The economics of density: evidence from the Berlin Wall
From Ahfeldt, Redding, Sturm,and Wolf:
The Berlin Wall provides a unique natural experiment for identifying the key sources of urban development. This research, for which its authors have recently been awarded the prestigious Frisch Medal, shows how property prices and economic activity in the east side of West Berlin, close to the historic central business district in East Berlin, began to fall when the city was divided; then, during the 1990s, after reunification, the same area began to redevelop. Theory and empirical evidence confirm the positive relationship between urban density and productivity in a virtuous circle of ‘cumulative causation’.
Via the excellent Samir Varma.
Thursday assorted links
2. Bahamas guitarist Joseph Spence (New Yorker).
3. Those new service sector jobs: intimacy directors.
4. Robot peers.
5. Nearly half of the mud volcanoes of the world are located in Azerbaijan.
What should I ask Bruno Maçães?
I will be doing a Conversation with him. Bruno is the author of Dawn of Eurasia: On the Trail of the New World Order, published earlier in the United Kingdom but just now in the United States. It is one of the essential reads of the last few years and was last year a tied favorite for my “Book of the Year.”
On the book:
Well, it turns out there is a book explaining all the recent, strange events in China, Russia, Turkey and the European Union
Here is his excellent recent piece on what the West is becoming, and why. I also have read he is currently writing a book on China’s “One Belt, One Road.”
On Bruno, here is one bit from Wikipedia:
Bruno Maçães is a Portuguese politician, political scientist, business strategist, and author. He studied at the University of Lisbon and Harvard University, where he wrote his doctoral dissertation under Harvey Mansfield. He is currently a Nonresident Senior Fellow at Hudson Institute in Washington.
My Conversation with Bruno is in fact one reason why I took my August trip to Kiev and Baku — what better and indeed necessary way to prepare for a discussion of Eurasia?
So what should I ask him?
Why statistical discrimination is higher than is either socially optimal or Bayesian rational
Let’s say there is only a mild amount of statistical discrimination in a system. Not prejudice, just a social judgment that some groups are more likely to succeed at some tasks than others. Most people, for instance, do not expect women to reach the NBA, but I would not from that conclude they are prejudiced.
But now introduce a further assumption. There are multiple layers of evaluation, and at each layer people, and institutions, wish to be seen as successful talent spotters, mentors, and coaches. High schools wish to promote students who will get into good colleges. Colleges wish to invest in students who will get into best grad schools, or get the best jobs. Firms wish to hire workers who will rise to CEO, even if elsewhere. And so on. Let’s say there are ten levels to this “game.”
Each level will apply its own “statistical discrimination” tax, whether intentionally or not. Say for instance there is (mild) statistical discrimination against women at the CEO level. Firms that wish to hire and promote future CEOs will be less likely to seek out women to hire, including at lower levels. This may or may not be conscious bias; for instance the firms may decide to look for certain personality traits that, for whatever reason, are harder to find in women. They’ll simply be making decisions that give them plaudits as good talent spotters.
Colleges will then consider similar factors in their decisions. And so will high schools. And so on. In equilibrium, all ten levels of the game will levy a partial “statistical discrimination tax,” with or without conscious bias in thee discriminatory direction.
Does this sound familiar? It is a bit like the double/multiple marginalization dilemma in microeconomics. The number of discrimination taxes multiplies, at each level. Just like the medieval barons put too many tolls on the river. All of a sudden the initially mild statistical discrimination isn’t so mild any more, due to it being applied at so many veto-relevant levels. (As you will recall from the double marginalization problem, each supplier does not take into account the effect of his/her mark-up or tax on the gains from trade elsewhere in the system.)
So say the “Bayesian rational” level of statistical discrimination is a five percent discount. You can get far more than that as the actual effective tax on the disadvantaged group, with everyone in the system behaving in a self-interested manner.
And of course these taxes will discourage effort from the disadvantaged groups, to the detriment of efficiency and also justice.
I am indebted to Anecdotal for a useful query related to this discussion.
Wednesday assorted links
1. American doctors are too educated.
2. Bloomberg column by me on Trump and ideas.
3. “Academia is a temple of dopamine.” Link here, by the way I don’t agree with this. And LambdaSchool. They teach you skills, and get a small share of your future earnings.
4. My Sept.19 Conversation with Eric Schmidt, in San Francisco, apply for an invite at the link.
5. Lee Ohanian and Hoover have a new blog, California on Your Mind.
6. “Now the Wisconsin Agricultural Tourism Association says Wisconsin has at least 150 “event barns.”” Yet regulation is on the march: “Some wedding websites caution brides to make sure their dream barn venue is safe and won’t be shut down before their big day. There are fears that old barns could collapse under the weight of dancing guests, injuries could be easy (think rusted nails and uneven boards), and fire can spread quickly without proper renovations and safety precautions. They may not be handicapped accessible and may not meet up-to-date building codes.”
My Conversation with Michael Pollan
I was very happy with how this turned out, here is the audio and transcript. Here is how the CWTeam summarized it:
Michael Pollan has long been fascinated by nature and the ways we connect and clash with it, with decades of writing covering food, farming, cooking, and architecture. Pollan’s latest fascination? Our widespread and ancient desire to use nature to change our consciousness.
He joins Tyler to discuss his research and experience with psychedelics, including what kinds of people most benefit from them, what it can teach us about profundity, how it can change your personality and political views, the importance of culture in shaping the experience, the proper way to integrate it into mainstream practice, and — most importantly of all — whether it’s any fun.
He argues that LSD is underrated, I think it may be good for depression but for casual use it is rapidly becoming overrated. Here is one exchange of relevance:
COWEN: Let me try a very philosophical question. Let’s say I could take a pill or a substance, and it would make everything seem profound. My receptivity to finding things profound would go up greatly. I could do very small events, and it would seem profound to me.
Is that, in fact, real profundity that I’m experiencing? Doesn’t real profundity somehow require excavating or experiencing things from actual society? Are psychedelics like taking this pill? They don’t give you real profundity. You just feel that many things are profound, but at the end of the experience, you don’t really have . . .
POLLAN: It depends. If you define profundity or the profound as exceptional, you have a point.
One of the things that’s very interesting about psychedelics is that our brains are tuned for novelty, and for good reason. It’s very adaptive to respond to new things in the environment, changes in your environment, threats in your environment. We’re tuned to disregard the familiar or take it for granted, which is indeed what most of us do.
One of the things that happens on psychedelics, and on cannabis interestingly enough — and there’s some science on it in the case of cannabis; I don’t think we’ve done the science yet with psychedelics — is that the familiar suddenly takes on greater weight, and there’s an appreciation of the familiar. I think a lot of familiar things are profound if looked at in the proper way.
The feelings of love I have for people in my family are profound, but I don’t always feel that profundity. Psychedelics change that balance. I talk in the book about having emotions that could be on Hallmark cards. We don’t think of Hallmark cards as being profound, but in fact, a lot of those sentiments are, properly regarded.
Yes, there are those moments you’ve smoked cannabis, and you’re looking at your hand, and you go, “Man, hands, they’re f — ing incredible.” You’re just taken with this. Is that profound or not? It sounds really goofy, but I think the line between profundity and banality is a lot finer than we think.
And:
COWEN: I’ve never myself tried psychedelics. But I’ve asked the question, if I were to try, how would I think about what is the stopping point?
For my own life, I like, actually, to do the same things over and over again. Read books. Eat food. Spend time with friends. You can just keep on doing them, basically, till you die. I feel I’m in a very good groove on all of those.
If you take it once, and say you find it entrancing or interesting or attractive, what’s the thought process? How do you model what happens next?
POLLAN: That’s one of the really interesting things about them. You have this big experience, often positive, not always though. I had, on balance . . . all the experiences I described in the book, with one notable exception, were very positive experiences.
But I did not have a powerful desire to do it again. It doesn’t have that self-reinforcing quality, the dopamine release, I don’t know what it is, that comes with things that we like doing: eating and sex and sleep, all this kind of stuff. Your first thought after a big psychedelic experience is not “When can I do it again?” It’s like, “Do I ever have to do it again?”
COWEN: It doesn’t sound fun, though. What am I missing?
POLLAN: It’s not fun. For me, it’s not fun. I think there are doses where that might apply — low dose, so-called recreational dose, when people take some mushrooms and go to a concert, and they’re high essentially.
But the kind of experience I’m describing is a lot more — I won’t use the word profound because we’ve charged that one — that is a very internal and difficult journey that has moments of incredible beauty and lucidity, but also has dark moments, moments of contemplating death. Nothing you would describe as recreational except in the actual meaning of the word, which is never used. It’s not addictive, and I think that’s one of the reasons.
I did just talk to someone, though, who came up to me at a book signing, a guy probably in his 70s. He said, “I’ve got to tell you about the time I took LSD 16 days in a row.” That was striking. You can meet plenty of people who have marijuana or a drink 16 days in a row. But that was extraordinary. I don’t know why he did it. I’m curious to find out exactly what he got out of it.
In general, there’s a lot of space that passes. For the Grateful Dead, I don’t know. Maybe it was a nightly thing for them. But for most people, it doesn’t seem to be.
COWEN: Say I tried it, and I found it fascinating but not fun. Shouldn’t I then think there’s something wrong with me that the fascinating is not fun? Shouldn’t I downgrade my curiosity?
POLLAN: [laughs] Aren’t there many fascinating things that aren’t fun?
COWEN: All the ones I know, I find fun. This is what’s striking to me about your answer. It’s very surprising.
W even talk about LSD and sex, and why a writer’s second book is the key book for understanding that writer. Toward the end we cover the economics of food, and, of course, the Michael Pollan production function:
COWEN: What skill do you tell them to invest in?
POLLAN: I tell them to read a lot. I’m amazed how many writing students don’t read. It’s criminal. Also, read better writers than you are. In other words, read great fiction. Cultivate your ear. Writing is a form of music, and we don’t pay enough attention to that.
When I’m drafting, there’s a period where I’m reading lots of research, and scientific articles, and history, and undistinguished prose, but as soon as I’m done with that and I’ve started drafting a chapter or an article, I stop reading that kind of stuff.
Before I go to bed, I read a novel every night. I read several pages of really good fiction. That’s because you do a lot of work in your sleep, and I want my brain to be in a rhythm of good prose.
Defininitely recommended, as is Michael’s latest book How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression, and Transcendence.
What I’ve been reading
1. David Foenkinos, Charlotte: A Novel. A holocaust escape story, written in a kind of blank verse, this book was a bestseller in many countries but mostly ignored in the United States. Original, recommended, and a quick but compelling read.
2. John Foot, Archipelago: Italy Since 1945. There should be more books like this, namely giving you a smart overview of the recent history of an important country. This one is especially strong on the nature of Italian corruption, the importance of connections in Italy, changes in the Italian education system, and the origins of the Northern League.
3. Holly Case, The Age of Questions. Starting in the early nineteenth century, an “age of questions” began, including the Jewish question, the German question, the Bullion question, and many others: “The essence of the age of questions was the practical accommodation of physical reality to the attitude of interrelation that the age engendered.” Books on abstract themes are often difficult to pull off, but this one expanded my thinking and historical understanding.
My favorite things Azerbaijan
I am arrived in Baku! Here goes:
1. Chess player: Garry Kasparov. Maybe the greatest player of all time? He is not ethnic Azerbaijani, but grew up in Baku.
Teimour Radjabov. It is amazing for how long he has gotten away with playing the King’s Indian Defense at the highest levels of chess competition.
Shakhriyar Mamedyarov. Over the last year, he has had the best results of anyone in the chess world, including Carlsen. His forcing style resembles that of Kasparov.
Vugar Gashimov. He was pretty good too, passed away prematurely in 2014.
Cellist and conductor: Mstislav Rostropovich, born in Baku. His Bach Cello Suites are perhaps my favorite of all extant recordings. Here is one (different) YouTube version. As a conductor he was uneven, but capable of spectacular live performances of Shostakovich.
Pianist: Bella Davidovich, born in Baku, especially her Chopin.
Philosopher: Max Black, also born in Baku. He edited Frege and worked on problems from Leibniz, such as the identity of indiscernibles.
Note that numbers 1, 5, 6, and 7 on this list were Jews who emigrated to America.
Trade deficit fact of the day
The reality is that, well before Trump became president, global trade imbalances were shrinking. Figures from the International Monetary Fund (IMF) show that, as a share of the economy (gross domestic product), the U.S. current account deficit hit a recent peak of 5.8 percent in 2006 and dropped to 2.4 percent by 2017 . The comparable figures for China were 9.9 percent of GDP in 2007 and 1.4 percent in 2017.
That is from Bob Samuelson. Arguably China is already running a trade deficit, especially if you account for the fact that some of their major exports, such as iPhons, are built using an international supply chain, and most of the actual value-added does not come from China (though it solely counts as a Chinese export in the numbers).
Tuesday assorted links
1. People are averse to machines making moral decisions.
2. Declining Chinese productivity growth.
3. Paying the gender stereotype tax in poker.
4. New NBER paper, possible overturning of the Autor, et.al. results on the China shock? I am not able here to read through it, however.
5. “We find that at least 31.2% of the citations to retracted articles happen a year after the article has been retracted. And that 91.4% of these post-retraction citations are approving.” Link here.
Thailand fact of the day
Obesity has reached alarming levels in Thailand, which ranks as the second-heaviest nation in Asia, after Malaysia. One in three Thai men are obese, while more than 40 percent of women are significantly overweight, according to Thailand’s national health examination survey.
Monks are at the forefront of the problem. Nearly half are obese, according to a study conducted by Chulalongkorn University. More than 40 percent have high cholesterol, nearly 25 percent have high blood pressure and one in 10 are diabetic, the study found.
That is from Mukita Suhartono at the NYT.
Kiev notes
The city has some of the best Soviet war memorials, noting that the text at the main Babi Yar monument does not in fact refer to “Jews.” The museums are much better than expected, with at least five worthy of a visit, including the National Museum, the folk art museum, Scythian gold museum, and Russian art museum, and the Khanenko museum.
I am underwhelmed by the economy here, and Kiev is one of the least bustling national capitals I have seen, especially for a country of its size. The distribution of stores and commercial ventures is so thin as to remind me of some parts of San Francisco. Yes, this is August but still the streets feel empty, even in the center of town. Maybe especially in the center of town. The earlier Soviet infrastructure has not been built over, and the basic outline of the city does not yet feel “post-reform.”
Poland and Ukraine had about the same per capita gdp in 1992, but now Poland’s is three times higher. Even Russian wages are twice as high. The Ukrainian economy has shrunk 17.8% since 2008, and that is not even counting the loss of territory, which still counts statistically as part of Ukrainian gdp.
Markers of the new, post-2014 Ukrainian nationalism are seen frequently, and the use of the Russian language is actively discouraged.
There is a brand or chain of Karaoke parlors called “MAFIA Karaoke.”
Unlike some parts of Moscow, there are few signs of a rip-off culture here with respect to tourists. The citizenry is unfailingly helpful when possible, though short answers are hard to come by. People in random encounters seem quite willing to give all sorts of (wordy) advice as to what you should be doing and why.
Japanese restaurants are more common than Chinese. After Italian, there is not much culinary diversity to be seen, but the Georgian restaurants are among the best in the city. As for a single recommendation, Kanapa [Kanape] for “nouvelle Ukraine” would be my clear first pick, and it is on a picturesque street with many folk art stalls.
If two people each order bottles of mineral water, they will not open one bottle for each person. Instead, they induce you to first share the first bottle, and then the second, in sequence. Thus the water is not efficiently conserved.
It is remarkable how many different restaurants serve their chocolate ice cream with a basil leaf on top.
*La Classe Compiaciuta*
Monday assorted links
1. Interview with philosopher Galen Strawson.
2. “Rebellion is a determinate negation of the social order. Unruliness is its indeterminate negation.” Recommended.
4. The electoral sway of the Great Depression was quite limited. Prohibition was a bigger factor.
5. The world’s greatest reader? (NYT)
6. Amazon page for the forthcoming Brad DeLong book, self-recommending.
The decline of private ownership in America
That is the topic of my latest Bloomberg column,. After a discussion of Spotify, Netflix, Kindle, and Uber, I move to the more general point:
Each of these changes is beneficial, yet I worry that Americans are, slowly but surely, losing their connection to the idea of private ownership. The nation was based on the notion that property ownership gives individuals a stake in the system. It set Americans apart from feudal peasants, taught us how property rights and incentives operate, and was a kind of training for future entrepreneurship. Do we not, as parents, often give our children pets or other valuable possessions to teach them basic lessons of life and stewardship?
We’re hardly at a point where American property has been abolished, but I am still nervous that we are finding ownership to be so inconvenient. The notion of “possessive individualism” is sometimes mocked, but in fact it is a significant source of autonomy and initiative.
And as software continues to “eat the world,” we often have fewer ownership rights when it comes to revisions, upgrades, and repairs. The piece closes with this:
Does that sound like something our largely agrarian Founding Fathers might have been happy about? The libertarian political theorist might tell you that arrangement is simply freedom of contract in action. But the more commonsensical, broad libertarian intuitions of the American public encapsulate a more brutish and direct sense that some things we simply own and hold the rights to.
Those are intuitions which are growing increasingly disconnected from reality, and no one knows what lies on the other side of this social experiment.
Do read the whole thing.
