Category Archives: Tyler Cowen is my Favorite Blogger

Deirdre McCloskey on teaching economics

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She writes,

I think economics, like philosophy, cannot be taught to nineteen-year olds. . .A nineteen-year old has intimations of mortality, comes directly from a socialized economy (called a family), and has no feel on his pulse for the tragedies of adult life that economists call scarcity and choice. . .you cannot teach him a philosophical subject. For that he has to be say, twenty-five, or better, forty-five.

Read the whole thing. Pointer from Tyler Cowen. My thoughts:

1. By her definition, I was not a natural economist. (She would say that there is nothing wrong with that.)

2. My own teaching experience is consistent with her view. I do not believe that the undergraduates I taught at George Mason or the high school students for whom I taught AP economics really grasped what I wanted them to grasp.

3. I wish that McCloskey had spelled out more completely what it is that she believes is difficult to teach. I am inclined to believe that she is right, but I cannot be sure without more elaboration on her part.

4. I am inclined to believe that teaching economics in terms of the history of economic thought would be worth attempting. I had a great high school chemistry course in which the teacher started with the discover of the gas laws and then gradually added new theories and experimental findings as they took place chronologically. I wish that it were standard to teach economics that way. Of course, you might reach the end of the first semester and still not have finished Adam Smith–even if you start with him.

Less interest in cooking

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Eddie Yoon writes,

Only 10% of consumers now love to cook, while 45% hate it and 45% are lukewarm about it. That means that the percentage of Americans who really love to cook has dropped by about one-third in a fairly short period of time.

Pointer from Tyler Cowen.

As I have said before, the trend in hobbies is narrower, deeper, older. Fewer people are engaged in each hobby. Those engaged are much more dedicated. And hobbies that have been around a long time attract an older constituency.

How to fix baseball

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Tyler Cowen points to an article in the WSJ about the causes of the slowdown in baseball games.

What I would most like to see in baseball is a reversal of the trend toward Scheblerization. As a hitter, Scott Schebler does not put the ball in play very often. In a typical season, he would come to bat just over 500 times, strike out 132 times, and hit 28 home runs. In fact, there are more extreme examples. In 2017, Joey Gallo came to the plate 532 times. He drew 75 walks, struck out 196 times, and hit 41 home runs. Almost 60 percent of the time, he gave the fielders nothing to do.

Regardless of how long a game takes, Scheblerization makes the game seem much slower. There is action when players sprint to get to a base while fielders scramble to retrieve and throw the ball. There is the excitement of an uncertain outcome. Not so much with players walking back to the dugout after a strikeout or jogging around the bases after hitting a home run. In my view, the frequency of strikeouts and home runs also reduces the distinction and drama associated with being a strikeout pitcher or home run hitter.

The rule change that I would propose would be to increase the size of the baseball. Perhaps it would be sufficient to make the diameter of the baseball larger by half an inch.

The secondary effect of a change of this sort is hard to predict. But I think that the primary effects would be:

1. Make the baseball harder to grip.
2. Increase the wind resistance of the baseball.

This in turn would make it harder for pitchers to throw over 90 miles an hour, so that there would be fewer strikeouts. It also would make it harder to hit fly balls over the fence, so that there would be fewer home runs. With those primary effects, I would expect to see more balls in play. I hope that the secondary effect would be to decrease the comparative advantage of the Scheblers and Gallos and instead increase the comparative advantage of batters who make regular, solid contact with the baseball.

If making contact becomes “in” again, then perhaps there will be fewer pitches per at-bat, and games will not stretch out as long. Regardless, games will not seem so long if there are more balls put in play.

My $.02

Dueling views of China

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Tyler Cowen said,

in terms of human talent, GDP, China right now is in most ways a peer country to the United States. We’re not ready for that, mentally or emotionally.

In contrast, Peter Zeihan sees China in a precarious position:

1. China is the about to age at the most rapid rate of any country. Over the next twenty years, the average age of the U.S. population will barely budget, but the average age in China will rise 5 years.

2. China is much more dependent on trade than the U.S. It needs to import great quantities of oil, from the Middle East. According to Zeihan, “somewhere between 40 percent and 50 percent of the Chinese economy is directly involved in international commerce.”

3. China’s navy would have a very difficult time operating out of China’s waters.

4. China’s geography is conductive to internal strife and warfare, but not to economic integration.

Peter Zeihan’s world view

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I am reading his book The Absent Superpower. You can get a lot of his ideas by watching this video. You can also see his intellectual style, which is certainly more confident than mine. He deals in strong pronouncements, and he does not worry much about establishing causality or conceding the plausibility of alternative hypotheses.

I view recent history and the near-term outlook as dominated by the four forces: increased resources devoted to education and health care (the New Commanding Heights); bifurcated marriage patterns; globalization; and computerization.

Note that a lot of economists’ bandwidth these days is focused on the computerization issue. For example, Tyler Cowen attended a conference of heavy hitters on the economic implications of artificial intelligence.

Zeihan igores those four forces in order to focus on energy markets and demographics. In the case of energy, he sees the shale revolution as a geopolitcal game-changer. Where I assume that “oil is oil,” so that the location of supply matters less than the overall match between supply and demand, he attaches great significance to the ability of the U.S. to match its own oil supply and demand. He sees this leading the United States to completely lose interest in global security and the international trading system.

Zeihan asserts that without our adult supervision, the world playground will erupt into wars: along Russia’s borders, in the Persian Gulf, and in Northeast Asia as China and Japan struggle over the sea lanes for oil in a world of energy supply disruptions.

In the case of demographics, he sees financial markets in terms of a simple life-cycle model of behavior: younger workers spend, older workers (40 – 65) save and take financial risks, and retired workers become risk averse. The Baby Boom generation has been in the older-worker phase, helping to drive up prices of risky assets throughout the world. But they are transitioning to retirement, which means they want to shift away from risky assets to low-risk assets.

Also important is the overall aging of the developed world, with the U.S. a bit of an exception. See Timothy Taylor on Asia. This is going to expose many countries to financial strife. The ratio of workers to dependents will be too low to support pensions systems.

Watch the video and/or read the book. I am curious what you think.

Jean Twenge watch

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She writes,

The result is a generation whose members are often afraid to talk to one another, especially about anything that might be upsetting or offensive. If everyone must be emotionally safe at all times, a free discussion of ideas is inherently dangerous. Opposing viewpoints can’t just be argued against; they have to be shut down, because merely hearing them can cause harm.

She adds,

Members of iGen are also taking longer to grow up. As I found in analyzing seven large national surveys of teens, today’s adolescents are less likely to drive, drink, work, date, go out and have sex than were teens just 10 years ago. Today’s 18-year-olds look like 15-year-olds used to. They don’t reach adulthood too early, but they also lack experience with independence and decision-making.

Her book is out, but I have yet to read it. The reviews have been mixed. Tyler calls it new and excellent.

Jonathan Haidt does not mention Twenge in this interview, but his observations parallel hers.

Haidt believes there is a mental-health crisis on campus: ‘I have never seen such rapid increase in indicators of anxiety and depression as we have seen in the past few years’, he says.

The interesting brief interview with Haidt includes this:

‘Kids need conflict, insult, exclusion – they need to experience these things thousands of times when they’re young in order to develop into psychologically mature adults. Every adult has to learn to handle these things and not get upset, especially by minor instances. But in the name of protecting our children we have deprived them of the unsupervised time they need to learn how to navigate conflict among themselves. That is one of the main reasons why kids and even college students today find words, ideas and social situations more intolerable than those same words, ideas and situations would have been for previous generations of students.’

Variable costs approach zero

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Jan De Loecker and Jan Eeckhout write,

We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms

Tyler Cowen brought up the paper in order to criticize it. Greg Ip covered the controversy.

Variable costs are costs that increase as the business produces more output. They include costs of materials and the labor cost that is involved in direct production. My explanation for the two-Jans result is that variable costs are tending toward zero in many industries. (I think that this is also Tyler’s explanation, but I prefer to use more specific examples and less technical jargon.)

My notes on the topic.

1. Fifteen years ago, I noticed the trend toward declining variable costs. I wrote an essay called asymptotically free goods, “where research and development costs are high, but the marginal cost of the final product or service is low.” Think of a pharmaceutical that is expensive to develop but cheap to manufacture. Think of cell phone service providers, where the marginal cost of transmitting another gigabyte of data is close to zero. Think of a hospital, where most of the cost is overhead (if the amount of medical services that a hospital were to supply on a given day declined by 1 percent, the amount by which its actual costs would decline is close to zero). Think of an Internet service, such as Facebook, with high costs of development and maintaining a data center but with extremely low cost of adding another user.

The point of the essay is that under marginal cost pricing, these would be free goods. If variable cost approaches zero, then markup over variable cost approaches 100 percent. [update: a commenter points out that this statement was in error. The ratio of price to variable cost approaches infinity as variable cost approaches zero.] (In the case of Facebook, the marginal cost of serving an ad is close to zero, and the markup that it charges advertises therefore approaches 100 percent).

2. When I taught economics in high school, I would say that “price discrimination explains everything.” That is because most businesses do not operate in the textbook world of perfect competition. Instead, firms are focused on recovering fixed costs. To do so, they apply different markups to slightly different versions of products, trying to recover more fixed costs from the less price-sensitive buyers. That is why movie theaters charge so much for popcorn, why airlines have different classes of seats, why cable TV providers offer bundles, and so on.

3. In manufacturing, the share of production workers is declining, but the share of non-production workers is increasing. Overall, we are producing more output with fewer workers on the assembly line (and I would guess that materials costs also are lower).

4. My guess is that, if anything, the two-Jan’s paper understates the trend toward high markups. That is because my guess is that most corporate data allocates more labor to variable cost than really belongs there. Garett Jones pointed out that these days most workers do not produce widgets. Instead, they produce organizational capital. Garett Jones workers are part of overhead, not variable cost.

5. In textbook economics, the term “monopoly power” is pretty much by definition the ability to charge a price above marginal cost. By that definition, it is very hard to think of real-world businesses that do not have monopoly power. If you want to say that the textbook model of perfect competition is baloney sandwich, I would have to agree with you.

6. But lack of perfect competition does not mean that government regulators know better.

7. Lack of perfect competition does not mean that there is no market discipline. There is still competitive discipline, but a lot of it comes in the form of creative destruction rather than in the form of prices being driven down to marginal costs by copycat entry.

8. Government intervention can easily take the form of trying to stop creative destruction. For example, demand that autonomous vehicles be accident-free, rather than merely less dangerous on average than human-driven cars.

The Original Internet Architecture

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Tyler Cowen writes,

It remains the case that the most significant voluntary censorship issues occur every day in mainstream non-internet society, including what gets on TV, which books are promoted by major publishers, who can rent out the best physical venues, and what gets taught at Harvard or for that matter in high school. In all of these areas, universal intellectual service was never a relevant ideal to begin with

The original Internet architecture was “smart ends, dumb network.” The smart ends are the computers where people compose and read messages. The “dumb network” is the collection of lines and routers that transmits the bits.

Suppose you create a message, such as an email, a blog post, or a video. When your computer sends the message, it gets broken into packets. Each packet is very small. It has a little bit of content and an address telling where it is going. The Internet’s routers read the address on the packet and forward it along. In Ed Krol’s metaphor, the Internet routers and communication lines act like the Pony Express, relaying the packet to its final destination, without opening it up to see what is inside. The dumb network transmits these packets without knowing anything about what is in them. It does not know whether the packet is an entire very short email or a tiny part of a video.

When your computer receives a message, it consists of one or more packets–usually more than one. The computer opens up the packets and figures out how to put them together to form the message. It then presents you with the email, the blog post, the video, or what have you.

A connection between one end and the other end stays open only long enough to send and receive each packet. To transmit any given message, I may receive many packets from you, but those packets could come over different paths of the network, and thus each packet uses a different end-to-end connection. Think of end-to-end connections as being intermittent rather than persistent.

Some consequences of this “smart ends, dumb network” architecture:

1. The network cannot identify spam. It does not even know that a packet is part of an email message–if it did, spam could be deterred by charging email senders a few cents for each email unless the recipient waives the charge.

2. The network does not know when it is sending packets that will be re-assembled into offensive content. Otherwise, it would be easier to implement censorship.

3. The network does not know the identity of the sender of the packets or the priority attached to them. In that sense, it is inherently “neutral.” The network does not know the difference between a life-or-death message and a cat video.

I get the sense that this original architectural model may no longer describe the current Internet.

–When content is cached on the network or stored in the “cloud,” it feels as if the network is no longer ignorant about content.

–Many features, such as predictive typing in a Google search, are designed to mimic a persistent connection between one end and the other.

–When I use Gmail, a lot of the software processing is done by Google’s computers. That blurs the distinction between the network and the endpoints. Google is performing some of each function. Other major platforms, such as Facebook, also appear to blur this distinction.

The new Internet has advantages in terms of speed and convenience for users. But there are some potential choke points that did not exist with the original architecture.

Some questions about Google

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Salil Mehta writes,

On Friday afternoon East Coast Time by surprise, I was completely shut down in all my Google accounts (all of my gmail accounts, blog, all of my university pages that were on google sites, etc.) for no reason and no warning.

A couple years ago, Tyler Cowen linked to one of Mehta’s blog posts, and I linked to it also.

Mehta received a form letter from Google saying that he had violated its terms of service.

My questions:

1. If I search the terms of service for “terminate account,” I only find a reference to copyright infringement and “repeat infringers.” Otherwise, the terms of service do not appear to list any specific reasons for terminating someone’s account. What other offenses, if any, can lead Google to terminate accounts?

2. What is Google’s policy with respect to giving warnings prior to terminating accounts?

3. Google’s terms of service state that

We believe that you own your data and preserving your access to such data is important. If we discontinue a Service, where reasonably possible, we will give you reasonable advance notice and a chance to get information out of that Service.

I guess this refers to Google generically terminating a service for everyone, as they did with their blog newsreader. But what happens when an account is terminated? Does the individual have any way of recovering old blog posts, emails, and email contact lists?

[UPDATE] 4. As usual, I schedule posts in advance, and in the interim professor Mehta’s accounts have been restored. That raises the question of what prompted this decision (and the other three questions still remain unanswered).

Thoughts on Internet censorship

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Tyler Cowen Alex Tabarrok writes,

When Facebook and Twitter regulate what can be said on their platforms and Google and Apple regulate who can provide a platform, we have a big problem. It’s as if the NYTimes and the Washington Post were the only major newspapers and the government regulated who could own a printing press.

1. Back in the 1990s, two cliches were “Nobody owns the Internet” and “the Internet interprets censorship as damage and routes around it.”

These are no longer applicable. For people who rely on smart phones for access, Google and Apple own the Internet. In addition, Google owns a major domain name server.

Although I do not have a confident understanding of the technology and business environment, it would seem to me that today censorship on the Internet is feasible. I infer that when I hear of web sites being “shut down” because of the hateful thoughts that they convey.

Reversing the company’s previous stance on not censoring content, founder and CEO Matthew Prince wrote in an internal email that he “woke up this morning in a bad mood and decided to kick them off the Internet. It was a decision I could make because I’m the CEO of a major Internet infrastructure company.”

2. I wonder how there can be overlap between the people and organizations that champion regulations intended to impose “net neutrality” and those that want to see hateful web sites shut down. I believe that such overlap exists, but it is hard to take those as intellectually consistent positions.

3. I would like to see those who provide Internet infrastructure refrain from censorship. But having government enforce non-censorship would not be a very libertarian way of going about it. I would rather see non-censorship as a social norm that has sufficient compliance to make an uncensored Internet available to everyone who wants it.

4. For those of us who don’t like Nazis, jihadists, etc., I recommend expressing solidarity with their intended victims and support for efforts to prevent and punish acts of violence. I do not see shutting down web sites as doing much to prevent violence. I see it as more of a futile gesture, akin to confrontational counter-demonstrations.

5. My generation is aging out, and the “snowflake generation” is coming into its own. Once the anti-censorship social norm starts to break down, my guess is that it will not stop with just a few fringe Nazi sites being shut down.