Saturday, January 15, 2022

Why are Google, Amazon, Meta and Micrsoft laying their own transatlantic cables?

From the WSJ:

The ability of these companies to vertically integrate all the way down to the level of the physical infrastructure of the internet itself reduces their cost for delivering everything from Google Search and Facebook’s social networking services to Amazon and Microsoft’s cloud services. It also widens the moat between themselves and any potential competitors.


Thursday, January 6, 2022

Why is St. Louis considering restarting a trolley that no one wants?

Maxim:  Consider all costs and benefits that vary with the consequence of a decision [if you miss some that is the hidden-cost fallacy]; but only costs and benefits that vary with the consequence of a decision [if you consider irrelevant ones that is the sunk-cost fallacy].  

  • 2018: The trolley started operational life —six years behind schedule and about $10 million over budget.  Ticket revenue was 10% of what was originally forecast and nearbt businesses hated it.
  • 2019:  St Lous shut it down, but the Federal Transit Administration (FTA) demanded the return of $37 million the government paid for the project. 
Analysis:  Reviving the streetcar would require additional operating funds, BUT not reviving it would require paying back $37 million.

Lest you commit the hidden-cost fallacy, returning the federal funds would also hurt the St. Louis ability to secure federal grants for future projects, i.e., from the President Biden's $1.2T infrastructure bill.

Prediction: St. Louis will revive the trolley that no one wants.

HT:  Michael

Sunday, January 2, 2022

The last refuge of a vacant liberal mind

 On Christmas day, the headline in the NY Times business section was As Prices Rise, Biden Turns to Antitrust Enforcers.  Larry Summers immediately [and correctly] bashed the idea:

“The emerging claim that antitrust can combat inflation reflects ‘science denial,’ ” tweeted Harvard economist Lawrence Summers, a senior official in the Obama and Clinton administrations. “There are many areas like transitory inflation where serious economists differ. Antitrust as an anti-inflation strategy is not one of them.”

In the late 1970's, I heard John Kenneth Galbraith, the economist in charge of price controls during WWII, say much the same.  He called the idea "the last refuge of a vacant liberal mind."  The turn of phrase was so elegant and shocking--at the time, I was a liberal--it has stayed with me.  

Monday, December 27, 2021

How did Larry Summers correctly predict inflation?

... I thought if you were filling a $30 billion hole [the insufficient aggregate demand necessary to get the US economy to full employment] with $200 billion of spending, there was likely to be some overflow and that overflow would translate into inflation. I did the same calculation essentially, looking at GDP, and I saw a 2% or 3% GDP gap, met with about 15% of stimulus. (LINK)
A lot of macroeconomics uses microeconomics tools like demand and supply.

Sunday, December 19, 2021

Why is Europe lagging the US and China?

Since 2000, the EU's share of world income has fallen has fallen from 33% to 25%; and the its companies share of world value has fallen from 31% to 16%.

The Economist mistakenly attributes the difference to several factors:

  • Europe's firms seem to have been out-managed 
  • Its biggest firms are in the wrong industries
  • Entrepreneurial deficiency

All of these seem like symptoms of the EU's decline, not causes. My best guesses about what caused EU's decline are:
This shows up in the graph below, showing that "...in the past decade venture capitalists have backed 661 companies that went on to be worth over $1bn. Only 78 of these “unicorns” are in Europe, worth 8% of the 661 firms’ over-$2.5trn total."

Tuesday, December 14, 2021

Does Kroger think that moral hazard explains vaccine reluctance?

How else do you explain their cut in Covid-19 benefits to unvaccinated employees? Here is what Kroger says: 
 ...the company is modifying policies to encourage safe behaviors [emphasis mine] as it prepares to navigate the next phase of the pandemic, and that the changes are designed to create a healthier workplace and workforce. 
As treatments for COVID-19 get better, the benefit of getting vaccinated declines.  

Committment Matters when Bargaining

And I bet he got $300.


Saturday, December 11, 2021

Nobel lecture on inferring causality from non-experimental data

Why poker players are thinking like economists

The rise of online poker created a divide between old-school players who had made their careers playing live poker in casinos and a new school of online players who learnt the game on the internet. ... It was the new-school players who took game theory seriously, particularly the idea of Nash equilibrium strategies (which players referred to as “Game Theory Optimal” strategies).
Three changes stand out. 
  •  More frequent bluffing: Perhaps most noticeable was how often new-school players bluffed (i.e. bet with weak hands). ... The logic is twofold. First, bluffing means your opponents will need to call your bets often to stop you winning with weak hands; hence you’ll frequently win a lot when you have a strong hand. Second, many hands you bluff with can improve and become a strong hand when more community cards are dealt. ...
  • Short-stack play. When players have relatively few chips, decisions can often be boiled down to a choice between going all in (i.e. betting all your chips in one go) or folding. When poker can be simplified in this way, game theory provides recommendations on exactly when to go all in and which hands to fold.
  • Mixed strategies. Game theory often recommends mixed strategies – randomly choosing what to do with a given hand in some situations – to avoid becoming too predictable. This was particularly important for players on the internet, where opponents could use tracking software to analyse their play and look for weaknesses.