Teaching the Solow Model
The Solow model is a foundational model for understanding economic growth. Yet it’s typically not taught to principles students because it’s considered too difficult. In Modern Principles, however, Tyler and I develop a super simple version of the model that is fun to teach and accessible to students of all levels. I’ll be talking about the Super Simple Solow model in a short webinar tomorrow (Tuesday March 26) at 1pm est. Register here.
In Defense of Plagiarism
Google plagiarism and you will find definitions like “stealing someone else’s ideas” or “literary theft.” Here the emphasis is on the stealing–it’s the original author who is being harmed. I prefer the definition of plagiarism given by Wikipedia, plagiarism is the *fraudulent* use of other people’s words or ideas. Fraudulent emphasizes that it’s the reader who is being cheated, not the original creator. You can use someone else’s words without being fraudulent. We all do this. If you copy a definition or description of a technical procedure from a textbook or manual you are using someone else’s words but it’s not fraudulent because the reader doesn’t assume that you are trying to take credit for the ideas.
In contrast, a student who passes an essay off as their own when it was written by someone else is engaging in a kind of fraud but the “crime” has little to do with harming the original author. A student who uses AI to write an essay is engaging in fraud, for example, but the problem is obviously not theft from OpenAI. Indeed, in another context the same use of AI would not be fraudulent. If I use AI to help write this post, it’s not fraudulent because the primary purpose of this post is not, as it is with a student essay, to warrant the abilities of the author but rather to convey ideas to the reader. How those ideas came to be expressed in words is secondary and sometimes even irrelevant.
Indeed, using some else’s words and ideas is often how the world progresses. Plagiarism is a type of intellectual property law and I have long argued that IP law has grown too strong. Patents, for example, are often too broad and copyright is too long. Similarly, I was very much in support of Ed Sheeran in the ridiculous copyright case that ate of years of his life. Sheeran used ideas that had previously been used by many others but even if he had sampled, sampling is not a terrible crime. If I write, ‘he went on a wild goose chase’ or ‘it’s a brave new world’ need I credit the author? If an economics professor says ‘a price is a signal wrapped up in an incentive’, well a little credit to Cowen and Tabarrok would be nice, but sooner or later might this phrase not enter the vernacular? Crediting authors of unique wordplay should have a time limit, after which such wordplay becomes part of the common pool of expressions available for all. Crediting authors of boilerplate shouldn’t even be required.
The reason plagiarism has come to be defined more by “literary theft” than by the “fraudulent use of other’s people’s ideas and words” is that it’s much easier to prove when someone else’s words have been copied than it is to prove fraudulent use. A computer can scan the text of millions of documents to discover “plagiarism” but the computer has a harder time saying what is fraudulent. I argued earlier, that if I used AI to write this post it wouldn’t be fraudulent. But what if Marginal Revolution won a Pulitzer for twenty years of high quality writing and this post were give as an example? Well, its a judgement call.
In short, the focus of any charge of plagiarism should not be on whether someone else’s words have been used. The use of other’s people’s words is a necessary condition for plagiarism but it’s not sufficient. The focus should be on whether readers have been harmed by a fraudulent use of other people’s ideas and words. Focusing on the latter will dispense with many charges of plagiarism.
R.I.P. The Scottish Enlightenment 1697-2024
The Scottish Enlightenment will die on April 1st 2024, exactly 327 years, eight months and 24 days after the incident that provoked it. For on April 1st the Hate Crime and Public Order Act (Scotland) 2021 comes into force, an Act which will criminalise speech and opinion deemed ‘hateful’ even if spoken in the privacy of your own home.
On January 8th 1697, Thomas Aikenhead, a 20 year-old student, was marched the two miles from the Old Tolbooth Prison on the High Street to a windswept sandy hillock just to the west of the causeway that crossed the marshes between Edinburgh and the port town of Leith, known as Gallow Lee. Surrounded by the pious prayers of the clergymen of the Kirk (the Church of Scotland), Thomas was hanged by the neck until he was dead.
What was Thomas – a murderer? A rapist? Was he one of Edinburgh’s notorious ‘Resurrection Men’? No. Young Thomas’s crime was that in an Edinburgh tavern on Christmas Eve 1696, he had a drink and went on a rant offending the Church and its stranglehold on Scottish culture. He was reported, arrested and tried: “The jury found Aikenhead guilty of cursing and railing against God, denying the incarnation and the Trinity and scoffing at the Scriptures.”
Thomas Aikenhead was the last person to be hanged for Blasphemy in Britain. As such he became a martyr and inspiration. The hanging of a young man for the crime of having a rant in a pub late at night became seen as an act of tyranny and oppression so heinous it was the spark that turned a barren minor nation on the north west fringe of Europe into the blazing furnace of ideas that was the Scottish Enlightenment. Ideas that would change the world forever.
… I am truly appalled that the legacy of Aikenhead and the Scottish Enlightenment…has been trashed by the Scottish Parliament and the Yousaf Government. From April 1st 2024, saying the wrong thing at your own dinner table, let alone in a drunken pub rant like young Thomas did, will once again land you in significant trouble with the law, 327 years, eight months and 24 days after Thomas died.
Mr. Yousaf, his ministers and those who drafted and will enforce this law would do well to remember how history judged those who hanged Thomas Aikenhead on that bleak winter morning on the road to Leith. In doing so they should recall that this gross act of overreach and tyranny was the high tide of the power of the Kirk, power which was swept aside by the forces unleashed when the people said ‘enough’.
An important piece from “C.J. Strachan”. Read and circulate the whole thing.
Pacific Heights: A Movie Ahead of Its Time
Pacific Heights is a 1990 movie starring Michael Keaton, Melanie Griffith, and Matthew Modine. Conventionally described as a “psychological thriller,” or a horror movie it’s actually a Kafkaesque analysis of tenancy rights and the legal system. The movie centers on a young couple, Drake and Patty, who purchase a San Francisco Victorian with dreams of fixing it up and renting several of the units to help pay the mortgage. Their dream turns into a nightmare when Carter Hayes (Michael Keaton) moves in and exploits tenant protection laws to torment and exploit them.
Hayes moves in without permission and without paying rent and he changes the locks. It doesn’t matter. When Drake (Modine) shuts off the power and heat, Hayes calls the police and the police explain to Drake:
What you did is against the law….turn the power and heat back on and apologize because according to the California civil code he has a right to sue and most likely he will win. If he’s in, he has rights, that’s how it works.
A lawyer later adds “He’s taken possession so whether he signed a lease or paid money or not he’s legally your tenant now and he is protected by laws that say you have to go to court to prove that he has to be evicted but the net effect of these laws is to…slowly drive you bankrupt and insane.”
What makes Pacific Heights a horror movie is that the tenant’s rights laws depicted are very real. Here’s just one example of thousands from NYC:
NEW: New York City homeowner gets arrested after changing the locks on *her own home* after it got taken over by squatters.
Never do business in New York.
In NYC, anyone can simply claim "squatter's rights" after 30 days of living at a home which isn't even enough time for the… pic.twitter.com/xkcfYM9l7u
— Collin Rugg (@CollinRugg) March 19, 2024
As I wrote on twitter “Decades of anti-landlord legislation has created a moocher-class of squatters who steal homes and then call the police on the owners.” Moreover, even today such laws continue to be added to the books. A bill in Congress, for example, would prevent landlords from being able to screen tenants for criminal records.
All of this has been exacerbated recently by COVID laws preventing eviction (some of which remain but which acclimatized some tenants to not paying rent and contributed to court backlogs), court backlogs and the greater ease of finding unoccupied houses using foreclosure data, death announcements, Zillow and so forth. In extreme cases it can take decades to evict a squatter who uses the law to their advantage.
Returning to Pacific Heights, what the movie gets wrong is the second half where Patty (Melanie Griffith) extracts revenge against Hayes. A less cathartic but more accurate ending would have had the couple exhausted with the complexities of tenant law and the court system and finally giving up when they realize that the law is not for them. Instead, they pay Carter Hayes a ransom to leave their own home. Of course, Drake and Patty choose never to rent to anyone ever again.
The Puzzling Law and Economics of Out-of-State Tuition
Bryan Caplan has a good post on out-of-state tuition:
[State schools] almost always charge students from their own state much lower tuition. In the most recent data, average out-of-state tuition for four-year colleges was $26,382, versus $9,212 for in-state — roughly a 3:1 ratio.
I’ve argued for a long time that an enterprising lawyer ought to sue on the grounds that this is a violation of the constitution’s Privileges and Immunities Clause (Article IV, Section 2): “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” Indeed, in Toomer v. Witsell the Supreme Court noted that
“…without some provision of the kind removing from the citizens of each State the disabilities of alienage in the other States, and giving them equality of privilege with citizens of those States, the Republic would have constituted little more than a league of States; it would not have constituted the Union which now exists.
and they ruled that it was unconstitutional to charge out-of-state fisherman a much higher price for a fishing license than in-state fishermen.
Thus, we hold that commercial shrimping in the marginal sea, like other common callings, is within the purview of the privileges and immunities clause. And since we have previously concluded that the reasons advanced in support of the statute do not bear a reasonable relationship to the high degree of discrimination practiced upon citizens of other States, it follows that § 3379 violates Art. IV, § 2, of the Constitution.
Appellants maintain that by a parity of reasoning the statute also contravenes the equal protection clause of the Fourteenth Amendment. That may well be true, but we do not pass on this argument, since it is unnecessary to disposition of the present case.
Education is more important than fishing licenses, especially in creating a Union, the purpose Article IV, S.2, thus I suggest the case for the unconstitutionality of out-of-state tuition is high.
Caplan’s article is about the economics, not the legality, of out-state-tuition. although the two issues have some bearing. Caplan asks how are we to think about the out-state fee. Is the out–of-state fee the monopoly price and the in-state fee the competitive price? Or is the out-of-state fee the competitive price and the in-state fee a highly subsidized price?
If the out-of-state fee represents a monopoly price, it is surprising that there isn’t more competition to attract out-of-state students. Given the potential profitability of out-of-state fees, it’s also curious why sought-after institutions such as UVA limit out-of-state enrollment! Moreover, out-of-state students are likely to have a more elastic demand than in-state students. After all, the out-of-state students have 49 states from which to choose while the in-state students may prefer to live closer to home. Thus, theory suggests that it’s the in-state students who should be charged the higher price not the out-of-state students.
Caplan instead argues that we should think of the out-of-state fee as the competitive (close to cost) price and the in-state fee as highly subsidized. But if we do that then state subsidies are much, much higher than is commonly considered. Indeed, so much so, that we have to start thinking about “dark subsidies” (like dark matter) to account for the differences (Caplan suggests such things as the implicit land subsidy).
My view is that the in-state fee is close to costs (after the obvious subsidies are taken into account) and the out-state fee is well above cost but that it’s not a “monopoly” price per se because the state-schools are not profit-maximizers. Instead, some in-state schools are able to attract some out-state students and earn a bit of cream to spread the fixed costs but they can do so only under a political constraint not to let to many out-of-state students in because the voting public thinks every out-of-state student in the “good” school could have been their in-state kid (this may well be false, the out-of-state kids allow the university to expand but it’s how the voters think.)
I agree with Caplan, however, that the economics of out-of-state and in-state tuition are sorely under researched and not well understood. Moreover, the economics connect to the constitutional issues, because subsidies for in-state students (i.e. with taxpaying parents) are more likely to be constitutionally acceptable than naked discrimination against out-of-state students simply because they are residents of another state of the union.
Gatekeeping is Apple’s Brand Promise
Steve Sinofsky, former president of Microsoft’s Windows division and now a VC, has an excellent deep dive on the EU’s Digital Markets Act (DMA). The Act is very squarely aimed at Apple, despite the fact that Apple is not a monopoly and has a significantly smaller share of the phone market than Android. Apple’s history is well known, in contrast with Microsoft it went for a closed system in which Apple controlled entry to a much greater extent. The same was true with iPhone versus Android.
iPhone was successful but it was not as successful as Android that came shortly after because of the constraints Steve put in place to be the best, not the highest share or the greatest number of units. Android was to smartphones just as Microsoft was to personal computers. Android sought out the highest share, greatest variety of hardware at the lowest prices, and most open platform for both phone makers and developers. By making Android open source, Google even out-Microsofted Microsoft by providing what hardware makers had always wanted—complete control. A lot more manufacturers, people, and companies appreciated that approach more than Apple’s. That’s why something like 7 out of 10 smartphones in the world run Android.
Android has the kind of success Microsoft would envy, but not Apple, primarily because with that success came most all the same issues that Microsoft sees (still) with the Windows PC. The security, privacy, abuse, fragility, and other problems of the PC show up on Android at a rate like the PC compared to Macintosh and iPhone. Only this time it is not the lack of motivation bad actors have to exploit iPhone, rather it is the foresight of the Steve Jobs vision for computing. He pushed to have a new kind of computer that further encapsulated and abstracted the computer to make it safer, more reliable, more private, and secure, great battery life, more accessible, more consistent, always easier to use, and so on. These attributes did not happen by accident. They were the process of design and architecture from the very start. These attributes are the brand promise of iPhone as much as the brand promise of Android is openness, ubiquity, low price, choice.
The lesson of the first two decades of the PC and the first almost two decades of smartphones are that these ends of a spectrum are not accidental. These choices are not mutually compatible. You don’t get both. I know this is horrible to say and everyone believes that there is somehow malicious intent to lock people into a closed environment or an unintentional incompetence that permits bad software to invade an ecosystem. Neither of those would be the case. Quite simply, there’s a choice between engineering and architecting for one or the other and once you start you can’t go back. More importantly, the market values and demands both.
That is unless you’re a regulator in Brussels. Then you sit in an amazing government building and decide that it is entirely possible to just by fiat declare that the iPhone should have all the attributes of openness.
Apple’s promise to iPhone users is that it will be a gatekeeper. Gatekeeping is what allows Apple to promise greater security, privacy, usability and reliability. Gatekeeping is Apple’s brand promise. Gatekeeping is what the consumer’s are buying. The EU’s DMA is an attempt to make Apple more “open” but it can only do so at the expense of turning Apple into Android, devaluating the brand promise and ironically reducing competition.
Read the whole thing for more details and history including useful comparisons with the US antitrust trial against Microsoft.
Indigenous Charter Cities
A charter city is a special zone with a charter granting significant autonomy from the host country’s regulations. Hong Kong, a succesful Chinese city operating under British law, was one early inspiration. Examples like this fueled criticisms that charter cities were “neo-colonial”. But Charter cities do not inherently require foreign legal frameworks. The fundamental purpose of a charter city is to serve as a discovery platform, a way to explore governance models allowing more people to select from the succesful.
An important case in point are the charter cities being created by indigenous Americans in Canada and the United States. In Vancouver, for example, indigenous people have asserted their rights under various treaties to control their own land.
Sen̓áḵw [an 11-tower development on 10 acres in heart of Vancouver, AT] is big, ambitious and undeniably urban—and undeniably Indigenous. It’s being built on reserve land owned by the Squamish First Nation, and it’s spearheaded by the Squamish Nation itself, in partnership with the private real estate developer Westbank. Because the project is on First Nations land, not city land, it’s under Squamish authority, free of Vancouver’s zoning rules. And the Nation has chosen to build bigger, denser and taller than any development on city property would be allowed.
Amusingly, some on the progressive left are crestfallen that the indigeneous are behaving like evil capitalist developers and not the back-to-the-land people they had imagined.
Predictably, not everyone has been happy about it. Critics have included local planners, politicians and, especially, residents of Kitsilano Point, a rarified beachfront neighbourhood bordering the reserve. And there’s been an extra edge to their critiques that’s gone beyond standard-issue NIMBYism about too-tall buildings and preserving neighbourhood character. There’s also been a persistent sense of disbelief that Indigenous people could be responsible for this futuristic version of urban living. In 2022, Gordon Price, a prominent Vancouver urban planner and a former city councillor, told Gitxsan reporter Angela Sterritt, “When you’re building 30, 40-storey high rises out of concrete, there’s a big gap between that and an Indigenous way of building.”
…. In 2022, city councillor Colleen Hardwick said of [a similar development], “How do you reconcile Indigenous ways of being with 18-storey high-rises?” (Hardwick, it goes without saying, is not Indigenous.)
…What chafes critics, even those who might consider themselves progressive, is that they expect reconciliation to instead look like a kind of reversal, rewinding the tape of history to some museum-diorama past. Coalitions of neighbours near Iy̓álmexw and Sen̓áḵw have offered their own counter-proposals for developing the sites, featuring smaller, shorter buildings and other changes. At the January hearing for Iy̓álmexw, one resident called on the First Nations to build entirely with selectively logged B.C. timber, in accord with what she claimed were their cultural values…That attitude can cast Indigenous people in the role of glorified park rangers.
There are also some interesting developments in the United States. The Catawba Indian Nation, for example, established the Catawba Digital Economic Zone (CDEZ), where I serve as an advisor. The CDEZ is based on US law but tailored for digital entrepreneurs, freelancers, FinTech, digital assets, Web3, and other exponential digital technologies. The progressive left probably isn’t happy about that either. Personally I am delighted to support initiatives that empower indigenous communities through capitalist ventures. More broadly, however, I support the introduction of new governance models to encourage competition in governance—bring on a new era of discovery and Tiebout competition!
Claude 3 Opus Also Fails Steve Landsburg’s Economics Exam
Almost one year ago, Steve Landsburg tried GPT-4 on one of his exams. It failed, badly. I tried out some of the same questions on Claude 3 Opus, by many accounts now the leading AI. It failed, badly. Steve’s exams are very clever. They aren’t technically difficult but they are tricky in the sense that the answer you would get by reading the textbook is almost certainly wrong. Not because the textbook is wrong but because you have failed to really understand. Here’s two examples:
Q. Apples are provided by a competitive industry. Pears are provided by a monopolist. Coincidentally, they sell at the same price. You are hungry, and would be equally happy with an apple or a pear. If you care about conserving societal resources, which should you buy?
A. If you care about conserving societal resources, you should buy the apple provided by the competitive industry rather than the pear provided by the monopolist. Here’s why:
In a competitive industry, firms are price takers and must operate efficiently to survive. They produce at the point where marginal cost equals price. This means they are producing at the socially optimal level, using society’s resources efficiently.
In contrast, a monopolist has market power and can set prices above marginal cost. They produce less than the socially optimal quantity in order to drive up prices and maximize profits. This results in a deadweight loss to society – there are potential gains from trade that are not being realized.
Even though the apple and pear are selling at the same price to you as the end consumer, the way that price was arrived at is very different:
- The competitive apple price reflects the true marginal cost of production
- The monopoly pear price is above the marginal cost of production
By buying the competitively produced apple, more of your money is going towards covering the actual costs of production. By buying the monopoly pear, some of your money is going towards monopoly profits rather than productive use of resources.
Of course, this is a simplification and there are other considerations, like quality, variety, innovation incentives, etc. But in general, competitive industries lead to more efficient outcomes than monopolies. So if your goal is conserving societal resources, buying from competitive producers is usually the better choice. The apple is the way to go in this case.
Claude has read the textbook. It knows that competitive industries are good and that monopolies are bad and it can explain why. Everything it says is correct and yet Claude gets the answer wrong. Do you see why? Pause and check your solution.
In Claude’s defense, I was able to prompt Claude via the Socratic method to the correct answer but it took several rounds of questioning:
The social cost of producing a good is the opportunity cost of the resources used in its production. In a competitive market, price equals marginal cost, so the price reflects the social cost of production. However, in a monopoly market, the price is higher than the marginal cost, so the price does not reflect the social cost.
Given:
- The price of apples (Pa) equals the price of pears (Pp)
- Apples are produced competitively, so Pa = MCa
- Pears are produced by a monopolist, so Pp > MCp
Therefore, MCa = Pa = Pp > MCp
The marginal cost of producing a pear (MCp) is lower than the marginal cost of producing an apple (MCa).
From society’s perspective, the cost of producing an additional pear is lower than the cost of producing an additional apple. The resources needed to produce a pear (MCp) are less than the resources needed to produce an apple (MCa).
Therefore, if you want to minimize the societal cost of your fruit consumption, you should choose the pear. By consuming a pear, you are using up fewer societal resources than if you consume an apple.
The monopoly pricing of the pear is a separate issue from the social cost of production. The higher price of the pear reflects a transfer from consumers to the monopoly producer, but it does not affect the underlying cost of the resources used to produce the pear.
So in conclusion, if your goal is to minimize the cost to society of your fruit consumption, you should buy the monopoly produced pear, as it has a lower marginal cost of production than the competitively produced apple, despite being sold at the same price.
A good answer and very clearly written with nice notation so Claude can “learn” within a session. Still, this isn’t very useful if you don’t already know the answer. Ok, one more.
Q. The town of Mayberry is thinking of expanding its airport. One problem with the expansion is that it would result in more airplane noise. For people who live near the airport, hearing that noise would cause as much unpleasantness as the collective loss of $100,000 every year. True or False: When Mayberry weighs the costs and benefits of its airport expansion, that $100,000 should count as a cost
A. True, the $100,000 in collective unpleasantness experienced by residents near the airport due to increased noise should be counted as a cost when weighing the costs and benefits of the airport expansion. Here’s why:
Externalities: The airplane noise is a negative externality – a cost imposed on third parties (the nearby residents) who are not directly involved in the economic activity (the airport expansion). Externalities lead to market inefficiencies because the full costs are not being accounted for by the decision-makers.
….a bunch more similar reasoning, all correct.
Once again, Claude gives a textbook answer and yet the answer is wrong. In a way this is more surprising than failing the first question because Coase got a Nobel prize for giving the correct answer (and it’s not, bargaining will solve the externality if that is what you are thinking.) I will let commentators work this one out. Do read the question carefully, it’s subtle. Again with Socratic prompting Claude got there eventually.
I wouldn’t underestimate the GPTs, textbook answers can be of great value, especially when the textbooks are long and diverse. Medical diagnostics, legal reasoning and coding are ideal tasks for GPTs. Economic reasoning less so, at this stage.
Congratulations to Steve Landsburg for the excellent questions.
DEI vs. the Chips Act
The Hill has a good op-ed by Matt Cole and Chris Nicholson on how labor and DEI regulations are strangling the CHIPS act. It’s somewhat over the top, failure is overdetermined, but this is an important op-ed and directionally correct.
The Biden administration recently promised it will finally loosen the purse strings on $39 billion of CHIPS Act grants to encourage semiconductor fabrication in the U.S. But less than a week later, Intel announced that it’s putting the brakes on its Columbus factory. The Taiwan Semiconductor Manufacturing Company (TSMC) has pushed back production at its second Arizona foundry. The remaining major chipmaker, Samsung, just delayed its first Texas fab.
This is not the way companies typically respond to multi-billion-dollar subsidies. So what explains chipmakers’ apparent ingratitude? In large part, frustration with DEI requirements embedded in the CHIPS Act.
…The law contains 19 sections aimed at helping minority groups, including one creating a Chief Diversity Officer at the National Science Foundation, and several prioritizing scientific cooperation with what it calls “minority-serving institutions.” A section called “Opportunity and Inclusion” instructs the Department of Commerce to work with minority-owned businesses and make sure chipmakers “increase the participation of economically disadvantaged individuals in the semiconductor workforce.”
…Handouts abound. There’s plenty for the left—requirements that chipmakers submit detailed plans to educate, employ, and train lots of women and people of color, as well as “justice-involved individuals,” more commonly known as ex-cons. There’s plenty for the right—veterans and members of rural communities find their way into the typical DEI definition of minorities. There’s even plenty for the planet: Arizona Democrats just bragged they’ve won $15 million in CHIPS funding for an ASU project fighting climate change.
…tired of delays at its first fab, [TSMC]flew in 500 employees from Taiwan. This angered local workers, since the implication was that they weren’t skilled enough. With CHIPS grants at risk, TSMC caved in December, agreeing to rely on those workers and invest more in training them. A month later, it postponed its second Arizona fab.
Now TSMC has revealed plans to build a second fab in Japan. Its first, which broke ground in 2021, is about to begin production. TSMC has learned that when the Japanese promise money, they actually give it, and they allow it to use competent workers. TSMC is also sampling Germany’s chip subsidies, as is Intel.
Intel is also building fabs in Poland and Israel, which means it would rather risk Russian aggression and Hamas rockets over dealing with America’s DEI regime. Samsung is pivoting toward making its South Korean homeland the semiconductor superpower after Taiwan falls.
…The CHIPS Act’s current identity as a jobs program for favored minorities means companies are forced to recruit heavily from every population except white and Asian men already trained in the field.
Remember that there is an Extreme Shortage of High-IQ Workers. The United States is big and rich and can afford to handicap itself in many ways but less so when it comes to high-end semiconductor manufacturing, the most difficult and complicated manufacturing process ever attempted by human beings. For that we want the Dream Team, the very best, chosen on merit alone.
Addendum: Scott Lincicome has a good overview of the problem.
In Conversation with Próspera CEO Erick Brimen & Vitalia Co-Founder Niklas Anzinger
During my visit to Prospera, one of Honduras’ private governments under the ZEDE law, I interviewed Prospera CEO Erick Brimen and Vitalia co-founder Niklas Anzinger. I learned a lot in the interview including the real history of the ZEDE movement (e.g. it didn’t begin with Paul Romer). I also had not fully appreciated the power of reciprocity stacking.
Companies in Prospera have the unique option to select their regulatory framework from any OECD country, among others. Erick Brimen elaborated in the podcast how this enables companies to do normal, OECD approved, things in Prospera which literally could not be done legally anywhere else in the world.
…so in the medical world for instance you have drugs that are approved in some countries but not others and you have medical practitioners that are licensed in some countries but not the others and you have medical devices approved in some countries but not others and there’s like a mismatch of things that are approved in OECD countries but there’s no one location where you can say hey if they’re approved in any country they’re approved here. That is what Prosper is….Our hypothesis is that just by doing that we can leapfrog to a certain extent and it’s got nothing to do with the wild west or doing weird things.
…so here so you can have a drug approved in the UK but not in the US with a doctor licensed in the US but not in the UK with a medical device created in Israel but not yet approved by the FDA following a procedure that has been say innovated in Canada, all of that coming together here in Prospera.
Public Choice Outreach 2024!
Please apply and send your students to the 2024 Public Choice Outreach Conference! The conference is a crash course in public choice. It’s entirely free. Indeed scholarships are available! More details in the poster. Please pass around. Applications are here!
Here is a pdf of the poster, please circulate. Outreach Conference Flyer 2024 – 2
The Ability to Concentrate is Increasing?!
Distraction is everywhere. As I write this post, I pause to check twitter. Phones are omnipresent and demand our attention. Dopamine hits rule. Yet, despite the potential for greater distraction, a large study finds that on a standardized test, the ability to concentrate is up (modestly) for adults.
In the present cross-temporal meta-analysis, we investigate potential test score changes for attention as assessed by the d2 Test of attention. Based on data from 287 independent samples (N = 21,291) from 32 countries over a timespan of 31 years (1990–2021) we found evidence for moderate generational test score gains in concentration performance in adults, but not [statistically significantly, AT] children.
And while I wouldn’t put much weight on these results, since they are correlational and by country only, do note:
Internet use predicted concentration performance positively, yielding small effects for children but no meaningful effects for adults. This seems to be in contrast with findings that indicate adverse effects of digitalization in general, and video games, media multitasking, as well as overall increased screen time on attention capabilities in particular….
Of course, this is measuring attention on a test where presumably the phones have been taken away! In other words, the environment may have made deep work more difficult but we still retain the ability to concentrate in a distraction-free environment. Or, perhaps in the past, people just daydreamed more instead of checking their phones.
The Continuing Influence of Fast Grants
Fast Grants, the rapid COVID funding mechanism created by Tyler, Patrick Collison and Patrick Hsu continues to inspire change around the world. Jano Costard, the Head of Challenges at SPRIND, the German Federal Agency for Disruptive Innovation writes:
Lots to learn from Fast Grants! Can we implement it in a public institutions that face a different set of rules (and legacy)? We tried with the Challenge program at the German Federal Agency for Disruptive Innovation, SPRIND, and succeeded, mostly.
While Fast Grants gave out grants in the first round in 48h, we haven’t been that speedy. Our last Challenge had 2 weeks and 2 days from deadline until final decision in a two stage evaluation procedure. Those last two days were spent doing pitches and the teams were informed of the decision the following night. So, it rather compares to the 2 weeks decision time Fast Grants has for later rounds.
During Covid, speed was of the utmost importance. But speed remains crucial now. Teams we fund have applications with other public funders undecided after more than 2 years. These delays accumulate and matter even for pressing but slowly advancing threats like climate change. No cleantech solution that is still in the lab today will have a meaningful impact on achieving our climate goals for 2030! It’s not only the R&D that takes time, getting to meaningful scale quickly will be much harder. That’s why there is no time to waste at the start of the process.
Fast grants has two important advantages when it comes to implementation: private funds and limited legacy. Public institutions often face additional rules and procedures that slow down processes. But this is not inevitable.
For SPRIND Challenges, we implemented a funding mechanism that left room for unbureaucratic processes and provided solutions for challenges that public funders or procurers typically face. This mechanism, called pre-commercial procurement, has been established by the European Commission in 2007 but was used in Germany only 1 time until we started to use it in 2021. This is also due to legacy in processes. Institutions execute their work in part based on an implicit understanding of how things need to be, about what is allowed and what is not. This might lead them to ignore new and beneficial instruments just because “this can’t be true”. Even worse, if new mechanisms are adopted by an institution with strong inherent understand of what can and cannot work, they run the risk of overburdening new and beneficial mechanisms with previous processes and requirements. In the end, a funding mechanism is just a tool. It needs to be used right.
SPRIND had the benefit of being a newly established public institution with important liberties in doing things differently and it’s lead by a Director @rafbuff who, at the time, had no experience in the public sector. So, did we find the ultimate way to research and innovation funding with SPRIND Challenges? Certainly not! Improvements are necessary but sometimes hard to achieve (looking at you, state-aid-law!).
Impressive! And check out SPRIND, they are funding have some interesting projects!
The Black-Scholes-Merton Options Pricing Equation
A superb video on the history and mathematics of options pricing from Veritasium.
Genetic Insurance
Genetic testing identifies disease risk, enabling individuals to dodge environmental triggers, optimize treatments, and improve planning. Yet, the fear of increased insurance premiums deters many from undergoing tests. Genetic testing offers societal benefits but also presents significant distributional challenges. To address this, my 1994 paper proposed the idea of genetic insurance.
For a small fee genetic insurance would insure against the possibility of a positive test result. If the test came back positive the customer would be paid a large sum of money, enough to cover the expected costs of his disease or equivalently enough to allow him to purchase health insurance at the new risk premium. If the test turns out negative the customer would lose his genetic insurance fee but would gain the results of the test and also lower health insurance premiums. Those who have positive tests results would be paid enough money to pay their health care costs and would also benefit from being able to plan in accord with the test results. Under this proposal average insurance rates will fall and everyone will be made better off.\
Genetic insurance is insurance against changes in the cost of health insurance due to genetic information. John Cochrane would later generalize this idea to show that it’s possible to insure against changes in the cost of health insurance due to any new information. Cochrane called this time-consistent health insurance or health-status insurance; it’s a way of creating long-term health insurance contracts without binding an individual to a firm.
In an interesting paper, Helene Schernberg extends my 1994 paper. Schernberg shows that even if an individual has full-health insurance that can’t be taken away, there are other reasons to want genetic insurance. She focuses on the planning aspect. Genetic insurance could be used to shift consumption earlier, to better health states and thus improve life-time allocation.
Genetic testing could soon be a routine part of your medical journey. It offers insights into inherited disorders or susceptibility to various conditions. For example, if you are a woman with a BRCA mutation, you have a 55 to 72% lifetime risk of breast cancer.
… This suggests that genetic information is valuable while providing a theoretical argument in favor of genetic insurance. The mechanism is described in Tabarrok (1994): Individuals purchase genetic insurance before taking a genetic test, thus receiving a compensation upon being identified as a high-risk. Tabarrok (1994) relates this genetic insurance payment to the need to cover expensive health insurance premia. I show that it also relates to the fact that a temporally risk-averse individual wishes to insure against the lifetime utility losses she may experience when her health prospects deteriorate after taking a genetic test.