Nuclear Energy Saves Lives

by  Alex Tabarrok in

Germany’s closing of nuclear power stations after Fukishima cost billions of dollars and killed thousands of people due to more air pollution. Here’s Stephen Jarvis, Olivier Deschenes and Akshaya Jha on The Private and External Costs of Germany’s Nuclear Phase-Out:

Following the Fukashima disaster in 2011, German authorities made the unprecedented decision to: (1) immediately shut down almost half of the country’s nuclear power plants and (2) shut down all of the remaining nuclear power plants by 2022. We quantify the full extent of the economic and environmental costs of this decision. Our analysis indicates that the phase-out of nuclear power comes with an annual cost to Germany of roughly$12 billion per year. Over 70% of this cost is due to the 1,100 excess deaths per year resulting from the local air pollution emitted by the coal-fired power plants operating in place of the shutdown nuclear plants. Our estimated costs of the nuclear phase-out far exceed the right-tail estimates of the benefits from the phase-out due to reductions in nuclear accident risk and waste disposal costs.

Moreover, we find that the phase-out resulted in substantial increases in the electricity prices paid by consumers. One might thus expect German citizens to strongly oppose the phase-out policy both because of the air pollution costs and increases in electricity prices imposed upon them as a result of the policy. On the contrary, the nuclear phase-out still has widespread support, with more than 81% in favor of it in a 2015 survey.

If even the Germans are against nuclear and are also turning against wind power the options for dealing with climate change are shrinking.

Hat tip: Erik Brynjolfsson.

Don’t blame the Fed so much

by  Tyler Cowen in

Slow labor market recovery does not have to mean the core fix is or was nominal in nature, even if the original negative shock was nominal:

Recent critiques have demonstrated that existing attempts to account for the unemployment volatility puzzle of search models are inconsistent with the procylicality of the opportunity cost of employment, the cyclicality of wages, and the volatility of risk-free rates. We propose a model that is immune to these critiques and solves this puzzle by allowing for preferences that generate time-varying risk over the cycle, and so account for observed asset pricing fluctuations, and for human capital accumulation on the job, consistent with existing estimates of returns to labor market experience. Our model reproduces the observed fluctuations in unemployment because hiring a worker is a risky investment with long-duration surplus flows. Intuitively, since the price of risk in our model sharply increases in recessions as observed in the data, the benefit from creating new matches greatly drops, leading to a large decline in job vacancies and an increase in unemployment of the same magnitude as in the data.

That is from a new NBER working paper by Patrick J. Kehoe, Pierlauro Lopez, Virgiliu Midrigan, and Elena Pastorino.  Essentially it is a story of real stickiness, institutional failure yes but not primarily nominal in nature.

Perhaps more explicitly yet, from the new AER Macro journal, by Sylvain Leduc and Zheng Liu:

We show that cyclical fluctuations in search and recruiting intensity are quantitatively important for explaining the weak job recovery from the Great Recession. We demonstrate this result using an estimated labor search model that features endogenous search and recruiting intensity. Since the textbook model with free entry implies constant recruiting intensity, we introduce a cost of vacancy creation, so that firms respond to aggregate shocks by adjusting both vacancies and recruiting intensity. Fluctuations in search and recruiting intensity driven by shocks to productivity and the discount factor help bridge the gap between the actual and model-predicted job-filling rate.

Again, a form of real stickiness more than nominal stickiness.  The claim here is not that the market is doing a perfect job, or that the Great Depression was all about a big holiday, or something about video games that you might see mocked on Twitter.  There is a very real and non-Pareto optimal coordination problem.  Still, this model does not suggest that “lower interest rates” or a higher price inflation target from the Fed, say circa 2015, would have led to a quicker labor market recovery.

Even though the original shock had a huge negative blow to ngdp as a major part of it (which could have been countered more effectively by the Fed at the time).

Rooftops!

I am not sure there is any analytical inaccuracy I see on Twitter more often than this one, namely to blame the Fed for being too conservative with monetary policy over the last few years.

And please note these pieces are not weird innovations, they are at the core of modern labor and macro and they are using fully standard methods.  Yet the implications of such search models are hardly ever explored on social media, not even on Facebook or Instagram!  You have a better chance finding them analyzed on Match.com.

Words of wisdom, man the rooftops

by  Tyler Cowen

While the prediction that rising market toughness could generate an increase in concentration and the profit share may seem counterintuitive, the ambiguous relationship between concentration, profit shares, and the stringency of competition often arises in industrial organization.

That is from Autor, Dorn, Katz, Patterson and Van Reenen.  In essence, rising market toughness reallocates a greater share of output toward highly productive superstar firms, which are more productive but also have higher fixed costs and mark-ups over marginal cost.

Have you ever wondered how “rising Chinese competition devastated parts of the American working class” and “market power is up” both could be true?  Well, this paper is the best available attempt to square that circle.  Market power is up as measured by price to marginal cost ratios, or concentration ratios, but in fact competition is much tougher than it used to be and the antitrust authorities should not (at least in this regard) be blamed for their laxness.

Very few people have put in the time to understand this point, which I should add comes from some of the top IO economists in the field.

Have I mentioned that changes in concentration are correlated with the most dynamic economic sectors?

Friday assorted links

by  Tyler Cowen

1. Are the Republicans embracing industrial policy?

2. Dominic Cummings advertises for talent, recommended if you haven’t already read it.  They are hiring “assorted weirdos.”  (Is it better to advertise for weirdos, rather than just hire them?  I’ve never advertised for a weirdo — or have I?)  And commentary from Henry Oliver.

3. Henry Olson’s WaPo column on State Capacity Libertarianism.

4. What Devin learned in 2019, part I.

5. Might Maryland and Virginia move toward YIMBY?

6. “Why do we care (should we care) so much about the distribution of something that is essentially impossible to measure or define?”  More on Saez and Zucman, which really is not holding up very well.

7. Why do doctors think they are so great?

Solitary Confinement is Torture

by  Alex Tabarrok in

Rather than fading away, solitary imprisonment, a form of torture in my view, has become more common:

Criminal Justice Policy Review: Solitary confinement is a harsh form of custody involving isolation from the general prison population and highly restricted access to visitation and programs. Using detailed prison records covering three decades of confinement practices in Kansas, we find solitary confinement is a normal event during imprisonment. Long stays in solitary confinement were rare in the late 1980s with no detectable racial disparities, but a sharp increase in capacity after a new prison opening began an era of long-term isolation most heavily affecting Black young adults. A decomposition analysis indicates that increases in the length of stay in solitary confinement almost entirely explain growth in the proportion of people held in solitary confinement. Our results provide new evidence of increasingly harsh prison conditions and disparities that unfolded during the prison boom.

Hat tip: Kevin Lewis.

Emergent Ventures, sixth cohort

by  Tyler Cowen in

Sonja Trauss of YIMBY, assistance to publish Nicholas Barbon, A Defence of the Builder.

Parnian Barekatain. To fund her synthetic biology research at MIT Media Lab.

Anna Gát, for development as a public intellectual and also toward the idea and practice of spotting and mobilizing talent in others.

M.B. Malabu, travel grant to come to the D.C. area for helping in setting up a market-oriented think tank in Nigeria.

Eric James Wang and Jordan Fernando Alexander, a joint award for their work on the project Academia Mirmidón, to help find, mobilize, and market programming and tech talent in Mexico.

Gonzalo Schwarz, Archbridge Institute, for research and outreach work to improve policy through reforms in Uruguay and Brazil. 

Nolan Gray, urban planner from NYC, to be in residence at Mercatus and write a book on YIMBY, Against Zoning.

Samarth Jajoo, an Indian boy in high school, to assist his purchase of study materials for math, computer science, and tutoring.  Here is his new book gifting project.

One other, not yet ready to be announced.  But a good one.

And EV winner Harshita Arora co-founded AtoB, a startup building a sustainable transportation network for intercity commuters using buses.

Here are previous MR posts on Emergent Ventures.

What I’ve been reading

by  Tyler Cowen in

Chris W. Surprenant and Jason Brennan, Injustice For All: How Financial Incentives Corrupted and Can Fix the US Criminal Justice System.  A good and clear introduction to exactly what the title promises.  Possible reforms are “End Policing for Profit,” “Stop Electing Prosecutors and Judges,” “Required Rotation of Public Defenders and Prosecutors,” and others.

Laurence B. Siegel, Fewer, Richer, Greener: Prospects for Humanity in an Age of Abundance.  A Julian Simon-esque take on the nature and benefits of economic growth and progress.

Lindsay M. Chervinsky, The Cabinet: George Washington and the Creation of an American Institution traces how Washington created a cabinet more than two years into his first term, and modeled after the military councils of the Continental army.

Maxine Eichner, The Free-Market Family: How the Market Crushed the American Dream (and How It Can Be Restored). There are so many anti-market books floating around these days, but this one is more likely to be true than most (the book is not as exaggerated as the subtitle).  The author takes too much of a “kitchen sink” approach for my taste, and doesn’t carefully enough consider trade-offs (U.S. as Finland is not actually a dream), but still I would rather spend time with this book than most of what is coming out these days.

Peter Andreas, Killer High: A History of War in Six Drugs, does a good job of restoring drugs and alcohol to their rightful place in the history of war.

What changes the probability of divorce?

by  Tyler Cowen

We study how promotions to top jobs affect the probability of divorce. We compare the relationship trajectories of winning and losing candidates for mayor and parliamentarian and find that a promotion to one of these jobs doubles the baseline probability of divorce for women, but not for men. We also find a widening gender gap in divorce rates for men and women after being promoted to CEO. An analysis of possible mechanisms shows that divorces are concentrated in more gender-traditional couples, while women in more gender-equal couples are unaffected.

That is from a new paper by Olle Folke and Johanna Rickne, just published in the American Economics Journal: Applied Economics.  Elsewhere in that issue, Adukia, Asher, and Novosad find that better roads aid education in India by boosting the returns to schooling.

Artificial Intelligence Applied to Education

by  Alex Tabarrok in

In Why Online Education Works I wrote:

The future of online education is adaptive assessment, not for testing, but for learning. Incorrect answers are not random but betray specific assumptions and patterns of thought. Analysis of answers, therefore, can be used to guide students to exactly that lecture that needs to be reviewed and understood to achieve mastery of the material. Computer-adaptive testing will thus become computer-adaptive learning.

Computer-adaptive learning will be as if every student has their own professor on demand—much more personalized than one professor teaching 500 students or even 50 students. In his novel Diamond Age, science fiction author Neal Stephenson describes a Young Lady’s Illustrated Primer, an interactive book that can answer a learner’s questions with specific information and also teach young children with allegories tuned to the child’s environment and experience. In short, something like an iPad combining Siri, Watson, and the gaming technology behind an online world like Skyrim. Surprisingly, the computer will make learning less standardized and robotic.

In other words, the adaptive textbook will read you as you read it. The NYTimes has a good piece discussing recent advances in this area including Bakpax which reads student handwriting and grades answers. Furthermore:

Today, learning algorithms uncover patterns in large pools of data about how students have performed on material in the past and optimize teaching strategies accordingly. They adapt to the student’s performance as the student interacts with the system.

…Studies show that these systems can raise student performance well beyond the level of conventional classes and even beyond the level achieved by students who receive instruction from human tutors. A.I. tutors perform better, in part, because a computer is more patient and often more insightful.

…Still more transformational applications are being developed that could revolutionize education altogether. Acuitus, a Silicon Valley start-up, has drawn on lessons learned over the past 50 years in education — cognitive psychology, social psychology, computer science, linguistics and artificial intelligence — to create a digital tutor that it claims can train experts in months rather than years.

Acuitus’s system was originally funded by the Defense Department’s Defense Advanced Research Projects Agency for training Navy information technology specialists. John Newkirk, the company’s co-founder and chief executive, said Acuitus focused on teaching concepts and understanding.

The company has taught nearly 1,000 students with its course on information technology and is in the prototype stage for a system that will teach algebra. Dr. Newkirk said the underlying A.I. technology was content-agnostic and could be used to teach the full range of STEM subjects.

Dr. Newkirk likens A.I.-powered education today to the Wright brothers’ early exhibition flights — proof that it can be done, but far from what it will be a decade or two from now.

See also my piece with Tyler, the Industrial Organization of Online Education and, of course, check out our textbook Modern Principles of Economics which isn’t using AI yet but the course management system combines excellent videos with flexible computerized assessment and grading.

How much did the bailouts cost?

by  Tyler Cowen in

Deborah Lucas has studied this question, and here is the core of her results:

This review develops a theoretical framework that highlights the principles governing economically meaningful estimates of the cost of bailouts. Drawing selectively on existing cost estimates and augmenting them with new calculations consistent with this framework, I conclude that the total direct cost of the 2008 crisis-related bailouts in the United States was on the order of $500 billion, or 3.5% of GDP in 2009. The largest direct beneficiaries of the bailouts were the unsecured creditors of financial institutions. The estimated cost stands in sharp contrast to popular accounts that claim there was no cost because the money was repaid, and with claims of costs in the trillions of dollars. The cost is large enough to suggest the importance of revisiting whether there might have been less expensive ways to intervene to stabilize markets. At the same time, it is small enough to call into question whether the benefits of ending bailouts permanently exceed the regulatory burden of policies aimed at achieving that goal

Here is the paper, via the excellent Kevin Lewis.

You will note that 3/4 of that sum comes from the bailouts of the government mortgage agencies.  I am myself uncertain how to think about this problem.  First, is it useful to think of the additional bailout expenditure as being monetized, if only indirectly through the mix of Fed/Treasury policy?  If yes (debatable), and the monetization itself limits a harmful further deflation, can it be said that this monetization is not a transfer away from citizens in the usual sense that an inflation in Zimbabwe might be?  But rather a net gain for citizens or at least a much smaller loss?  Is the interest paid on those monetized reserves the actual cost?

In any case, where exactly does the “3.5% of gdp” loss “come from”?

I do not know!

The Dan Wang year-end letter

by  Tyler Cowen in

Always recommended.

This year I want to discuss mostly science and technology. First, some thoughts on China’s technology efforts. Then I’ll present a few reflections on science fiction, with a focus on Philip K. Dick and Liu Cixin. Next I’ll discuss books I read on American industrial history. I save personal reflections for the end.

Dan now lives in Beijing.  He left out music, however…

The United States as a Developing Nation

by  Tyler Cowen in

In the decades between 1850 and 1950, the United States decisively transformed its place in the world economic order. In 1850, the US was primarily a supplier of slave-produced cotton to industrializing Europe. American economic growth thus remained embedded in established patterns of Atlantic commerce. One hundred years later, the same country had become the world’s undisputed industrial leader and hegemonic provider of capital. Emerging victorious from the Second World War, the US had displaced Britain as the power most prominently situated — even more so than its Cold War competitor — to impress its vision of a global political economy upon the world. If Britain’s industrial revolution in the late eighteenth century marked the beginning of a ‘Great Divergence’ (Pomeranz) of ‘the West’ from other regions around the world, American ascendance in the decades straddling the turn of the twentieth century marked a veritable ‘second great divergence’ (Beckert) that established the US as the world’s leading industrial and imperial power.

That is an excerpt from a new essay in Past and Present by Stefan Link and Noam Maggor.  (You’ll find the best summary of the actual thesis in the last few pages of the piece, not in the beginning.)  It is one of the more interesting economic history pieces I have read in some time.  The pointer is from Pseudoerasmus, who also has been doing some running commentary on the article in his afore-linked Twitter feed.