Does the Gender Wage Gap Actually Reflect Taste Discrimination Against Women?
One explanation of the gender wage gap is taste discrimination, as in Becker (1957). We test for taste discrimination by constructing a novel measure of misogyny using Google Trends data on searches that include derogatory terms for women. We find—surprisingly, in our view—that misogyny is an economically meaningful and statistically significant predictor of the wage gap. We also test more explicit implications of taste discrimination. The data are inconsistent with the Becker taste discrimination model, based on the tests used in Charles and Guryan (2008). But the data are consistent with the effects of taste discrimination against women in search models (Black, 1995), in which discrimination on the part of even a small group of misogynists can result in a wage gap.
That is a new NBER working paper by Molly Maloney and David Neumark.
Monday assorted links
1. The world’s most elite sober coach? (FT…his fees seem low to me?)
2. El Salvador planning on releasing many from prison?
3. An early version of portfolio theory, from the late 19th century. French, of course.
4. Deep Research okie-dokie. It is amazing. And a wee bit of data. And another relevant comment.
5. Ezra on the blitzkrieg strategy (NYT).
7. “525-Lb. Bear Discovered Under Evacuated Altadena Home Too Fat to Tranquilize.”
Robert Paul Wolff, RIP
He has passed, here is one obituary.
Genetic Prediction and Adverse Selection
In 1994 I published Genetic Testing: An Economic and Contractarian Analysis which discussed how genetic testing could undermine insurance markets. I also proposed a solution, genetic insurance, which would in essence insure people for changes in their health and life insurance premiums due to the revelation of genetic data. Later John Cochrane would independently create Time Consistent Health Insurance a generalized form of the same idea that would allow people to have long term health insurance without being tied to a single firm.
The Human Genome Project completed in 2003 but, somewhat surprisingly, insurance markets didn’t break down, even though genetic information became more common. We know from twin studies that genetic heritability is very large but it turned out that the effect from each gene variant is very small. Thus, only a few diseases can be predicted well using single-gene mutations. Since each SNP has only a small effect on disease, to predict how genes influence disease we would need data on hundreds of thousands, even millions of people, and millions of their SNPs across the genome and their diseases. Until recently, that has been cost-prohibitive and as a result the available genetic information lacked much predictive power.
In an impressive new paper, however, Azevedo, Beauchamp and Linnér (ABL) show that data from Genome-Wide Association Studies can be used to create polygenic risk indexes (PGIs) which can predict individual disease risk from the aggregate effects of many genetic variants. The data is prodigious:
We analyze data from the UK Biobank (UKB) (Bycroft et al., 2018; Sudlow et al., 2015). The UKB contains genotypic and rich health-related data for over 500,000 individuals from across the United Kingdom who were between 40 and 69 years old at recruitment (between 2006 and 2010). UKB data is linked to the UK’s National Health Service (NHS), which maintains detailed records of health events across the lifespan and with which 98% of the UK population is registered (Sudlow et al., 2015). In addition, all UKB participants took part in a baseline assessment, in which they provided rich environmental, family history, health, lifestyle, physical, and sociodemographic data, as well as blood, saliva, and urine samples.
The UKB contains genome-wide array data for ∼800,000 genetic variants for ∼488,000 participants.
So for each of these individuals ABL construct risk indexes and they ask how significant is this new information for buying insurance in the Critical Illness Insurance market:
Critical illness insurance (CII) pays out a lump sum in the event that the insured person gets diagnosed with any of the medical conditions listed on the policy (Brackenridge et al., 2006). The lump sum can be used as the policyholder wishes. The policy pays out once and is thereafter terminated.
… Major CII markets include Canada, the United Kingdom, Japan, Australia, India, China, and Germany. It is estimated that 20% of British workers were covered by a CII policy in 2009 (Gatzert and Maegebier, 2015). The global CII market has been valued at over $100 billion in 2021 and was projected to grow to over $350 billion by 2031 (Allied Market Research, 2022).
The answer, as you might have guessed by now, is very significant. Even though current PGIs explain only a fraction of total genetic risk, they are already predictive enough so that it would make sense for individuals with high measured risk to purchase insurance, while those with low-risk would opt out—leading to adverse selection that threatens the financial sustainability of the insurance market.
Today, the 500,000 people in the UK’s Biobank don’t know their PGIs but in principle they could and in the future they will. Indeed, as GWAS sample sizes increase, PGI betas will become more accurate and they will be applied to a greater fraction of an individual’s genome so individual PGIs will become increasingly predictive, exacerbating selection problems in insurance markets.
If my paper was a distant early warning, Azevedo, Beauchamp, and Linnér provide an early—and urgent—warning. Without reform, insurance markets risk unraveling. The authors explore potential solutions, including genetic insurance, community rating, subsidies, and risk adjustment. However, the effectiveness of these measures remains uncertain, and knee-jerk policies, such as banning insurers from using genetic information, could lead to the collapse of insurance altogether.
o1 pro
Often I don’t write particular posts because I feel it is obvious to everybody. Yet it rarely is.
So here is my post on o1 pro, soon to be followed by o3 pro, and Deep Research is being distributed, which uses elements of o3. (So far it is amazing, btw.)
o1 pro is the smartest publicly issued knowledge entity the human race has created (aside from Deep Research!). Adam Brown, who does physics at a world class level, put it well in his recent podcast with Dwarkesh. Adam said that if he had a question about something, the best answer he would get is from calling up one of a handful of world experts on the topic. The second best answer he would get is from asking the best AI models.
Except, at least for the moment, you don’t need to make that plural. There is a single best model, at least when it comes to tough questions (it is more disputable which model is the best and most creative writer or poet).
I find it very difficult to ask o1 pro an economics question it cannot answer. I can do it, but typically I have to get very artificial. It can answer, and answer well, any question I might normally pose in the course of typical inquiry and pondering. As Adam indicated, I think only a relatively small number of humans in the world can give better answers to what I want to know.
In an economics test, or any other kind of naturally occurring knowledge test I can think of, it would beat all of you (and me).
Its rate of hallucination is far below what you are used to from other LLMs.
Yes, it does cost $200 a month. It is worth that sum to converse with the smartest entity yet devised. I use it every day, many times. I don’t mind that it takes some time to answer my questions, because I have plenty to do in the meantime.
I also would add that if you are not familiar with o1 pro, your observations about the shortcomings of AI models should be discounted rather severely. And o3 pro is due soon, presumably it will be better yet.
The reality of all this will disrupt many plans, most of them not directly in the sphere of AI proper. And thus the world wishes to remain in denial. It amazes me that this is not the front page story every day, and it amazes me how many people see no need to shell out $200 and try it for a month, or more.
Sundry observations on the Trump tariffs
Brad Setser estimates the costs at 0.8 percent of U.S: gdp. I am not sure if he is considering exchange rate adjustments in that figure.
Kevin Bryan writes:
The problem with escalating, again, is that Canada is more reliant on US energy than vice versa, US ports than vice versa, US intermediate goods than vice versa, and DT is basically a narcissist. Again: no normal negotiation here, as the tariffs itself have no logical basis! 4/x
The fentanyl excuse seems like a flimsy (and should be illegal) one to let the exec branch set a tariff rate that constitutionally is Congress’ job. But maybe there is some “give Trump a fake win and de-escalate”. I worry about what that does in the future, though. 5/x
Ben Golub notes:
Modern supply chains don’t look like trade theory 101! They involve constant border crossings, each now hit by tariffs. Tariffs raise prices, but the more important thing they do is disrupt supply relationships.
So when a shock hits, you don’t just have a bit less activity by a few of the least profitable firms. You suddenly knock out some of the relationships (contracts) and some of the nodes (companies) in a large and very complex network. This can be pretty disruptive!
Here is Noah’s post. Here is the Yale Budget Lab on likely price effects in America.
Here is an Alan Beattie FT piece on how tariffs often matter less than you think. The size of the costs here can be disputed, but the most relevant fact is that there simply isn’t any upside to the Trump tariff policy. If you think it is about fentanyl, I have a prediction: the price of fentynal will not be rising anytime soon across the window of a one-year moving average. Here are some additional relevant points about fentanyl, which from Canada is not a major problem.
Remember when I said Luka was overrated?
Oh the howls that claim elicited. Basically Dallas did not want to give him a Supermax extension for $345 million (no, Luka did not ask to be traded). So Luka is now gone, here are some notes from ESPN:
The Mavericks were motivated to move Doncic because of his constant conditioning concerns, sources told MacMahon. There had been significant frustration within the organization about Doncic’s lack of discipline regarding his diet and conditioning, which team sources considered a major factor in his injury issues.
Though Doncic was relatively svelte by his standards when he reported to camp, his weight ballooned to the high 260s early this season, sources said. He sat out five games in late November, when the Mavs listed him with a sprained right wrist, an extended absence to allow Doncic to focus on his conditioning. He had a similar early-season layoff in the 2022-23 season.
Doncic has been limited to only 22 games this season because of a variety of injuries. He has twice strained his left calf since reporting back to Dallas before training camp in late September, although the Mavs reported the fall injury only as a calf contusion, sources said.
Doncic has not played since straining his calf again on Christmas Day but has been targeting a return before the All-Star break later this month, sources told MacMahon. Davis has also been out after being diagnosed with an abdominal muscle strain earlier this week. He has sat out the Lakers’ past two games. Davis was expected to be reevaluated in a week, according to the Lakers on Wednesday.
POTMR. In the short run this trade makes both teams worse off (LA defense), although longer run LA will keep around a franchise player of sorts. Here is one comment from an NBA star. It all shows in the body language.
p.s. LAL should now trade Lebron, and Bronny, to a contender for a pile of draft picks.
Peace and Free Trade
In The Spirit of the Laws, Montesquieu famously argued that:
…Peace is the natural effect of trade. Two nations who traffic with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities.
Similar arguments were made by Kant, Cobden, Angell, and others. The effect of free trade on war was perhaps most pithily summarized by the aphorism “when goods don’t cross borders, soldiers will.” In Territory flows and trade flows between 1870 and 2008 Hu, Li and Zhang offer supporting evidence:
Countries gain and lose territories over time, generating territory flows that represent the transfer of territorial sovereignty. Countries also export and import goods, creating trade flows that represent the transfer of merchandise ownership. We find a substitution between these two international flows during the years 1870 and 2008; that is, country pairs with greater trade flows have smaller territory flows. This indicates how international trade enhances international security: reciprocal goods transactions discourage irreciprocal territorial exchanges.
Not all territorial exchange involves war but most do.
See also Polachek and Seigle in the Handbook of Defense Economics who find that “A doubling of trade leads to a 20% diminution of belligerence.”
What I’ve been reading
Owen Hatherley, Militant Modernism. A very good short book, defending “left wing modernism,” a much maligned target on the right these days. Hatherley himself is a much underrated figure, a commie who came along at the wrong time but a very good writer and thinker about aesthetics.
Stuart A. Reid, The Lumumba Plot: The Secret History of the CIA and a Cold War Assassination. For whatever reason, there are more good books about the Congo than most other parts of Africa. This is one of them. From 2023, but good enough to make a “best of non-fiction” list for a typical year. Very cleanly written as well.
Charles Callan Tansill, The Purchase of the Danish West Indies. Who would have thought that this 1966 volume, and Tansill, would be making a comeback? The biggest lesson for me here was how much the purchase was a live issue as early as 1867. And as the final purchase approached in 1917, the other European powers were by no means happy.
Richard Overy, Rain of Ruin: Tokyo, Hiroshima, and the Surrender of Japan is a short but very good and substantive look at the non-nuclear and also nuclear bombing campaigns.
Michael Krielaars, The Sound of Utopia: Musicians in the Time of Stalin. A surprisingly fresh and substantive book, which also does a good job integrating the first-person perspective of the author. I’ve read the standard biographies of Shostokovich, Prokofiev, and the like, and still learned a lot from this one.
There is Gregor Craigie, Our Crumbling Foundation: How We Solve Canada’s Housing Crisis.
Molly Worthen, Spellbound: How Charisma Shaped American History From the Puritans to Donald Trump is a very good book on an underexplored topic. In some ways tech has mattered less than you might think.
Stephen Witt, The Thinking Machine: Jensen Huang, Nvidia, and the World’s Most Coveted Microchip. A fun and well-informed look at its subject matter. There should be more books on one of the world’s most valuable companies, and yes here supply is elastic.
Marc Hijink, Focus: The ASML Way, Inside the Power Struggle Over the Most Complex Machine on Earth. You have to already want to read a book about ASML, but this is in fact the relevant book about ASML. To call it boring is to miss the point, because the company itself is somewhat boring.
Jeanette zu Furstenberg, Wie gut wir sind, zeigt sich in Krisenzeiten: Ein Weckruf. Exactly the wake-up call Germany needs.
Rainer Zitelmann, The Origins of Poverty and Wealth: My World Tour and Insights from the Global Libertarian Movement is a kind of travel memoir from a man who has become one of our most prolific writers on behalf of liberty.
And I was reading my own short commentary on Atlas Shrugged, from a few years ago.
Saturday assorted links
2. Is Tether the most profitable company in the world per employee?
3. Flow (trailer), the animated Latvian silent movie about a cat, dog, bird, capybara, and coatimundi, is excellent and unique.
4. Patrick Collison interviews Noah Smith.
5. Does more law lead to more economic growth, due to contingent clauses?
Letting China into the WTO was not the key decision
We study China’s export growth to the United States from 1950–2008, using a structural model to disentangle the effects of past tariff changes from the effects of changes in expectations of future tariffs. We find that the effects of China’s 1980 Normal Trade Relations (NTR) grant lasted past its 2001 accession to the World Trade Organization (WTO), and the likelihood of losing NTR status decreased significantly during 1986–92 but changed little thereafter. US manufacturing employment trends support our findings: industries more exposed to the 1980 reform have shed workers steadily since then without acceleration around China’s WTO accession.
That is from a new and forthcoming JPE article by George Alessandria, Shafaat Yar KhanArmen KhederlarianKim J. RuhlJoseph B. Steinberg.
U.S. Infrastructure: 1929-2023
By Ray C. Fair, an important contribution:
This paper examines the history of U.S. infrastructure since 1929 and in the process reports an interesting fact about the U.S. economy.Infrastructure stock as a percent of GDP began a steady decline around 1970, and thegovernment budget deficit became positive and large at roughly the same time. The infrastructure pattern in other countries does not mirror that in the United States, so the United States appears to be a special case. The overallresults suggest that the United States became less future oriented beginning around 1970, an increase in the social discount rate. This change has persisted. This is the interestingfact. The paper contains speculation on possible causes.
Here is the link. Via the excellent Kevin Lewis.
The new tariffs are bad
Or are they tariff threats instead? Still bad! From the FT:
Donald Trump has said he will hit the EU with tariffs, adding the bloc to a list of targets including Canada and Mexico and bringing the US to the brink of new trade wars with its biggest trading partners.
The US president acknowledged that the new tariffs could cause some market “disruption”, but claimed they would help the country close its trade deficits.
“The tariffs are going to make us very rich, and very strong,” Trump told reporters in the Oval Office.
Hours before his plan for tariffs of 25 per cent on Canada and Mexico was due to take effect on February 1, Trump also widened his threat to include the EU, which he said had treated the US “very badly”.
There is not any good argument for doing this. The simplest hypothesis here is that Trump has mistaken views on trade economics, and is raising tariffs for the same reason that I, if I were President, would be trying to cut them.
“It’s not a negotiating tool,” Trump said. “It’s pure economic. We have big deficits with, as you know, with all three of them.”
Of course this is a sign that further bad things will happen. Let us hope that the courts can strike these down…
The wisdom of Dwarkesh
Perhaps he imbibed a dose of Garett Jones?:
Even people who expect human-level AI soon are still seriously underestimating how different the world will look when we have it. Most people are anchoring on how smart they expect individual models to be. (i.e. they’re asking themselves “What would the world be like if everyone had a very smart assistant who could work 24/7?”.)
Everyone is sleeping on the collective advantages AIs will have, which have nothing to do with raw IQ but rather with the fact that they are digital—they can be copied, distilled, merged, scaled, and evolved at unprecedented speed.
Take a fully automated company. What would this look like, where all the workers and managers are AIs? I claim that AI firms will grow, coordinate, improve, and be selected-for in ways human firms simply can’t.
Here is the full essay, important throughout.
Friday assorted links
1. The Wandering Minstrel (Irish song).
2. My 2008 post on Sarah Palin. A bit too much ahead of its time, but directionally correct.
3. AI models as historians. And how to have a career after o3 drops. And low-hanging fruit in inference-time scaling.
4. Is there a murder gang of Sith vegans? Are they a rationalist death cult?
6. The fastest-selling adult novel in the last twenty years? (NYT)