Toward a theory of random, concentrated breakthroughs

by  Tyler Cowen in

I don’t (yet?) agree with what is to follow, but it is a model of the world I have been trying to flesh out, if only for the sake of curiosity.  Here are the main premises:

1. For a big breakthrough in some area to come, many different favorable inputs had to come together.  So the Florentine Renaissance required the discovery of the right artistic materials at the right time (e.g., good tempera, then oil paint), prosperity in Florence, guilds and nobles interested in competing for status with artistic commissions, relative freedom of expression, and so on.

2. To some extent, but not completely, the arrival of those varied inputs is random.  Big breakthroughs are thus hard to predict and also hard to control.

3. A breakthrough in one area increases the likelihood that further breakthroughs will come in closely related areas.  So if the coming together of the symphony orchestra leads to the work of Mozart and Haydn, that in turn becomes an inspiration and eases the path for later breakthroughs in music, not just Mahler but also The Beatles, compared to say how much it might ease future breakthroughs for painting.

4. Some breakthroughs are very very good for economic growth, such as the Industrial Revolution.  But most breakthroughs do not in any direct way boost gdp very much.  The Axial age led to the creation of significant religions and intellectual traditions, but the (complex) effects on gdp are mostly lagged and were certainly hard to see at the time.

5. Even if Robert Gordon is right that we will never have a new period of material progress comparable to the early 20th century for improving living standards, the next breakthrough eras still might be very important.

6. One possibility is that the next breakthrough will be some form of brain engineering.  People might be much happier and better adjusted, but arguably that could lower measured gdp by boosting “household production” in lieu of market activity.  At the very least, gdp figures may not reflect the value of those gains.

7. Another candidate for the next breakthrough would be institutional changes that make ongoing international peace much more likely.  That would have some positive effects on gdp in the short run, but its major effects would be in the much longer run, namely the prevention of a very destructive war.

8. Judged by the standards of the last breakthrough, the current/next breakthrough is typically hard to see and understand.  It almost always feels like we are failing at progress.

9. When a breakthrough comes, you need to ride it for all it is worth.  Arguably you also should embrace the excesses of that breakthrough, not seek to limit them.  It is perhaps your only real chance to mine that mother lode of inspiration.  So let us hope that Baroque music was “overproduced” in the early to mid 18th century, because after that production opportunities go away.  For that reason, “overuse” of the internet and social media today may not be such a bad thing.  It is our primary way of exploring all of the potential of that cultural mode, and that mode will at some point be tamed and neutered, just as Baroque music composition is now dormant.

10. Progress in (many forms of) science may be more like progress in Baroque music composition than we comfortably like to think.  But I hope not.

Wednesday assorted links

by  Tyler Cowen

1. Mercatus graduate student fellowships, including for shorter-term visiting programs.

2. Decline in EPA enforcement seems to predate Trump.

3. Short history of MMT (have any of them read Arthur Kitson?).

4. Puffin eats fish (photo).

5. “Many social media users have been baffled by the recent appearance of a video clip of a choir in St. Petersburg’s landmark cathedral, Saint Isaac’s, performing a song about total nuclear annihilation of the United States.”  It is a parody of former Soviet propaganda.  But a lot of parody doesn’t work so well in 2019.

My Conversation with Sam Altman

by  Tyler Cowen in

Yes, the Sam Altman of Y Combinator and Open AI.  We even got around to Harry Potter, James Bond (and Q), Spiderman, Antarctica, and Napoleon, what is wrong with San Francisco, in addition to venture capital and the hunt for talent.  Here is the transcript and audio.  Here is one excerpt:

ALTMAN: I think our greatest differentiator is not how we identify talent, although I will answer that question, but the fact that we treat our own business — we run Y Combinator in the way that we tell our startups to run as a successful startup, which almost no venture capital firm does.

Almost every venture capital firm gives advice they never follow themselves. They don’t build differentiated products. They are not network-affected businesses. They don’t try to build a brand and a community. And they don’t try to make something that gets better the bigger it gets and have the scale effects that anyone would tell you they want in a business.

We at Y Combinator always say we want to get a lot bigger because this is a network effect, this is a network that matters. Most venture capital firms will say out of one side of their mouth, “Oh no, smaller is better,” because they don’t want to work more. Then they’ll tell all their businesses, “The network effect is the only thing that matters.”

Many people are as smart as we are, think about the world in similar ways. But I think we have internalized that we run our firm the same way we tell our startups to operate, and we view the most important thing that we do is to build a network and a network effect.

And:

COWEN: Let me play venture capital skeptic, and you can talk me back into optimism.

ALTMAN: I might not.

COWEN: Let’s say I say, tech has had a stream of big hits: personal computer, internet, cell phone, mobile. You’ve had a lot of rapidly scalable innovations become possible in a short period of time. We’re now in a slight lull. We’re not sure what the next big thing is or when it will come. Without that next big thing, won’t the current equilibrium require a higher rate of picking the right talent than venture capitalists are, in fact, able to do?

ALTMAN: I will talk you out of that one, happily. The most expensive investing mistake in the world to make is to be a pessimist, and it’s a common one. I think that’s actually the most common mistake to make in life. It is true that we are in a lull right now, but it is absolutely, categorically false that — unless the world gets destroyed in a very short term — that we will not have a bigger technological wave then we’ve ever had before.

COWEN: Why can’t I be an optimist but not an optimist about VC? I think new ideas will come through established companies. They’ll be funded by private equity. They’ll happen in China. But the exact formula where you can afford to make so many mistakes because the hits are so big — to what extent does VC rely on that kind of rapid scalability that may not come back?

And:

COWEN: Young Napoleon shows up. What do you think after 5 minutes?

ALTMAN: How young? Like 18-year-old Napoleon or 5-year-old?

COWEN: Before he’s famous, 21-year-old Napoleon.

ALTMAN: From everything I’ve read that would be a definite yes. In fact, the best book I read last year is called The Mind of Napoleon, which is a book of quotes about his views on everything. Just that thick on Napoleon quotes. Obviously deeply flawed human, but man, impressive.

Definitely recommended.

Indian and Pakistani stock markets

by  Tyler Cowen in

Right now the Indian market is up a small amount for the week, of course that may change.

I know you all love to yelp that markets don’t predict well (not what markets do!…that word “predict” is loaded) and that stock markets did not predict WWII, etc.  The lack of an Indian market reaction here is fully consistent with the fact that prediction is very hard.  Investors might simply be unsure which priors to update, and thus prices haven’t changed much.  That is consistent with the work of Philip Tetlock, also indicating that prediction is very hard.  So this kind of market result does not have to conflict with the best knowledge we have from political science and the other social sciences.

The Pakistan stock exchange, by the way, is down a few percentage points but not seeing massive carnage.

Not from The Onion

by  Tyler Cowen in

The UK government is due to hold emergency talks with industry leaders on Tuesday after discovering that the country doesn’t have the right pallets to continue exporting goods to the European Union if it leaves without a deal next month.

Under strict EU rules, pallets — wooden structures that companies use to transport large volumes of goods — arriving from non-member states are required to meet a series of checks and standards.

Wood pallets must be heat-treated or cleaned to prevent contamination and the spread of pests, and have specific markings to confirm that they legal in EU markets.

Most pallets that British exporters are using do not conform to these rules for non-EU countries, or “third countries,” as EU member states follow a much more relaxed set of regulations.

Here is the full story, via Catherine Rampell.

Could wage decoupling be because of health insurance?

by  Tyler Cowen in

From Scott Alexander:

There are a few lines of argument that suggest it’s not true.

First, wage growth has been worst for the lowest-paid workers. But the lowest-paid workers don’t usually get insurance at all.

Second, the numbers don’t really add up. Median household income in 1973 was about $48,000 in today’s dollars. Since then, productivity has increased by between 70% and 140% (EVERYBODY DISAGREES ON THIS NUMBER), so if median income had kept pace with productivity it should be between $82,000 and $115,000. Instead, it is $59,000. So there are between $23,000 and $67,000 of missing income to explain.

The average health insurance policy costs about $7000 per individual or $20000 per family, of which employers pay $6000 and $14000 respectively. But as mentioned above, many people do not have employer-paid insurance at all, so the average per person cost is less than that. Usually only one member of a household will pay for family insurance, even if both members work; sometimes only one member of a household will buy insurance at all. So the average cost of insurance to a company per employee is well below the $6000 to $14000 number. If we round it off to $6000 per person, that only explains a quarter of the lowest estimate of the productivity gap, and less than a tenth of the highest estimate. So it’s unlikely that this is the main cause.

I don’t agree with all of his framing (are there different deflators floating around in those estimates?  Scott does discuss that later in the post), but those points are worth considering nonetheless.  On Scott’s broader points (not discussed in my excerpt), I think he is underemphasizing the possibility that productivity may be measuring better than it really performed, and thus there is not so much decoupling at all.

For the pointer I thank Benjamin Cole.

The effect of banning payday loans

by  Tyler Cowen in

n November 2008, Ohio enacted the Short-Term Loan Law which imposed a 28% APR on payday loans, effectively banning the industry. Using licensing records from 2006 to 2010, I examine if there are changes in the supply side of the pawnbroker, precious-metals, small-loan, and second-mortgage lending industries during periods when the ban is effective. Seemingly unrelated regression results show the ban increases the average county-level operating small-loan, second-mortgage, and pawnbroker licensees per million by 156, 43, and 97%, respectively.

That is from Stefanie R. Ramirez, via the excellent Kevin Lewis.

Tuesday assorted links

by  Tyler Cowen

1. Paul Krugman pursues the MMTers (NYT).  I’m never going to enter that derby.

2. Douthat on community and big government (NYT).

3. Good thread on Kashmir, general background.

4. What does the public think of eugenics?  Sad but not surprising.

5. Cass Sunstein’s On Freedom comes out today.

6. “In certain situations, there appear differences between the behavior of people trained in economics and other groups, but as the existing evidence is mostly ambiguous, a comprehensive picture of the nature and sources of these differences has not yet emerged.”  Link here.

*Not Working: Where Have All the Good Jobs Gone?*

by  Tyler Cowen in

That is the new and forthcoming book by David G. Blanchflower, here is one excerpt:

The high-paying union private-sector jobs for the less educated are long gone.  Real weekly wages in April 2018 in the United States were around 10 percent below their 1973 peak for private-sector production and non-supervisory workers in constant 1982-84 dollars.  In the UK real wages in 2018 are 6 percent below their 2008 level.

And:

In the post-recession period underemployment has replaced unemployment as the main indicator of labor market slack.

This is a very good book for anyone wishing to rethink what is going on in labor markets today.  In his view there is plenty more slack, as evidence by sluggish wage behavior.  You can pre-order here, due out in June.

*IBM: The Rise and Fall and Reinvention of a Global Icon*

by  Tyler Cowen in

That is the new and excellent and I am tempted to label definitive book by James W. Cortada.  The author worked at IBM for thirty-eight years, a reasonable qualification to attempt such a tome.  Here is one excerpt:

It is difficult to exaggerate the importance of the Social Security win to the evolution of IBM.  That one piece of business, along with its effects on other agencies and businesses, wiped out the Great Depression for IBM.  That transaction handed IBM a potential market of 20,000 other companies that would need to process social security data.  When the books were closed on IBM’s business in 1937, revenue had increased by 48 percent of 1935’s, and by the end of 1939, by 81 percent of 1935’s.

And then for the 1960s:

IBM’s System 360 was one of the most important products introduced by a U.S. corporation in the twentieth century, and it nearly broke IBM.  A short list of the most transformative products of the past century would include it…

On April 7, 1964, IBM introduced a combination of six components, dozens of items of peripheral equipment, such as tape drives, disk drives, printers, and control units, among others; and a promise to provide the software necessary to make everything work together — a mindboggling total of 150 products…manuals describing all the machines, components, software, and their installations and operation filled more than 50 linear feet of bookshelves.

But later on, by the 1970s:

With ten layers of management, each with staffs, it was probably inevitable that bureaucracy would grow.

The research and background context is amazing and the book is readable throughout.  You can pre-order here.

What is the real problem with social media? And how should we respond?

by  Tyler Cowen in

That is the topic of my latest Bloomberg column.  Here is one bit:

Psychologist Daniel Kahneman, who is also a Nobel laureate in economics, has written and co-written a number of papers on happiness in which he distinguishes between enjoying the moment and having an overall sense of satisfaction with one’s life. As it turns out, these two variables often diverge quite dramatically…

My tentative conclusion from all this: Online life is inducing us to invest less in our memories and long-term sense of satisfaction. It is pretty obvious from human behavior that, right now, the internet is doing more to boost short-term pleasures.

The more negative take would be that online life is obscuring our understanding of our own lives. I do not go that far. After all, humans make analogous choices about balancing short- and long-term happiness when they have one child rather than four, or when they sit on an exercise bike rather than get on a plane to Paris. Those aren’t the wrong decisions for everybody.

The solutions include pro-natalism and more travel:

There is so much talk about regulating or controlling the internet. Dare I suggest an alternative approach? Use public policy to help shift the balance of ease back toward life satisfaction and the formation of longer-term memories. Make it cheaper and easier to have and raise children. Use the education system to support more study trips abroad. Think about how to ease the pursuit of long-term life satisfaction.

There are plenty of human imperfections behind our online choices. As we respond, why not accentuate the positive — and keep the freedom to choose?

There is much more at the link, please do read the whole thing.

*Big Business: A Love Letter to an American Anti-Hero*

by  Tyler Cowen in

I am very excited about my next book, due out April 9:

I view this work as an antidote to many of the less than stellar arguments circulating today.  It looks like this:

Table of contents

1. A new pro-business manifesto

2. Are businesses more fraudulent than the rest of us?

3. Are CEOs paid too much?

4. Is work fun?

5. How monopolistic is American big business?

6. Are the big tech companies evil?

7. What is Wall Street good for, anyway?

8. Crony capitalism: How much does big business control the American government?

9. If business is so good, why is it disliked?

Here is part of the Amazon description:

An against-the-grain polemic on American capitalism from New York Times bestselling author Tyler Cowen.

We love to hate the 800-pound gorilla. Walmart and Amazon destroy communities and small businesses. Facebook turns us into addicts while putting our personal data at risk. From skeptical politicians like Bernie Sanders who, at a 2016 presidential campaign rally said, “If a bank is too big to fail, it is too big to exist,” to millennials, only 42 percent of whom support capitalism, belief in big business is at an all-time low. But are big companies inherently evil? If business is so bad, why does it remain so integral to the basic functioning of America? Economist and bestselling author Tyler Cowen says our biggest problem is that we don’t love business enough.

In Big Business, Cowen puts forth an impassioned defense of corporations and their essential role in a balanced, productive, and progressive society. He dismantles common misconceptions and untangles conflicting intuitions.

You can pre-order here on Amazon.  Here at Barnes & Noble.  Here at Books a Million.  Here at Itunes.  Here at IndieBound.  From PlayGoogle.  From Kobo.

Here is the publisher’s home page.  Definitely recommended…and if you are a regular MR reader, no more than five to ten percent of this book has already appeared on this blog.