Sentences to ponder
This matters for the AI question, and the book leaves it unfinished. If the breakthroughs of the past required social conditions, not just cognitive capacity, then what does it mean when the next breakthroughs are produced by systems that have no social conditions at all? A neural net does not need a university chair or financial independence from the church. It does not need to reorganize its commitments. It does not, in any recognizable sense, have commitments. The machine that replaces the marginalist is not a better marginalist. It is a different kind of thing entirely.
That is from Jônadas Techio, presumably with LLMs, this review of The Marginal Revolution is interesting throughout. And this:
Maybe the book demonstrates only that Cowen personally remains good at something the field no longer needs.
Monday assorted links
1. Was there a great Philadelphia cheese steak stagnation?
2. David French on the enemies of free speech (NYT). And yes it is Indonesian censorship, nothing to celebrate.
3. Profile of Hussein Aboubakr. Good piece on one of today’s best thinkers and writers. Link to Twitter and Substack. Unlike many writers on these topics, it is not about your opinion of Israel, rather each piece is interesting and substantive. Try his essay on Mahfouz.
4. Lab Leak is somewhat declining in plausibility.
5. “China is cracking down on families who opt to bury their dead in empty high-rise properties — known as “bone ash apartments” — rather than pay skyrocketing costs for cemetery plots.” (FT)
Grade Caps are Not a Good Solution to Grade Inflation
It’s well known that grade inflation has “degraded” the informational content of grades at many colleges. At Harvard, two-thirds of all undergraduate grades are now A’s—up from about a quarter two decades ago. In response, a Harvard faculty committee has proposed capping A grades at 20 percent of each class (plus a cushion for small courses). That may give professors some cover to resist further inflation, but it doesn’t solve the real problem.
The real problem is not inflation per se. It’s that students are penalized for taking harder courses with stronger peers. A grade cap leaves that distortion intact—and can even amplify it. As Harvard economist Scott Kominers argues:
A grade cap systematically penalizes ambitious students for surrounding themselves with strong classmates. Perverse course-shopping incentives ensue as a result. A student who is prepared for an advanced course but concerned about landing in the bottom 80 percent may choose to drop down preemptively—seeking out a pond where they are a relatively bigger fish. As strong students move into lower-level courses, competition for A grades increases there while harder courses continue to shrink—reducing their A allocation further and driving more students away.
The underlying issue is informational. A grade tries to capture two things—student ability and course difficulty—with a single number. Gans and Kominers show that in general this is impossible: if some students take math and earn B’s while others take political science and earn A’s, there is no way, from grades alone, to tell whether the difference reflects ability or course difficulty.
There is, however, a solution in some cases. Clearly, if every student takes some math and political science courses, informative patterns can emerge. If math students tend to get B’s in math but A’s in political science, while political science students get A’s in their own field but C’s in math, you can begin to separate course difficulty from student ability.
Students don’t all overlap the same classes. But full overlap isn’t necessary—you just need a connected network. If Alice just takes math courses, Joe takes math and political science courses, and Bob just takes political science courses, then Alice and Bob can be compared through Joe. With enough of these links, the entire system can be stitched together. The more overlap, the more precise the estimates.
Valen Johnson proposed a practical method along these lines in 1997. Gans and Kominers embed the same intuition in a much more general framework, showing exactly what can and cannot be inferred, and under what conditions.
The great thing about achievement indexes based on relative comparisons is that they are robust to grade inflation and do not penalize students for taking hard classes or subjects. A political science student who chooses to take a tough math class instead of an easy-A intro to sociology course won’t be penalized because their low math grade will, in effect, by boosted by the difficulty of the course/quality of the students. That’s good for the student and also good for disciplines that have lost students over the years because they held the line on grade inflation.
One final point. Harvard’s cap proposal appears to have been developed with little engagement with researchers who have studied problems like these for decades in the mechanism and market design literature—people like Kominers, Gans, Budish, Roth, Maskin, and Sönmez, some of them at Harvard! Moreover, this isn’t a case of ignoring high-theory for practice. The high-theory of mechanism design has produced real-world systems including kidney exchanges, school choice mechanisms, physician-resident matching, even the assignment of students to courses at Harvard, as well as many other mechanisms. Mechanism design is practical.
Grade inflation is a mechanism design problem—and we know a lot about how to solve it, if we want to solve it.
Do Parents Propagate Inequality Among Children?
The subtitle of the piece is “Evidence From Chinese and Swedish Twins.” Abstract:
Economists have long studied how parental behavior shapes within-family inequality, yet empirical findings remain mixed. Using twins data from China and Sweden, we examine the predominant mechanisms reported in the literature. Parents in both countries invest similarly during childhood. Inter vivos transfers, however, differ: Chinese parents reinforce income inequality, whereas Swedish parents distribute wealth equally; the reinforcing pattern reflects exchange motives. Bequests are divided equally in both countries. Parental education plays a key role: less educated parents reinforce income inequality, whereas more educated parents transfer wealth equally. Cross-country differences in parental education may thus help explain the mixed findings.
By Aiday Sikhova, Sven Oskarsson, Rafael Ahlskog. Via the excellent Kevin Lewis.
Claudia Goldin and the WNBA
After Claudia Goldin became the first woman to win a solo Nobel in economics in 2023, she received hundreds of invitations and requests. She accepted just three.
One of them was advising the WNBA players union as the women prepared to negotiate a new labor deal with the league.
When Goldin replied via email to Terri Carmichael Jackson, executive director of the players union, “I remember just reading it and screaming,” Jackson said. Goldin had one requirement: She refused to be paid.
This month, the two sides reached a collective bargaining agreement that gave Women’s National Basketball Association players a nearly 400% raise. Starting this season, players’ average salary will top $580,000.
It isn’t just the biggest pay increase in U.S. league history. It is, as far as Goldin is aware, the biggest increase any union anywhere has ever negotiated.
“It’s astounding,” the 79-year-old Harvard economist said.
Mike Bass, a spokesman who represents both the National Basketball Association and the WNBA, called the deal “transformational.”
…More recently, as the pay negotiations stretched on, Goldin said she stayed focused not on the countless separate points in the typical lengthy labor deal but on one central equation: the fraction of league revenue going to players’ salary and benefits.
Goldin’s calculations had a calming effect on the players, said Jackson, the union’s executive director.
Here is more from the WSJ. Via Anecdotal.
*The AI Doc*
The subtitle of the movie is Or How I Became an Apocaloptimist, and here is the trailer.
Overall this film was better and smarter than I was expecting. Intelligent people were allowed to speak, and to present various sides of the issue. It was also interesting to see how various people one knows come across on the big screen.
It is easy enough to mock the final section of the movie, which calls for a participatory “civil rights” movement on AI, negotiations with China, and a big voice for trade unions in the decisions. What Dan Klein calls “the people’s romance.” The Straussian read there is correct, even though it probably was not intended by the moviemakers. In reality, for better or worse, the final decisions will continue to be made by the national security establishment.
On a weekend, there were five other people in the theater.
The Candidates’ tournament
Caruana and Sindharov have won today, obviously boosting Caruana’s chances as favorite (he beat Nakamura, the number two rated player in the tournament). Yet what the chess world needs right now is not a winner, but rather a greater sense of legitimacy for the world title. Ideally the same person should win a championship match two or three times in a row, and with a decisive margin. They do not have to be as good as Carlsen, just clearly better than everyone else. Nepo never quite made it, Ding has retreated from the chess world, and Caruana has yet to win a first title. Is he young enough to win a few in a row? Or are we waiting for Nordirbek Abdusattorov (or someone else) to enter the cycle? I fear decisiveness is not soon on the way. There are several (relatively) weak players in this tournament, so a variety of players can win just by beating up on the weakies, rather than by demonstrating mastery over their strongest peers. Legitimacy is likely to remain uncertain, to the detriment of the chess world. But soon we will know more.
Scott Sumner on *The Marginal Revolution*
My favorite part of Tyler’s book is where he asks a very good but non-obvious question: Why did it take so long for economics as a field to develop a coherent model or framework of analysis? Much of the book discusses how three economists simultaneously developed marginal analysis, with a focus on the work of Stanley Jevons. Here I’ll briefly provide the intuition of marginal analysis and then explain why economics is both extremely easy but also quite difficult…
Tyler does a great job explaining why Jevon’s model of marginal analysis (which underlies most of modern microeconomics) is elementary on one level, but also something that wasn’t discovered until the 1860s because it was not at all obvious. Here’s how he concludes Chapter 3:
[This is TC now] By studying the slow intellectual development of economics, and contrasting it with other fields of study, we can learn the following:
1. Some insights are very hard to grasp, even if they are apparently simple once they are understood. People need to “see around corners” in the right way to understand these insights and incorporate them into their world views.
2. Economics is one of those fields, and that is why it took intuitive economic reasoning so long to evolve, marginalism included. Those of us who are educators, or who spend time talking to policymakers, should take this point very seriously.
3. Even very, very smart people are likely unaware that these “see around the corner” insights are missing – did Euclid rue that he did not have access to proper supply and demand and tax incidence theory? Probably not.
4. Economics is not the only such field that is hard to grasp, some other examples being segments of botany, geology, and evolutionary biology.
5. Scientific revolutions come about when many complementary pieces are in place, such as financial support, intellectual independence, and networks of like-minded others to talk with.
Those conditions help people to understand that “seeing around those corners” can bring both high social and professional returns.
Are there major conceptual corners that today still no one can see around? If so, how might we discover what they are? And why are we not working harder on this? Or are we?
Here is the rest of Scott’s commentary. Here is the online book.
Sunday assorted links
Shruti interviews V. Anantha Nageswaran on the Indian economy
He is currently serving as the Chief Economic Advisor to the Government of India, and also is the co-author of the books Economics of Derivatives and The Rise of Finance: Causes, Consequences and Cures. The podcast covers import substitution and strategic resilience, futures and options market, gross fixed capital formation, crypto markets, India’s growth trajectory, and much more.
Here is the audio and video on YouTube. Here is a linked transcript. Excerpt:
RAJAGOPALAN: The policy response to this has come in a couple of different ways. One has come through SEBI. It has started raising contract sizes and limiting weekly expiration,and so on. Another instrument has come through taxation. There have been STT [Securities Transactions Tax] hikes in consecutive budgets,but there is one thing about STT that I want to understand a little bit better from someone like you who has thought about this deeply.
Now, STT on futures is being levied on the notional value of the contract, which is the full traded price, whereas the STT on the options is levied on the premium, which is a small fraction of the overall underlying value of the notional exposure. The effective tax that is imposed is much more on the futures trade, manyfold more actually, than it is on the options trade, whereas the speculation is mostly happening on the options side, which is also where most of the retail investors are losing money because the futures side is much better capitalized, larger firms, and so on.
NAGESWARAN: No, also the futures side is probably used more by institutions, and therefore, they are able to put up the margin requirement, etc., better than the options trades, where the individuals are being sold almost like the₹10 sachet-type options, and the options…
RAJAGOPALAN: Exactly, sachetization options, absolutely.
NAGESWARAN: Yes. Go ahead.
RAJAGOPALAN: Now with each successive hike in the STT,we’re seeing the gap widen. It’s on the margin, making futures relatively more expensive than options just because it’s taxing each trade. It’s like a toll fee that’s paid almost on every transaction. Your book was precisely about understanding these kinds of policy instruments. Given that now we have a tax instrument which inadvertently favors the more speculative instrument. Is that a good way of thinking about it, or how would you think about this problem?
NAGESWARAN: No, I think you have given me a lot to think about on this. I probably haven’t applied my mind as much to the mechanics of the STT being levied on the premium when it comes to options, but on the notional value of the contract when it comes to futures. Actually, you have given me something to think about. As you said, it could be having the unintended consequence of reducing the hedging role of futures, which probably is playing a better role there and encouraging the speculative element. Let me think about it and also probably take back this aspect of the conversation back to my colleagues in the revenue department, in the Ministry of Finance. Thank you for that, yes.
Of great importance for the world’s most populous country.
Is Tinder actually OK?
Online dating apps have transformed the dating market, yet their broader effects remain unclear. We study Tinder’s impact on college students using its initial marketing focus on Greek organizations for identification. We show that the full-scale launch of Tinder led to a sharp, persistent increase in sexual activity, but with little corresponding impact on the formation of long-term relationships or relationship quality. Dating outcome inequality, especially among men, rose, alongside rates of sexual assault and STDs. However, despite these changes, Tinder’s introduction did not worsen students’ mental health on average and may have even led to improvements for female students.
That is from a new paper published in AEJ: Applied Economics, by Berkeren Büyükeren, Alexey Makarin, and Heyu Xiong.
Saturday assorted links
3. “The gesture establishes a hierarchy in which Tyler Cowen determines the hierarchy.”
4. How the spreadsheeet reshaped America.
5. What works of literature were written by the elderly?
6. The Anglosphere is ahead on AI adoption.
9. Austin Vernon on Hormuz and its resolution through economic means.
Republican Congressional deference to Trump is in fact democratic
That does not mean it is good! From Jeffrey M. Stonecash:
Congress is portrayed as compliant with President Donald J. Trump’s agenda because he is intimidating its members. This neglects an alternative explanation that focuses on the increased congruence of presidential and congressional electoral bases. Trump is the beneficiary of a geographical realignment that took decades and has created a high degree of overlap of the two bases. This analysis tracks that process from 1952 to 2024. It has produced a situation in which policy concerns overlap and encourage congressional compliance.
A bilateral AI pause?
Dean ball has some thoughts and hesitations:
Here are some questions I wish “Pause” and “Stop” advocates would address:
1. Assuming we achieve the desired policy goal through a bilateral US/China agreement, what would be the specific metric or objective we would say needs to be satisfied in advance? Who decides whether we have satisfied them? What if one one party believes we have satisfied them but the other does not?
2. If the goal is achieved through a bilateral US/China agreement, would we need capital controls to ensure that U.S. investors cannot fund semiconductor fabs, data centers, or AI research labs in countries other than the U.S. and China?
3. Would we need to revoke the passports of U.S.-based AI researchers and semiconductor engineers to prevent them leaving America to join AI-related ventures elsewhere? How else would the U.S. and China keep researchers within their borders?
4. How should we grapple with the fact that (2) and (3) are common features of autocratic regimes?
5. Do the above questions mean that this really should be a global agreement, signed by all countries on Earth, or at least those with the theoretical ability to host large-scale data centers (probably Vanuatu doesn’t need to be on board)?
What should I ask Andrew Graham-Dixon?
He is one of the world’s leading art critics, all of his books are excellent, and he has a new and very good work coming out titled Vermeer: A Life Lost and Found. He also has a well-known book on Caravaggio, on Michelangelo, and I am especially fond of his book on British art.
Here is his Wikipedia page. Here is his home page. So what should I ask him?