Post-Covid, is the U.S. falling behind China?
I don’t think so, as I argue in my latest Bloomberg column, here is one bit:
If you are wondering whether China or the U.S. with its allies is more likely to make a big breakthrough, in, say, quantum computing, ask yourself a simple question: Which network will better attract talented immigrants? The more that talent and innovation are found around the world, the more that helps the U.S.
And:
Perhaps most important, the European Union has evolved from seeing China primarily as a customer to seeing China primarily as a rival. Even Germany, a longstanding advocate for closer ties with China, has become more skeptical. Furthermore, most European nations have ended up agreeing with the U.S. that Chinese telecom giant Huawei be kept out of the critical parts of their communications infrastructure.
It is also worth noting that GPT-3 came out of the Anglosphere, not China, even though we have been hearing for years that China may be ahead in AI.
Platform Economics in Modern Principles
Why is Facebook free? Why are credit cards less than free? Why do singles bars sometimes have women drink free nights but never men drink free nights? All of these questions are in the domain of platform economics. Platform economics is new. Tirole and Rochet practically invented the field with a seminal paper in 2003–and that paper was one of the reasons Tirole won the Nobel prize in 2014. Despite being new, platform economics deals with goods which are fundamental to the modern economy. Thus, Tyler and I thought that it was incumbent upon us to teach some of the intuition behind platform economics in Modern Principles of Economics. But students have enough new material to learn, so we set ourselves a challenge–explain the intuition of platform economics using principles that the students already know. Surprisingly, platform economics can be taught with just two principles: externalities and elasticities.
In our chapter on externalities we offer the students a puzzle. Why do some firms offer their workers free flu shots? The answer, as memorably illustrated in this video, is that the firm “internalizes the externality.” When one worker gets a flu shot, other workers at the firm are less likely to get sick. In principle, the workers could subsidize one another to achieve the efficient outcome but transactions costs makes that solution impractical (the Coase theorem). The firm, however, is already involved in transactions with all the workers and, as a result, it can subsidize flu shots and reap the benefits of workers taking fewer sick days. How much the firm should subsidize flu shots depends on the elasticity of flu shots with respect to the price and on the elasticity of sick days with respect to vaccinated workers.
Now what does this have to do with Facebook? Well think about seeing ads as a bit like getting a flu shot–seeing ads has a benefit to you but it’s also a bit of a pain so if you had a choice you might not watch that many ads. But advertisers want you to see ads–in other words, Facebook users who see ads create a positive externality for advertisers. The platform firm, Facebook, internalizes this externality and that means subsidizing ad-seeing by selling Facebook at a zero price to readers and instead charging advertisers. As we put it in Modern Principles:
Imagine that Facebook begins with a positive price for both readers and advertisers (PR>0 and PA>0). Readers, however, are likely to be sensitive to the price so a small decrease in price will cause a large increase in readers (very elastic demand). Thus, imagine that Facebook lowers the price to readers and thus increases the number of readers. With more readers, Facebook can charge its advertisers more, so PA increases. Indeed, if the demand for advertisers increases enough, it can even pay Facebook to lower the price to readers to zero! Thus, the key to Facebook’s decision is how many more readers it will get when it lowers the price (the reader elasticity), how much those readers are worth to advertisers (the externality of readers to advertisers) and how high can it increase the price to advertisers (the advertiser elasticity).
More in the textbook!
More immigrant founders and co-founders, in this case Moderna
Noubar Afeyan, co-founder and chairman of Moderna, is a two-time immigrant. He was born to Armenian parents in Lebanon and immigrated with his family in his early teens to Canada. After attending college, Afeyan came to the United States and earned a Ph.D. in biochemical engineering at the Massachusetts Institute of Technology (MIT). He started his first company at age 24 and ran it for 10 years, during which time he founded or co-founded five additional companies.
…Moderna’s CEO is Stéphane Bancel, who immigrated to America from France. He earned a master of engineering degree from École Centrale Paris (ECP), and came to the United States as an international student, receiving a master of science in chemical engineering from the University of Minnesota and an M.B.A. from Harvard Business School.
Here is the story, there will be more like it…
LaMelo Ball What Price Fame?
Ball, though, wasn’t content with just having been a solid player in Australia. Instead, he raised some eyebrows last spring when he attempted to buy his former team.
The talks eventually fizzled out.
It wasn’t a typical move for a teenager, but Ball isn’t a typical teenager. He has already lived on different continents, starred in his own reality show, worn his own signature sneaker and watched both of his brothers play professional basketball.
And at age 19, with only limited playing experience or credentials:
…he is already more famous than most professional athletes, with more Instagram followers than the majority of N.B.A. players. His highlights had been viewed by millions on social media before he was old enough to drive a car.
Of course the NCAA should pay its players. This year it is possible that at least half of the top ten draft picks will have bypassed the NCAA altogether, Ball included. Arbitrage!
Here is the NYT article.
Sentences to ponder
How many will speak up for science today?:
Our results show that the enormous expansions of parental leave and child care subsidies have had virtually no impact on gender convergence.
That is from a new NBER working paper by Henrik Kleven, Camille Landais, Johanna Posch, Andreas Steinhauer, and Josef Zweimüller., based on decades of data from Austria.
Monday assorted links
1. State capacity: Italian Police Use Lamborghini To Transport Donor Kidney 300 Miles In Two Hours.
3. This source argues there was no real foreign election interference.
4. “A fact that was never mentioned ahead of time. If we had reached complete suppression vaccine development would have been impossible. Depends, on the math but I think this means that *if* a vaccine is out there slow burn saves lives compared to suppression that eventually snaps” From Karl Smith.
5. “Student loan debt forgiveness likely has a multiplier close to zero. Forgiveness is taxable. If this negative cash flow effect outweighs interest savings would even be net negative. And wealth effect small in short run. Arbitrary/regressive $1T for ~$0 GDP, not a great idea.” From Jason Furman.
Modern Principles, New Edition!
The new edition of Modern Principles is here! We take our title, Modern Principles of Economics, seriously. Other textbooks stick with the market for ice cream year after year but when it comes to new editions we don’t just add a box or two–we rewrite entire chapters with new examples and applications and we cut older material to make way for the new.
In the new edition we introduce platform economics and we use it to explain why Facebook is free; we have new material applying the elasticity of supply to understand why housing is so expensive in some cities; we have rewritten the chapter on trade to take into account the China shock and the China trade-war shock including the implications for politics; we have new material on pollution and a carbon tax; new material on the declining labor force participation rate of men and new material on supply chains and bottlenecks. Of course, there is also new material on pandemics although we had material on pandemics in the very first edition!
Modern Principles of Economics is by far the best textbook for teaching online (or offline!). Not only do you get over a hundred professionally produced videos, like this one on price ceilings and price coordination, you also get Achieve, the excellent new course management system that integrates e-book, tutorials, quizzes, exams, assessment and much more so that you can get up and running online overnight.
I’ll be covering some of the new material in Modern Principles this week.
Intertemporal substitution remains underrated (Covid in Scotland)
He suggested the announcement that the roll-out of a vaccine within weeks had persuaded people to break the rules and take risks.
“People maybe think the battle is over because the vaccine is coming…”
Here is the Times of London story. Of course economics suggests the exact opposite course of action, namely that when a good vaccine is coming you should play it safer in the meantime. Beware!
Economics and epidemiology, revisited
The Economist was kind enough to reference my earlier blog post on this topic, from April 12, so I thought we should look at it again. Please do reread it! Here are my first two points:
1. They [epidemiologists] do not sufficiently grasp that long-run elasticities of adjustment are more powerful than short-run elasticites. In the short run you socially distance, but in the long run you learn which methods of social distance protect you the most. Or you move from doing “half home delivery of food” to “full home delivery of food” once you get that extra credit card or learn the best sites. In this regard the epidemiological models end up being too pessimistic, and it seems that “the natural disaster economist complaints about the epidemiologists” (yes there is such a thing) are largely correct on this count. On this question economic models really do better, though not the models of everybody.
2. They do not sufficiently incorporate public choice considerations. An epidemic path, for instance, may be politically infeasible, which leads to adjustments along the way, and very often those adjustments are stupid policy moves from impatient politicians. This is not built into the models I am seeing, nor are such factors built into most economic macro models, even though there is a large independent branch of public choice research. It is hard to integrate. Still, it means that epidemiological models will be too optimistic, rather than too pessimistic as in #1. Epidemiologists might protest that it is not the purpose of their science or models to incorporate politics, but these factors are relevant for prediction, and if you try to wash your hands of them (no pun intended) you will be wrong a lot.
And:
I have not yet seen a Straussian dimension in the models, though you might argue many epidemiologists are “naive Straussian” in their public rhetoric, saying what is good for us rather than telling the whole truth.
Many people took umbrage at my points, but:
On this list, I think my #1 comes closest to being an actual criticism, the other points are more like observations about doing science in a messy, imperfect world.
I also queried about the political orientation of epidemiologists (among other matters), and that occasioned a great deal of pushback and outrage. Yet we saw during the summer that many of them were explicitly political and favoring the Left, willing to abandon their earlier recommendations to endorse demonstrations for a cause they strongly favored. I am not sure how big was the resulting boost in cases or fatalities, but it did seem the American people concluded that you could ignore the rules if something was sufficiently important to you. Like visiting your relatives for Thanksgiving, and we will be reaping that harvest rather soon.
Asking for a friend
What is the current take on foreign interference in the 2020 presidential election? I hardly hear anyone mentioning this. Was there much? And if not, why not? Our sagest minds were warning of this for years, and I heard several nat sec experts warn me of this but a few weeks ago. There have been hundreds of media articles about the topic. So what is up? I see a few options:
1. There was lots of foreign interference (again), but things turned out OK so it is not a major issue. “Never mind.”
2. President Donald Trump ensured election integrity through vigilance, good policy, and cooperation with Vladimir Putin.
3. Local election authorities were alert this time around, and they choked off each and every instance of foreign election interference.
4. The major tech companies were alert this time around, and they choked off each and every instance of foreign election interference. They didn’t even let the Russkies spend 60k on Facebook ads. Those are such great companies.
5. Foreign election interference was never much of a significant issue to begin with. “Never mind.”
6. Foreign powers are now all, in each and every country, committed to free and fair American elections, and they acted accordingly.
To be clear, I am not asking which is true. I am asking which one I am supposed to believe.
Sunday assorted links
1. Andrew Gelman on driving and the stock market.
2. Covid and complexity (Scott Sumner, I would note that much of Africa seems to fit this same story).
3. Sanity about Sweden (both sides were wrong).
5. China Belgium fact of the day: racing pigeon sells for $1.9 million.
6. It seems Al Zajeera has better coverage of Ethiopia?
7. Covid in Milan in September 2019? (speculative). Here is the paper. Cross-contamination, or might this be Cowen’s 17th Law: Most phenomena have origins earlier than you are at first inclined to think. It is true for “the marginal revolution” as well!
Sunny Days Protect Against Flu
Vitamin D supplementation is cheap. Walking in sunlight is even cheaper. I’ve been doing more of both since the beginnings of the pandemic. Slusky and Zekhauser add to the evidence:
Sunlight, likely operating through the well-established channel of producing vitamin D, has the potential to play a significant role in reducing flu incidence. A recent meta-analysis of 25 randomized controlled trials of vitamin D supplementation (Martineau et al. 2017) demonstrated significant benefits of such supplements for reducing the likelihood that an individual will contract an acute upper respiratory infection. The current study considers sunlight as an alternate, natural path through which humans can and do secure vitamin D. This study’s findings complement and reinforce the Martineau et al. findings.
Our major result is that incremental sunlight in the late summer and early fall has the potential to reduce the incidence of influenza. Sunlight had a dramatic effect in 2009, when sunlight was well below average at the national level, and the flu came early. Our result is potentially relevant not just to the current COVID-19 pandemic, but also to a future outlier H1N1 pandemic. The threat is there; some H1N1 viruses already exist in animals (Sun et al. 2020). One must be cautious, though, with generalizations, given the unique economic circumstances (e.g., a 25-year high unemployment rate) in the fall of 2009.
A remaining question is whether sunlight matters more broadly for flu, or whether it is unique to H1N1. While we lack a counterfactual of an early flu from a different strain, we do have two pieces of evidence to suggest that the effect is broader than just H1N1. First, as described throughout the paper, the Martineau et al. study about the relationship between Vitamin D and upper respiratory infections are not specific to H1N1. Second, with granular, county level data, we do see strongly statistically significant negative effects of fall sunlight on influenza for years other than 2009 (see Columns (2) and (3) of Panel of Table 7). Therefore, apart from its methodological contributions, this study reinforces the long-held assertion that vitamin D protects against acute upper respiratory infections. One can secure vitamin D through supplements, or through a walk outdoors, particularly on a day when the sun shines brightly. When most walk, herd protection provides benefit to all.
The Scots are giving out free vitamin D to people stuck indoors. My view is that Vitamin D supplementation is worthwhile but where and when possible the sunlight approach is better as the effect may work through mechanisms beyond vitamin D.
Coincidentally neuroscience says this is one of the happiest songs ever.
Hat tip: The sunny Kevin Lewis.
Best classical music recordings of 2020
As you might expect, this has been a pretty spectacular year for listening to classical music on disc, too good you might say. Here is what I enjoyed the most:
Beethoven Complete Piano works, by Martino Tirimo. I probably know the performance canon for Beethoven piano sonatas better than any other area of classical music, and this is one of my two or three favorite sets of all time. They are fresh, direct, and to the point, and remind me of the earlier Yves Nat set, though with better sound and the mistakes edited out. Here is one review: “It’s decades since a pianist has managed to convey such an overwhelming sense that we’re listening to pure Beethoven. And there are 20 hours of it — surely the greatest recorded achievement of this anniversary year.” The pianist is a 78-year-old Cypriot who is barely known even to most of the concert-going public.
Beethoven Bagatelles, by Tanguy de Williencourt. This is Beethoven at his most arbitrary and willful and whimsical, all good things. I have many recordings of these pieces, but these are perhaps my favorite. Why again is it that French pianists are so good with Beethoven?
Beethoven, Complete works for Piano Trio, van Baerle Trio. Again, the best recording of these works I have heard, and there is stiff competition.
Masaaki Suzuki put out more Bach organ music, and conducted an incredible version of Beethoven’s 9th symphony. His genius remains under-discussed, as he is also a world-class harpsichord and keyboard player, and has produced the definitive recording of Bach’s entire cycle of cantatas. Why is there no biography of him? He is one of the greatest creators and performers in the entire world in any area. If you are wondering, his parents were Japanese Protestants and he is a Calvinist.
Chopin CD of the year would be by Jean-Paul Gasparian.
Morton Feldman piano box set, played by Philip Thomas. Five CDs if you go that route, this is what I listened to most this year. It is also very good played at low volume, a useful feature in crowded pandemic homes.
I listened to a good deal of Szymanowski, who has finally started to make sense to me. In prep for my CWT with Alex Ross, I relistened to a great deal of Wagner. What rose in my eyes was the von Karajan Die Meistersinger and the Clemens Krauss Ring cycle.
As for contemporary classical music, I enjoyed:
Hans Abrahamsen, String Quartets.
Philippe Manoury, Temps Mode d’Emploi.
Caroline Shaw, Orange, Attaca Quartet.
This year I also rediscovered Robert Ashley’s opera Atalanta (Acts of God), and Raymond Lewenthal’s Alkan CD, one of my favorite recordings of all time, a kind of proto-rock and roll.
As for concert life, I did manage to see Trifonov play “Art of the Fugue” at the Kennedy Center before the whole season shut down, and in January the Danish Quartet playing Beethoven in NYC.
*Queen’s Gambit* (no real spoilers in this post)
I’ve now seen a few episodes, and I have a few comments on the chess:
1. No player, including Magnus Carlsen, can become that good that quickly, without a lot of learning and losing along the way.
2. They show the players moving too fast, though for dramatic reasons this is easy enough to understand.
3. The Sicilian was indeed very popular in 1963, but not quite that popular.
4. It captures the feel of earlier U.S. chess tournaments very well, noting that my own participation came later but things didn’t change much.
5. At the time the Rossolimo was in fact an unusual response to the Sicilian, though it is not now. The show got this right (the protagonist claims she was very surprised by 3.Bb5) — don’t be fooled by the subsequent evolution of the game.
Dramatically, I would say it is “decent and watchable,” and the clothes and hotel scenes are good. The characterization of the mother does not feel entirely consistent. There is an underlying autism theme, mostly handled well, though mainstream reviewers seem to be thrown off the scent by the woman’s charm and good looks. I will let you know if I have further observations.
Saturday assorted links
1. Interview with Charles Koch.
2. mRNA vaccines and nanotech. And vaccine depends on strong vial (WSJ). A very good short piece on the importance of materials science and innovation.
3. Magnus interview.
4. “This decision analytical model found that missed instruction during 2020 could be associated with an estimated 5.53 million years of life lost.” An appreciation of the Lucas critique is badly lacking here (different regime, can’t just re-use the old education/life expectancy gradients!…least of all from meta-studies), but still this is the kind of calculation we should be attempting and publicizing more. Except we need to get it right. This piece is in JAMA Network Open, and the authors are from very good schools, the lead author is highly prestigious and a major editor, but the work would not pass muster from even moderately critical referees in a second-tier economics journal. That said, I do suspect the costs of school closings are very high.