Monday assorted links

1. Profile of Claire Lehmann.

2. Profile of Shane Parrish and Farnam Street (NYT).

3. With @RyanHawk12 on The Learning Leader Show – Talked about developing skills for what is scarce, Stubborn Attachments, & having a complete dedication to your craft http://bit.ly/tylercowenryanhawk.

4. The Future Library — books that will not be published until their authors die (NYT).

5. New journal allows academics to publish controversial articles under a pseudonym (while they are still alive).

What do #1, #4, and #5 on this list have in common?  Three such items in one day?  Is it possible that Leo Strauss is underrated?

The philosophy and practicality of Emergent Ventures

Let’s start with some possible institutional failures in mainstream philanthropy.  Many foundations have large staffs, and so a proposal must go through several layers of approval before it can receive support or even reach the desk of the final decision-maker.  Too many vetoes are possible, which means relatively conservative, consensus-oriented proposals emerge at the end of the process.  Furthermore, each layer of approval is enmeshed in an agency game, further cementing the conservatism.  It is not usually career-enhancing to advance a risky or controversial proposal to one’s superiors.

There is yet another bias: the high fixed costs of processing any request discriminate against very small proposals, which either are not worthwhile to approve or they are never submitted in the first place.

Finally, foundations often become captured by their staffs.  The leaders become fond of their staffs, try to keep them in the jobs, regard the staff members as a big part of their audience, and adopt the perspectives of their staffs, more so as time passes.  That encourages conservatism all the more, because the foundation leaders do not want their staffs to go away, and so they act to preserve financial and reputational capital.

To restate those biases:

  1. Too much conservatism
  2. Too few very small grants
  3. Too much influence for staff

So how might those biases be remedied?

Why not experiment with only a single layer of no?

Have a single individual say yes or no on each proposal — final word, voila!  Of course that individual can use referees and conferees as he or she sees fit.

The single judge could be an expert in some of the relevant subject areas of the proposals (that is sometimes the case in foundations, but even then the expertise of the foundation evaluators can decay).

This arrangement also can promise donors 100% transmission of their money to recipients, or close to that.  If someone gives $1 million to the fund, the award winners receive the full $1 million.  This is rare in non-profits.  (In the case of Emergent Ventures there are unbudgeted time costs for me and my assistant, who prints out the proposals, and the paper costs of the printing get charged to general operating expenses at Mercatus.  Still, a $1 million grant at the margin leads to $1 million in actual awards.  I am not paid to do this.)

The solo evaluator — if he or she has the right skills of temperament and judgment — can take risks with the proposals, unencumbered by the need to cover fixed costs and keep “the foundation” up and running.  Think of it as a “pop-up foundation,” akin to a pop-up restaurant, and you know who is the chef in the kitchen.  It is analogous to a Singaporean food stall, namely with low fixed costs, small staff, and the chef’s ability to impose his or her own vision on the food.

Once a fixed sum of money is given away, and the mission of the project (beneficial social change) has been furthered, “the foundation” goes away.  No one is laid off.  Rather than crying over a vanquished institutional empire and laid off friends/co-workers, the solo evaluator in fact has a chance to get back to personally profitable work.  It was “lean and mean” all along, except it wasn’t mean.

The risk-taking in grant decisions is consistent with the incentives of the evaluator, consistent with the level of staffing (zero), and consistent with the means of the evaluator.  A solo evaluator, no matter how talented, does not have the resources to make and tie down multiple demands for complex deliverables.  Rather, a solo evaluator is likely to think (or not) — “hmm…there is some potential in this one.”  The wise solo evaluator is likely to look for projects that have real upside through realizing the autonomous visions of their self-starting creators, rather than projects that appear bureaucratically perfect.

And how about the incentives of the solo evaluator?  Well, a fixed amount of time is being given up, so what is the point in making safe, consensus selections with the awards?  The solo evaluator, in addition to pursuing the mission of the fund, will tend to seek out grants that will boost his or her reputation as a finder of talent.  You might worry that an evaluator, even if fully honest will self-deceive somewhat, and use some of these grants to promote his or her own interests.  I would say donate your money to an evaluator who you are happy to see rise in status.

In other words, the basic vision of Emergent Ventures, the incentives, and its means are all pretty consistent.

The solo evaluator also has the power to make very small grants, simply by issuing a decision in their favor at very low fixed cost.  Alchian and Allen theorem!  That helps remedy the bias against small grants in the broader foundation world.

The single evaluator of course is going to make some mistakes, but so do foundations.  And the costs of these evaluator mistakes have to be weighed against the other upsides of this method.

In my view, at least two percent of philanthropy should be run this way, and right now in the foundation world it is about zero percent.  So I am trying to change this at the margin.

How does this idea scale?  What if it worked really well?  How would we do more of it?

Well, it is not practical for this solo evaluator to handle a larger and larger portfolio of grant requests.  Even if he or she were so inclined, that would bring us back to the problems of institutionalized foundations.  The ideal scaling is that other, competing “chefs” set up their own pop-up foundations.  Imagine a philanthropic world where, next year, you could give a million dollars to the Steven Pinker pop-up, to the Jhumpa Lahiri pop-up, to the Jordan Peterson intellectual venture fund, and so on.  Three years later, you would have an entirely different choice, say intellectual venture funds from Ezra Klein, David Brooks, and Skip Gates, among others.  The evaluators either could donate some of their time, as I am doing, or charge a fee for performing this service.  You also could imagine a major foundation carving off a separate section of their activities, and running this experiment on their own, with an evaluator of their choosing.

In a subsequent post, I will discuss how this model relates to the classical age of patronage running through the Renaissance, into the 18th century, and often into the 20th century as well, often through the medium of individual giving.  I also will consider how this relates to classic venture capital and the relevant economics behind “deal flow.”

In the meantime, I am repeating the list of the first cohort of Emergent Ventures winners.  That link also directs you to relevant background if Emergent Ventures is new to you.

Sunday assorted links

1. Jordan Orlando on The White Album (which song is the most popular/enduring on that album?  It is difficult to say, but it is now fifty years old).

2. Scott Sumner on global warming.

3. Korean refrigerator onomatopoiea.

4. How placebos work there is no placebo (NYT).

5. Scott Alexander is now more positive on preschool.  And Scott Alexander on marijuana: “If the above calculations are true, preventing national legalization of marijuana would save half as many lives as successfully implementing Australia-style gun control in the US.” [Please note Scott is not suggesting a particular conclusion on either of these policy issues.]

Japan is not yet the land of robots

Japanese hotels and banks are, by global standards, heavily overstaffed despite the country’s demographic crunch. Most supermarkets have not embraced the automated checkouts common elsewhere, nor airlines self-service check-ins. The offices of Japan’s small and medium-sized enterprises are among the most inefficient in the developed world, chides McKinsey, a management consultancy.

Japan has an elaborate service culture, which machines struggle to replicate. Japanese customers, especially the elderly, strongly prefer people to machines, says Yoko Takeda of Mitsubishi Research Institute, a think-tank. Employment practices make it difficult to replace workers. And while gimmicky robots abound, Japan struggles to develop the software and artificial intelligence needed to enable them to perform useful tasks, says a report by the Ministry of Economy, Trade and Industry (METI), the cockpit of Japan’s post-war miracle. So while the reception at the robot hotel is automated, seven human employees lurk out of sight to watch over customers and avoid glitches. Robots still cannot make beds, cook breakfast or deal with a drunken guest who will not pay his bill.

Here is more from The Economist.

What I’ve been reading

1. Richard A. Arenberg, Congressional Procedure: A Practical Guide to the Legislative Process in the U.S. Congress.  You know, this stuff matters a lot more than it used to.

2. Timothy Larsen, John Stuart Mill: A Secular Life.  Covers the evolution of religion in Mill’s life, and stresses that toward the very life he turned back to a religiously-oriented world view.  Arguably all of the (< 12) people at Mill’s funeral were Christians.  As a side benefit, the book has an illuminating treatment of the romance with Harriet Taylor.  I’ve since ordered four other of Larsen’s books, the ultimate compliment.

3. Daniel Walker Howe, The Political Culture of the American Whigs.  An excellent history book in its own right, this is also one of the best sources for understanding the 19th century roots of our current dilemma.  Reading everything by Daniel Walker Howe is in fact a good algorithm for proceeding in life.

Daniel S. Hamermesh, Spending Time: The Most Valuable Resource is a good introduction to what economists know about the allocation of time, both evidence and theory.

Adam Zamoyski, Napoleon: A Life I read only some parts of, and found very well-written and entertaining, but it wasn’t sufficiently conceptually innovative to hold my interest.

Jacy Reese has a new book The End of Animal Farming: How Scientists, Entrepreneurs, and Activists are Building an Animal-Free Food System.  It is overstated, but still better than the near-unanimous ignoring of these issues which goes on in the economics profession.

Saturday assorted links

Prophets of the Conversations with Tyler

From before the season started:

COWEN: The Milwaukee Bucks last year won, I believe, 44 games, and in the NBA, they were in the bottom third for the number of three-pointers attempted. Why should we think they might do better this year?

[Ben] THOMPSON: Because they had the worst coach in the league, by far, and he is gone, and now they have a new coach. They actually have the best shot profile in the entire league in the preseason, which is shooting threes or shooting shots at the rim. They are 89 percent or something like that.

They are going to have a great year. Giannis is going to win MVP. It’s going to be amazing, and we, being Bucks Twitter, is going to spend the whole time telling everyone that we were right and they were wrong.

That is from my Conversation with Ben Thompson.  The Bucks are now 9-2, and two nights ago they beat the world champion Golden State Warriors.

How is Obamacare doing?

Yes, it is more popular, but how is it doing?:

Obamacare has continued to devastate the individual health insurance market:

  • In March of 2016, there were 20.2 million people covered in the individual health insurance market according to a hard count of state insurance department filings done by Mark Farrah and Associates.
  • In March of 2017 that count was down to 17.7 million.
  • In March of 2018 the count was 15.7 million–a 22% drop in two years.

This means 4.5 million people lost their individual health insurance in just two years.

Hardest hit are the 40% of middle class individual market consumers who are not eligible for a subsidy.

  • In March of 2016 there were 7,520,939 people covered in the off-exchange individual health insurance market where subsidies are not available.

  • In March of 2017 5,361,451 were covered.

  • In March of 2018 4,004,522 were covered–a 47% drop in two years.

And, the Obamacare subsidies paid to consumers are hardly sustainable.

According to the CBO, the average Medicaid outlay for a non-disabled adult is $4,230–a program that virtually has no premiums and co-pays. But because the risk pool is so bad and therefore expensive in the Obamacare exchanges, the average subsidy cost for taxpayers is $6,300–and that doesn’t include what the consumer pays in premiums and out-of-pocket expenses for Obamacare coverage.

Why has the Obamacare individual market melted-down in these last two years? Because its premiums and deductibles are sky high–for all but the lowest income participants.

In Northern Virginia, for example, the cheapest 2019 Obamacare individual market Silver plan for a family of four (mom and dad age-40) making a subsidy eligible $65,000 a year costs $4,514. That plan has a $6,500 deductible meaning the family would have to spend $11,014 on eligible health care costs before collecting other than nominal first dollar benefits.

That same family, but making too much for a subsidy, as 40% of families do, and a typical family in the affluent Virginia 10th, would have to spend $19,484 in premiums plus a $6,500 deductible, for a total of $25,984 in eligible costs before they would collect any meaningful benefits.

That is from Robert Laszewski, with additional interesting points at the link.  Do see my earlier post on what does and does not make sense in Obamacare — the risk pool for the individual market simply isn’t big or robust enough.

Friday assorted links

Is the carbon tax idea dead?

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

And one striking result from Tuesday’s election is that voters in Washington state, a Democratic stronghold, soundly rejected a proposed carbon tax by a margin of 56 to 44 percent. This raises the prospect that the carbon tax may be dead as a policy for the time being, including at the state level. As my Bloomberg Opinion colleague Liam Denning writes: “We can debate the magnitude of the vaunted blue wave, but there was definitely no green wave.”

Like many economists, I have long supported the idea of a carbon tax, and still do. Government has to tax something. So why not tax those activities which generate social costs, in this case through disruptive climate change? It is a very intuitive argument that has persuaded many economists on both sides of the political spectrum.

But a carbon tax is just not a popular idea with American voters, of either party. It is hard to argue that the Republican Party or the conservative movement has a stranglehold over the politics of Washington state.

Furthermore, this defeat isn’t just a one-off. 2009’s American Clean Energy and Security Act — a cap-and-trade bill in Congress similar to a carbon tax in its essentials though not all of its exact mechanisms — failed even when Democrats controlled Congress and the presidency. The momentum in Canada, typically considered more left-wing than the U.S., also is running against carbon taxes. In 2014, Australia voted to repeal its carbon-pricing law. Washington state itself rejected an earlier carbon-tax proposal, coupled with a cut in the state sales tax, in 2016.

The broader data are striking. According to a World Bank estimate, 23 countries have carbon taxes of some kind, while 176 have targets or support for renewable energy alternatives. It’s hard to avoid the conclusion that the carbon tax just isn’t a big political winner.

There is much more at the link.

Is biology now in charge?

From the great Laura Deming:

One of my biggest personal fears is working in the wrong field to achieve the goal I care about. If you were around pre-1900s, and wanted to contribute to biology, you should have been a physicist (Robert Hooke, a physicist discovers the first cell, making a better microscope is a major driver of progress). In which field should you work to maximize progress in biology today?

…But something interesting happened around the 1950s. If you look at the most important techniques in biology, in the second half of the 1900s, they’re all driven by tools discovered in biology itself. Biologists aren’t just finding new things – they’re making their new tools from biological reagents. PCR (everything that drives PCR, apart from the heater/cooler which is 1600s thermodynamics, is either itself DNA or something made by DNA), DNA sequencing (sequencing by synthesis – we use cameras/electrical detection/CMOS chips as the output, but the hijacking the way the cell makes DNA proteins remains at the heart of the technique), cloning (we cut up DNA with proteins made from DNA, stick the DNA into bacteria so living organisms can make more copies of it for us), gene editing (CRISPR is obviously made from DNA and with RNA attached), ELISA (need the ability to detect fluorescence – optics – and process the signal, but antibodies lie at the heart of this principle), affinity chromatography (liquid chromatography arguably uses physical principles like steric hindrance, or charge, but those can be traced back to the 1800s – antibodies and cloning have revolutionized this technique), FACS uses the same charge principles that western blots do, but with the addition of antibodies…

Something special happens when a field becomes self-reinforcing. Previously, biology looked to physics and other disciplines for tools to break open new frontiers. But, empirically, since the 1950s, that has all changed.We don’t make mutant mice with x-rays and microscopes – we figure out the gene we want to go after, and we use high-precision biological tools to change it. Computer science has certainly played an important role in processing all of the information now streaming out of biological systems, but the major advances – the core things driving progress in biology forward – have come from biology itself. Biology is eating physics (and, some would jokingly suggest, based on the outperforming endurance of DNA compared to any modern hardware and plausibility of biological computation, possibly computation itself).

Naively, if we can expect n new discoveries / t tools we have, if the tools are static, maybe that’s a fixed number of discoveries per year. But if t tools increases, then we get more discoveries. What if it increases as a function of n?

This is important because it’s a self-reinforcing loop. The more things in biology we discover today, the faster we can discover things tomorrow. Biologists are the new engineers. But their tools look a lot different than any we’ve seen before. Sequencing is the microscope of tomorrow. And sequencing was built by biological tools.

The entire (short) essay is of interest.  Here is more on Laura Deming.

Depression and religion in adolescence

Depression is the leading cause of illness and disability in adolescence. Many studies show a correlation between religiosity and mental health, yet the question remains whether the relationship is causal. We exploit within-school variation in adolescents’ peers to deal with selection into religiosity. We find robust effects of religiosity on depression that are stronger for the most depressed. These effects are not driven by the school social context; depression spreads among close friends rather than through broader peer groups that affect religiosity. Exploration of mechanisms suggests that religiosity buffers against stressors in ways that school activities and friendships do not.

That is the abstract of a new paper by Jane Cooley Fruehwirth, Sriya Iyer, and Anwen Zhang, forthcoming in the JPE.  I find this to be one of the most underemphasized benefits of religion, perhaps because religious people themselves do not wish to come off as overly neurotic.  And the effect seems to be large:

…a one standard deviation increase in religiosity decreases the probability of being depressed by 11 percent.  By comparison, increasing mother’s education from no high school degree to a high school degree or more only decreases the probability of being depressed by about 5 percent.

And for the most depressed individuals, religiosity seems to be more effective than cognitive-based therapy “one of the most recommended forms of treatment.”