Monday assorted links

by  Tyler Cowen

1. I am usually loathe to turn MR space over to negative attacks on others, but every now and then I feel there is a real contribution to be made.  I have been saying for years that Michael Pettis flat out does not understand international economics, and yet somehow he is treated as an authority in the serious financial press.  Here is his recent tweet storm.  It is wrong.

2. Kiwi update.

3. “ID rules all the way down”?

4. Why did that sweater cost $500?

5. Pandit Kumar Gandharva, once again.

Some Simple Economics of the Google Antitrust Case

by  Alex Tabarrok in

The case is straightforward: Google pays firms like Apple billions of dollars to make its search engine the default. (N.B. I would rephrase this as Apple charges Google billions of dollars to make its search engine the default–a phrasing which matters if you want to understand what is really going on. But set that aside for now.) Consumers, however, can easily switch to other search engines by downloading a different browser or changing their default settings. Why don’t they? Because the minor transaction costs are not worth the effort. Moreover, if Google provides the best search experience, most users have no incentive to switch.

Consequently, any potential harm to consumers is limited to minor switching costs, and any remedies should be proportionate. Proposals such as forcing Google to divest Chrome or Android are vastly disproportionate to the alleged harm and risk being counterproductive. Google’s Android has significantly increased competition in the smartphone market, and ChromeOS has done the same for laptops. Google has invested billions in increasing competition in its complements. Google was able to make these investments because they paid off in revenue to Google Search and Google Ads. Kill the profit center and kill the incentive to invest in competition. Unintended consequences.

I argued above that consumer harm is limited to minor switching costs. The plaintiffs’ counter-argue that Google’s purchase of default-status “forecloses” competitors from achieving the scale necessary to compete effectively. This argument relies on network effects – more searches improve search quality through better data. However, this creates a paradox: on the theory of the plaintiffs, two or three firms each operating at smaller scale is worse than one operating at large scale. For the plaintiffs’ argument to hold, it must be shown that we are at the exact sweet spot where the benefits of increased competition in lowering the price of advertising outweighs the efficiency losses to consumer search quality from reduced scale. Yet, there is no evidence in the case—nor even an attempt—to demonstrate that we are at such a sweet spot.

Or perhaps the argument is that with competition we would get even better search but that argument can’t be right because the costs of switching, as noted above, are bounded by some minor transaction costs. Thus, if a competitor could offer better search, it would easily gain scale (e.g. AI search, see below).

Traditional foreclosure analysis requires showing both substantial market closure and consumer harm. Given the ease of switching and the complex relationship between scale and search quality, proving such harm becomes challenging and my read is that the plaintiffs didn’t prove harm.

In my view, the best analogy to the Google antitrust case is Coke and Pepsi battling for shelf space in the supermarket. Returning to my earlier parenthetical point, Apple is like the supermarket charging for prime shelf placement. Is this a significant concern? Not really. Eye-level placement matters to Coke and Pepsi but by construction they are competing for consumers who don’t much care which sugary, carbonated beverage they consume. For consumers who do care, the inconvenience is limited to reaching to a different shelf.

To add insult to injury, the antitrust case is happening when Google is losing advertising share and is under pressure from a new search technology, Artificial Intelligence. AI search from OpenAI, Anthropic, Meta Llama, and xAI is very well funded and making rapid progress. Somehow AI search did manage to achieve scale! As usual, the market appears more effective than the antitrust authorities at creating competition. 

Addendum: Admittedly this is outside the remit of the judge, but the biggest anti-competitive activities in tech are probably government policies that slow the construction of new power generation, new power lines, new data centers, and deals between power generators and data centers. I’d prefer the government take on its own anticompetitive effects before going after extremely succesful tech companies that have clearly made consumers much better off.

The show so far, Ding vs. Gukesh WCC match

by  Tyler Cowen in

After six games the match is tied.  Observers agree that the games have been of low quality and mostly not very interesting.  Both players have been reluctant to exploit potential opportunities.  If you don’t already know, Ding has been suffering from some version of “mental illness” (by his own account), and Gukesh, while extremely talented, is eighteen years old.

So what are the meta-lessons?  I see a few:

1. It is hard for a championship cycle, and its credibility, to survive a #1 stepping down, in this case Magnus Carlsen.  In some of his YouTube commentary he has been saying basically “oh my goodness, how come no one ever gave me these easy chances?”

2. There is a final irreducibility to actually having to compete, or solve a problem, and be put on the spot.  No pre-game analysis can do justice to this.  And as a related point, there can be super-talented people who fail in such situations.  How many NBA players really want to be taking that final shot in a big game?  This factor does not pop up in practice very often, because by definition it concerns exceptional situations.  But it truly does matter big time, and it helps if you have a good nose for who can rise to the occasion, or not.

3. Every championship process involves a kind of agenda-setting mechanism to see who competes.  These processes often are not rational, especially once some time passes.  If for instance Caruana were in this match, he would be crushing either side.  Yet he may never have a chance to play for the world championship once again.  So you need to take advantage of your opportunities when they come along.  That sounds stupidly facile, but in fact it is difficult to internalize that emotionally and act on it when you ought to.

In any case, I will continue to observe and learn.  Today is rest day, and you can expect another report from me.  Once something happens, that is.

What I’ve been reading

by  Tyler Cowen in

John Ma, Polis: A New History of the Ancient Greek City-State from the Early Iron Age to the End of Antiquity.  I didn’t read much of this book, mostly because it is too good for me to understand just how good it is.  Que triste!  It is like those GPT “advanced reasoning” answers that also can be too good to digest fully.  A small number of you, however, should read this book very carefully and perhaps you already have.

Gina Consing McAdam and Siobhan Doran, Houses that Sugar Built: An Intimate Portrait of Philippine Ancestral Homes.  An excellent picture book, these are art traditions, and bits of history, you otherwise never would see.

Sohrab Sardashti, Iranian Architecture:A Visual History.  One of the very best picture books, both for intrinsic reasons and because many of us cannot expect to see these landmarks anytime soon if at all.

Caroline Potter, Pierre Boulez: Organised Delirium.  An excellent work, explores the deep links between Boulez’s music and French surrealism (and to a lesser degree expressionism).  One of the best books for understanding Boulez and indeed serialism more generally.  Is serialism is most misunderstood musical movement to this day?

Ola Olsson, Paleoeconomics: Climate Change and Economic Development in Prehistory surveys plenty of information about what the subtitle suggests.  I found the material difficult to evaluate, and so only read part of this one.  Nonetheless I suspect it is the best book on its topic.

Emily Van Duyne, Loving Sylvia Plath: A Reclamation.  I don’t feel this book is what I need at the margin, but it is a very good and engaging addition to the canon surrounding Plath.

Uncle Rabbit & the Wax Doll, edited by Jonathan Amith, illustrations by Inocencio Jiménez Chino, a very good and beautiful children’s book, also in Nahuatl and Spanish.

Sales of Bibles are booming

by  Tyler Cowen in

Worries about the economy, conflicts abroad and uncertainty over the election pushed readers toward the publication in droves. Bible sales are up 22% in the U.S. through the end of October, compared with the same period last year, according to book tracker Circana BookScan. By contrast, total U.S. print book sales were up less than 1% in that period.

“People are experiencing anxiety themselves, or they’re worried for their children and grandchildren,” said Jeff Crosby, president of the Evangelical Christian Publishers Association. “It’s related to artificial intelligence, election cycles…and all of that feeds a desire for assurance that we’re going to be OK.”

Here is more from the WSJ, via Anecdotal.  And what is up with Netflix Mary?

A Bird Flu Pandemic Would Be One of the Most Foreseeable Catastrophes in History

by  Alex Tabarrok in

Zeynep Tufekci writing in the NYTimes hits the nail on the head:

The H5N1 avian flu, having mutated its way across species, is raging out of control among the nation’s cattle, infecting roughly a third of the dairy herds in California alone. Farmworkers have so far avoided tragedy, as the virus has not yet acquired the genetic tools to spread among humans. But seasonal flu will vastly increase the chances of that outcome. As the colder weather drives us all indoors to our poorly ventilated houses and workplaces, we will be undertaking an extraordinary gamble that the nation is in no way prepared for.

All that would be more than bad enough, but we face these threats gravely hobbled by the Biden administration’s failure — one might even say refusal — to respond adequately to this disease or to prepare us for viral outbreaks that may follow.

…Devastating influenza pandemics arise throughout the ages because the virus is always looking for a way in, shape shifting to jump among species in ever novel forms. Flu viruses have a special trick: If two different types infect the same host — a farmworker with regular flu who also gets H5N1 from a cow — they can swap whole segments of their RNA, potentially creating an entirely new and deadly virus that has the ability to spread among humans. It’s likely that the 1918 influenza pandemic, for example, started as a flu virus of avian origin that passed through a pig in eastern Kansas. From there it likely infected its first human victim before circling the globe on a deadly journey that killed more people than World War I.

And that’s why it’s such a tragedy that the Biden administration didn’t — or couldn’t — do everything necessary to snuff out the U.S. dairy cattle infection when the outbreak was smaller and easier to address.

Will there be a large outbreak among humans? Probably not. But a 9% probabability of a bad event warrants more than a shrug. Bad doesn’t have to be on the scale of COVID-bad to warrant precaution. The 2009 H1N1 flu pandemic, while relatively mild, infected about 61 million people in the U.S., leading to 274,000 hospitalizations, 12,400 deaths, and billions of dollars in economic costs.

H5N1 will likely pass us over—but only the weak rely on luck. Strong civilizations don’t pray for mercy from microbes; they crush them. Each new outbreak should leave us not relieved, but better armed, better trained and better prepared for nature’s next assault.

Assisted dying in the UK

by  Tyler Cowen in

I would say that overall I am more suspicious of “assisted dying” policies than are many of my libertarian friends.  I am fine with legalizing suicide, but I get nervous when a state — especially a less than fully competent, fiscally strapped state — enters the picture with so much influence over the proceedings.  In the longer term, no matter how the legislation is initially written, what will be the incentives of that state?  What will be the incentives of family members and legal guardians?

That said, I do recognize that as medical technology and life-saving techniques advance, something has to give.  We can’t just keep tens of millions of people hooked up to life support for decades.

I do not have any “top down” way of resolving all of the difficult moral and practical issues here.  I will simply note that the returns to federalism have risen.  Different American states can try out different policies, as indeed they do, and we can see what is happening and judge accordingly.

I believe this point remains underrated.  As technology advances, and the world changes more rapidly, the returns to federalism rise.  We are coming off a long period when the returns to federalism were relatively low.

I am more optimistic about England than many people, but this is one of my worries.  Devolution doesn’t quite do the same, but rather means that for anything England does, two other polities are likely to choose something even worse.

Debankings

by  Tyler Cowen in

For reasons you can guess at, debanking has been the topic du jour in my Twitter feed.

I will only report the following.  On this last Friday, both Alex and I (coincidentally) each wanted to send money through the U.S. banking system.  For each of us it was a major pain, and for no good substantive reason.  I do understand why the relevant constraints are there, but at some point “justification” is no longer enough.  People have to actually want to use the system.  And the U.S. banking system — referring to that notion narrowly — is increasingly unattractive.  It is also failing various market tests, if you look at its relative import over time.

How innovative is it?  How good is it with software?  How international is it in scope and potential usage?  How necessary is it for lending?  Can it integrate with crypto?  Why does service quality at my local bank continue to decline?  Relative performance is sliding, there is no other way to put it.

Yonas is in fact not a terrorist, and he did eventually get his money, after considerable frustration on my part and probably on his as well.

Ths status quo, relative to alternatives, likely will get worse as the pace of innovation increases.  So rather than defend debankings, a better tack is to tell us how you will fix the problems you have created with the status quo.  Debankings are simply the canary in the coal mine, no matter what percentage of them you may think are justified, or not.

John Arnold has some good tweets on the topic, start here.  Here is Dennis Porter.

Saturday assorted links

by  Tyler Cowen

1. Hypotheses as to why fentanyl deaths are declining (FT).  Interestingly, the decline is spreading from east to west.

2. How to convince a bot to send you 47k.

3. An early warning system to detect geoengineering (NYT).

4. Using LLMs to learn Indian classical music.

5. The new Notre Dame what do you think?

6. Interintellect coming with Rebecca Lowe.

7. Haitian art on the rise again.

Literacy Rates and Simpson’s Paradox

by  Alex Tabarrok in

Max T. at Maximum Progress shows that between 1992 and 2003 US literacy rates fell dramatically within every single educational category but the aggregate literacy rate didn’t budge.  A great example of Simpson’s Paradox! The easiest way to see how this is possible is just to imagine that no one’s literacy level changes but everyone moves up an educational category. The result is zero increase in literacy but falling literacy rates in each category.

Two interesting things follow. First, this is very suggestive of credentialing and the signaling theory of education. Second, and more originally, Max suggests that total factor productivity is likely to have been mismeasured.  Total factor productivity tells us how much more output can we get from the same inputs. If inputs increase, we expect output to increase so to measure TFP we must subtract any increase in output due to greater inputs. It’s common practice, however, to use educational attainment as a (partial) measure of skill or labor quality. If educational attainment is just rising credentialism, however, then this overestimates the increase in output due to labor skill and underestimates the gain to TFP.

This does not imply that we are richer than we actually are–output is what it is–but it does imply that if we want to know why we haven’t grown richer as quickly as we did in the past we should direct less attention to ideas and TFP and more attention to the failure to truly increase human capital.

Unauthorized Immigration and Local Government Finances

by  Tyler Cowen in

This paper examines how unauthorized immigration affects the fiscal health of local governments in the United States. Using detailed data on unauthorized immigrants’ countries of origin and arrival dates from the Syracuse TRAC database, we isolate immigration flows driven by social, economic, and political conditions in source countries. We predict local immigration patterns using a shift-share instrument based on pre-existing foreign-born population distributions. We find that the economic effects of unauthorized immigration depend crucially on local labor market conditions. In areas with structurally tight labor markets—characterized by low unemployment and low labor force participation—unauthorized immigration correlates with lower municipal bond yields. However, areas with typical labor market conditions experience higher yields. Areas with “sanctuary” status also experience higher yields when exposed to unauthorized immigration. These yield effects reflect underlying economic mechanisms: unauthorized immigration predicts loosening of labor markets in areas where they were previously tight, whereas in sanctuary areas, unemployment rates increase by more than twice as much. We find unauthorized immigration explains higher expenditures on local public amenities, including welfare assistance, construction, education, and law enforcement, but these expenditures are not offset by higher tax revenues. Overall, our results provide novel insights into the local economic effects of unauthorized immigration.

That is from a new paper by Jess Cornaggia, Kimberly Cornaggia, and Ryan D. Israelsen.  Via the excellent Kevin Lewis.