Category: Economics
My Progress Studies conversation with Jon Baskin of The Point
No, not Nilsson’s The Point, the other one! Here is the piece, here is one excerpt:
JB: What did you learn from reading Plato?
TC: Reading Plato, it struck me—I’m thirteen years old here—but it struck me how much the whole rest of the world is by no means on board with the things I thought were good. So Socrates is constructing his ideal republic, and you can debate whether Plato really favored it, or whether Socrates really favored it, but those ideas are out there. You ban the poets? You want to be like Sparta? Those are big issues.
And even then, when I read Plato, I saw it as a dialogic mode of thinking, rather than believing that Plato was endorsing everything Socrates said. The dialogues are rich and fruitful. And people hold a lot of different points of view. So to try to refine dialogic modes of thinking about progress, and indeed everything: that was the biggest lesson I got from Plato. And then just how smart some of the early people were. And that’s not unrelated to progress studies. In the modern world there are a whole bunch of ways we’re clearly much smarter, like programming computers. Are we smarter in every way? Will we produce our own Adam Smith or Plato? Tough questions.
And:
JB: I want to talk a little bit about Tolstoy. Max Weber, in his famous 1917 lecture “Science as a Vocation,” says that Tolstoy is the person who most sharply raises the question of whether the advances of science and technology have any meaning that go beyond the purely practical and technical. And he quotes Tolstoy saying that, basically, for the person who puts progress at the center of their life, life can never be satisfying, because they’ll always die in the middle of progress. How would you respond to this charge from Tolstoy about progress?
TC: I’m pretty happy and Tolstoy was not, would be my gut-level response.
Self-recommended!
Why not get out? Really
Bolotnyy: We found that these moderate to severe symptoms of depression and anxiety were about two to three times more prevalent among PhD students in these eight top-ranked economics PhD programs than in the general population. Suicidality was also about two times what you’d see in the general population.
And:
Economic students are about half as likely as other Harvard PhD students to be in treatment if they have some of these serious symptoms. That’s something that we’ve talked a lot about and tried to understand.
Here is more, brought to you by the AEA. I am very happy to see this work being done, kudos to Valentin Bolotnyy. And I am all for more social connections, better campus mental health counseling, and involved advisors, all of which are listed as potential partial remedies. Yet if I were the AEA, I would be wondering about pushing yet another recommendation — discouraging some people, at the margin of course, from even starting graduate school in economics? And other fields too.
Somehow that option does not receive much consideration. (When I advise people. in part due to this and other data, I am much less likely to recommend graduate school than in earlier times.) Should not part of the mission of the AEA be to think like an economist? What about “exit”? Or is that only for other sectors?
My Conversation with Brad DeLong
Here is the audio and transcript, here is part of the summary:
Tyler and Brad discuss what can really be gleaned from the fragmentary economics statistics of the late 19th century, the remarkable changes that occurred from 1870–1920, the astonishing flourishing of German universities in the 19th century, why investment banking allowed America and Germany to pull ahead of Britain economically, what enabled the Royal Society to become a force for progress, what Keynes got wrong, what Hayek got right, whether the middle-income trap persists, his favorite movie and novel, blogging vs. Substack, the Slouching Towards Utopia director’s cut, and much more.
And here is one excerpt:
COWEN: What do you take to be the best understanding of the 17th-century Scientific Revolution, if indeed you view it as a 17th-century revolution?
DELONG: I always think Joel Mokyr is absolutely magnificent on this. I think he understates the role that having printing by movable type played in creating the community of scientific practice and knowledge seeking.
There’s one thing that happens that is extremely unusual. Back before 1870, there’s no possibility at all that humanity is going to be able to bake the economic pie sufficiently large that everyone can have enough. Which means that, principally, politics and governance are going to be some elite constituting itself and elbowing other elites out of the way, and then finding a way to run a force-and-fraud domination and exploitation scheme on society so that they at least can have enough. When Proudhon wrote in 1840s that property is theft, it was not metaphor. It was really fact.
What does this elite consist of? Well, it’s a bunch of thugs with spears, the people who have convinced the thugs with spears that they’re their bosses, and their tame accountants, bureaucrats, and propagandists. Which means, most of the time, when you have a powerfully-moving-forward set of people thinking about ideas, whether the idea is true is likely to be secondary to whether the idea is useful to helping me keep my place as a tame propagandist in the force-and-fraud domination and exploitation elite machine.
This is a point I’ve stolen from Ernest Gellner, and I think it is very true. Yet, somehow, the Royal Society decides, no. The Royal Society decides nothing except through experiment — what we are going to demand that nature tell us, or tell one of us, or at least someone writes us a letter saying they’ve done the experiment about what is true. That is a miraculous and completely unexpected transformation, and one to which I think we owe a huge amount.
Many interesting points are discussed.
The arbitrage insurance economy that is Switzerland
In calculating premiums, insurers take into account gender, age, place of residence, car type, driving experience and nationality. Statistically, these factors influence the probability of an accident.
“Insurers try to assess a driver’s risks as precisely as possible,” Sugimoto says. For this they create risk groups based on historical damages, their own statistics and, in part, public statistics.
The most expensive premiums are for new drivers who are young and male and hold a foreign passport. A 2018 analysis by Comparis, a price-comparison service, found that Albanians pay as much as 95% more than Swiss drivers. Italians pay a supplement of as much as 22%, depending on their insurer. The Swiss Insurance Association couldn’t say whether any nationalities pay less than the Swiss.
Here is the full article, via GL.
UK fact of the day
As of 2017 we [Brits] spent about 5.6 per cent of national income on benefits for those in old age against 7.1 per cent in the US, 7.7 per cent across the OECD as a whole, 10 per cent in Germany and more than 13 per cent in France.
And yet the country is still in economic troubles. In any case, that is from the new and excellent Paul Johnson book Follow the Money: How Much Does Britain Cost? This book talks you through both the tax expenditure side of the British government budget. It is not quite thrilling, but given the topic area it is remarkably interesting and well-executed. And while the authors is not without his own ideas, the book is more to inform you than to propagandize you.
You can buy it here. There should be many more books just like this one, but for different topics — take note!
Incentives matter, edition #4637
Many developed countries currently both face and resist strong migratory pressure, fueling irregular migration. The Central Mediterranean Sea is among the most dangerous crossings for irregular migrants in the world. In response to mounting deaths, European nations intensified search and rescue operations in 2013. We develop a model of irregular migration to identify the effects of these operations. Leveraging exogenous variation from rapidly varying crossing conditions, we find that smugglers responded by sending boats in adverse weather and shifting from seaworthy boats to flimsy rafts. As a result, these operations induced more crossings in dangerous conditions, ultimately offsetting their intended safety benefits due to moral hazard and increasing the realized ex post crossing risk for migrants. Despite the increased risk, these operations likely increased aggregate migrant welfare; nevertheless, a more successful policy should instead restrict the supply of rafts and expand legal alternatives for migration.
While I agree with that policy recommendation, I say good luck with that one. “Not enough people are dying” is what one of those harsh, old school economists might have said instead. Good thing we got rid of them.
In any case, that article is by Claudio Deiana, Vikram Maheshri, and Giovanni Mastrobuoni, forthcoming in the American Economic Journal (Economic Policy), with the title being “Migrants at Sea: Unintended Consequences of Search and Rescue Operations.”
Emergent Ventures winners, 24th cohort
Shakked Noy, MIT economics, to do RCTs on GPTs as teaching and learning tools.
Gabriel Birnbaum, Bay Area, from Fortaleza, Brazil, to investigate lithography as a key technology used in the manufacturing of microchips.
Moritz Wallawitsch, Berkeley. RemNote is his company, educational technology, and to develop a complementary podcast and for general career development.
Katherine Silk, Boston/Cambridge, general career support and to support advice for early-stage startups.
Benjamin Schneider, Brooklyn. To write a book on the new urbanism.
Joseph Walker, Sydney, Australia, to run and expand the Jolly Swagman podcast.
Avital Balwit, Bay area, travel grant and general career development.
Benjamin Chang, Cambridge, MA. General career support, “I will develop novel RNA riboswitches for gene therapy control in human cells using machine learning.”
Daniel Kang, Berkeley/Champagne-Urbana, biometrics and crypto.
Aamna Zulfifiqar, Karachi, Pakistan, to attend UK higher education to study economics.
Jeremy Stern, Glendale, CA, Tablet magazine. To write a book.
James Meech, PhD student, Cambridge, UK, to work on a random number generator for better computer architectures.
Arthur Allshire, University of Toronto, background also in Ireland and Australia, robotics and support to attend conferences.
Jason Hausenloy, 17, Singapore, travel and general career development, issues surrounding artificial intelligence.
Sofia Sanchez, Metepec, Mexico, biology and agricultural productivity, to spend a summer at a Stanford lab.
Ukraine tranche:
Andrey Liscovich, eastern Ukraine, formerly of Harvard, to provide equipment for public transportation, communication and emergency power generation to civilian authorities of frontline-adjacent areas in Ukraine which have lost vital infrastructure.
Chris Nicholson, Bay area, working as a broker to maintain internet connectivity in Ukraine.
Andrii Nikolaiev, Arsenii Nikolaiev, Zarina Kodyrova, Kvanta, to advance Ukrainian mathematics, help and train math Olympiad winners.
As usual, India and Africa/Caribbean tranches will be reported separately.
Jamaica fact of the day
Jamaica experienced no economic growth in exports per capita from the Napoleonic Wars to the end of the Second World Wars. Since there is a high correlation between exports per capita and GDP per capita, at least after 1850, Bulmer-Thomas argues that there are solid grounds for concluding that the Jamaican economy on a per capita basis experienced no growth at all for more than a century after the end of slavery.
The news is not good:
Data compiled by Bulmer-Thomas shows that Jamaica’s GDP per capita is actually around the same level it was at independence.
And:
The country ranks #2 on the Human Flight and Brain Drain Index.
Here is more from Rasheed Griffith, mostly on the economic history and economic problems of Jamaica.
Democratic Republic of Congo growth estimate of the day
I worry about the distribution, but of course the news could be worse:
The International Monetary Fund said a mining boom helped the Democratic Republic of Congo’s economy perform “significantly stronger” last year than earlier forecast.
The economy of the mining giant is estimated to have grown 8.5%, compared with an earlier projection of 6.6%, the IMF said Wednesday in an emailed statement.
The fund also raised its growth forecast for this year to 8% from 6.7%, as it warned of downside risks “from the armed conflict in the east, uncertainty ahead of the elections, the continued effect of the war in Ukraine, and adverse terms-of-trade shocks.”
Congo produces almost 70% of the world’s key battery mineral cobalt and tied Peru last year as the second-largest copper producer, according to the US Geological Survey. The central African nation also produces significant amounts of gold and tin. Its mining industry as a whole grew 20% last year, the IMF said.
Some reservations about a land tax
That is the topic of my latest Bloomberg column, here is one excerpt:
A land tax is only being talked about because urban planning is so broken, serving too many interests other than those of ordinary middle-class residents. Those biases are structural, often resulting from electoral systems that favor incumbent landowners and homeowners. The administration of a land tax would be ruled, in large part, by those very same political interests. Therein lies the root of my worries.
As I mentioned, any land-tax system would need to distinguish between the value of the land and the value of the improvements on the land. Everyone agrees that the improvements should not be taxed at more than normal rates. How would a proposal for a pure land tax play out?
Say you have a house in Palo Alto, California, a notoriously NIMBY city. Your land is probably worth a lot more than your house. For a pure land tax to become reality, it would have to go through the meat grinder of local politics.
I can predict what will come out of that meat grinder: a policy to compensate current landholders, one way or another, for the land tax. So if Palo Alto introduces a land tax, it is likely that the revenue will go back to those very same NIMBY interest groups. Alaska’s oil wealth results in residents receiving a windfall each year from the state; Palo Alto’s land wealth would result in a similar sort of rebate to its residents.
Keep in mind that a lot of people rely on rent and land revenue to stay solvent, so it is quite likely that they will argue on “fairness” grounds that they should be grandfathered in and exempt from the land tax. What if you bought your home in Los Angeles in 1991 and now live there on a modest income? Or collect rent as a small-scale landlord? If the land tax zaps away your major source of wealth, you will either rebel politically or move. Local politics will become even less friendly to the middle class.
Politics will also intervene in the debate over defining what is the pure land tax and what is the tax on improvements. These decisions will not be handed down by God, but rather argued among local officials, real-estate interests, homeowners, renters and voters. If you want to build something in a land-tax jurisdiction, you will have to wade into this political battle. And sometimes you will lose. If you are not one of the favored interest groups (and in NIMBY jurisdictions, new builders typically are not), you will end up being taxed on improvements and not just on the pure land value.
And so look where all this has ended up. One of the arguments for the pure land-value tax is to encourage new construction, thereby making housing more affordable. But it is likely to encourage interventions that increase both the taxes and the political difficulty of new construction. If you think local real estate-related political squabbles are intense today, just think how crazy they will be when all that land-tax revenue is at stake.
Recommended.
Why Is Transit Construction in the US so Expensive?
The Transit Cost Project, a project supported by the NYU’s Marron Institute has released the most comprehesive report to date on why US transist-infrastacture is so expensive:
Why do transit-infrastructure projects in New York cost 20 times more on a per kilometer basis than in Seoul? We investigate this question across hundreds of transit projects from around the world. We have created a database that spans more than 50 countries and totals more than 11,000 km of urban rail built since the late 1990s. We will also examine this question in greater detail by carrying out six in-depth case studies that take a closer look at unique considerations and variables that aren’t easily quantified, like project management, governance, and site conditions.
The bottom line is it’s many things that add up. Here are a few items that struck my eye:
Much of the premium [in labor cost] comes from white-collar overstaffing: in our Massachusetts’ Green Line Extension (GLX) case, we found that during the first iteration of the project, the ratio was estimated at 1.8 craft laborers to 1 supervisor by the CM/GC. In New England, the expected ratio is 2.5 or 3 craft laborers per supervisor; thus, GLX had 40-60% more supervisors than is normal in the Northeast.
In New York, each agency insists on having its own on-site supervisor.
Elsewhere in the world 5 laborers to one supervisor is common.
Here’s something I didn’t know:
The second quirk is that American labor is local. Railway workers and construction workers in Europe are nationally mobile and often mobile across the entire EU. Spanish rail maintenance workers move between different parts of the country, staying in temporary worker housing wherever they are posted to. So do tunnel miners in Sweden; many are EU migrants, and on Nya Tunnelbanan none is a native Stockholmer. No such thing occurs in unionized American labor: the tunnel workers and operating engineers in New York are rooted in the region and only work within or right next to the city.
The mobile system has its own costs. Fringe rates are high because of the need to provide temporary housing: they add 100% to the cost of a Swedish worker, a comparable rate to that of a unionized New York tradesperson, American unions having unusually high fringe rates due to high-cost health plans. However, a nationally mobile workforce is a more productive workforce–such workers gain experience from tunnels built elsewhere, whether for infrastructure or for the mining of natural resources. Present-day New York laborers only have experience with New York projects; thus, they are a dedicated and driven workforce but also a low-productivity one, having never seen more efficient tunnel projects.
Lots more of interest in the report.
Should we pay mothers to stay home?
These are Finnish results, and their generality can be questioned, but it is not the first time such results have appeared:
We study the impacts of a policy designed to reward mothers who stay at home rather than join the labor force when their children are under age three. We use regional and over time variation to show that the Finnish Home Care Allowance (HCA) decreases maternal employment in both the short and long term. The effects are large enough for the existence of home care benefit system to explain the higher short-term child penalty in Finland than comparable nations. Home care benefits also negatively affect the early childhood cognitive test results of children, decrease the likelihood of choosing academic high school, and increase youth crimes. We confirm that the mechanism of action is changing work/home care arrangements by studying a day care fee reform that had the opposite effect of raising incentives to work – with corresponding opposite effects on mothers and children compared to HCA. Our findings suggest that shifting child care from the home to the market increases labor force participation and improves child outcomes.
That is from a new NBER working paper by Jonathan Gruber, Thomas Kosonen, and Kristina Huttunen. Note that the results may irritate both some social conservatives and some proponents of extremely generous maternal leave arrangements.
Language Models and Cognitive Automation for Economic Research
From a new and very good NBER paper by Anton Korinek:
Large language models (LLMs) such as ChatGPT have the potential to revolutionize research in economics and other disciplines. I describe 25 use cases along six domains in which LLMs are starting to become useful as both research assistants and tutors: ideation, writing, background research, data analysis, coding, and mathematical derivations. I provide general instructions and demonstrate specific examples for how to take advantage of each of these, classifying the LLM capabilities from experimental to highly useful. I hypothesize that ongoing advances will improve the performance of LLMs across all of these domains, and that economic researchers who take advantage of LLMs to automate micro tasks will become significantly more productive. Finally, I speculate on the longer-term implications of cognitive automation via LLMs for economic research.
Recommended.
Cheating Teachers
Chalkbeat: New York City schools will once again grade their own students’ Regents exams, a policy that officials scrapped a decade ago amid concerns that educators were systematically nudging scores over the passing cutoff.
New York’s Regency exam is a statewide system of standardized, exit exams for secondary school students. Traditionally, the exam was graded by teachers from the same school as the student, i.e. the student’s teachers. The exam had two cutoffs, 55 for a “local diploma” and 65 for the higher-level “Regent’s diploma.” The distribution of grades during the home-school grading period shows clear spikes in the number of students just passing the 55 and 65 point cutoffs (and consequent dips in the number of students just failing). From an excellent paper by Dee, Dobbie, Jakob and Rockoff.
Is this altruism on the part of the teachers? Maybe. But the teachers are also graded on the number of their students who pass the exam.
The home-school grading system was dropped around 2011 due to bad publicity about the rampant cheating. It’s quite amazing that not a single good reason has been given for returning to the home-school grading system but the teacher’s union has been pressuring to return to the easier to manipulate system.
Hat tip: Thomas Dee.
The underrated story of 2023
A fresh round of IMF bailouts is underway, and some of the world’s most indebted nations will have to sacrifice their currencies to get them.
The year has already seen three debt-laden countries — Egypt, Pakistan and Lebanon — drop their exchange rates to unlock International Monetary Fund assistance. That may be just the beginning. With at least two dozen nations queuing up before the Fund for rescue packages, currency traders are bracing for a potential fresh wave of devaluations in the developing world…
“Currency devaluation makes a number of equity markets in the smaller emerging and frontier universe untouchable,” Malik said, naming Argentina, Egypt, Ghana, Lebanon, Nigeria, Pakistan, Sri Lanka and Zimbabwe.
Here is more from Bloomberg.