Friday, September 30, 2022
Economist lead article on President Xi's "rejuvenation," and efforts to "maintain authority",
When Mr Xi took over in 2012, China was changing fast. The middle class was growing, private firms were booming and citizens were connecting on social media. A different leader might have seen these as opportunities. Mr Xi saw only threats.
[Xi has] reasserted state control over the economy and hobbled some of China’s most successful firms. His plan to tame the property market lies in tatters and bad loans weigh perilously on the economy.
Ironically, he is forgetting the lessons of Xiaogang village, and harming his own economy much faster than he is harming ours (see post below).
China adapted and allowed the institution of private property to spread. At the time, many people predicted China would continue to reform and they were let into the WTO. However, "...as even the most ardent defenders of China’s WTO accession now acknowledge, that did not happen." Today we are left with an integrated world with two very different systems. To explain the effect, we can use the metaphor of A/B testing:
...imagine that the Department of Justice randomly assigns half of U.S. corporations to be A-corps and half to be B-corps. For A-corps, nothing changes. But B-corps now enjoy special privileges and rules. They are exempt from laws governing intellectual-property theft. They receive more-favorable tax incentives. They are recipients of sizable subsidies, including some to buy their A-corp rivals. They are able to enlist the DOJ to win capricious legal claims against A-corp rivals.
The result of such an experiment would be dire: The best, most innovative A-corp firms would lose market share; A-corps would be loath to invest in research and development, given that B-corp rivals would be able to purloin it; and there would be massive waste as inefficient B-corp firms expanded more than market forces required. Now extrapolate that to the global economy and you get a sense of the harms the Chinese system has imposed on capitalist economies.I did a search on all my posts in China and I came across this one from 2007: "Market Socialism" and China's new antitrust laws in which I argued that unless China developed "... the kinds of Democratic institutions that provide checks and balances on state power," their economy could stagnate under the what i called "regulatory miasma." It turns out that, I needed the caveat I closed with:
But China's oxymoronic "socialist market economy" has surprised us before. In the words of Deng Xiaoping, "I don't care if the cat is black or white as long as it can catch mice."
Thursday, September 29, 2022
President Biden touts the Inflation Reduction Act, which lowers deficits by $240 billion over a decade, he has also signed into law increased spending on veterans benefits, infrastructure and semiconductors, while taking executive actions that vastly expand food stamp and Obamacare benefits and cancel student debt worth $400 billion to $1 trillion.
Increased Govt. spending increases Aggregate Demand for US Goods and Services, which increases price (inflation).
Someone tell the FTC.
Wednesday, September 28, 2022
From the Economist:
...in aggregate the West’s corporate debt load looks manageable ... American public companies’ earnings before interest and tax are a healthy 6.7 times the interest due on their debts, up from 3.6 times in 2000.
But 3 types of loans may be in for a "reckoning:"
- The first comprises businesses that have come to rely on less orthodox sources of credit, which are often those with the diciest prospects.
- The second area of vulnerability involves so-called zombie firms: uncompetitive enterprises, kept alive by cheap debt and, during the pandemic, government bail-outs.
- The third and biggest area of concern involves firms that are merely unfit rather than undead.
Monday, September 26, 2022
“If there is no formal or informal pressure on addicted people to seek treatment and recovery and thereby stop using drugs, we should expect continuing high rates of drug use, addiction and attendant harm,” said Keith Humphreys, an addiction researcher and professor at Stanford University and former senior adviser in the White House Office of National Drug Control Policy.
Of 16,000 people who accessed services in the first year of decriminalization, only 0.85% entered treatment, the health authority said.
In the end, what really reads in this strange piece is that this gentleman didn’t like the Water Street apartments in Vineyard Haven for some reason, and is nervous about the Lambert’s Cove development. To this, there is of course an argument to be expressed and heard. But when it takes the form of such cynical bloat, it becomes a mockery of its own argument. It makes clear that the spirit of “not in my backyard” is as much of an obstacle to continuing to preserve the Island’s community as some self-interested folks, such as those who are pretending to oppose the housing bank out of supposed “environmental” issues.
... I am also absolutely and constantly baffled when people complain about the one, sole affordable housing developer on the Island, a developer which takes great pains to protect the environment and build in accordance with what natural environment and cultural environment exists there, such as preserving and occasionally building around trees and trying to tear down as little as possible — and then conveniently miss the fact that every other building in Edgartown, for instance, has been torn down and turned into a McMansion over the past three years. If this attitude doesn’t come from self-interested hypocrisy, it comes from an extreme level of blindness.
The returns to education to those who finish a degree (especially in a STEM major) are huge. The high price of college easily pays for itself several times over.
HOWEVER, if you major in a non-STEM subject it may not. Similarly, if you drop out without a degree (a quarter to a half of all students), you will have smaller debt but also a smaller salary which makes paying off the debt much harder.
The big increases in tuition seem to track the increases in subsidies offered by the government.
Most of this info is taken from Marginal Revolution Blog Posts on Higher Education.
Friday, September 23, 2022
- Be nice--no first strikes
- Be provokable--retailiate immediately if your rival cheats
- Be forgiving
- Be clear--make sure your rival can interpret your moves
- Dont be envious--focus only on your slice of the profit pie
In Nowak's experiment, the students played more than 8,000 games of prisoner's dilemma, using dimes to reward and punish. The normal game of prisoner's dilemma gives two players two options: cooperate or defect. If both cooperate, each ends up winning a dime. If both defect, each gets nothing. If one cooperates and the other defects, the cooperative player loses 20 cents and the defector wins 30 cents. Nowak then added a "costly punishment" component. A player could choose to punish someone who didn't cooperate. That penalized the non-cooperative person 40 cents, but the other player had to pay a dime to mete out the punishment. When Nowak compared how much money people earned or lost in the long run, there was a noticeable correlation between punishment and overall money. The players who punished their opponents the least, or not at all, made the most money. Those who punished the most made the least money.
Thursday, September 22, 2022
The FTC's Bureau of Economics relased their FACTA study, which concludes that:
- Credit scores effectively predict ... the total cost of [auto insurance] claims.
- Credit scores permit insurers to evaluate risk with greater accuracy, which may make them more willing to offer insurance to higher-risk consumers ... . [note: this is why you can call up GEICO, let them look at your credit report, and get an auto insurance quote over the phone].
- ..as a group, African-Americans and Hispanics tend to have lower scores than non-Hispanic whites and Asians.
- ...scores effectively predict risk of claims within racial and ethnic groups.
- The Commission could not develop an alternative scoring model that would continue to predict risk effectively, yet decrease the differences in scores among racial and ethnic groups.
Theory tells us that in states which ban the use of credit scores to price insurance (California and Massassachusetts) insurance companies would find it more costly to distinguish high from low risks, so they may lump them together (called "pooling"), and price insurance at the average risk. Or they may be concerned that only high risks would be willing to buy high-priced insurance (what economists call "adverse selection") and price high or, if price controls prevent high prices, exit the market.
I would be curious if any of our readers know of novel uses of credit scores as a screening mechanism, or if they have developed better predictors (point 5) in a particular application, like pricing insurance or screening job applicants.
Tuesday, September 20, 2022
The government’s price-fixing exacerbates the problem. Dairy farmers, for example, must sell their milk for 25% less than it costs to produce, and the government is not making up the difference. ...Many have left the business or thinned their herds.
I’ll just ask myself, well, are their views worse than the views of someone who wants price controls on prescription drugs?
[In case you didn't understand the test, drug price controls kill thousands of people each year by reducing supply.]
Monday, September 19, 2022
- 55% that a Republican wins the 2024 Presidential Election
- 75% that Republicans win the 2022 House majority
- 65% that Democrats win the 2022 Senate majority
Unlike pundits and polls, with their quirky methodologies and unspoken partisan biases, prediction markets are much more transparent and accurate in the information they provide.See past blog posts using prediction markets.
Saturday, September 17, 2022
- students take harder classes;
- spend more time on extracurricular activities; but
- are less likely to stay at their first job out of school for longer than a year
Wednesday, September 14, 2022
Criminals are willing to risk future punishment for the current gains of crime. In other words they have high discount rates. It looks as if the EU does as well.
The WSJ reports:
The European Union outlined a sweeping plan to claw back about $140 billion in profits and revenue from companies enriched by soaring energy prices in a bid to stabilize the bloc’s energy markets in response to Russia’s punishing assault on the continent’s economy.
redistribute some energy companies’ windfall profits and revenue to cushion the blow of high prices for consumers.Long-run/future/indirect impact:
Reduced incentive to conserve (demand), develop alternate sources or invest in new capacity (supply).
Bottom line: EU is fixing todays problems but creating bigger ones in the future.
...the U.S.’s leading position in academic research, and the close links of universities and business, gave the country a head start in computerization in the 1970s and early 1980s, in the internet in the 1990s and in newer internet applications and artificial intelligence more recently.
Each innovation sparked a wave of investment to take advantage of it. This improved profitability and attracted foreign capital—pushing up the dollar. <Note, USD is the price of a dollar measured in foreign currencies>
Inventions don’t stay in one country for long. But in each case America’s head start gave it a few years’ lead before investments elsewhere looked as profitable.
Which lead to capital outflows and more consumption (imports), pushing down the USD, causing the cycle.
WARNING: This kind of after-the-fact theorizing is good for developing theories, but is not a substitute for testing them, i.e., correlation does not imply causality.
Sunday, September 11, 2022
My winemaker brother grows and sells his cabernet grapes (Napa Appellation) for $7000/ton, but buys Zinfandel grapes (Lodi Appellation) for $900 to make his own wine.
When I asked him why he didn't make wine from his own grapes, he said "I cannot afford them." In other words, the extra value of drinking Napa Cabernet over Lodi Zinfandel is less than the opportunity cost ($7000-$900=$6100) of doing so.
Stuck in Lodi, by CCR
Friday, September 9, 2022
...psychologists significantly overestimated the replicability of published psychology research in the reproducibility study. In general, behavioral scientists overestimate not only the effect of nudges, but also the impact of psychological phenomena and the replicability of published behavioral science research.
Tuesday, September 6, 2022
...BlackRock’s environmental, social and governance investment policies appear to involve “rampant violations” of the sole interest rule, [...which] requires investment fiduciaries to act to maximize financial returns, not to promote social or political objectives.
The existence of significant procedural delays in trials and sentencing may [reduce the perceived costs of crime], pushing the eventual punishment further into the discounting window.
Instead it suggests that:
- Reduce short sentences in brutalising prisons in favour of greater use of suspended sentence or punishments akin to UK community orders,
- Longer jail terms for repeat offenders to remove them from circulation "incapacitation," and place an emphasis on humane treatment within prison environments.
- Visible policing and and contact with communities as a central point of practice.
- Street lamps
From Effective Altruism Forum:
...back of the envelope calculation based on prior research has one murder in New York equalling 600 people moving to the suburbs
Thursday, September 1, 2022
- Understand disparities by controlling for differences in training and education.
- Find the root causes of bias
Preference bias is good old-fashioned bigotry (animus-based discrimination).
Information bias (statistical discrimination) arises when employers have imperfect information about workers’ potential productivity and use observable proxies, like gender or race, to make inferences (gender stereotypes are a classic example).
Structural bias occurs when companies institute practices, formally or informally, that have a disparate impact on particular groups, even when the underlying practices are themselves group blind. Employee referral programs can fall into this category.
- Follow-up to find what works and what doesn't
Solutions that yield measurable results can be substantiated into company policy, while those that don't should be discarded. In the case of the hospital network, once a small change was made to the structure of their scheduling, gender differences were reduced. Despite countless hours spent in training and seminars, their results were unchanged for years. The solution was hidden in plain data.
· Cigarettes (US)
o −0.3 to −0.6 (General)
o −0.6 to −0.7 (Youth)
· Alcoholic beverages (US)
o −0.3 or −0.7 to −0.9 as of 1972 (Beer)
o −1.0 (Wine)
o −1.5 (Spirits)
· Airline travel (US)
o −0.3 (First Class)
o −0.9 (Discount)
o −1.5 (for Pleasure Travelers)
· Oil (World)
· Car fuel
o −0.25 (Short run)
o −0.64 (Long run)
· Medicine (US)
o −0.31 (Medical insurance)
o −0.47 (Austria)
o −0.80 (Bangladesh)
o −0.80 (China)
o −0.25 (Japan)
o −0.55 (US)
· Cinema visits (US)
o −0.87 (General)
· Live Performing Arts (Theater, etc.)
o −0.4 to −0.9 
o −0.20 (Bus travel US)
o −2.80 (Ford compact automobile)
· Soft drinks
o −0.8 to −1.0 (general)
o −0.2 to −0.3
- Vaccines worked to prevent death. Really well, and as advertised. They held western death rates down despite elderly and obese populations.
- Lockdowns and restrictions were very effective only when combined with near-total travel bans, and when kept in place until full vaccination.
- It’s not clear that even the most effective anti-Covid restrictions pass a cost-benefit test, when it comes to freedom versus safety (10-15 days added to every life.)
- In the United States, air-borne lead dropped sharply near affected plants, most of which were battery-recycling plants.
- In Mexico, production increased at battery-recycling plants ... and birth outcomes deteriorated within two miles of those plants