I find this moderately sad (do not share)
One study of 7,000 New York Times articles by two professors at the University of Pennsylvania’s Wharton School found that sad stories were the least shared because sadness is a low-arousal, negative state. People were more likely to share positive stories because it was a way to show generosity and boost their reputations. Sharing pleasant things in public made them appear nice themselves.
That is from a gated piece by John Gapper. To paraphrase Robin Hanson, “sharing isn’t about sharing.”
Interview with John Cochrane
There are many interesting bits from the interview, sometimes polemic bits too, here is one excerpt:
EF: What do you think are the biggest barriers to our own economic recovery?
Cochrane: I think we’ve left the point that we can blame generic “demand” deficiencies, after all these years of stagnation. The idea that everything is fundamentally fine with the U.S. economy, except that negative 2 percent real interest rates on short-term Treasuries are choking the supply of credit, seems pretty farfetched to me. This is starting to look like “supply”: a permanent reduction in output and, more troubling, in our long-run growth rate.
This part reminds me of some ideas in my own Risk and Business Cycles:
There is a good macroeconomic story. In a business cycle peak, when your job and business are doing well, you’re willing to take on more risk. You know the returns aren’t going to be great, but where else are you going to invest? And in the bottom of a recession, people recognize that it’s a great buying opportunity, but they can’t afford to take risk.
Another view is that time-varying risk premiums come instead from frictions in the financial system. Many assets are held indirectly. You might like your pension fund to buy more stocks, but they’re worried about their own internal things, or leverage, so they don’t invest more.
A third story is the behavioral idea that people misperceive risk and become over- and under-optimistic. So those are the broad range of stories used to explain the huge time-varying risk premium, but they’re not worked out as solid and well-tested theories yet.
The implications are big. For macroeconomics, the fact of time-varying risk premiums has to change how we think about the fundamental nature of recessions. Time-varying risk premiums say business cycles are about changes in people’s ability and willingness to bear risk. Yet all of macroeconomics still talks about the level of interest rates, not credit spreads, and about the willingness to substitute consumption over time as opposed to the willingness to bear risk. I don’t mean to criticize macro models. Time-varying risk premiums are just technically hard to model. People didn’t really see the need until the financial crisis slapped them in the face.
I’ve long believed the risk premium is the underexplored variable in macroeconomics and finally this is being rectified.
China fact of the day
More than 61 million children — about one-fifth of the kids in China — live in villages without their parents. Most are the offspring of peasants who have flocked to cities in one of the largest migrations in human history. For three decades, the migrants’ cheap labor has fueled China’s rise as an economic juggernaut. But the city workers are so squeezed by high costs and long hours that many send their children to live with elderly relatives in the countryside.
There is more here, via David Wessel.
Assorted links
1. La Repubblica covers Average is Over, in Italian.
2. Various economists on what we learned from 2013.
3. Scott Sumner also will be doing some guest-blogging at EconLog.
4. Scientists’ favorite jokes.
5. James Hamilton is right about Craig Pirrong.
6. Can you be paid to teach a university course which simply does not exist?
Green Wednesday: Colorado pot shops are opening today
Meanwhile, back in the so-called real world, Colorado is pursuing its legalization experiment to a logical conclusion:
Police were adding extra patrols around pot shops in eight Colorado towns that plan to allow recreational sales to anyone over 21 on Jan. 1. Officials at Denver International Airport installed new signs warning visitors their weed can’t legally go home with them.
And at a handful of shops, owners were scrambling to plan celebrations, set up coffee stations, arrange food giveaways and hire extra security to prepare for potential crowds and overnight campers ready to buy up to an ounce of legal weed.
While smoking pot has been legal in Colorado for the past year, so-called Green Wednesday represents another historic milestone for the decades-old legalization movement: the unveiling of the nation’s first legal pot industry.
Here are further details on Green Wednesday., including this: “Federal law says the drug’s possession, manufacture, and sale is illegal, punishable by up to life in prison…” I wonder if this experiment in federalism will survive our next Republican President. My prediction has long been that this kind of legalization will not persist, but the chance I am wrong has been rising.
Out-of-staters, by the way, can purchase only a quarter ounce at a time and are not supposed to carry the pot outside Colorado borders. There is also this:
Colorado projects $578.1 million a year in combined wholesale and retail marijuana sales to yield $67 million in tax revenue, according to the Legislative Council of the Colorado General Assembly. Wholesale transactions taxed at 15 percent will finance school construction, while the retail levy of 10 percent will fund regulation of the industry.
Happy public domain day!
I received this email from James Boyle at Duke:
Dear Tyler, An early Happy New Year to you and your family — I hope all is well? You may remember our annual survey of the stuff that would be entering the public domain if we had the copyright laws from 1976.
The list this year is a particularly scrumptious one. The mouseover of the book covers is another pleasure.· Samuel Beckett, Endgame (“Fin de partie”, the original French version)· Jack Kerouac, On the Road (completed 1951, published 1957)· Ayn Rand, Atlas Shrugged· Margret Rey and H.A. Rey, Curious George Gets a Medal· Dr. Seuss (Theodor Geisel), How the Grinch Stole Christmas and The Cat in the Hat· Eliot Ness and Oscar Fraley, The Untouchables· Northrop Frye, Anatomy of Criticism: Four Essays· Walter Lord, Day of Infamy· Studs Terkel, Giants of Jazz· Corbett H. Thigpen and Hervey M. Cleckley, The Three Faces of Eve· Ian Fleming, From Russia, with Love· A.E. Van Vogt, Empire of the Atomhttp://web.law.duke.edu/cspd/publicdomainday/2014/pre-1976
Movies:
The Incredible Shrinking Man, The Bridge on the River Kwai, A Farewell to Arms, Gunfight at the O.K. Corral, 3:10 to Yuma, 12 Angry Men, Jailhouse Rock, Funny Face, An Affair to Remember, Nights of Cabiria and The Seventh Seal..
(Is this list depressing when set against 2013?)
In the world of fine arts, Picasso’s Las Meninas set of paintings… only themselves legal because no copyright covered Velazquez’s.. would also be entering the public domain.
A short disquisition on the value of Litecoin
That is from Izabella Kaminska. Here is Wikipedia on Litecoin.
Assorted links
1. The lost art of the cutaway.
2. On net, will these trends make the country more or less libertarian? And Sarah Binder on whether we have gridlock.
3. Peter Thiel’s graph of the year is about student debt.
4. By Neil Shah, the evolution of heavy metal drumming. And can a computer enter Tokyo University? Can robots better spot terrorists at airports?
5. Cities should diversify, not specialize.
6. Is fusion going to end up working? That’s nuclear fusion, not Asian fusion cuisine.
7. Scott Winship and David Schneider on mobility and inequality.
Where are people respected the most?
Following up on Noah Smith’s earlier blog post, we discussed this question at lunch. Noah cites Japan as a country where there is a high degree of respect granted, and a relatively high equality of respect, and very likely that is true for artisans, manufacturing workers, foreign dignitaries, and foxes. But is it true more generally if we take into the position of women, who are often locked out of good jobs? How about the position of the young “lost generation,” namely all those guys with virtual girlfriends, who have given up on real sex and won’t leave their apartments? How about various minorities in Japanese society, such as the ethnic Koreans? Does Japan lose out on the forms of respect that come from large, extended families, as you might find say in Sicily?
Those judgments have some subjective elements, but I do think they bring Japan down a few notches when it comes to respect and equality of respect.
Oddly I think of the United States as a country with a fair degree of both respect and equality of respect. The diversity of niches and the diverse geography create many pathways for being thought highly of, or for thinking highly of oneself, and there are many insulations from the overweening standards of elites. And we have plenty of indifference, which is a kind of equality of respect, albeit not to be confused with respect per se.
Arguably the most powerful and influential men find plenty of respect in just about any society. A lot of the cross-national variation in respect might come on the female side of the ledger. That would likely favor the Nordic countries and Iceland in a ranking of respect.
Cowen’s Third Law says there is a literature on everything, but the most obvious Google searches did not yield concrete results. (There is however Richard Sennett’s Respect in a World of Inequality.) Can any MR readers speak to the empirical knowledge on this question? We all know the literature on happiness across nations, but here we are interested specifically in respect, where people are respected the most, and where equality of respect is most robust.
How would one go about measuring respect?
Addendum: Justin Wolfers suggest this link, and some Gallup World Poll data, showing respect is positively correlated with wealth:
Request from MR commentator “Is disaggregate the word I want?”
A short while ago, he asked this:
taking requests? I doubt if, but here goes anyway – charisma half-life of Taylor Swift, Jorge Bergoglio, and James Levine as seen fifty years from now; when will the unquestionably converging IQs of point guards, quarterbacks, and chess champions meet up; what would life be like for a tenured economics professor who decides to spend a year studying midAtlantic Lepidoptera in the wild and learning Norwegian; Peter Hitchens versus Christopher Hitchens – who was or is less deceptive and deceived, assuming an ability to consider them as intellectual equals; how old was TC when he read “all of Harold Bloom’s canon” leaving out some of the Icelandic sagas. Not that any of these topics will be taken up, but if TC or Alex takes one of them seriously how about the Hitchens one, which has the whole Pascalian eternal potential return thing going for it.
Happy New Year’s Eve! And yes, I think disaggregate is indeed the word you want.
Note that Alex’s answers may differ from these.
Any more reader requests?
Uber-Economist
Uber is hiring economists. Looks like an interesting job:
Urban transportation has looked the same for a long time – a really long time – thanks in large part to regulatory regimes that don’t encourage innovation. We think it’s time for change. We’re a tech company sure, and we’re working in the transportation space, but at the end of the day we’re disrupting very old business models. Our Public Policy team prefers winning by being right over some of the darker lobbying arts, and so we’re looking for a Policy Economist to tease smart answers to hard questions out of big data. How do the old transportation business models impact driver income? What effect if any is Uber having on the housing market or drunk driving or public transit? To what extent are the different policy regimes in New York City and Taipei responsible for different transportation outcomes? Just a few of the questions we want you to dig on.
On-line education at the AEA meetings in Philadelphia
I can recommend to you all the session Economics Education in the Digital Age, scheduled for Saturday, January 4, at 10:15 a.m.
Nancy Rose is chairing the proceedings and presented papers will be by Caroline Hoxby, Banerjee and Duflo, and Acemoglu, Laibson, and List, as well as by Alex and myself. They are all very interesting papers, as you would expect from these economists.
Lucian Freud on gambling
Gambling is only exciting if you don’t have any money.
That is from the excellent Breakfast with Lucian: The Astounding Life and Outrageous Times of Britain’s Great Modern Painter, by Geordie Greig.
How and why Bitcoin will plummet in price
My post from yesterday was perhaps not specific enough, so let me outline one possible scenario in which the value of Bitcoin (and other cryptocurrencies) would fall apart. For purposes of argument, let’s say that a year from now Bitcoin is priced at $500. Then you want some Bitcoin, let’s say to buy some drugs. And you find someone willing to sell you Bitcoin for about $500.
But then the QuitCoin company comes along, with its algorithm, offering to sell you QuitCoin for $400. Will you ever accept such an offer? Well, QuitCoin is “cheaper,” but of course it may buy you less on the other side of the transaction as well. The QuitCoin merchants realize this, and so they have built deflationary pressures into the algorithm, so you expect QuitCoin to rise in value over time, enough to make you want to hold it. So you buy some newly minted QuitCoin for $400, and its price springs up pretty quickly, at which point you buy the drugs with it. (Note that the cryptocurrency creators will, for reasons of profit maximization, exempt themselves from upfront mining costs and thus reap initial seigniorage, which will be some fraction of the total new value they create, and make a market by sharing some of that seigniorage with early adopters.)
Let’s say it costs the QuitCoin company $50 in per unit marketing costs for each arbitrage of this nature. (Alternatively you can think of that sum as representing the natural monopoly reserve currency advantage of Bitcoin.) In that case both the company and the buyers of QuitCoin are better off at the initial transfer price of $400 and people will prefer that new medium. Over time the price of Bitcoin will have to fall to about $450 in response to competition.
But of course the story doesn’t end there. Along comes SpitCoin, offering to sell you some payment media for $300. Rat-FacedGitCoin offers you a deal for $200. ZitCoin is cheaper yet. And so on.
Once the market becomes contestable, it seems the price of the dominant cryptocurrency is set at about $50, or the marketing costs faced by its potential competitors. And so are the available rents on the supply-side exhausted.
There is thus a new theorem: the value of WitCoin should, in equilibrium, be equal to the marketing costs of its potential competitors.
This theorem will hold even if you are very optimistic about market demand and think that grannies will get in on it. In fact the larger the network of demanders, the lower the marginal marketing cost may be — a bit like cellphones — and that means even lower valuations for the dominant cryptocurrency.
(It is an interesting question what fixed, marginal, and average cost look like here. Arguably market participants will not accept any cryptocurrency which is not ultimately and credibly fixed in supply, so for a given cryptocurrency the marginal cost of marketing more at some point becomes infinite. Marginal cost of supply for the market as a whole is perhaps the (mostly) fixed cost of setting up a new cryptocurrency-generating firm, which issues blocks of cryptocurrency, and that we can think of as roughly constant as the total supply of cryptocurrency expands through further entry. In any case this issue deserves further consideration.)
Note that the more “optimistic” you are about Bitcoin, presumably you should also be more optimistic about its future competitors too. Which means the theorem will kick in and you should be a bear on Bitcoin price. Arguably it’s the bears on the general workability of cryptocurrencies who should be bullish on Bitcoin price because a) we know Bitcoin already exists, and b) we would have to consider that existence an unexpected and unreplicable outlier of some sort. Yet the usual demon of mood affiliation denies us such a consistency of reasoning, and the cryptocurrency bulls are often also bulls on Bitcoin price, as too many of us prefer a consistency of mood!
In theory
Now, theoretically, you might believe that the current price of Bitcoin already reflects exactly those marketing costs of potential competitors and thus the current equilibrium is stable or semi-stable. Maybe so, but I doubt that. The current value of outstanding Bitcoin is about $20 billion or so, and it doesn’t seem it cost nearly that much to launch the idea. And now that we know cryptocurrencies can in some way “work,” it seems marketing a competitor might be easier yet. (You will note that by its nature, there are some Bitcoin imperfections permanently built into the system, imperfections which a competitor could improve upon. Furthermore the longer Bitcoin stays in the public eye, the more likely that an established institution will label its new and improved product LegitCoin and give it a big boost.)
You can think of that $20 billion — or perhaps just some chunk of that? — as a very rough measure of the prize to be won if you can come up with a successful Bitcoin competitor. Even a fraction of that sum will spur some real effort.
In short, we are still in a situation where supply-side arbitrage has not worked its way through the value of Bitcoin. And that is one reason — among others — why I expect the value of Bitcoin to fall — a lot.
I thank Brad DeLong for an email query and analysis which sparked this blog post.
Addendum: Maybe I’ll write another post on the possible expected deflationary bias in any cryptocurrency, given that expected price changes usually get compressed into the present and that an overall expected rate of return equality must hold. And the question of how much an initial issuer can exempt itself from mining costs as a form of reaping upfront seigniorage. and the profit-maximizing way of sharing these gains with early adopters. Those are two hanging issues with respect to the analysis here, in addition to the matter of cost structure discussed in the parentheses above. And now go reread Kareken and Wallace (1981). “=/∞” I think one has to say here.
Assorted links
1. A relationship in five minutes.
2. First they have Scarlett Johansson play an operating system, then Jessica Alba as a Borneo tribeswoman, what will be next?
3. Ten simple points on how to be nettlesome.
4. Preserved moments of historical sass (volume seven).