Handle hypothesis watch

Posted on by

His hypothesis is that winner cities increasingly dominate. Marc Muro and Jacob Whitin write,

growth across communities now tracks exactly with their size. The nation’s bigger communities — powered by well-educated millennial workers and the agglomeration trends brought by digital technology — are now growing notably faster and accounting for more and more of the nation’s growth than before, even as small metros wane and most of the rural hinterland slides into deep decline. In short, fully half of all of the country’s employment growth took place in just 20 metropolitan areas, home to about one-third of Americans, led by the usual suspects of New York, Boston, the Bay Area, Seattle, and Washington, D.C., along with such fast-growing Sun Belt hubs as Dallas, Atlanta, Miami, and Orlando.

From Albion’s Seed to Colin Woodard

Posted on by

My latest essay covers David Hackett-Fischer, Walter Russell Mead, and Colin Woodard.

Fischer shows that each of these four cultures had a different concept of liberty. For the Puritans, it was “ordered freedom,” which meant the rule of law, but laws could reflect strict community standards and hence become “an instrument of savage persecution.” For the cavaliers, it was “hegemonic freedom,” which meant that individual rights were clearly articulated and strongly protected, but these rights varied by social class, so that they “permitted and even required the growth of race slavery.” For the Quakers, it was “reciprocal freedom,” which meant equality of all under the law, but theirs was “a sectarian impulse which could be sustained only by withdrawal from the world.” In the backcountry, it was “natural freedom,” which meant resistance to foreign influences (including government) but “sometimes dissolved into cultural anarchy.” The Constitution and the Bill of Rights can be viewed as a delicate compromise that attempted to incorporate these disparate notions.

Gabriel Rossman on Niall Ferguson’s latest book

Posted on by

Rossman writes,

to this sociologist’s ear, conflating social networks, civic organizations, and social movements is confusing and imprecise. Some forms of human action are shaped by the structure of personal relationships. Others are shaped by affiliation with voluntary associations from which we derive identity and meaning. Both are important alternatives to hierarchy, but they work in different ways and so should be kept distinct.

The Square and the Tower probably will turn out to be an important book for its major claim that order requires hierarchy. But I am confirmed in my belief that Ferguson’s failure to commit to a precise definition of the term “network” detracts from the work.

Bezos-care?

Posted on by

Ben Thompson writes,

Amazon could not only open up its standard interface to other large employers, but small-and-medium sized businesses, and even individuals; in this way the Amazon Health Marketplace could aggregate by far the most demand for healthcare.

To me, that sounds like a giant Obamacare exchange without the Obama regulations. A Bezos-care exchange if you will.

Read the whole post. A major point that Thompson makes is that it takes time to disrupt an industry, particularly one that is embedded deeply into a regulatory structure.

Life expectancy slowdown

Posted on by

Tyler Cowen cites a study that says that the rate at which life expectancy at birth (LEB) is increasing has slowed down. This does not surprise me.

Suppose that there are two outcomes. One outcome is that you live to a ripe old age. The other outcome is that you die within one year of birth. As the percentage of people who die early goes from 10 percent to 1 percent, average LEB goes up dramatically. As it goes from 1 percent to 0.1 percent, average LEB goes up more slowly. But I would not call that stagnation.

New Russ Roberts video on income distribution statistics

Posted on by

Here is part 2 of his series.

The video tries to make clear the flaws in comparing the income of the median household in, say, 1970, with that of the median household today. In very important respects, they are not the same household, so that the question that you think you are answering is not the question that you are really answering.

Russ is trying to teach people to think for themselves about economic questions and data. That is absolutely admirable. I worry that most people would just prefer to use the credentials heuristic, which means that they will accept whatever interpretation of data comes from someone whose credentials they respect. The respected person might not be a careful economist. It might not even be an economist at all–it could be a journalist with very weak analytical skills who happens to get hold of some data.

Or worse, some people might use a confirmation-bias heuristic. If the interpretation of the data confirms the your bias, then you go with that interpretation. Otherwise, you tune it out.

The Stock Market: narrower, deeper, older?

Posted on by

Check out two abstracts of papers by Rene Stulz and others.

Eclipse of the Public Corporation or Eclipse of the Public Markets?

Since reaching a peak in 1997, the number of listed firms in the U.S. has fallen in every year but one. During this same period, public firms have been net purchasers of $3.6 trillion of equity (in 2015 dollars) rather than net issuers. The propensity to be listed is lower across all firm size groups, but more so among firms with less than 5,000 employees. Relative to other countries, the U.S. now has abnormally few listed firms. Because markets have become unattractive to small firms, existing listed firms are larger and older. We argue that the importance of intangible investment has grown but that public markets are not well-suited for young, R&D-intensive companies. Since there is abundant capital available to such firms without going public, they have little incentive to do so until they reach the point in their lifecycle where they focus more on payouts than on raising capital.

Why has Idiosyncratic Risk been Historically Low in Recent Years?

Since 1965, average idiosyncratic risk (IR) has never been lower than in recent years. In contrast to the high IR in the late 1990s that has drawn considerable attention in the literature, average market-model IR is 44% lower in 2013-2017 than in 1996-2000. Macroeconomic variables help explain why IR is lower, but using only macroeconomic variables leads to large prediction errors compared to using only firm-level variables. As a result of the dramatic change in the number and composition of listed firms since the late 1990s, listed firms are larger and older. Larger and older firms have lower idiosyncratic risk. Models that use firm characteristics to predict firm-level idiosyncratic risk estimated over 1963-2012 can largely or completely explain why IR is low over 2013-2017. The same changes that bring about historically low IR lead to unusually high market-model R-squareds.

These reminded me of my “narrower, deeper, older” observation of hobbies, such as Israeli dancing. People are being more selective about hobbies. Each hobby has a narrower base of participants. They are deeper into the hobby. And if the hobby has been around for a while, the participants tend to be older.

This seems to describe the public stock market in the U.S. Companies are being more selective about whether or not to use the public market. The public market has a narrower base of companies participating. The participants tend to have higher market capitalizations. They have been around longer.

The supply is too damn low (housing)

Posted on by

Edward Glaeser and Joseph Gyourko write,

Empirical investigations of the local costs and benefits of restricting building generally conclude that the negative externalities are not nearly large enough to justify the costs of regulation. Adding the costs from substitute building in other markets generally strengthens this conclusion, as Glaeser and Kahn (2010) show that in America building restrictions are higher in places that have lower carbon emissions per household. If California’s restrictions induce more building in Texas and Arizona, then their net environmental effect could be negative in aggregate. If restrictions on building limit an efficient geographical reallocation of labor, then estimates based on local externalities would miss this effect, too.

Read the whole paper, or at least the conclusion.

Too little price discrimination?

Posted on by

Timothy Taylor writes,

Imagine yourself as the profit-seeking owner of a chain of retail stores. Would you charge the same (or nearly the same) price across all the stores? Or would you vary prices according to average income level of consumers who use that store, or according to whether the local economy was robust or shaky, or according to whether the store had geographically nearby competitors?

He points to a working paper by DellaVigna and Gentzkow suggesting that chain retailers are leaving money on the sidewalk by not engaging in price discrimination.

My thoughts:

1. Changing computer systems to allow this would be difficult. Note that the computer systems would have to avoid making the mistake of letting a customer buy a product at the low-price store and return it at the high-price store for a higher price.
2. Consumers might adapt. Some might be willing to drive long distances to save. It would create an opportunity for an arbitrageur to offer to buy stuff at the low-price store and ship it to customers who live near the high-price store.
3. Competitors might advertise that the high-price store is gouging its customers.

In general, saying that strategy X would work without thinking about how the market might adapt seems rather brave.

McArdle’s Rules for Life

Posted on by

She writes (among other suggestions),

Always order one extra dish at a restaurant, an unfamiliar one. You might like it, which would be splendid. If you don’t like it, all you lost was a couple of bucks.

…Go to the party even when you don’t want to. Nine times in 10, you’ll be bored and go home early. But the 10th time, you will have a worthy experience or meet an interesting person.

Sounds like it fits with my own rule for taking risks with high upside and low downside.

Also,

we keep ourselves bored in order to protect ourselves from feeling stupid. This is a bad trade.

That supports my idea of looking for new challenges at work.

I really like this rule:

Don’t just pay people compliments; give them living eulogies.

I enjoyed several other of her rules. I’m guessing that a collection of “n rules for life” from multiple contributors would be a fun book to put together and to read.