Driving Buy: Pollution, Customers and Development
The literature on air pollution continues to grow. In an impressive paper, Bassi et al. show that firms in Uganda locate on busy roads, Busy roads are more polluted but there are more customers driving and they rely on direct customer acquisition, rather than advertising or marketing, to get customers.
Location choice thus entails a trade-off between pollution exposure, which we verify to be mainly driven by road traffic, and access to customers. We also use our survey data to argue that the benefits can be explained primarily by the fact that, as it is typically the case across the developing world, firms sell locally through face-to-face interactions and do not have any other means to access customers than to be as visible as possible to them. Therefore, proximity to busy roads is essential.
Locating along busy roads increases profits per worker but reduces life expectancy of workers by about two months. A two month loss in life expectancy is substantial. Uganda is so poor (GDP per-capita ~$720), however, that the authors find that an (imaginary) policy of randomly allocating firms would not be cost-effective. Randomly allocating firms, however, is only one potential policy–others include using more buses or instituting a congestion tax. India has higher per capita GDP than Uganda so if all else were equal many such policies would pay in India. One type of “firm” that I have seen locate on congested roads in India is beggars and street sellers. It’s obvious that they go where the customers are but at the price of locating in very polluted areas.
I argued in India recently that reduced pollution could increase GDP. I continue to think that is true on the margin–there is some low-hanging fruit.
In other pollution news. It is clear that pollution papers are becoming a growth industry and thus there are bound to be green jelly bean problems. I haven’t read either closely but I did note that Roy et al. find that pollution increases mutual fund errors and Du finds that pollution increases racist tweets. Well, maybe. The new pollution literature is credible but remember to trust literatures not papers.
Overrated or underrated?
Ramagopal asks: Peter Bauer, Mises, Joan Robinson
1. Peter Bauer is underrated. He was a brilliant development economist who wrote seminal early and detailed books on the rubber sector and also networks of West African trade. He also recognized the importance of the informal sector early on. He then moved into a more polemic mode, writing books on market-oriented development strategies and very critical of foreign aid. I believe at the time he was largely correct about foreign aid, though I would recognize also that since then the quality and effectiveness of foreign aid has improved considerably, most of all because the receiving governments have on average improved in quality.
His family had a coat of arms, linked above at his name.
I once met Bauer at a seminar at NYU, way back when. He reminded me of a character from LOTR and he had a thick mane of white hair. I believe Bauer was also one of the first well-known economists to come out as gay.
2. Mises is underrated. His 1922 book Socialism is still the best and also historically most important critique of socialism, ever. His earlier articles about the impossibility of economic calculation under socialism are among the most important economics articles, ever. Those are already some pretty important contributions, and yet he is often talked of as a crank, perhaps because in part some of his followers were indeed cranks.
Liberalism I quite like. His book Bureaucracy is underdeveloped but still pretty interesting, and his hypotheses about the logic of cascading interventionism, if not entirely correct, still are an important contribution to public choice. They do explain a lot of the data. Human Action is big, cranky, and dogmatic, but for some people a useful tonic and alternative to the usual stuff. I can’t say I have ever really liked it, and in an odd way the whole emphasis on “Man acts” undoes at least one part of marginalism. The early Theory of Money and Credit was a pretty good early 20th century book on monetary theory.
Hayek somehow ended up as “the reasonable face of classical liberalism,” but in fact Mises was far more politically correct by current standards.
Obviously there is a sliver of people who very much overrate Mises. Here is a guy who hardly anyone rates properly. I’m still sticking with considerably underrated.
3. Joan Robinson’s Theory of Imperfect Competition was a very important book, and it laid the groundwork for a lot of later thinking about market structure, both geometrically and conceptually. But she didn’t understand actual economics, was a Maoist, and seemed to like the regime of North Korea. So I have to say overrated. Her Accumulation of Capital also was no great shakes, though hardly her greatest sin. Her growth theory was far too Marxian, and far too fond of “Golden Rule” constructs, which are mechanistic rather than insightful as models ought to be. Her writings in Economic Philosophy were not profound. So she has one truly major contribution, but I can’t get past the really bad stuff.
Investment advice from Russell Napier
First of all: avoid government bonds. Investors in government debt are the ones who will be robbed slowly. Within equities, there are sectors that will do very well. The great problems we have – energy, climate change, defence, inequality, our dependence on production from China – will all be solved by massive investment. This capex boom could last for a long time. Companies that are geared to this renaissance of capital spending will do well. Gold will do well once people realise that inflation won’t come down to pre-2020 levels but will settle between 4 and 6%. The disappointing performance of gold this year is somewhat clouded by the strong dollar. In yen, euro or sterling, gold has done pretty well already.
Here is the full discussion, interesting throughout. He also says to expect widespread capital controls. To be clear, none of this is investment advice from me.
Saturday assorted links
2. “none of the countries that shared land borders w/ poland in 1989 (i.e. ussr, czechoslovakia, east germany) are around in 2022” Link here.
3. How Brian Eno created Music for Airports.
4. The Norwegian Century may continue unhindered (for now).
5. Correspondence of Quine now on-line.
6. One ranking of the safest cities in America. Why isn’t Provo on the list? In fact Provo’s crime rate seems to be not so low for the state of Utah.
German fiscal policy vindicated
And since German politicians have insane views on fiscal policy, they will probably say that the current experience actually validates their prior two decades of excessively tight fiscal policy. In reality, the current situation mostly shows that Germany wasted an opportunity to take advantage of a prolonged period of negative interest rates to create a national high-speed rail network³ and to make massive investments in home insulation.
That is from a Matt Yglesias Substack, gated but worth paying for. I agree Germany should have spent more on home insulation, but there are several ways of doing that in terms of the macro fiscal picture.
The broader point is that the current situation does in fact validate Germany’s prior two decades of tight fiscal policy. I think most of us agree that you should run budget surpluses in relatively good times, and budget deficits in relatively bad times. It now turns out those were in fact the relatively good times. The Germans worried that might be the case, and now it turns out they were right.
Did Bernanke and all that QE cause the current inflation?
That is the topic of my latest Bloomberg column, here is one excerpt:
Sometimes it is alleged that this “Bernanke inflation” was channeled into asset prices, such as equities and crypto, rather than retail or consumer prices. That hypothesis doesn’t fit the data, either. During most of Bernanke’s tenure, stock prices were broadly within historical norms, considering such measures as price-earnings ratios. Some particular stocks were overpriced, as is always the case, but stocks as a whole were not crazy high. As for crypto, inflation rates are much higher today — and crypto prices have been collapsing, not soaring.
More generally, it doesn’t make sense to talk of inflation or new money as being “trapped” in one particular sector. Assume for the sake of argument that somehow inflation was concentrated in the crypto sector. You might think that sellers of crypto could just turn around, take their sales receipts, and buy more crypto. Why would you act that way? If you are bullish on crypto, why initially sell at all? Even if you did end up selling, your initial crypto sale and subsequent purchase will more or less offset each other in the crypto sector.
The reality is that, if the new inflationary monetary injection somehow flowed first into the crypto sector, it would soon find its way into the broader economy and push up prices across the board.
Another claim I hear is that the Fed simply did too much quantitative easing, which was eventually going to catch up to the economy. It’s like pumping too much air into a balloon; sooner or later it has to burst.
But monetary policy does not work that way. It does have lags, but a major inflationary episode leads to noticeable increases in inflation in a bit more than a year, as has been shown by the research of Milton Friedman and others. The effects of new monetary policy do not sit idle for a decade or more.
No, in other words.
Catching up with the news cycle
1. The British government has done a fiscal policy U-Turn, but yields are back up again. I am not suggesting those market prices are the final verdict, but I do take that as a sign that the issue all along has been a) the competence of the government and its decision-making procedures, and b) general difficulties facing the UK, and not the absolute size of the fiscal policy changes under consideration.
2. The U.S. semiconductor chip controls on China are quite significant. Like price controls on Russian gas, they will either raise or lower the probability of war, and thus I find them difficult to evaluate. That does not mean we should do nothing, but it does mean I don’t have a very strong judgment. It might accelerate Chinese self-sufficiency in chip development, or perhaps accelerate an attempt to seize TSMC in Taiwan. Or it might simply cripple a major geopolitical rival. How good are the models and the empirics that we use to evaluate such situations? Not very good.
3. I’ve long considered Sunflowers a much overrated van Gogh painting. There were even longstanding debates over whether one version of it (not the version that was just attacked by eco-terrorists) was a fake, a sign that it actually isn’t the artist’s most subtle work. It seems it was a fake, but it took people a long time to figure this out. His portraits or sketches of shoes are often much better.
Friday assorted links
Telemedicine is Dying
Bloomberg: Prior to the Covid era, telehealth accounted for less than 1% of outpatient care, according to the Kaiser Family Foundation. Telehealth services have since surged, at their peak accounting for 40% of outpatient visits for mental health and substance use.
Unfortunately, as I warned last year telemedicine is being wound back as regulations which were lifted for the pandemic emergency are put back into place.
Telemedicine exploded in popularity after COVID-19 hit, but limits are returning for care delivered across state lines.
…Over the past year, nearly 40 states and Washington, D.C., have ended emergency declarations that made it easier for doctors to use video visits to see patients in another state, according to the Alliance for Connected Care, which advocates for telemedicine use.
…To state medical boards, the patient’s location during a telemedicine visit is where the appointment takes place. One of MacDonald’s hospitals, Massachusetts General, requires doctors to be licensed in the patient’s state for virtual visits.
I know people who have had to travel over the Virginia/Maryland border just to find a wifi spot to have a telemedicine appointment with their MD physician. Ridiculous.
….telemedicine innovations pioneered during the pandemic should remain as options. No one doubts that some medical services are better performed in-person nor that requiring in-person visits limits some types of fraud and abuse. Nevertheless, the goal should be to ensure quality by regulating the provider of medical services not regulating how they perform their services. Communications technology is improving at a record pace. We have moved from telephones to Facetime and soon will have even more sophisticated virtual presence technology that can be integrated with next generation Apple watches and Fitbits that gather medical information. We want medical care to build on the progress in other industries and not be bound to 19th and 20th century technology.
Plod has a bunch of questions
From my request for requests, here goes:
– What does the NYT do well? And conversely what are they bad at?
– What is your theory on the rising lack of male ambition?
– Why do modern fantasy authors (Martin, Rothfuss, others) not finish their works?
– If you were chief economist czar of the US, what is the policy would you implement first? In the UK?
– Will non-12-tone equal temperament music ever become popular?
– What do you think will become of charter cities like Prospera?
I will do the answers by number:
1. The New York Times can publish superb culture pieces, most of all when they are not pandering on PC issues. Their music and movie reviews are not the very best, but certainly worth the time. International coverage is high variance, but they have plenty of articles with information you won’t find elsewhere. Some of the finest obituaries. The best parts of the Op-Ed section are indispensable, and the worst parts are important to read for other reasons. Perhaps most importantly, the NYT has all sorts of random articles that are just great, even if I don’t always like the framing. Try this one on non-profit hospitals.
On the other side of the ledger, the metro and sports sections I do not very much read (probably they are OK?). The business section has long been skimpy, and is not currently at its peak. Historical coverage with racial angles can be atrocious. The worst Op-Eds are beyond the pale in their deficient reasoning, and there are quite a few of them. On “Big Tech” the paper is abysmal, and refuses to look the conflict of interest issues in the eye. They just blew it on a new Covid study. The book review section used to be much better, I think mainly because it has become a low cost way to appease the Wokies.
2. Male ambition in the United States is increasing in variance, not waning altogether. But on the left hand side of that distribution I would blame (in no particular order): deindustrialization, women who don’t need male financial support anymore, marijuana, on-line pornography, improved measurement of worker quality, the ongoing rise of the service sector, too much homework in schools, better entertainment options, and the general increasing competitiveness of the world, causing many to retreat in pre-emptive defeat.
3. Male fantasy writers do not finish their works because those works have no natural ending. There is always another kingdom, a lost family member, a new magic power to be discovered, and so on. And the successful fantasy authors keep getting paid to produce more content, and their opportunity cost is otherwise low. Why exactly should they tie everything up in a neat bow, as Tolkien did with the three main volumes of LOTR?
4. For the United States, I would have more freedom to build, massive deregulations of most things other than carbon and finance, and much more high-skilled immigration, followed by some accompanying low-skilled immigration. For the UK I would do broadly the same, but also would focus more on human capital problems in northern England as a means of boosting economic growth.
5. Non-12-tone equal temperament music is for instance very popular in the Arabic world, and has been for a long time.
6. I have been meaning to visit Prospera, but have not yet had the chance to go. I expect to. My general worries with charter cities usually involve scale, and also whether they will just get squashed by the host governments, which almost by definition are dysfunctional to begin with. Most successful charter cities in history have had the support of a major outside hegemon, such as Hong Kong relying on Britain.
Subsidizing lower gas consumption
1) Why is all of the policy discussion in Europe focused on subsidizing consumption of gas rather than on subsidizing the reduction in consumption of gas. The latter approach is consistent with the German/European policy of moving to greater reliance on renewable energy. Subsidizing reduction in consumption also reduces the risk of shortages if the Northern winter is severe. The policy is straightforward to implement for households but is a little more difficult for to implement for businesses as some may profitably choose to reduce employment and or output which would be politically difficult. However, this problem can be remedied with he combination of, for example, an employment subsidy together with the subsidy paid for reduced use of gas.
That is from my email, from economist Don Harding.
Thursday assorted links
1. “Across 10 studies using mixed methods and different measures of deviant behavior, we provide evidence that masks are a moral symbol in China that reduces wearers’ deviant behavior by heightening their moral awareness.” Link here, speculative.
2. Jeff Sachs interview with the Teheran Times, suggesting that maybe that Covid came out of a U.S. lab, posted on the Jeff Sachs web site. Hard for me to imagine giving such an interview to the Teheran Times.
4. New issue of Works in Progress.
5. In the U.S. chess championship, which has new and stronger anti-cheating protocols, Hans Niemann is 13th in a field of 14.
6. It seems women do not pay more for goods. But perhaps tariffs fall disproportionately on women (because of apparel).
Lifecycle Investing
and
Investors often think of diversification as a free lunch—it allows them to maintain returns while reducing risk. But most people only get part of diversification right, and that can hurt them later in life.
With traditional diversification, people spread money around different kinds of investments to mitigate risk. That approach misses a key opportunity: “diversifying” how you invest over time.
Most people start investing with a small amount of money, because that is all they can afford, and ramp it up as their earnings grow. But investing so much later in life unnecessarily puts people at greater risk when they are close to retirement. They end up with far greater exposure to stock-market risk in their 50s and 60s than in their 20s and 30s, even if they are buying diversified mutual funds.
We propose a different method: People ought to borrow money to make their initial investments larger, so that they can invest closer to the same amount every year over their lifetime. Think of investing $2 a decade steadily for three decades, instead of $1 for the first, $2 for the next and $3 for the third.
…Sound risky? Consider that young people do the same thing with housing when they borrow money to buy a house they live in for decades—and there the leverage often involves borrowing $9 for every $1 of equity. We propose borrowing only $1 for each $1 invested. Limiting ourselves to 2:1 leverage means we don’t hit a perfectly even market exposure over time, but gets us closer to that ideal.
Most people won’t do this because unlike a home-mortgage it’s a non-standard idea. It could be standardized, however, with retirement planning products. Regardless, I agree with Ayres and Nalebuff that young people should be 100% in equities. Of course, the equity-basket should be diversified, national and internationally, and young people should follow a buy and hold strategy while being very aggressive on the equity-debt mix. Also, if, as you get older, you expect to make a bequest you should continue to be aggressive on the portion of your portfolio you expect be passed on to your beneficaries.
Emergent Ventures, 22nd cohort
Emily Karlzen, Arizona, Founder and CEO of Arch Rift, to develop an astronaut helmet for commercial space flight.
Mehran Jalali, for building energy storage systems, NYC, grew up in Iran.
Kyle Redlinghuys, a further award, recently launched an API to make the data from the James Webb Space Telescope available.
Pranav Myana, 18, University of Texas, Austin, working on incorporating renewable power into the grid.
Brian Chau, Waterloo (Canada), general career support for writing and podcasting. Here is his Substack.
Cathal J. Nolan, historian, Boston University, to write a book on the relationship between war and progress. Just learned he was born in Dublin.
Cynthia Haven, Stanford University, to write a book on John Milton and the 17th century. Twitter here.
Harsehaj Dhami, 17, lives in Ontario, to visit a Longevity conference in Copenhagen. LinkedIn here.
Jackson Oswalt, Knoxville, builds things, AR/XR stuff, for general career support. In the Guinness Book of World Records for achieving a nuclear fusion reaction at age 12.
Miguel Ignacio Solano and Maria Elena Solano, Bogota/Cambridge, MA, co-founders of VMind, an artificial intelligence project.
Brian Kelleher, 18, Dublin, to improve software for doctors.
Devon Zuegel, to develop a new village and community, Twitter here.
Rodolfo Herrera, Pensamiento Libre, market-oriented Facebook and YouTube videos for Mexico.
Alia Abbas, 19, Maryland, to study biochemistry and materials and for general career development.
There are two other projects not yet ready for public announcement.
Ukraine tranche: There is now a new Emergent Ventures Ukraine.
Julia Brodsky, Maryland, former instructor of astronauts. To support educational efforts to teach on-line STEM and other subjects to Ukrainian children in refugee camps.
Uliana Ronska, 17, Prague and Netherlands currently. She is doing research on problems of triangulating fast-moving stars. It was also under her leadership that her team won ExPhO, CETO, and 2 all-Ukrainian Motion physics olympiads. For general career development.
Demian Zhelyabovskyy, currently at Bromsgrove School in the UK, from Kyiv. Last year he won first place in the All-Ukrainian Physics Marathon; also he and his teammates won the Experimental Physics Olympiad (ExPhO) and Computer Experiment Team Olympiad (CETO). For general career support, and for the physics paper he is currently co-authoring.
Tymofiy Mylovanov, representing the Kyiv School of Economics, to nurture talent development for Ukraine. Tymofiy as an individual was also the very first Emergent Ventures winner.
Congratulations to all, I am honored to be working with you!
Price caps on Russian oil and gas
A number of you have written in to ask what I think of the recent economists’ letter to Janet Yellen, proposing such price caps. I don’t disagree with any of their economics, but I am less convinced this is a good idea. This strikes me as a paramount example of what I call “foreign policy first.” There is some chance that Russia initiates a nuclear attack, or takes some other set of drastic steps. Does this price cap raise or lower that chance? I genuinely do not know. And thus for that reason I am agnostic about the policy. The nuclear expected value calculations would seem to outweigh the other aspects of the proposal, and those calculations are beyond my ability to assess with much accuracy.
Often, when I have nothing to say, it is because I do not know exactly what to say.