Quantitative Economics with Deep Learning
We argue that deep learning provides a promising avenue for taming the curse of dimensionality in quantitative economics. We begin by exploring the unique challenges posed by solving dynamic equilibrium models, especially the feedback loop between individual agents’ decisions and the aggregate consistency conditions required by equilibrium. Following this, we introduce deep neural networks and demonstrate their application by solving the stochastic neoclassical growth model. Next, we compare deep neural networks with traditional solution methods in quantitative economics. We conclude with a survey of neural network applications in quantitative economics and offer reasons for cautious optimism.
That is from a new paper by Jesús Fernández-Villaverde, Galo Nuño, and Jesse Perla.
The new Claude can run and direct your computer for you
Watch here. (It’s happening.)
Tuesday assorted links
1. The importance of conditional risk in finance.
2. Brendan Greeley on how exclusive and inclusive institutions fit together (FT). “Rather, this inability to see how London, Virginia and Barbados function within the same system is, ironically, an institutional problem within the profession of economics.”
3. Joseph Walker and Larry Summers podcast on AGI and the next Industrial Revolution.
4. Who is afraid of AI in the workplace?
6. Jason Furman’s five books to understand the economy (NYT).
The MR Podcast–Oil Shocks, Price Controls and War
Our second podcast on the 1970s titled Oil Shocks, Price Controls and War is now available! Here’s one bit:
Tabarrok: …Sheikh Ahmed Yamani, in a famous statement, he was the oil minister for the Kingdom of Saudi Arabia, he’s a leader of OPEC, he says on October 16th, this is 10 days after the war begins, “This is a moment for which I have been waiting for a long time. The moment has come. We are masters of our own commodity.” They raise the price of oil. Oil production falls by about 9 percent to 10 percent. That doesn’t seem on the surface to be a huge amount, but it reveals something which people had not been prepared for, and that was the inelasticity of oil demand.
I would put it this way. I think this is the key idea here. Almost accidentally, the exporting countries had discovered that the demand for oil was more inelastic than anyone had ever realized. The main lesson they drew before 1973, the oil exporting countries thought that the only way to increase revenues was to produce more. After 1973, they learned that an even better way to increase revenues was to produce less.
Here’s another:
COWEN: Since the 1980s, economists, for a number of reasons, have underrated real shocks as a source of business cycles and downturns. You have the Keynesians who didn’t want to talk about it, and then you had the Monetarists, Milton Friedman, who wanted to promote their own recipe, and people just stopped talking about it. Even 2008, which clearly had a lot to do with a major negative shock to aggregate demand, but the price of oil is quite high at the time when that’s breaking, and it was a major factor behind the downturn.
TABARROK: Absolutely.
COWEN: No one wants to talk about that.
Here is the MR Podcast home page. Subscribe now to take a small step toward a much better world: Apple Podcasts | Spotify | YouTube.
*A Voyage Around the Queen*
I loved this Craig Brown book, although many of you won’t. A good biography typically brings a subject to life. This biography sets out to convince you that Queen Elizabeth II could never be understood whatsoever, that she was a literal cipher and always was going to stand outside our typical categories. She did love jigsaw puzzles.
Can you stand a book that has sentences like?:
The Queen Mother’s corgis were every bit as edgy.
The Queen was born in 1926, and the book lists some words that were first chronicled in that same year:
Bible belt, business lunch, car park, kitsch, market research, pop song, publicity stunt, recycle, sugar daddy, and totalitarian.
Recommended, for some of you at least. You need to have a touch of mischief in you perhaps?
What predicts success in science?
How does a person’s childhood socioeconomic status (SES) influence their chances to participate and succeed in science? To investigate this question, we use machine-learning methods to link scientists in a comprehensive biographical dictionary, the American Men of Science (1921), with their childhood home in the US Census and with publications. First, we show that children from low-SES homes were already severely underrepresented in the early 1900s. Second, we find that SES influences peer recognition, even conditional on participation: Scientists from high-SES families have 38% higher odds of becoming stars, controlling for age, publications, and disciplines. Using live-in servants as an alternative measure for SES confirms the strong link between childhood SES and becoming a star. Applying text analysis to assign scientists to disciplines, we find that mathematics is the only discipline in which SES influences stardom through the number and the quality of a scientist’s publications. Using detailed data on job titles to distinguish academic from industry scientists, we find that industry scientists have lower odds of being stars. Controlling for industry employment further strengthens the link between childhood SES and stardom. Elite undergraduate degrees explain more of the correlation between SES and stardom than any other control. At the same time, controls for birth order, family size, foreign-born parents, maternal education, patents, and connections with existing stars leave estimates unchanged, highlighting the importance of SES.
That is from a new NBER working paper by Anna Airoldi and Petra Moser.
A funny feature of the AI doomster argument
If you ask them whether they are short the market, many will say there is no way to short the apocalypse. But of course you can benefit from pending signs of deterioration in advance. At the very least, you can short some markets, or go long volatility, and then send those profits to Somalia to mitigate suffering for a few years before the whole world ends.
Still, in a recent informal debate at the wonderful Roots of Progress conference in Berkeley, many of the doomsters insisted to me that “the end” will come as a complete surprise, given the (supposed) deceptive abilities of AGI.
But note what they are saying. If markets will not fall at least partially in advance, they are saying the passage of time, and the events along the way, will not persuade anyone. They are saying that further contemplation of their arguments will not persuade any marginal investors, whether directly or indirectly. They are predicting that their own ideas will not spread any further.
I take those as signs of a pretty weak argument. “It will never get more persuasive than it is right now!” “There’s only so much evidence for my argument, and never any more!” Of course, by now most intelligent North Americans with an interest in these issues have heard these arguments and they are most decidedly not persuaded.
There is also a funny epistemic angle here. If the next say twenty years of evidence and argumentation are not going to persuade anyone else at the margin, why should you be holding this view right now? What is it that you know, that is so resistant to spread and persuasion over the course of the next twenty years?
I would say that to ask such questions is to answer them.
Monday assorted links
My Russian classical music podcast with Rick Rubin
You will find it here. Rick asked me to give him my account of Russian classical music, “standing on one foot” as you might say. With musical clips as well, played on Rick’s sound system. So we started with Rimsky and Mussorgsky, and the European and folk/peasant music traditions as contrasting influences in Russian music. There is then plenty of Tchaikovsky, Scriabin, and Stravinsky followinig, with perhaps Stravinsky as the organizing figure of the presentation.
It is never easy to do such things off the top of one’s head. Nonetheless recommended.
Gustav de Molinari, the first libertarian?
He was a nineteenth century Belgian economist, wonderful to read, and still neglected as a thinker. Here is one excerpt from a short open access book by Benoit Malbranque, now on line:
Gustave de Molinari himself was perhaps as much a traveler, a journalist and an historian, as he was a political philosopher. In fact, apart from a handful of professional travelers, very few people knew so much about the world as he did. Over the years, he made lengthy stays in Switzerland (1857), Russia (1860, 1882), Canada (1876, 1880, 1885), Ireland (1880), and the United States (1876, 1880, 1885). His journeys also made him discover England, Germany, Poland, Sweden, Finland, Denmark, Turkey, as well as the Caribbean islands, Panama, Columbia, and Venezuela. Travels were obviously, at that time, more perilous and adventurous than they are now. By sea, they were both uncomfortable and terribly long: crossing the Atlantic Ocean took de Molinari 12 days in 1876, 10 days in 1880, and 11 days in 1885.
Part of his forward-looking libertarianism was a strong belief in international agreements, in the interests of peace and mutual cooperation. He also blamed the poor quality and high expense of American food, as he perceived it, on American protectionism.
Here is a more general page of relevant material on French liberalism. All via Daniel Klein.
Acemoglu interview with Times of India
Here is part of the segment on AI:
Given the potential for AI to exacerbate inequality, how can we redirect technology?
We need to actively steer technological development in a direction that benefits broader swathes of humanity. This require a pro-human approach that prioritises enhancing worker productivity and autonomy, supporting democracy and citizen empowerment, and fostering creativity and innovation.
To achieve this, we need to: a) Change the narrative around technology, emphasising societal control and a focus on human well-being. b) Build strong countervailing powers, such as labour unions and civil society organisations, to balance the power of tech companies, and c) Implement policies that level the playing field, including tax reforms that discourage automation and promote labour, data rights for individuals and creative workers, and regulations on manipulative digital advertising practices.
Here is the full interview.
Sunday assorted links
What do panda rental contracts look like?
Administrators cannot discuss panda illness, death, disease or “any other important matters” without first consulting with their Chinese partners, whose views “shall be fully respected.”
“In cases where release of related information to the outside world or acceptance of media interviews is necessary, it shall be implemented only after communication and consultation between the parties and a consensus is reached,” the contracts read. “And where no consensus is reached, no news shall be released.”
In a statement, the San Diego Zoo said it was common for partners to discuss animal well-being “and come to a mutual understanding before sharing updates publicly.”
Previous contracts did not contain such “information management” restrictions.
Here is more from Mara Hvistendahl at the NYT, interesting throughout.
Musk on Sharks
A great little video on over-regulation.
Saudi construction project of the day
Saudi Arabia is preparing to begin construction work on its next giga-project: a cube-shaped skyscraper big enough to fit 20 Empire State Buildings.
The Mukaab will be 400-meters on each side when construction is finished, which would make it the largest built structure in the world. The building will be the centerpiece of New Murabba, a community the country hopes will be a new destination within the capital city of Riyadh.
“It’s masquerading as a building today but it’s so much more,” Michael Dyke, chief executive officer of New Murabba, said in an interview. “Ultimately, a capital city the size of Riyadh deserves to have a global, central icon as other capital cities do.”
Here is more from Zainab Fattah at Bloomberg. Here are various images based on artist renderings. Here is further information.