Monthly Archives: July 2018

Productivity divergence

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The WSJ reports,

According to data on advanced economies from the Organization for Economic Cooperation and Development, the most productive 5% of manufacturers increased their productivity by 33% between 2001 and 2013, while productivity leaders in services boosted theirs by 44%.

Over the same period, all other manufacturers managed to improve productivity by only 7%, while other service providers recorded only a 5% increase.

Think of a firm as consisting of labor, capital, and intangibles. The intangibles include knowledge and business strategy.

When intangibles hardly matter, then capital and labor ought to be about equally productive across all firms. When intangibles matter a lot, then productivity differences will widen.

Russ Roberts on the outrage epidemic

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He writes,

What has changed is our ability to feed and indulge our tribalism, particularly with news and politics. This new-found ability is the result of the transformation of the news and information landscape. It began with cable news. The internet has taken it to a new level.

As Roberts points out, it is not just that modern media have the ability to stimulate feelings of outrage. They have a strong incentive to do so.

Roberts elaborates on these points in this podcast.

The Trump Administration’s re-organization proposal

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So far, I have only skimmed parts of the reform proposal.

Reorganizations in the private sector have demonstrated that without efficient and effective implementation, even well-conceived reorganizations may fail to achieve the intended benefits. To ensure effective implementation, the President’s Management Agenda highlighted three areas (see figure to the right) which help drive effective organization transformation:
• Information Technology Modernization.
• Data, Accountability, and Transparency.
• People and the Workforce of the Future.

It is a very serious document, which you would not have expected if you only followed this Administration through tweets and media reports.

Of course, I would have liked to see something more sweeping, along the lines that I proposed six years ago. From an organization-chart perspective, the President has over 150 direct reports, and I would have reduced it to eight.

Vacation in the Canadian Rockies

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I was away for a couple of weeks, and I left behind scheduled-ahead posts for that period.

1. I usually have about a 3-day lag between writing and posting, but the lag was longer during the vacation. Also, I was frequently without Wi-Fi or cell service, so I could not keep up with comments well at all.

2. The Canadian Rockies are justifiably a bucket-list destination, although my wife and I don’t maintain a bucket list. We enjoyed the secondary sites much more than the main tourist attractions, in part because the latter were uncomfortably crowded.

3. We could really feel the emergence of the middle classes of East Asia and India. The proportion of tourists from those areas seemed roughly comparable to their share of world population. You will know that Africa and Latin America have developed when you can say the same thing about tourists from there.

4. I thought about sex a lot. No, it’s not that kind of a vacation spot. But the one book I read was Mona Charen’s Sex Matters, which is a critical history of the feminist and sexual revolutions. Now that I have sorted out my own thinking about the battles of social norms concerning sex, I have a new essay on the topic.

Eric Weinstein on Inequality

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Interviewed by Sean Illing for Vox. A couple of excerpts:

I believe that market capitalism, as we’ve come to understand it, was actually tied to a particular period of time where certain coincidences were present. There’s a coincidence between the marginal product of one’s labor and one’s marginal needs to consume at a socially appropriate level. There’s also the match between an economy mostly consisting of private goods and services that can be taxed to pay for the minority of public goods and services, where the market price of those public goods would be far below the collective value of those goods.

Beyond that, there’s also a coincidence between the ability to train briefly in one’s youth so as to acquire a reliable skill that can be repeated consistently with small variance throughout a lifetime, leading to what we’ve typically called a career or profession, and I believe that many of those coincidences are now breaking, because they were actually never tied together by any fundamental law.

. . .A friend of mine said to me, “The modern airport is the perfect metaphor for the class warfare to come.” And I asked, “How do you see it that way?” He said, “The rich in first and business class are seated first so that the poor may be paraded past them into economy to note their privilege.” I said, “I think the metaphor is better than you give it credit for, because those people in first and business are actually the fake rich. The real rich are in another terminal or in another airport altogether.”

Pointer from Tyler Cowen.

I would describe the interview as a set of very interesting threads, which to my frustration are left dangling. I don’t know whether the fault lies with Eric, the interviewer, or the editor.

Question from a reader

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May I recommend an explanation of what economists mean by “Bayesian”? See it everywhere but, even though I’ve googled the term looking for some simple, understandable definition, I just cannot grasp it.

1. I don’t use that term much, if at all. So maybe someone else should answer it.

2. A Bayesian as opposed to what? In statistics, the opposite is a Frequentist. The difference is one of interpretation, and it shows up, for example, in the interpretation of a confidence interval. Suppose we poll a sample of voters and find that 55 percent support policy X, with a margin of error of + or – 3 percent at a 90 percent confidence interval. A Bayesian statistician would be comfortable saying that these results indicate that there is a 90 percent chance that the true proportion of supporters in the overall population is between 52 and 58. The frequentist philosophy is that the proportion of supporters in the overall population is what it is. You cannot make probability statements about it. What you can say about your confidence interval of 52 to 58 is that if the true proportion of supporters were outside of that interval, the probability that your poll would have found 55 percent supporters is less than 10 percent.

3. By analogy, I would guess that economists use the term Bayesian to describe someone who is willing to make probability statements that describe their degree of belief in a proposition that in practice has to be either true or false. When a weather forecaster says that there is a 20 percent chance of measurable precipitation tomorrow, that sounds like a Bayesian forecast. In the end, we will either have measurable precipitation or we won’t. The “20 percent chance” formulation says something like “I don’t expect rain, but I could turn out to be wrong.

4. “Bayesian” also refers to a process of updating predictions. As new information comes in, the forecaster may say, “Now I think that there is a 40 percent chance of measurable precipitation tomorrow.”

5. Similarly, a statement like “The Democrats will nominate an avowed socialist in 2020” is either going to turn out to be true or false. But a Bayesian would be willing to say something like “I give it a 10 percent chance” and then revise that probability up or down as new information develops.

In this case, the opposite of a Bayesian would be someone with firm beliefs that are not responsive to new information.

Again, I don’t apply the Bayesian label myself, so I am not sure that I am the best person to articulate the intent of thsoe who do use it.

Asymmetric ruthlessness

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Suppose that the other side is willing to use ruthless tactics. Suppose that we are not willing to do so. Suppose that these ruthless tactics work. That is asymmetric ruthlessness.

For example, Niall Ferguson in a vidcast with Dave Rubin, argues that conservatives are victims of asymmetric ruthlessness in the culture war. For example, on college campuses, left-wing professors are willing to make hiring and promotion decisions on ideological grounds, and conservatives do not counter.

I tend to think that the movement to increase the status of women in economics could well turn out to involve asymmetric ruthlessness on the part of the left. That is, I think it is unlikely that it will be conservative women whose status gets raised, and it is likely that the males who are pushed out at the margin will be conservatives.

But I am inclined to be very cautious about positing asymmetric ruthlessness. I think that each side can point to asymmetric ruthlessness on the other side, and that this becomes mutually reinforcing.

So you can think of a Type I error as failing to notice real asymmetric ruthlessness. You think that Hitler won’t really do all the horrible things he indicates he might do. You fail to take proper counter measures soon enough.

You can think of a Type II error as believing in asymmetric ruthlessness that isn’t there. You needlessly escalate the conflict. Yuval Levin worries that conservatives are making this sort of Type II error. In a way, Niall Ferguson worries about it, too, because he fears that the Brexit and the Trump Presidency could set in motion forces that bring Jeremy Corbyn and his American equivalent to power.

The Los Angeles school district

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A report from the Reason Foundation says,

in four years the combination of pension costs, health and welfare costs, and special education costs are projected to take up 57.5 percent of unrestricted general fund revenue (LAUSD’s main operational funding) before the district spends a single dollar to run a regular school program.

. . .this structural deficit forged from hiring surges, burgeoning and unaddressed pension and benefit obligations, unaddressed low attendance, overextended facilities, and antiquated management and financial structures— all during a precipitous fall in enrollment.

My guess is that the financial condition of the Montgomery County, Maryland school system is similarly affected by pension costs.

Family breakdown and malaise

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Mary Eberstadt writes,

Traditionalists and other contrarians have been right to argue that the revolution would lead to rising trouble between the sexes and a decline in respect for women — just as James Q. Wilson remains right that family, and lack of family, have replaced money itself as the nation’s most accurate measures of real wealth and poverty.

She attempts to tie nearly every contemporary social problem to the sexual revolution and family breakdown.