Category: History
The Experimental Turn in Economics: A History of Experimental Economics
The author is Andrej Svorenčík and he has produced the definitive account of the history of experimental economics. The SSRN paper is here, but it is more accurate to think of this as a monograph at 248 pp. of text. I hope a major publisher is interested, but do note it starts off a bit slow. Once it gets going it never lets up and I learned a great deal from it. Here is just one excerpt:
When Austin C. Hoggatt died on April 29, 2009, at the age of seventy-nine the experimental economics community lost a low profile yet very influential figure. Hoggatt was the first to build a computerized laboratory for controlled experimentation in economics or, more broadly, in the social, behavioral, and decision science — the Management Science Laboratory at the Center for Research in Management Science at UC Berkeley in 1964.
If you think you might be interested you will be. The paper/monograph is strong on recognizing the need for an integrated approach to experiments, involving software, support staff, programmers, and researchers, and tracing how all this came together, or in some cases did not. You really get the inside story from Svorenčík.
Claims about tall Dutch people
The Guardian reports:
Researchers led by Gert Stulp, a specialist in population health at the London School of Hygiene and Tropical Medicine, combed a Dutch database for clues.
Called LifeLines, the record contains exhaustive detail about the lives and health of more than 94,500 people who lived in the northern the Netherlands from 1935 to 1967. In this three-decade snapshot, the people who had the most children were tall men, and women of average height, the team found.
For example, the most fertile men were seven centimetres above the average height. Statistically, they had 0.24 more children on average than the least fertile men, who were about 14 cm below the average height.
Compared to counterparts in other countries where they often tended to have fewer children, taller women also reproduced more in the Netherlands. Many postponed having children until after their studies, but once they forged a successful relationship, often had a large family.
…Stulp pointed to figures showing that, in the United States, shorter women and men of average height have the most reproductive success.
The short piece is interesting throughout, and for the pointer I thank John B. Chilton. And elsewhere on the height research front, the Indian height advantage, relative to Africa, exists only for firstborn sons.
The Jeff Sachs chat
A live stream version is posted here, slide to 6:00 to start, YouTube and podcast and transcript versions are on their way. I thought Jeff did just a tremendous job. We covered the resource curse, why Russia failed and Poland succeeded, charter cities, his China optimism, how his recent book on JFK reflects the essence of his thought, why Paul Rosenstein-Rodan abandoned Austrian economics for “big push” ideas, whether Africa will be able to overcome the middle income trap, where he disagrees with Paul Krugman, his favorite novel (Doctor Zhivago, he tells us why too), premature deindustrialization, and how we should reform graduate economics education, among other topics.
The transcript of my talk with Peter Thiel
You will find it here. Here is one excerpt:
TYLER COWEN: New York City, overrated or underrated?
PETER THIEL: That’s massively overrated.
TYLER COWEN: Why?
PETER THIEL: We had a 25-year boom in finance, from ’82 to ’07. I think that’s slowly ebbing, slowly abating. It’s going to be increasingly regulated, and so if you want a long/short blue state trade, you want to be long California, short New York. The long/short red state trade, by the way, is you want to be long Texas, short Virginia.
If you ask, what do Virginia and New York have in common, and what do Texas and California have in common? Both Texas and California are very inward-focused places. California, both the Hollywood version and the Silicon Valley version, are very focused in on themselves. Texas is also a very inward-focused place.
What Virginia and New York, or let’s say DC and New York City, have in common is that they’re centers of globalization. Finance is an industry that’s fundamentally leveraged to globalization, and DC is fundamentally leveraged to international geopolitics.
I would bet on globalization slowly being in abeyance. I think with the benefit of hindsight, we will realize that 2007 was not just the peak year of the finance boom, but also the peak year of globalization, like maybe 1913. Happily, it hasn’t resulted in a world war, at least not yet, but I think we are in this period where globalization is steadily pulling back.
And so you want to be in places or industries that are levered to things other than globalization.
Self-recommending…The YouTube and podcast versions are here.
Are S&P 500 firms now 5/6 “dark matter” or intangibles?
Justin Fox started it, and Robin Hanson has a good restatement of the puzzle:
The S&P 500 are five hundred big public firms listed on US exchanges. Imagine that you wanted to create a new firm to compete with one of these big established firms. So you wanted to duplicate that firm’s products, employees, buildings, machines, land, trucks, etc. You’d hire away some key employees and copy their business process, at least as much as you could see and were legally allowed to copy.
Forty years ago the cost to copy such a firm was about 5/6 of the total stock price of that firm. So 1/6 of that stock price represented the value of things you couldn’t easily copy, like patents, customer goodwill, employee goodwill, regulator favoritism, and hard to see features of company methods and culture. Today it costs only 1/6 of the stock price to copy all a firm’s visible items and features that you can legally copy. So today the other 5/6 of the stock price represents the value of all those things you can’t copy.
Check out his list of hypotheses. Scott Sumner reports:
Here are three reasons that others have pointed to:
1. The growing importance of rents in residential real estate.
2. The vast upsurge in the share of corporate assets that are “intangible.”
3. The huge growth in the complexity of regulation, which favors large firms.
It’s easy enough to see how this discrepancy may have evolved for the tech sector, but for the Starbucks sector of the economy I don’t quite get it. A big boost in monopoly power can create a larger measured role for accounting intangibles, but Starbucks has plenty of competition, just ask Alex. Our biggest monopoly problems are schools and hospitals, which do not play a significant role in the S&P 500.
Another hypothesis — not cited by Sumner or Hanson — is that the difference between book and market value of firms is diverging over time. That increasing residual gets classified as an intangible, but we are underestimating the value of traditional physical capital, and by more as time passes.
Cowen’s second law (“There is a literature on everything”) now enters, and leads us to Beaver and Ryan (pdf), who study biases in book to market value. Accounting conservatism, historical cost, expected positive value projects, and inflation all can contribute to a widening gap between book and market value. They also suggest (published 2000) that overestimations of the return to capital have bearish implications for future returns. It’s an interesting question when the measured and actual means for returns have to catch up with each other, what predictions this eventual catch-up implies, and whether those predictions have come true. How much of the growing gap is a “bias component” vs. a “lag component”? Heady stuff, the follow-up literature is here.
Perhaps most generally, there is Hulten and Hao (pdf):
We find that conventional book value alone explains only 31 percent of the market capitalization of these firms in 2006, and that this increases to 75 percent when our estimates of intangible capital are included.
So some of it really is intangibles, but a big part of the change still may be an accounting residual. Their paper has excellent examples and numbers, but note they focus on R&D intensive corporations, not all corporations, so their results address less of the entire problem than a quick glance might indicate. By the way, all this means the American economy (and others too?) has less leverage than the published numbers might otherwise indicate.
Here is a 552 pp. NBER book on all of these issues, I have not read it but it is on its way in the mail. Try also this Robert E. Hall piece (pdf), he notes a “capital catastrophe” occurred in the mid-1970s, furthermore he considers what rates of capital accumulation might be consistent with a high value for intangible assets. That piece of the puzzle has to fit together too. This excellent Baruch Lev paper (pdf) considers some of the accounting issues, and also how mismeasured intangible assets often end up having their value captured by insiders; that is a kind of rent-seeking explanation. See also his book Intangibles. Don’t forget the papers of Erik Brynjolfsson on intangibles in the tech world, if I recall correctly he shows that the cross-sectoral predictions line up more or less the way you would expect. Here is a splat of further references from scholar.google.com.
I would sum it up this way: measuring intangible values properly shows much of this change in the composition of American corporate assets has been real. But a significant gap remains, and accounting conventions, based on an increasing gap between book and market value, are a primary contender for explaining what is going on. In any case, there remain many underexplored angles to this puzzle.
Addendum: I wish to thank @pmarca for a useful Twitter conversation related to this topic.
Which are the best Persian carpets?
I think there are three which stand above all the others:
1. The Ardabil carpet, at the Victoria & Albert Museum in London. Here is one on-line image, here is an excerpt. I find this angle useful, but nothing compares to the real thing.
2. The “Tree Carpet” in the Philadelphia Museum of Art.
3. Jagdteppich (“Hunting carpet”), Museum für Angewandte Kunst, Vienna. Here is one excerpt. Try this too. Here is a full length view.
Those are the three best, or so it seems to me.
Hayek on Gibraltar
In 1944, the celebrated economist Friedrich Hayek was commissioned by the British Colonial Office to undertake a report on the economy of Gibraltar. His conclusion was that the government of Gibraltar should use market forces to relocate working class Gibraltarians into neighbouring Spain. Yet despite the libertarian credentials Hayek had established via his work of the same year, The Road to Serfdom, such a policy would have moved Gibraltarians into the dictatorship of General Franco.
In a study presented to the Economic History Society’s 2015 annual conference, Chris Grocott argues that Hayek’s proposal to relocate Gibraltarians into Spain shows an alarming lack of political astuteness on the part of the winner of the 1974 Nobel Prize for Economics.
In the first instance, the British Colonial Office conveniently lost Hayek’s report. When it re-surfaced in early 1945, the Colonial Office then sent the report to the Admiralty who, unimpressed with Hayek’s condemnation of educational facilities in Gibraltar’s dockyard, moved to delay its publication. Meanwhile, Hayek himself was on a lecture tour of the United States, promoting The Road to Serfdom, and oblivious to the dismay that his report has caused.
There is more here, via the excellent but under-followed Mark Koyama.
The culture that is North American leadership
When Lyndon Johnson hosted Lester Pearson in 1965, he hauled the Canadian prime minister up by his lapels and shouted, “you pissed on my rug” after his guest criticised the Vietnam war in a speech during his visit to the US. And when Prime Minister Pierre Trudeau learned that Richard Nixon had called him “an asshole”, he responded: “I’ve been called worse things by better people.”
From Demetri Sevastopulo, there is more here at the FT. Alex and I, however, get along just great…
My conversation with Peter Thiel
The YouTube version is here, the podcast version is here.
I was very happy with how it turned out, as I deliberately set out not to copy the content of any of Peter’s other dialogues. You can learn how he thinks we will leave the “great stagnation,” whether the AI hype is justified, how he would boil his thought down to the smallest number of dimensions, whether NYC is over- or underrated, why globalization is likely to decline and what that means for different regions, the parts of the Bible which have influenced him most, “the Straussian Jesus,” to what age he thinks he will live, why Japan is special, how his German background matters, his favorite opening chess move, how and why company names matter, and even his favorite TV show, which he calls “schlocky.”
And much, much more, with commentary and questions from me throughout. A transcript is being prepared as well.
Why the world is getting weirder (and will get weirder yet)
It used to be that airliners broke up in the sky because of small cracks in the window frames. So we fixed that. It used to be that aircraft crashed because of outward opening doors. So we fixed that. Aircraft used to fall out of the sky from urine corrosion, so we fixed that with encapsulated plastic lavatories. The list goes on and on. And we fixed them all.
So what are we left with?
Sadly, we all know the answer to that question.
…And so, with more rules we have solved most of the problems in the world. That just leaves the weird events left like disappearing 777’s, freak storms and ISIS. It used to be that even minor storms would be a problem but we have building codes now (rules). Free of rules, we’d probably have dealt with ISIS by now too.
Ultimately, this is why the world is getting weirder, and will continue to do so. Now with global media you get to hear about it all.
That is from a very interesting mini-essay by Steve Coast, hat tip goes to The Browser.
How universal are rates of social mobility across time and societies?
Gary Solon, in a new survey paper, takes issue with the earlier results of Greg Clark, which had suggested social mobility was roughly constant across a wide spectrum of cases. Solon writes:
…the results reported by Clark do not reflect a universal law of social mobility. Quite to the contrary, other studies based on group-average data, even surnames data, frequently produce intergenerational coefficient estimates much smaller than Clark’s.
A second testable prediction of Clark’s hypothesis…is that instrumental variables (IV) estimation of the regression of son’s log earnings on father’s log earnings should yield a coefficient estimate in the 0.7-0.8 range if father’s long earnings are instrumented with grandfather’s log earnings. When Lindahl et al, estimated that regression with their data from Malmo, Sweden, the IV coefficient estimate was 0.15, considerably higher than their ordinary least squares (OLS) estimate of 0.303. They obtained a remarkably similar comparison of IV and OLS estimates when they used years of education instead of log earnings as the status measure. The pattern of IV estimates exceeding OLS estimates is consistent with Clark’s general story about measurement error in particular indicators as proxies for social status. It is equally consistent with all the alternative stories listed in section II for why grandparental status may not be “excludable” from a multigenerational regression. What the results are not consistent with is a universal law of social mobility in which the intergenerational coefficient is always 0.7 or more…
A third testable prediction…is that using an omnibus index that combines multiple indicators of social status should make the intergenerational coefficient estimate “much closer to that of the underlying latent variable.” [But]…The resulting estimate was not “much closer” to the 0.7-0.8 range.
In sum, when Clark’s hypothesis is subjected to empirical tests, it does not fare so well.
Here is an ungated version.
The Aztec diet was more nutritious than it may seem at first
Colin M. MacLachlan, in his splendid Imperialism and the Origins of Mexican Culture, reports:
1. Corn gruel and tamales were reinforced with fish, seeds of various kinds, fruit, and honey.
2. Beans were supplemented with meat from iguanas, armadillos, and rabbits.
3. The calcium content of corn was (and still is) increased by alkaline cooking with lime (“nixtamalization,” duh).
4. “Pulque” has “substantial food value,” “whether fermented or fresh.”
5. Dried red maguey worms have 71 percent protein.
6. Axayacatl (a species of aquatic insect sometimes called “water boatmen“) have 68.7% protein.
7. Mesquite pods and seeds have high caloric value.
8.”Tecuitlatl (spirulina), the green scum collected from lakes with high saltwater content, was sold in the market to be eaten with chilies and tomatoes and has been shown to be a modern wonder food.”
As you can see, the world of food really could have evolved along very different lines.
I also enjoyed this line from the book:
The fundamental belief that the gods sacrificed themselves to create the Earth and continued to do so to sustain it locked the gods and humans into a circular dependency — a relationship characterized by fearful respect coupled with regulated violence.
Definitely recommended, and oh yes that reminds me, here is the livestream for my chat later today with Peter Thiel.
How much has the introduction of air conditioning driven interstate mobility?
Paul Krugman has had a few posts on this question, most recently this one, the first one here. Krugman is right in asserting a major role for air conditioning, but there is a subtle framing point which is sometimes neglected. The most on-point study is this piece from Jordan Rappaport (pdf):
U.S. residents have been moving en masse to places with nice weather. Well known is the migration towards places with warm winters, which is often attributed to the introduction of air conditioning. But people have also been moving to places with cooler, less-humid summers, which is the opposite of what is expected from the introduction of air conditioning. Nor can the movement to nice weather be primarily explained by shifting industrial composition or by elderly migration. Instead, a large portion of weather-related moves appear to be the result of an increased valuation of nice weather as a consumption amenity, probably due to broad-based rising per capita income.
Overall Rappaport concludes that “nice [warm] weather is a normal good” is the more important driving force behind the movement to the Sun Belt than is air conditioning per se, though of course air conditioning makes nice warm weather all the nicer. Evidence from compensating differentials also indicates that “…the decreased discomfort from heat and humidity afforded by air-conditioning has not been the primary driver of the move to nice weather.” (p.26)
From 1880 to 1910, Americans overall are moving to places with bad (cold) weather. In the 1920s they start moving, on net, to places with nicer weather and that trend has not let up. The arrival of affordable air conditioning in the postwar era bumps this up a bit, but the main trend already was in place. Furthermore air conditioning has been in the south for quite a while now, but migration in that direction continues. In his second post on the topic, Krugman refers to this as a “gradual adjustment” to AC, but it seems to better fit the nice weather as a normal good story. We’ll know more if we see this migration continuing, but I expect it will. At some point it won’t be plausible to call the ongoing movement a “lagged response” to the introduction of air conditioning, but again it will fit the normal good story pretty smoothly.
Note also that life expectancy is notably higher in warm weather than cold weather. Deschenes and Moretti conclude (pdf): “…The longevity gains associated with mobility from the Northeast to the Southwest account for 4% to 7% of the total gains in life expectancy experienced by the U.S. population over the past thirty years.”
That again points toward a “normal good” explanation, with air conditioning playing a supporting role.
That all said, if you look at the larger political debate going on here, Krugman is correct in arguing that lower taxes are the not main reason for this migration, even though the median voter in these states probably approves of such relatively low tax rates. In any case, there is a clearer and better version of the weather hypothesis which can be put forward.
Addendum: David Beckworth adds commentary and some fascinating maps.
Education in Mao’s China
Advancement in China’s school system was highly competitive, and the odds of reaching the top of the educational ladder were very steep. Of the 32.9 million children who entered primary school in 1965, only 9 percent could expect to enter junior high school. Only 15 percent of junior high school entrants, in turn, could expect to graduate and enter high school. Among the highly selected groups that graduated from academic high schools, only 36 percent could expect to enroll in a university. Of those who entered primary school in 1965, only 1.3 percent could expect to attend an academic high school, and only one-half of 1 percent could expect to attend university.
Of course the Caplanian point is that China managed a lot of post-1979 economic growth with what was fundamentally a not very educated generation.
That excerpt is from Andrew G. Walder’s China Under Mao: A Revolution Derailed, my previous post on this excellent book is here.
Will Wilkinson, and his novel in progress, partly about Leo Strauss
Here is one excerpt from his very interesting post:
I get and very much like the skeptical, anti-theoretical thrust of Strauss. I like his deep wariness of ideal theorizing, his exhortations to pay attention to the political life we are always already living. He’s right to see reasoning with others about about how to live as an inherently political activity. He’s right to insist on honoring the distinctive excellences of those sensitive to the texture of real political life and expert in its ceaseless negotations. He’s right that social scientific theories about politics are less politically valuable then good political judgment, and that people who think they’re going to govern “scientifically” are dangerously stupid. (Paraphrasing, here.) And, yes, when philosophy is merely a handmaiden to the dogmas of our age, pursued under the “ecumenical supervision” of the universities, it is profoundly compromised. To be a philosopher is not to have a job you clock in and out of. To be a philosopher is simply to be, philosophically, always. Right! But the Socratic life is the one very best life? The naturally right, life? Nope. Nope. I’ve read and read and never quite follow how we end up there. I mean, I think this is a great life, beyond wonderful. But nope.
Anyway, Strausseans are strangely obsessed with this idea that the philosophical life, so construed, is the best human life, full stop, and are therefore obsessed with the tension between the best life, which is in the business of exposing bullshit, and the political life, which is built on it.
I am very happy to order this book in advance, I hope Will lets me know when that is possible.