Unintended Consequences

by  Alex Tabarrok

Courtesy of MRU here are two new econ-practice games on negative externalities and positive externalities. Great for students.

But don’t forget that if you are not careful regulation can often lead to Unintended Consequences (a fun choose your adventure story!)

All of these resources are free for any teacher of economics but, of course, they go great with the best principles of economics textbook, Modern Principles of Economics!

The value of better insurance

by  Tyler Cowen in

A production efficiency perspective naturally leads to the prescription that more productive individuals should work more than less productive individuals. Yet, systematic differences in actual hours worked across high- and low-wage individuals are barely noticeable. We highlight that the insurance available to households is an important determinant behind this fact. Using a dynamic heterogeneous-agent model with insurance frictions, income effects calibrated to match aggregate hours across time and space, and financial frictions that deliver realistic wealth dispersion, we report stark effects of insurance: perfect insurance would raise aggregate labor productivity by 9.6 percent and decrease hours worked by 7.7 percent.

That is from a new NBER working paper by Timo Boppart, Per Krusell & Jonna Olsson.

Auto paternalism advances

by  Tyler Cowen

Exceed the speed limit in one of the 27 European Union countries, and you may get some pushback from your vehicle. As of July, new cars sold in the EU must include a speed- warning device that alerts drivers if they exceed the posted limit. At a minimum, vehicles must include acoustic or haptic speed warnings, though the European Commission gives automakers the latitude to supplant those passive measures with either an active accelerator pedal that applies counterpressure against the driver’s foot or a governor that restricts the vehicle’s speed to the legal limit. Drivers can override or deactivate these admonishments, but the devices must default to their active state at startup.

Now California is looking to emulate the EU with legislation that would mandate in-car speed-warning devices. The bill, SB 961, aims to make such systems standard in the Golden State by requiring just about every 2030 model-year vehicle equipped with either GPS or a front-facing camera to also have visual and audio warnings when driving more than 10 mph over the speed limit. Provisions within the bill would ensure that drivers can fully disable the systems.

While the externality is evident, it is hard to believe any of those are good ideas, encouraging respect for the law…or for that matter the purchase of newer, more environmentally friendly vehicles…

Here is the full story.

USA religion fact of the day

by  Tyler Cowen in

For the first time in modern American history, young men are now more religious than their female peers. They attend services more often and are more likely to identify as religious.

“We’ve never seen it before,” Ryan Burge, an associate professor of political science at Eastern Illinois University, said of the flip.

Among Generation Z Christians, this dynamic is playing out in a stark way: The men are staying in church, while the women are leaving at a remarkable clip.

Church membership has been dropping in the United States for years. But within Gen Z, almost 40 percent of women now describe themselves as religiously unaffiliated, compared with 34 percent of men, according to a survey last year of more than 5,000 Americans by the Survey Center on American Life at the American Enterprise Institute.

Here is the full story (NYT).

Monday assorted links

by  Tyler Cowen

1. “Gatwick train cancelled after squirrels board and ‘refuse to leave’.“

2. Fredric Jameson, RIP.

3. Second-tallest building in Canada to be demolished.

4. In praise of Armenia.

5. Making eggs without ovaries?

6. A Muslim charter city enclave, inside Tirana, Albania? (NYT)  I don’t understand the story, I thought Albania was pretty tolerant already?

7. Indian temples for visa seekers.

8. “Webb Discovers Methane, Carbon Dioxide in Atmosphere of K2-18 b.“

James Bennett, RIP

by  Tyler Cowen in

Yes, my colleague Jim Bennett, also a friend and supporter over the decades.  Jim retired not long ago, due to health issues, and now the worst has come to pass.

As a researcher, Jim was remarkably well-published, including in top journals, and he never stopped working and trying to improve his output.  He was best known for his writings on the economics of bureaucracy, and for his work on labor unions, but later in life he wrote extensively on government support for the arts, illustrating his versatility.  He also was a first-rate teacher, who attracted many undergraduates to the GMU economics major.

Those who know the history of economics at GMU know that actually none of it would have happened without Jim, and also without Karen Vaughn, and their very early efforts.

He very much loved to collect Persian rugs and had a very good eye for them.  Here is his bio.

James Bennett, RIP…

The Rapid Adoption of Generative AI

by  Tyler Cowen in

This paper reports results from the first nationally representative U.S. survey of generative AI adoption at work and at home. In August 2024, 39 percent of the U.S. population age 18-64 used generative AI. More than 24 percent of workers used it at least once in the week prior to being surveyed, and nearly one in nine used it every workday. Historical data on usage and mass-market product launches suggest that U.S. adoption of generative AI has been faster than adoption of the personal computer and the internet. Generative AI is a general purpose technology, in the sense that it is used in a wide range of occupations and job tasks at work and at home.

That is from a new paper by Alexander Bick, Adam Blandin, and David J. Deming, ungated copy here, blog post about it here.

The Value of De Minimis Imports

by  Tyler Cowen in

Section 321 of the 1930 Tariff Act allows up to $800 in imports per person per day to enter the US duty-free and with minimal customs requirements. Fueled by rising direct-to-consumer trade, these “de minimis” shipments have exploded yet are not recorded in Census trade data. Who benefits from this type of trade, and what are the policy implications? We analyze international shipment data, including de minimisshipments, fromthreeglobalcarriers andUS Customs and Border Protection. Lower-income zip codes are more likely to import de minimis shipments, particularly from China, suggesting that the tariff and administrative fee incidence in direct-to-consumer trade is pro-poor. Theoretically, imposing tariffs above a threshold leads to terms-of-trade gains through bunching, even in a setting with complete pass-through to linear tariffs. Empirically, bunching pins down the demand elasticity for direct shipments. Eliminating §321 would reduce aggregate welfare by $11.8-$14.3 billion and disproportionately hurt lower-income and minority consumers.

That is from a recent paper by Pablo Fajgelbaum and Amit Khandelwal.

Ian Leslie on Olivier Roy and culture

by  Tyler Cowen in

Roy argues that culture in the sense we have understood it is being inexorably eroded. It’s not, as some of his countrymen believe, that one culture is being replaced by another – say, Christianity by Islam. It’s that all culture is being hollowed out by technology, data, globalisation, bureaucracy, and consumerist individualism. Local cultures, in the sense of finely patterned, shared sensibilities, automatically absorbed and deeply felt, are no match for these bulldozing, ‘deculturating’ forces.

We still need shared norms of behaviour in order to function as societies, however. So in place of implicit culture, he says, we have introduced explicit “norms”: rules of behaviour and speech which aren’t felt or intuited but articulated, coded for, and argued over endlessly. Without instinctive standards for behaviour we have to thrash everything out, from the correct use of pronouns to how to behave on public transport or dress for work. “Culture war” implies some kind of profound division between people, but in truth, suggests Roy, our differences are shallow and petty and all the more bad-tempered for it. Scrape away culture and what you’re left with is negotiation. Everything is politics.

Complex, evolved, layered social identities are being replaced by a series of boxes, with freedom consisting of the right to choose your box at any one time (think about the way that sexual identity is coded into an endlessly multiplying series of letters). The oddly shaped flora and fauna of culture have been reduced a series of “tokens” which we buy and display in order to position ourselves versus others. National cuisines, musical genres, styles of dress: these are all just tokens for us to collect and artfully assemble into a personal brand.

Here is the full essay.  Here is my earlier post on Roy’s book.

True, false, or uncertain?

by  Tyler Cowen in

Most strategic improvements in sports have been in the direction of increasing variance and living with the (better EV) results:

Baseball: more extra base hits, no more bunting.

Football: more passing game, going for it on 4th.

Golf: driver ball speed increases.

Bball: 3 pointer…

Tennis: bigger serves/groundstrokes.

Snooker: cannoning the pack to extend breaks.

Chess: sub-optimal but niche exploitive lines.

That is from Agustin Lebron.  Maybe a lot of the NBA improvements are simply insisting on better defense and fundamentals?  And matching player defensive assignments, or five-man rotations, to more closely align with data on historical success?

54 years old….

by  Tyler Cowen in

Look at #4 on this list:

Via Nabeel, source here.  And this year India won gold in the men’s and also women’s chess Olympiad, and is favored in December to have Gukesh winning the world championship.  By the way, the performance rating of Gukesh at #3 is barely behind Carlsen at #2, at least for this year alone.  Those also are (indirectly) accomplishments of Vishy Anand.

Here is my earlier CWT with him.

Sometimes people are just wrong

by  Tyler Cowen in

The puzzle was that, despite M1 growth in excess of 5 percent during 1970 and 10 percent during the first half of 1971, the engine still continued to sputter.  At the June 1971 meeting of the FOMC, the Fed’s chief economist admitted bafflement.  “Why is it that the very high recent growth rates of money…fail to produce a satisfactory real performance?” asked Charles Partee.

At the same time, Milton Friedman was writing Arthur Burns and telling him he was “appalled” by the high rates of money growth.

That is from the quite interesting 1998 book Allen J. Matusow, Nixon’s Economy: Booms, Busts, Dollars, and Votes.

I had not known that in 1971, for a while, President Nixon was pushing for a uniform ten percent tax on imports into the United States, and indeed he imposed it temporarily.  That was then, this is now…

IP and unrealized capital gains (from my email)

by  Tyler Cowen in

I was thinking about the unrealized cap gains tax after Taylor Swift’s endorsement today and I think I see a new problem distinct from those you and Alex have raised so far. Maybe someone else has pointed this out, but I figured I’d write out the logic and see what you think.

I think there is a big problem of unrealized capital gains in terms of IP.

Much IP is monetized via licenses and royalties that have long term perpetuity like payments that could go up or down based on other market conditions which would directly affect the value of the asset for more than the income growth from the asset.

An example by way of Taylor Swift:

She is expected to make 200M+ off the streaming of her music.

Her music rights would likely be considered an asset. These music rights would likely be valued as a perpetuity or cash flows/ discount rate. Perplexity reported a range of 5-10% as common in the entertainment business meaning Taylor’s current streaming rights are currently worth between 2B and 4B. (200M/.1 and 200M/.05).

If Spotify/Youtube get better at selling ads and increase their reimbursement rate by 10% then Taylor would receive 220M next year and song collection would grow to be worth between 2.2B and 4.4B for an unrealized gain of 200M to 400M.

Taylor would owe 25% tax on this gain or between 50-100M which would be greater than her additional earnings of 20M.

What makes this doubly ironic is, would the federal government force Taylor to sell the rights to her music to pay the cap gains tax?

One thing I forgot to mention is what share of patents in the medical field + copywriters have that sort of payment structure? Where they get a license for a certain future amount of payments. If the stream of payments increases what happens to the unrealized capital gains tax?

There was that baseball player that got paid with that comically large future contract. Is that an asset too?

From Stephen Jonesyoung.