Models as indexing, and the value of Google

There are many arguments for the use of models in economics, including notions of rigor and transparency, or that models can help you to see relationships you otherwise might not have expected.  I don’t wish to gainsay those, but I thought of another argument yesterday.  Models are a way of indexing your thoughts.  A model can tell you which are the core features of your argument and force you to give them names.  You then can use those names to find what others have written about your topic and your mechanisms.  In essence, you are expanding the division of labor in science more effectively by using models.

This mechanism of course requires that models are a more efficient means of indexing thoughts than pure words or propositions alone.  In this view, it is often topic names or book indexes or card catalogs that models are competing with, not verbal economics per se.

The existence of Google therefore may have lowered the relative return to models.  First, Google searches by words best of all.  Second and relatedly, if you have written only words Google will help you find the related work you need, scholar.google.com kicks in too.  In essence, there is a new and very powerful way of finding related ideas, and you need not rely on the communities that get built around particular models (though those communities largely will continue).

It is notable that open access, on-line economics writing doesn’t use models very much and is mostly content to rely on words and propositions.  There are several reasons for this, but this productivity shock to differing methods of indexing may be one factor.

Still, it is not always easy to search by words.  Many phrases — consider say “free will” — do not through search engines discriminate very well on the basis of IQ or rigor.

How big are the buyer and renter gains from SB 827?

This article considers a counterfactual thought experiment: how would California’s housing market be different today if a policy currently under consideration in the California Senate—SB 827, which would allow new residential building along public transit corridors—had been implemented six years ago? I estimate that rent would be 5.8 percent lower in San Francisco, a savings of $266 per month on the median home, and 4.2 percent lower in Los Angeles County, savings of $124 per month.

That is from Salim Furth at Mercatus, here is much more.  You will note those numbers do not include the higher output and innovation from a more efficient allocation of talent.

Here is Salim’s podcast with Matt Yglesias and Emily Hamilton.

Washington, D.C. fact of the day

The National African Art Museum has a problem:

Attendance dropped to 159,000 last year from a high of 403,000 in 2009, when there was a special exhibition. Last year’s number is 43 percent below the 10-year average.

One of the under-reported stories about D.C. is how much the city’s art museums have faded as intellectual and cultural centers for the city.  This seems to be extreme for the African museum, perhaps because of urban gentrification, and perhaps because the African museum has an especially hard time mounting blockbuster exhibits famous to the public eye.  Prince Twins Seven Seven just isn’t as famous as he ought to be.

In the meantime, you all have the internet to keep you busy.

Which is the most ideologically diverse American city?

When I requested requests, Jimmy wrote back:

(1) Conversations with Tyler featuring an actual Straussian.

(2) What is the most ideologically / politically diverse city? Which most moderate in that regard? Where in America am I least likely to be in a bubble and why?

I have several nominations for #2:

1. Houston. It still has plenty of Texas conservatives, but enough non-conservatives to elect a lesbian mayor.  Mexicans fit along a political spectrum of their own.

2. Washington, D.C. and environs. The intellectual class in this city is about half conservative/Republican/libertarian and always will be — just don’t think too hard about who actually lives here!  Most of all, everyone is used to the fact that there are oodles and oodles of forces on the other side of the debate.  No one flips out over this.  Even the media types have a reasonable amount of non-left representation.

3. Chicago. Its presence in the Midwest moderates its left flank, there is a diverse mix of ethnic groups, and the city has lots of Midwestern civic virtue.  Real estate prices have stayed relatively low, so not all blue collar and working class types have been driven out.  “Old Chicago” is still up and running to some extent.

That’s the national capital, plus two of the five largest cities.  And I’ve already argued that, in a Straussian sense, Los Angeles is the most right wing city in the United States.  Orange County is ideologically diverse as well.  In other words, urban American is doing pretty well on intellectual diversity once you get out of (parts of) Manhattan and San Francisco and Seattle.

San Antonio measures as quite moderate, but is neither typical nor extremely diverse.  Here are some basic data, Nashville, Wichita, and Las Vegas also measure in the middle, and of those Las Vegas seems most diverse to me rather than simply dull.

Which place in the country is the least likely to leave you trapped in an intellectual bubble?  Somewhere in Ohio?  Columbus or Cincinnati?  Knoxville, Tennessee?  Louisville?  Kansas City, MO?  In those locales you truly are confronted with the everyday problems of regular American life and you are not obsessing over either crypto or what just passed through the subcommittee.

The proper conclusion may be that intellectual bubbles are a useful means of moving forward.

The impact of the Dodd-Frank Act on small business

There are concerns that the Dodd-Frank Act (DFA) has impeded small business lending. By increasing the fixed regulatory compliance requirements needed to make business loans and operate a bank, the DFA disproportionately reduced the incentives for all banks to make very modest loans and reduced the viability of small banks, whose small-business share of C&I loans is generally much higher than that of larger banks. Despite an economic recovery, the small loan share of C&I loans at large banks and banks with $300 or more million in assets has fallen by 9 percentage points since the DFA was passed in 2010, with the magnitude of the decline twice as large at small banks. Controlling for cyclical effects and bank size, we find that these declines in the small loan share of C&I loans are almost all statistically attributed to the change in regulatory regime. Examining Federal Reserve survey data, we find evidence that the DFA prompted a relative tightening of bank credit standards on C&I loans to small versus large firms, consistent with the DFA inducing a decline in small business lending through loan supply effects. We also empirically model the pace of business formation, finding that it had downshifted around the time when the DFA and the Sarbanes-Oxley Act were announced. Timing patterns suggest that business formation has more recently ticked higher, coinciding with efforts to provide regulatory relief to smaller banks via modifying rules implementing the DFA. The upturn contrasts with the impact of the Sarbanes-Oxley Act, which appears to persistently restrain business formation.

That is from Michael D. Bordo and John V. Duca.

Monday assorted links

1. What kind of vacation can the wealthy buy for 150k?

2. Let’s scrape MR.

3. Thomas Friedman on Iran and Syria (NYT).

4. Retail job openings.

5. Subprime mattered less than you thought.

6. “China’s yuan has appreciated vs. US dollar by +3.7% so far this year, and has risen +10.7% since Trump took office. – US dollar has fallen by about -1% so far this year, on a broad trade-weighted basis.” Link here.

The Facebook Trials: It’s Not “Our” Data

Facebook, Google and other tech companies are accused of stealing our data or at least of using it without our permission to become extraordinarily rich. Now is the time, say the critics, to stand up and take back our data. Ours, ours, ours.

In this way of thinking, our data is like our lawnmower and Facebook is a pushy neighbor who saw that our garage door was open, took our lawnmower, made a quick buck mowing people’s lawns, and now refuses to give our lawnmower back. Take back our lawnmower!

The reality is far different.

What could be more ours than our friends? Yet I have hundreds of friends on Facebook, most of whom I don’t know well and have never met. But my Facebook friends are friends. We share common interests and, most of the time, I’m happy to see what they are thinking and doing and I’m pleased when they show interest in what I’m up to. If, before Facebook existed, I had been asked to list “my friends,” I would have had a hard time naming ten friends, let alone hundreds. My Facebook friends didn’t exist before Facebook. My Facebook friendships are not simply my data—they are a unique co-creation of myself, my friends, and, yes, Facebook.

Some of my Facebook friends are family, but even here the relationships are not simply mine but a product of myself and Facebook. My cousin who lives in Dubai, for example, is my cousin whether Facebook exists or not, but I haven’t seen him in over twenty years, have never written him a letter, have never in that time shared a phone call. Nevertheless, I can tell you about the bike accident, the broken arm, the X-ray with more than a dozen screws—I know about all of this only because of Facebook. The relationship with my cousin, therefore, isn’t simply mine, it’s a joint creation of myself, my cousin and Facebook.

Facebook hasn’t taken our data—they have created it.

Facebook and Google have made billions in profits, but it’s utterly false to think that we, the users, have not been compensated. Have you checked the price of a Facebook post or a Google search recently? More than 2 billion people use Facebook every month, none are charged. Google performs more than 3.5 billion searches every day, all for free. The total surplus created by Facebook and Google far exceeds their profits.

Moreover, it’s the prospect of profits that has led Facebook and Google to invest in the technology and tools that have created “our data.” The more difficult it is to profit from data, the less data there will be. Proposals to require data to be “portable” miss this important point. Try making your Facebook graph portable before joining Facebook.

None of this means that we should not be concerned with how data, ours, theirs, or otherwise, is used. I don’t worry too much about what Facebook and Google know about me. Mostly the tech companies want to figure out what I want to buy. Not such a bad deal even if the way that ads follow me around the world is at times a bit disconcerting. I do worry that they have not adequately enforced contractual restrictions on third-party users of our data. Ironically, it was letting non-profits use Facebook’s data that caused problems.

I also worry about big brother’s use of big data. Sooner or later, what Facebook and Google know, the government will know. That alone is good reason to think carefully about how much information we allow the tech companies to know and to store. But let’s get over the idea that it’s “our data.” Not only isn’t it our data, it never was.

Might he have been a decent teacher?

Why did I go into teaching? Looking back it was crazy that I would do that. But I’d been through high school and college without getting caught – so being a teacher seemed a good place to hide. Nobody suspects a teacher of not knowing how to read.

I taught a lot of different things. I was an athletics coach. I taught social studies. I taught typing – I could copy-type at 65 words a minute but I didn’t know what I was typing. I never wrote on a blackboard and there was no printed word in my classroom. We watched a lot of films and had a lot of discussions.

I remember how fearful I was. I couldn’t even take the roll – I had to ask the students to pronounce their names so I could hear their names. And I always had two or three students who I identified early – the ones who could read and write best in the classroom – to help me. They were my teaching aids. They didn’t suspect at all – you don’t suspect the teacher.

Here is the full story, with other interesting 2/3 throughout, via the excellent Samir Varma.

Indian population bottlenecks

…we found that West Eurasian-related mixture in India ranges from as low as 20 percent to as high as 80 percent…

Groups of traditionally higher social status in the Indian caste system typically have a higher proportion of ANI [Ancestral North Indians] ancestry than those of traditionally lower social status, even within the same state of India where everyone speaks the same language.  For example, Brahmins, the priestly caste, tend to have more ANI ancestry than the groups they live among, even those speaking the same language.

It also seems that a disproportionate share of the ANI genetic input came from males.  Furthermore:

Around a third of Indian groups experienced population bottlenecks as strong or stronger than the ones that occurred among Finns or Ashkenazi Jews.

Many of the population bottlenecks in India were also exceedingly old.  One of the most striking we discovered was in the Vysya of the souther Indian state of Andhra Pradesh, a middle caste group of approximately five million people whose population bottleneck we could date…to betweenthree thousand and two thousand years ago.

The observation of such a strong population bottleneck among the ancestors of the Vysya was shocking.  It meant after the population bottleneck, the ancestors of the Vysya had maintained strict endogamy, allowing essentially no genetic mixing into their group for thousands of years.

And the Vysya were not unique.  A third of the groups we analyzed gave similar signals, implying thousands of groups in India like this…long-term endogamy as embodied in India today in the institution of caste has been overwhelming important for millennia.

…The truth is that India is composed of a large number of small populations.

That is all from David Reich’s superb Who We Are and How We Got Here: Ancient DNA and the New Science of the Human Past.  Here is my earlier post on the book.

Why is eurozone growth slowing down?

According to the Fulcrum activity nowcasts, which identified the surge in growth very early last year, the eurozone was still growing at a rate of 3.5 per cent late in 2017. Each of the largest economies in the bloc was doing well: Germany 4 per cent, France 3 per cent, Italy 2 per cent and Spain 3.5 per cent. Economic forecasters and the central bank had become confident that this strong recovery phase would persist throughout 2018. But that has not happened so far.

The latest nowcast results for the eurozone suggest that activity growth has dropped to only 1.2 per cent in early April, with each of the major economies experiencing a sharp decline in growth. Even Germany, which was relatively immune from previous European downturns has recorded a very sharp dip, with growth now down to only around 1 per cent.

That is from Gavyn Davies at the FT.

Sunday assorted links

1. Jupyter vs. Mathematica, by Paul Romer.

2. The cost of being a “charismatic” animal.

3. IRS Says Fewer Than 100 People Have Reported Bitcoin Holdings So Far.

4. Should publishing move out of London to the north?

5. [India] declare[s] that a small amount of plagiarism—10% of a thesis, article, book, research paper, or other document—is acceptable, but that more extensive copying will result in increasingly severe punishments.” Link here.

6. Reputation inflation, or why the value of ratings tends to erode over time.

7. Do same-sex couples run a greater risk of poverty?

Those new service sector jobs

In North America the modern undertaker’s job is increasingly one of event-planning, says Sherri Tovell, an undertaker in Windsor, Canada. Among the requirements at her recent funerals have been a tiki hut, margaritas, karaoke and pizza delivery. Some people want to hire an officiant to lead a “life celebration”, others to shoot ashes into the skies with fireworks. Old-fashioned undertakers are hard put to find their place in such antics. Another trend—known as “direct cremation”—has no role for them at all.

Besides having to offer more diverse services, the trade also faces increased competition in its products. Its roots are in carpentry. “You’d buy an expensive casket and the funeral would be included in the price,” remembers Dan Isard, a funeral consultant in Phoenix, Arizona. The unwritten agreement was that the dead would be treated with dignity and that families would not ask if there was an alternative to the $1,000 or $2,000 coffin, or whether embalming was really needed. The business has something in common with prostitution, reflects Dominic Akyel of the University of Cologne. It is legal (as prostitution is in some places) but taboo, “and certainly not to be discussed or haggled over”.

The undertaker used to be able to rely on a steady stream of customers who asked few questions and of whom he (and it was usually a he) would ask few in return. Protestant or Catholic? Open coffin or closed? And, in some parts of the world, burial or cremation? A new generation of customers, though, no longer unthinkingly hands over its dead to the nearest funeral director. They are looking elsewhere, be it to a new breed of undertaker, to hotel chains that “do” funerals, or—for their coffin or urn—to Amazon or Walmart.

Here is more from The Economist, interesting throughout

The Middle East and Syria right now

That is the topic of my latest Bloomberg column, here is one excerpt:

Some historical events are relatively easy to model with game theory: the Cuban Missile crisis, many of the Cold War proxy wars, the crisis over North Korean nuclear weapons. In those conflicts, the number of relevant parties is small and each typically has some degree of internal cohesion.

To find a situation comparable to the Middle East today, with so many involved countries, and so many interrelationships between internal and external political issues, one has to go back to the First World War, not an entirely comforting thought.

The situation right before that war had many distinct yet related moving parts, including the dissolution of the Ottoman Empire, the imperialist scramble for colonies, the prior Balkan Wars, a rising Germany seeking parity or superiority with Great Britain, an unstable alliance system, an unworkable Austro-Hungarian Empire, and the complex internal politics of Russia, which eventually led to the Bolshevik Revolution.

What do we learn from the history of that time? Well, even if the chance of war was high by early 1914, it was far from obvious that the Central Powers attack on France, Belgium and Russia would be set off by a political assassination in the Balkans.

Nonetheless, in sufficiently complex situations, chain reactions can cause small events to cascade into big changes. In World War I, one goal behind the assassination of Archduke Franz Ferdinand was to break off parts of the Austro-Hungarian Empire into a new Yugoslavia. The empire responded by making some demands on Serbia, which were not heeded, a declaration of war followed, and the alliance system activated broader conflicts across Europe.

If you don’t quite follow how a single assassination, which was not even seen as so important the day it occurred, triggered the death of so many millions, and the destruction of so much of Europe, that is exactly the point. When there is no clear way for observers to model the situation, a single bad event can take on a very large significance and for reasons that are not entirely explicable.

Do read the whole thing.