How will AI remake the rules of international trade?

by  Tyler Cowen in

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

Posting a query to ChatGPT consumes a lot of energy, by one estimate 10 times more than a Google search. Currently large language models are sufficiently limited that this is not a major factor in aggregate energy consumption. But as use of AI services increases, the energy burden will rise. Countries with expensive energy, or which will not allow energy consumption to rise much for climate or regulatory reasons, will look to import their AI services from energy-rich countries.

In the future, energy-rich regions may include Spain and Morocco with solar power, South Korea with affordable nuclear power, and whichever nations are pioneers in nuclear fusion. Those nations may end up as major exporters of AI-generated data. They might draw their AI inputs from the US, but specialize in cheap calculation and information transmission. And some regions of America may join this list as well, especially if they are well-suited for solar and hydroelectric power.

To be clear, the US will export a lot of AI services, through such companies as OpenAI, Google, Meta and Anthropic. But the US is not as good at building affordable infrastructure, and that will put it at a disadvantage in the AI revolution and distribute many of the gains abroad.

It remains to be seen whether there are higher profits in selling the original source code or the more derivative electricity-driven, infrastructure-based AI calculations. Nonetheless, this is a potential economic and national security risk for the US. It could end up with a strong lead in the source product, but fall badly behind in making (“manufacturing,” you could say) the final AI outputs.

Recommended.

What should I ask John Gray?

by  Tyler Cowen in

Yes I will be doing a Conversation with him.  Here is from Wikipedia:

John Nicholas Gray (born 17 April 1948) is an English political philosopher and author with interests in analytic philosophy, the history of ideas, and philosophical pessimism. He retired in 2008 as School Professor of European Thought at the London School of Economics and Political Science. Gray contributes regularly to The Guardian, The Times Literary Supplement and the New Statesman, where he is the lead book reviewer. He is an atheist.

Gray has written several influential books, including False Dawn: The Delusions of Global Capitalism (1998), which argues that free market globalization is an unstable Enlightenment project currently in the process of disintegration; Straw Dogs: Thoughts on Humans and Other Animals (2002), which attacks philosophical humanism, a worldview which Gray sees as originating in religions; and Black Mass: Apocalyptic Religion and the Death of Utopia (2007), a critique of utopian thinking in the modern world.

John has a new book coming out The New Leviathans: Thoughts After Liberalism.  So what should I ask him?

Building networks: Investigating the quid pro quo between local politicians & developers

by  Alex Tabarrok in

My latest paper, Building Networks, is with Vaidehi Tandel and Sahil Gandhi in the Journal of Development Economics. We look at the connection between politics and land markets in Mumbai, India. The subject is inherently difficult to analyze because most such connections are illicit and under the table. What we find, however, is that when the local politician loses power development projects slow down which suggests that it takes time to build the connections that are necessary to speed approval through the bureaucratic process. Much more in the paper.

Abstract: Mutually beneficial arrangements between politicians and real estate developers are common in many developing countries. We document what happens when the politician-developer nexus is disrupted by an election. We construct a novel dataset of real estate projects and electoral constituencies in Mumbai’s municipal government. We find that an incumbent party losing the election increases real estate project completion times by 5%. We find no effect of quasi-random redistricting or changes in voter preferences on project delays. We investigate two mechanisms for the slowdown associated with party turnover — delays in construction approvals around the time of the election and increase in litigation against projects after the election. While we see no rise in litigation, we find that delayed approvals near an election explain 23% of the increased total delays due to party change.

Cost-benefit analysis of marijuana legalization

by  Tyler Cowen in

We analyze the effects of legalizing recreational marijuana on state economic and social outcomes (2000–20) using difference-in-differences estimation robust to staggered timing and heterogeneity of treatment. We find moderate economic gains and accompanied by some social costs. Post-legalization, average state income grew by 3 percent, house prices by 6 percent, and population by 2 percent. However, substance use disorders, chronic homelessness, and arrests increased by 17, 35, and 13 percent, respectively. Although some of our estimates are noisy, our findings suggest that the economic benefits of legalization are broadly distributed, while the social costs may be more concentrated among individuals who use marijuana heavily. States that legalized early experienced similar social costs but larger economic gains, implying a potential first-mover advantage.

That is from a new paper by Jason Brown, Elior Cohen, and R. Alison Felix, via the excellent Kevin Lewis.

Who runs the best American schools?

by  Tyler Cowen

On the National Assessment of Educational Progress, a federal exam that is considered the gold standard for comparing states and large districts, the Defense Department’s schools outscored every jurisdiction in math and reading last year and managed to avoid widespread pandemic losses.

Their schools had the highest outcomes in the country for Black and Hispanic students, whose eighth-grade reading scores outpaced national averages for white students.

Eighth graders whose parents only graduated from high school — suggesting lower family incomes, on average — performed as well in reading as students nationally whose parents were college graduates.

The schools reopened relatively quickly during the pandemic, but last year’s results were no fluke.

While the achievement of U.S. students overall has stagnated over the last decade, the military’s schools have made gains on the national test since 2013. And even as the country’s lowest-performing students — in the bottom 25th percentile — have slipped further behind, the Defense Department’s lowest-performing students have improved in fourth-grade math and eighth-grade reading.

“If the Department of Defense schools were a state, we would all be traveling there to figure out what’s going on,” said Martin West, an education professor at Harvard who serves on the national exam’s governing board.

Here is more from Sarah Mervosh at the NYT, do not forget unobserved heterogeneity in the parents of these students.  Via Steve.

Will Detroit go Georgist?

by  Tyler Cowen in

The city now has a more ambitious plan to reduce the amount of vacant land. It intends to tax it. A lot. Will it work?

The idea, proposed by Mike Duggan, the city’s pugnacious mayor, is to replace Detroit’s current property tax with a split tax. In essence, assessors will distinguish between the value of its land and of the buildings on it. This done, the city’s property tax will be reduced from 2% for every $1 of assessed value (which is less than market value) to 0.6%. To make up for the revenues lost, land will be taxed at a new rate of 11.8%, whether or not it has anything built on it. In Michigan changes to property-tax rates have to be approved by voters. A law to allow that cleared its first hurdle in the state House in late September. A referendum could happen in February.

And this:

How come Detroit is able to try something so radical? One advantage, says Jay Rising, the city’s chief financial officer, is that the city now raises very little from its current system. In 1959, according to a study by the Lincoln Institute of Land Policy, a think-tank in Massachusetts, the city’s property tax raised over $1bn, adjusted for inflation. By 2019, after decades of economic decline, the figure had fallen to just $119m. “If this was 80% of our revenues, we’d be a lot more nervous,” says Mr Rising. In fact it is just 16%. Moreover, the value of residential land is very low, which makes it an easier sell to voters.

The hope is that taxing land more will in fact spur development.

Here is the full story from The Economist.  Via Chris Weber, who (among other things) writes on matters related to Jacques Offenbach.

Wednesday assorted links

by  Tyler Cowen

1. Alice Evans on Claudia Goldin.

2. Interview with Michael Lewis.  Yikes.

3. Russ Roberts tells me that he was not born in Ames, Iowa, though he did spend 1957 there (see this now-corrected post).

4. Kevin Phillips, RIP.  An early theorist of populism and its rise.

5. Bilal Coulibaly update.

6. Jason Farago piece on whether our culture is stagnating (NYT, note there is much I disagree with in this piece, nonetheless the issues are interesting).

The “Deaths of Despair” narrative is somewhat wrong

by  Alex Tabarrok in

Matt Yglesias does an excellent job laying out the case against the “deaths of despair” narrative and putting it bluntly. 

Over the past few years, Anne Case and Angus Deaton have unleashed upon the world a powerful meme that seems to link together America’s troublingly bad life expectancy outcomes with a number of salient social and political trends like the unexpected rise of Donald Trump.

Their “deaths of despair” narrative linking declining life expectancy to populist-right politics and to profound social and economic decay has proven to be extremely powerful. But their analysis suffers from fundamental statistical flaws that critics have been pointing out for years and that Case and Deaton just keep blustering through as if the objections don’t matter. Beyond that, they are operating within the confines of a construct — “despair” — that has little evidentiary basis.

…Novosad, Rafkin, and Asher have provided a compelling analysis of a very concentrated problem of worsening health outcomes for the worst-off Americans. Case and Deaton, by contrast, have delivered a very misleading portrait of worsening health outcomes for the majority of Americans that (because they mistakenly think it’s a majority) they attribute to broad economic forces that exist internationally but which for some reason only cause “despair” in the United States.

…The point is that we face a set of discrete public health challenges that we need to think about both as policy matters and in terms of politics and public opinion. But there is no “despair” construct driving any of this, and the linkage to big picture political trends is simply that Republicans are more hostile to regulation. Case and Deaton, meanwhile, have sent us on the equivalent of a years-long wild goose chase away from well-known ideas like “smoking is unhealthy” or “it would be good to find a way to get fewer people to use heroin.”

I tend to agree with Matt but I would offer a few cautions. Case and Deaton have been too broad in identifying the at-risk population. Identifying more carefully the at-risk group(s) is important so that we can target different problems with different solutions. Indeed, part of what makes the very important opioid crisis so bedeviling is precisely that it is not limited to “despairing” populations but cuts across many groups.

I wouldn’t, however, throw out despair as an organizing principle. The evidence on “despair” goes beyond death to include a host of co-morbidities such as mental stress, marriage rates, labor force participation rates and other measures of well being. Regardless of the precise population to which these problems attach they are co-morbidities and I suspect not by accident. Education is a proxy for the underlying problem but likely not causal. Matt’s cheeky suggestion to promote ideas like “smoking is unhealthy” illustrates part of the issue. Education and information will not solve that problem. Smokers know that smoking is unhealthy but they do it anyway–perhaps because it’s one of the few easily available pleasures if you are unmarried, out of work and stressed.

Nevertheless, do read the whole thing. 

The costs of short-termism?

by  Tyler Cowen in

R&D investment reduces current profits, so short-term pressure to hit profit targets may distort R&D. In the data, firms just meeting Wall Street forecasts have lower R&D growth and subsequent innovation, while managers just missing receive lower pay. But short-termist distortions might not quantitatively matter if aggregation or equilibrium dampen their impact. So I build and estimate a quantitative endogenous growth model in which short-termism arises naturally as discipline on conflicted managers and boosts firm value by about 1%. But short-termism reduces R&D, and the social return to R&D is higher than the private return due to standard channels including knowledge spillovers and imperfect competition. So at the macro level, short-termist distortions slow growth by 5 basis points yearly and lower social welfare by about 1%.

That is from Stephen J. Terry, recently published in Econometrica.  Via the excellent Kevin Lewis.

Israel’s previous game-theoretic strategy?

by  Tyler Cowen in

Israel’s asymmetric response is supposed to serve a deterrent purpose, Byman told Vox, but the country has also, at least in the past, had a vested interest in keeping Hamas in power. According to a 2017 research brief by the RAND corporation, Israel has the military capability to wipe out Hamas, but doing so could perhaps be even riskier than not, given that an even more extreme organization could come into power — or that Israel could be put into the position of governing the territory itself. “As such, Israel’s grand strategy became ‘mowing the grass’ — accepting its inability to permanently solve the problem and instead repeatedly targeting leadership of Palestinian militant organizations to keep violence manageable.”

“We want to break their bones without putting them in the hospital,” one Israeli defense analyst told the research brief’s authors.

Here is more from Ellen Ioanes.  Viewed through this lens, it is far from obvious what is the new equilibrium…?  And here is some background context from the still-underrated Thomas Friedman.

Campus censorship and Israel-Palestine

by  Tyler Cowen in