Category: Current Affairs
My excellent Conversation with Nate Silver
Here is the audio, video, and transcript. Here is the episode summary:
In his second appearance, Nate Silver joins the show to cover the intersections of predictions, politics, and poker with Tyler. They tackle how coin flips solve status quo bias, gambling’s origins in divination, what kinds of betting Nate would ban, why he’s been limited on several of the New York sports betting sites, how game theory changed poker tournaments, whether poker players make for good employees, running and leaving FiveThirtyEight, why funky batting stances have disappeared, AI’s impact on sports analytics, the most underrated NBA statistic, Sam Bankman-Fried’s place in “the River,” the trait effective altruists need to develop, the stupidest risks Tyler and Nate would take, prediction markets, how many monumental political decisions have been done under the influence of drugs, and more.
Here is one excerpt:
COWEN: Why shouldn’t people gamble only in the positive sum game? Take the US stock market — that certainly seems to be one of them — and manufacture all the suspense you want. Learn about the companies, the CEO. Get your thrill that way and don’t do any other gambling. Why isn’t that just better for everyone?
SILVER: Look, I’m not necessarily a fan of gambling for gambling’s sake. Twice a year, I’ll be in casinos and in Las Vegas a lot. Twice a year, I’ll have a friend who is like, “Let’s just go play blackjack for an hour and have a couple of free drinks,” and things like that. But I like to make bets where I think, at least in principle, I have an edge, or at least can fool myself into thinking I have an edge.
Sometimes, with the sports stuff, you probably know deep down you’re roughly break-even or something like that. You’re doing some smart things, like looking at five different sites and finding a line that’s best, which wipes out some but not all of the house edge. But no, I’m not a huge fan of slot machines, certainly. I think they are very gnarly and addictive in various ways.
COWEN: They limit your sports betting, don’t they?
SILVER: Yes, I’ve been limited by six or seven of the nine New York retail sites.
COWEN: What’s the potential edge they think you might have?
SILVER: It’s just that. If you’re betting $2,000 on the Wizards-Hornets game the moment the line comes out on DraftKings, you’re clearly not a recreational bettor. Just the hallmarks of trying to be a winning player, meaning betting lines early because the line’s early and you don’t have price discovery yet. The early lines are often very beatable. Betting on obscure stuff like “Will this player get X number of rebounds?” or things like that. If you have a knack for — if DraftKings has a line at -3.5 and it’s -4 elsewhere, then it can be called steam chasing, where you bet before a line moves in other places. If you have injury information . . .
It’s a very weird game. One thing I hope people are more aware of is that a lot of the sites — and some are better than others — but they really don’t want winning players. Their advertising has actually changed. It used to be, they would say for Daily Fantasy Sports, which was the predecessor, “Hey, you’re a smart guy” — the ads are very cynical — “You’re a smart guy in a cubicle. Why don’t you go do all your spreadsheet stuff and actually draft this team and make a lot of money, and literally, you’ll be sleeping with supermodels in two months. You win the million-dollar prize from DraftKings.”
And:
COWEN: If we could enforce just an outright ban, what’s the cost-benefit analysis on banning all sports gambling?
SILVER: I’m more of a libertarian than a strict utilitarian, I think.
COWEN: Sure, but what’s the utilitarian price of being a libertarian?
Recommended, interesting and engaging throughout. And yes, we talk about Luka too. Here is my first 2016 CWT with Nate, full of predictions I might add, and here is Nate’s very good new book On the Edge: The Art of Risking Everything.
Germany analysis of the day
In no other OECD country do workers spend less time on the job. With labour input shrinking by some 1 per cent a year, labour productivity would need to rise by an equal amount for the economy to stand still. Unfortunately, productivity increases per hour worked have stood well below 1 per cent in recent years. The country’s fundamental speed limit for growth may lie below zero.
That is from Moritz Kraemer in the FT.
Moms Against Price Gouging
An excellent essay by John Cochrane:
Uber surge pricing was an important lesson to me. I loved it. I could always get a car if I really needed one, and I could see how much extra I was paying and decide if I didn’t need it. I was grateful that Uber let me pay other people to postpone their trip for a while, and send a loud signal that more drivers are needed. But drivers reported that everyone else hated it and felt cheated.
This cultural and moral disapproval came home to me strongly about 25 years ago. We were driving from Chicago to Boston in our minivan, with 4 young children, dog, and my mother. We got to upstate NY, and needed to stop for the night. This was before cell phones and the internet, so the common thing to do was just pull of at a big freeway intersection, marked food, phone, gas, lodging, and see what’s available. Nothing. We tried hotel after hotel. We asked them to call around. Nothing. It turns out this was the weekend of Woodstock II. As the evening wore on, the children were turning in to pumpkins. Finally we found a seedy Super-8 motel that had 2 rooms left, for $400. This was back when Super-8 motel rooms were about $50 at most. I said immediately “Thank you, we’ll take them!” My mom was furious. “How dare he charge so much!” I tried hard to explain. “If he charged $50, or $100, those rooms would have been gone long ago and we’d be sleeping in the car tonight. Thank him and be grateful! He’s a struggling immigrant, running a business. We don’t need presents from people who run Super-8s in upstate New York.” But, though an amazing, smart, wise, and well-traveled woman, she wasn’t having it. Nothing I could do would persuade her that the hotel owner wasn’t being terrible in “taking advantage of us.”
It is surely morally worthy to give what you have to your neighbors in time of need, especially the less fortunate. But we should not demand gifts. And appropriation of property by threat of force, turning off the best mechanism we know for alleviating scarcity, does not follow. Moral feelings are a terrible guide for laws.
If we can’t get the moms on board we are going to have a tough time. Still, I feel confident that the Cochranes are ensuring that the generational trauma stops with them.
Sweden fact of the day
…the country’s migration minister is celebrating the fact Sweden has “negative net immigration”, with more people thought to be leaving the country than entering for the first time in more than half a century.
“The number of asylum applications is heading towards a historically low level, asylum-related residence permits continue to decrease and for the first time in 50 years Sweden has net emigration,” Maria Malmer Stenergard announced earlier this month.
Sweden’s Moderate-led government, which is supported by the far-right Sweden Democrats, has pursued increasingly restrictive asylum policies, including plans for a “snitch law” that would legally require public sector workers to report undocumented people.
…the UN high commissioner for refugees confirmed the trend. It was surprising, the UNHCR said, that while global displacement was at an all-time high, the number of people seeking asylum in Sweden was at an all-time low.
“The statistics show Sweden having a net outflow of immigrants for the first time in decades,” Annika Sandlund, the UNHCR representative to the Nordic and Baltic countries, told the Guardian.
Here is the full Guardian piece. I think this is all going to work out reasonably well.
Why Top CEOs Earn Big Paychecks
CEO compensation at large firms is high, especially in comparison to average worker wages, sparking debates over income inequality. Critics argue that such pay packages are unfair and disproportionate to actual company performance. Proponents contend that high pay reflects productivity and is necessary to attract scarce top talent to large firms. Let’s go to the ticker tape.
On August 12 shares of Starbucks were selling for about $77, a level they had been stable at for some time. On August 13, shares were selling for $94. What changed? On August 13, Starbucks announced that they were hiring a new CEO, Brian Niccol, who had held the top position at Chipotle.
There are some 1,132,800,000 Starbucks share outstanding so hiring Niccol instantly increased the value of Starbucks by just over $19 billion. In comparison, Niccol will be paid $1.6 million in salary, a bonus payment of $10 million and potential equity incentives that could be worth on the order 
of $100 million or more if the stock continues to do well.
No question, Niccol is paid handsomely but it’s only a small percentage of the billions the market estimates he will create for other people, both consumers and investors.
Niccol has had a phenomenal streak as CEO of Chipotle raising the stock price from about $6 to $56. Thus, it wasn’t surprising that on the announcement of his move, Chipotle stock plunged from $56 to $46 (later recovering to around $52).
Using the latter number, the value of Chipotle fell by about $5.5 billion on the day of the Niccol announcement. That’s a remarkable fall given that the number two at Chipotle is probably no slouch. But heh, Kevin Durant doesn’t make quite as much as Steph Curry. (See yesterday’s post on the benefits of inequality!) Last year, Chipotle paid Niccol a total compensation package worth about $22.5 million. Again, a nice pay package but is there any question that Chipotle investors are sorry to see Niccol go?
Note also that the market expects Niccol to raise the value of Starbucks going forward more than he would have raised the value of Chipotle going forward so this move was a net gain for society. It’s important to remember that CEO pay is not just about incentives it’s about allocation.
Bottom line is that in the estimation of people who put their money where there mouth is, Niccol is worth the pay.
Addendum: Don’t forget my previous post in this series from 2013, The Value of a CEO looking at what happened when Ballmer exited Microsoft. Same basic lesson but in reverse! N.B. look at what has happened to Microsoft stock since!
All of this should also be put in the context of the Extreme Shortage of High-IQ Workers which one can also understand as the shortage of talent.
Hungary fact of the day
Total family subsidy spending exceeds 5 per cent of GDP, or more than double what Hungary spends on defence…
From a record low of 1.23 children per woman in 2011, the country’s fertility rate rose to 1.59 in 2020, but in recent years it has levelled off to about 1.5. In the first half of this year the fertility rate stood at 1.36 babies per woman, the lowest in a decade, said state statistical service KSH. In June, births fell to a record monthly low of barely 6,000 children in the country of 10mn, or about half the level of live births seen in Hungary a generation ago, KSH data shows.
Here is more from Marton Dunai and Valentina Romei at the FT.
I would love to see this natural experiment, Isaac Asimov edition
Before the sparse audience, he vowed to run the city of Cheyenne exclusively with an AI bot he calls “VIC” for “Virtual Integrated Citizen.”
…Standing behind a lectern with a sign that read “AI FOR MAYOR,” he gave a brief PowerPoint presentation on the history of AI. Then he stepped aside to give the floor to his Mac mini and iPad — which were propped on a table and connected to a hanging speaker at the front of the room — and told attendees to direct questions toward the screen.
“Is the computer system in city hall sufficient to handle AI?” one attendee, holding a wireless microphone at his seat, asked VIC.
“If elected, would you take a pay cut?” another wanted to know…
Midway through an interview with The Post, Miller offered to let the bot respond. VIC, in its robotic tone, correctly answered questions about trash day in Cheyenne, registering to vote and the current president of the United States.
VIC said it would argue against banning books — which some Cheyenne schools have done — citing their “educational value.” “But,” the bot added, “let’s create a process ensuring a balanced approach.”
Here is the full story. Via the excellent Kevin Lewis.
New Zealand fact of the day
In the year to June, 80,200 New Zealand citizens moved abroad, almost double the numbers prior to the Covid-19 pandemic. Meanwhile, just 24,900 returned, according to Stats NZ — the country’s official data agency. The net loss of 55,300 citizens (which follows a net loss of 56,500 in the year to April) smashed the previous record of 44,400 in February 2012.
About half are going to Australia. And this:
Economic factors figure highly in explanations for why so many New Zealanders are moving overseas.
While Australia has so far avoided recession and enjoyed a booming jobs market since the pandemic — in large part due to its dominant mining industry — New Zealand’s central bank warned on Wednesday that its economy is on the brink of its third recession since the beginning of 2022.
Here is more from the Times of London.
Darien gap fact of the day
In 2014 fewer than 10,000 migrants crossed the gap. Last year more than 500,000 did. Another surge is expected as a result of Venezuela’s presidential election on July 28th, which was stolen by the ruling autocrat, Nicolás Maduro.
Here is more from The Economist. One lesson here is that supply is elastic, even under very difficult, very risky circumstances. Just about everyone agrees with that — except the supervillains!
Rampell On Harris’s Economic Policy
Here is the Washington Post’s Catherine Rampell on Harris’s price control policy:
It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Some far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk.
…If your opponent claims you’re a “communist,” maybe don’t start with an economic agenda that can (accurately) be labeled as federal price controls.
And here is a primer on Nixon’s price controls announced 53 years ago yesterday. Read Modern Principles for more.
Tabarrok on China: World of DAAS Podcast
I was very pleased to appear on Safegraph CEO Auren Hoffman’s World of DAAS podcast. We covered lots of material including this (lightly edited) bit on China.
Auren Hoffman (23:06.518):
Now, you’ve thought a lot about things like reshoring, building manufacturing capacity. How do you think we could be thinking about that differently?
Alex (23:24.058)
I understand that there are some concerns about China, and there is an argument and I think it’s a legitimate argument, that there are some things such as chips that we want to make sure, it’s not good to have them located in Taiwan, right? We want to make sure that we onshore those. However, I have three concerns. One is, fundamentally, I don’t think China and the United States have such a clash of interest. Of course, it’s not perfect harmony, but there’s a lot of harmony of interest between China and the United States. We do lot of trade with China, which benefits both China and the United States.
..China’s getting richer Okay, people are worried because they’re getting more military whatever but also what this means is that people in China are getting cancer. Well now there’s 1 .4 billion people who want to cure for cancer, and they’re willing to put some money into it, right? And then that’s going to increase the amount of research and development for all kinds of high-tech goods, which is amazing for us. Like, I would be thrilled if an American wins the Nobel Prize for curing cancer. I would be 99.5 % as happy if a Chinese scientist wins a Nobel Prize for curing cancer.
So we have a lot to gain from a richer China. That’s point one. Point two is that, yeah, I get the idea that we want to onshore chip manufacturing, but I think we want to friendshore, right? So we don’t want to just have protection against all countries. Like I get it, okay, a hundred percent tariff on your Chinese EVs. It’s kind of crazy, but all right. However, let’s reduce tariffs on Germany.
Let’s reduce tariffs on Europe. In fact, let’s create a free trade, even a free immigration block among the Western democracies, you know, including Japan, Australia, New Zealand. So, let’s not turn a small problem in foreign policy, which is to make sure that we have a ready military supply. Let’s not turn that into trying to create a fortress America Which is going to make us poorer and actually less safe instead, you know, let’s build up the free world. Okay, let’s create an immigration and free trade with Europe and Canada and Mexico and so forth. Let’s build up the free world. That’s point two.
Point three is that look. It’s very, very easy to take a foreign policy argument and turn it into rent seeking for the benefit of special interests and protectionism for the benefit of special interests. Right? So at one point in the United States, probably even still today, you know, we were prohibiting mohair imports. Okay. Why? Because we use mohair to make military uniforms. The whole thing is ridiculous. But it’s very easy, almost inevitable, that this kind of argument is turned into a special interest trough.
I think this is one of my best podcast appearances because we covered some new material on crime, the universities, why Tyler and I are able to cooperate on so many projects, a conspiracy theory I believe and more. Listen to the whole thing.
Europeans deserve to be as cool as Americans
That is the (very good) title they gave my recent Bloomberg column. Should Europe have more air conditioning? Basically yes. Here is one excerpt:
Some 90% of the US has air conditioning, according to one estimate, compared to only 19% for Europe. Worldwide, the US, China and Japan account for about two-thirds of all air conditioning…
And yet it will not be easy to make Europe as cool (speaking only in terms of temperature) as America. Much of the continent faces higher energy prices than does the US, and there are taxes — in France, they are 20% on AC systems.
And then there are the esthetics. Many Europeans complain that artificially cooled air is less healthy or less pleasant to breathe — a view this American has some sympathy for. (I am not much bothered by the heat and enjoyed the fresh air of Siena.) European buildings are also on average older than those in the US, and were not built to make AC units easy to install. So issues may arise from local regulations and historic-preservation laws.
Some Europeans also have an option unavailable to Americans if the temperature truly is unbearable: They can take the entire month of August off. They can swim in the Mediterranean, or take a quick flight to Finland or Ireland. The economic lesson that people adjust to their circumstances is borne out by these realities.
Personally, I would prefer a world with less air conditioning, or with temperatures not so low. And in Europe in particular, I enjoy how the relative paucity of AC forces people outdoors and into public squares. But that is only me. In sum;
So the best argument an American can make for why Europe should have more air conditioning is this: because Europeans want it. There are cultural forces keeping the shift toward more AC from proceeding as quickly as it ought to, but the transition will eventually happen. Why not accelerate the pace of installation and get to where much of Europe is likely to end up anyway?
My current hotel in Ireland…has no air conditioning.
IRA manufacturing delays
Some 40 per cent of the biggest US manufacturing investments announced in the first year of Joe Biden’s flagship industrial and climate policies have been delayed or paused, according to a Financial Times investigation.
The US president’s Inflation Reduction Act and Chips and Science Act offered more than $400bn in tax credits, loans and grants to spark development of a US cleantech and semiconductor supply chain.
However, of the projects worth more than $100mn, a total of $84bn have been delayed for between two months and several years, or paused indefinitely, the FT found.
Here is more from Amanda Chu, Alexandra White and Rhea Basarkar at the FT.
New data on marijuana legalization
That is the topic of my latest Bloomberg column, and here is one excerpt:
What do the numbers show? A new study from the Federal Reserve Bank of Kansas City offers some important keys toward an answer.
Start with the good news, or what appears to be the good news. Post-legalization, incomes in legalizing states grew by about 3%, home prices went up by 6%, and populations rose by about 2%. The researchers used appropriate statistical controls, but there is some question about causation vs. correlation. At the very least, it seems highly likely that state GDP went up: A state with legal marijuana can sell it, including to users in other states. Selling marijuana is a new business, and like any new business, it boosts the local economy.
But it is not so simple. Measures of GDP and GDP per capita are usually good metrics for human well-being — but not always. Cigarette sales, for instance, are not as beneficial for citizens as much as the initial GDP boost might indicate, because nicotine is bad for most people…
In states with legal marijuana, self-reported usage rose by 28%. Meanwhile, substance use disorders increased by 17%. Chronic homelessness went up by 35%, a possible sign that marijuana use leads to a downward financial spiral, and perhaps job loss, for many users. Arrests increased by 13%, although reported crime did not itself go up.
And in sum:
That said, these results are hardly a great advertisement for the legalization experiments. They stand in jarring contrast to what advocates promised: an end to black markets, safer marijuana and a better-protected user population. And if I may be allowed to think less like an economist for a moment, I confess I don’t feel good about a social practice that lowers effective IQ. No one smokes pot to perform better on their SATs.
I remain of two minds on the entire question.
Worth a ponder.
Schengen eroding, child legal arbitrage markets in everything
“We are increasing surveillance, in part to increase security, but also to prevent hired Swedish child soldiers who come to Copenhagen to carry out tasks in connection with gang conflicts,” he added.
Hummelgaard revealed on Thursday that there had been 25 incidents since April where Danish criminal gangs had hired what he called “child soldiers” to commit crimes in Denmark. In the last two weeks alone, Danish police have linked three shootings to Swedish teenagers…
Swedish police say that powerful criminal gangs often use children to commit murders as they will receive light sentences. Drug gangs — many of whom are led by second-generation immigrants now living outside the country — have infiltrated parts of the welfare, legal and political systems, meaning the fight against them could take decades, according to Swedish officials.
Here is more from Richard Milne at the FT. Elsewhere, “Brown bears are protected under EU law,” solve for the equilibrium (FT).