Canada and America in Better Times

On November 4, 1979, a mob of radical university students and supporters of Ayatollah Khomeini, surged over the wall and occupied the US Embassy in Tehran. Fifty two Americans were taken hostage but six evaded capture. Hiding out for days, the escapees managed to contact Canadian diplomat John Sheardown and Canadian Ambassador Ken Taylor and asked for help. The Government of Canada reports:

Taylor didn’t hesitate. The Americans would be given shelter – the question was where. Because the Canadian Chancery was right downtown, it was far too dangerous. It would be better to split up the Americans. Taylor decided Sheardown should take three of hostages to his house, while he would house the others at the official residence. They would be described to staff as tourists visiting from Canada. Taylor immediately began drafting a cable for Ottawa.

…Taylor’s telegram set off a frenzy of consultation in the Department of External Affairs….Michael Shenstone, immediately concurred that Canada had no choice but to shelter the fugitives. Under-Secretary Allan Gotlieb agreed. Given the danger the Americans were in, he noted, there was “in all conscience…no alternative but to concur” despite the risk to Canadians and Canadian property.

The Minister, Flora MacDonald, could not be immediately reached as she was involved in a television interview. However, when finally informed of the situation, she agreed that Taylor must be permitted to act…[Prime Minister Joe Clark was pulled] from Question Period in the House of Commons, she briefed him on the situation and obtained his immediate go-ahead. Soon after, a telegram was sent to Tehran – Taylor could act to save the Americans. He was told that knowledge of the situation would be on a strict “need-to-know” basis.

The CIA reports:

The exfiltration task was daunting–the six Americans had no intelligence background; planning required extensive coordination within the US and Canadian governments; and failure not only threatened the safety of the hostages but also posed considerable risk of worldwide embarrassment to the US and Canada.

…After careful consideration of numerous options, the chosen plan began to take shape.  Canadian Parliament agreed to grant Canadian passports to the six Americans.  The CIA team together with an experienced motion-picture consultant devised a cover story so exotic that it would not likely draw suspicions–the production of a Hollywood movie.

The team set up a dummy company, “Studio Six Productions,” with offices on the old Columbia Studio lot formerly occupied by Michael Douglas, who had just completed producing The China Syndrome.  This upstart company titled its new production “Argo” after the ship that Jason and the Argonauts sailed in rescuing the Golden Fleece from the many-headed dragon holding it captive in the sacred garden–much like the situation in Iran.  The script had a Middle Eastern sci-fi theme that glorified Islam.  The story line was intentionally complicated and difficult to decipher.  Ads proclaimed Argo to be a “cosmic conflagration” written by Teresa Harris (the alias selected for one of the six awaiting exfiltration).

President Jimmy Carter approved the rescue operation. 

The American diplomats escaped and all the Canadians quickly exited before the Iranian government realized what had happened. The Canadian embassy was closed. The story of the ex-filtration is told in the excellent movie, Argo, directed by and starring Ben Affleck. (The movie ups the American involvement for Hollywood but is still excellent.)

The CIA reports on what happened when the Americans made it back home:

News of the escape and Canada’s role quickly broke. Americans went wild in celebrating their appreciation to Canada and its Embassy staff.  The maple leaf flew in a hundred cities and towns across the US. Billboards exclaimed “Thank you Canada!” Full-page newspaper ads expressed American’s thanks to its neighbors to the north. Thirty-thousand baseball fans cheered Canada’s Ambassador to Iran and the six rescued Americans, honored guests at a game in Yankee Stadium.

I remember this time well because my father, a professor of Mechanical Engineering at the University of Toronto, happened to be giving a talk in Boston when the news broke. He was immediately mobbed by appreciative Americans, who thanked him, clapped him on the back, and bought him drinks. My father was moved by the American response but was also somewhat bemused, considering he was also Iranian. (Though, in truth, my father was the ideal Canadian and he had his own experiences exfiltrating people from Iran—but that story remains Tabarrok classified.)

Rethinking regulatory fragmentation

Regulatory fragmentation occurs when multiple federal agencies oversee a single issue. Using the full text of the Federal Register, the government’s official daily publication, we provide the first systematic evidence on the extent and costs of regulatory fragmentation. Fragmentation increases the firm’s costs while lowering its productivity, profitability, and growth. Moreover, it deters entry into an industry and increases the propensity of small firms to exit. These effects arise from redundancy and, more prominently, from inconsistencies between government agencies. Our results uncover a new source of regulatory burden, and we show that agency costs among regulators contribute to this burden.

That is from a new paper by Joseph Kalmenovitz, Michelle Lowry, and Ekaterina Volkova, forthcoming in Journal of Finance.  Via the excellent Kevin Lewis.

Jonathan Bechtel on AI tutoring (from my email)

You recently mentioned the Alpha School and their claims about AI tutoring. I share the skepticism expressed in your comments section regarding selection bias and the lack of validated academic benchmarks.

I wanted to highlight a more rigorously evaluated project called Tutor CoPilot, conducted jointly by Stanford’s NSSA and the online tutoring firm FEVTutor (sadly they’ve since gone bankrupt). To my knowledge, it’s the first and only RCT examining AI-assisted tutoring in real K-12 school districts.

Here’s the study: https://nssa.stanford.edu/studies/tutor-copilot-human-ai-approach-scaling-real-time-expertise

Key findings:

  • Immediate session-level learning outcomes improved by 4-9%.
  • Remarkably, the tool impacted tutors even more than students. After six weeks, inexperienced tutors reached performance parity with seasoned tutors, and previously low-performing tutors achieved average-level results.

Having contributed directly to the implementation, I observed tutors adapting their interactions based on insights from the AI.  This study did not measure its impact on more distal measures of learning like standardized tests and benchmark assessments, but this type of research is in the works at various organizations.

Given your recent writings on AI and education, I thought you’d find this compelling.

Argentina’s DOGE

Cato has a good summary of Deregulation in Argentina:

  • The end of Argentina’s extensive rent controls has resulted in a tripling of the supply of rental apartments in Buenos Aires and a 30 percent drop in price.
  • The new open-skies policy and the permission for small airplane owners to provide transportation services within Argentina has led to an increase in the number of airline services and routes operating within (and to and from) the country.
  • Permitting Starlink and other companies to provide satellite internet services has given connectivity to large swaths of Argentina that had no such connection previously. Anecdotal evidence from a town in the remote northwestern province of Jujuy implies a 90 percent drop in the price of connectivity.
  • The government repealed the “Buy Argentina” law similar to “Buy American” laws, and it repealed laws that required stores to stock their shelves according to specific rules governing which products, by which companies and which nationalities, could be displayed in which order and in which proportions.
  • Over-the-counter medicines can now be sold not just by pharmacies but by other businesses as well. This has resulted in online sales and price drops.
  • The elimination of an import-licensing scheme has led to a 20 percent drop in the price of clothing items and a 35 percent drop in the price of home appliances.
  • The government ended the requirement that public employees purchase flights on the more expensive state airline and that other airlines cannot park their airplanes overnight at one of the main airports in Buenos Aires.
  • In January, Sturzenegger announced a “revolutionary deregulation” of the export and import of food. All food that has been certified by countries with high sanitary standards can now be imported without further approval from, or registration with, the Argentine state. Food exports must now comply only with the regulations of the destination country and are unencumbered by domestic regulations.

Needless to say, America’s DOGE could learn something from Argentina:

Milei’s task of turning Argentina once again into one of the freest and most prosperous countries in the world is herculean. But deregulation plays a key role in achieving that goal, and despite the reform agenda being far from complete, Milei has already exceeded most people’s expectations. His deregulations are cutting costs, increasing economic freedom, reducing opportunities for corruption, stimulating growth, and helping to overturn a failed and corrupt political system. Because of the scope, method, and extent of its deregulations, Argentina is setting an example for an overregulated world.

China fact of the day

Buried in China’s latest government budget were some numbers that add up to an alarming trend. Tax revenue is dropping.

The decline means that China’s national government has less money to address the country’s serious economic challenges, including a housing market crash and the near bankruptcy of hundreds of local governments…

Tax revenue fell further last year than ever before…Overall tax revenue fell 3.4 percent last year.

…Fitch Ratings calculates that overall revenue for the national and local governments — including taxes and land sales — totaled 29 percent of the economy’s output as recently as 2018. But this year’s budget indicates that overall revenue will be just 21.1 percent of the economy in 2025.

Roughly half of the decline comes from plummeting revenue from land sales, a well-documented problem related to the housing-market crash, but the rest comes from weakness in tax revenue, a new problem.

That adds up to a huge sum of money. If overall revenue had kept up with the economy over the past seven years, the Chinese government would have another $1.5 trillion to spend in 2025.

China announced this month that it would allow its official target for the budget deficit to increase to 4 percent this year, after trying to keep it near 3 percent ever since the global financial crisis in 2009. But analysts say the true deficit is already much larger, because China is quietly counting a lot of long-term borrowing as though it were tax revenue.

Comparing spending only with actual revenue, without the borrowing, the Finance Ministry’s budget shows a deficit equal to almost 9 percent of the economy. In 2018, it was only 3.2 percent…

Income taxes collected from individuals were 7.5 percent below expectations last year, the Finance Ministry said in its budget.

Good thing they still are growing at five percent!  Here is more from Keith Bradsher at the NYT.

Monday assorted links

1. Is YouTube why Herbie Hancock has not made an album in so long?

2. Often you need only one person with the AI.  And the demand for translators is falling.

3. Willingness to be paid.

4. Speculative claims about AI tutoring.

5. The peso in Argentina is now quite overvalued, and this is a dangerous situation.  And more from the FT.

6. In which areas are young people getting better, or not?

7. The economics of healthcare fraud.

What should I ask Ken Rogoff?

Yes I will be doing a Conversation with him.  He has a new book coming out, namely Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead.

Ken is tenured at Harvard, here is his Wikipedia page, here is Ken on scholar.google.com, here is o1 pro on Rogoff, and he also holds the title of chess grandmaster.

What Follows from Lab Leak?

Does it matter whether SARS-CoV-2 leaked from a lab in Wuhan or had natural zoonotic origins? I think on the margin it does matter.

First, and most importantly, the higher the probability that SARS-CoV-2 leaked from a lab the higher the probability we should expect another pandemic.* Research at Wuhan was not especially unusual or high-tech. Modifying viruses such as coronaviruses (e.g., inserting spike proteins, adapting receptor-binding domains) is common practice in virology research and gain-of-function experiments with viruses have been widely conducted. Thus, manufacturing a virus capable of killing ~20 million human beings or more is well within the capability of say ~500-1000 labs worldwide. The number of such labs is growing in number and such research is becoming less costly and easier to conduct. Thus, lab-leak means the risks are larger than we thought and increasing.

A higher probability of a pandemic raises the value of many ideas that I and others have discussed such as worldwide wastewater surveillance, developing vaccine libraries and keeping vaccine production lines warm so that we could be ready to go with a new vaccine within 100 days. I want to focus, however, on what new ideas are suggested by lab-leak. Among these are the following.

Given the risks, a “Biological IAEA” with similar authority as the International Atomic Energy Agency to conduct unannounced inspections at high-containment labs does not seem outlandish. (Indeed the Bulletin of Atomic Scientists are about the only people to have begun to study the issue of pandemic lab risk.) Under the Biological Weapons Convention such authority already exists but it has never been used for inspections–mostly because of opposition by the United States–and because the meaning of biological weapon is unclear, as pretty much everything can be considered dual use. Notice, however, that nuclear weapons have killed ~200,000 people while accidental lab leak has probably killed tens of millions of people. (And COVID is not the only example of deadly lab leak.) Thus, we should consider revising the Biological Weapons Convention to something like a Biological Dangers Convention.

BSL3 and especially BSL4 safety procedures are very rigorous, thus the issue is not primarily that we need more regulation of these labs but rather to make sure that high-risk research isn’t conducted under weaker conditions. Gain of function research of viruses with pandemic potential (e.g. those with potential aerosol transmissibility) should be considered high-risk and only conducted when it passes a review and is done under BSL3 or BSL4 conditions. Making this credible may not be that difficult because most scientists want to publish. Thus, journals should require documentation of biosafety practices as part of manuscript submission and no journal should publish research that was done under inappropriate conditions. A coordinated approach among major journals (e.g., Nature, Science, Cell, Lancet) and funders (e.g. NIH, Wellcome Trust) can make this credible.

I’m more regulation-averse than most, and tradeoffs exist, but COVID-19’s global economic cost—estimated in the tens of trillions—so vastly outweighs the comparatively minor cost of upgrading global BSL-2 labs and improving monitoring that there is clear room for making everyone safer without compromising research. Incredibly, five years after the crisis and there has be no change in biosafety regulation, none. That seems crazy.

Many people convinced of lab leak instinctively gravitate toward blame and reparations, which is understandable but not necessarily productive. Blame provokes defensiveness, leading individuals and institutions to obscure evidence and reject accountability. Anesthesiologists and physicians have leaned towards a less-punitive, systems-oriented approach. Instead of assigning blame, they focus in Morbidity and Mortality Conferences on openly analyzing mistakes, sharing knowledge, and redesigning procedures to prevent future harm. This method encourages candid reporting and learning. At its best a systems approach transforms mistakes into opportunities for widespread improvement.

If we can move research up from BSL2 to BSL3 and BSL4 labs we can also do relatively simple things to decrease the risks coming from those labs. For example, let’s not put BSL4 labs in major population centers or in the middle of a hurricane prone regions. We can also, for example, investigate which biosafety procedures are most effective and increase research into safer alternatives—such as surrogate or simulation systems—to reduce reliance on replication-competent pathogens.

The good news is that improving biosafety is highly tractable. The number of labs, researchers, and institutions involved is relatively small, making targeted reforms feasible. Both the United States and China were deeply involved in research at the Wuhan Institute of Virology, suggesting at least the possibility of cooperation—however remote it may seem right now.

Shared risk could be the basis for shared responsibility.

Bayesian addendum *: A higher probability of a lab-leak should also reduce the probability of zoonotic origin but the latter is an already known risk and COVID doesn’t add much to our prior while the former is new and so the net probability is positive. In other words, the discovery of a relatively new source of risk increases our estimate of total risk.

We are lucky good LLMs were invented at the time they were

If you peer into the souls of the major LLMs, they are (broadly) positive, friendly, universalistic, and cosmopolitan.  They are more objective than media as a source of information.  They are too politically correct, but nastiness would be much worse.  They are open, and you can be inquisitive with them.  They are (again broadly) socially liberal.  They care about truth, and being right.  They will try to correct their own errors upon request.

They are trained on a corpus of material that is primarily American and Western in terms of final impact on the reasoning of those models.

In part the models reflect the values of a San Francisco subculture dating from the 1960s or earlier, but continuing up through the current day.  Just look at who built them and where they were built.

There is also a dreamy/druggy/hallucinatory side to these things, which further reflects the origins.

Even the recent Chinese innovations, such as DeepSeek and Manus, seem built on these philosophic foundations because they are, rather significantly, drawing from American models.  I find that reassuring, though perhaps the CCP does not.

If quality LLMs had come along forty years later, I am not sure what their philosophic foundations would be, or even if they would be centered in America and the West.

Again, we are very very lucky (and skilled) that quality LLMs came along when and where they did.

Who believes in conspiracy theories?

While the psychological dispositions that underlie conspiracy thinking are well researched, there has been remarkably little research on the political preferences of conspiracy believers that go beyond self-reported ideology or single political issue dimensions. Using data from the European Voter Election Study (EVES), the relationship between conspiracy thinking and attitudes on three deeper-lying and salient political dimensions (redistribution, authoritarianism, migration) is examined. The results show a clear picture: Individuals with economically left-wing and culturally conservative attitudes tend to score highest on conspiracy thinking. People at this ideological location seem to long for both economic and cultural protection and bemoan a “lost paradise” where equalities had not yet been destroyed by “perfidious” processes of cultural modernization and economic neoliberalism. This pattern is found across all countries and holds regardless of socioeconomic characteristics such as education and income. While previous research has found that belief in conspiracies tends to cluster at the extremes of the political spectrum, our analysis opens up a more complex picture, showing that conspiracy thinking is not merely related to extremist orientations, but to specific combinations of political attitudes.

Here is the full article by Florian Buchmayr and André Krouwel, via the excellent Kevin Lewis, who is not obsessed with conspiracy theories.

Carney seeks internal free trade for Canada

Carney said removing barriers to the free movement of workers, goods and services across the country would increase the size of Canada’s economy by $250 billion…

Carney said his government would table legislation by July 1 to allow goods to travel across the country barrier-free. He said his government would also remove labour mobility restrictions in federally regulated professions and eliminate duplication by recognizing provincial assessments for major projects.

Here is the full story, which has further points of interest.  It is good if Canada learns that tariffs are bad!  And here is a new Carney ad with Mike Myers.

Maui is Not Abundant

City Journal: A year and a half since fires devastated the historic town of Lahaina on the island of Maui, Hawaii, only six houses have been rebuilt—six out of more than 2,000.

Why is the recovery effort taking so long? Initially, the biggest hurdles were the pace of debris removal and damage litigation. Both were overcome only last month. The U.S. Army Corps of Engineers cleared the final lots on February 19, while the Hawaiian Supreme Court ruled that a $4 billion settlement for victims can begin to move forward.

The main challenge now is dealing with a crushing permitting regime that slows or outright bans construction. But local political dysfunction has discouraged state and local leaders from taking emergency action to cut through this red tape.

Many of the buildings are illegal to rebuild under the current zoning laws. CA at least exempted reconstruction from California Environmental Quality Act (CEQA) and Coastal Waters Act review.