Clearing out the queue, Part 2

Examining the Link Between Science and Economic Growth: It’s all in the title.

Mapping the Yemen Conflict: A fantastic series of graphics explaining the current situation in Yemen. Couple with this primer.

Atlas of the Underworld: In another life I would have been a geologist, so I still love stuff like this: an attempt to map the remains of subducted tectonic plates across the globe.

Building Legal Order in Ancient Athens: Argues that ancient Athens was able to build a robust legal order without a centralized rule of law. Has implications for areas of the world without a tradition of a powerful centralized state; economic growth is often understood to require rule of law, and if rule of law depends upon the state, then it follows that economic growth depends upon the formation of the state. But if rule of law can be developed organically, then centralized institutions may not be necessary for growth.

How to think about Social Identities: Relevant to how to move forward from Democracy for Realists.

The Prehistory of Music: Fascinating discussion about the history and relation between language and music, and human communication more generally. Contains the conjecture that humans are the only animals to follow a beat.

On Being Midwestern: The Burden of Normality: Having split my life between the Midwest and the coasts, there was a lot in this piece that resonated with me.

 

 

Advertisements

My 2017 in Books

Every year I make it a personal goal to read at least 16 books, tracked with the help of goodreads.com. With only a slight bit of cheating (I just finished up the last quarter of a book this first week of 2018), I read 17 books in 2017, and I figure I should reflect on them a bit. Broadly my reading this year fell into three categories: science fiction, history, and society/politics.

Science Fiction

First there was Dan Simmons’ Hyperion and The Fall of Hyperion, which I originally read in maybe middle school. It was interesting to see what pieces of the book I remembered vs what I had completely forgotten. I’d say Hyperion is the better of the two books, but if you don’t like cliffhanger endings you’ll have to read both. I really enjoy the world building and general premise, but I felt a bit let down by the ending. Some of the images in the book are so striking they have stuck with me for nearly two decades.

The other science fiction series I read was the Remembrance of Earth’s Past trilogy, composed of The Three-Body Problem, The Dark Forest, and Death’s End by Chinese author Cixin Liu. This was a really great series, originally published in China about a decade ago and only receiving an English translation in the last couple years. The three books manage to be very different while all telling parts of a larger story of the evolution of humanity after First Contact is made by the Chinese during the Cultural Revolution. They’re definitely worth reading so I don’t want to spoil much, but I do want to note that one thing that is so interesting about them is seeing a non-American’s speculation about how America would behave in this world. For example, in one book there is a character who is mentioned as being Secretary of Defense during America’s invasion of Venezuela. When I first read that, I initially dismissed that as the author not knowing much about US foreign policy; but once I realized the book had been written during the early phase of the Iraq War, I could no longer say it was wholly ridiculous.

Society/Politics

Democracy for Realists: I covered in depth here on this very blog.

The Complacent Class: I always enjoy reading Tyler Cowen, and this book was no exception. While a little lighter than I had hoped, I realize I may not be the book’s intended audience.

Achieving Our Country: This book, by the late philosopher Richard Rorty, was mentioned in a lot of pieces in the wake of Trump’s election thanks to a particular prescient quote about the likelihood of a strongman politician taking power, but that was more of an aside in a book focused on healing the internecine divides on the American Left (which also turned out to be highly prescient!). I had intended to do an in depth review here, and worked quite a bit on it, but could never quite get it to gel as I wanted and abandoned it. I may try to take another crack at it, or at least clean it up and post what I can.

The Fourth Revolution: I was really disappointed in this one. It was written by two Economist writers, and it showed; that’s not bad in itself, but for a book about ‘The Global Race to Reinvent the State’, there was a distinct lack of imagination. There was some good stuff in here, but ultimately I felt let down because their idea of the Fourth Revolution of the state (the first 3 being the creation of the nation state, the creation of the liberal state, and the creation of the welfare state) was just wishy washy arguments that the state would have to become more efficient…and that was about all.

A Colony in a Nation: I thought this was fantastic. I really like Chris Hayes; while he ends up further on the left for many issues than myself, he’s always come across to me as a very thoughtful and self aware commentator. There’s a great anecdote in this book about participating in a police training simulation where he, the liberal MSNBC television host who covered the Ferguson riots in detail, ends up pulling his gun on an unarmed civilian within just a couple minutes. His earlier book, the Twilight of the Elites, probably did a better job of understanding the underlying forces leading to our current political moment than anything else written in the past 6 years, so if you want to be ahead of the curve, this book is essential as well.

The Great Transformation: This book, by Karl Polyani, lies on the boundary between society/politics and history. I’ve seen some describe it as a foundational work for the center-left akin to how Hayek’s ‘The Road to Serfdom” is for libertarians. The main thing I took away from the book is that we have to understand that the transition to a market economy can be a very painful thing for the people living through it. There’s a tendency to look fondly back on the Industrial Revolution as an era of great opportunity that pulled people away from the countryside into the cities, but Polyani reminds us that the actual history is much messier; in England a series of laws were passed that essentially forced people off their lands and into the cities to participate in the new economy. While interesting, you could probably get away with just reading a few chapters to get the most important ideas.

History

SPQR: An excellent single volume history of Rome that aims to capture all aspects of Roman life, not merely a chronology of rulers. One idea in here that has stuck with me is this concept of the proto-bureaucracy present in the early Imperial period. That is, the Emperor could not just do whatever they wanted; in many ways they were mostly administering the state, ensuring that it was running effectively. Certainly Rome did not possess a large and robust bureaucracy in the way we do, but there were the beginnings of one, and it seemed to be important for the functioning of the wider Roman economy.

Free Soil, Free Labor, Free Men: By historian Eric Foner, this is a classic work that I found fascinating, and was all the more illuminating to read after Democracy for Realists. This work tells the story of the formation of the Republican Party – the last time in American history that a new major party has been created. Before this book, I held the vague impression that Republicans were basically rebranded Whigs, but Foner shows this is not at all the case. Recall that Democracy for Realists argues that much of democratic politics is based around identity concerns, not policy preferences in and of themselves. So what was able to unite disparate interests under the Republican banner? How was such a coalition assembled?

Before the Storm: A compelling narrative of the 1964 election. I wrote a little bit about it previously.

The Great Upheaval: Another narrative history, by Jay Winik. The author has a real gift for engaging prose; usually I like a little more economic and sociological interpretation of historical events rather than a focus on individuals, but Winik is so good at transporting you across time and space that I didn’t mind much. It’s just a great history, though I don’t fully buy the claims that the era of 1788-1800 was ‘the’ turning point to the modern world. Take that with a grain of salt, and enjoy being transported to a world that is far more globalized than we are used to thinking about.

Etc:

Steppenwolf: I suppose I could have stuck this under science fiction, given its somewhat magical aspects, but this 1927 novel, like all of Herman Hesse’s work, stands apart. Hesse is an interesting author, and his books have the virtue of brevity; I’d recommend reading at least one in your lifetime.

Clearing out the queue

Having been preoccupied the last few months, I’ve accumulated quite a pile of links that I never got around to writing anything about. Rather than forget about them entirely, I want to try to at least write a little bit about them.

Five questions for Hal Varian: This is an abridged transcript of a podcast interview with Hal Varian, author of a classic economics math text and currently Google’s chief economist.

A Brief History of the Corporation: I haven’t fully digested this but I’ve gotten interested in the history of firm organization and this seems to do a good job. It can be easy to forget that the corporation had to be invented; as such, it could be that in the future, other modes of organizing economic activity may be more productive.

The General Social Complexity Factor: Discusses one of my favorite maps, the Inglehart-Welzel cultural map of the world, its relation to population history, and more generally argues for the use of more quantitative methods in history, which I am absolutely down with.

Mini-Trumps are coming up all over Europe: A short interview with Francis Fukuyama, along the lines of a previous article I wrote about here.

How Starcraft Tournament Unlocks Future of AI: I think developments in AI with gaming are underreported and suggest the potential for huge advances. The biggest example here is of course AlphaGo, the most recent iteration of which was able to completely learn and master the games of Go and Chess merely by playing against itself for a period of a few hours. Mastery of Starcraft would represent another level of abstract reasoning.

The Disney-Fox merger: I have a philosophical tension I need to resolve: on the one hand, I think the current intellectual property regime is very poorly used, and I’m very skeptical of the usefulness of patents. In particular, I think extended copyright timeframes for artistic creations like music, stories, and characters, is unnecessary and probably harmful for long term creativity. On the other hand, the very driving force behind the eternal extension of copyright, Disney, which is accused of possessing monopoly power with its impending acquisition of Fox, has been putting out really high quality stuff of late. In 2016 alone, Disney released Moana, Zootopia, and a live action Jungle Book remake, all of which are very high quality. Disney has mostly let its acquired studios like Pixar, Marvel Studios, and Lucasfilm do their own thing and release generally high quality films. Anyone with a toddler and a Netflix account knows that there is a lot of plain crap out there when it comes to children’s entertainment. So this doesn’t appear to be a simple smash and grab corporate maneuver, with a large company buying out smaller competitors and draining them of their lifeforce in search of greater profits; I suspect that in a world of easy access to entertainment, quality matters much more than it used to, and it could be that bigger studios are in a better position to deliver that.

Related to that is this blogpost on the message of Moana, which I found a rather striking inversion of the usual hero’s journey story; the post also features the idea of Tyler Cowen. Can we just pause to think how great it is that we have a giant corporation producing commercial content featuring messages of diversity, understanding, and non-complacency?

18 Signs You’re Reading a Bad Criticism of Economics: This is older but still highly relevant, particularly number 6: “Uses the word ‘neoliberal’ for any reason.”

I’m not sure how to summarize ‘Imagine All the Virtues‘ other than to say it’s a discussion of the need for practical ethics and morality in society, contra idealized versions; featuring a guest appearance of the classic Star Trek: TNG episode “Darmok”.

I thought these colorized math equations were really neat and helpful. I’ve always been able to do math without much problem, but as I’ve gotten deeper into economics I’ve wanted to get a stronger intuition into how lots of these equations work.

And along those lines, I recently discovered this playlist of videos on Linear Algebra, and it’s no exaggeration to say this has been more helpful to me than any math class I have ever taken. If I ever have to teach linear algebra, you can bet these videos will be assigned.

What’s going on with cryptocurrencies?

As the price of Bitcoin and other digital currencies have skyrocketed over the past year, many have wondered just what is going on? Why is demand for cryptocurrencies so high? Indeed, the return to investment in many cryptocurrencies is high enough that the chipmaker AMD has seen its stock price almost double over the past year because coin ‘miners’ are buying chips en masse to create massive complexes of servers doing nothing but ‘mining’ coins! (Story here.)

Economist John Cochrane argues that what is driving the price of these currencies is a combo of their ‘convenience yield’ and ‘speculative’ yield. Why would anybody hold a currency that is far above its ‘real’ value? Well, Bitcoin is good for holding for short terms when performing transactions you don’t want monitored. But with a limited supply of Bitcoins (or Etherium, or whatever), the price gets driven up via basic supply and demand. Add to that the desire to make a quick buck in the face of ever rising prices, and the behavior of these prices makes sense; it doesn’t require any sort of strange irrational herding of investors. (As Walter E. Williams is fond of saying, any theory that relies on human stupidity isn’t a very good theory at all.)

 

The Republican Tax Plan

There’s been quite a bit of hyperbole, at least in the areas of the Internet I typically find myself in, regarding the Republican tax plan, that end up conflating a two separate issues: the substance, and the process.

Process complaints are totally legitimate and if this is the way bills are crafted and passed going forward, we will be in real trouble as a country. As many have noted, it’s almost as if the GOP took all of their complaints about the ACA process and used them as a guidebook for how to pass a bill. The rush to pass something was driven totally by political concerns. What’s most perplexing to me is why they didn’t take some off the shelf tax plan from a conservative think tank and pass that, instead of hastily assembling a barely coherent, at times handwritten, plan. Part of the reason the ACA was able to pass after only a year of process was that much of it was already written; that’s what think tanks are for.

In terms of substance of the bill: we don’t yet know how exactly it will all shake out, so it’s a bit premature to say. My sense from reading economists I generally trust is that the bill isn’t great, but it’s not going to destroy the economy either. Here too two issues are conflated: the deficit the bill runs, and what the bill does with that deficit.

Many on the left were highlighting the deficit as the major problem with the plan, which just seems like motivated reasoning to me. Right now we are still in a very low interest rate environment, so debt service is low. Deficits in and of themselves are not bad; they simply reflect a shifting of consumption across time; borrow to spend today, and pay back tomorrow. If the economy is growing at a rate higher than the interest rate, you can run deficits with little fear; that’s about where we’re at now.

The real problem lay in how the deficits are used: Josh Barro has a rundown of the plan, and Tyler Cowen lays out his broader thoughts here, and I want to expand on a couple things in that piece. Tyler writes that the GOP and Trumpist agendas are related in that they are focused on investment – the GOP domestically, and Trumpists internationally. The idea goes that America needs a big boost to investment to stimulate growth. It certainly could be true in some situations that growth would result from greater capital investment, but is that the situation we’re in?

So I used FRED to put together a few graphs of foreign direct investment in the US. Here’s just the inflow per year in millions of dollars; you can see a seeming jump to a higher level of investment since about 2015. (Also note the mid 90s inflows thanks to the tech boom.)

fredgraph (2)

The pattern is seen more clearly seen here, in the percent change from a year ago of the total stock of FDI in the US. Each data point is per quarter.pctchange

And the log of the total stock of FDI:loglevel

So overall, we can see that FDI has actually been quite large already in the last couple years, especially compared to the post- tech boom era. This boom began in about 2015 (and so has nothing to do with Trumpist policy), and may have even ended as the last couple quarters of data suggest.

So while there could be something to the argument that we need to boost FDI, it’s obvious that it has already been at elevated levels compared to the historic norm; this is to say nothing of the actual efficacy of a 20% corporate tax in drawing in new investment (and hence more American economic growth). You’d have to imagine that there is a fairly large pool of global capital that is currently not being invested in the largest economy in the world because of the too high tax rate (despite an effective rate closer to global average). I’m rather skeptical of that.

Additionally, Trumpist efforts to reduce the trade deficit will have an opposite effect on foreign investment. After all, when a country runs a trade deficit, that means other countries are instead of purchasing US goods and services either 1) holding our currency or 2) using it to buy American financial products, which is investment! So actually, these two agendas may be running at cross purposes.

More on Housing Regulation

Tyler Cowen links to a piece in Dissent that criticizes the growing movement of anti-NIMBYism. The piece is specifically critical of Hsieh and Moretti’s research, which I previously wrote about here. While it generally attempts to be serious, my alarm bells go off anytime someone deploys the phrase ‘neoliberal agenda’.

The Dissent author’s chief argument here, beyond some nitpicking that’s not really that important, is this: markets do not provide enough affordable housing because it doesn’t get the rate of return that other investments do, therefore government must subsidize the creation of low rent housing.

Of course, this argument could be true under certain conditions…such as an excessive regulatory burden on land use development! If only a few new housing units can be added, of course developers will build to get the highest return, which will be more expensive housing. But even then, the new, expensive housing of today is tomorrow’s older cheaper housing; and when new units are built, yesterday’s housing becomes a little less desirable and a little cheaper, all else constant.

But of course, that’s not what this author, or others on the left critical of the anti-NIMBY movement, have in mind. Really it’s a baffling argument; imagine applying this logic to other areas of the economy:

Markets do not provide enough affordable coffee because it doesn’t get the return that artisinal coffee does, therefore the government must subsidize the creation of cheap coffee.

Markets do not provide enough affordable jackets because capital can get a higher return investing in Uggs, therefore the government must require jacketmakers to sell some jackets at a loss making price.

Or a another example: I remember reading someone argue awhile back, during one of the news cycles about the increases in pharma drug prices, that this was prime evidence of the failure of the market. Look, the argument went, this crucial lifesaving drug produced by a private firm, that actually only costs a few cents to manufacture, has had its price increased by hundreds of dollars! The free market is killing us!

But it’s not! The pharmaceutical market is under heavy government regulation that makes it very difficult for new firms to enter. If the pharmaceutical market were truly open and competitive, it would be trivial for a new firm to step in and start manufacturing that drug at its ‘true’ cost. That’s simply not possible under current FDA regulations; that isn’t to say such regulations are ‘bad’ (there’s an argument for quality control, for example) but to imagine they don’t have any costs or side effects is flawed reasoning.

The housing market is rife with such regulations, and to imagine that this has no effect on the nature of the housing supply is just crazy. Even something as seemingly banal as minimum room size has a distortionary effect: surely there are some people who would, at some price, prefer a 60 square foot room to sleeping on the street; but they will be forever priced out of the market because regulation forbids building a habitable room that small.

Maybe what this gets at, and this is something on the left that often bothers me, is this idea that there is a minimum standard of whatever that everybody is entitled to. For instance, everybody should have, at least, a room of a certain size with private bath and kitchen. Everybody deserves a phone with at least 8 GB of RAM, because it’s just a better experience! But of course, some people don’t want all of that, and would rather have had something else with the resources that were wasted. If it’s part of the neoliberal agenda to better align people’s wants with what is available to them, then sign me up. I would rather have more people living in ‘poor quality’ housing in a city with better job opportunities than living in higher quality housing in a place with less desirable jobs.

 

Quantum Ethics

Just came across this brilliant post via a comment thread at SlateStarCodex: The Copenhagen Interpretation of Ethics.

The gist:

The Copenhagen Interpretation of Ethics says that when you observe or interact with a problem in any way, you can be blamed for it. At the very least, you are to blame for not doing more. Even if you don’t make the problem worse, even if you make it slightly better, the ethical burden of the problem falls on you as soon as you observe it. In particular, if you interact with a problem and benefit from it, you are a complete monster. I don’t subscribe to this school of thought, but it seems pretty popular.

This is dead on right, and once you know to look for it, you see it everywhere.