Saturday assorted links

1. Cat ladders the culture that is Swiss (good photos, recommended).

2. Quecca, ronna, and yotta: new prefixes are needed!  Micro and nano ain’t enough.

3. How the conservative revolution stalled in the states (powerpoints, also recommended, strongly, for anyone working on social change).  Matt Grossman and his work should be much, much better known.

4. What does touch mean in China?

5. Taxes come in many forms.

6. “Vodka firm loses valuable iceberg water in apparent heist.

7. Forget the Academy Awards, here is the 2019 European Tree of the Year contest.

The political culture that is China

News from the Middle Kingdom seems to be coming out systematically worse than what you might have been expecting, at least these days.  Here is an update on censorship and content control:

The platform has been designed with a built-in “Xi Study Points” system (学习积分系统) that allows users to accumulate points on the basis of habitual use of the platform, from reading and viewing of content to the posting of comments and other forms of engagement. It has been widely promoted by local governments and ministries and departments across China, and there have also been reports that some work units have ordered employees to attain specified point levels, with disciplinary measures to be imposed for those who fail to comply…

The app defines several periods of activity as “lively intervals,” or huoyue shiduan (活跃时段), during which users engaging with the platform can earn double points — 0.2 for each article or video, 2 points for a full 30 minutes of use, and so on. The intervals are Monday through Friday from 8:30 PM to 10 PM, and on Saturdays and Sundays from 9:30 AM to 10:30 AM, and 3:30 PM to 4:30 PM. The system, then, incentivises Party members, once home from the office and done with family dinner, to spend golden hours of otherwise discretionary personal time engaging with “Xi Jinping Thought.”

Interesting and frightening throughout, via Comrade Balding.

Unicorns Found!

Dr. Jorge Pérez, an evolutionary biologist from the University of La Paz, and several companions, were exploring the Andes Mountains when they found a small valley, with no other animals or humans. Pérez noticed that the valley had what appeared to be a natural fountain, surrounded by two peaks of rock and silver snow.

Pérez and the others then ventured further into the valley. “By the time we reached the top of one peak, the water looked blue, with some crystals on top,” said Pérez.

Pérez and his friends were astonished to see the unicorn herd. These creatures could be seen from the air without having to move too much to see them – they were so close they could touch their horns.

While examining these bizarre creatures the scientists discovered that the creatures also spoke some fairly regular English. Pérez stated, “We can see, for example, that they have a common ‘language,’ something like a dialect or dialectic.”

Dr. Pérez believes that the unicorns may have originated in Argentina, where the animals were believed to be descendants of a lost race of people who lived there before the arrival of humans in those parts of South America.

While their origins are still unclear, some believe that perhaps the creatures were created when a human and a unicorn met each other in a time before human civilization. According to Pérez, “In South America, such incidents seem to be quite common.”

However, Pérez also pointed out that it is likely that the only way of knowing for sure if unicorns are indeed the descendants of a lost alien race is through DNA. “But they seem to be able to communicate in English quite well, which I believe is a sign of evolution, or at least a change in social organization,” said the scientist.

Click here for the rest of the story.

Why should blackmail be illegal?

David Henderson raises this question in a recent blog post, and here is Robin Hanson from 2011.  I would suggest a few reasons why blackmail should be against the law in traditional ways:

1. The law serves a primary purpose of publicity, and advertising for a polity, and also the law serves symbolic functions.  People still don’t give Singapore a break for making chewing gum illegal and the like, even though this restriction is not in fact a big source of tyranny there.  I don’t see it as good for the United States and its reputation to make blackmail legal, even if the “legalize blackmail” arguments are perfectly sound in a Steve Landsburg kind of way.  It’s just not worth the bad publicity.

2. As Coase pointed out long ago, blackmail typically involves an exchange setting with bilateral monopoly.  And the material in question is often emotionally fraught, such as knowledge of a crime, of an affair, photos of private body parts, and so on.  The process of the trading is painful and stressful for many people.  Limiting that process could produce welfare gains, or at the very least legalizing that process, and thus producing more of it, won’t involve huge benefits.  When the process of trade and bargaining is itself painful, some of the welfare theorems need to be rethought a bit.  Of course the unilateral release of gossip can be terrible too, but perhaps it involves less potential for drawn-out situations and painful bargaining because the transacting it not allowed in the first place.

3. As Scott Sumner points out: “In practice, I suspect that most blackmail involves issues of sex, gender and drugs. (Soon we’ll have to add race to this list.) I don’t expect to convince others of my views here, but let me just say that I believe that our society is unable to think rationally in these areas. Thus I don’t see any great value in legalizing blackmail.”

4. Sometimes the efficient blackmailers are your immediate family, not strangers.  Outlawing blackmail from outsiders gives them a semi-monopoly for an efficient, do-it-yourself at home, low transactions cost Coasean deal (“Darling, someone needs to take out the garbage…”).  Let’s do blackmail right!  And privately, out of the public eye, to avoid the problems discussed under #1.  And as a matter of justice, shouldn’t it be the aggrieved spouse getting the gains here, not the National Enquirer?

Lint Barrage on climate change and capital taxation

I show that decentralizing the optimal allocation requires not only high carbon prices but also fundamental changes to tax policy: If the government discounts the future less than households, implementing the optimal allocation requires an effective capital income subsidy (a negative intertemporal wedge), and, in a setting with distortionary taxation, an effective labor-consumption tax wedge that is decreasing over time. Second, if the government cannot subsidize capital income, the constrained-optimal carbon tax may be up to 50% below the present value of marginal damages (the social cost of carbon) due to the general equilibrium effects of climate policy on household savings. Third, given the choice to optimize either carbon, capital, or labor income taxes, the socially discounting planner’s welfare ranking is ambiguous over a standard range of parameters. Overall, in general equilibrium, a policy-maker’s choice to adopt differential social discounting may thus overturn conventional recommendations for both environmental and fiscal policy.

That is from her discount rate paper.  The broader lesson here is that all your intuitions about climate change, discount rates, and taxes might not hang together.  Do not follow mood affiliation, rather think the issues through carefully.

For the pointer I thank the excellent KL.  Here are other papers by Lint Barrage.

Words of wisdom

Amazon will pay property tax on its new Long Island City offices. It will pay corporate tax — not just on its profits, but on its capital base. Its employees, especially highly paid ones, will pay the city’s personal income tax. Those taxes, of course, will be somewhat offset by the incentives that the city has promised the company — up to $2 billion, depending on how many people the company hires and how many facilities it builds. Those incentives were a wasteful way to attract corporate investment. But in the long run, the tax revenue New York City gets from HQ2 will probably far exceed the cost.

That is from Noah Smith at Bloomberg.  The “will” needs to be changed, otherwise right on target…

Economists for Inclusive Prosperity

The co-directors of this new institution are Suresh Naidu, Dani Rodrik, and Gabriel Zucman.  Here is the Twitter announcement.  Here is an 87-pp. eBook introduction, ungated and free, with a short and readable introduction.  Here is a brief excerpt:

This is a time when we need new ideas for policy. We think economists, among other social scientists, have a responsibility to be part of the solution, and that mainstream economics – the kind of economics that is practiced in the leading academic centers of the country – is indispensable for generating useful policy ideas. Much of this work is already being done. In our daily grind as professional economists, we see a lot of policy ideas being discussed in seminar rooms, policy forums, and social media. There is considerable ferment in economics that is often not visible to outsiders. At the same time, the sociology of the profession – career incentives, norms, socialization patterns – often mitigates against adequate engagement with the world of policy, especially on the part of younger academic economists.

Are workers exploited in the Chinese manufacturing sector?

Many news outlets and scholars have expressed concerns that workers have been unfairly exploited by employers in the Chinese manufacturing sector. Economic theory suggests that this exploitation, if it exists, is the result of employers in the manufacturing sector having considerable monopsony power. While there is a vast economic literature on monopsony power in the United States and other nations, little monopsony research has been conducted on the Chinese manufacturing market. This paper follows the monopsony research tradition and examines the Chinese manufacturing sector along several likely indicators of monopsony power. These include the turnover rate in the manufacturing sector, the relation between marginal factor cost and average factor cost, the relation between average real labor productivity and real wage in the manufacturing sector, and the comparison of labor costs between China and other countries. This study found that worker exploitation/monopsony in the manufacturing sector is not as severe as previously reported.

Here is the paper, by Linan Peng and Joshua Ingber, both of GMU, via the excellent Kevin Lewis.

Amazon winners and losers

WINNERS:

Virginia Governor Ralph Northam: He did a good job on the first Amazon deal for Virginia, and now can try to lure more of the company here.  There is a new reason to keep him in office and also to start paying attention to a different issue.

Nashville and the Southeast more generally: That part of the country has fewer local NIMBY activists and is less likely to elect figures such as AOC.  Texas too.  Is it possible that I live in the sanest part of the country?  Wouldn’t that be funny?

The Bay Area: NYC is no longer such a fierce competitor at the macro level, with the potential to become the new center of gravity for the tech world.  The Bay Area can breathe a bit more easily now, at least as long as clustering remains the name of the game.  Yet this one is double-edged, because it also means the Bay Area has less incentive to solve its rather pressing problems and dysfunctions.

Valentine’s Day: It will be used to announce more dramatic break-up events, and thus become all the more emotionally fraught, in both positive and negative directions.

Hoboken and Jersey City: They are nicer than Manhattan anyway and with better day-to-day food options, right?  Right?  Queens won’t be obviously outcompeting them as a home for a new, high-quality business site.

Regional development subsidies: It was awfully easy for Amazon to walk away from this “deal.”  Expect to see higher subsidies and tighter deals in the future.

LOSERS:

Queens: Most of the residents wanted the project to come.

Amazon: The company will find it harder to access the top talent of New York City, and the top talent that is willing to live in New York City.  Let’s hope this is a blessing in disguise, and a new path toward discovering hitherto untapped sources of talent.

New York City: Yes, Google is expanding in Chelsea but more and more NYC is becoming a city of finance and tourism and restaurants.  Can a location have the Dutch disease and cost disease at the same time?  Stay tuned to find out.

YIMBYs: One of the world’s most valuable, efficient, and also popular companies could not make stick a deal to expand and create tens of thousands of high-paying jobs and pay more taxes.  What hope do the rest of us have?

Small teams vs. large teams in science

Here we analyse more than 65 million papers, patents and software products that span the period 1954–2014, and demonstrate that across this period smaller teams have tended to disrupt science and technology with new ideas and opportunities, whereas larger teams have tended to develop existing ones.

That is from a new Nature paper by Lingfei Wu, Dashun Wang, and James A. Evans.  Here is the NYT write-up by Benedict Carey.

Thursday assorted links

1. Knowable Magazine.

2. Refugees in Denmark do much better in Copenhagen.

3. Carbon capture update (NYT, good piece).

4. Is Africa converting China?

5. “Royalties on 1983 Finance Classic ‘Trading Places’ Go Up for Bid.”  “If it holds until the auction closes Wednesday, the current winning bid of $74,700 would obtain a producer’s share of the residuals generated by television rebroadcasts and streaming, worth $7,988 last year(…)”

6. Dylan Matthews of Vox praises Warren G. Harding.

AIs Quickly Learn to Collude

AI’s are better than humans at Chess and Go, why shouldn’t they also be better at the game of collusion? Calvano, Calzolari, Denicolò and Pastorello show that they are (here quoting a VOXEU summary by the authors):

[In Calvano et al. 2018a] we construct AI pricing agents and let them interact repeatedly in controlled environments that reproduce economists’ canonical model of collusion, i.e. a repeated pricing game with simultaneous moves and full price flexibility. Our findings suggest that in this framework even relatively simple pricing algorithms systematically learn to play sophisticated collusive strategies. The strategies mete out punishments that are proportional to the extent of the deviations and are finite in duration, with a gradual return to the pre-deviation prices.

Figure 1 illustrates the punishment strategies that the algorithms autonomously learn to play. Starting from the (collusive) prices on which the algorithms have converged (the grey dotted line), we override one algorithm’s choice (the red line), forcing it to deviate downward to the competitive or Nash price (the orange dotted line) for one period. The other algorithm (the blue line) keeps playing as prescribed by the strategy it has learned. After this exogenous deviation in period , both algorithms regain control of the pricing.

Figure 1 Price responses to deviating price cut

Note: The blue and red lines show the price dynamic over time of two autonomous pricing algorithms (agents) when the red algorithm deviates from the collusive price in the first period.

The figure shows the price path in the subsequent periods. Clearly, the deviation is punished immediately (the blue line price drops immediately after the deviation of the red line), making the deviation unprofitable. However, the punishment is not as harsh as it could be (i.e. reversion to the competitive price), and it is only temporary; afterwards, the algorithms gradually return to their pre-deviation prices.

…The collusion that we find is typically partial – the algorithms do not converge to the monopoly price but a somewhat lower one. However, we show that the propensity to collude is stubborn – substantial collusion continues to prevail even when the active firms are three or four in number, when they are asymmetric, and when they operate in a stochastic environment. The experimental literature with human subjects, by contrast, has consistently found that they are practically unable to coordinate without explicit communication save in the simplest case, with two symmetric agents and no uncertainty.

What is most worrying is that the algorithms leave no trace of concerted action – they learn to collude purely by trial and error, with no prior knowledge of the environment in which they operate, without communicating with one another, and without being specifically designed or instructed to collude.

Tacit collusion isn’t actually illegal since it’s virtually impossible to prove, at least among humans. Tacit collusion by AIs is going to be much more common but perhaps also easier to prove if the antitrust authorities can demand access to the algorithms. No need to torture the data when you can torture the AIs. It’s going to be a strange world.

Hat tip: Ankur Delight.

Seven lessons about blackmail

That is the title of my latest Bloomberg column, here is the opening bit:

Every now and then, a few apparently random news events come together and influence how you see the world. My most recent lesson is that blackmail and blackmail risk are a lot more common than I had thought.

And:

…the main villains in these privacy losses are not the big internet companies. While it is murky exactly how the Bezos photos leaked, it seems to have involved old-fashioned spying and the interception of text messages (and possibly a renegade brother). Silicon Valley didn’t sell his data. As for Northam, the yearbook is from the pre-digital era, dug up in a school library. This information was not on the internet, though of course it did play a role in spreading it.

Third, billionaires can be pretty useful. As Bezos asked in his open letter on Medium: “If in my position I can’t stand up to this kind of extortion, how many people can?” In this case, both the billionaire and the medium of communication are the good guys.

Fourth, fears of a new era of blackmail based on Photoshopped images and so-called deep fakes (phony but convincing video) may be overblown, or at least premature. In the cases of both Bezos and Northam, the authenticity of the source material (text messages and photos) is not really being questioned, and both stories are receiving intense scrutiny. Rather, the debate is over the provenance and significance of the information.

There is much more at the link.

Wednesday assorted links