Category: Uncategorized

Does political polarization limit corruption?

Using panel data from the US states, we document a robust negative relationship between state-level government corruption and ideological polarization. This finding is sustained when state polarization is instrumented using lagged state neighbor ideology. We argue that polarization increases the expected costs of engaging in corruption, especially deterring marginal low-level corruption. Consistent with this thesis federal prosecutorial effort falls and case quality increases with polarization. Tangible anti-corruption measures including the stringency of state ethics’ laws and independent commissions for redistricting are also associated with increased state polarization.

That is from a new paper by Michael Melki and Andrew Pickering.  Via the excellent Kevin Lewis.

What does the stock market tell us about the T-Mobile/Sprint merger?

Here is an excellent post by Alec Stapp, easy to read but a bit hard to excerpt but here are the closing bits:

As a few others pointed out, these relatively small moves in AT&T and Verizon (less than 3 percent in either direction) may just be noise. That’s certainly possible given the magnitude of the changes. Contra Philippon, I think the methodology in question is too weak to rule out the pro-competitive theory of the case, i.e., that the new merged entity would be a stronger competitor to take on industry leaders AT&T and Verizon. We need much more robust and varied evidence before we call anything “bogus.” Of course, that means this event study is not sufficient to prove the pro-competitive theory of the case, either.

Olivier Blanchard, the former chief economist of the IMF, shared Philippon’s thread on Twitter and added this comment above: “The beauty of the argument. Simple hypothesis, simple test, clear conclusion.”

If only things were so simple.

Recommended.  Addendum: Philippon comments.

Toward a simple theory of YouTube and gaming

Outsiders and critics often think of YouTube and computer gaming as entertaining and quite superficial modes of cultural consumption.  I have increasingly moved away from that point of view, and to pursue the argument I will note that lately my favorite YouTube video is Magnus Carlsen doing 100 chess endgames in 30 minutes.  That is not recommended for most of you, but I believe that is part of the point.  I now think of YouTube as a communications medium with (often, not always) high upfront “investment in context” costs.  So if a lot of videos seem stupid to you, well sometimes they are but other times you don’t have enough context to understand them, or for that matter to condemn them for the right reasons.  This “high upfront costs” model is consistent with the semi-addictive behavior exhibited by many loyal YouTube users.  Once you start going down a rabbit hole, it can be hard to stop, and the “YouTube is superficial” models don’t really predict that kind of user behavior, rather they predict mere channel-surfing.

Did you know that Yonas, my Ethiopian contact in Lalibela, and recipient of royalties from my book Stubborn Attachments, loves YouTube videos on early Armenian church history?  He seems to know all about that topic.  A lot of those same videos would not make much sense to me.  I could follow them, but they wouldn’t communicate much meaning, whereas the Ethiopian and Armenian Christian churches have a fair amount in common, including in their early histories.

Has the popularity of PewDiePie — 103 million subscribers — ever mystified you?  I have in fact come to understand the material is brilliant, though not in a way I care about or wish to come to grasp in any kind of detailed way.  For me the entry costs are just too high relative to the kind of payoff I would achieve.  You really have to watch a lot of videos to get anywhere with grasping the contexts of his various jokes and remarks.

This also helps explain why there is no simple way to find “the best videos on YouTube.”

Perhaps computer games have some of the same properties.  They have great meaning to those who know their ins and outs, but leave many others quite cold.  Sometimes I hear people that things like “Twenty or thirty years from now, computer games will develop into great works of art.”  I doubt that.  To whatever extent computer games are/will be aesthetically notable, those properties are probably already in place, just with fairly high upfront context costs and thus inaccessible to someone such as I.

The high upfront costs, of course, mean a high degree of market segmentation and thus perhaps relatively high profits for suppliers, at least in the aggregate if not in every case.

Could it be that these top cultural forms of today have higher upfront costs than say appreciating 18th century Rococo painting?

In any case, trying to understand the cultural codes of 2020 is a truly difficult enterprise.

For this material, I wish to thank a related conversation with S.

Why Didn’t Ancient Rome have Dungeons and Dragons?

Why didn’t ancient Rome have Dungeons and Dragons? I am talking, of course, about the game. Anton Howes presents the general problem:

A theme I keep coming back to is that a lot of inventions could have been invented centuries, if not millennia, before they actually were. My favourite example is John Kay’s flying shuttle, one of the most famous inventions of the British Industrial Revolution. It radically increased the productivity of weaving in the 1730s, but involved simply attaching a little extra wood and string. It involved no new materials, was applied to the weaving of wool — England’s age-old industry — and required no special skill or science. Weaving had been “performed for upwards of five thousand years, by millions of skilled workmen, without any improvement being made to expedite the operation, until the year 1733”, was how Bennet Woodcroft — one of the nineteenth century’s most important historians of technology — put it. (Lest you doubt that description of Woodcroft, he was, in addition to being an inventor himself, the man who compiled and categorised England’s entire patent record up to 1852, and who collected the inventions that would later form the basis of London’s Science Museum, particularly some of the earliest steam engines — among the most important machines in human history — that grace its engine hall today. My hero!) Weavers had been around for millennia, as had shuttles: one is even mentioned in the Old Testament (“My days are swifter than a weaver’s shuttle, And are spent without hope”). As a labour-saving invention, Kay’s flying shuttle was even technically illegal.

I keep coming back to this example, because it goes against so many common notions about the causes of innovation. When it comes to skill, materials, science, institutions, or incentives, none of them quite seem to fit. But I keep seeing more and more such cases. There’s the classic example, of course, of suitcases with wheels – why so late? Was the bicycle another candidate?

…The economist Alex Tabarrok calls these cases “ideas behind their time”. I tend to just call them low-hanging fruit. Hanging so low, and for so long, that the fruit are fermenting on the ground. I now see them everywhere, not just in history, but today — probably at least one per week. And I now have a new favourite example, suggested yesterday on Twitter by Jordan Chase-Young: tabletop role-playing games.

Was it lack of the right the bureaucratic mindset? Lack of numeracy? Lower population densitie? Were such games invented but then lost to history? Ultimately Howes rejects these explanations, I think correctly.

Physically, there was nothing that actually stopped the invention of such games centuries or even millennia earlier. It required no special level of science, skill, or materials. So why did it take so long? Rather than there being any constraints, soft or otherwise, I think it’s simply because innovation in general is so extremely rare. It’s a matter of absence, rather than of barriers. The reason we have had so many low-hanging fruit throughout history is just because very few people ever bother to think of how to do things differently. We are, most of us, quite set in our ways. So even today, when there are many more inventors alive than at any previous point in human history, the fermenting fruit still abound.

Innovation doesn’t happen very often. How many people have ever invented a new way of doing anything? If stasis is the norm, then we should expect that many great ideas are routinely overlooked. For an economist this is an uncomfortable thought because we tend to think that profit opportunities are quickly exploited (no $500 bills on the ground). But while that is certainly true for choices within constraints it may not be true for choices that change constraints. This is also consistent with Paul Romer’s views on the combinatorial space of possible innovations—when the combinatorial space is vast and the explorers few, the innovations will be few and far between. What times, places and institutions generate more explorers?

Jason Crawford on twitter has more background and thoughts.

Thursday assorted links

Why are people getting worse at The Price is Right?

Americans are worse at The Price Is Right than they used to be. On the game show, which has been running since 1972, four contestants are asked to guess the price of consumer products, like washing machines, microwaves, or jumbo packs of paper towels. The person who gets closest to the actual price, without going over, gets to keep playing and the chance to win prizes like a new car. In the 1970s, the typical guess was about 8% below the actual price. People underestimate the price by more than 20% in the 2010s.

This finding comes from recently released research by Jonathan Hartley, a data analyst currently studying public policy at Harvard University. A longtime fan of the show, Hartley was inspired to conduct his research after reading a research paper from 1996 that reveals contestants don’t use optimal bidding strategies—they too rarely bid just a dollar over the highest previous bid—and is one of the early economics papers to show how people could be irrational. Hartley wondered what else the data might show. He found that the accuracy of  people’s guesses sharply decreased from the 1970s to the 2000s, and then stabilized in the 2010s.

And why? There are three main hypotheses:

First, inflation in the US was much higher and much less stable in the 1970s and 80s. When inflation is high and variable, people become more attentive to prices, noticing they are paying more for goods than before.

Second, the rise of e-commerce may have made people less sensitive to price. Research by the economist Alberto Cavallo finds that online competition has made prices more similar across sellers, both online and off. As a result, people may feel less of a need to do price comparisons.

Third, there are more products than ever. There are 50 times as many products at a grocery store than 80 years ago, according to the economist James Bessen.

Here is the full 2019 piece by Dan Kopf, via Rasool Somji.

My Conversation with Tim Harford

Here is the transcript and audio, here is part of the summary:

Tim joined Tyler to discuss the role of popular economics in a politicized world, the puzzling polarization behind Brexit, why good feedback is necessary (and rare), the limits of fact-checking, the “tremendously British” encouragement he received from Prince Charles, playing poker with Steve Levitt, messiness in music, the underrated aspect of formal debate, whether introverts are better at public speaking, the three things he can’t live without, and more.

Here is one bit near the opening:

COWEN: These are all easy questions. Let’s think about public speaking, which you’ve done quite a bit of. On average, do you think extroverts or introverts are better public speakers?

HARFORD: I am an introvert. I’ve never seen any research into this, so it should be something that one could test empirically. But as an introvert, I love public speaking because I like being alone, and you’re never more alone than when you’re on the stage. No one is going to bother you when you’re up there. I find it a great way to interact with people because they don’t talk back.

COWEN: What other non-obvious traits do you think predict being good at public speaking?

HARFORD: Hmmm. You need to be willing to rehearse and also willing to improvise and make stuff up as you go along. And I think it’s hard for somebody to be willing to do both. I think the people who like to rehearse end up rehearsing too much and being too stiff and not being willing to adapt to circumstances, whereas the people who are happy to improvise don’t rehearse enough, and so their comments are ill formed and ill considered. You need that capacity to do both.

And another segment:

HARFORD: …Brian Eno actually asked me a slightly different question, which I found interesting, which was, “If you were transported back in time to the year 700, what piece of technology would you take — or knowledge or whatever — what would you take with you from the present day that would lead people to think that you were useful, but would also not cause you to be burned as a witch?”

COWEN: A hat, perhaps.

HARFORD: A hat?

COWEN: If it’s the British Isles.

HARFORD: Well, a hat is useful. I suggested the Langstroth beehive. The Langstroth beehive was invented in about 1850. It’s an enormously important technology in the domestication of bees. It’s a vast improvement on pre-Langstroth beehives, vast improvement on medieval beehives. Yet, it’s fairly straightforward to make and to explain to people how it works and why it works. I think people would appreciate it, and everybody likes honey, and people have valued bees for a long time. So that would have been my answer.

And:

COWEN: I’ve read all of your books. I’ve read close to all of your columns, maybe all of them in fact, and I’m going to ask you a question I also asked Reid Hoffman. You know the truths of economics, plenty of empirical papers. Why aren’t you weirder? I’ve read things by you that I disagreed with, but I’ve never once read anything by you that I thought was outrageous. Why aren’t you weirder?

The conversation has many fine segments, definitely recommended, Tim was in top form.  I very much enjoyed our “Brexit debate” as well, too long to reproduce here, but I made what I thought was the best case for Brexit possible and Tim responded.

Emi Nakamura, 2019 John Bates Clark award winner

From a new JEP appreciation by Janice Eberly and Michael Woodford:

Emi’s exposure to economics began early in life. Her grandfather, Guy Orcutt, was a distinguished econometrician (Watts 1991). Both of her parents, Alice and Masao Nakamura, were academic economists; her mother, Alice Orcutt Naka-mura, is a past President of the Canadian Economic Association. In addition to an early exposure to economic ideas, Emi credits her parents with instilling in her “a deep sense of the importance of testing theories empirically” (Ng 2015). Emi attended academic conferences with her mother and began taking economics classes at the University of British Columbia as a high school student. She credits one of these early classes, a master’s class on economic measurement and index number theory taught by Erwin Diewert, with making an early mark in her drive for clarity in measurement. In a similar vein, Emi watched the film “The Race for the Double Helix” about the discovery of the structure of DNA with her parents. They emphasized the role of the empiricist Rosalind Franklin and the notion that “there is nothing worse than a wrong fact.”

Perhaps one lesson here is the importance of mobilizing talent from very early ages.  Here is previous MR coverage of Emi Nakamura.

Tuesday assorted links

Peter Thiel reviews Ross Douthat

The word “self-recommending” now takes on a stronger meaning yet, here is the review.  Here are the closing two paragraphs:

It is a paradox of our time that the path to radical progress begins with moderation. Extreme optimism and fatalistic pessimism may seem to be stark opposites, but they both end in apathy. If things were sure to improve or bound to collapse, then our actions would not matter one way or the other.

Not only do our actions matter, I believe they matter eternally. If we do not find a way to take the narrow and moderate path, then we may find out that stagnation and decadence were all that kept immoderate men from stumbling into the apocalypse.

Self-recommending!  Here is my own short and very positive review of Ross’s book.

The history and economics of Mexican drug cartels

This paper studies the origins, and economic and social consequences of some of the most prominent drug trafficking organizations in the world: the Mexican cartels. It first traces the current location of cartels to the places where Chinese migrated at the beginning of the 20th century, discussing and documenting how both events are strongly connected. Information on Chinese presence at the beginning of the 20th century is then used to instrument for cartel presence today, to identify the effect of cartels on society. Contrary to what seems to happen with other forms of organized crime, the IV estimates in this study indicate that at the local level there is a positive link between cartel presence and better socioeconomic outcomes (e.g. lower marginalization rates, lower illiteracy rates, higher salaries), better public services, and higher tax revenues, evidence that is consistent with the known stylized fact that drug lords tend have great support in the local communities in which they operate.

That is from a recently published paper by Tommy E. Murphy and Martin A. Rossi.  Note that Chinese immigration (and also German immigration, in the paper) is used for a proxy for preexisting desirability for a locale.

I can no longer recall but this one seems like from TEKL?

What causes car deaths and how to limit them

Perhaps the biggest reason why we don’t see more fatal crashes on freeways is that there are no intersections on them (with a few exceptions). In fact, there are more drivers killed in intersections (20%) than on freeways.

After accounting for freeways (18%) and intersections and junctions (20%), we’re still left with more than 60% of drivers killed in automotive accidents left accounted for.

It turns out that drivers killed on rural roads with 2 lanes (i.e., one lane in each direction divided by a double yellow line) accounts for a staggering 38% of total mortality. This number would actually be higher, except to keep the three categories we have mutually exclusive, we backed out any intersection-related driver deaths on these roads and any killed on 2-lane rural roads that were classified as “freeway.” So, to recap, 3 of out every 4 deaths in a car occur on the freeway, at an intersection/junction, or on a rural road with a single lane in each direction.

And:

In drivers killed on 2-lane rural roads, 50% involved a driver not wearing a seat belt. Close to 40% have alcohol in their system and nearly 90% of these drivers were over the legal limit of 0.08 g/dL. About one-third involved speeding, and 16% did not have a valid driver’s license.

Here is the full piece by Peter Attia, interesting throughout.  Via Anecdotal.