It’s unusual for the expert opinions on an issue to range all the way from zero to 100%.
Economists using an instrumental variable approach found that digital piracy did not hurt record sales in the 2000’s. Hammond (2014) found, incredibly, that file-sharing increased record sales. The picture above is of an article critiquing the Oberholzer-Gee and Strumpf (2007) conclusion that was published by a top journal.
Liebowitz reports that music industry professionals believed that digital piracy was the primary or complete cause of the decline of record sales. One would think that industry insiders have accurate data on the problem and a decent mental model relating the variables together.
The estimated effect of music file-sharing ranged from helping music sales to completely eliminating them. Where else can we find so much disagreement on the answer to a narrow empirical question?
An unwillingness to guarantee all the deposits would satisfy the desire to penalize businesses and banks for their mistakes, limit moral hazard, and limit the fiscal liabilities of the public sector. Those are common goals in these debates. Nonetheless unintended secondary consequences kick in, and the final results of that policy may not be as intended.
Once depositors are allowed to take losses, both individuals and institutions will adjust their deposit behavior, and they probably would do so relatively quickly. Smaller banks would receive many fewer deposits, and the giant “too big to fail” banks, such as JP Morgan, would receive many more deposits. Many people know that if depositors at an institution such as JP Morgan were allowed to take losses above 250k, the economy would come crashing down. The federal government would in some manner intervene – whether we like it or not – and depositors at the biggest banks would be protected.
In essence, we would end up centralizing much of our American and foreign capital in our “too big to fail” banks. That would make them all the more too big to fail. It also might boost financial sector concentration in undesirable ways.
To see the perversity of the actual result, we started off wanting to punish banks and depositors for their mistakes. We end up in a world where it is much harder to punish banks and depositors for their mistakes.
The problem is, what happens if PNC fails? PNC is the sixth largest bank in the country with over $500 billion in assets. That makes it dramatically smaller than the Big Four banks that are informally labeled “too big to fail” and formally classified as Global Systemically Important Banks (GSIBs).
Tyler wants to see more banks, and not just “Too big to fail” banks. In as many industries as possible, we prefer less concentration. More competition tends to be good for customers and leads to more innovation. Tyler is more comfortable in the messiness that midsize banks cause, or at least he presents that as a necessary evil.
Matt is arguing against more banks, because Silicon Valley Bank wasn’t pre-designated as too big to fail, and yet we are in crisis mode now.
Matt might say that I’m mischaracterizing his argument. Specifically, Matt said that tiny banks are fine because they are small enough for a private company to buy in times to distress. Matt does not explicitly call for fewer banks. However, I think the demise of the mid-size bank would almost certainly result in fewer banks total.
To give a full picture of the arguments being made this week, here’s someone arguing against bailing out SVB.
Also looking good today: Mises's theory of interventionism. Bailouts only beget more bailouts. We all know where this ends up. pic.twitter.com/zf5fXfNF8b
James wrote about our posting philosophy in “Always Be Posting”. The regularity is the point. This strategy is not our original idea, but this specific manifestation of blogging is a kind of experiment that we are running in front of everyone. I’ll add a few comments on this practice.
I blogged more than once a week at first. Although I believe in the benefits of writing, once a week is the right amount for me.
Tyler recently asked Brad Delong about Substack. Delong says, “Substacking is blogging, except that Substacking is blogging where you have explicit permission to send things to people’s email inboxes, and also to have a rather large tip jar.” Tyler mentioned that Substack posts tend to be longer. Delong admits, “I thought blogging was more fun.” Delong thinks longer posts are better because they fight the trend of short posts that I earlier called Poastmodernism. I would say that if you are going to blog regularly for free like we do, it should be fun. That is also what Tyler said when I asked him if young people should blog regularly in “The New Econ Bloggers.”
If you are going to blog, you might wonder when you should start. Society seems obsessed with young geniuses today. I started blogging before tenure but not when I was very young. I should not have started any earlier. Think about the research that shows your brain is still forming until you are about 25. If Leonardo DiCaprio would date you, then be careful about what you say on the internet. What I would hope for teens or undergraduates is that they would have smart safe people to bounce ideas off of. You certainly need to practice writing and questioning. Even though it nearly kills me at the end of every semester, I assign papers in my classes, because I believe that college students should be writing. I was and am lucky to have teachers and friends who I talk to one-on-one when I want to try out ideas. You should be “posting” in the most abstract sense when you are young, but a private paper journal is not a bad place to start.
When the internet first started, I don’t think anyone would have guessed how much content people would create for free. People are posting so much. Despite worries that media pirating would lead to too little content creation, we have more content than ever.
Something fun about regular short posts is that you can put a stake down and then revisit it years later. Here are two of my posts that have turned out well.
In 2022, I went to Disney World for the first time. Ross Douthat criticized Disney World in his book The Decadent Society. I like the book, but I thought that he clearly hadn’t been there. I wrote a whole blog about Disney being the opposite of infrastructure stagnation. Here is Ross now with his New York Times column saying “Wow, I had never actually been there, and the physical infrastructure is amazing.”
In 2021, I wrote “I encourage parents to read fantasy with children. I see a lot of children’s books that promote science or STEM-readiness… Those games that try to trick 5-year-olds into “programming” are less valuable than reading and discussing fantasy stories… What your child will need to be able to do when they are 20 is read and comprehend a textbook that explains a totally new technology that no one alive today understands. Then they will need to think of creative ways to apply that technology to real world problems.” The developments in ChatGPT are making this look pretty good, even earlier than I expected.
It’s time to revisit American Girl Dolls and the Saturn V rocket. The trending topic among millennials is the new “historical” American Girl doll who lives in the year 1999.
Previously, I blogged about the historical Courtney doll from 1986 in “Complacency and American Girl Dolls.” I used Courtney’s accessories to illustrate stagnation in the physical environment (within rich countries) of recent decades. Courtney has a Walkman for playing cassette tapes and she has an arcade-style Pac-Man game to entertain herself. I pointed out that ’80’s Courtney had to be given the World War II doll Molly just to keep life interesting.
What do Isabel and Nicki have a decade later in 1999?
They have a personal CD player and floppy disks. It’s cute and the toys will sell. However, it does not seem like innovation has introduced many new capabilities. Isabel can listen to music through her headphones and be entertained on screens, just like Courtney could.
Isabel eats Pizza Hut and has dial-up internet access. There is no sense of sacrifice or expanding the frontier. The world was settled, and history had ended.
What counts for adventure in 1999? Shopping vintage clothing. Just like Courtney, Isabel revisits the past to get a sense of purpose or excitement.
This is Isabel’s diary. Having nothing to do besides look at clothes from past decades, she obsesses over status. Presumably “Kat” complimented her hat in person. Facebook didn’t start until 2004, so Isabel is not worried about “Likes” in social media.
So, what did I do with my kids for their school break on Presidents’ Day? We went to the U.S. Space and Rocket Center to see the Saturn V rocket.
Andrew Ruapp reached out to me about a possible error in my post. He presented some evidence that the term STEM has been used prior to 2001. Casually Googling the topic did not bring me to a reputable source for the claim I had made last week. “SMET” is comically bad. So, I did start to wonder if it had never been officially used at the NSF and was just a funny story getting repeated online.
To solve this problem, I reached out directly to the person who was credited with making the transition. Dr. Judith Ramaley is currently President Emerita and Distinguished Professor of Public Service at Portland State University.
Having her permission to share, here is our email correspondence:
Encouraged by her reply, I looked online and found a public NSF document from 1998 that clearly uses SMET.
Lastly, I asked her several questions, in a mini email interview:
Are you surprised by how widespread the STEM term has become?
Ramaley: I wasn’t surprised because once NSF adopted the new acronym, I expected it would catch on.
2. Do you feel that the “STEM” brand has been successful?
Ramaley: STEM isn’t really a brand. It is simply an acronym. It works better than SMET I think because engineering and technology are framed by science and mathematics rather than trailing along behind as if less important. I am fascinated by the growing pressure to add other elements to STEM, making it STEAM, for instance.
3. My son in 2nd grade goes to a STEM activity class once a week. (They just call it “STEM.”) This week he tells me they are working on a pollination project. Would you recommend anything different than the current system for encouraging American students to pursue technology fields?
Ramaley: Your third question is a sweeping one. It would help to know what a STEM activity means each week in your son’s second grade class. I am drawn to ways of learning STEM that encourage students to approach these issues in an inquiry-based way that lets them explore what it means to ask interesting questions and work out ways to try to answer them. Young people are very curious about how the world works. I doubt that I need to tell you that since I bet your son sometimes drives you nuts with WHY and HOW questions. Questions like that are beautiful questions.
SMET was the first acronym used by the National Science Foundation to stand for “science, technology, engineering, and mathematics”. There was a re-branding of the name that we owe to the American biologist Judith Ramaley. The STEM acronym sounds much better!
Does a cosmetic change matter? Will more students study STEM than SMET? The US government funds initiatives aimed at encouraging students to study STEM fields, so answering this question is important.
Some of these initiatives date back several decades, such as the National Science Foundation’s (NSF) Advanced Technological Education program, which was started in 1992 to provide funding for two-year colleges to develop programs that promote STEM education and prepare students for technical careers. The National Math and Science Initiative (NMSI) was established in 2007 and offers training and support for teachers to improve STEM instruction in K-12 schools. In 2009, the White House launched the “Educate to Innovate” campaign, which aimed to improve STEM education in American schools and increase the number of students pursuing STEM careers. Additionally, several federal agencies, including NASA and the Department of Energy, have launched initiatives over the years to promote STEM education and provide opportunities for students to engage in STEM-related research and projects. These efforts reflect a recognition of the importance of STEM fields to the country’s future economic competitiveness and national security, and a commitment to ensuring that all students have access to the skills and knowledge needed to succeed in these fields.
There is something to be said for branding and marketing in relation to science education. However, I see this as an open question: How much does branding matter, as opposed to the fundamentals of the pay and quality of available jobs that students can get in STEM fields?
I’m preparing a public lecture on my “Willingness to Be Paid” paper. Using an experiment, I examined what factors affect a student’s decision to do a computer programming job. I tried out an encouraging message which turned out to not work in the sense that it did not increase participation. I’m planning to open my talk with the SMET affair as an example of what is being tried with messaging and the tech labor supply.
I’m reading The Property Species by Bart Wilson. I like chapter 4 “What is Right is Not Taken Out of the Rule, but Let the Rule Arise Out of What Is Right,” partly because I got to play a small part in this line of research.
Along with several coauthors, Bart Wilson has run experiments in which players have the ability to make and consume goods. According to the instructions that all players read at the beginning of the experiment, “when the clock expires… you earn cash based upon the number of red and blue items that have been moved to your house.”
Property norms can emerge in these environments, and sometimes subjects take goods from each other in an action that could be called “stealing.” The experimental instructions do not contain any morally loaded words like “stealing,” but subjects use that word to describe the activities of their counterparts.
Here is a conversation from the transcript of the chat room players can use to communicate while they produce and trade digital goods:
E: do you want to do this right way?
F: wht is the right way
E: the right way is I produce red you make blue then we split it nobody gets 100 percent profit but we both win
One hundred years ago, the British writer G.K. Chesterton traveled to the United States for a lecture tour. He published his observations of America in What I Saw in America (1922). In an essay titled “The American Businessman”, Chesterton notes with surprise how passionate Americans appear about their professional work.
Chesterton recognizes this enthusiasm for work as more than mere greed.
This is the intro to my latest article for the OLL Reading Room. I discuss the American work ethic and Chesterton’s prescient insight into American economic dynamism compared to Britain. (Relatedly, Alex on British stagnation this week.)
Here’s a fun bit of the book that I didn’t include in the OLL article. Chesterton wrote this about seeing New York City for the first time:
But there is a sense in which New York is always new; in the sense that it is always being renewed. A stranger might well say that the chief industry of the citizens consists of destroying their city; but he soon realises that they always start it all over again with undiminished energy and hope. At first I had a fancy that they never quite finished putting up a big building without feeling that it was time to pull it down again; and that somebody began to dig up the first foundations while somebody else was putting on the last tiles. This fills the whole of this brilliant and bewildering place with a quite unique and unparalleled air of rapid ruin.
This discovery and the examples provided are by graduate student Will Hickman.
Although many academic researchers don’t enjoy writing literature reviews and would like to have an AI system do the heavy lifting for them, we have found a glaring issue with using ChatGPT in this role. ChatGPT will cite papers that don’t exist. This isn’t an isolated phenomenon – we’ve asked ChatGPT different research questions, and it continually provides false and misleading references. To make matters worse, it will often provide correct references to papers that do exist and mix these in with incorrect references and references to nonexistent papers. In short, beware when using ChatGPT for research.
Below, we’ve shown some examples of the issues we’ve seen with ChatGPT. In the first example, we asked ChatGPT to explain the research in experimental economics on how to elicit attitudes towards risk. While the response itself sounds like a decent answer to our question, the references are nonsense. Kahneman, Knetsch, and Thaler (1990) is not about eliciting risk. “Risk Aversion in the Small and in the Large” was written by John Pratt and was published in 1964. “An Experimental Investigation of Competitive Market Behavior” presumably refers to Vernon Smith’s “An Experimental Study of Competitive Market Behavior”, which had nothing to do with eliciting attitudes towards risk and was not written by Charlie Plott. The reference to Busemeyer and Townsend (1993) appears to be relevant.
Although ChatGPT often cites non-existent and/or irrelevant work, it sometimes gets everything correct. For instance, as shown below, when we asked it to summarize the research in behavioral economics, it gave correct citations for Kahneman and Tversky’s “Prospect Theory” and Thaler and Sunstein’s “Nudge.” ChatGPT doesn’t always just make stuff up. The question is, when does it give good answers and when does it give garbage answers?
Strangely, when confronted, ChatGPT will admit that it cites non-existent papers but will not give a clear answer as to why it cites non-existent papers. Also, as shown below, it will admit that it previously cited non-existent papers, promise to cite real papers, and then cite more non-existent papers.
We show the results from asking ChatGPT to summarize the research in experimental economics on the relationship between asset perishability and the occurrence of price bubbles. Although the answer it gives sounds coherent, a closer inspection reveals that the conclusions ChatGPT reaches do not align with theoretical predictions. More to our point, neither of the “papers” cited actually exist.
Immediately after getting this nonsensical answer, we told ChatGPT that neither of the papers it cited exist and asked why it didn’t limit itself to discussing papers that exist. As shown below, it apologized, promised to provide a new summary of the research on asset perishability and price bubbles that only used existing papers, then proceeded to cite two more non-existent papers.
Tyler has called these errors “hallucinations” of ChatGPT. It might be whimsical in a more artistic pursuit, but we find this form of error concerning. Although there will always be room for improving language models, one thing is very clear: researchers be careful. This is something to keep in mind, also, when serving as a referee or grading student work.
Economist Writing Every Day 