Category Archives: Tyler Cowen is my Favorite Blogger

A moonshot to overthrow neoclassical economics

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Tyler Cowen gave me an idea. He described his personal moonshot. He wrote,

My goal is to be the economist who has most successfully used the internet as a platform to foment broad enlightenment.

He elaborates on this, creating a concise statement of his mission as a public intellectual.

So I did something similar. Please read Overthrow Neoclassical Economics: my personal moonshot. It begins,

My personal moonshot is that I wish to be a leader in overthrowing neoclassical economics.

…As I see it, neoclassical economics is characterized by two essential propositions.

1. Production is a process that employs two primary factors — labor and capital.
2. The distribution of returns to labor and capital reflects their respective contributions to the production process.
There are many economists, particularly on the left, who reject (2) in favor of theories of distribution that stress the role of political power. This criticism may have merit. But my criticism is more fundamental than that. I reject (1) as a useful description of the contemporary economy.

In neoclassical economics, individual productivity is inherent in the technology and the amount of capital per worker. In reality, it is way more complicated than that. Indeed, there are power relationships, but it is way more complicated than that. Technology and relative power are not sufficient to determine individual productivity and compensation. Everything depends on who you are teamed up with, how you are organized, the overall culture in which you are embedded, and other factors, including ongoing dynamics and expected future changes.

Jordan Peterson and other public intellectuals

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David Brooks writes,

In his videos, he analyzes classic and biblical texts, he eviscerates identity politics and political correctness and, most important, he delivers stern fatherly lectures to young men on how to be honorable, upright and self-disciplined — how to grow up and take responsibility for their own lives.

I have a few reasons for being less than fully bought into Peterson.

1. He is a spellbinding speaker but his first book, Maps of Meaning, was turgid. There is something disconcerting about the fact that his ideas seem to come across better in a format that allows for less editorial polishing. I noted this in December of 2016, when the Peterson tsunami was just forming.

2. Some of his ideas are mystical and sound really strange.

3. He gains some of his stature by attacking post-modernists who are intellectual weak, at least in the way that he presents them. For me, it is more impressive to take on stronger opponents than weaker ones.

He may now be over-rated by his fans on the right. But he is badly, badly, under-rated by smug leftists whose ability to understand opposing viewpoints pales in comparison with his.

Using the three-axes model, I put Peterson firmly in the conservative camp. He sees civilization as fragile and precious, and he is animated by the civilization vs. barbarism axis.

Rather than propose a list of public intellectuals that I think are influential, or important, or prominent, let me just list a few public intellectuals that I admire and trust, in the sense that I think that they really try to be careful to honor opposing viewpoints and try to avoid committing intellectual swindles.

–Jeffrey Friedman. Does he even count as a public intellectual? He is an intellectual, all right, but his writing is often steeped in academic jargon, and he is not a familiar figure, even to the highly-educated portion of the public. His journal, Critical Review, has pieces written by top minds, and yet his own contributions often tower over theirs.

–Steven Pinker. You can get a better education in the humanities by reading The Blank Slate than by taking any freshman humanities course at any university, I would bet.

–Tyler Cowen. Tyler has an unmatched ability to offer ideas that are surprising and original. He takes risks, sort of like an intellectual venture capitalist, if you will. Some of these start-ups don’t make it, but he picks enough winners to more than make up for the failures.

Friedman, Pinker, and Cowen all stand out for being non-tribal or even counter-tribal. They challenge and annoy their most likely allies, rather than offering a steady diet of reinforcement and comfort.

Sluggish economic adjustment

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Timothy Taylor writes,

In the decades after World War II and up into the 1980s, the US economy experienced regional convergence: that is, the economies and incomes in poorer regions (like the US South) tended to grow more quickly than the economies of richer regions (like the US North). But in the 1980s, this pattern of regional convergence slowed down.

He cites interesting papers on the topic by Peter Ganong and Daniel W. Shoag as well as by Elisa Giannone.

Also relevant is the paper by Ryan A. Decker and others, cited by Tyler Cowen.

Null Hypothesis Watch

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Two papers that claim to reject it.

1. Michael Lovenheim and Alexander Willen write,

We see consistent evidence that 12 years of exposure to a collective bargaining law negatively impacts both cognitive and noncognitive scores among men. AFQT percentile declines by 10.2, a 20.9% effect relative to the mean.

See also the abstract, quoted by Tyler Cowen.

2. Michael Gilraine, Hugh Macartney, and Robert McMillan write,

California’s statewide class size reduction program of the late-1990s. . .caused marked reductions in local private school shares, consequent changes in public school demographics, and significant increases in local house prices — the latter indicative of the reform’s full impact. Second, using a generalization of the differencing approach, we provide credible estimates of the direct and indirect impacts of the reform on a common scale. These reveal a large pure class size effect of 0.11 SD (in terms of mathematics scores), and an even larger indirect effect of 0.16 SD via induced changes in school demographics. Further, we show that both effects persist positively, giving rise to an overall policy impact estimated to be 0.4 SD higher after four years of treatment (relative to none).

I am skeptical of both papers. I am not convinced that the methods used truly eliminate possible confounding factors. But I have not read either paper closely.

Resistance Watch

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Charlie Stross writes,

However, Facebook is trying to get eyeballs on ads, as is Twitter, as is Google. To do this, they fine-tune the content they show you to make it more attractive to your eyes—and by ‘attractive’ I do not mean pleasant. We humans have an evolved automatic reflex to pay attention to threats and horrors as well as pleasurable stimuli: consider the way highway traffic always slows to a crawl as it is funnelled past an accident site. The algorithms that determine what to show us when we look at Facebook or Twitter take this bias into account. You might react more strongly to a public hanging in Iran than to a couple kissing: the algorithm knows, and will show you whatever makes you pay attention.

Pointer from Tyler Cowen.

Trigger warning: lots of smug rhetoric presuming that the left is correct on climate change, net neutrality, financial regulation, etc.

Looking ahead, Stross writes,

Your phone will be aware of precisely what you like to look at on its screen. With addiction-seeking deep learning and neural-network generated images, it is in principle possible to feed you an endlessly escallating [sic] payload of arousal-maximizing inputs. It might be Facebook or Twitter messages optimized to produce outrage, or it could be porn generated by AI to appeal to kinks you aren’t even consciously aware of. But either way, the app now owns your central nervous system—and you will be monetized.

One key point on which I agree with Stross is that I am surprised and disappointed that of all of the possible ways to pay for content on the Internet, the advertising model dominates. I understand why micropayments did not take off–Clay Shirky diagnosed the “mental transactions costs” involved. But if the subscription model (what I called “clubs” in my essays from twenty years ago) were dominant, then the interests of consumers and content providers would be better aligned. With the advertising model, the relationship is necessarily adversarial. The content provider needs to grab and hold your attention, whether that works to your benefit or not. Bad consequences follow.

2018 as a year of resistance

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Tyler Cowen predicts some themes for 2018.

Many of the biggest events of 2018 will be bound together by a common theme, namely the collision of the virtual internet with the real “flesh and blood” world. This integration is likely to steer our daily lives, our economy, and maybe even politics to an unprecedented degree.

My prediction is that a main theme of 2018 will be resistance. Not the Trump resistance, but resistance against technology that is increasingly perceived as adversarial.

Yesterday, I was woken from a sound sleep by a spam phone call on my cell phone. I would like to see the full weight of the law brought on phone spammers, including the death penalty. You think I’m kidding, but I’m not.

More realistically, I would propose that Congress pass a law saying that if the providers of land lines and cell phone service cannot reduce spam phone calls by 90 percent by the end of 2018, then the FCC should levy fines against them in the hundreds of millions of dollars. This stuff has got to stop.

I think that there is a large latent movement for resisting Facebook, Twitter, and addiction to smartphone apps of various kinds. Commenter Handle pointed recently to Paul Graham’s essay.

The world is more addictive than it was 40 years ago. And unless the forms of technological progress that produced these things are subject to different laws than technological progress in general, the world will get more addictive in the next 40 years than it did in the last 40.

That was written in 2010. I think the world has already gotten more addictive than it did in the previous 40 years. Maybe there will be a market solution. Maybe just a widespread consumer rebellion. But the issue is bound to get more and more attention.

As you know, I am bullish on self-driving cars. But look at the pushback I get from people who regard self-driving cars viscerally as a defeat for individual liberty and autonomy. The pushback suggests resistance.

Scott Galloway has become a YouTube star by sounding the alarm about the power of The Four, meaning Google, Facebook, Amazon, and Apple. The popularity of his analysis is another indicator of the sentiment of resistance.

Remember Kevin Kelly’s book, What Technology Wants. He takes the view that the force of technological evolution operates independently of our control. That would suggest that resistance is futile. But I still expect it to be a main theme for the new year.

Computers win the race

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Tyler Cowen writes,

the human now adds absolutely nothing to man-machine chess-playing teams.

I am pretty sure I predicted this. I certainly would have if anyone asked. Whenever you get to the point where a computer is close to human capability at something, you should bet on the computer becoming much better at it within a few years. Humans only get better slowly, and computers get better rapidly.

Imagine that you were running at pretty close to top speed, and there is some other creature that is currently chasing you. If that creature is gaining on you rapidly, then you aren’t going to stay ahead of that creature, are you? And after the creature catches up with you, if it keeps going you are not going to be able to keep up, are you?

By the way, that is why I take a bullish view of self-driving cars. Maybe we will make the physical and regulatory environment for self-driving cars as unfriendly as possible. Otherwise, I think they will take over. People will come to see driving as a waste of time. They will come to see having a car that is idle most of the day as a wasteful expense.

Wage differentials vs. productivity differentials, continued

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Tyler Cowen asks,

Aren’t the waiters more productive *because they are serving wealthier customers*?

Gosh, that throws an even bigger monkey wrench into the whole deal.

Let me switch examples. Suppose that Jeff Bezos can either rely on Uber or else keep a personal driver on call. Suppose that the personal driver gets a higher wage than an Uber driver, just because Bezos can afford to pay a higher wage. Then if Bezos switches from Uber to the personal driver, measured GDP goes up, but our intuition is that productivity has not changed.

From a neoclassical viewpoint, my example is a swindle. In a neoclassical model, a wage is determined in a competitive equilibrium, not by Bezos being able to “afford to pay a higher wage.” What should happen in my example is that drivers compete with one another to become Bezos’ personal driver, until the wage gets driven down to the Uber wage.

Back to Tyler’s example. Would waiters earn higher wages in zip codes with wealthy customers than in zip codes with middle-income customers? From a neoclassical perspective, the answer should be no. If wages are higher in wealthy zip codes, then waiters should compete to work in those zip codes until the differential disappears.

My guess is that this is not how it works. Instead, my guess is that waiters compete on quality, and the wealthier customers get the higher-quality waiters. In some sense, the wage differential does reflect a productivity differential. But it is a productivity differential that is inherent to the individual. There is no opportunity for zip-code arbitrage.

That is, if you moved a waiter from the moderate-income zip code to the wealthy zip code, you would not be raising productivity overall. You would be bringing a low-quality waiter into a zip code where the expectation is for high-quality waiters.

I worry that Tyler may have a different answer in mind. And I worry whenever I engage in casual neoclassicism.

Earlier this week, I had dinner in Newport News, Virginia. Our waitress took the orders for are party of 9, including special instructions, without writing anything down. She was one of the highest-quality waitresses I have ever observed. But she was not working in a wealthy zip code. If she moved to New York or Los Angeles, my guess is that she could get paid a lot more. But taking into account the cost of living, she is likely just as well off in Newport News.

Books of the year, 2017

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Tyler has given you his list. Mine, in order of quality:

Kevin Laland, Darwin’s Unfinished Symphony.

Richard Bookstaber, The End of Theory.

Jonathan Haskel and Stian Westlake, Capitalism without Capital.

Aaron Ross Powell and Grant Babcock (eds.), Arguments for Liberty.

Tim O’Reilly, What’s the Future?

Note that Tyler and I both came out with books this year. His was The Complacent Class and mine was a new edition of The Three Languages of Politics. I do not think our lists overlap at all, which is unusual. UPDATE: a commenter points out that Tyler and I both recommend Capitalism without Capital.

Reading in my youth

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Tyler Cowen writes,

Way back when, I considered the ten books that influenced me most, a list I still stand by. In response, someone asked me to name the books that influenced me, but whose influence I probably was not aware of. Let’s ignore the semi-contradiction in that request and plow straight ahead! Here goes, noting that if memory serves I read most of these between the ages of 10 to 12

Let me play the same game, focusing on what I read around that age. Should I include Baseball Digest and Mad Magazine? I am sure that they had influence. The former led me to Strat-O-Matic baseball, which incented me to work out the probabilities of two dice. Mad was big into exposing hypocrisy–Dave Berg even had a regular feature “When they say ___ what they really mean is _____.”

My chess reading was limited to Fine’s Ideas Behind the Chess Openings. It did not turn me into a chess player. I did not know enough about the midgame to appreciate the opening theory. For the purpose of learning chess, my guess is that it would have been better to start reading about the endgame and work backwards.

Neither did Common Sense at Poker turn me into a poker player. But it was a great book, very well written, with memorable characters: Mouse, the guy who was afraid to bet big. Brill, the sharpster. Guffy, the bluffer who bid up pots. Years later, when I had my Internet business, I thought of VC-backed competitors as Guffy types. They made the pots a lot bigger, and it was expensive to stay in, but our hand was as good as theirs, so it was worth it to call their bluff.

Of the books that Tyler mentions, I read Instant Replay and Guadalcanal Diary. The former was extremely well written, and about ten years ago I ordered a used copy to re-read. The latter I have forgotten, apart from the title. Speaking of sports books, I read Jim Brosnan’s The Long Season, among many others. Percentage Baseball, by Earnshaw Cook, was sabermetrics before Bill James, although Cook could not write anywhere near as well as Bill James. I doubt that I was able to follow Cook’s math, although perhaps the attempt was good for me.

When I was ten, my father was asked to be on a panel judging the best political science books of the year, so we were sent a lot of books by publishers. Two that I remember are The Agony of the GOP, 1964 and a book whose title eludes me that chronicled the run-up to the first world war. We were sub-letting a professor’s house in Princeton, and the professor had really fancy rare edition of The Three Musketeers, which my parents read to me/with me, probably because they were afraid that if I read it myself I would destroy it. I did wreck a lot of other things in the house. Boys do that, you know. They also read with me The Wind in the Willows, which I did not appreciate as much at the time as I have come to appreciate later.

Somewhere around that time I read Churchill’s six-volume history of the Second World War. I probably absorbed the fact that Churchill felt much more relaxed being in charge than trying vainly to convince others in charge of what to do about Hitler before the war started. I also noted his obsession with capital equipment (as I would put it now), such as the rate at which merchant ship tonnage was being sunk by U-boats compared to the rate at which new ships were being built.

I was very loyal to Alexandre Dumas, primarily because I had seen on television the 1939 movie version of The Count of Monte Cristo and been enthralled by the tale of hard-earned revenge. The book, it turns out, ends on a more ambivalent note than the movie, so at that age I did not enjoy the book as much. I wrote a book report on The Scarlet Pimpernel, saying that although I did not like it very much I intended to read other works by Dumas. My English teacher wrote on my book report something to the effect of, “You don’t have to do that, you know.” And so I didn’t. I think that might have been a revelation, that not every book by a given author is equally worth reading.