Category: Economics

Is the trade war with China over?

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

The basic problem with any U.S.-China trade conflict is that there is not very much the Chinese are interested in offering, and their intransigence is more than just a bargaining stance. They are willing to buy more American soybeans and manufactured goods (and probably wish to anyway), and they might give U.S. financial institutions freer rein within China. But they won’t dismantle their system of state-owned enterprises, as those companies are among China’s most powerful special interest groups. Nor will China give the major U.S. tech companies free rein in China, if only for reasons of national security and China’s desire to build a surveillance state based on data controlled by China.

Overall, the grievances on the U.S. side are significant, and the possible concessions on the Chinese side are minor. So the most likely outcome is only modest progress in difficult negotiations. It’s also likely that the power and focus of the Trump administration will wane as it deals with investigations from the new Democratic-controlled House of Representatives. It might be said that the trade war you now see is the trade war you are going to get. Foreign relations gridlock will set in.

Nonetheless, it’s not quite fair to describe the trade war with China as a problem that Trump started and then pretended to solve. The reality is that hostility toward Chinese trade practices has been building for some time. Anti-China measures have long commanded bipartisan support not only in Washington but also among corporate leaders, who see themselves as victims of unfair Chinese trade practices and espionage. This is an issue that predates Trump, and he deserves some credit for doing something to help solve it.

Do read the whole thing, which contains other points of interest.

If you love prediction markets you should love the art world

Think of art markets, and art collecting, as an ongoing debate over what is beautiful and also what is culturally important.  But unlike most debates, you have a very direct chance to “put your money where your mouth is,” namely by buying art (it is very difficult to sell art short, however).  In this regard, debates over artistic value may be among the most efficient debates in the world.  At least if you are persuaded by the basic virtues of prediction markets.  The prices of various art works really do aggregate information about their perceived values.

I have, however, noted a correlation, how necessary or contingent I am not sure.  The “white male nerd types” who are enamored of prediction markets tend to be especially skeptical of the market judgments of particular art works, most of all for conceptual and contemporary art.

In my view, discussions about the value of art, as they occur in the off-the-record, proprietary sphere, are indeed of high value and they deserve to be studied more closely.  Imagine a bunch of people competing to make “objects that are interesting but not interesting for reasons related to their practical value.”  And then we debate who has succeeded, or not.  And those debates reflect many broader social, political, and economic issues.  And it is all done with very real money on the line.  The money concerns not just the value of individual art works, but also the prestige and social capital value that arises from having assembled a prestigious and insightful collection.

*Order Without Design: How Markets Shape Cities*

That is the new and excellent book by Alain Bertaud, so many pages have excellent food for thought.  Here is one simple bit:

Cities are primarily labor markets.

Or this:

…large cities are growing at about the same rate as medium and small cities in the same countries or regions.  It seems that cities’ growth rates follow Gibrat’s law of proportionate effect, which states that the size of a city is not an indicator of its future growth rate — that is, cities’ growth rates are random, with the same average expected growth rate and same variance…The population of larger cities keeps growing, but on average, so do smaller cities.  This seems paradoxical, given that larger cities are more productive than smaller ones.  However, larger cities do not play the same economic role as smaller ones do.  They complement each other’s activities.  The increase productivity of larger cities is therefore linked to the existence and growth of smaller cities.  In turn, smaller cities’ economic growth is dependent on larger cities’ innovations and inventions.

How about this:

In 1830…London’s population density had reached a very high density of 325 people per hectare.  By 2005, however, the density of London had decreased to only 44 people per hectare.  The larger decrease in London’s density has not caused a corresponding decrease in mobility.  On the contrary…

I learned a great deal from the discussion (starts p.287) of Indonesia’s “kampungs,” and how the Indonesian has managed their integration with local infrastructure relatively well.  In contrast, this is the common alternative procedure:

The predictable first reaction of governments has usually been to set minimum urbanization standards to prevent the legal construction of these unsanitary urban villages.  The regulations made the situation worse, as they prevented these informal settlements from obtaining normal urban services from the municipality.  They also created a risk of future demolition, which discourages housing improvement that the households would have naturally done themselves.  Eventually, many governments slowly regularized the older informal settlements in a piecemeal fashion, as is the practice in India, for instance.  But the regularization of informal settlements usually had been conducted with a provision that after a set date, no more informal settlements would be regularized.

The outcomes of these successive policies — first ostracism, then benign neglect followed by reluctant integration — has been disastrous.  A significant share of the urban labor force, otherwise gainfully employed, live in large “informal” settlements often with unsafe water supplies, deficient sanitation, and sporadic solid waste collection.


What made a difference [in Indonesia] was a decision taken in 1969 by the government of Indonesia to concentrate its resources on the improvement of the kampungs’ infrastructure without trying to remove or restructure the existing housing, however small or inadequate it was…And, even more exceptional, since 1969 to this day, the Indonesian government’s support for KIP has been unwavering…The government housing policy objective consists of allowing the poor to settle in and around existing villages at the standards of their choice, while the government concentrates its efforts not on housing construction but on gradually improving residential infrastructure and services to all residential settlements.  The policy has proved largely successful.

Later in the book, pp.351-352 have a fascinating discussion of how relatively good urban/suburban policy, and also the fragmentation of municipalities, contributed to the early success of the tech community in Silicon Valley.

Definitely recommended, this is now one of my favorite books on cities, and it will be joining my “best non-fiction of 2018″ list.  Again, you can buy it here.

Cam Girl Economics

Former Cam Girl Aella offers a detailed, analytical, and interesting guide to the economics of the industry.

My credentials: I was a camgirl for five years. My highest earning month was $50,000, and my highest rank (on MFC) was #7, meaning I earned the 7th most money that month. I was, at one point, one of the most (if not the most) widely known working camgirls thanks to some viral content. My average income per hour was $200. Getting there was not easy and took a ton of mistakes and work, so I hope this helps you.

I was initially surprised that a cam girl can make more money than a prostitute. But the reason is simple, a cam girl is selling a non-rival good and can thus have more customers at a point in time than a prostitute. (In other words, the same economics as online education!) I suspect women would prefer to be cam girls than prostitutes so we should expect the supply of cam girls to increase and the supply of prostitutes to decrease thus raising the price of hiring a prostitute.

Male psychology plays an important role for the clever cam girl:

Men want a few things, and probably one of the biggest is winning a competition.

You see, you’re not just trying to get a guy to pay you – you’re trying to get a guy to pay you in front of a bunch of other guys. This is a super key. A man wants to feel attention from an attractive women on him, and this is made even more satisfying when it’s to the exclusion of those around him. He is showing off his power by buying your happiness.

So, when tipped, make sure you say his name (or username). A lot of girls use subtly masculine-competition language when referring to high tippers, such as “hero,” “champion,” or “winner”. I often would ask questions like “who is going to save my night?” or “who is going to be the one to make me feel x”?

The ‘control show’ I mentioned above plays into this. Give men a way to fight against each other, with tokens. A common tactic is to have guys buy into “teams”, and whichever team tips the most, wins (with the prize being a video or literally anything – you’d be surprised at how many competition prizes are just the guy’s name being listed on the girl’s profile). Have guys fight to put on or off your clothes, or force you/rescue you from doing something gross.

The most profitable thing I ever did was have a ‘war’ with another camgirl, and it became my tipping members vs. hers. Competition is bread and butter. Competition is love. Competition is life. Competition is your key to a life full of luxury handbags and butlers.

Just don’t be too obvious about it. All of this stuff I’m saying can be done with too heavy a hand, and then guys feel gross and leave.

Intrinsic and extrinsic incentives:

Divorce what you’re doing from money as much as you can. Never refer to tokens as money!! Refer to tokens as little as you can while still being clear. One of my camgirl friends would use the technique where she’d say, “This is  like – I’m sitting at a bar, all alone over here. Is someone gonna be a gentleman and get me a drink?” And then someone would tip and she’d drink.

Classic marketing advice:

How do you get whales? A lot of it is high variance – a tiny fraction of the camwatching population is made out of very rich men, and so you might get one passing through your cam room once a week without you ever knowing, and you have no idea when or if you’ll be doing something interesting at that point.

But one technique to help is to give them something to do. If you have listed tip options as “40 tokens spank! 20 tokens kiss the mirror!” and your whale has 40,000 tokens he wants to drop today, then the best he’s going to get from you is some crying and screaming.

Thus, always have the absurd “nobody would ever buy that that would be insane” option.

Hat tip: Emil O W Kirkegaard.

Meet the Pioneers

Here are the winners from the first Pioneers tournament, summarized here:

In the short 3 months since its launch, Pioneer has garnered a global reach. Our first tournament featured applicants from 100 countries, ranging from 12 to 87 years old. Almost half of our players hailed from countries like India, UK, Canada, Nigeria, Germany, South Africa, Singapore, France, Turkey, and Kenya. Projects were spread across almost every industry — AI research, physics, chemistry, cryptocurrency and more.

They are a remarkably impressive group, here is one example:

Clark Urzo (23, Philippines)

Clark is making a programming language for physics. The idea is to enable anyone who can code to contribute to serious physics research (for example, simulations of gravitating systems). This opens up the field to the wondrous forces of open source and promotes open and accountable science along the way.

Noteworthy: Clark has an insanely impressive trajectory. He learned to code when he was 12. By 16, he was doing Laplace transforms, tinkering with Arduinos, reading Marx and Nietzsche, and taught himself conversational German. He co-founded a VR company by 19.


Harshu Musunuri (18, USA)

Harshu is creating synthetic materials to improve the diagnosis, treatment, and prevention of sepsis, a leading cause of death in hospitals around the world. Unlike other approaches, these materials don’t require refrigeration and enable low-cost toxin capture in resource-poor settings.

Noteworthy: Harshu comes from a humble background: she was born to an electrical engineer and an elementary school math teacher in a small village in South India. But her work is anything but humble. In her short career, she’s done research with NASA’s JPL, built a seizure detection app for epileptic patients and is now working on a project with the potential to save thousands of lives. She’s also a hacker at heart: when she lacked the formal lab tools to braze at high temperature, she used the exhaust vent of a ceramic kiln.

The overall lesson is that there is a great deal of undiscovered talent out there, and also that some people are out there discovering it!  And if you wish to apply to round two, just follow the instructions at the top link.

What should I ask Larissa MacFarquhar?

I will be doing a Conversations with Tyler with her, no associated public event.  Here is her New Yorker bio:

Larissa MacFarquhar has been a staff writer at The New Yorker since 1998. Her Profile subjects have included John Ashbery, Barack Obama, Noam Chomsky, Hilary Mantel, Derek Parfit, David Chang, and Aaron Swartz, among many others. She is the author of “Strangers Drowning: Impossible Idealism, Drastic Choices, and the Urge to Help” (Penguin Press, 2015). Before joining the magazine, she was a senior editor at Lingua Franca and an advisory editor at The Paris Review, and wrote for ArtforumThe NationThe New Republic, the New York Times Book ReviewSlate, and other publications. She has received two Front Page Awards from the Newswomen’s Club of New York and the Academy Johnson & Johnson Excellence in Media Award. Her writing has appeared in “The Best American Political Writing” (2007 and 2009) and “The Best Food Writing” (2008). She is an Emerson Fellow at New America.

She also wrote famous profiles of Richard Posner and Paul Krugman.

So what should I ask her?

Why historians worry more about Trump than economists do

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

…historians stress the importance of contingency, that things really could have gone another way. The decisions of a solitary assassin or the outcome of a single battle can shift the course of history. Particular leadership decisions might have avoided or limited World War I. Or what if the Germans had not, in 1917, put Lenin on a train back into Russia? The Bolshevik Revolution might have been avoided and probably the entire course of history would have been different. A shrewder President Paul von Hindenburg might have prevented the rise of Adolf Hitler.

If you think about these questions enough, you can end up very nervous indeed. Historians have seen too many modest mistakes spiral out of control and turn into disasters.

Economists, in contrast, work more with general models than with concrete historical situations, and those models emphasize underlying structural forces. Economies have fairly set populations, birth rates, natural resources, capital stocks, savings rates, trading partners, and so on. So to an economist, the final outcomes are closer to necessary than contingent…

And when it comes to politics, economists of the “public choice” variety tend to see outcomes as controlled by a fairly tight structure of voter preferences and interest groups, variables which a president can change only at the margin and with great effort.

So which perspective is correct — the historian’s or the economist’s?

There is much more at the link, including a discussion of how Paul Krugman’s strong anti-Trump stance fits into this picture.

Insurance markets in everything

The University of Illinois at Urbana-Champaign has paid $424,000 to insure itself against a significant drop in tuition revenue from Chinese students.

In what is thought to be a world first, the colleges of business and engineering at the university signed a three-year contract with an insurance broker to pay the annual six-figure sum, which provides coverage of up to $60 million.

The university came up with the idea in 2015 and implemented it last year but received permission from the broker to discuss it in public only earlier this month.

Here is the story.

Who should receive a cash transfer?, or the paradox of micro-credit

Let’s say you send regular money to a poorer individual in another country.  You might wonder what are the possible rates of return on those funds, and furthermore does that analysis shape to whom you should give the money?

I don’t quite believe the argument I am about to write out, but I can’t yet find the flaw in it either.

Let’s say you find an individual borrowing micro-credit.  It is well-known that rates of interest on these loans often run between 50 to 100 percent, annualized, and furthermore many individuals/families dip into these markets frequently.  Furthermore, very high quality RCTs by Duflo and Dean Karlan show that micro-credit is not on average harming the families who borrow.

That implies these economies — at least in some their corners — have investments and/or liquidity deployments worth at least fifty percent per annum.  For simplicity, I will use an estimate of fifty percent.

Go to a borrowing individual and give him/her some money for free.  If micro-credit is no longer necessary, you have given that individual a high return.  If it was a cash-free loan, the return to that person would be fifty percent.  By simply giving the money away, it would seem the rate of return would be at least 2x that, or at least one hundred percent.  That is pretty good too.  Of course that individual might stay in the micro-credit market (post-gift), but that implies there are still worthwhile additional uses for the marginal liquidity.  And we’ve already seen that micro-credit does not usually harm those who use it.

So you’ve generated returns of one hundred percent or more with your cash transfer.  This does not require heroic acts of entrepreneurship, merely that the individual was previously a responsible user of micro-credit.

It also requires that these individuals be reasonably conscientious, and do not simply squander their new-found wealth.

But the core recipe is to give to conscientious current borrowers, for very high rates of return.

What is wrong with this argument?

Legalize Pay Toilets!

Image result for CEPTIAPay toilets are common in Europe but uncommon in the United States. Sophie House writing at City Lab explains why. Pay toilets were made illegal in much of the United States in the 1970s:

In 1969, California Assemblywoman March Fong Eu smashed a porcelain toilet with an axe in front of the California state capitol, protesting the misogyny of restrooms that charged entrance fees for stalls but not urinals. She was not alone in her frustration. The grassroots organization CEPTIA—the Committee to End Pay Toilets in America—mobilized against pay toilets, putting out a quarterly newsletter (the Free Toilet Paper) and exchanging warring pamphlets with Nik-O-Lok, the leading pay-toilet manufacturer. The group won a citywide ordinance banning pay toilets in Chicago in 1973, followed by bans in Alaska, California, Florida, Illinois, Iowa, Michigan, Ohio, New Jersey, New York, Tennessee, and Wyoming.

The logic seems to be if we cannot sit for free then you cannot stand for free. House calls the pay toilet ban a triumph over sexism. Is it so hard to understand why urinals are cheaper to operate and more difficult to lock than stalls?

In any case, CEPTIA was remarkably effective. In 1970 there were some 50,000 pay toilets in America and by 1980 there were almost none. The attentive reader, however, will not be surprised to learn that smashing the pay toilet conspiracy did not result in an abundance of free toilets.

In the decades since CEPTIA disbanded, however, pay-toilet bans have proven to be a Pyrrhic victory. The committee’s vision of free toilets for all never came to pass. Cities have persistently refused to construct public restrooms, and existing facilities have fallen into disrepair. Citing the difficulty of keeping bathrooms safe and clean, municipalities are often unwilling or unable to pay. Even assuming that funds are available for initial construction of public toilets, the maintenance and operating costs are a deterrent.

By contrast, in cities from Europe to India to Latin America, small entrance fees help to cover the costs of keeping facilities in good condition. Creating a similar revenue stream to defray operating costs would likely make pay toilets more attractive to U.S. municipalities. For example, fees could offset the costs of hiring restroom attendants—an excellent, but expensive, way to keep bathrooms safe. Pay toilets also redistribute the operating costs of restrooms. Free toilets are, of course, taxpayer-funded, while under pay-toilet schemes, tourists who use urban infrastructure also contribute to its functioning.

Tyler Cowen predicts our coming 19th century future

Here is my podcast with New York magazine, with a short excerpt of it offered in print.

And they offer this summary: “On the latest episode of 2038, Cowen predicts that over the next 20 years, “this nation will go back to an earlier version of its politics, which were highly dysfunctional. You had plenty of people becoming president who probably should not have been. And yet at the same time we muddled through that era and emerged as modern America.””

Thanks a Thousand

For Thanksgiving I read a book about giving thanks, A. J. Jacobs’s, Thanks a Thousand. It begins like I, Pencil (which Jacobs discovers half-way through his book) and I, Rose:

It’s a Tuesday morning, and I’m in the presence of one of the most mind-boggling accomplishments in human history. This thing is so astounding in its complexity and scope, it makes the Panama canal look like a third grader’s craft project.

This marvel I see before me is the result of thousands of human beings collaborating across dozens of countries.

It took the combined labor of artists, chemists, politicians, mechanics, biologists, miners, packagers, smugglers and goatherds.

It required airplanes, boats trucks, motorcycles, vans, pallets and shoulders.

It needed hundreds of materials–steel, wood, nitrogen, rubber, silicon, ultraviolet light, explosives, and bat guano.

It has caused great joy but also great poverty and oppression.

It relied upon ancient wisdom and space-age technology, freezing temperature and scorching heat, high mountains and deep water.

It is my morning coffee.

Jacobs then sets out to thank everyone–which he soon finds is impossible, so he limits to a thousand people–who contributed to getting him his morning miracle. From the obvious, the barista and the coffee growers to the less obvious, the manufacturers and designers of the coffee lid and the NY water department, Jacobs sets out to offer thanks, giving the reader some interesting background along the way (“New York water is tested 2.2 million times a year.” “According to one estimate, pallets account for more than 46 percent of US hardwood lumber production.”).

Jacobs is also good on the importance of gratitude. Being mindful of and thankful for the things we ordinarily take for granted can make for a better life. He asks philosopher Will MacAskill what he is grateful for. “Sometimes I’m just thankful I have arms.” Yes.

Jacobs sometimes forgets, however, that the value of gratitude is more in the giving than in the receiving. He thus confuses gratitude with charity. But gratitude is neither payment nor alms. It’s nice to be recognized and thanked but thanks don’t make the world go round.

I ask Andy whether it feels good that the coffee in his warehouse brings joy to millions of people. Andy looks at me, his eyebrows knit. It’s as if I just asked him if he enjoys being a Buddhist monk who mediates ten hours a day.

“Well let me ask you this,” I say, “What are you thankful for?”

“My paycheck,” he says, laughing.

I like Andy. Andy understands that working solely for the sake of others can be demeaning and degrading. Andy is working for himself and his loved ones and more power to him. Beyond a few special relationships, to make doing for others one’s primary motive is undignified and subservient. Humans are not worker ants eager to die for love of their Queen. Each person’s life is their own.

The true marvel is that despite the fact that most people are not living for others we can still all live together harmoniously. As I like to put it:

It is not from the benevolence of the butcher, the coffee brewer, or the baker that we expect our dinner, but from their regard to their own interest.

Facts about lotteries

The $29.8 billion Americans spent on the lottery in 1995 worked out to about $112 per capita. Today, per capita spending is up to $225 dollars a year. Again, part of that is the result of more states jumping on the lotto bandwagon.

These are per capita figures, accounting for every man, woman and child in the country. The average lottery player spends quite a bit more than that: If we subtract the 73 million people under age 18, and divide the remaining 250 million in half (since only 49 percent buy a lotto ticket in a given year), it works out to $600 a year in expenses for the average lotto player. Some survey data show that a disproportionate share of regular lottery players fall into low-income brackets.

…Massachusetts leads the nation with an astonishing $767 in annual per capita lotto spending. It’s followed by West Virginia ($594), Rhode Island ($513), Delaware ($421) and New York ($421).

Here is the story by Christopher Ingraham.

Nairobi information markets in everything

I recently spent several weeks in the slum districts of Nairobi, researching al-Shabaab’s criminal activities in the Horn of Africa. I expected to learn about the traditional criminal practices of terrorist groups: drugs, arms, money laundering, and perhaps even a regional particularity like sugar smuggling. What I wasn’t expecting to discover was a highly structured, hierarchical network in which sex workers sell information gleaned from their customers — specifically, corrupt police officers — to al-Shabaab. As one interviewee noted, “If you want information here, you use the prostitutes and street kids — they see everything, go everywhere, and nobody notices them.”

The strength and depth of this sex worker-militant network surprised me and many terrorism experts in the West I spoke with, but it’s an open secret among Nairobi residents. My first interview subject didn’t understand why I wanted more details — surely everyone knew about it? Many of my interviewees were neighbors of, or otherwise friendly with, the sex workers involved. They described an arrangement in which al-Shabaab offered money to women who picked up interesting information in the course of their regular sex work — pillow talk from politicians, police officers, and businessmen. One local memorably opined: “Of course! Half the reason these men go to [sex workers] is to complain about their lives. Why not get paid for listening?”

Here is more from Katherine Petrich.