It is the slacker writers who need agglomeration most of all

by  Tyler Cowen in

Do note the latter part of the last sentence, but the entire thesis is interesting:

This paper utilises a unique, purpose-built panel dataset on prominent authors in the UK and Ireland born 1700–1925 to estimate the productivity gains associated with agglomeration of an industry with few capital requirements and no apparent need to cluster geographically. I find the average author experiences productivity gains of 11.94% per annum when residing in London, the only major literary cluster – a gain not associated with living in any of the minor literary clusters. I find evidence of negative selection with respect to productivity, indicating the results are not driven by the self-selection of highly productive authors to London. I find heterogeneity of returns to living in London by birth cohort and Impact Index quartile (a measure of author quality) and that the cohorts who receive the greatest gains from locating in London are those for which there is the strongest evidence of negative selection with respect to productivity.

That is by Sara Mitchell in the Journal of Urban Economics, via the excellent Kevin Lewis.

Don’t relax about nuclear war

by  Tyler Cowen in

That is the theme of my latest Bloomberg column, here is one bit:

Each generation has its own form of recency bias, as it is called in behavioral economics. Just after Sept. 11, for example, there was great concern about follow-up attacks. (Thankfully, nothing comparable followed.) Now we worry a lot — maybe too much — about insolvent banks, insufficiently high inflation, and the Chinese shock to U.S. manufacturing.

So what about nuclear war? Looking forward, the reality is that the risks of such a war are quite small in any particular year. But let the clock run and enough years pass, and a nuclear exchange of some kind becomes pretty likely.

I have found that people with a background in financial market trading are best equipped to understand the risks of nuclear war. An analogy might be helpful: Say you write a deeply out-of-the-money put, without an offsetting hedge. This is in fact a very risky action, though almost all of the time you will get away with it. When you don’t, however — when market prices move against you — you can lose all of your wealth quite suddenly.

In other words: Sooner or later the unexpected will come to pass.

And:

Meanwhile, a generation of hypersonic delivery systems, being developed by China, Russia and the U.S., will shorten the response time available to political and military leaders to minutes. That raises the risk of a false signal turning into a decision to retaliate, or it may induce a nation to think that a successful first strike is possible. Remember, it’s not enough for the principle of mutual assured destruction to be generally true; it has to be always true.

Do read the whole thing, which includes a discussion of Steven Pinker as well.

The company that is Amazon

by  Tyler Cowen in

Let’s pause to reflect that the company that has made one-day shipping of tens of millions of items the industry standard is also the global leader in cloud computing services, owns the Whole Foods grocery stores (and is building a second chain), helps police departments identify criminals, is building its own air cargo fleet, has an $11 billion-a-year advertising business, is working on a plan to give everyone on Earth internet from space, has put always-on microphones in at least 1 in 10 U.S. homes, built an Oscar-winning film and TV studio from scratch, and is competing directly with UPS, FedEx, Google, Facebook, Apple, Microsoft, IBM, the entire book-publishing industry, Netflix, HBO, Disney, Walmart, Target, Costco, Kroger, CVS, Walgreens and countless startups.

I don’t like Alexa, and wouldn’t take one for free!  Still, this is overall a remarkable record of both innovation and competition across many markets.  That said, I wonder for how long Amazon can keep this up without becoming a bloated, inefficient conglomerate.

Here is more from Christopher Mims at the WSJ.  You will note also that Walmart is several times larger in U.S. retail than is Amazon.

The deregulatory polity that is Idaho

by  Tyler Cowen in

Something rather remarkable just happened in Idaho. The state legislature opted to—in essence—repeal the entire state regulatory code. The cause may have been dysfunction across legislative chambers, but the result is serendipitous. A new governor is presented with an unprecedented opportunity to repeal an outdated and burdensome regulatory code and replace it with a more streamlined and sensible set of rules. Other states should be paying close attention.

The situation came about due to the somewhat unconventional nature of Idaho’s regulatory process. Each year, the state’s entire existing body of regulations expires unless reauthorized for an additional year by the legislature. In most years, reauthorization happens smoothly, but not this year.

Instead, the legislature wrapped up an acrimonious session in April without passing a rule-reauthorization bill. As a result, come July 1, some 8,200 pages of regulations containing 736 chapters of state rules will expire. Any rules the governor opts to keep will have to be implemented as emergency regulations, and the legislature will consider them anew when it returns next January.

Here is more from James Broughel at Mercatus.

Identity Economics is Bad Economics

by  Alex Tabarrok in

Identity economics is bad economics. The excellent Nick Rowe puts it well:

Animals can be divided into Carnivores and Non-Carnivores: A = C + NC. Therefore, if we add some wolves to an island of sheep, the number of animals on that island will increase.

It’s easy to see why that argument might not be right. Wolves kill sheep. But if you didn’t know that fact about wolves and sheep, the argument looks very appealing. But the equation A = C + NC tells us absolutely nothing about the world; it’s an accounting identity that is true by definition. The only thing it tells you is how I have chosen to divide up the world into parts. And I can choose an infinite number of different ways to divide the world up into parts.

Here are two more examples:

1. Y = C + I + G + X – M. Therefore an increase in Government spending will increase GDP.

2. Y = C + S + T. Therefore an increase in Taxes will increase GDP.

My guess is that you are much more uncomfortable with the second of those two examples than the first. You have probably seen the first argument before, but have probably not seen the second. But they are both equally correct accounting identities and are both equally rubbish arguments.

As Nick notes, the identities we write down frame our thinking. Write an identity in a different way to check whether the frame really fits.

Are social media really bad for your children?

by  Tyler Cowen in

Maybe not:

To disentangle between-person associations from within-person effects, we analyzed an eight-wave, large-scale, and nationally representative panel dataset (Understanding Society, the UK Household Longitudinal Study, 2009–2016) using random-intercept cross-lagged panel models (2). We adopted a specification curve analysis framework (3, 5)—a computational method which minimizes the risk that a specific profile of analytical decisions yields false-positive results. In place of a single model, we tested a wide range of theoretically grounded analysis options [data is available on the UK data service (6); code is available on the Open Science Framework (7)]…

We first examined between-person associations (Fig. 1, Left), addressing the question Do adolescents using more social media show different levels of life satisfaction compared with adolescents using less? Across all operationalizations, the median cross-sectional correlation was negative (ψ = −0.13), an effect judged as small by behavioral scientists (8). Next, we examined the within-person effects of social media use on life satisfaction (Fig. 1, Center) and of life satisfaction on social media use (Fig. 1, Right), asking the questions Does an adolescent using social media more than they do on average drive subsequent changes in life satisfaction? and To what extent is the relation reciprocal? Both median longitudinal effects were trivial in size (social media predicting life satisfaction, β = −0.05; life satisfaction predicting social media use, β = −0.02).

The effects which are observed are larger for females:

For females, however, social media was a predictor of slightly decreased life satisfaction across all domains, except satisfaction with appearance (b = −0.13 to −0.05 or β = −0.09 to −0.04; Fig. 2, Center). Furthermore, all domains of life satisfaction, except satisfaction with friends, predicted slightly reduced social media use (b = −0.17 to −0.05 or β = −0.11 to −0.07; Fig. 2, Right).

Here is the full (short) paper by Amy Orben, Tobias Dienlin, and Andrew K. Przybylski.

There is no great stagnation, refitted tuk-tuk edition

by  Tyler Cowen in

An Essex man has said he is “over the moon” after setting a new tuk-tuk land speed record, having purchased the three-wheeled Thai vehicle during a “boozy night on eBay”.

Over the course of two laps, Matt Everard reached a speed of 74.306mph (119.583km/h) after being set a target of 68.35mph (110km/h) by Guinness World Records.

Everard, 46, a freight firm boss from Billericay, drove the 1971 Bangkok taxi on Monday at the Elvington airfield in North Yorkshire, with his cousin, Russell Shearman, 49, as his backseat passenger.

Everard, a father of two, has spent more than £20,000 improving the vehicle after buying it from a seller in Bolton in 2017, saying he has worked on “every nut, bolt and bearing”.

Here is the full story, via Michelle Dawson.

Inegalitarian restaurants

by  Tyler Cowen in

Or maybe you’re a senior staffer for Steve Scalise, the second-ranking Republican in the House. The aide usually pings his usual server for one of his usual perches: table 10 in the main dining room. It’s the corner booth with a privacy curtain—the “rock-star table,” ever since Bono sat there. Only tonight he’d prefer a booth in the bar area. Trouble is it’s packed.

Not to worry. “A maître d’ always has a table in his back pocket,” Arnaud says. He adds the Hill staffer to the reservation system, and a bar booth with a reserved placard is his.

For these diners and the other VIPs on the books this evening—a congressman from Kentucky, a former media exec, a concierge from the W Hotel, a smattering of cherished regulars—the restaurant is extra-accommodating. Its maître d’s spot their special customers instantly, greet them by name, and immediately whisk them to their tables. Good cop, good cop…

First, the hierarchy. Because this is Washington, many restaurants naturally have a pecking order for their top clientele. All VIPs of Le Diplomate, the French brasserie in Logan Circle, are dubbed “PPX”—personnes particulièrement extraordinaires—and tracked in real time on a kitchen whiteboard as they dine. But some, such as a neighborhood regular, are classified as “TTA,” for Try to Accommodate. Others are “MA,” for Must Accommodate, including Jill Biden; Gérard Araud, the outgoing French ambassador; and Jim Abdo, the developer who basically rebuilt 14th Street. An MA commands a table, stat.

At Rare Steakhouse in downtown DC, former managing director Justin Abad categorized semiregular VIPs as “soigné,” French for “handled with care,” and those who came in three to five times a week or held multiple functions at the restaurant throughout the year as “super soigné.” The lower tier would often be treated to a complimentary Prosecco, while those handled with extra care—select media figures and lawyers, for instance—might be given a free shellfish platter on occasion.

Here is much more by Jessica Sidman.  Have you ever wondered why at some places, and no I do not mean the old El Bulli, it is so hard to get a table at 7 p.m. on a Saturday night no matter when you try asking?  Those tables are being rationed by status, or if you are a very regular (and lucrative) customer of some kind.

And yet almost everyone still seems to think that restaurants are super-cool, correctly or not.

Tuesday assorted links

by  Tyler Cowen

1. Russ Roberts video on the distribution of the gains from economic growth.  Essay version here.

2. Josh Barro on the incidence of tariffs on Chinese intermediate products.

3. John Cochrane on Free Solo, progress in rock climbing, and economic growth.

4. My *Big Business* podcast with James Pethokoukis.

5. Will California deregulate roadkill consumption?

6. MIE: A Theory of Justice: The Musical.

7. Caravana de mujeres (article in English, however).

Did the zero lower bound matter?

by  Tyler Cowen in

This is an article of faith in “Twitter economics,” but Scott Sumner, myself, and many others have been insisting for years that the arguments simply are not there and that the zero lower bound is not such a big deal.  There is now a new NBER working paper by Davide Debortoli, Jordi Gali, and Luca Gambetti:

The zero lower bound (ZLB) irrelevance hypothesis implies that the economy’s performance is not affected by a binding ZLB constraint. We evaluate that hypothesis for the recent ZLB episode experienced by the U.S. economy (2009Q1-2015Q4). We focus on two dimensions of performance that were likely to have experienced the impact of a binding ZLB: (i) the volatility of macro variables and (ii) the economy’s response to shocks. Using a variety of empirical methods, we find little evidence against the irrelevance hypothesis, with our estimates suggesting that the responses of output, inflation and the long-term interest rate were hardly affected by the binding ZLB constraint, possibly as a result of the adoption and fine-tuning of unconventional monetary policies. We can reconcile our empirical findings with the predictions of a simple New Keynesian model under the assumption of a shadow interest rate rule.

In my somewhat jaded view, the zero lower bound arguments have been an excuse of sorts to move outside of “scarcity economics” and make politically convenient claims about the necessity fiscal stimulus.  It is no wonder we ended up with MMT!

In the meantime, this evidence is the (current) final word, and I hope it will be heeded as such.

Who loses most from the U.S.-China trade war?

by  Tyler Cowen in

You are hearing claims, hints, implications, or outright statements that the full burden of the trade war is falling on American consumers.  (Maybe some of the commentators are too wrapped up in the “Trump’s action have no merits whatsoever” game?)  I strongly believe that is wrong, as outlined in my latest Bloomberg column.  Here is one bit:

…there are well-done studies showing that the recent tariffs have translated into higher prices for U.S. consumers. I am not contesting that research. The question is whether those studies give sufficient weight to all relevant variables for the longer run.

To see why the full picture is more complicated, let’s say the U.S. slaps tariffs on the industrial inputs (whether materials or labor) it is buying from China. It is easy to see the immediate chain of higher costs for the U.S. businesses translating into higher prices for U.S. consumers, and that is what the afore-mentioned studies are picking up. But keep in mind China won’t be supplying those inputs forever, especially if the tariffs remain. Within a few years, a country such as Vietnam will provide the same products, perhaps at cheaper prices, because Vietnam has lower wages. So the costs to U.S. consumers are temporary, but the lost business in China will be permanent. Furthermore, the medium-term adjustment will have the effect of making China’s main competitors better exporters.

And:

China has an industrial policy whose goal is to be competitive in these [branded goods] and other areas. Tariffs will limit profits for these companies and prevent Chinese products from achieving full economies of scale. So this preemptive tariff strike will hurt the Chinese economy in the future, even if it doesn’t yet show up in the numbers.

Most generally:

In my numerous visits to China, I’ve found that the Chinese think of themselves as much more vulnerable than Americans to a trade war. I think they are basically correct, mostly because China is a much poorer country with more fragile political institutions.

I should note that I am not trying to defend Trump in this column, rather we need to get the economics right if we are to understand what is going on and why America can exert any pressure at all.  On Twitter, Christopher Balding is one who is getting these matters right.

Returning to the bigger picture, to the extent you wish to criticize Trump’s policies, focus on what China may do as a result of its vulnerability, not America’s supposed lack of bargaining power in the struggle.