What do LLMs expect for the economy?

by  Tyler Cowen in

I introduce a survey of economic expectations formed by querying a large language model (LLM)’s expectations of various financial and macroeconomic variables based on a sample of news articles from the Wall Street Journal between 1984 and 2021. I find the resulting expectations closely match existing surveys including the Survey of Professional Forecasters (SPF), the American Association of Individual Investors, and the Duke CFO Survey. Importantly, I document that LLM based expectations match many of the deviations from full-information rational expectations exhibited in these existing survey series. The LLM’s macroeconomic expectations exhibit under-reaction commonly found in consensus SPF forecasts. Additionally, its return expectations are extrapolative, disconnected from objective measures of expected returns, and negatively correlated with future realized returns. Finally, using a sample of articles outside of the LLM’s training period I find that the correlation with existing survey measures persists – indicating these results do not reflect memorization but generalization on the part of the LLM. My results provide evidence for the potential of LLMs to help us better understand human beliefs and navigate possible models of nonrational expectations.

That is from a new paper by J. Leland Bybee, via Paul Goldsmith-Pinkham.

The macroeconomics of immigration

by  Tyler Cowen in

No, this isn’t a question about the real world economics of immigration, this is merely a question about the basic model, viewed as model along.

Let’s say more migrants arrive in a country.  One view, held by Bryan Caplan, is that (ceteris paribus) the monetary base is fixed, so now the monetary base per capita has decline.  Thus immigration is deflationary.  There are more people and not more money, alternatively you could say that the demand to hold money has gone up.  (I am, by the way, blogging this with Bryan’s permission.)

Another view, mine, is that the new immigrants shift out both the aggregate demand and aggregate supply curves, and the net effect can be either inflationary or deflationary.  Even given a fixed monetary base, M2 likely will go up, as for instance banks will find they have more desirable loans to make, for instance to the new arrivals.  Optimal reserve requirements and money multiplier variables are likely to change, so the fixed monetary base need not choke off a demand increase.

Who is right and under which conditions?

*Promoting Progress*

by  Tyler Cowen in

The author is Michael Magoon, and the subtitle is A Radical New Agenda to Create Abundance For All.  A good introduction to the ideas surrounding progress, here is the author’s particular recipe for progress:

1. A highly efficient food production and distribution system…

2. Trade-based cities…

3. Decentralized political, economic, religious, and ideological power…

4. At least one high-value-added industry that exports…

5. Widespread use of fossil fuels…

You can buy it here.

My Conversation with the excellent Kevin Kelly

by  Tyler Cowen in

Here is the audio, video, and transcript.  Here is part of the summary:

…Kevin and Tyler start this conversation on advice: what kinds of advice Kevin was afraid to give, his worst advice, how to get better at following advice, and whether people who ask for advice really want it in the first place. Then they move on to the best places to see traditional cultures in Asia, the one thing in Kevin’s travel kit he can’t be without, his favorite part of India, why he’s so excited about brain-computer interfaces, how AI will change religion, what the Amish can teach us about tech adoption, the most underrated documentary, his initial entry point into tech, why he’s impressed by the way Jeff Bezos handles power, the last thing he’s changed his mind about, how growing up in Westfield, New Jersey affected him, his next project called the Hundred Year Desirable Future, and more.

Here is one excerpt:

COWEN: Do you ever feel that if you don’t photograph a place, you haven’t really been there? Does it hold a different status? Like you haven’t organized the information; it’s just out on Pluto somewhere?

KELLY: Yes, I did. When I was younger, I had a religious conversion and I decided to ride my bicycle across the US. And part of that problem — part of the thing was that I was on my way to die, and I decided to leave my camera behind for this magnificent journey of a bicycle crossing the US. It was the most difficult thing I ever did, because I was just imagining all the magnificent pictures that I could take, that I wasn’t going to take. I took a sketchbook instead, and that appeased some of my desire to capture things visually.

But you’re absolutely right. It was a little bit of an addiction, where the framing of a photograph was how I saw the world. Still images: I was basically, in my head, clicking — I was clicking the shutter at the right moments when something would happen. That, I think, was not necessarily healthy — to be so dependent on that framing to enjoy the world.

I’ve learned to wean myself off from that necessity. Now I can travel with just a phone for the selfies that you might want to take.

COWEN: Maybe the earlier habit was better.

Recommended.  And here is Kevin’s new book Excellent Advice: Wisdom I Wish I’d Known Earlier.

Small steps toward a much better world, job search edition

by  Tyler Cowen in

Jobseekers face multiple barriers with potentially different implications for the level of search and returns to increasing search. An experiment on a job search platform in Pakistan shows that lowering users’ psychological cost of initiating job applications increases applications by 600%. Returns to the marginal applications induced by treatment are approximately constant rather than decreasing, in contrast with intuitive job search models. This pattern is consistent with a model in which heterogeneous psychological costs of initiating applications, potentially due to heterogeneous present bias, lead some jobseekers to miss applying to even high-return vacancies. Additional experiments and measurement reject alternative behavioral and non-behavioral explanations. Our finding of constant returns to marginal search effort, combined with limited spillovers onto other jobseekers, raises the possibility of suboptimally low search effort due to psychological costs of initiating applications.

That is from a new paper by Erica Field, Robert Garlick, Nivedhitha Subramanian, Kate Vyborny.  Via Maxwell G.

Thursday assorted links

by  Tyler Cowen

1. How to improve the Biden version of Operation Warp Speed.

2. Successor to the Doing Business index — Business Ready.

3. Mexico science policy moving in the wrong direction?

4. Will LLMs help or hurt Arabic?

5. “Satanist explains his big plan for America.” And the correct link (from yesterday) on abolishing tenure.

6. News Minimalist.  I have been waiting for this.

7. Dwarkesh on LBJ.

8. Parts of the Biden AI plan.  And will open source win out?

Buying a Coal Mine Gets Easier!

by  Alex Tabarrok in

Long time readers will know that I have been advocating for buying a coal mine and shuttering it, especially a coal mine in India or China. The basic idea is that there are plenty of coal mines which are barely profitable so buying and shuttering these mines could be a relatively cheap way to reduce air pollution and climate change (much cheaper, for example, then letting the coal mine produce and then paying for carbon extraction). (I give an example of how this might work with an actual coal mine for sale here).

One objection, which I noted earlier, was BLM use it or lose it rules:

There are also some crazy “use it or lose it” laws that say that you can’t buy the right to extract a natural resource and not use it. When the high-bidder for an oil and gas lease near Arches National Park turned out to be an environmentalist the BLM cancelled the contract! That’s absurd. The high-bidder is the high-bidder and there should be no discrimination based on the reasons for the bid. See this Science piece.

Well some good news.

The Bureau of Land Management unveiled a draft rule late last month that would place conservation “on equal footing” with energy development and other traditional uses — a proposal that seeks to confront the agency’s long record of prioritizing extraction across the federal estate. A key provision of that rule would grant the BLM, which oversees one-tenth of all land in the United States, the authority to issue “conservation leases” to promote land protection and ecosystem restoration.

The article does a pretty good job of explaining conservation leases but it’s hilarious how the author reflexively labels PERC a right-wing think tank with deep ties to fossil fuels that supports “free market environmentalism” in scare quotes and never feels the need to resolve this with their support of conservation leases. Blank out, as Ayn Rand would say.

Few people have done more to advance the idea of conservation leases than Shawn Regan, vice president of research at the Property and Environment Research Center, or PERC, a right-wing, Montana-based think tank that promotes “free market environmentalism” and has deep ties to fossil fuels. Regan points to Williams’ and DeChristopher’s cases to highlight how legacy “use it or lose it” rules have biased public land management in favor of extraction.

“We have these ‘use it or lose it’ requirements that define ‘use’ in these really narrow ways that preclude conservation groups from participating in the leasing markets that affect the use of vast swaths of the American West,” he told HuffPost. “Conservation should be considered a valid use of public lands, and groups should be able to acquire those leases and decide to conserve them in some form or restore them.”

Regan argues the inability of conservationists to participate in federal land leasing, even when they are willing to pay more than a driller or rancher, has only helped fuel conflict in Western states.

…“Why don’t environmentalists just buy what they want to protect? Well, in many cases they can’t,” Regan said.

Hat tip: Robert Keller.

Sebastian Edwards on Chilean social security reform

by  Tyler Cowen in

In his forthcoming book on the Chilean reforms, Edwards is clear that the social security reforms did not succeed.  He gives the following reasons (a partial and incomplete summary):

1. “At 10 percent of wages, the rate of contribution was obviously too low.  The average for the OECD countries was 19 percent.”  Accumulated funds ended up being too low.

2. The system assumed a static labor market, where workers stayed in the formal sector for 30 to 50 years.

3. Workers were never quite sure if they really were going to get the funds, or if they just were paying another tax.

4. Workers’ representatives were not included on the relevant program boards, and so workers felt little stake in the system.

5. The number of retirement years rose dramatically, due in part to rising life expectancy.  Yet the system made no adjustment for this, requiring a certain amount of savings to be stretched out to finance a growing number of years.

6. Management fees were very high, and this became a major issue when equity returns fell.

Here is my earlier post on the book — The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism, one of the must-reads of the year.

How to read using GPT-4

by  Tyler Cowen

Matthew asks:

You mentioned today a history book that you enjoyed reading with GPT-4 as your companion. Do you have any tips for more contemporary nonfiction?

…I’m trying the GPT-4 & LangChain Tutorial you linked, but wanted to ask: are there any tools or tricks you recommend for using GPT-4 as a reading companion where its knowledge is less than perfect?

Just keep on reading, and keep on asking GPT questions about what you are reading.  Do note that the paid version of GPT is much better!

Reading a book with GPT-4 works best when the book offers a large and somewhat unknown “cast of characters” to you.  Often that is true for history books, but it doesn’t have to be a history book per se.  You want a book that is fact-rich, and requires a lot of background context.  Then the marginal contribution of GPT’s “running annotations” is relatively high.  You probably won’t be able to keep track of all the names, nor will you have context on most of them.  So when a name, or battle,  or doctrine, or some event pops up, just keep on prompting GPT-4.  The final effect is to create a version of “reading in clusters,” yet with only a single book + GPT.

So in equilibrium, due to GPT-4, the number of books you are reading should go down.  But each reading experience should be better as well.

Here are Cynthia Haven and Mike Gioia with their views.

Wednesday assorted links

by  Tyler Cowen

1. “Agreeableness positively predicted emotional well-being, while negatively predicting advancing knowledge. We ultimately argue that gender is a crucial, underestimated explanatory factor of the value orientations of American college students.”  Link here.

2. How much do India’s new nuclear reactors cost?

3. The geography of retracted papers (China fact of the day).  And should Japan defend Taiwan?

4. The new Philip A. Wallach book Why Congress?

5. Magnus Carlsen update.  And Ding, Camus, and Woody Allen.

6. Michael Makowsky (correct link now) on tenure abolition.

From the Comments

by  Alex Tabarrok in

The context is that human challenge trials were “ethically fraught” but, Sure writes:

…I think we had more than a few instances in history where restricting movement, shuttering houses of worship, and stratifying the economy into favored and disfavored sectors was considered ethically fraught.

I mean we know that limiting visitation to old folks shortens their lives. We know that child abuse becomes harder to find the fewer the number of folks who lay eyes on them each day. We know that initimate partner violence increases when the housing market gets frozen. And we know that suicides crest when businesses go under.

Yet no such epistemic humility and wariness followed with public health recommendations to be tried on a scale reserved hitherto for literal wars and genocides. And we blindly went ahead full speed.

Or consider even the better defined but wildly more mundane issue: proof of vaccination. For decades health ethicists told us that merely revealing a patient’s name, let alone which medications they have taken, was an unconscionable ethical violation. One which we instituted balkanized medical systems to manage and where the cost has been literal lives lost as we have had untold numbers of patients fall through the cracks thanks to duplicate profiles, failure of providers to communicate, and of course scads and scads of useful data locked away from effective statistical analysis that could spot patterns of medical error.

Yet when the powers that be decided that we needed vaccine passports so we could enjoy dining again? Well, every waiter in the country becomes a safe repository of PHI.

No formal study. No deliberations. Precious little if any publications.

And even then, it went only for what was the most expedient option for the enlightened. No ability to get an antibody titer card for medical equivalence. No ability to substitute PCR results with a physician evaluation of recent disease recovery.

Professional medical ethics are bogus. There is no consistency and the entire profession serves to pander to the prejudices of the educated.

New results on retail productivity

by  Tyler Cowen in

We find: (i) managers affect and explain a large share of the variance of store-level productivity; (ii) negative assortative matching between managers and stores, which may reflect both firms’ decisions and a selection-driven bias that we characterize and argue might apply in other settings using movers designs; (iii) managers who move do so on average from less productive to more productive stores; (iv) female managers are less likely to move stores than male managers; (v) manager quality is generally hard to explain with the observables in our data, but is correlated with the ratio of full-time to part-time workers; (vi) managers who obtain high labor productivity also tend to obtain high energy productivity, revealing some breadth in managers’ skills applicability; (vii) high-performing managers in stable growth times are also high-performing during turbulent times; and (viii) exogenous productivity shocks improve the quality of initially low quality managers, suggesting managers can learn.

That is from a new NBER working paper by Robert D. Metcalfe, Alexandre B. Sollaci, and Chad Syverson.