Results for “Larry Summers”
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The University of Austin

A new university is being founded.  Here is part of the statement from its new president, Pano Kanelos:

As I write this, I am sitting in my new office (boxes still waiting to be unpacked) in balmy Austin, Texas, where I moved three months ago from my previous post as president of St. John’s College in Annapolis.

I am not alone.

Our project began with a small gathering of those concerned about the state of higher educationNiall Ferguson, Bari Weiss, Heather Heying, Joe Lonsdale, Arthur Brooks, and Iand we have since been joined by many others, including the brave professors mentioned above, Kathleen Stock, Dorian Abbot and Peter Boghossian.

We count among our numbers university presidents: Robert Zimmer, Larry Summers, John Nunes, and Gordon Gee, and leading academics, such as Steven Pinker, Deirdre McCloskey, Leon Kass, Jonathan Haidt,  Glenn Loury, Joshua Katz, Vickie Sullivan, Geoffrey Stone, Bill McClay, and Tyler Cowen [TC: I am on the advisory board].

We are also joined by journalists, artists, philanthropists, researchers, and public intellectuals, including Lex Fridman, Andrew Sullivan, Rob Henderson, Caitlin Flanagan, David Mamet, Ayaan Hirsi Ali, Sohrab Ahmari, Stacy Hock, Jonathan Rauch, and Nadine Strossen.

You can follow the school on Twitter here.

Friday assorted links

1. “Given these results, we show that it may be optimal to visit restaurants in a zigzag that alternates between high- and low-quality choices.”  I am not endorsing that one!

2. Jordan Schneider podcast has Larry Summers on China.

3. Is your “aha!” moment actually the announcement of a meta-cognition prediction error?

4. Long Twitter thread on Maimonides.

5. Immunological dark matter hypothesis is being revived.  And what might the Delta wave look like in the U.S.?

6. Louis Andriessen, RIP (NYT): “Mr. Andriessen wrote that in Mr. Greenaway’s films, “I recognize something of my own work, namely the combination of intellectual material and vulgar directness.””

7. Eight-year-old ant entrepreneur.

Lies vs. silence?

That is the contrast in my latest Bloomberg column.  The claims about the Republicans are more widely circulated in educated circles, so here is the section on the Democrats:

Given the greater deployment of intellectual argument, smart, educated people are exposed to a more persuasive case for Democratic positions. But there is a danger in this asymmetry: when Democratic ideas are not working or are poorly designed.

Rather than constructing brazen untruths, the Democratic intelligentsia remains largely silent when it is unhappy. President Joe Biden’s recent Buy American plan is similar to protectionist ideas from Trump, but it doesn’t come in for heavy criticism on social media. If asked about it, most Democratic-leaning economists would be (correctly) critical. Yet for them this shortcoming isn’t that big a deal, given what are perceived to be the greater sins of Republicans, including their “big lie” strategy.

The continuing problems of migrant children cut off from their parents at the border receive some criticism — but the noise machine is nothing close to what it was under Trump. The new inflation data seem to indicate that Larry Summers’s criticisms of Biden’s stimulus program were largely correct, yet few if any commentators are apologizing to him on Twitter.

There is much more at the link, including about Republicans.  And to be clear, when it comes to the Democrats, the “in fact this wasn’t left wing enough” is an almost obligatory form of self-criticism, serving also as a kind of repeated affirmation of relative moral superiority.  Or the “I/we was even more right than I had thought” criticism is common as well.  The actual self-criticism of “our value schema led us astray on this issue altogether”? — you almost never hear that one.

Our aggregate demand shortfall?

From Ben Casselman: “…unlike with most measures of the economy, retail sales are actually ABOVE their prepandemic level. Up 2.6% from February, and 2.9% over the past year. So not a clean story like with jobs.”

And from Larry Summers: ” Total household income is 8% above what anybody thought it would be before Covid.”

There are very real macroeconomic problems right now, but please keep the following in mind while drawing up a “demand-based” stimulus plan.  Focus on public health!

Christmas assorted links

1. Black-footed ferrets are getting their own Covid-19 vaccine.

2. Eyes Wide Shut explained.

3. David Brooks’s Sidney awards (NYT).

4. In memory of Richard Cooper, Harvard economist.

5. When Larry Summers is trending on Twitter, he is usually correct.

6. My Bloomberg column on all the scientific developments of 2020.  Hail computation!

7. Vaccine envy (NYT).  And “NBA memo warns teams about obtaining, administering COVID-19 vaccine early.

8. One Texas health district received 900 doses of the COVID-19 vaccine. Then, it closed for Christmas.

9. “She has also qualified for the world blind championship six times, but has never been able to attend.

10. Turkey Finds Chinese Vaccine Efficacy Rate of 91.25% in Trial.

A Calculation of the Social Returns to Innovation

Benjamin Jones and Larry Summers have an excellent new paper calculating the returns to social innovation.

This paper estimates the social returns to investments in innovation. The disparate spillovers associated with innovation, including imitation, business stealing, and intertemporal spillovers, have made calculations of the social returns difficult. Here we provide an economy-wide calculation that nets out the many spillover margins. We further assess the role of capital investment, diffusion delays, learning-by-doing, productivity mismeasurement, health outcomes, and international spillovers in assessing the average social returns. Overall, our estimates suggest that the social returns are very large. Even under conservative assumptions, innovation efforts produce social benefits that are many multiples of the investment costs.

What was interesting to me is that their methods of calculation are obvious, almost trivial. It can take very clever people to see the obvious. Essentially what they do is take the Solow model seriously. The Solow model says that in equilibrium growth in output per worker comes from productivity growth. Suppose then that productivity growth comes entirely from innovation investment then this leads to a simple expression:

Where g is the growth rate of output per worker (say 1.8% per year), r is the discount rate (say 5%), and x/y is the ratio of innovation investment, x, to GDP, y, (say 2.7%). Plugging the associated numbers in we get a benefit to cost ratio of (.018/.05)/.027=13.3.

To see where the expression comes from suppose we are investing zero in innovation and thus not growing at all. Now imagine we invest in innovation for one year. That one year investment improves economy wide productivity by g% forever (e.g. we learn to rotate our crops). The value of that increase, in proportion to the economy, is thus g/r and the cost is x/y.

Jones and Summers then modify this simply relation to take into account other factors, some of which you have undoubtedly already thought of. Suppose, for example, that innovation must be embodied in capital, a new design for a nuclear power plant, for example, can’t be applied to old nuclear power plants but most be embodied in a new plant which also requires a lot of investment in cement and electronics. Net domestic investment is about 4% of GDP so if all of this is necessary to take advantage of innovation investment (2.7% of gdp), we should increase “required” to 6.7% of GDP which is equivalent to multiplying the above calculation by 0.4 (2/7/6.7). Doing so reduces the benefit to cost ratio to 5.3 which means we still get a very large internal rate of return of 27% per year.

Other factors raise the benefit to cost ratio. Health innovations, for example, don’t necessarily show up in GDP but are extremely valuable. Taking health innovation cost out of x means every other R&D investment must be having a bigger effect on GDP and so raises the ratio. Alternatively, including health innovations in benefits, a tricky calculation since longer life expectancy is valuable in itself and raises the value of GDP, increases the ratio even more. (See also Why are the Prices So Damn High? on this point). International spillovers also increase the value of US innovation spending.

Bottom line is, as Jones and Summers argue, “analyzing the average returns from a wide variety of perspectives suggests that the social returns [to innovation spending] are remarkably high.”

Operation Warp Speed Needs to Go to Warp 10

Operation Warp Speed is following the right plan by paying for vaccine capacity to be built even before clinical trials are completed. OWS, however, should be bigger and should have more diverse vaccine candidates. OWS has spent well under $5 billion. At current rates, the US economy is losing about $40 billion a week. Thus, if $20 billion could advance a vaccine by just one week that would be a good deal. As I said in the LA Times, “It might seem expensive to invest in capacity for a vaccine that is never approved, but it’s even more expensive to delay a vaccine that could end the pandemic.”

I am also concerned that OWS is narrowing down the list of candidates too early:

NYTimes: Moderna, Johnson & Johnson and the Oxford-AstraZeneca group have already received a total of $2.2 billion in federal funding to support their vaccine programs. Their selection as finalists, along with Merck and Pfizer, will give all five companies access to additional government money, help in running clinical trials and financial and logistical support for a manufacturing base that is being built even before it is clear which if any of the vaccines in development will work.

These are all good programs and one of them will probably be successful but we also want to support some long-shots because a small probability of a very big gain is still a big gain.

The five candidates also all use new technologies and are less diverse than I would prefer. There are a lot of different vaccine platforms, Live-Attenuated, Deactivated, Protein Subunit, Viral Vector, DNA and mRNA among others. The Accelerating Health Technologies team that I am a part of collected data on over 100 vaccine candidates and their characteristics. We then created a model to compute an optimal portfolio. We estimated that it’s necessary to have 15-20 candidates in the portfolio to get to a 80-90% chance of at least one success and that you want diverse candidates because the second candidate from the same platform probably fails if the first candidate from that platform fails. Moderna and Pfrizer are both mRNA vaccines–a platform that has never been used before–while AstraZeneca, Johnson and Johnson and Merck are using somewhat different viral vector platforms (Adenovirus for AstraZeneca and J & J and measles for Merck) which is also a relatively novel approach. I think it would be better if there were some tried and true platforms such as a Deactivated or Protein Subunit vaccine in the mix. As Larry Summers said, “if you will die of starvation if you don’t get a pizza in two hours, order 5 pizzas”. I would change that to order 10 pizzas and order from different companies!

One way to diversify the portfolio is to make deals with other countries to avoid the prisoner’s dilemma of vaccine portfolios. The prisoner’s dilemma is that each country has an incentive to invest in the vaccine most likely to succeed but if every country does this the world has put all its eggs in one basket. To avoid that, you need some global coordination. One country invests in Vaccine A, the other invests in Vaccine B and they agree to share capacity regardless of which vaccine works.

So my critique is that OWS is good policy but it would be even better if more vaccine candidates and more diverse vaccine candidates were part of the program. In contrast, the critiques being offered in Congress are ridiculous and dangerous.

Democrats in Congress are already seeking details about the contracts with the companies, many of which are still wrapped in secrecy. They are asking how much Americans will have to pay to be vaccinated and whether the firms, or American taxpayers, will retain the profits and intellectual property.

How much will Americans have to pay to be vaccinated??? A lot less than they are paying for not being vaccinated! The worry about profits is entirely backwards. The problem is that the profits of vaccine manufacturers are far too small to give them the correct social incentives not that the profits are too large. The stupidity of this is aggravating.

Skepticism about Trump administration policies is understandable but I am concerned that one of the best things the Trump administration is doing to combat the virus will be impeded and undermined by politics.

Saturday assorted links

1. “Of all the Sonoma County youth under 18 who have tested positive for coronavirus, a staggering 95% are Latino, a statistic that is again raising concerns over how the virus is disproportionately impacting local Latinos.

2. How is cocaine trafficking doing?

3. Edenville dam failure caught on video.

4. Ten arguments against immunity passports.  I mean…those are the arguments you should make.  But there is no conception that you have to “solve for the equilibrium” if there are no formal immunity passports, and compare the two situations in terms of cost, unfairness, and the like.  In that sense the authors cannot conceive that there needs to be a comparison at all.

5. The New Modality (a forthcoming publication) seeks articles on these topics and particular kinds of writers.

6. Do proponents of moral outrage wish to “sneak up on women”?  That would explain a lot.

7. The import of super-spreaders in Israel.

8. American Interest interview with Larry Summers.  “LHS: There’s a lot of empirical evidence since Keynes wrote, and for every non-employed middle-aged man who’s learning to play the harp or to appreciate the Impressionists, there are a hundred who are drinking beer, playing video games, and watching 10 hours of TV a day.”  It’s a good thing that has nothing to do with subsequent delayed re-employment (also known as “unemployment”), isn’t it?

Friday assorted links

1. Scott Alexander reviews Toby Ord’s The Precipice, about existential risk.

2. Pooled testing in Germany.

3. A critique of the Paycheck Protection Program — it might help already stable restaurants the most.  See also this tweet storm.

4. Should we pivot to a service trade agenda?

5. Full paper assessing health care capacity in India.

6. Claims about Covid and the future economics of cultural institutions.

7. I could link to Matt Levine every day, but do read this one on liquidity transformation.

8. How is the cloud holding up?  A good post.

9. Immunity segregation comes to Great Britain.

10. Robin Hanson on the variance in R0 and how hard it is to halt the spread of the virus.

11. New program for on-line “Night Owls” philosophy by Agnes Callard.

12. The true story of the toilet paper shortage: it’s not about hoarding, rather a shift of demand away from the commercial sector into the household sector (you are doing more “business” at home these days).


14. Fan, Jamison, and Larry Summers 2016 paper on the economics of a pandemic.  I wrote at the end of the blog post: “In other words, in expected value terms an influenza pandemic is a big problem indeed.  But since, unlike global warming, it does not fit conveniently into the usual social status battles which define our politics, it receives far less attention.”

15. Buying masks from China just got tougher.

16. How to produce greater capacity flexibility for hospitals.

17. Paycheck Protection Program is steeped in chaos.

The economic policy of Elizabeth Warren

Jerry Taylor has made some positive noises about her on Twitter lately, as had Will Wilkinson in earlier times.  I genuinely do not see the appeal here, not even for Democrats.  Let’s do a quick survey of some of her core views:

1. She wants to ban fracking through executive order.  This would enrich Russia and Saudi Arabia, harm the American economy ($3.5 trillion stock market gains from fracking), make our energy supply less green, and make our foreign policy more dependent on bad regimes and the Middle East.  It is perhaps the single worst policy idea I have heard this last year, and some of the worst possible politics for beating Trump in states such as Pennsylvania.

2. Her private equity plan.  Making private equity managers personally responsible for the debts of the companies they acquire probably would crush the sector.  The economic evidence on private equity is mostly quite positive.  Maybe she would eliminate the worst features of her plan, but can you imagine her saying on open camera that private equity is mostly good for the American economy?  I can’t.

3. Her farm plan.  It seems to be more nationalistic and protectionist and also more permanent than Trump’s, read here.

4. Her tax plan I: Some of the wealthy would see marginal rates above 100 percent.

5. Her tax plan II: Her proposed wealth tax would over time lead to rates of taxation on capital gains of at least 60 to 70 percent, much higher than any wealthy country ever has succeeded with.  And frankly no one has come close to rebutting the devastating critique from Larry Summers.

6. Student debt forgiveness:  The data-driven people I know on the left all admit this is welfare for the relatively well-off, rather than a truly egalitarian approach to poverty and opportunity.  Cost is estimated at $1.6 trillion, by the way (is trillion the new billion?).  Furthermore, what are the long-run effects on the higher education sector?  Do banks lend like crazy next time around, expecting to be bailed out by the government?  Or do banks cut back their lending, fearing a haircut on bailout number two?  I am genuinely not sure, but thinking the question through does not reassure me.

7. College free for all: Would wreck the relatively high quality of America’s state-run colleges and universities, which cover about 78 percent of all U.S. students and are the envy of other countries worldwide and furthermore a major source of American soft power.  Makes sense only if you are a Caplanian on higher ed., and furthermore like student debt forgiveness this plan isn’t that egalitarian, as many of the neediest don’t finish high school, do not wish to start college, cannot finish college, or already reject near-free local options for higher education, typically involving community colleges.

8. Health care policy: Her various takes on this, including the $52 trillion plan, are better thought of as (vacillating) political strategy than policy per se.  In any case, no matter what your view on health care policy she has botched it, and several other Dem candidates have a better track record in this area.  Even Paul Krugman insists that the Democrats should move away from single-payer purity.  It is hard to give her net positive points on this one, again no matter what your policy views on health care, or even no matter what her views may happen to be on a particular day.

All of my analysis, I should note, can be derived internal to Democratic Party economics, and it does not require any dose of libertarianism.

9. Breaking up the Big Tech companies: I am strongly opposed to this, and I view it as yet another attack/destruction on a leading and innovative American sector.  I will say this, though: unlike the rest of the list above, I know smart economists (and tech experts) who favor some version of the policy.  Still, I don’t see why Jerry and Will should like this promise so much.

Those are some pretty major sectors of the U.S. economy, it is not like making a few random mistakes with the regulation of toothpicks.  In fact they are the major sectors of the U.S. economy, and each and every one of them would take a big hit.

More generally, she seems to be a fan of instituting policies through executive order, a big minus in my view and probably for Jerry and Will as well?  Villainization and polarization are consistent themes in her rhetoric, and at this point it doesn’t seem her chances for either the nomination, or beating Trump, are strong in fact her conditional chance of victory is well below that of the other major Dem candidates.  So what really are you getting for all of these outbursts?

When I add all that up, she seems to have the worst economic and political policies of any candidate in my adult lifetime, with the possible exception of Bernie Sanders (whose views are often less detailed).

I do readily admit this: Warren is a genius at exciting the egalitarian and anti-business mood affiliation of our coastal media and academic elites.

If you would like to read defenses of Warren, here is Ezra Klein and here is Henry Farrell.  I think they both plausibly point to parts of the Warren program that might be good (more good for them than for me I should add, but still I can grasp the other arguments on her behalf).  They don’t much respond to the point that on #1-8, and possibly #1-9, she has the worst economic and political policies of any candidate in my adult lifetime.

For Jerry and Will, I just don’t see the attraction at all.

That said, on her foreign policy, which I have not spent much time with, she might be better, so of course you should consider the whole picture.  And quite possibly there are other candidates who, for other reasons, are worse yet, not hard to think of some.  Or you might wish to see a woman president.  Or you might think she would stir up “good discourse” on the issues you care about.  And I fully understand that most of the Warren agenda would not pass.

So I’m not trying to talk you out of supporting her!  Still, I would like to design and put into the public domain a small emoji, one that you could add to the bottom of your columns and tweets.  It would stand in for: “Yes I support her, but she has the worst proposed economic policies of any candidate in the adult lifetime of Tyler Cowen.”

Wojciech Kopczuk on wealth taxation

His comment on Saez and Zucman is one of the best pieces of policy economics I have read in the last few years.  Many of the main arguments have been debated on Twitter, or expressed by Larry Summers, so here I will stick with a few side points that have not received full attention.

First, if you hate monopoly rents, excess IP income, and the like, you should not be in love with a wealth tax, at least not in the steady state!  A wealth tax hits the base and the safe rate of return as well.  Ideally the anti-monopoly crowd should most of all favor higher taxes on net income.  Not taxes on wealth.

Second, a wealth tax will encourage the shifting of much more production into non-profit institutions, or perhaps even into nationalizations of industry.  Lots of hospitals would switch back to the not-for-profit form, not obviously a beneficial development in my view.

As a side note, many more non-profits would hire famous musical acts to play at their donor galas.  The quality of champagne and cheese at those events will rise too.  There would be much more pressure on non-profits to create private (non-taxed) benefits for their donors.  I predict government regulation of non-profits would end up rising considerably as well, and not for the better.

Privatizing government assets such as land or spectrum would become more difficult — people would buy only at much lower prices.  So the wealth tax is a recipe for greater statism in more ways than one.

Third, under a wealth tax Jeff Bezos would have lost de facto control over Amazon some time ago.

Those are my words rather than Kopfczuk’s, do read his entire paper.

I would add one final point.  I think we are at the margin where advocacy of a wealth tax is more of a performative exercise — “we hadn’t poked rich people in the eye with this rhetorical needle yet, therefore I won’t really speak against it” — than any kind of substantive analytic debate.

Abhijit Banerjee reminiscenses

Abhijit and I were in the same first year class at Harvard, and I have two especially strong memories of him from that time.

First, he was always willing to help out those who were not as advanced in the class work as he was.  Furthermore, that was literally everyone else.  He was very generous with his time.

Second, when it came to the first-year Macro final (I don’t mean the comprehensive exams), Andy Abel wrote a problem with dynamic programming, which was Andy’s main research area at the time.  Abhijit showed that the supposed correct answer was in fact wrong, that the equilibrium upon testing was degenerate, and he re-solved the problem correctly, finding some multiple equilibria if I recall correctly, all more than what Abel had seen and Abel wrote the problem.  Abhijit got an A+ (Abel, to his credit, was not shy about reporting this).

One of my favorite Abhijit papers is “On Frequent Flyer Programs and other Loyalty-Inducing Economic Arrangements,” with Larry Summers.  I believe it was published QJE 1987, but somehow the jstor link does not show up from google searches.  This was one of the first papers to show how consumer loyalty programs could segment the market and have collusive effects.

Another favorite Abjihit paper of mine is his job market paper, “The Economics of Rumours,” later published in ReStud 1993.  Have you ever wondered “if this rumor is true, why haven’t I heard it before?”  Abhijit works through the logic of the model on that one, in a scintillating performance.  It turns out this paper is now highly relevant for analyzing information transmission through social media.

Abhijit is the clearest case I know of a brilliant theorist who decided the future was with empirical work — he was right.  Nonetheless his early theory papers are still worthy of attention.  When Abhijit went on the job market, his letter writers suggested he might someday win a Nobel Prize, so strong were his talents.  They were right, but I suspect they had no idea for what the prize in fact would turn out to be.

Friday assorted links

1. A pianist’s tips on how to practice (“avoid flow.”)

2. New results on the sheepskin effect.

3. “Federal fraud indictment: KU professor secretly worked for Chinese university.

4. “Fidel Castro’s crocodile bites man at aquarium party.

5. On turning 40 with an ancient heart.

6. Eric Weinstein podcast with Timur Kuran.

7. Why is there a Braille message on my e-scooter?

8. Long Larry Summers thread on macro.