Category Archives: Tyler Cowen is my Favorite Blogger

Kevin Drum’s Crystal Ball vs. Mine

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He writes,

We’ll have useful AI by 2025 and full AI by 2045. This will either transform the world or destroy it. Flip a coin. However, regardless of how the end point turns out, the transition period is going to be pretty brutal for the 90 percent of the population that occupies the middle classes and below.

Pointer from Tyler Cowen. Remember, I wrote,

As for the issue of human obsolescence, I do think that we will see a trend toward more and more leisure. This will raise all sorts of questions of who deserves to have what provided for them. Right now, we say that people aged 67 or so deserve Social Security and Medicare. And people who can command only low wages (already obsolete in some sense?) deserve Medicaid and food stamps. And kids who can get in deserve the leisure aspects of college. My guess is that we will struggle quite a bit over the next forty years to adapt the social bargain concerning leisure.

Overall, there is a lot of similarity in our predictions. In particular, I agree with him that some of the long-predicted gains in medicine will finally come true.

Bitcoin Equals Dollar Plus Amnesia

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Timothy B. Lee writes,

It’s a mistake to read too much into short-term fluctuations in Bitcoin’s value.

On the contrary. Short-term fluctuations in value tell you everything you need to know about Bitcoin. It tells you that as a medium of exchange it is an utter failure. Who wants to undertake daily transactions in a currency whose value gyrates wildly?

Pointer from Tyler Cowen.

The same thing could happen to the dollar, although it won’t.

As a thought-experiment, imagine that everyone developed amnesia overnight about the dollar price of everything. They wake up having to quote prices in dollars. Do you think that anyone would have any clue what to charge in dollars today without knowing what prices were yesterday? Under the amnesia scenario, Americans would pick some other currency to use for ordinary business. Heck, they would be happier taking rubles than dollars, if rubles had some history to them. In the amnesia thought-experiment, the dollar would become like a Bitcoin–a crazy, speculative oddity that nobody would use for daily transactions.

This thought-experiment, which makes perfect sense to me, runs counter to everything economists teach about monetary theory. In standard monetary theory, nobody has to remember anything. Each new day, whether you start with a blank slate or not, the market will grind out the relative prices of everything, and then the dollar prices will be determined by the quantity of dollars in circulation.

Monetary theory wants to make dollar prices precisely determinate. My perspective is that money and prices are consensual hallucinations. We would prefer that prices not be volatile. We conduct our daily business as if most prices were not volatile, and this becomes a self-fulfilling belief. Except when it doesn’t. When we don’t trust that most prices will remain stable, our behavior becomes radically different.

Jonathan Haidt, the n-word, and capitalism

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He writes,

there are two basic master narratives about capitalism that have been circulating in the West since the time of Adam Smith. One story is that capitalism (and business more generally) is exploitation, so we need a strong government to keep the greed and amorality of capitalists in check. The other story is that capitalism is liberation. People were mostly serfs and peasants until capitalism came along and freed people to keep the fruits of their own labor, so we need to keep government’s role to a minimum, given how prone it is to capture, corruption, and inefficiency.

Pointer from Tyler Cowen. Remember, the word “narrative” has been declared “out” for 2015 by the Washington Post arbiters of taste.

Still, I think that Haidt is onto something. In terms of the three-axis model, the exploitation story fits the oppressor-oppressed axis favored by progressives, and the liberation model fits the freedom-coercion axis favored by libertarians.

This leaves out the conservative axis of civilization-barbarism, and I think that conservativism is somewhat ambivalent on the issue of markets. Conservatives praise markets for rewarding the virtues of effort, patience, self-reliance. But conservatives dislike markets for undermining cultural traditions, putting the vulgar on par with the sublime, and lacking moral direction. Consider Charles Murray in Coming Apart (which I am re-reading):

For Benjamin Franklin, this meant that “only a virtuous people are capable of freedom. As nations become more corrupt and vicious, they have more need of masters.”

It is a short leap for some conservatives to believe that markets unguided by conservative leadership take a nation on a path that makes it “more corrupt and more vicious.”

Tyler Cowen vs. the Club Model

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He writes,

In the old days one heard speculation about bundling a great number of newspapers and blogs into a single-price access model, but in retrospect this probably never had much financial potential, for reasons which by now should be clear. What would an “all-you-can-eat buffet for economists” mean? And who if anyone would benefit from it?

What such a buffet would mean would be that by paying one amount per month you could read as much as you want from the NYT, WSJ, existing blogs, plus all of the new economics blogs that would emerge because bloggers would now be directly compensated by getting a share of the subscription money, perhaps in proportion to the number of views of their posts or some other metric. The beneficiaries would be readers who would read more NYT and WSJ articles if there were no paywall and readers of the new blogs that emerge.

And the biggest beneficiaries of all will be people who save time not having to click on the “close” window on all those unwanted pop-up ads!!!! Because with a bundled subscription, we can finally have content without advertising. The current newspaper model is headed toward the opposite.

This “club” might not be the most viable model. I once thought it would be, but over time I have become convinced that the patronage model will win out. That is, in the end, the NYT will be a money-losing enterprise, but some wealthy patron or patrons will be happy to keep it going. Similarly, those bloggers who want money will have to find patrons to support them. Whether content is better under a patronage model or under a club model is not clear.

Who is an Influential Economist?

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Tyler Cowen writes,

Let me just note that for all the talk of wonk this, data that, and Generalized Method of Moments this that and the other, every now and then the best algorithm is simply Asking Tyler Cowen.

I certainly disagree with quantitative rankings that are based on mentions in social media, a methodology that picks up controversy and obsession with Fed officials.

Let me define influence as “effect on young minds.” I think that Paul Samuelson still has the most influence. Most economic textbooks are descendants of his. Milton Friedman has great influence. Most free-market rhetoric is derivative of his.

Living economists?

Steve Levitt. Not my cup of tea, but I have encountered a number of young women who are ardent admirers, which is something I cannot say about any other economist.

Daniel Kahneman. I know many economists and non-economists who have read Thinking Fast and Slow. Not just bought it because it was famous and stopped reading after a few pages, but got through the whole book.

Paul Krugman, for better or worse. If you look in the blogosphere and op-edsphere at the ratio of uncharitable to charitable treatment of those who disagree, then you have a measure of the ratio of his influence relative to mine.

Stan Fischer, for better or worse. The Genghis Khan of macroeconomics, as I put it.

Tyler Cowen. Where would the economics blogosphere be without him?

Economic Outlook for the New Year

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Justin Wolfers writes,

Typically, an oil price decline is like a tax cut, leaving more money in consumers’ pockets to spend elsewhere. That should spur growth. But since the shale boom, the United States is not only a leading oil consumer but also a leading producer. So lower oil prices also spell smaller revenue for some of our energy companies. And our producers have particularly high costs, so further investment in them may become unprofitable if prices fall too far.

Pointer from Tyler Cowen, who offers some possible scenarios, nearly all of them pessimistic. I’ll try to be more optimistic in general, but from a PSST perspective, the oil price decline might be a small net loss for the U.S. That is, the disruption to the economies in the oil-boom states may more than offset any improvements elsewhere.

Some optimistic possibilities:

1. The geopolitical outlook may brighten. Lower oil prices constrain the influence of Venezuela, Russia, and Iran.

2. Islamic militancy might decline rapidly. Some stories suggest that the proportion of Muslims becoming turned off by the militants is rising.

3. There may be a growing realization in the United States that medical services paid for with other people’s money are prohibitively expensive. See Megan McArdle’s post-mortem on single-payer health care in Vermont.

4. As of now, I would say that virtual reality headgear is in the pre-early-adopter phase. By the end of the year, it may be in the early-adopter phase, poised for spectacular growth over the next decade.

5. The attention paid to Piketty will taper off, and we will see a better crop of nonfiction books.

6. I also predict that President Obama will recover his popularity among Democrats. They will find that, as in 2008, the prospect of Hillary Clinton will enhance the appeal of Barack Obama.

How Computers Might Conquer the Game of Go

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MIT Technology Review writes,

thanks to the work of Christopher Clark and Amos Storkey at the University of Edinburgh in Scotland. These guys have applied the same machine learning techniques that have transformed face recognition algorithms to the problem of finding the next move in a game of Go. And the results leave little hope that humans will continue to dominate this game.

Pointer from Tyler Cowen. As I read the article, they have been following a strategy very similar to what I proposed six months ago.

If they are as close to success as the article indicates, then the world of Go is about to be completely upended. With Othello or Chess, most of what is knowable had already been articulated by humans by the time that computers came along. At least as far as Othello is concerned, computers did not come up with any new strategy or tactics. They just got more skillful than humans at making the best choice in close situations. With Go, my guess is that there may still be a lot left to be discovered about the game. If so, then computers will soon be in a position to make the discoveries. Even if there is nothing new to be discovered, once computers start making fewer mistakes than humans, human Go players will soon be studying computer games.

The Two Languages of Libertarians

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Daniel Klein classifies libertarians into challengers and bargainers. (He has a third category, “royalty,” to describe Milton Friedman and Adam Smith, who managed to achieve very high status.) Klein uses as an example of a topic the minimum wage. A challenger is someone who will say that the minimum wage should be abolished, while a bargainer is someone who sill say that the minimum wage should not be raised. Pointer from Tyler Cowen, who Klein pegs as a bargainer (I would agree).

Some comments:

1. I would describe challengers and bargainers in terms of language. Challengers use the language of certainty. “This is what I think, and people who disagree are just wrong.” Bargainers use the language of doubt or compromise. “Here is where my opponents and I agree, and here is where I think they are mistaken.”

2. I am mostly a bargainer. However, when I write posts using challenger language, I get a lot more praise and mention among libertarians. In fact, I have tried to keep myself from being influenced by such reinforcement.

3. You might be able to adapt these linguistic differences to other parts of the political spectrum. For example, I imagine that Paul Krugman evolved into the writer he is because he could not resist the positive reinforcement he received for expressing anger and certainty.

4. I think that Klein’s disctinction explains why I prefer having my own blog. I think it is fair to describe Bryan Caplan as more of a challenger, and when we were both at EconLog our styles clashed.*

5. Klein is never clear on whether the he is drawing an intellectual distinction between bargaining and challenging or whether he is making sociological observations. In fact, most of the talk strikes me as observations about differences between challengers and bargainers in terms of their personalities and social circumstances. For example, he says that the challengers tend to draw cult-like followings. On the other hand, he does say that an individual can make a choice about which stance to adopt, and it may even be possible to adopt different stances in different circumstances. That makes it sound more like an intellectual distinction. Bargainer that I am, I am trying to split the difference between making an intellectual distinction and making a sociological distinction, so that I want to emphasize linguistic differences.

6. I think that one difference, which can be viewed as intellectual but is probably grounded in personality, is that of certainty vs. doubt. The libertarians who Klein classifies as challengers strike me as highly certain. The bargainers have doubts. For example, challengers are quite certain that the world would be a better place with open borders, if drug laws were abolished, and so on. As a bargainer, I think that this is likely to be the case, but I am not so all-fired certain. Since challengers do not give much thought to being wrong, the fact that they are in a minority on an issue never bothers them. When I am in the minority, I question my own position–although I try to question my own position in any event.

7. In terms of what Jeffrey Friedman calls “the libertarian straddle,” challengers rely more on the philosophical a priori case for liberty. Think of Rothbard and the non-aggression principle. Bargainers rely more on the empirical economic case for liberty, which is that societies with more economic liberty tend to be more prosperous.

*This is all hindsight, in that I left EconLog primarily to pursue an ed-tech start-up. That did not go well, although I did learn a lot about how software had changed in the 15 years since I had been out of it.

Innovation Predictions

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Nouriel Roubini writes,

A patient in New York or London may have his MRI sent digitally to, say, Bangalore, where a highly skilled radiologist reads the scan. However, that highly skilled radiologist in Bangalore may only be paid a quarter of what a New York radiologist would earn for reading tests.

It raises the question: how long before a computer can read those images faster, better, and cheaper than that Bangalore radiologist can?

Pointer from Tyler Cowen.

That sounds like a fair point. In general, however, I think that the forecasts for game-changing innovation made by Roubini and others are too aggressive. I do not share his enthusiasm for MOOCs, as you know.

For another bullish-on-robots, bearish-on-humans take, consider William H. Davidow and Michael S. Malone:

If you doubt the march of worker-replacing technology, look at Foxconn, the world’s largest contract manufacturer. It employs more than one million workers in China. In 2011, the company installed 10,000 robots, called Foxbots. Today, the company is installing them at a rate of 30,000 per year. Each robot costs about $20,000 and is used to perform routine jobs such as spraying, welding, and assembly. On June 26, 2013, Terry Gou, Foxconn’s CEO, told his annual meeting that “We have over one million workers. In the future we will add one million robotic workers.” This means, of course, that the company will avoid hiring those next million human workers.

Read the whole thing.

Frankly, I think that the biggest game-changer over the next fifteen years will be virtual/augmented reality that makes meetings among people from remote locations effective. If it comes off, it will reduce the significance of innovations in transportation, such as self-driving cars. It will also provide a platform for higher productivity in the New Commanding Heights of health care and education.

Here, let me make some predictions of when innovations will be well established (meaning that they have changed everyday life for many people), and I hope I do not err by being too aggressive.

Year Innovation
2020 Computer diagnosis based on lab results and other data
2025 Virtual/augmented reality enables people in remote locations to have meetings that feel “live”
2030 Food manufactured using bio-engineering rather than slaughtered or harvested
2040 Cures for all major diseases except cancer
2040 Personalized, computer-based education instead of classrooms
2045 Cure for cancer
? Fossil fuels overtaken as energy source by solar and/or nuclear power
? Medicines or implants that ensure high intelligence and conscientiousness
?? Drexler’s vision for nanotechnology, driving the cost of physical goods to near zero

As for the issue of human obsolescence, I do think that we will see a trend toward more and more leisure. This will raise all sorts of questions of who deserves to have what provided for them. Right now, we say that people aged 67 or so deserve Social Security and Medicare. And people who can command only low wages (already obsolete in some sense?) deserve Medicaid and food stamps. And kids who can get in deserve the leisure aspects of college. My guess is that we will struggle quite a bit over the next forty years to adapt the social bargain concerning leisure.

Smart Grid Problems

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From the NYT,

Although the goal is to shift consumption to off-peak hours when cheaper, cleaner electricity is available, experts say it is still many years away, despite billions in federal subsidies that have helped finance the switch to the so-called smart grid.

Pointer from Tyler Cowen.

The article ends with a quote from an official in Maryland’s Office of People’s Counsel.

“I’ve never seen an analysis that shows that shifting my dishwashing, clothes-washing and clothes-drying load is going to make a significant impact on my monthly bill,” he said. “It’s just not that much electricity.”

I do not find this statement persuasive. Perhaps he needs to be charged more for use of electricity at peak times in order to get himm to understand the concept of dynamic pricing.