Monday assorted links
Apologies, the great Frank Fukayama still lives!
Good!
Principles of Economics Textbooks and the Market for Ice Cream
Rey Hernández-Julián and Frank Limehouse writing in the Journal of Economics Teaching write that very few principles of economics textbooks deal with modern information and digital tech industries:
The main takeaways of our review are highlighted by two stand-alone textboxes found in Mankiw’s (2023) textbook. This textbook has been regarded as one of the most dominant players in the principles of economics textbook market for over 20 years. In the introductory chapter of the 10th Edition (2023), “Ten Principles of Economics” there is a stand-alone textbox with the Netflix logo with the following caption: “Many movie streaming services set the marginal cost of a movie equal to zero”. However, there is no further explanation of this statement in the chapter and no presentation of the concept of zero marginal cost pricing in the remainder of the entire textbook. In Chapter 2 (“Thinking Like an Economist”), there is an In the News article from the New York Times, “Why Tech Companies Hire Economists”, but very little coverage in the text on how to apply microeconomic concepts to the tech industry. These two discussions of the tech industry in Mankiw’s text exemplify many of our findings from other texts….updated examples from the modern economy seem to be afterthoughts and detached from the central discussion of the text.
…There are some notable exceptions. The most significant coverage of these questions is in Chapter 16 of Cowen and Tabarrok’s Modern Principles of Microeconomics, 5th edition (2021). In this chapter, the authors discuss platform service providers, such as Facebook, Amazon, Google, Visa, and Uber, and the role they play in competing “for the market,” instead of “in the market.” They also discuss why the prevailing product is not necessarily the best one, how music is a network good, and why these platform services may give away goods for ‘free’.
I would also point out that our example of a constant-cost industry (flat long-run supply curve) is domain name registration! As we write in Modern Principles:
Now consider what happens when the demand for domain names increases. In 2005, there were more than 60 million domain names. Just one year later, as the Internet exploded in popularity, there were more than 100 million domain names. If the demand for oil nearly doubled, the price of oil would rise dramatically, but despite nearly doubling in size, the price of registering a domain name did not increase…the expansion of old firms and the entry of new firms quickly pushed the price back down to average cost.
In short, it’s called Modern Principles for a reason! Tyler and I are committed to keeping up with the times and not just adding the occasional box and resting on our laurels.
See Hernández-Julián and Limehouse for some further examples of how to introduce modern industries into principles of economics.
Effective Altruists and finance theory
One of the most admirable and impressive things about the EA movement is how many people in it will avidly learn about other areas. Whether it be animal welfare, mosquite bed nets, asteroid risk, or the properties of various AI programs, you can find numerous EAs who really have gone out of their way to master many of the details.
They don’t quite acquire expert knowledge, but due to their general facility in the application of reason, often they can outargue the experts themselves.
Yet one thing I have never met — ever — or seen on Twitter, is an EA who understands finance at a comparable level. Never.
And that is odd, because EAs so stress the import of probabilistic thinking.
If you pose the “have you thought through being short the market?” question, one hears a variety of answers that are what I call “first-order wrong.” That is, there may well be more sophisticated defenses of those points of view, but you just hear the first-order response, designed to dispose of the question without much further thought. A few of those responses are:
1. “Why should I have to gamble?” (Given your other views, it is hedging not gambling)
2. “There is already evidence I am right. My friends and I made a lot of money buying Nvidia stock.”
3. “I don’t know how to short the market.” Or “Amateur investors shoulnd’t short the market!”
4. “Did the stock market predict Hitler and WWII?”
5. “How possibly can I cash in if the world ends very suddenly? After all, the AGI has an incentive to deceive us.”
6. “But I don’t know when the world is going to end!”
7. “Why should I short the market when I can earn so much more going long on Nvidia!?”
8. “Well, I am not buying stocks!”
9. “If the world is ending soon, what do I need money for?”
10. “But if the world doesn’t end, things will be really great.”
And more. (I’ve even heard “Are you short the market?”) I will leave it as an exercise to the reader to work out what is wrong with these responses. In most cases o1 and Claude can come to your aid, if needed.
I do believe that Aella, for one, is in essence short the market. Good for her, as she is also pessimistic about AI. But here are two responses I have never ever heard, not once:
11. “I’m going to sit down and study finance and see if I can find a feasible way to short the market. If I can’t I will feel sad, but I might get back to you for further guidance.”
12. “Soon enough, AI will be good enough to tell me how to short the market intelligently. Then I am going to do this — thanks for the tip! ”
Nope never. The absence of the last one from the discourse I find especially odd. “AGI will be powerful enough to destroy us, but not good enough to help me do an effective short!” OK…
The sociology here is more indicative of what is going on than the arguments themselves. Because the EAs, rationality types, and doomsters here generally are very good at learning new things.
Of course, once shorting the market even enters serious contemplation (never mind actually doing it), you also start seeing current market prices as a kind of testing referendum on various doomster predictions. And suffice to say, market prices basically offer zero support for all of those predictions. And that is embarrassing, whether you should end up shorting the market or not. Many EAs and rationality types are also fans of prediction markets in other contexts.
I nonetheless would urge many EA, rationality, and AI doomster types to learn more basic finance. It can liberate you from various mental chains, and it will be useful for the rest of your life, no matter how long or short that may be.
Addendum: So, so many fallacies in the comments. Here is one brief response I wrote: “Just keep on buying puts with a small pct. of your wealth. You don’t have to use leverage, though of course a real pessimist should. What is hard about shorting is that the world isn’t in fact going to end! You are smuggling in categories from very different contexts. And none of this requires anything remotely like a “strong version of market efficiency.” It does require that the end of world is bearish for prices at some point! [once people recognize doom might be coming, not when doom finally arrives]”
*Conclave*
I would say this was a good not great movie, but I pass along word because it is rare to have a movie so exclusively devoted to both public choice and social choice theory, and realistically so. (Thomas Reese said in an interview that the details on the conclave were pretty realistic too; if you don’t know of Reese his book Inside the Vatican is perhaps the best book on bureaucracy ever.)
I cannot say much more without spoiling the plot. Needless to say, Richard McKelvey would not have walked away from this one feeling refuted…
The film also takes itself seriously in a good way, which these days in Hollywood is increasingly rare.
Sunday assorted links
1. An eighth grade test from 1912.
2. “Create an AI agent with a crypto wallet (and optional X account) in less than 3 minutes”
3. Robot chips away at one pillar of the cost disease.
4. Was the Trans-Siberian railroad the greatest mega-project of all time?
5. About twenty percent of U.S: jobs heavy or very heavy strength. Not irrelevant to the current AI debates.
6. Roon speaks.
7. New bit of a Chopin waltz! (NYT)
What should I ask Paula Byrne?
Paula Jayne Byrne, Lady Bate…is a British biographer, novelist, and literary critic.
Byrne has a PhD in English literature from the University of Liverpool, where she also studied for her MA, having completed a BA in English and Theology at West Sussex Institute of Higher Education (now Chichester University).
Byrne is the founder and chief executive of a small charitable foundation, ReLit: The Bibliotherapy Foundation, dedicated to the promotion of literature as a complementary therapy in the toolkit of medical practitioners dealing with stress, anxiety and other mental health conditions. She is also a practicing psychotherapist, specializing in couples and family counseling.
Byrne, who is from a large working-class Roman Catholic family in Birkenhead, is married to Sir Jonathan Bate, Shakespeare scholar and former Provost of Worcester College, Oxford
Her books cover Jane Austen, Mary Robinson, Evelyn Waugh, Barbara Pym, JFK’s sister, two novels, and her latest is a study of Thomas Hardy’s women, both in his life and in his fiction, namely Hardy’s Women: Mother, Sister, Wives, Muses. Here is her home page. Here is Paula on Twitter.
Does the O-Ring model hold for AIs?
Let’s say you have a production process, and the AIs involved operate at IQ = 160, and the humans operate at IQ = 120. The O-Ring model, as you may know, predicts you end up with a productivity akin to IQ = 120. The model, in short, says a production process is no better than its weakest link.
More concretely, it could be the case that the superior insights of the smarter AIs are lost on the people they need to work with. Or overall reliability is lowered by the humans in the production chain. This latter problem is especially important when there is complementarity in the production function, namely that each part has to work well for the whole to work. Many safety problems have that structure.
The overall productivity may end up at a somewhat higher level than IQ = 120, if only because the AIs will work long hours very cheaply. Still, the quality of the final product may be closer to IQ = 120 than you might have wished.
This is another reason why I think AI productivity will spread in the world only slowly.
Sometimes when I read AI commentators I feel they are imagining production processes of AIs only. Eventually, but I do not see that state of affairs as coming anytime soon, if only for legal and regulatory reasons.
Furthermore, those AIs might have some other shortcomings, IQ aside. And an O-Ring logic could apply to those qualities as well, even within the circle of AIs themselves. So if say Claude and the o1 model “work together,” you might end up with the worst of both worlds rather than the best.
The anti-tourism movement continues into winter season
It’s well past the August holiday peak, but anger against over-tourism in Spain is spilling into the off-season, as holiday-makers continue to seek winter sun.
On Sunday locals in the Basque city of San Sebastian plan to take to the streets under the banner: “We are in danger; degrow tourism!”
And in November anti-tourism protesters will gather in Seville.
Thousands turned out last Sunday in the Canary Islands, so the problem is clearly not going away.
This year appears to have marked a watershed for attitudes to tourism in Spain and many other parts of Europe, as the post-Covid travel boom has seen the industry equal and often surpass records set before the pandemic.
Spain is expected to receive more than 90 million foreign visitors by the end of the year. The consultancy firm Braintrust estimates that the number of arrivals will rise to 115 million by 2040, well ahead of the current world leader, France.
Here is the full story.
Saturday assorted links
1. Samuel Siskind, Awake, he is a 17-year-old composer. And Les Aunties, female vocalists from Chad.
3. Emory University invests in Bitcoin.
4. We can terraform the American West. By Casey Handmer, I am a big fan of this approach and think it is far more promising than Mars exploration.
5. Alan Heston has passed away, RIP.
6. Treasure hunters compensated for unearthed coins, supply is elastic edition.
Ethiopia fact of the day
More than 6.1 million malaria cases, and 1,038 deaths, have been recorded in the country this year through the end of September, compared with 4.5 million cases, and 469 deaths, for all of 2023. Worse, cases are likely to soar far higher in the next couple of months because peak malaria season, driven by seasonal rains, begins in September and runs through the end of the year.
“We’re backsliding so fast — we’ve gone back a decade,” said Fitsum Tadesse, the lead scientist overseeing the malaria program at the Armauer Hansen Research Institute in Addis Ababa, the capital of the country.
Here is more from the NYT.
The uneven effects of AI on the American economy
That is the topic of my latest Bloomberg column, here is one excerpt:
To see how this is likely to play out, start with a distinction between sectors in which it is relatively easy to go out of business, and sectors in which it is not. Most firms selling computer programming services, for example, do not typically have guaranteed customers or revenue, at least for long. Employees have to deliver, or they and their company will be replaced. The same is true of most media companies: If they lose readers or customers, their revenue disappears. There is also relatively free entry into the sector in the US, due to the First Amendment.
Another set of institutions goes out of business only slowly, if at all. If a major state university does a poor job educating its students, for example, enrollment may decline. But the institution is still likely to be there for decades more. Or if a nonprofit group does a poor job pursuing its mission, donors may not learn of its failings for many years, while previous donors may pass away and include the charity in their wills. The point is, it can take a long time for all the money to dry up.
Which leads me to a prediction: Companies and institutions in the more fluid and competitive sectors of the economy will face heavy pressure to adopt AI. Those not in such sectors, will not.
It is debatable how much of the US economy falls into each category, and of course it is a matter of degree. But significant parts of government, education, health care and the nonprofit sector can go out of business very slowly or not at all. That is a large part of the US economy — large enough to slow down AI adoption and economic growth.
As AI progresses, the parts of the economy with rapid exit and free entry will change quickly.
Recommended, read the whole thing.
What happened to football’s concussion crisis?
Here is a very good New York piece by Reeves Wiedeman, here is the excerpt from yours truly:
When I reached out to Tyler Cowen, he said that his prognostication of football’s death had been off in part because he misread people’s concern for their health and the health of others. “COVID changed my mind on this,” he told me in an email. “A lot of people simply will do foolish stuff, such as not vaccinating, even when their lives may be on the line.”
And:
Youth football participation steadily decreased for more than a decade after news about CTE started to break, but it is on the rise again. Roughly a million boys still play high-school football — twice the number that play either basketball or soccer — and it remains possible in much of the country to sign up your 5-year old to be a linebacker. Most surveys of parents find that they understand there are risks but that they also don’t want to keep their kids from playing.
And:
Fans, it seems, have chosen to believe the NFL has largely done what it can. “They addressed the majority of the ethical issues — the stuff that made them look bad — and now suddenly the story is ‘It’s just sad,’” Nowinski said. “What people are missing is that football has gotten more ethical, but it’s not necessarily safer.”
Worth a ponder.
Friday assorted links
1. Goldfish crackers are changing, but only for a limited period of time.
2. The rise and decline of the secretary.
3. Not every economist would agree. Even fewer would frame it as such, even if they had some sympathies in that direction.
4. Canadian backlash on immigration.
6. The America First Policy Institute (NYT).
7. Charlie Goetz has passed away.
8. Works in Progress looking for a full-time, U.S.-based editor.
Science and politics podcast
From the Institute for Progress, here is the link, the participants were Caleb Watney, Dylan Matthews, Alexander Berger, and myself. Excerpt:
Tyler Cowen: I would stress just how decentralized science funding is in the United States. The public universities are run at the state level. We have tax incentives for donations where you have to give to a nonprofit, but there’s otherwise very little control over what counts as a viable nonprofit.
One specific issue that I think has become quite large is how much we run our universities through an overhead system. On federal grants and many other kinds of grants, an overhead is charged. The overhead rates are very high, and well above what the actual marginal overhead costs.
You might think that’s a crazy system, and in some ways it is crazy. It means there’s intense pressure on professors to bring in contracts, regardless of the quality of the work. That’s clearly a major negative. Everyone complains about this.
But the hidden upside is that when universities fund themselves through overhead, there’s a kind of indirect free speech privilege because they can spend the overhead how they want. Now, I actually think they are violating the implicit social contract right now by spending the overhead poorly. But for a long while, this was why our system worked well. You had very indirect federal appropriations: some parts of which went to science, other parts of which went to education. It was done on a free speech basis.
But like many good systems, it doesn’t last forever. It gets abused. If we try to clean up the mess — which now in my view clearly is a mess — well, I’m afraid we’ll get a system where Congress or someone else is trying to dictate all the time how the funds actually should be allocated.
That’s a question I’ve thought through a good amount: how or whether we should fix the overhead system? I feel we’ve somehow painted ourselves into a corner where there is no good political way out in any direction. But I think you’ll find case by case that the specifics are really going to matter.
Dylan Matthews: Let’s get into some of the specifics. Do you have an example of the overhead system breaking down that is motivating for you here?
Tyler Cowen: Well, universities are spending more and more of their surplus on staff and facilities — on ends that even if you think they’re defensible in some deep sense like “Oh, we need this building,” it’s about the university. It’s about what leads to long run donations, but it’s seen as a violation of public trust.
The money is neither being spent on possibly useful research, nor educating students. The backlash against universities is huge, most of all in Florida, Texas, and North Carolina. It seems to me that where we are at isn’t stable. How we fund science through universities is, in some ways, collapsing in bad ways. The complaints are often justified, but odds are that we’ll end up with something worse.
Recommended, interesting throughout.