Very Expensive Affordable Housing
In my post Affordable Housing is Almost Pointless, I highlighted how point systems for awarding tax credits prioritize DEI, environmental features, energy efficiency, and other secondary goals far more than low cost. A near-comic example comes from D.C., where so-called affordable housing units now cost between $800,000 and $1.3 million dollars each!
One such unit includes a “rooftop aquaponics farm to produce fresh fruits and vegetables for its tenants.” Another boasts “a fitness room to encourage physical activity, a library, a large café with an outdoor terrace, a large multi-purpose community room with a separate outdoor terrace, an indoor bike room, on-site laundry, lounges and balconies on every floor.”
The issue isn’t that the poor are getting better housing than many working-class D.C. residents. It’s that, with finite resources, the city could fund twice as many units at $400,000 than at $800,000. Secondary goals have overwhelmed affordability.
“There’s the desire of policymakers to ensure that affordable housing meets lots of other goals,” said Carolina Reid, an associate professor at the University of California at Berkeley who studies affordable housing costs. They tend to be worthy goals, she said, but they drive up costs, which results in fewer affordable housing units being built for those in need.
A report released in April by the nonprofit research organization Rand similarly said “unprecedented cost increases” in recent years have been due “in large part to the adoption of policies that prioritize factors other than the efficient production of affordable housing units.”
Of course, as costs rise, various groups along the way also get their slice of a bigger pie.
The kicker? Market-rate housing is cheaper to build than affordable housing!
Next door, the same developers built the Park Kennedy, for mostly market-rate tenants, at a per-unit cost of about $350,000, records show.
This is one reason I much prefer housing vouchers, aka Section 8, to government subsidized “affordable” housing.
Avila, Spain
The town has amazing, quite intact walls from the 11th-14th centuries, and also three (!) of the most beautiful churches in Spain. It is only about ninety minutes from Madrid, yet I have not seen North American tourists here.
This morning it struck me to see a large number of Avila children reenacting the “lucha entre los christianos y los moros” [fight between the Christians and Moors] with toy swords and costumes, some of them dressed up like Saudis in their full garb. This made an impression on me because the Mexican village I used to visit, San Agustin Oapan, has a very similar fiesta, and here is the history of how the fiesta was transmitted, dating back to the 16th century. Even the dances and toy swords felt familiar to me. How many of them in Oapan even know what “the moros” are? I recall during my second visit to Oapan I was shocked to learn they did not know what China was, or that there was a Pope, even though they were Catholic. That all changed rapidly with the later arrival of satellite television of course.
In any case, Avila, along with the nearby Roman aquaducts of Segovia, is a much underrated visit, underrated at least in North America.
On German romanticism (from my email)
Tyler,
I’ve been thinking about what might be the most underrated aspect of your intellectual formation, and I believe it stems from Germany. You’ve mentioned studying Goethe closely, and “manysidedness” is a quality you prize highly in “GOAT” (which I’m currently reading during my lunch breaks).
Another aspect would be your sometimes extreme artistic taste, such as your penchant for brutalism or Boulez. This, too, is romantic and German.
Your recent emphasis on being a “regional thinker” strikes me as quite Herderian.
These elements from German romanticism are not, to be clear, predominant in your thought, but without them you would surely be a different thinker.
I myself am somewhat biased against German romanticism, as I see it as a strain of thought that culminated in the Pangerman folly. The second – perhaps even more important – reason is that it disturbed the development of Polish intellectual life. These intellectual currents also distorted French philosophy, which in turn transformed minds across the Atlantic (for the worse).
I’m curious about your current relationship with German romanticism and how you see it in retrospect. Perhaps you could expand on it in one of your ‘autobiographical’ series.
Best,
KrzysztofP.S. I highly recommend Albert Béguin’s book on German romanticism. It hasn’t been translated into English, but you can find a Spanish translation titled “El Alma romántica y el sueño”. The minor Romantic philosophers built peculiar and astonishing systems. Part of me admires their subtle efforts; part of me pities how fruitless they were.
On the mark, that is from Krzysztof Tyszka-Drozdowski. For the time being, I will note simply that the importance I attach to elevating aesthetics is one of the most important marks from this heritage.
I podcast with Azeem Azhar on the speed of AI take-off
Substack: https://www.exponentialview.co/p/ai-and-growth-tyler-cowens-20-year
X: https://x.com/azeem/status/1930226966139154510
Linkedin: https://www.linkedin.com/posts/azhar_my-advice-to-20-year-olds-navigating-the-activity-7335993878912622592-8c9Z?utm_source=share&utm_medium=member_desktop&rcm=ACoAACj_5X0Bmd-vBkHG0NIIQdYLk_OwGAcChH8
Youtube: https://youtu.be/3Bc_eXNCvlg?si=J7scE8ukZVxLAGXu
Simplecast: https://player.fm/series/azeem-azhars-exponential-view-2447657/tyler-cowen-on-how-ai-will-reorder-economies-schools-and-spirituality
Friday assorted links
1. Claude, with human oversight, is writing its own blog.
2. Larry Summers on Stanley Fischer.
3. My SEJ piece with Alex T., on avant-garde culture, makes it to TikTok.
4. Per Norgard, RIP (NYT).
5. Is Britain going all-in on nuclear power?
6. “An auto driver in Mumbai is earning Rs 5-8 lakh a month without driving by offering a bag-keeping service outside the US Consulate, where bags are prohibited. He earns ₹1,000 per bag and serves 20–30 customers daily.” Link here.
7. Claims about neurons and light. Speculative and unconfirmed, but if true does not ease the path for ASI.
Ideological Reversals Amongst Economists
Research in economics often carries direct political implications, with findings supporting either right-wing or left-wing perspectives. But what happens when a researcher known for publishing right-wing findings publishes a paper with left-wing findings (or vice versa)? We refer to these instances as ideological reversals. This study explores whether such researchers face penalties – such as losing their existing audience without attracting a new one – or if they are rewarded with a broader audience and increased citations. The answers to these questions are crucial for understanding whether academia promotes the advancement of knowledge or the reinforcement of echo chambers. In order to identify ideological reversals, we begin by categorizing papers included in meta-analyses of key literatures in economics as “right” or “left” based on their findings relative to other papers in their literature (e.g., the presence or absence of disemployment effects in the minimum wage literature). We then scrape the abstracts (and other metadata) of every economics paper ever published, and we deploy machine learning in order to categorize the ideological implications of these papers. We find that reversals are associated with gaining a broader audience and more citations. This result is robust to a variety of checks, including restricting analysis to the citation trajectory of papers already published before an author’s reversal. Most optimistically, authors who have left-to-right (right-to-left) reversals not only attract a new rightwing (left-wing) audience for their recent work, this new audience also engages with and cites the author’s previous left-wing (right-wing) papers, thereby helping to break down echo chambers.
That is from a new paper by Matt Knepper and Brian Wheaton, via Kris Gulati. If it is audience-expanding for researchers to write such papers, does that mean we should trust their results less?
Claims about debt and productivity growth
- To stabilize the debt-to-GDP ratio through productivity growth, we’d need to grow at an unrealistically fast rate. If productivity growth was 0.5 percentage point per year faster than CBO expects throughout the next three decades, then the ratio of debt-to-GDP would be stabilized. These estimates don’t include the effects of the 2025 tax bill now being debated in Congress; if that bill is enacted in the form it passed the House, we’d need even higher rates of productivity growth to stabilize the debt-to-GDP ratio.
- Pro-growth policies alone won’t get us there. The authors examine seven policy areas–immigration, housing, the safety net, electricity transmission, R&D, taxes on business investment, and permitting–and find no evidence that, even taken together, they can produce a sustained, large enough increase in productivity growth to offset their potential direct budgetary cost and significantly reduce the deficit.
- But while tax hikes and spending cuts will be needed, pro-growth policies could lessen the pain. Some policy changes in those areas would boost economic growth, and some of those changes would do so at a low enough direct budgetary cost that they would lower the trajectory of debt relative to GDP. For example, increasing the immigration of high-skilled workers or relaxing restrictions on housing construction would increase economic growth and lower the trajectory of debt.
- Pro-growth regulatory changes are especially promising. Some of these regulatory changes would be deregulatory–for example reforming permitting for infrastructure–and others would strengthen regulation–for example federal intervention to improve electricity transmission. Tax cuts, in contrast, directly widen budget deficits, and evidence suggests that they very rarely have a big enough impact on growth to offset those direct deficit increases.
That is from a new study by Douglas Elmendorf, Glenn Hubbard, and Zachary Liscow.
New MRU video on the demand curve
The wisdom of Conor Sen
30-year yields down 25bps since the House passed One Big Beautiful Bill.
It’s weird to me how this isn’t the consensus view. And OBBB + tariffs is tighter net fiscal policy than we would’ve gotten with Kamala plus a GOP Senate.
Both from X, here and here. The “relative to the counterfactual” is a critical point here, still this perspective is somewhat neglected, especially now with the whole big popcorn scramble thing and the feud.
How to find the most talented people on earth
That is the title of my latest Free Press essay. Here is one relevant excerpt:
The suburbs of Toronto are one of the world’s most neglected talent areas. Cities such as Mississauga or Brampton are now quite familiar to me, because so many Emergent Ventures winners grew up there.
Virtually all of these young applicants from Ontario are either immigrants or children of immigrants. My (unconfirmed) hypothesis is that the most ambitious immigrant families decide to live in Ontario rather than other parts of the country. After all, so much of the opportunity is there because Toronto is the largest and most important city in the country. But they cannot afford Toronto proper, and so they end up in the suburbs. These teenagers have a stable and productive environment, but because of their backgrounds, typically from poorer countries, they do not take success or prosperity for granted. That is an ideal combination of factors for success.
There is great food in that region as well.
Thursday assorted links
No Exit, No Entry
In our textbook, Modern Principles, Tyler and I contrast basic U.S. labor law, at-will employment—where employers may terminate workers for any reason not explicitly illegal (e.g., racial or sexual discrimination), without notice or severance—with Portugal’s “just cause” regime, which requires employers to prove a valid reason, give advance notice, pay severance, and endure extensive regulatory and court involvement before terminating any workers.
Portugal’s laws look pro-worker until you realize that making it more difficult to fire also makes it more difficult to get hired: As we write in MP:
Imagine how difficult it would be to get a date if every date required marriage? In the same way, it’s more difficult to find a job when every job requires a long-term commitment from the employer.
As a result, European unemployment rates—especially for youth and high-risk groups (minorities, immigrants, the less-educated)—tend to exceed those in the U.S. and dynamism is lower.
Like Portugal, India makes it very difficult to fire workers, especially for firms with more than 100 employees. As a result, Indian firms are too small to succeed. Rajagopalan and Shah write:
India’s business regulatory framework consists of an overwhelming 1,536 laws, 69,233 compliance requirements, and 6,632 filings at the Union and state levels cumulatively, which Manish Sabharwal has dubbed India’s “regulatory cholesterol.” This regulatory cholesterol incentivizes firms to limit their size or operate in the informal sector to avoid compliance costs, thereby bifurcating the labor market into a small formal workforce and a large group left vulnerable in the informal sector. India’s labor laws are among the most rigid, contributing to jobless growth and increasing informality.
High hiring/firing costs aren’t the only exit barriers. British/American bankruptcy law, for example, aims to reduce the transaction costs of bankruptcy–quickly and efficiently shifting ownership to creditors, for example–in order to maximize the “scrap value” of a firm. Bankruptcy law in other countries often aims to discourage liquidation. Until ~2017, India had no well-specified bankruptcy law. Even today, the bankruptcy law is honored more in the breach as politicians and judges interfere in large bankruptcy proceedings. Thus, it can take more than 4 years to close a firm in India, if all goes well, and much longer if there are intervening factors. As a result, India has a very high percentage of “dormant firms,” firms–often with employees–but zero output.
In No Country for Dying Firms: Evidence from India, Chatterjee, Krishna, Padmakumar, and Zhao use firm‐level data and a structural model to estimate various exit costs and their effects. Their findings: exit barriers reduce entry, investment, and aggregate productivity.
Three points stand out. First, a simple but often overlooked point. Exit costs trap resources in unproductive firms, depriving more efficient firms of the inputs they need to grow. Second, governments typically focus on entry—offering tax breaks, land, and subsidies to attract firms—because ribbon-cutting is politically rewarding. But the author’s models suggest it’s more effective to subsidize exit. Picking winners is hard; picking losers is easier. Of course, direct subsidies for exit are unlikely and unwise but reforms like streamlined bankruptcy, faster courts, and lower firing costs achieve the same goal and the losers self-select.
Third, the authors argue that improving bankruptcy law—more broadly, reducing the cost of capital reallocation—should take time-priority over reducing firing costs. Capital reallocation raises employment by moving resources to more productive firms. Once that groundwork is laid, labor law reform is more likely to succeed and endure politically.
Thus, unusually, these economists offer not just policy prescriptions but politically savvy guidance on sequencing reform.
Dwarkesh on slow AI take-off
I’ve probably spent over a hundred hours trying to build little LLM tools for my post production setup. And the experience of trying to get them to be useful has extended my timelines. I’ll try to get the LLMs to rewrite autogenerated transcripts for readability the way a human would. Or I’ll try to get them to identify clips from the transcript to tweet out. Sometimes I’ll try to get it to co-write an essay with me, passage by passage. These are simple, self contained, short horizon, language in-language out tasks – the kinds of assignments that should be dead center in the LLMs’ repertoire. And they’re 5/10 at them. Don’t get me wrong, that’s impressive.
But the fundamental problem is that LLMs don’t get better over time the way a human would. The lack of continual learning is a huge huge problem. The LLM baseline at many tasks might be higher than an average human’s. But there’s no way to give a model high level feedback. You’re stuck with the abilities you get out of the box. You can keep messing around with the system prompt. In practice this just doesn’t produce anything even close to the kind of learning and improvement that human employees experience.
The reason humans are so useful is not mainly their raw intelligence. It’s their ability to build up context, interrogate their own failures, and pick up small improvements and efficiencies as they practice a task.
Here is the whole essay, I am in agreement.
My Conversation with the excellent John Arnold
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and John discuss his shift from trading to philanthropy and more, including the specific traits that separate great traders from good ones, the tradeoffs of following an “inch wide, mile deep” trading philosophy, why he attended Vanderbilt, the talent culture at Enron, the growth in solar, the problem with Mexico’s energy system, where Canada’s energy exports will go, the hurdles to next-gen nuclear, how to fix America’s tripartite energy grid, how we’ll power new data centers, what’s best about living in Houston, his approach to collecting art, why trading’s easier than philanthropy, how he’d fix tax the US tax code and primary system, and what Arnold Ventures is focusing on next.
Excerpt:
COWEN: Say there’s a major volcanic event, and there’s a lot of ash in the sky for two or three years. Solar needs a backup. In the meantime, before the volcanic event happens — and of course, that’s quite rare — how much do we need to be up and running with the backup energy infrastructure? What do we need for reserve capacity in case the solar goes down?
ARNOLD: Good question. It would be difficult. It’s doable today. I think as solar continues to grow in market share, both in the US and globally, it will have to be met with some type of battery, a significant battery resource. That’s part of the economics of solar now, that it’s not just sticking it right outside of Phoenix, but it is solar plus transmission or solar plus battery. The question of what happens in that type of event — it would be difficult. The existing energy infrastructure is still largely around.
COWEN: But it will dwindle over time, right?
ARNOLD: It will dwindle over time.
COWEN: Is there some market issue? Say the volcanic event is only once every 150 years, but sooner or later, one happens. In the meantime, you need economic incentives for the gas or the nuclear to be ready. Does our government just keep on paying for those for 149 years in a row until the catastrophe comes?
ARNOLD: It’s a great question, and I think this is why nuclear, and particularly next-gen nuclear, is considered the holy grail, right? You’re not constrained by location. You’re not constrained by, is the wind blowing, is the sun shining? And it’s a clean resource. The problem today is just economics. In order to develop the current generation of nuclear, it’s extraordinarily expensive. Next generation — either small modular fission or fusion — both have a number of technological as well as unclear economics in how they compete.
I do think this question of how do you do this transition in a manner that maintains affordability but continues to get cleaner and lower emissions over time is a complex one, and I think it’s one that the environmentalists probably oversold five years ago in saying that this was going to be an easy transition. It’s certainly not. Just the scale and scope of the energy system is enormous, as you’re pointing to in your question. The need for backup, the need for a diversity of fuels, and how they complement each other is real, and you can’t replace that just with the intermittent resources we have today, plus battery.
And:
COWEN: What’s your most optimistic scenario for the US energy future from an environmental point of view, something that could plausibly happen?
ARNOLD: I think next-gen nuclear, if we can overcome the technical hurdles, if we can overcome the economic hurdles.
COWEN: But isn’t NIMBYism the biggest hurdle? The others I could imagine overcoming pretty readily, but I live in Fairfax County, which builds a fair amount. People there just don’t want nuclear. It’s irrational, but I’m not sure they’ll change their minds. It could be called fusion; it’s still nuclear to them.
ARNOLD: Yes, I’ve been surprised. That was my prior five years ago. I’ve been surprised at the number of jurisdictions that are inviting these next-gen nuclear companies to come. Texas, for instance, just passed a bill creating new incentives for nuclear companies to come and build their first plants and pilot projects in Texas. You see jurisdictions that are choosing to take the economic growth associated with it and that have more of a building culture and say, “Come here.”
I think, as things get proven out, then the question is, will the Fairfax counties of the world see what’s going on and become more agreeable to having that? I think it’s very similar to self-driving cars.
There’re some jurisdictions that say, “Come here. We want you to come, test,” and this is what’s happening in Texas. These companies say, “We want you to come pilot your projects here.” And some jurisdictions are saying, “No, prove it out, and then we’ll talk.”
COWEN: My nightmare is that even Texas becomes NIMBY. You see this in Austin already. Houston, Dallas will become more like the rest of America over time, maybe even San Antonio someday, El Paso with more time.
Interesting throughout, recommended. We also talk about art and art collecting…
Using AI to explain the gender wage gap
Understanding differences in outcomes between social groups—such as wage gaps between men and women—remains a central challenge in social science. While researchers have long studied how observable factors contribute to these differences, traditional methods oversimplify complex variables like employment trajectories. Our work adapts recent advances in artificial intelligence—specifically, foundation models that can process rich, detailed histories—to better explain group differences. We develop mathematical theory and computational methods that allow these AI models to provide more accurate and less biased estimates of how much of group differences can be explained by observable factors. Applied to real-world data, our approach reveals that detailed histories explain more of the gender wage gap than previously understood using conventional methods.
That is from a new paper by Keyon Vafa, Susan Athey, and David M. Blei. Via the excellent Kevin Lewis. This is also real progress on the methodological front.