Category: Uncategorized
That was then, this is now
I very much like the new Michael Khodarkovsky book The Steppe and its Empires: The Russian Empire & its Eurasian Counterparts. Excerpt:
Russia presented the most remarkable contrast to both Eurasian and Western empires. The oower of Moscovite tsars and Russian emperors seemed to be completely unconstrained by moral or ethical boundaries. Whereas religious authorities in Europe, the Islamic world, and Cjhina kept some distance from the state and had a degree of independence from the rulers, in Russia the Orthodox Church was fully behind the autocratic powers of the tsars. Ivan III was the first to adopt the title samoderzhets (a calque of a title of Byzantine emperors, literally “autocrat” in Greek), which he used in the sense of a “sovereign” ruler. It took another half century before his grandson, Ivan IV, began to use the title to signal his exceptional, universal, and unrestrained power.
And:
To begin with, each Eurasian ruler conceived of himself as the sovereign of a universal, not natinoal, empire. Such a ruler was non plus ultra; confident in his superiority over other religious or political bodies, he was destined to rule the world, if not politically, at least rhetorically, an autocrat whose subjects’ servile condition was a natural state.
Seen through the prism of a universal monarchy, the Eurasian imperial vision blurred the separation between metropolis and periphery, between the peoples within and outside the empire’s boundaries, between servitude and slavery. Whether they were elites or commoners, all were considered to be in personal servitude to an emperor and often referred to by a term interchangeable with slave.
Consequently, Eurasian societies did not develop either the notions or the institutions that could enshrine the idea of freedom…
The concept of universal monarchy allowed for little differentiation between internal and external territories.
Recommended.
Friday assorted links
1. What sort of maths are LLMs good at?
2. “People think the superrich are unhappy,” she said. “They’re not.” (NYT)
3. Trailer for a Celibadache biopic.
4. Good Joshua Saxe post on the need for a better cybersecurity policy.
5. Refine goes to work on the Stanford Encyclopedia of Philosophy. At some point we will be reexamining everything, good luck people.
6. A semi-consistent EA view that nuclear energy is bad (not my view though).
7. Updated AI and labor market results, and a summary here.
Regulated Markets Are Slow to Handle Change
Gowrisankaran, Langer and Reguant have an excellent paper, Energy Transitions in Regulated Markets (WP), in the latest AER.
The basic idea is that regulation designed to prevent utilities from building useless power plants can induce them to keep obsolete power plants. Some background. We regulated electric utilities under the theory that they were natural monopolies and therefore we would do better by pushing their prices down. What’s a reasonable price? Hard to say, so regulated utilities were allowed to recoup their operating costs plus a fair return on their “rate base”—their capital stock. Makes sense, but once profits depended on the size of the capital stock, utilities had an incentive to build too much—the classic Averch–Johnson effect. Regulators responded with “prudence” requirements and the rule that capital must be “used and useful.” In a stable world, that rule is a check, albeit an imperfect check, on so-called gold-plating.
But now consider what happens in a time of technological change, such as a rapid decrease in the cost of generating electricity with natural gas (driven by fracking and improvements in combined-cycle natural-gas (CCNG) technology). In a free market, large decreases in costs would cause firms to abandon coal and move to natural gas—some would do this to make profits, others to avoid losses. In short, the market forces sunk investments to be abandoned when not profitable.
But there is another possibility under regulation. Tell the regulator that your plants are still viable. Well, telling is cheap talk so you keep burning coal to prove that the plant remains useful. If you can keep your base operating that’s better than abandoning it and to signal how valuable your coal plant still is, it may even be worth while to burn coal when the cost exceeds the price of electricity! The authors have some nice data on exactly this point.
Figure 3 takes a little work to understand, but the pattern is clear. Each point represents a state. In panel A, the vertical axis shows how much less likely a coal plant is to run when the cost of coal exceeds the price of electricity. Obviously, a strongly negative coefficient is the economically sensible response: when burning coal is more expensive than buying electricity, the plant should burn less.
The red points represent restructured states and the green points regulated states. In restructured states coal burning falls when prices fall, just as expected. Coal burning in regulated states responds much less. (I.e., the red points generally lie below the green points.) Indeed, the six states with the largest reductions in coal operation are all restructured states.
One objection to this analysis might be that utilities in general are just slow to respond to prices, so on the horizontal axis the authors plot how well utilities respond to a higher price of gas. Note that these coefficients are all negative and there is no obvious difference between regulated and restructured states. In both types of states, utilities respond well to the price of gas, but only in restructured states do utilities respond strongly to the price of coal. (Why coal and not gas? Because the used-and-useful standard binds on capital whose usefulness is in doubt—which, once gas got cheap, meant coal. In other words, the utilities have to defend coal to the regulators, not gas.)
Panel B on the right shows a slightly different way of presenting the same data. The vertical axis is again how much less likely a coal plant is to run when its cost exceeds the electricity price. The horizontal axis is the fraction of generation owned by electric utilities. Regulated states tend to be vertically integrated, while restructured states opened electricity generation to competition, so utility ownership and regulatory status are closely correlated. Regulated states generally have utility ownership above 60%, while all the restructured states but one are below 30%. The best-fit line slopes upward: in other words, the more generation a state’s utilities own, the less coal dispatch responds to price. A different perspective on the same story.
That is the direct empirical evidence. The authors then construct a more ambitious structural model. In theory, regulation could produce either too much or too little investment in the new technology; their estimates imply too much. Much, too much. Not only do regulated utilities retain too much coal, they also build too much gas capacity. In short, they accumulate both too much old capital and too much new capital. Averch–Johnson on steroids.
The bottom line is that regulation under dynamic conditions is much more difficult than under static conditions. My view is that it may not even be worth the candle.
The Economics of a Shrinking World
From Jesus Fernandez-Villaverde and Patrick Norrick:
As of 2026, humanity is likely below replacement fertility. That has never happened before, not in wars or pandemics. But the real surprise is that the fall has been concentrated in low- and middle-income countries and among poorer and less educated women. We fit a single-factor model to 236 countries since 1950: the common component peaked in 1978, and what drives fertility down today are country-specific trends, 219 of them negative and not one leveling off. None of the commonly cited mechanisms can account for this pattern, so we offer a conjecture: modernity itself, which makes a third child expensive and childlessness cheap. Children come in integers, so it takes very little to move a cohort’s fertility rate from 1.8 to 1.3. And nothing in an economy pushes fertility back to 2.1. We close with the main economic consequences, in particular slow growth.
When I read “The estimated common factor peaks in 1978 and has been declining since.” I do think of birth control, however, albeit with lags. The actual availability of birth control, all economic and social constraints considered, is a lot more fraught and difficult than some of the more superficial accounts might indicate.
Intergenerational mobility of immigrants in 15 destination countries
We estimate intergenerational mobility of children of immigrants in fifteen receiving countries. Children of immigrants have somewhat lower income than children of local-born parents. Around half of this gap can be explained by differences in parental income, with the remainder due to differences in mobility parameters. The daughters of immigrants enjoy higher absolute mobility than daughters of locals in most destinations. Absolute mobility of sons of immigrants is higher outside Europe and lower in Europe compared to sons of locals. Cross-country differences in absolute mobility are not driven by parental country-of-origin, but instead by destination labor markets and immigration policy.
Here is the paper, by Leah Boustan, et.al. Via the excellent Samir Varma.
Thursday assorted links
2. Saloni on the future of medicine. “Every disease is a policy failure.”
3. John List on generalizability, very important. And his comments here.
USA fact of the day
Here is the source.
My very interesting Conversation with Daron Acemoglu
Here is the audio, video, and transcript. Here is the episode summary:
Daron Acemoglu returns for his second appearance with a new book, What Happened to Liberal Democracy?, which Tyler reads as an attempt to redefine and revitalize liberalism for our times. Where Daron’s first visit was about how states and societies contend for the narrow corridor in which liberty survives, this one asks what liberals themselves got wrong, and the answer implicates the educated elite—that is to say, you.
Tyler and Daron discuss what’s wrong with social contract theories and Rousseau’s general will, whether Acemoglu is more objectivist than Rorty, why he blames left liberalism’s own establishment power for its collapse, what standard is left once you refuse to have a book of higher values, nondomination versus noninterference, who counts as working class, why automation alone will not lead to widespread prosperity, how he can call himself a free speech absolutist while wanting to regulate social media, why he worries we’ve given up on educating Americans, whether teachers’ unions need to be reconstituted, what the life expectancy for an educated twenty year old is today, whether open-source models undercut the centralization worry, what pro-worker AI actually means, why the fertility crisis leaves him strangely close to a real business cycle position, whether AI will raise his own already prodigious paper output, why Armenia has disappointed economically, what he wants to learn next, and more.
For an excerpt, let us start from near the beginning:
COWEN: Richard Rorty had a consensus-based defense of liberal democracy. Is your view the same as his, or are there some metrics along which it’s different? Are you more objectivist in some way?
ACEMOGLU: I wouldn’t say it’s more objectivist. I think my commitment in my mind has always been that it’s impossible for us at any point in time not just to know what’s really the absolute truth, but also to have a clear map of what is the right stance. In the same way that I think many people would agree science makes gradual and sometimes uncertain progress toward some better understanding, I think morally, philosophically, we also have to have gradual uncertain evolution toward what we agree on. Objectivism, in some sense, is too strict.
COWEN: Say we’re not evolving toward greater agreement.
ACEMOGLU: No, sometimes we go back.
COWEN: Today, it seems we’re not evolving toward greater agreement, right?
ACEMOGLU: We’re not. Absolutely not. I think you can blame that on reactions to globalization, reactions to technology, better authoritarian challenges. This is the most uncomfortable part because I see myself firmly within the left liberal tradition. I think it’s partly because of the failure of left liberalism. In some sense, if you think of why did Rome fail or collapse, we can tell a story about the barbarians were really too strong. No, really, Rome collapsed because internally it had problems that opened up weaknesses against outside invaders as well as some inside problems.
It’s the same with left liberalism. I think it became quite influential throughout much of the Western world and some of the emerging economies as well over the last 70, 80 years. It did not use that establishment power just in the right way, creating its own weaknesses that made it much more vulnerable to outside attacks. That’s why I think we are now going back because we are at an interregnum period in which ideas are battling again. In some sense, it’s just like the early 19th century where you had all these very different ideas and they were trying to get a toehold in the imagination of people. I think we are going through a period like that, except that there are really many more confusing ideas out there.
COWEN: Say when we’re not evolving toward greater consensus, what’s the external standard you introduce to judge which are the correct ideas and which not? Like Rorty, you need one, though.
ACEMOGLU: I don’t have one.
COWEN: Then why believe in what you believe?
ACEMOGLU: Okay. I think what I believe is, first of all, not as an external standard—I don’t know whether external standard or internal standard is the right word—but that we have to defend some degree of individual freedom because everything starts from that, both in terms of our meaningful lives, but also any kind of improvement in the human condition requires individual initiative, and that individual initiative is impossible without some amount of freedom, a meaningful freedom, not just saying, “Okay, you have the freedom to pray, but you cannot express that idea with others or you cannot turn it into action.” Some meaningful freedom.
That is the only starting point that we need to have. Around that, we need to build things with some sort of consensus within society. That’s what I think liberalism has to recognize, that you have to enshrine those rights, but then give enough elbow room to people to form their own community-level agreements.
COWEN: You present some different values in the book. One is nondomination. Another is noninterference. There’s others. When they clash, what’s the metric you introduce to decide how to resolve that clash?
ACEMOGLU: I wish I had a perfect answer for that. I don’t.
COWEN: You have an imperfect answer.
ACEMOGLU: I have an imperfect answer. I think noninterference by itself isn’t enough because, at least as read or as interpreted by some philosophers and economists, it is just about being left alone from higher authority or typically state-level authority, although it could be some other authorities as well. We do also need opportunities and some way of actualizing our intentions and our freedom. That’s what the idea of nondomination, which goes back to Roman Republican times, recognizes.
It is not, in my mind, an extremely interventionist philosophy. It doesn’t say the state knows it best or that the state should always have an opportunity to override individual or group-level decisions. It does emphasize that providing people some amount of protection against those who have much greater physical or other power relative to them is something that cannot be done at the individual level. It has to have a community-level component.
COWEN: That’s a good answer, but is it an answer to the question? If we’re Sidgwick, we might say, when values clash, we look to utility, or maybe it’d be cost-benefit analysis to decide which gets priority. You’re not willing to say that, so why not? What’s wrong with that answer?
Very much interesting throughout.
Mistakes in financial economics
I feel like this is almost deliberately missing the point. My median expectation is that AI boosts the economy enormously, so shorting things would be a terrible idea. But non-trivial tail risk is that it kills everyone. So shorting things would be pointless.
That is from Tom Chivers. It is easy enough to say buy seriously out of the money puts, and be long with the rest of your portfolio. But few (if any) of the worriers are doing that. I should note also that many (most? almost all?) of the bad scenarios have intermediate points of great worry and catastrophe where you can cash in on your puts well before everyone dies. No leverage required, just spend 5k or 10k a year on this, and if you are wrong consider it a mistaken insurance policy. If you do not know much about finance, the AGI will guide you in this endeavor.
Or some are saying “Markets are bad at pricing long-term idiosyncratic risk.” If so, all the more reason to spend on those puts.
You will find many, many mistakes in financial theory when people try to rebut the presumption that, given their views, they should in some way or another be short the market. And do not just tell me which long positions you hold, those are easy bets, as you can be totally wrong and the long positions still will offer normal, risk-adjusted rates of return. It is your shorts, whether explicit or implicit, that reveal your true soul. You may recall that Victor Niederhoffer thought an investor should never go net short on an asset. I am reluctant to use the word “never,” but my own view is not so different.
Is it really so hard to say (and do): “Thank you, Tyler, I just went out and bought those puts!”?
Apparently so. And perhaps that is because, deep down, your own intuitions realize that, while some significant costs from AI will appear, it really won’t be that bad after all.
Words to live by.
Wednesday assorted links
1. The cheese collateral in Italian banks is melting.
2. Denmark fact of the day: “…half of Denmark’s growth has been due to essentially one company”
4. Noah is right.
How much will cybersecurity costs rise?
Here is one (partial) estimate of the higher cyber costs. I am not sure how many incidents they have in mind, but this seems to me realistic as an estimate but also rather modest relative to the Angst I am seeing? Not quite “a Gilda Radner thing,” but if nothing else shows the usefulness of trying to be concrete. Here is an estimate of $100 billion extra for the world annually. That is estimated as a twenty percent increase in cyber costs. Brad Carson uses AI agents (hurrah!) to produce estimates. He thinks I disagree with him, but I do not. I just want to see exact numbers, and presented as a share of gdp, and then everybody can calm down just a wee bit. And here are some superforecaster estimates.
On this topic, I am seeing so many mistakes in financial economics across social media, but I will not go through them all. It suffices to note that very smart people have their minds turn to mush when this topic comes up, especially the “sell short” side of the matter.
There is also the “beware isolated demands for rigor” response. I should not have to demand anything. If you are pretty worried about AI, you should be dying (yes pun intended) to provide that rigor, whether or not it is provided elsewhere.
How about a new policy?: “All AI safety expressions of despair, grief, panic, anger, or insinuations thereof, with or without gifs, shall be accompanied by an estimated percentage of gdp footnote.” Would inject some real sanity into the discussion and drain out some of the all too rampant emotions.
Tuesday assorted links
Who enters Congress?
We trace the family origins of Members of Congress (MC) born between 1830 and 1950, linking each MC, their parents, and their brothers to the complete-count censuses. Future MCs have always been economic outliers. By 1940, close to 60 percent of MCs aged 18–40 held a college degree, against under 5 percent of comparable young men outside Congress. In the 19th-century censuses, MCs as adults held roughly three times the wealth of demographically matched controls. They also come from economically elite families: their fathers earn more, attain more education, and hold more wealth. The brothers of future MCs sit between the population and the MCs themselves. Across the socioeconomic measures we compare, we calculate that roughly half of an MC’s adult premium is shared with his brother and the other half is his own. Even as the American economy and political system have changed, the family background gap has widened over the last century and a half. Wealth, household servants, and four separate occupation-based scores all show the gap holding or growing across cohorts. We study four Progressive-Era reforms in a triple-difference design—women’s suffrage, the secret ballot, direct primaries, and the direct election of senators—and none produce detectable shifts in who reaches Congress. Our results document a Congress drawn from the most fortunate families in American society in every cohort we observe.
That is from a new NBER working paper by
Monday assorted links
1. Tax land more heavily than structures.
3. Francesco Cabella conversation with (an older) Victor Niederhoffer.
4. New homes in Tatu City, Kenya.
5. Bill Goichberg, RIP (NYT). America’s greatest chess organizer, he was always very nice and encouraging to me.
Do Faculty Affect Student Partisanship?
We study whether Democratic college professors make their students more liberal. We link voter data to salary records from 33 state flagships and show that faculty skew Democratic, especially in the humanities and social sciences. We then use student transcripts from one flagship to estimate causal effects. Students become more liberal during college regardless of major and sort toward ideologically similar instructors. Exploiting plausibly random variation in when instructors teach courses, we find no effect of faculty partisanship on student partisanship. Text analysis shows exposure to liberal topics reflects student demand rather than instructor supply, leaving little room for indoctrination.
That is from a new paper by Micah Baum, Joaquín Endara, and Annaliese Paulson. Via Jay Fan Bavel.