Average is Over

That is Tyler Cowen’s latest book, which I just finished. I will probably re-read parts of it and have more to say, but for now:

1. Tyler sees the tech sector as dynamic, while the education and health sectors have been stagnant, in part because of government control. In some sense, the difference between The Great Stagnation and his new book is that the former emphasizes the sectors that are doing poorly and the latter emphasizes the tech sector.

2. In part because of this shift in emphasis, this book came closer to reflecting my own views.

3. Tyler uses an arresting metaphor of a billionaire riding in a taxi in Calcutta, surrounded by beggars seeking his attention. One can imagine rich people being able to afford a lot of personal servants. The constraint on that will just be the time and effort needed to manage personal servants.

3. Tyler uses Freestyle chess (humans working with computer programs to compete) as a metaphor. There, I thought he stretched it a bit too much. He envisions a sort of Freestyle economics emerging. But to me there is a big difference between chess and economics in terms of what James Manzi calls causal density. In chess, there are a finite number (in fact, probably a small number) of important factors. Sorting through tens of thousands of games, a computer program can arrive at precise weights for those factors. To us, it is dazzling to see an early bishop sacrifice that a human would consider speculative, but the computer knows, based on “experience,” that this is the sort of position in which one can do without a black bishop.

But in economics, we are dealing with high causal density. This is particularly true in finance and macro. I am not convinced that sheer data analysis is going to produce dazzling results. Sure, a new data-crunching paper may add more value at the margin than a new JET paper, but that is not saying much.

4. For me, the most interesting chapter was the one on education. Tyler points out that the content-supplying and testing/grading functions of a professor can be automated relatively easily. The main role for humans is to supply motivation, coaching, and inspiration. I am reminded of an experiment in India in which grandmothers with no subject-matter knowledge are recruited to encourage young children to learn by praising their work.

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5 Responses to Average is Over

  1. Ryan says:

    I am more optimistic about the role for data analysis in macro, particularly with the rise of drill-down microdata available for macro research. Administrative data and big internet data can shed light on the nature of job markets, firm dynamics, and other things, and we can get an idea of how these things are changing over time. For me personally, studying this stuff has dramatically changed how I view the standard workhorse macro model, shifting my preferences toward something that more closely resembles a PSST view of the world. There is a lot going on beyond what the naive demand management macro story can consider. The simple representative agent, detrended cycle model that dominates the blogosphere and much of academia looks increasingly silly in light of all the things we can see going on in nuts and bolts and gears of the actual economy.

  2. Shayne Cook says:

    Has Tyler Cowen developed/proposed a robust methodology for measuring/estimating or even guessing at the magnitude and ubiquity of the Consumer Surplus created during the period he refers to as “The Great Stagnation”?

    • Jonathan Bechtel says:

      I actually do think he’s brought it up on his blog, and he still has the opinion that it’s much smaller than people think it is.

      I think the biggest point where I agree with him is that the ubiquity of information distributes its benefits unevenly due to the fact that its only as useful as someone’s capacity to comprehend it.

      I don’t really draw any moral conclusions from it, but as an observation I think it’s important.

      • Shayne Cook says:

        So, if I understand correctly, Tyler Cowen has an opinion on the magnitude and ubiquity of the Consumer Surplus created and accumulated during his “Great Stagnation” period, but he has no robust methodology of measurement upon which his opinion is based. He just has an opinion.

  3. peterdub says:

    From my experience with Cowen’s books, the consumer deficit is large. The Amazon reviewers appear to agree.

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