Monthly Archives: September 2020

Corporate R&D labs

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Ben Southwood writes,

From 1949 authorities pursued a case against AT&T’s Bell Labs, which ultimately resulted in the forced divestiture of their non-telecoms arms, separation from their vertically integrated manufacturing, and compulsory no-fee licensing of all 7,820 of its non-telecoms patents (1.3% of the total stock of patents in force in the USA at the time). There is evidence that this move rippled across the US economy, providing a foundation for many of the great innovations of the next fifty years. But this would be true of almost any mass patent invalidation: the monopoly restrictions of patents once they are granted are the cost we pay for the investment in innovation that came before.

He raises the possibility that whatever short-run gains there were from going after AT&T, the long-run impact was to reduce R&D and growth.

In a business environment with no barriers to entry, it is impossible for a firm to capture the benefits of innovation. Hence, there is little incentive to innovate.

Patents provide one barrier to entry. But that approach has a number of flaws. I am not a fan of patents in general.

The main alternative is barriers to entry that are created by business strategy and execution. Microsoft in the 1990s was the master of using business strategy to erect barriers to entry.

These strategic barriers to entry can work both ways. To the extent that an innovation expands profit opportunities for the incumbent firm, it is encouraged. To the extent that it cannibalizes opportunities for the incumbent firm, it is stifled.

This may explain why Xerox “fumbled the future.” The personal computer and the network appeared to create the possibility of a “paperless office,” which is not a welcome development for the copy machine business.

The WEIRD Henrich book

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Joseph Henrich’s The WEIRDest People in the World is now out. Here is one review. I am about half way through, and I am likely to rate the book as highly as The Secret of Our Success, with little overlap between the two.

His main claim is that using statistical analysis, he and his colleagues have shown that: (a) where the Christian church has its deepest roots, people are less strongly embedded in kin-based clans, with cousin marriage being a strong component of the clan society; and (b) where clan structures have broken down, individualism and what we might call the psychology of the liberal enlightenment are more likely to have emerged.

I wrote about some of his research here.

I will want to go back and re-read MacFarlane’s The Origins of English Individualism (cited by Henrich but seemingly not much discussed, and Mark Weiner’s Rule of the Clan, also cited but seemingly not discussed. I reviewed Weiner here.

Macroeconomics I can approve

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Raj Chetty and others write,

we study the mechanisms through which COVID-19 affected the economy by analyzing heterogeneity in its impacts. We first show that high-income individuals reduced spending sharply in mid-March 2020, particularly in areas with high rates of COVID-19 infection and in sectors that require in-person interaction. This reduction in spending greatly reduced the revenues of businesses that cater to high-income households in person, notably small businesses in affluent ZIP codes. These businesses laid off many of their employees, leading to widespread job losses especially among low-wage workers in affluent areas. High-wage workers experienced a “V-shaped” recession that lasted a few weeks in terms of employment loss, whereas low-wage workers experienced much larger job losses that persisted for several months. Building on this diagnostic analysis, we use event study designs to estimate the causal effects of policies aimed at mitigating the adverse impacts of COVID-19. State-ordered reopenings of economies have small impacts on spending and employment. Stimulus payments to low-income households increased consumer spending sharply, but little of this increased spending flowed to businesses most affected by the COVID-19 shock, dampening its impacts on employment. Paycheck Protection Program loans increased employment at small businesses by only 2%, implying a cost of $300,000 per job saved. These results suggest that traditional macroeconomic tools – stimulating aggregate demand or providing liquidity to businesses – have diminished capacity to restore employment when consumer spending is constrained by health concerns

Pointer from Tyler Cowen.

Martin Gurri watch

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Concerning the latest wave of demonstrations, Martin Gurri writes,

In a real sense, the digital environment represents the triumph of the image over the printed word. Because it provides the illusion of immediacy, the visual is viscerally persuasive: not surprisingly, the web-savvy public has learned to deploy images to powerful political effect. A photo of Mohamed Bouazizi burning alive sparked the protests in Tunisia that inaugurated the Arab Spring in 2011. As I write, we are flooded with images from dozens of U.S. cities in turmoil, a visual argument about the fragility of government control.

Read the whole essay.

Speaking of the power of the visual, the fact that Congresspersons consider themselves above the law has been an open secret for as long as I can remember. So if Nancy Pelosi’s visit to a hair salon had merely been reported in print, I suspect that it would not gotten much traction. But with the video. . .

Civil war watch

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1. Greg Lukianoff and others write,

A December 2019 survey by the Democracy Fund Voter Study Group showed that, in both parties, about one in five partisans felt violence against the opposing party would be at least “a little” justified if their party lost the election; about one in ten felt there would be “a lot” or “a great deal” of justification for violence. Meanwhile, comparing ANES survey data from 2016 and 2018, the number of Americans who said violence was “not at all” a justifiable means of pursuing political goals declined 10% in two years, from roughly 82% to 72%.

2. Politico reports about an interview with Hillary Clinton.

“Joe Biden should not concede under any circumstances because I think this is going to drag out, and eventually I do believe he will win if we don’t give an inch and if we are as focused and relentless as the other side is,” Clinton said in an excerpt posted Tuesday.

3. Andrew Sullivan wrote,

And let’s be frank about this and call this by its name: this is very Weimar. The center has collapsed. Armed street gangs of far right and far left are at war on the streets. Tribalism is intensifying in every nook and cranny of the culture. The establishment right and mainstream left tolerate their respective extremes because they hate each other so much.

4. An interview with Vicky Osterweil, author of In Defense of Looting.

Ultimately, what nonviolence ends up meaning is that the activist doesn’t do anything that makes them feel violent. And I think getting free is messier than that. We have to be willing to do things that scare us and that we wouldn’t do in normal, “peaceful” times, because we need to get free.

5. White House Siege

[UPDATE] At Bloomberg, Niall Ferguson argues against the trope that we are becoming like Weimar Germany.

Trump, whose worldview and political style are so much closer to vintage American nativism and populism that I have the utmost difficulty understanding why any educated person would liken him to Hitler. I’ve said it before and I’ll say it again: You don’t need the Weimar Republic to explain the appeal to many American voters of immigration restriction, tariffs and a culture war directed against a “globalist” elite — not to mention the loosest monetary policy in American history. That recipe is the essence of American populism. It has almost nothing in common with interwar German fascism, which was about racial persecution and ultimately annihilation, economic autarky and actual war (hence all the uniforms and jackboots).

Tell us what you really think

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When Andrew Sullivan castigates the illiberal left, I believe that he is on point. When he castigates President Trump, I believe that he is over the top and unfair. This either says something about his bias or mine.

Regarding the President, Andrew Sullivan wrote,

But it’s also vital to understand that the most powerful enabler of this left extremism has been Trump himself. He has delegitimized capitalism by his cronyism, corruption, and indifference to dangerously high levels of inequality. He has tainted conservatism indelibly as riddled with racism, xenophobia, paranoia, misogyny, and derangement. Every hoary stereotype leveled against the right for decades has been given credence by the GOP’s support for this monster of a human being. If moderates have any chance of defanging the snake of wokeness, and its attempt to deconstruct our Enlightenment inheritance, we must begin with removing the cancer of Trump from the body politic. It is not an ordinary cancer. It is metastasizing across the republic and spreading to the lifeblood of our democracy itself. Removing it will not be enough. But not removing it is democratic death.

For me, the case for hoping that a Biden election would calm the political waters rests on assuming the following:

1. The liberal left does not in its heart support the illiberal left.
2. Once the liberal left does not have to contend with President Trump, it will seek to contain the illiberal left.

Conservative intellectuals who support Trump’s re-election doubt that these two assumptions are true. Many conservatives believe that (1) is false. See Michael Anton or Victor Davis Hanson. Others believe that (2) is false. See Yoram Hazony, who I think believes that the liberal left is too weak-kneed to confront the illiberal left without the help of conservatives.

The natural slowdown in virus spread

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Andrew Atkeson, Karen Kopecky, and Tao Zha write,

Relatively slow growth or even shrinkage of daily deaths from the disease was observed in every location that we study 20-30 days after that location first experienced 25 cumulative deaths, and the dispersion in growth rates of daily deaths across locations fell even more rapidly

They argue that the uniformity of this pattern across different locations implies that differences in lockdown policies are not important. This could be because the private responses to the pandemic are more uniform, or the network structure of social interaction leads to a rapid spread followed by a slower spared, or there is some biological factor at work. On the latter point, they cite another paper which reports that

of eight major influenza pandemics that have occurred since the early 1700’s (including the Spanish Flu of 1918-19), seven had an early peak that disappeared over the course of a few months without significant human intervention. Unfortunately, each of those seven had a second substantial peak approximately six months after the first.

I recommend the whole paper.

Meanwhile, Greg Ip writes,

Five months later, the evidence suggests lockdowns were an overly blunt and economically costly tool. They are politically difficult to keep in place for long enough to stamp out the virus. The evidence also points to alternative strategies that could slow the spread of the epidemic at much less cost. As cases flare up throughout the U.S., some experts are urging policy makers to pursue these more targeted restrictions and interventions rather than another crippling round of lockdowns.

My sense is that the best science says that we don’t know what works. Lockdowns are certainly the most theatrical policy, though. They allow politicians to show that they care. They are the equivalent of Hansonian medicine.

Note how well what I thought were outlandish predictions three months ago are holding up.

Five books on macroeconomics

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In response to a list of five conventional macroeconomics textbooks, I compiled my own list of books to read on macroeconomics. They won’t necessarily cover what’s on the exam in a typical course, but they will help you become learned on the topic.

An excerpt from my short essay:

The late Charles Kindleberger was an economic historian, and I believe a historian’s perspective is crucial for looking at macroeconomics. After all, there are no repeatable experiments in macroeconomics, only historical episodes. Kindleberger looks at the most dramatic episodes in history, using the framework of financial instability developed by Hyman Minsky. Kindleberger is a better expositor than Minsky. Also, Kindleberger emphasizes the phenomenon of “displacement,” in which a sudden change in world conditions, brought about by a major new discovery or the outcome of a war, triggers a dangerous mania. My own thinking about macroeconomics is a combination of Kindleberger-Minsky and Fischer Black (below).