Category: Weblogs

My excellent Conversation with John Cochrane

Here is the audio, transcript, and video.  So many good parts it is hard to excerpt, here is part of the summary:

John joined Tyler to apply that habit of mind to a number of puzzles, including why real interest rates don’t equalize across countries, what explains why high trading volumes and active management persist in finance, how the pandemic has affected his opinion of habit formation theories, his fiscal theory of price level and inflation, the danger of a US sovereign debt crisis, why he thinks Bitcoin will eventually die, his idea for health-status insurance, becoming a national gliding champion, how a Renaissance historian for a father and a book translator for a mother shaped him intellectually, what’s causing the leftward drift in economics, the need to increase competition among universities, how he became libertarian, the benefits of blogging, and more.

Here is one bit from John:

COCHRANE: You ask two questions here. One is active management, and the other is trading. I’d like to distinguish them. It’s a puzzle in the Chicago free market sense.

Let me ask your question even more pointedly. If you believe in efficient markets, and you believe in competition, and things work out right, we’ve scientifically proven since the 1960s, that high-fee active managers don’t earn any more than a proverbial monkey throwing darts in a well-managed slow index. So why do people keep paying for high-fee active management?

Chicago free market — we’re not supposed to say, “Oh, people are dumb for 40 years — 50 years now,” [laughs] but there’s a lot of it. It’s one of those things. Active management is slowly falling away. The move towards passive index investment is getting stronger and stronger.

There’s a strong new literature, which I’ll point to. My colleague here, Jonathan Berk, has written some good articles on it. This is the puzzle of efficient markets. If everybody indexed, markets couldn’t be efficient because no one’s out there getting the information that makes markets efficient. Markets have to be a little inefficient, and somebody has to do the trading.

Your second question is about trading. Why is there this immense volume of trading? When was the last time you bought or sold a stock? You don’t do it every 20 milliseconds, do you? [laughs]

I’ll highlight this. If I get my list of the 10 great unsolved puzzles that I hope our grandchildren will have figured out, why does getting the information into asset prices require that the stock be turned over a hundred times? That’s clearly what’s going on. There’s this vast amount of trading, which is based on information or opinion and so forth. I hate to discount it at all just as human folly, but that’s clearly what’s going on, but we don’t have a good model.


The conversation some of you want to have

The most frequently upvoted request was this, noting that I will add in numbers so you may follow my replies:

1. Looking back on your history of blogging, what were you most right about? And what were you most wrong about? Are there any posts you regret?

2. If you were to go back in time and choose a profession other than economics, what field would you choose, and why?

3. What important questions are the least answerable empirically, and how should these questions be approached?

4. What questions would benefit most from better empirical evidence?

5. A number of years ago, I recall you saying something like “Bloggers get the commenters that they deserve.” Do you regret saying this? (Sorry–ha ha).

Thinking back on the history of MR, here are my answers:

1. I believe I was right (and proven right) about the Great Stagnation, a controversial proposition at the time.  I also believe I have been right about many aspects of the Covid crisis, as Alex has been as well.  See also my earlier writings.

I still like last year’s blog post on State Capacity Libertarianism.

Perhaps two things I was right about, but still not recognized as correct are: 1) post-2012 or so (but not earlier), unemployment was fundamentally a re-matching problem, and would not have been helped much by nominal decisions by the Fed, and 2) we could have done much better than Obamacare and no I don’t mean single payer.

Two of my more obvious errors were dismissing the notion of a major financial crisis in the early days, as I didn’t see that a bursting real estate bubble would wreck the shadow banking system, rather I expected (at worst) something like the recession of the early 1990s.

I also was wrong to think that Greece and Italy would leave the eurozone after the crisis of 2011.  I thought deposits would be more mobile across borders than they turned out to be, thus crushing domestic banking systems and requiring a breaking with par.

I was originally wrong in calling bitcoin a bubble, though I improved and earlier yet MR was one of the first outlets to call attention to bitcoin; see also this earlier 2007 post, when I wrote: “…monetary economics will end up as a special case of a more general theory of encryption. One day they’ll solve Riemann’s Hypothesis and the price level will just go poof…!”

I am pleased to have played early roles boosting ngdp work, especially in free market circles, and standing firm on the need for some kind of green energy policy, though neither involved any originality on my part.  I see both decisions as vindicated.

That all said, I regret the post where I wrote “Bloggers get the commenters that they deserve.”  Even if it is true.

2. if my current profession were inaccessible to me, I would be either a philosopher or a legal academic, but trying to replicate the essential features of my current life as I know it.  I feel I would be much less effective in either venue, however.

3. “What important questions are the least answerable empirically, and how should these questions be approached?”  Maybe that is too broad a question, but two responses.  First, I am not sure we ever will understand “culture,” as more empirical work perhaps will broaden the concentric circles of our ignorance and create more open questions, by both teaching us more detail and showing how much context-dependence matters.  Second, I am increasingly skeptical that we will ever find “the theory of everything” in physics.  Maybe it is all just a sprawling mess that resists systematization and comprehension by our feeble little brains.  How well do felines grasp Keynesian macroeconomics?

That said, approach these dilemmas by fighting to understand and indeed doubling down.

4. “What questions would benefit most from better empirical evidence?”  Well, many of them, but be ready to deal with this notion of broadening and expanding the concentric circles of our knowledge — and ignorance — at the same time.  In many, many areas that is at least as likely as convergence on a definite set of answers.

Do commenters get the bloggers they deserve?  I don’t think so.

How do the NIH and NSF work?

A surprising number of individuals responded to my post last week soliciting books about the NIH and NSF.  Thank you to those who did and please do still feel free to reach out on this matter.

It became apparent that a highly complementary effort would be a Substack/blog/podcast/similar about the inner workings of the NIH / NSF, and indeed other institutions relevant to the modern-day administration and practice of science.  Think SCOTUSblog or Macro Musings, but focused on the NIH/NSF/etc.

So, if you would like to start such a blog/podcast/newsletter, please email me, and that plan will be considered for financial support.

Blog and Substack contest winners

To date there are three:

1. Anton Howes for his Substack Age of Invention.  He is a historian of invention, often but not exclusively focusing on the eighteenth century, here is Anton on Twitter.  As a separate matter, don’t forget Anton’s excellent recent book Arts & Minds: How the Royal Society of Arts Changed a Nation.

2. Works in Progress.  Here is their About page: “Works in Progress is a new online magazine dedicated to sharing novel ideas and stories of progress, and features original writing from some of the most interesting thinkers in the world.”  The major individuals behind Works in Progress are Sam Bowman, Saloni Dattani, Ben Southwood, and Nick Whitaker, all with bios at the previous link, all strong intellectual forces.

Note also: “Works in Progress is always looking for new writers for upcoming issues and our blog. Reach out if you want to talk about writing for us, with a short summary or abstract of your piece.”

3. Alice Evans, lecturer at King’s College London.  Here is Alice on Twitter.  She is working on “”THE GREAT GENDER DIVERGENCE” What explains global variation in gender relations?” and here is her related blog on that same topic.  Here is her famous post on gender relations in north vs. south India.  Her home page also links to her podcast.

I do expect there will be further awards, and I will keep you posted (here is the original announcement).  If you just started writing a blog and submitted, you may still be in the running for the future. In the meantime, congratulations to these winners!

My Conversation with Matt Yglesias

Substantive, interesting, and fun throughout, here is the audio, video, and transcript.  For more do buy Matt’s new book One Billion Americans: The Case for Thinking Bigger.  Here is the CWT summary:

They discussed why it’s easier to grow Tokyo than New York City, the governance issues of increasing urban populations, what Tyler got right about pro-immigration arguments, how to respond to declining fertility rates, why he’d be happy to see more people going to church (even though he’s not religious), why liberals and conservatives should take marriage incentive programs more seriously, what larger families would mean for feminism, why people should read Robert Nozick, whether the YIMBY movement will be weakened by COVID-19, how New York City will bounce back, why he’s long on Minneapolis, how to address constitutional ruptures, how to attract more competent people to state and local governments, what he’s learned growing up in a family full of economists, his mother’s wisdom about visual design and more.

Here is one excerpt:

It was so much fun we even ran over the allotted time, we had to discuss Gilbert Arenas too.

Caleb Watney emails me

Hey Tyler,

Wanted to let you know that Alec Stapp and I are launching a new blog today called Agglomerations where we’ll be covering a wide range of tech + innovation policy issues.

My first piece today ties to disentangle technology, innovation, and industrial policy, as I feel the conversations there have been quite muddled as of late. I hope you enjoy it.

Emergent Ventures prizes for best new and recent blogs — Liberalism 2.0 fellows

In recent years, blogs and blog-like entities have proved one of the most effective ways of debating and advancing worldviews and debating ideas. Slate Star Codex, Andrew Sullivan’s The Dish, The Money Illusion, and Paul Graham’s essays are all influential examples. SSC introduced much of the world to the rationalist movement and Effective Altruism. The Dish was at the forefront of the intellectual case for gay marriage. With NGDP targeting, The Money Illusion successfully articulated the case for improvements in monetary policy. Paul Graham’s essays are part of the intellectual firmament behind the explosion of startups over the past 15 years. One could also look to Ben Thompson’s Stratechery, which popularized the subscription newsletter business model and provides some of the very best tech industry commentary. There is now a growing industry of independent Substacks, with Bill Bishop’s Sinocism an influential example.

In 2020, there is an undimmed need for new thinking around how the ideals of liberty and reason can best be applied. You need barely scratch the surface in our prevailing ideologies to find central questions almost completely unaddressed.

Surely better education is an important society-wide goal — but what is the liberal remedy to the failure of our public institutions (like education and healthcare) to generate improvements remotely commensurate with cost increases? Libertarianism remains a valuable critique, but what is a libertarian perspective on why the US can’t develop a COVID-19 vaccine more quickly, or why US universities are so homogeneous and ideological? Conservatives may take exception at the excesses of the so-called social justice movement — but what is a positive and properly balanced theory for how to right various inefficient (and unjust) social wrongs? Advocates for the free market will be biased against restrictions on cross-border trade, but should Indonesia not conclude that industrial policy was of high efficacy for many countries in northeast Asia? Those of a non-interventionist disposition may not worry too much about Taiwan’s near-term security, but would it not be a mistake to neglect the possibility that China’s rise may pose a growing threat to Taiwanese liberty?

It is tempting to believe that we must simply hew more closely to the works of the greats. In closer exegesis and more faithful obeisance to our Bentham, our Mill, our Smith, our Marx, our Hayek, or our Friedman, we’ll find the answers that we seek.

But there is an alternative and more appealing vision, namely that we need new ideas, new syntheses, and new arguments. That said, we need more argumentation and exposition than you will find on Twitter alone.

We therefore invite submissions to a new blog contest, as part of Emergent Ventures (Mercatus Center, George Mason University). Eligible entries:

– Are blogs or blog-like isomorphs. (Posts are reasonably frequent; content is freely available and linkable; at least some posts are mini-essays. Substacks do count, if freely available, noting you are not prohibited from later turning them into profit-making ventures.)

– Started in the past 12 months, or in the next six months.

– Explore ideas relevant to liberty, prosperity, progress, and the foundations of a free society.

“Web 2.0” was a coarse label applied to a broad set of software trends. In a similarly incompletely defined and unapologetic manner, and in homage to the internet-native aspect of these blogs, winners shall be deemed Liberalism 2.0 Fellows.

Within six months, and quite possibly sooner, an initial $100,000 prize will be awarded. Five further awards up to or at a comparable level will be possible if there are enough high-quality submissions (blogs started after this announcement are thus more likely to win the later awards, given the time to prove excellence, though in principle eligible for the first award too). To apply, simply email [email protected], with winners to be announced on Marginal Revolution. Please note that entries will not be acknowledged and only winners will be notified.

I look forward to seeing what you all come up with.

What should I ask Matt Yglesias?

I will be doing a Conversation with him, based in part on his new forthcoming book One Billion Americans: The Case for Thinking Bigger.  While I have not yet read it, I strongly expect it will be excellent.

And to be clear, this will be the conversation with Matt I want to have, not the one that you might think you wish to hear.

So what should I ask?

Who is excellent and why?

A few of you have written in and asked me why some people, such as Kevin Lewis and Samir Varma, are designated as say “the excellent Kevin Lewis” on Marginal Revolution.

It is simple — I view this recognition as resulting from a combination of their intelligence and persistence, and thus their excellence in finding and sending me links and interesting commentary.  (I have met them both, and they do seem to have other virtues, but those other virtues are not the ones being recognized here.)  The word is completely unironic.  I view “belief in excellence” as one of the underlying philosophies of MR, and also belief in the notion that excellence should be mentioned and promoted.

In this sense, those designations are quite similar to the ongoing series “My Favorite Things [xxxx]“.

This designation of excellence is also related to why MR does not spend a great deal of time on all of the political depredations of our time.  Yes, they are important, but I fear that focusing on them too much would a) make me stupider, and b) distract from an underlying vision of excellence I wish to communicate.  I am too selfish to wish to be made stupider in that manner.

More generally, for any media source you are reading, what is the underlying vision of excellence?  Or are they just pukers?

If you can trace their underlying vision of excellence (or lack thereof), you will understand much of their material much better.