Sumner on Organ Markets

In the WaPo, he writes

The prohibition of payment to organ donors has led to a kidney shortage leading to the preventable loss of 5,000 to 10,000 lives each year. The cost of treating people with kidney disease is so high that an organ transplant market would not merely save lives, but would actually save money as well. According to the study, “the net benefit from saving thousands of lives each year and reducing the suffering of 100,000 more receiving dialysis would be about $46 billion per year, with the benefits exceeding the costs by a factor of 3.”

Organ markets would be a humane and profoundly moral development for the health sector. Hopefully we can get there.

Some Ice For That Burn

Meanwhile at the WaPo ...

Higher education is increasingly a house divided. In the sciences and even the humanities, actual scholars maintain the high standards of their noble calling. But in the humanities, especially, and elsewhere, faux scholars representing specious disciplines exploit academia as a jobs program for otherwise unemployable propagandists hostile to freedom of expression.

Stop pulling punches and tell us what you really think, William. A surprisingly scathing assessment though from the WaPo.

In engineering, my impression is that most serious researchers basically ignore the whole mess. "Great, you guys go do that thing, I'll be in my office ... ".

I could be wrong.

Capitalism and Freedom, A Retrospective

I stumbled upon this conversation between Russ Roberts and Milton Friedman, recorded two months before his death in 2006, in which they discuss his 1962 book Capitalism and Freedom. 

I cannot emphasize enough how much you should listen to this.

A Bad Optimization Problem

Roheeni Saxena writes

Economic inequality in the US has drawn attention to the attitudes and behaviors of the elite, as those who are educated in the top universities are both likely to start out wealthy and disproportionately likely to have an impact on the future of this country. To examine how this elite class would manage societal resources, the authors of a paper published in Science studied a group of Yale Law School students. 

The findings indicate that they’re more likely to make economic choices based on increasing the overall wealth of the nation rather than on increasing income equality within a nation. Thus, there’s a chance we’re selecting policymakers who are unlikely to address this issue.

Rather than anything nefarious, I think this phenomena is driven almost entirely by decisions being made using bad metrics, because good metrics are just too hard to calculate.

To make my point clearer, let $x = (x_1, ... , x_n)$ be a vector of variables quantifying the underlying real state of the economy. Maybe $x_1$ is nominal GDP, $x_2$ is inflation, $x_3$ is a 10 year yield, $x_4$ is unemployment, $x_5$ is some measure of consumption/income inequality, $x_6$ is average health outcomes, $x_7$ is average societal happiness, and so on.

The so-called elites in this study lean towards policy choices with an aggregate greater benefit to society, as measured in nominal dollars. So, for example, they may be trying to maximize the output variable $y = x_1$,  NGDP. Meanwhile, a more useful quantity to optimize might be $y = x_1 + c_2x_2 + \ldots + c_nx_n$, which incorporates all these factors with some weights $c_j$. This is much more complicated though, since you need a model which tells you how policy choices impact the full state $x$, along with variables $c_j$ quantifying how many units of $x_j$ are equal in net-beneift to a unit of $x_1$. Yikes.

Making good decisions requires good models. We don't have good models, so we make the best decisions we can, which are, of course, bad.

Williamson on Rate Hikes

He concludes

Central banks are not forced to adopt ZIRP, or NIRP (negative interest rate policy). ZIRP and NIRP are choices. And, after 20 years of Japanese experience with ZIRP, and/or familiarity with standard monetary models, we should not be surprised when ZIRP produces low inflation. We should also not be surprised that NIRP produces even lower inflation. Further, experience with QE should make us question whether large scale asset purchases, given ZIRP or NIRP, will produce higher inflation. The world's central bankers may eventually try all other possible options and be left with only two: (i) Embrace ZIRP, but recognize that this means a decrease in the inflation target - zero might be about right; (ii) Come to terms with the possibility that the Phillips curve will never re-assert itself, and there is no way to achieve a 2% inflation target other than having a nominal interest rate target well above zero, on average. To get there from here may require "tightening" in the face of low inflation.

So, given what we see, here are some possibilities:

1) Williamson and the Neo-Fisherites are right. It might hurt temporarily, but short term rates need to be raised if we want inflation to be higher in the long term.

2) Sumner, Svensson, Rowe, Friedman, etc are right. Inflation is purely monetary, and we aren't seeing it because we actually aren't doing nearly enough to budge the expectations on NGDP. Rates need to be kept 'low' (in fact, this crowd argues they're still 'high'). Moreover, if we want to do unconventional policies we need to not pay interest on reserves.

3) Neither group is right. Conventional monetary policy actually has no causal deterministic effect on inflation over some sufficient time horizon. Exogenous factors combined with psychological factors/expectations drive everything.

Addendum: Alan Derk adds the following

4) The economy is fundamentally changing (tech driven deflation or secular stagnation) and wrapping a macro model around it is missing the point.

Automation Where It Matters

Matt Yglesias writes

These days people are perhaps more likely to book a reservation or order a takeout meal with an app rather than a phone call, but the core work of serving and preparing food has seen very little progress.  

At the higher end of the salary spectrum, we still don't have robot doctors who can treat patients in lieu of costly and inconvenient human ones. Indeed, we can't even get medical records digitized properly.  

As it becomes clearer and clearer over time that smartphones and the internet simply aren't economic game changers on the same scale as air conditioning, jet planes, container ships, and televisions, it's become increasingly fashionable in Silicon Valley to simply retreat into denial.

          ...

Rather than hot business trends relating to new equipment that allows workers to deliver more value than ever before, one of the signal trends of our time has been a proliferation of online services that reduce the friction associated with having people get in their car and bring you things. Washio, for example, will send someone to my house to pick up my dry cleaning. Seamless will ping a restaurant and tell it to deliver takeout to my door. Postmates will send someone to get a takeout dinner from a restaurant that doesn't offer delivery. Homejoy will send someone to clean my house. These startups are okay business ideas, but they are not doing anything to advance the efficiency with which clothing is laundered, meals are cooked, or houses are cleaned.

Read the whole thing. As it turns out, one in fact cannot eat a smartphone. This ties into a recent conversation about inflation. To wit, the following:

That is, to a first approximation: prices of things you want are going down, and prices of things you need are going up.

The counter-argument is that these price increases are tied to meaningful increases in quality. I am not a subscriber to this for any of the "blue lines" above over the last ten years. For food, child care and vehicle maintenance, this is clearly nonsensical. For education, I am doubtful one could successfully argue that a four year degree today is of greater quality than in 2005.

Health care seems like the one area where this seems plausible. But cost of healthcare is another story.

Crispr-Cas9

"Dino....droppings?"

Amy Maxman writes

Using the three-year-old technique [called Crisper-Cas9], researchers have already reversed mutations that cause blindness, stopped cancer cells from multiplying, and made cells impervious to the virus that causes AIDS.

My reaction:

Captive Audiences

Matthew B. Crawford writes

A FEW years ago, in a supermarket, I swiped my bank card to pay for groceries. I watched the little screen, waiting for its prompts. During the intervals between swiping my card, confirming the amount and entering my PIN, I was shown advertisements. Clearly some genius had realized that a person in this situation is a captive audience.

The cheapest direct flights between Los Angeles and Toronto are run by United, operated by Air Canada. On the large 777 planes, seats have video displays embedded in the backs, with user controls.

In fact, I flew on such a plane today. Right before take-off, when no personal electronics are allowed, tray tables are in their upright and locked positions, and earbuds/headphones/earplugs have been removed to hear "safety announcements", I was greeted with a series of car commercials and wireless plan ads from "sponsors". It was borderline ... this. I'm not sure if these ads also run in business class.

I guess I prefer the less fancy planes.

Do What You Love?

Miya Tokumitsu writes

[Do What You Love] is a secret handshake of the privileged and a worldview that disguises its elitism as noble self-betterment. According to this way of thinking, labor is not something one does for compensation but is an act of love. If profit doesn’t happen to follow, presumably it is because the worker’s passion and determination were insufficient. Its real achievement is making workers believe their labor serves the self and not the marketplace ... “Do what you love” disguises the fact that being able to choose a career primarily for personal reward is a privilege, a sign of socioeconomic class.

Do what you love and you’ll never work a day in your life! Before succumbing to the intoxicating warmth of that promise, it’s critical to ask, “Who, exactly, benefits from making work feel like nonwork?” “Why should workers feel as if they aren’t working when they are?” In masking the very exploitative mechanisms of labor that it fuels, DWYL is, in fact, the most perfect ideological tool of capitalism. If we acknowledged all of our work as work, we could set appropriate limits for it, demanding fair compensation and humane schedules that allow for family and leisure time.

Miya frames her argument around workers rights and employee exploitation. I think this misses the big picture. I view the DWYL mantra less as calculated elitist slang, and more as an attempt to hold on to a production/wage-based economic model in the face of increasing automation. That is, an alternative explanation is that most "work" is becoming unnecessary. Society consciously or subconsciously realizes this, and puts a folky, agreeable war-time slogan as a band-aid. Rather than a "perfect ideological tool of capitalism", I think DWYL is the equivalent substituting hamburger for steak.

In any case, my view on work engagement is the converse: do something first, become good at it, and later you'll love it. It's hard to love doing something you aren't at least decent at. 

Applying these ideas to academia, she writes

Nowhere has the DWYL mantra been more devastating to its adherents than in academia. The average Ph.D. student of the mid-2000s forwent the easy money of finance and law (now slightly less easy) to live on a meager stipend in order to pursue his passion for Norse mythology or the history of Afro-Cuban music. ... The reward for answering this higher calling is an academic employment marketplace in which about 41 percent of American faculty are adjunct professors—contract instructors who usually receive low pay, no benefits, no office, no job security, and no long-term stake in the schools where they work.

Several points:

1. Over which set of PhD students is this average being taken? I can assure you that if your PhD is in electrical engineering or computer science, your best post-PhD career option is not an adjunct position. Nor is walking away from academia to industry a death sentence -- engineering departments greatly value scholars who have experience as practicing engineers. So this statement is at least not true generally.

2. Markets are not perfect algorithms for calculating economic valuations and punishing "unproductive" activity, but they are the best tools we have. With caveats in mind, markets appear to have decided that the study of certain sub-disciplines does not deliver significant economic value. Hence, even at the tenure-track level, salaries and available resources reflect this. Moreover, supply and demand for labour in these areas can very quickly come out of balance, driving down the acceptable level of wage for an adjunct struggling with sunk costs. I do not buy the argument that leaving for industry would signal a lack of dedication to the academic tribe -- this is a red herring to distract from the utter lack of walk-away options in certain disciplines. You can of course contend that markets are not properly valuing the activity, or are too short-sighted.

Some other thoughts came to mind regarding the underlying societal and macroeconomic forces driving these phenomena in academia, but I will explore those in another post.

Overall, I think the proper way to frame Miya's thoughts is in terms of giving individuals a walk-away option, such as a basic income guarantee.

Peter Thiel Cares Not For Your Bachelor's Degree

In another presentation he offers a critical perspective on education. In particular, he notes that ostensibly, the current education paradigm is a form of indeterminate pessimism, where a degree serves as an insurance policy against an uncertain-but-probably-not-good future. However, he suggests that more fundamentally education has become a zero-sum tournament, where a diploma from a top 10 school is a golden ticket and a diploma from a low-ranked institution is a dunce hat in disguise. The material taught at these institutions is of course not substantially different: the value of the degree from the highly ranked school comes from a system of exclusivity and vetting.

Note that his proposition is about the education industry at large, and not about any particular individual motivation. Observationally, the insurance policy hypothesis is consistent with the advertising strategies I see, especially with lower prestige institutions. 

His second hypothesis about the zero-sum tournament resonates with me. I've observed academic departments interviewing recent PhDs for Professor positions where, if your CV does not say Berkeley, Stanford, Caltech, or MIT on it, you will not be interviewed. See also Flaherty, and Kling's comments on this phenomena.

Exponential Growth Looks Linear ... Until It Isn't

Solar took 40 years to reach 1% of world electricity production. The next 1% will take just 3 http://t.co/joSDySlbng pic.twitter.com/ScPilE92Fl

— Ramez Naam (@ramez) June 18, 2015

Peter Thiel Quad Chart's the Future

In his 2013 talk at SXSW, Thiel suggests the following categorization of the future

The future is categorized according to optimism/pessimism and determinacy/uncertainty. When the future is definite, one can engage in plans with conviction, while indefinite futures require diversification. In moving from determinacy to uncertainty, we move from tools like calculus to tools like statistics, and instead of focusing on the substance or specifics of projects, we instead focus on processes and product delivery platforms. 

Thiel notes that indeterminate optimism is potentially an unstable quadrant, since it is characterized by both low savings (why save now if things will be better in the future) and low investment (things are uncertain, so investment opportunities are unclear). One manifestation of this is tumbling bond yields, which I will write more about later this week. Clearly it is ...erm, unclear, how an iterative year-by-year process with these characteristics (no saving, no investment) can on average lead to a future which is better. His main argument is therefore that we are transitioning to another quadrant, and implicitly suggests that if we fail to form definite plans for a better future through technological advance, a 1990's style Japanese death spiral awaits. Mercy.

I view these ideas mostly as a version of Larry Summers secular stagnation hypothesis, where slowing technological development leads to a dearth of investment opportunity and weakens aggregate demand. In this sense, Thiel is in agreement with Ben Bernanke, who also argues that secular stagnation is unstable (in Ben's argument, due to global capital flows).

Bobby Kennedy Understood Positive and Negative Externalities

From his speech at the University of Kansas in March 1968,

Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.

Basic Income Watch

Peter Fleming asks "why do people waste so much time at the office?",

In other words, work has become ritualised and detached from the practical things it was invented to accomplish.

Why do we work? The obvious answer is "to live". But it's not our actual job - giving a lecture, selling a car, nursing a patient or flying a passenger jet - that directly secures our life conditions.

For sure, most occupations in the West have drifted far away from the baseline of biological self-preservation. A job simply grants us access to man-made vouchers we call money. We then redeem these so we can then purchase life. 

How many vouchers we obtain and what we have to do to get them is the political question par excellence under neoliberal capitalism. But it's this growing disconnect between labour as a biological/social requirement versus work as a cultural artefact that has seen it take on a life of its own, spiralling out of control, taking over everything else.

Herein lies the work paradox. At the very moment it is glorified as the highest civic virtue (on both the political left and right) it is drying up at an unprecedented rate.

Slow GDP growth is nodding its head. One possible end game of this process is policy which partially decouples work from income -- a basic income guarantee. Of course, there are other end games as well.

Blue-Collar Blues

The Economist reports that

The men in Tallulah are typically not well educated: the local high school’s results are poor even by Louisiana’s standards. That would have mattered less, in the old days. A man without much book-learning could find steady work at the mill or in the fields. But the lumber mill has closed, and on nearby farms “jobs that used to take 100 men now take ten,” observes Jason McGuffie, a pastor. A strong pair of hands is no longer enough.

The article is excellent, but difficult to cleanly excerpt. It deals with the changing (more bluntly: imploding) job market for blue-collar labor, and its consequences for both men and women. For example, women on average are becoming more educated than men, and educated women are less willing to marry down the socioeconomic ladder. This generates an excess supply of uneducated men relative to uneducated women, i.e., a shrinking blue-collar dating pool.

Humans and Networks

Before beards were cool.

Yuval Noah Harari theorizes why humans run the world

Yet how come humans alone of all the animals are capable of cooperating flexibly in large numbers, be it in order to play, to trade or to slaughter? The answer is our imagination. We can cooperate with numerous strangers because we can invent fictional stories, spread them around, and convince millions of strangers to believe in them. As long as everybody believes in the same fictions, we all obey the same laws, and can thereby cooperate effectively.

This condition is clearly not sufficient to explain our dominance, but its necessity is an interesting thought. I am not fond of the terminology "stories", as telling someone else a "story" nearly always connotes deception. Although in some cases, perhaps that is the accurate description.

I read the narrative as being the following: humans create social abstractions to generalize clumsy physical or social practices, the abstractions evolve non-deterministically over time, driven by strong network and inter-generational effects, and are eventually (rightly or wrongly) elevated to the status of commandments from above. There shalt be currency. Thou shalt not cross borders without documents. Thou shalt get married. Ye shalt serve thy military.

P. S. Still working on my Old English.

Cognitive Bias and Pop Nutrition

Very science, much diagram.

Clay Jones muses regarding Alan Levinovitz's "The Gluten Lie"

"As humans, we are terrible at evaluating causal relationships. We are prey to a variety of placebo and nocebo affects. Our memories are highly unreliable. Confirmation bias and the avoidance of cognitive dissonance are powerful forces in all of our lives. And once a self-diagnosis is made, we are amazingly resistant to questioning it, likely because of the societal stigma against a psychological origin for symptoms."

I have not read the full book, but may yet. To think clearly about any difficult topic, one must put aside the voice in one's head that says "It's like this!" and go to the data. Nutrition is a difficult subject to study, because high-quality data is incredibly difficult to obtain. Enter various gurus, cranks, quacks and con artists who know the one true cause of your problems. Multiple double-blind placebo-controlled studies are your only protection.

Unfortunately science is hard, but we don't really have a choice; it is the only technique which can save us from mysticism and the dark ages of human thought.

The Robots Are Coming

"I'm sorry Dave, I'm afraid you're out of a job."

Kevin Kelly speculates

Like all utilities, AI will be supremely boring, even as it transforms the Internet, the global economy, and civilization. It will enliven inert objects, much as electricity did more than a century ago. Everything that we formerly electrified we will now cognitize. This new utilitarian AI will also augment us individually as people (deepening our memory, speeding our recognition) and collectively as a species. There is almost nothing we can think of that cannot be made new, different, or interesting by infusing it with some extra IQ. In fact, the business plans of the next 10,000 startups are easy to forecast: Take X and add AI. This is a big deal, and now it's here.

The observation that AI will appear quite boring is astute. How excited were you when your Facebook feed was spontaneously better organized, or when your autocorrect seemed to stop harassing you as much as before? These are small percentage changes in usability, but small percentages add up to market-dominating products. He goes on to describe a conversation with Larry Page, along with this insightful example

Rather than use AI to make its search better, Google is using search to make its AI better. Every time you type a query, click on a search-generated link, or create a link on the web, you are training the Google AI. When you type “Easter Bunny” into the image search bar and then click on the most Easter Bunny-looking image, you are teaching the AI what an Easter bunny looks like. Each of the 12.1 billion queries that Google's 1.2 billion searchers conduct each day tutor the deep-learning AI over and over again. With another 10 years of steady improvements to its AI algorithms, plus a thousand-fold more data and 100 times more computing resources, Google will have an unrivaled AI 

...  

The more people who use an AI, the smarter it gets. The smarter it gets, the more people use it. The more people that use it, the smarter it gets. Once a company enters this virtuous cycle, it tends to grow so big, so fast, that it overwhelms any upstart competitors. As a result, our AI future is likely to be ruled by an oligarchy of two or three large, general-purpose cloud-based commercial intelligences.

Much like a carcass in the wilderness, no data is to be wasted. It's quite easy to forget that these services are far from free -- you are feeding the beast. The observation regarding accelerating returns is incredibly important; see Watson. He goes on to describe the synergistic possibilities

If AI can help humans become better chess players, it stands to reason that it can help us become better pilots, better doctors, better judges, better teachers.

Again, bang on. Things then go off the rails a bit

Most of the commercial work completed by AI will be done by special-purpose, narrowly focused software brains that can, for example, translate any language into any other language, but do little else. Drive a car, but not converse. Or recall every pixel of every video on YouTube but not anticipate your work routines. In the next 10 years, 99 percent of the artificial intelligence that you will interact with, directly or indirectly, will be nerdily autistic, supersmart specialists.

I view this as fairly naive. I think he underestimates (1) how trivial it will be to network an integrate these highly trained algorithms (2) how the drum of progress will have us to do just that, and (3) how nonexistent the regulatory structure regarding AI will be when it "arrives". We are thirty years into the internet and governments are nowhere near catching up.

Overall the post is excellent and worth a full read.