced fossil fuels with nuclear power.” Link here. This was the environmental movement (and the NIMBYs), right?
3. A new paper on whether competition across AIs helps or hurts cultural diversity in outputs.
4. o1 pro on whether the Fed should subsidize ngdp futures contracts.
5. Weird story involving an economist, sort of.
6. Cass Sunstein on the AI calculation problem.
7. Yup.
Are LLMs running out of data?
Ilya and many other experts say yes. I would not dare to disagree with them about AI per se, but I cannot say I am entirely convinced. Supply is elastic! That is a time-honored economic truth. So perhaps the future for traditional scaling is brighter than many of the experts currently are suggesting. We outsiders don’t know exactly which sources of data have been fed into the current top models, but surely there is plenty left? And for some price perhaps it can be mobilized. That is without even getting into data generated by mobile high-quality, life-sampling robots, which admittedly are still some number of years away.
Tax arbitrage through your business
That is the topic of my latest Bloomberg column, here is one bit:
This phenomenon is one reason that many office jobs in Nordic countries seem so pleasant. The workers have nice lunches and the use of comfortable and stylish furniture, which they are not taxed on, though of course their take-home pay may be less.
If you think that such workplace comforts make people happier than cash, then you may approve of such arrangements. And it is one vision for how to make society marginally less competitive.
An alternative model is that, with a proliferation of workplace perks and a diminution of earning power, workers become somewhat less ambitious on the earnings front. Peer norms may change, and the dynamism and innovation of the economy can decline accordingly. There are, in fact, signs of these problems in current-day Europe.
And this:
A recent study looked at some comparable effects in Portugal where the in-kind benefits accrue to a firm’s owners rather than its workers. When people own enough of a firm to control its behavior, they charge some of their personal consumption to the firm. Or, to put it another way: They draw more in-kind income from the firm, and take less cash. That lowers their total tax burden.
For the top quintile of the Portuguese income distribution, once those people are able to control a business, about 20% to 30% of their consumption expenditures are switched to benefits reaped within the firm. For the top 1% of earners, attaining a position of business manager is associated with an almost 18% drop in monthly expenditures. And lest there be any doubt about what’s happening here, the paper notes that “business expenditures on hotels and restaurants significantly increase by 9.8% in the birthday month of the owner-manager and by 6.1% in the birthday month of the owner-manager’s spouse.”
Worth a ponder.
Marriage markets in everything (tax arbitrage!)
Looking to marry someone with $1m+ of short-term capital gains (LA California) for tax savings (I have $1m+ in losses) and split the savings
I (unfortunately) lost a bunch of money this year with some risky gambles and have ~$1.2m of context of capital losses.
I would like to marry someone with very large ($1m+) short-term capital gains and split the difference on the tax savings.
I am proposing keeping ~40c for every $1 of capital losses I provided for myself and offering you the remainder (~10c or so, $120k context if you are at the highest tax bracket). The formal agreement can be formalized with a lawyer in relation to the marriage
Slight preference for females but open to males too (preference is just to avoid having to explain why I (straight male) married a man in the future).
Prefer if you are in the LA / Socal Area as that’s where I’m located.
That is from Reddit, via Stephen J.
Very good sentences
…Corbet can be just as critical of indie movies as he is of studio-backed ones. “Art-house cinema and big tentpole releases are equally algorithmic,” he said. “I’ve seen ‘4 Months, 3 Weeks and 2 Days’ remade forty-five times. I know why; it’s an extraordinary film.” Still, he went on, “There’s this kind of faux subtlety, and an allegiance to good taste, that I find really frustrating. It’s the same recipe, regurgitated over and over.”
“American indies have been conditioned to think small,” Dennis Lim, the artistic director of the New York Film Festival, told me. With “The Brutalist,” Corbet has gone full maximalist. The film, which takes place over a span of thirteen years and ends with a coda set two decades later still, promises, from its first moments, to be a capital-“E” Event. To the sounds of orchestral rumbling, a title card announces the “overture.”
That is from an excellent Alexandra Schwartz New Yorker article about the new movie The Brutalist.
Saturday assorted links
1. On taste.
2. The dangers of mirrored life? Eli Dourado is not so worried.
3. How are things going with Fermat’s Last Theorem? And are we documenting mathematics properly?
4. Claims made by some Syrians about free enterprise (speculative).
5. What is the evidence on the five-second rule?
6. Where will the Trump crowd go eat in DC?
7. Civitas Outlook, a new publication from UT Austin and the Civitas Institute.
8. Toward a measure of anecdotal value.
9. Dylan Field: “Still doing evals but feels like AGI is basically here with o1 pro mode”
Ilya’s talk
Twenty-four minutes, sixteen minutes for the core talk, self-recommending.
Jennifer Pahlka on DOGE
An excellent piece, one of the best I have read all year. Here is the concluding paragraph:
We can wish that the government efficiency agenda were in the hands of someone else, but let’s not pretend that change was going to come from Democrats if they’d only had another term, and let’s not delude ourselves that change was ever going to happen politely, neatly, carefully. However we got here, we may now be in a Godzilla vs Kong world. Perhaps we’re about to get a natural experiment in which Elonzilla faces off with Larry ElliKong. One of the things we need to be ready to learn is that Elonzilla could lose. Or worse, since Elon and Larry are friends, the expected disruptive could get co-opted. And what would that say about the problem? Conjuring Elon is not bringing a gun to a knife fight. It was never a knife fight.
Recommended.
The Effects of Gender Integration on Men
Evidence from the U.S. military:
Do men negatively respond when women first enter an occupation? We answer this question by studying the end of one of the final explicit occupational barriers to women in the U.S.: in 2016, the U.S. military opened all positions to women, including historically male-only combat occupations. We exploit the staggered integration of women into combat units to estimate the causal effects of the introduction of female colleagues on men’s job performance, behavior, and perceptions of workplace quality, using monthly administrative personnel records and rich survey responses. We find that integrating women into previously all-male units does not negatively affect men’s performance or behavioral outcomes, including retention, promotions, demotions, separations for misconduct, criminal charges, and medical conditions. Most of our results are precise enough to rule out small, detrimental effects. However, there is a wedge between men’s perceptions and performance. The integration of women causes a negative shift in male soldiers’ perceptions of workplace quality, with the effects driven by units integrated with a woman in a position of authority. We discuss how these findings shed light on the roots of occupational segregation by gender.
That is all from
A new paper on the economics of AI alignment
A principal wants to deploy an artificial intelligence (AI) system to perform some task. But the AI may be misaligned and pursue a conflicting objective. The principal cannot restrict its options or deliver punishments. Instead, the principal can (i) simulate the task in a testing environment and (ii) impose imperfect recall on the AI, obscuring whether the task being performed is real or part of a test. By committing to a testing mechanism, the principal can screen the misaligned AI during testing and discipline its behaviour in deployment. Increasing the number of tests allows the principal to screen or discipline arbitrarily well. The screening effect is preserved even if the principal cannot commit or if the agent observes information partially revealing the nature of the task. Without commitment, imperfect recall is necessary for testing to be helpful.
That is by Eric Olav Chen, Alexis Ghersengorin, and Sami Petersen. And here is a tweet storm on the paper. I am very glad to see the idea of an optimal principal-agent contract brought more closely into AI alignment discussions. As you can see, it tends to make successful alignment more likely.
Friday assorted links
1. Space flight during the 21st century.
2. Cato-suggested DOGE reforms.
3. AI progress is massive but increasingly non-legible.
4. One of the biggest benefits of travel: “IMO one of the biggest benefits of travel is just acquiring a scaffold to hang future knowledge on. Places that had similar embeddings in my mind before I saw them (Chongqing vs Chengdu, Abu Dhabi vs Dubai, Wroclaw vs Warsaw, etc.) become extremely distinct, and future facts become much stickier.”
5. Amazing Kreskin, RIP. Though I feel this NYT obit failed to properly appreciate him?
6. Henry Oliver defends literary criticism.
7. Gemini 2 the streaming API.
8. An innovation agenda for addiction.
9. o1 pro on how USG might be related to the NJ drones. And Sam Hammond offers a hypothesis. Here is what a NJ Senator is reporting. Domestic testing has to be the number one hypothesis at this point.
Zakaria on Rent Seeking
Fareed Zakaria on Freakonomics Radio:
ZAKARIA: You can see it in what happened a day after the election results became clear. You got a flurry of tweets from every major C.E.O. in America — every major tech C.E.O., every bank C.E.O. — fawning over Trump, congratulating him and telling him how much they wanted to work well with him. I think that this is a very sad development that’s happened. It’s not entirely because of Trump. But we have politicized the economy in America. All this industrial policy, these tariffs, these bans. What that does is it suddenly makes Washington a very crucial arbiter to the success of business. You add to it Trump, who personally loves the idea of fining Caterpillar for doing this and Harley Davidson for doing that and Chase for doing — he views it as his job as president to literally dole out rewards and punishments to companies, depending on whether they do what he regards as the right thing or the wrong thing. It’s deeply saddening to me as somebody who grew up in India, where this is business as usual. Every business had to slavishly pander to whoever the prime minister at the time was. And you see it in Musk. Tesla stock, in the two days after Trump won, was up 20 percent or something like that, adding tens of billions of dollars to Elon Musk’s net worth. Nothing fundamental in the economics had changed for Tesla. There was just an expectation, now that he was a friend of Trump’s, that he was going to somehow be showered with federal largesse. You know, there’s a guy in India called Adani who’s Modi’s best friend, and his stocks trade at multiples 10 times that of every other Indian company. Because everyone assumes that at the end of the day, being Modi’s best friend is worth $100 billion or something like that.
DUBNER: That’s probably a pretty safe assumption.
ZAKARIA: It’s a safe assumption in India. What’s tragic is it might even be a safe assumption in America. But it’s not what the American economy was supposed to be about. And I think it’s a very sad trend.
Hat tip: Larry White.