Monthly Archives: April 2019

Talent matters

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Sam Walker writes,

What no one saw coming, however, was the sheer size of that correlation—something Gallup calls “the single most profound, distinct and clarifying finding” in its 80-year history. The study showed that managers didn’t just influence the results their teams achieved, they explained a full 70% of the variance. In other words, if it’s a superior team you’re after, hiring the right manager is nearly three-fourths of the battle.

You can see where that would make sense. If you have a boss that people want to work for, then you’ll have a good staff. If you have a boss that turns people off, the good people will leave and you’ll be left with people who can’t or won’t go elsewhere.

Lyndon Johnson and Donald Trump

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I thought of this last week when I was sitting at dinner and heard everyone there disparage President Trump. I was bothered by my own silence. Here is what I might say next time this happens.

Have you ever studied the character of President Lyndon Johnson? It is pretty clear that he was deeply corrupt, a raging tyrant, and suffering from personality disorders. If you are familiar with Lyndon Johnson, I think that you would be hard pressed to make a convincing case that his personal qualities compare favorably to President Trump’s.

So why are people so much harder on Mr. Trump than on Mr. Johnson? Here are my thoughts, in order of importance.

1. The media environment is different. If we could transport today’s media back to the 1960s, everyone would be keenly aware of Johnson’s cruel temper and ruthless use of power. The journalists and Washington insiders who found Johnson a frightening figure would be much more outspoken and their scary anecdotes would receive much more attention.

2. We know that we survived the Johnson Presidency, but the Trump Presidency is not over, so we are not so sure. Note that I would not say that Johnson’s flaws were without consequences. If you think he managed ok in spite of his personality defects, then come to D.C. some time and let me show you a black granite wall with a bunch of names carved into it.

3. Johnson was a Democrat, and he espoused progressive ideals. As with President Trump, President Johnson had (and still has) a lot of people who were willing to overlook his character because of what he stood for.

4. The culture is more strident now. Back then, people did not expect to be able to “call out” someone and make them unacceptable.

Supposedly clever statistical analysis

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Russ Roberts writes,

It would be tempting to say that this is just a working paper. Perhaps it will get no traction. But I doubt it. The Becker-Friedman Institute will spread it around — I only knew about the study because the Institute sent me an email. The media will be eager to repeat the finding because people have strong feelings about Uber and Lyft: “U of Chicago Study Finds Ridesharing Kills 1000 People Each Year.” Taxicab owners and their supporters will cite it.

The fact is that economists are almost always doing observational studies, not experiments. At the very least, economists should make more use of the Hill Criteria.

  • Strength (effect size): A small association does not mean that there is not a causal effect, though the larger the association, the more likely that it is causal.
  • Consistency (reproducibility): Consistent findings observed by different persons in different places with different samples strengthens the likelihood of an effect.
  • Specificity: Causation is likely if there is a very specific population at a specific site and disease with no other likely explanation. The more specific an association between a factor and an effect is, the bigger the probability of a causal relationship.
  • Temporality: The effect has to occur after the cause (and if there is an expected delay between the cause and expected effect, then the effect must occur after that delay).
  • Biological [or economic] gradient: Greater exposure should generally lead to greater incidence of the effect. However, in some cases, the mere presence of the factor can trigger the effect. In other cases, an inverse proportion is observed: greater exposure leads to lower incidence.
  • Plausibility: A plausible mechanism between cause and effect is helpful (but Hill noted that knowledge of the mechanism is limited by current knowledge).
  • Coherence: Coherence between epidemiological and laboratory findings increases the likelihood of an effect. However, Hill noted that “… lack of such [laboratory] evidence cannot nullify the epidemiological effect on associations”.
  • Experiment: “Occasionally it is possible to appeal to experimental evidence”.
  • Analogy: The effect of similar factors may be considered.
  • Some authors consider also, the Reversibility: If the cause is deleted then the effect should disappear as well

Many of Russ’ criticisms of the paper can be mapped back to some of these criteria.

High-impact geeks

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Tyler Cowen quotes from Clive Thompson’s new book on high-impact geeks.

The 10Xers he [Marc Andreessen] has known also tend to be “systems thinkers,” insatiably curious about every part of the technology stack, from the way currents flow in computer processors to the latency of touchscreen button presses. “It’s some combination of curiosity, drive, and the need to understand. They find it intolerable if they don’t understand some part of how the system works.”

1. I have argued before that CEOs with a coding background have an advantage. You make better decisions when you understand how software development works.

2. In 1989, when I was at Freddie Mac in charge of developing simulation models for calculating the cost of mortgage prepayment and default risk, I first taught myself option pricing and understood the importance of the entire path of interest rates over the life of a mortgage. Also, one of the first decisions concerned a programming language. We went with C, in large part because the investment bankers were working with C. But first I had to teach myself C and do some of the coding myself, to make sure that it “felt” right.

3. In 1994, when I launched my Internet business, I had an understanding of the economics and basic operation of the Internet, based on the working-paper version of Hal Varian and Jeffrey K. MacKie-Mason’s analysis and Ed Krol’s Whole Internet Catalog. I also launched it when I was very high in personal Minsky cycle, basically conceiving the first version in a single sleepless night.

4. When Netscape introduced server-side JavaScript, I learned that. I started a local “users’ group” for the Netscape server, and I found a software developer at that users’ group.

5. He was even more into understanding “every part of the technology stack” than I was. In those days, nothing was reliable. The typical Windows computer crashed several times a day. Browsers were poorly implemented. The Internet itself was not all that reliable. Server software was often unreliable. Many web sites relied on Perl scripts, which someone once aptly described as looking like comic-strip curse words, so that they were nearly impossible to modify or debug.

6. When Java was released, I took a course in it, so that I would understand it. I formed the opinion that it would be more useful on the server side than on the client side. This was fortunate, because the Netscape server was a disaster, and when the Java Web server was released as a beta product, we went with it, and it was much more stable. I continued to code, even though my net contribution was close to zero (my developer had to spend time fixing some of what I wrote). Again, I needed to have a feel for everything, so that I could understand the decisions he was making. We got the point where every page we served was assembled on the fly by pulling elements out of a database.

7. In 2008, when the financial crisis hit, I coined the phrase “suits vs. geeks divide.” I could tell that some of the central players, including executives at large financial institutions and the leading policy makers, did not understand the behavior of options that I learned about in (2). The suits did not know what they were doing. They enacted TARP, an $800 billion program, under the assumption that you could just buy up the bad mortgage securities and hold them for a while. I knew that this was not the case, and after a few months they gave up.

8. About five years ago, I tried another start-up. I wanted to do some of the coding myself this time. But I did not understand how much the software world had changed. It seems to be all about stitching together different packages. I was too much of a dinosaur.

Anyway, I hope that the book is as interesting as Tyler says it is.

Off topic: real baseball

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1. I wrote off the Washington Nationals* in the bottom of the 7th inning of their first game. Down a run, they let the starting pitcher bat. That told me how little confidence they have in their bullpen. A very bad sign.

*not the team that I root for. I did grow up in the St. Louis area, where the fans understand and appreciate baseball.

2. How similar are the Nats to the 1965 Dodgers? Like those Dodgers, the Nationals appear to have three main starting pitchers and one top-flight reliever. Statistically, the Nationals have better hitters, but if they played in Dodger stadium (as well as the other parks that prevailed in 1965) with the pitcher’s mound at 1965 levels and the ball with 1965 aerodynamics, those differences might narrow considerably.

But the reason that the 1965 Dodgers won 97 games and went to the World Series (which they took in 7 games) is that they got most of their innings pitched from their four best pitchers. Apart from Koufax, Drysdale, Osteen, and Perranoski, the Dodgers needed other pitchers to account for only 442 of their 1476 total innings. That is 48 games’ worth.

If you assume the same number of total innings and that Scherzer, Strasburg, Corbin, and Doolittle each pitch the same number of innings as they did last year, the other pitchers on the Nats will have to account for 881 innings. That is 98 games’ worth. If you figure that your best pitchers give you a 2/3 chance of winning and the rest give you only a 1/3 chance, then the Nats will not even win 80 games. They would win 100 if their best pitchers could match the innings of the 1965 Dodgers.

I suspect that the Nationals’ problem is organizational. I don’t believe that the organization is very smart. Although Bryce Harper is hard to replace (his personality seems childish, but he is a darn good hitter), other organizations would have the depth of quality players to carry on.

3. If you want to speed up the game, bring back Bob Gibson. He would not let the catcher or the manager come to talk to him on the mound. If a batter took too much time getting ready, Gibson would hit him with a pitch. He got his business done. When Gibson was pitching, you could go to a game on a school night, and even if it took 45 minutes to get home afterward, you could be asleep by 11.

4. If you want to improve the game, I continue to say use a slightly larger baseball. This would have a higher drag coefficient, making it harder to hit out of the park. It would be harder for pitchers to grip, reducing the velocity of fastballs and the spin on breaking pitches.

Pitchers would find it harder to get strikeouts but easier to keep the ball in the park. They could throw more strikes to most hitters, knowing that it is harder to hit a home run. Pitch counts would come down, because the first hit-able pitch would be put in play more often. That might reduce the need to change pitchers so often.

Hitters would find it easier to make contact and harder to hit home runs. They could more easily hit to the opposite field, beating the shift.

I don’t know whether the net result would favor offense of defense (you can always tweak that by expanding or contracting the strike zone). It would definitely favor more balls in play. That would make the game at least seem to go much faster.

Internet culture and legacy culture

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Tyler Cowen writes,

In the internet vs. culture debate, the internet is at some decided disadvantages. For instance, despite its losses of mindshare, culture still holds many of the traditional measures of status. Many intellectuals thus are afraid to voice the view that a lot of culture is a waste of time and we might be better off with more time spent on the internet. Furthermore, many of the responses to the tech critics focus on narrower questions of economics or the law, without realizing that what is at stake are two different visions of how human beings should think and indeed live. When that is the case, policymakers will tend to resort to their own value judgments, rather than listening to experts. For better or worse, the internet-loving generations do not yet hold most positions of political power (recall Zuckerberg’s testimony to Congress).

For a different perspective, Jordan Hall writes,

the dynamic of Culture War 2.0 shows up as one of intense fragmentation and disorientation, where none of our 20th Century techniques for generating social coherence stand up to the rapidly changing reality. From this level, the experience will likely be one of increasing chaos in all aspects of culture, society and individuality. If you are running a 20th Century sensemaker, it will feel like a descent into some flavor of madness.

Is Hall’s essay an insightful piece or a word salad? Maybe a bit of both. He links to a somewhat more digestible essay, by Peter Limberg and Conor Barnes.

We define a culture war as a memetic war to determine what the social facts are at the core of a given society, or alternatively, to determine society’s boundaries of the sacred and the profane. Political arguments have become indistinguishable from moral arguments, and one cannot challenge political positions without implicitly possessing suspect morals. This makes politics an exhausting and unproductive game to play, and it makes the culture war intractable.

What I take away from the latter two essays is that our culture is splintering. If our political system reflected this, then we would have many small parties.

Politics used to consist mostly of negotiation about interests. The legacy political parties used to be coalitions. Members with somewhat divergent interests were willing and able to work together and aim for common objectives. The median voter model was in force.

Today, politics is about cultural identity. That is not something that is negotiable. It does not lend itself to coalition politics.

Going back to Tyler’s post, I think that the denizens of legacy culture are not equipped to deal with the fragmentation that the Internet has wrought. So I think they are mostly at a disadvantage.

Another commenter’s question: Nixon vs. Trump

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The questions:

Why was Watergate such a big deal? I’m no expert, but it seems like a relatively mild level of corruption compared to what I see generally?

Was Nixon a popular and successful president? His electoral results blow my mind sometimes, 520 electoral votes in 1972! Why did he fall from grace? Did he deserve it?

Watergate created a problem because of what it exposed about the atmosphere inside the Nixon inner circle. I believe that this was when the saying “It’s not the crime. It’s the cover-up” became established. Beyond the Watergate burglary itself, Nixon had a group dedicated to violating the civil rights of his enemies, including someone who broke into the office of Daniel Ellsberg’s psychiatrist. Back then, people cared about this sort of thing.

Nixon had to contend with a Democratic Party that continued a long period of dominance in Congress. His domestic policies were pretty far to the left (wage-price controls, big increase in Social Security payments, Environmental Protection Agency). He personally only cared about foreign policy, and although he was more hawkish than the Democrats on Vietnam, his policies with respect to Russia and China were well to the left of Republican orthodoxy. So if he was popular and successful, it was by appeasing the left.

In the end, that was not enough. The left still hated him, in part because of his history during the McCarthy period, in part because the left always hates prominent opponents (and, yes, the right also always hates its prominent opponents), and in part because Nixon had an unlikable personality.

Nixon also had to contend with a media environment in which the major news outlets had total control over the narrative. There were no outlets to give widespread voice to any counter-narrative.

Nixon fired his special prosecutor, Archibald Cox. Trump retained his special prosecutor.

Nixon’s scandals also had momentum. As new information came out, the surprises were that things were worse than previously thought. In contrast, Trump’s scandals have not produced momentum. They produced the opposite. Expectations were raised in the media, and when the scandals fell short of those expectations, scandal-mongering became a spent force.

The 1972 electoral-vote landslide? You could never do that now. California would not vote for a Republican for President today even if the Democrats put up Josef Mengele. But in the 1970s, voters were more flexible. They seemed to care about stuff other than just party label. In 1964 the landslide went the other way, toward the Democratic incumbent, Lyndon Johnson, because they perceived him as a candidate of peace and prosperity. The 1974 post-Watergate Congressional elections were a major landslide for the Democrats, because people were sick of scandals and unhappy with economic performance.

In 1972, Nixon’s opponent, George McGovern, did not have popular policy proposals. Most Americans wanted “peace with honor” in Vietnam, not a humiliating withdrawal. It was the post-Watergate Congress that prohibited any spending on Vietnam, making it impossible to deter North Vietnam from violating the agreement. Another policy of McGovern’s that Americans rejected was a $1000 income floor for every citizen–a universal basic income.

By 1976, Warren Zevon was singing

Everybody’s desperately trying to make ends meet

Work all day, still can’t pay, the price of gasoline and meat

Alas, their lives are incomplete

The price of gasoline was driven up by the actions of the international oil cartel. The price of meat was driven up in part by the “Russian wheat deal,” in which the U.S. sold grain to the Soviet Union, which had suffered from bad harvests.

Between Watergate and high prices for gasoline and food, the Republican Party “brand” was in bad shape. So the country elected Jimmy Carter, whose idea for gasoline was to continue with oil price controls and to establish a Department of Energy. By 1980, the failure of these efforts was evident, and Carter was defeated by Ronald Reagan. By 1984, the price of oil had plummeted, the overall direction of the economy was positive, and we saw another landslide, re-electing Reagan.

But as I said, back then voters cared about such strange things as war and peace, the unemployment rate, the cost of gasoline, and maintaining the appearance of propriety. Today, your party is inherently good, and the other party is inherently evil, regardless.

Another commenter’s question: third party

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The commenter asks

Arnold, what do you think of the new “Alliance Party” taking form over at Walter Russel Mead’s site?

1. I find the Alliance Party more attractive than the Niskanen Center in trying to formulate what I might call a centrist-libertarian agenda.

2. Third parties face structural barriers that are well known.

3. In addition, a centrist-libertarian party has no momentum going for it. There are very few of us.

Most important, the major political parties have managed to convince most politically engaged people that there is a lot at stake in the current cold civil war between progressive elites and conservatives/populists. In that context, most people aren’t asking about a third party, “Is this the middle ground that I am looking for?” Instead, they are asking, “Whose votes is this party going to siphon away?” The center-left does not rally to Howard Schultz; instead they are wary of him. The center-right is likely to react similarly to the Alliance Party, if it ever gets beyond the 3-thinkers-with-a-manifesto stage.

Question from a commenter: carbon tax

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A couple of weeks ago, he wrote,

I have a question on the carbon tax issue.

Assume for the moment that the tax imposed accurately reflected the social cost. By the standard theory of Pigouvian taxes, do we actually care whether emissions go down? As long as everyone incorporates the social costs in to their decisions, we’ve internalized the externality, yes?

If demand isn’t very elastic in the range of the tax, then no reduction in emissions (or too low to measure) is the “correct” result, right?

1. I suspect that the main reason a carbon tax tends to have no effect in practice is that it takes a lot of political will and bureaucratic effort to make it really bite. It’s difficult to avoid grandfathering and other concessions.

2. If you drink the climate-change Kool-Aid, then the social cost of carbon emissions is ginormous. If you also believe that demand is inelastic, then you either have to implement quantity rationing (there is a classic paper by Martin Weitzman on “prices vs. quantities” that would justify this) or go for a very high tax.

3. If you believe that demand is inelastic for a very wide range of price+tax, then it suggests that the social cost of reducing carbon emission is ginormous. Then the policy issue becomes a kind of irresistable force vs. immovable object situation.