Category: Uncategorized

Rewatching *Close Encounters of the Third Kind* (with a few spoilers)

by  Tyler Cowen

I hadn’t seen it in many years, and this time around I know more about demonology.  Much more.  If there were a Second Coming, how would we distinguish it from the Antichrist?  How would we distinguish aliens from either?  The movie explores these questions in considerable depth, so no it’s not Spielberg happy and shiny aliens movie.  I was reminded of Shyamalan’s (excellent) Signs throughout.  There is even a background scene where The Ten Commandments is playing on a TV.  In this movie, who are the Apostles?  Is the notion of “The Chosen” being redefined?  Doesn’t the final scene, where the big ship comes through the clouds, remind you of The Book of Revelation?  And if “the aliens” are so benevolent, why do they kidnap people and return so many of them as frozen zombies?  Or are those the demons?  Or the saved?  Or whatever.

Oh, and from Wikipedia there is this: “The name “Devil’s Tower” originated in 1875 during an expedition led by Colonel Richard Irving Dodge, when his interpreter reportedly misinterpreted a native name to mean “Bad God’s Tower”.”

By the way, did you notice the role of the “Deep State” in this movie?  You don’t see the President, members of Congress, or even generals greeting the aliens.  There is instead some weird French guy who barely speaks English, surrounded by a bunch of bureaucrats.

Disputes over China and structural imbalances

by  Tyler Cowen in

There has been some pushback on my recent China consumption post, so let me review my initial points:

There exists a view, found most commonly in Michael Pettit (and also Matthew Klein), that suggests economies can have structural shortfalls of consumption in the long run and outside of liquidity traps.

My argument was that this view makes no sense, it is some mix of wrong and “not even wrong,” and it is not supported by a coherent model.  If need be, relative prices will adjust to restore an equilibrium.  If relative prices are prevented from adjusting, the actual problem is not best understood as a shortfall of consumption, and will not be fixed by a mere expansion of consumption.

Note that people who promote this view love the word “absorb,” and generally they are reluctant to talk much about relative price adjustments, or even why those price adjustments might not take place.

You will note Pettis claims Germany suffers from a similar problem, America too though of course the inverse version of it.  So whatever observations you might make about China, the question remains whether this model makes sense more generally.  (And Australia, which ran durable trade deficits from the 1970s to 2017, while putting in a strong performance, is a less popular topic.)

Pettis even has claimed that “US business investment is constrained by weak demand rather than costly capital”, and that is from April 4, 2023 (!).

It would take me a different blog post to explain how someone might arrive at such a point, with historic stops at Hobson, Foster, and Catchings along the way, but for now just realize we’re dealing with a very weird (and incorrect) theory here.  I will note in passing that the afore-cited Pettis thread has other major problems, not to mention a vagueness about monetary policy responses, and that rather simply the main argument for current industrial policy is straightforward externalities, not convoluted claims about how foreign and domestic investment interact.

Pettis also implicates labor exploitation as a (the?) major factor behind trade surpluses, and furthermore he considers this to be a form of “protectionism.”  Now you can play around with scholar.google.com, or ChatGPT, all you want, and you just won’t find this to be the dominant theory of trade surpluses or even close to that.  As a claim, it is far stronger than what a complex literature will support, noting there is a general agreement that lower real wages (ceteris paribus) are one factor — among many — that can help exports.  This point isn’t wrong as a matter of theory, it is simply a considerable overreach on empirical grounds.  Of course, if Pettis has a piece showing statistically that a) there is a meaningful definition of labor exploitation here, and b) it is a much larger determinant of trade surpluses than the rest of the profession seems to think…I would gladly read and review it.  Be very suspicious if you do not see such a link appear!

Another claim from Pettis that would not generate widespread agreement is: “…in an efficient, well-managed, and open trading system, large, persistent trade imbalances are rare and occur in only a very limited number of circumstances.” (see the above link)  That is harder to test because arguably the initial conditions never are satisfied, but it does not represent the general point of view, which among other things, considers persistent differences in time preferences and productivities across nations.

Now, it does not save all of this mess to make a series of good, commonsense observations about China, as Patrick Chovanec has done (Say’s Law does hold in the medium-term, however).  And as Brad Setser has done.

In fact, those threads (and their citation) make me all the more worried.  There is not a general realization that the underlying theory does not make sense, and that the main claim about the determinants of trade surpluses is wrong, and that it requires a funny and under-argued tracing of virtually all trade imbalances to pathology.  And to be clear, this is a theory that only a small minority of economists is putting forward.  I am not the dissident here, rather I am the one delivering the bad news.

So the theory is wrong, and don’t let commonsense, correct observations about China throw you off the scent here.

Why are folk songs such a poor guide to economics?

by  Tyler Cowen

Oliver Anthony (perhaps he should leave his town of per capita income 13k?) is the centerpiece of the column, but I’ll excerpt the bit of Springsteen:

When singers turn to economic issues, who plays the role of victim? Very often it is people who have lost their jobs, such as in Bruce Springsteen’s “My Hometown,” about a textile mill leaving the singer’s hometown. (Springsteen is not generally considered a folk singer, but many of his songs have folk roots and channel folk vibes.) That sounds terrible, and for many former workers it was.

But in fact the mill was relocated further south, where presumably it helped to create other jobs. Was this development an egalitarian way to help spread prosperity to a poorer part of the country? Did it help spur the transition of New Jersey to a service economy? That seems to have worked out: Average household income today in Freehold, Springsteen’s hometown, is more than $133,000. Or were more sinister forces at work? Was the factory closing a form of regulatory arbitrage against trade unions that protect worker interests?

No matter what your view, the song doesn’t clarify the issue very much. Nor should it be expected to.

As a general rule, music and the arts excel at pointing attention toward the seen — that is, identifiable victims or beneficiaries. In contrast, many of the most important insights of economics concern the unseen — that is, people who benefit in non-obvious ways, and sometimes many of them actually are unidentifiable. Automation, for instance, will throw some people out of work, but economics teaches us that in the longer run it usually benefits society, through both lower consumer prices and the creation of jobs in other, less visible sectors of the economy. You don’t hear many songs about that.

Not surprisingly, Bob Dylan is the hero of the story.

That was then, this is now, Budapest edition

by  Tyler Cowen in

Trains between the two cities [Budapest and Vienna] were fast — four and a quarter hours in 1896.  In 2022 it was three hours and thirty-five minutes.

And:

Budapest finance caught up and surpassed the growth of agricultural and industrial production.  By 1900 Budapest became the bankming centre of Central and Eastern Europe.  Between 1867, the date of the ‘Compromise’ which created the Dual Monarchy of Austria-Hungary, and 1914 the number of Hungarian banks grew from eleven to 160 and their capitalization increased fivefold.  A few of them — the First Hungarian Commercial Bank and the Hungarian Credit Bank — rivalled the biggest Viennese and German banks in size and prestige, as their palatial headquarter buildings in downtown Budapest, designed by the most renowned European and Hungarian architects, showed.  Their owners, such as the Wolianders, the Wahrmanns, Hatvany-Deutsch and Chorins, joined the European super-rich.

That is all from Victor Sebestyen’s interesting new book, Budapest: Portrait of a City Between East and West.

Sunday assorted links

by  Tyler Cowen

1. Ian Leslie on stories.

2. When and why did French fertility fall so rapidly?

3. Different accents in English.

4. Glimpse inside the Delhi punk scene.

5. Can you blame him?  A story of biryani.

6. Alas, GBD was not about protecting the vulnerable.  Sorry, people.

7. Is the standard model of the universe wrong? (NYT)

8. The invention of a new chess variant? (“Try as hard as you can to lose, and then win when your opponent resigns”?)

Who Runs the AEA?

by  Tyler Cowen in

That is a new JEL publication (gated) by Kevin D. Hoover and Andrej Svorenčík, here is the abstract:

The leadership structure of the American Economic Association is documented using a biographical database covering every officer and losing candidate for AEA offices from 1950 to 2019. The analysis focuses on institutional affiliations by education and employment. The structure is strongly hierarchical. A few institutions dominate the leadership, and their dominance has become markedly stronger over time. Broadly two types of explanations are explored: that institutional dominance is based on academic merit or that it is based on self-perpetuating privilege. Network effects that might explain the dynamic of increasing concentration are also investigated.

And this:

The current paper is based on an extensive prosopographical database covering the entire leadership of the AEA over the
1950–2019 period, including all Presidents, Presidents-elect, Vice Presidents, ordinary members of the Executive Committee, as well as the losing candidates for all elective offices, and members of the Nominating Committee.

The results?:

The 14 institutions in the table account for almost more than 80 percent of the positions for the whole 1950–2019 period. Even within this select group, the distribution is highly skewed with Harvard, the top supplying institution over the period accounting for more than a fifth of the total, and the last five universities accounting for around 2 percent each. The top five institutions, Harvard, MIT, Chicago, Columbia, and Stanford, which we designate as the first tier, account for over half (57.1 percent) of the positions over the whole period…

The authors summarize their findings:

The most obvious lessons are, perhaps, hardly surprising: the AEA leadership is overwhelmingly drawn from a small group of elite, private research universities—in the sense that its leaders were educated at these universities and, to a lesser degree, employed by them. What is less well-known is that for much of the past 70 years, the AEA leadership has been drawn predominantly from just three universities—Harvard, MIT, and Chicago.

By the way, institutional concentration has become more pronounced over time, not less.  But since about eighty percent of U.S. students go to state schools, most of those large state schools, I guess we can reconfigure all these panels to have eighty percent state school representation, rather than 80 percent elite school representation.  Right?  Right?

You may or may not like these facts (I for one am willing to admit to more elitism than are many people), for the time being I will say only this: “Do not listen to what they say, watch what they do!”

Saturday assorted links

by  Tyler Cowen

1. The Howdy Doody longhorn steer car culture that is Nebraska, good video too (NYT).  Who needs an old-style NJ hood ornament?

2. Investment is booming in Ohio.

3. Markets in everything: buy a government surveillance van for 26k.

4. The political economy of the Magna Carta.

5. Become an expert in something specific and boring.

6. Parfitian, Kafkaesque insects (New Yorker).

7. New Melissa Dell et.al. data set from historical U.S. newspapers, now with LLMs far more valuable than they realized when they started constructing it.

*All the Kingdoms of the World*

by  Tyler Cowen in

The author is Kevin Vallier, and the subtitle is On Radical Religious Alternatives to Liberalism.  This is an excellent and important book, starting with its defense of classical liberalism over Catholic integralism and indeed illiberalism more generally.  But do note that Kevin, although a professional philosopher is also a Christian (Eastern Orthodox), and he is writing from a Christian perspective.  This is also an excellent book simply for learning what integralism is.  Overall, perhaps this is analytic political theology!?

In the final chapter, Kevin considers illiberal strands within Chinese Confucianism and Sunni Islam as well.

To be clear, if you are interested in neither religion nor political philosophy, this is not for you.  But it is likely to be one of this year’s books that turns out really to matter.

Does China need more consumption?

by  Tyler Cowen in

I am repeatedly puzzled by this claim, which you will find in Michael Pettis, Paul Krugman, and others (WSJ), even Stephen Roach.  It might make sense for short-run matters, when prices are (maybe) sticky.  But as of late we are talking about how to restructure China for medium- and long-term growth.

Investment good prices are not sticky forever!  If rates of return are too low, those prices will fall, thereby restoring higher rates of return.  Somehow I never see that point mentioned.

Note that China is not in a liquidity trap, so weird liquidity trap results are not going to apply here.  If you are worried about some kind of downward spiral of everything, monetary policy can fill the gap.

Paul Krugman for one writes (NYT):

The result is that China has a huge quantity of savings all dressed up with no good place to go.

China needs investment in lots of things, starting with say health care?  There is a major doctor shortage and the quality of Chinese health care is abysmal.  It is true that China also needs more consumption of health care, rather than production of health care with no one consuming it.  But that is not what people mean when they say China needs more consumption.

It is plausible to argue that China has inefficiency wedges that favor some kinds of investment over consumption, such as massive subsidies for infrastructure construction.  But it is odd to conclude that China needs outright “more consumption,” which indeed will limit China’s prospects for the future.  What China needs is “both more consumption and more investment in the discouraged sectors.”  That would both boost growth and the welfare of Chinese citizens.

The policy differences here are quite concrete.  Don’t expect to get far by printing up lots of money, giving it to Chinese consumers, and telling them to spend it.  You might, however, help growth rates if you could free up or otherwise assist China’s numerous dysfunctional sectors, again with health care being one very obvious example.

The WSJ wrote:

…top leader Xi Jinping has deep-rooted philosophical objections to Western-style consumption-driven growth…

C’mon people!  Can I call it “Western-style production-driven growth”?  (Where do you think most real income for consumption comes from?)  The rebellion against Say’s Law has gone way too far.

South Appalachia > North Appalachia

by  Tyler Cowen in

The ARC classifies 27.2 percent of North Appalachian counties as distressed but only 9.6 percent of South Appalachian counties that way. Over 70 percent of counties in South Appalachia have grown in population since the 2020 Census. North Appalachia lost 17,131 people in total, while South Appalachia gained 127,585. The difference in net in-migration is even more stark. While the North posted positive net domestic in-migration of 22,563, the South tallied almost 300,000—13 times as high. The story is similar for jobs, with the North losing 227,049 positions since the pre-pandemic year of 2019, while the South actually exceeded its pre-Covid levels by 66,377. In other words, much of South Appalachia is seeing a population inflow and is growing in both population and employment.

Here is much more from Aaron M. Renn, of interest and with good maps, and for the pointer I thank Terry O’Connor.

An aggregate Bayesian approach to more (artificial) intelligence?

by  Tyler Cowen in

It is not disputed that current AI is bringing more intelligence into the world, with more to follow yet.  Of course not everyone believes that augmentation is a good thing, or will be a good thing if we remain on our current path.

To continue in aggregative terms, if you think “more intelligence” will be bad for humanity, which of the following views might you also hold?:

1. More stupidity will be good for humanity.

2. More cheap energy will be bad for humanity.

3. More land will be bad for humanity.

4. More people (“N”) will be bad for humanity.

5. More capital (“K”) will be bad for humanity.

6. More innovation (the Solow residual, the non-AI part) will be bad for humanity.

Interestingly, while there are many critics of generative AI, few defend the apparent converse about more stupidity, namely #1, that we should prefer it.

I am much more worried about #2 — more cheap energy — than I am about more generative AI.

I don’t know anyone worried about “too much land.”  Maybe the dolphins?

There have been many people in the past worried about #4 — too many people — but world population will be shrinking soon enough, so that is a moot point.

I do not hear that “more capital” will be bad for humanity.  As for innovation, the biggest innovation worriers seem to be the AI worriers, which brings us back to the original topic.

My general view is that if you are worried that more intelligence in the world will bring terrible outcomes, you should be at least as worried about too much cheap energy.  What exactly then is it you should want more of?

More land?  Maybe we should pave over more ocean, as the Netherlands has done, but check AI and cheap energy, which in turn ends up meaning limiting most subsequent innovation, doesn’t it?

If I don’t worry more about that scenario, it is only because I think it isn’t very likely.

If you worry about bringing too much intelligence into the world, I think you have to be a pretty big pessimist no matter what happens with AI.  How many other feasible augmentations can have positive social marginal products if intelligence does not?

Addendum: I have taken an aggregative approach.  You might think we need “more intelligence” and also “more AI,” but perhaps in different hands or at different times.  In contrast, I think we are remarkably fortunate to be facing the particular combination of parties and opportunities that stand before us today.