Gifts for a Time of Inflation and Supply Bottlenecks

I’ve never been great at gifts, and don’t have much in the way of specific ideas now. But I’ve been thinking about what the macroeconomic environment means for gift-giving.

First, as you’ve probably heard by now from us or elsewhere, if you want to get any physical gift I’d order it now, since shipping is a mess and prices are only going up. I’d especially recommend this for complex electronics that could become hard to find- its part of why I got my wife an iPad for her birthday this summer. Foreign food and drink that can be stockpiled is always a good idea, but perhaps especially now; think wine, Scotch, or Beirao liqueur (a Portuguese drink that was my favorite discovery this year). Wine and liquor make good stores of value in an time of inflation.

Alternatively, you could avoid the scarcity of physical goods by turning to the digital realm. If your economistic heart yearns to give cash, consider giving some your favorite stock or cryptocurrency instead- its both more personalized and less subject to inflation. Or if you think you can judge the recipient’s taste well enough, subscribe them to one of your favorite Substacks or podcasts. My recommendations:

Unsupervised Learning, Razib Khan– Genomics and History

The Diff, Byrne Hobart– Finance and Strategy

Astral Codex Ten, Scott Alexander– Rationality, Psychiatry, Everything

The Readers Karamazov– Funny podcast on literature and philosophy (now seems entirely free though)

Or if you really have money to burn, go for the Bloomberg subscription. I always run out of free reads on the Tyler Cowen articles and so can’t read Matt Levine, even though he has the magic ability to teach you finance while making you laugh. But the subscription is expensive and Mike Bloomberg doesn’t need the money, while the Substacks are relatively cheap and enable talented writers to spend a lot more time writing instead of needing to focus on a real job.

You Need a Better Battery

As we did last year, Joy has asked us to recommend some gifts for our readers. My recommendation is simple: a battery.

But not just any battery. I’m not talking about adding to your cardboard box full of AAs, AAAs, and weird watch batteries.

Instead, what you and everyone on your gift list needs is a portable battery for charging your many devices. There are plenty of good options out there, but anything under 30 bucks with at least 20,000mAh (the standard measure for battery life) is what you want. Here’s a good one on Amazon right now which should be $25 after a coupon and gives you 36,800mAh of charging power.

How much battery life is that? An iPhone has around 3,000mAh of power. You can charge an iPhone over 10 times with this thing! That may sound like overkill, but if you are charging multiple devices on a long trip, this battery is worth its weight in gold (it weighs about 13.4 ounces, which would be about $24,000 worth of gold — maybe I’m exaggerating a little).

For better or worse, our devices are how we communicate, navigate, and entertain ourselves on a daily basis. Especially on long trips. You don’t want your phone to die when you land at a strange, new airport. You also don’t want your friend’s phone to die: more than once, I have been the “battery hero” by loaning my portable battery to a friend at a conference.

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La Dolce Vita Economica

I thought about writing about soccer (again). I thought about writing about time management and personal production functions. I considered writing about Lebron James or how I manage multiple research projects. I thought about writing about a classic, and entirely addictive to the point of career ruination, video game. They all seem a little redundant at the moment, though, because they are all the same basic story.

One soccer manager is over-exhausting their resources because of a confluence of bad contractual incentives while another team is witnessing a renaissance in a player they essentially forced to take 7 weeks off. While so many NBA careers of the 80s evaporated in a cloud of cocaine and clubbing, Lebron James’ entire life is built around managing the only two resources whose limits are salient to his life: his body and relationship with his family. Playing baseball growing up I watched pitchers blow out their arms before they finished puberty in service to Little League glory, while modern professional pitchers are (finally) on strictly managed pitch counts to maximize their expected output.

There are two manners in which I armchair quarterback the rest of the world. One is the things in which I have just enough knowledge to be frustrated by others decisions, but no so much as to actually know what I am talking about. These frustrations are ephemeral, they flatter myself to the point of mild embarrassment upon reflection, and, if I am being honest with myself, are fun.

The other manner is resource management. These are the times when armchair quarterbacking is less fun and more exasperating because they are the moments when outsiders, with inferior levels of narrowly-applicable expertise, are often actually right. Which is not to say the knowledge that resources are being poorly managed is uniquely held by outsiders. Insiders are more often than not quite aware of the suboptimal deployment and conservation of resources, but are unable to overcome the status quo institutions, incentives, or inertia of decision-making power loci. It’s obvious to lots of people that athletes, CEOs, doctors, and congressional representatives are over-extended. What’s not obvious is how to get out of these equilibria.

When I see most attempts at self-improvement, I am generally skeptical of anything that doesn’t start with the identification of a key resource that is salient to outcomes and the options available to better manage it. Maybe its calories and how to budget them. Maybe its time and how to better partition and conserve it. It could always be money, but in general I find that money is so immediately identifiable as a finite resource and entirely fungible that people who ostensibly are managing it poorly are, in actuality, failing at managing a different resource (time, emotional energy, vices, etc) that is intertwined with financial resources.

When I see successful firms, teams, and individuals, what I most often find myself admiring is not (just) a worldly talent, but a facility with managing resources that others haven’t yet adopted or mimicked. An appreciation for sleep, a protection of time blocked for creativity, an adeptness trading low opportunity competitive minutes for higher opportunity cost moments on the biggest stages. Or even just the ability to recognize that this is the moment to savor a 600 calorie dessert with a loved one because the emotional sustenance will make it easier to walk away from three vending machine Hostess pies during the high-stress moments in the week to come.

Once you learn to manage your donut-based caloric intake, the spreadsheet of your life will be revealed before you, an endless cascade of resources to be managed and optimized. A life with the right donuts at the right time. The dolce vita economica.

Reading Slavery and American Economic Development

Slavery is a bad and we should rid ourselves of it. One of the arguments made by abolitionists before the Civil War in the United States is that slaves make poor workers and therefore it’s not that costly to get rid of slavery. Of course, it doesn’t matter if slaves worked hard or not. Slavery was a moral abomination, regardless. However, it does make it easier to argue that we should direct government resources to fight enslavers when we can make a case that slavery makes the entire country poorer.

On the one hand, there were many non-slave workers and farmers in North America, demonstrating that products including cotton could be produced by free labor. On the other hand, slavery as an institution expanded into the South and the West, presumably because of the economic advantage it gave to slave-owners.

In Slavery and American Economic Development, economist Gavin Wright states that whether or not slaves were as productive as free/wage labor is hard to measure and also is not hugely important. Slavery might have provided wealth to slave owners in the South, but that is only because of the institutional setting that was created explicitly to maintain the slave society.

The American South had some of the best land in the world for growing cotton and cotton became a lucrative export crop thanks to British demand before the Civil War. Before the Civil War, there were some extremely profitable plantations on which slaves worked. It is true that some enslavers became rich and that drives up what appears to be the GDP per capita in the South at the time.

Wright explains that a slave owner living closer to the East Coast was better able to go on an entrepreneurial venture into Alabama to clear a large plantation for cotton farming than a typical free family farmer. The slave owner could obtain large loans and had a future guarantee of workers (thanks to the local laws and police state). So, something like a modern corporation employing free labor could also have accomplished the venture. But, at the time, it was an opportunity that was easier for enslavers to take advantage of. Free farmers also expanded West into the United States, but they tended to move more slowly and focus on subsistence (e.g. wheat for consumption). That is, partly, what Wright means when he speaks of slavery as a “system of property” as opposed to just a “system of production”. That helps explain why slavery was on the rise in the American South.

Wright also examines slavery as a political regime. In a place with many slaves, resources had to be allocated to policing and preventing revolts. It might have been individually rational for a landowner to offer freedom to slaves as a form of compensation for work, but this was disallowed by that broader political environment. So, everyone was somewhat trapped. Most importantly, the slaves were abused and trapped. But the free residents of the South had to live in a stagnant society. Governments did not invest in schooling, even for white children.

Municipalities in the North were booming and attracting free migrants with public investments. These investments set the North on a path to overtake the South economically and demonstrate which system is superior for creating wealth. Wright blames property owners in the South for continuing to fail to vote for good institutions that foster economic growth after the Civil War.

The Credibility Revolution: A Nobel for Taking (some of) the CON out of Econometrics

Yesterday Jeremy pointed out that while the 2021 economics Nobelists have reached various conclusions in their study of labor economics, the prize was really awarded to the methods they developed and used.

I find the best explanation of the value of these methods to be this 2010 article by Angrist and Pischke in the Journal of Economic Perspectives: The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics

Like Jeremy, they think that empirical economic research (that is, research using econometrics) was most quite bad up to the 1980’s; as Ed Leamer put it in his paper “Let’s take the CON out of Econometrics”:

This is a sad and decidedly unscientific state of affairs we find ourselves in. Hardly anyone takes data analyses seriously. Or perhaps more accurately, hardly anyone takes anyone else’s data analyses seriously.

Angrist and Pischke argue that the field is in much better shape today:

empirical researchers in economics have increasingly looked to the ideal of a randomized experiment to justify causal inference. In applied micro fields such as development, education, environmental economics, health, labor, and public finance, researchers seek real experiments where feasible, and useful natural experiments if real experiments seem (at least for a time) infeasible. In either case, a hallmark of contemporary applied microeconometrics is a conceptual framework that highlights specific sources of variation. These studies can be said to be design based in that they give the research design underlying any sort of study the attention it would command in a real experiment.

The econometric methods that feature most prominently in quasi-experimental studies are instrumental variables, regression discontinuity methods, and differences-in-differences-style policy analysis

Our field still has big problems: the replication crisis looms, and the credibility revolution’s focus on the experimental ideal leads economists to avoid important questions that can’t be answered by natural experiments. But I do think that the average empirical economics paper today is much more credible than one from 1980, and that the 3 Nobelists are part of the reason why, so cheers to them.

A Nobel for What?

The Nobel Prize in Economics was announced this week. As usual, Alex Tabarrok has a great description of the contributions of the winners. But I have seen a number of commentators, mostly on “the right,” question this award, especially for David Card. Mostly they have focused on the highlighting of Card’s paper (with the late Alan Krueger) on minimum wages, saying that this paper has been heavily criticized and debunked, or as evidence that “economics has degenerated into socialist propaganda.”

Yikes! If true, these are serious charges against a profession in decline.

But hang on. What’s really going on with the award for David Card? Again, Tabarrok sums it up nicely: “what really made the paper great was the clarity of the methods that Card and Krueger used to study the problem.” What was this clarity?

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Growing/Shrinking Jobs of Next Decade: Good Times Ahead for Nurse Practitioners, Wind Turbine Technicians, and Animal Trainers

The good folks at Visual Capitalist have put together a big juicy infographic depicting employment trends over the next decade, based on projections from the Bureau of Labor Statistics. The vertical axis is % decadal growth for each category, the horizontal axis is 2020 median annual wage for that category, and the size of the bubble indicates the absolute numbers of change. The color of each bubble is keyed to “Occupational Group”, i.e.,  “Health related”, “Computer and mathematical”, etc.

Below I snipped part of the infographic which shows occupations which will be growing. The horizontal positioning (median annual wage) runs from $20,000 on the left to $120,000 on the far right; nurse practitioners fall in the $105,000-120,000 range. The fastest growing, percentagewise, are wind turbine service technicians (68%), followed by nurse practitioners and solar installers tied at about 52%. The biggest absolute numbers of job growth are in “Home health and personal care aides”, to tend aging baby boomers.

From the color coding, we can see at a glance that job growth is mainly in the Health Related and Computer and Mathematical categories, with a smattering of “Other”, including Animal Trainers (for dog obedience schools ??) and Crematory Operators, as those baby boomers age all the way out.

Some of the losing professions are shown below. Most of these are in the “Office and Admin Support” (purple) category and Production workers (including nuclear power reactor operators). Some “Other” categories will get hit hard, such as parking officers and door-to-door salesmen.

Most of these shrinking jobs are lower paid, while many of the growing jobs are better paid. Bottom line: advise your kids to consider careers like data security/analysis, or a health care specialty, including management.

Forecasting that Job Growth Would Continue

The number of new jobs is being heralded (example in picture) as disappointing relative to the expectation that we would march steadily back to pre-Covid employment levels. (Ben Casselman is a good Twitter source for the data.)

One of the reasons for a slow recovery is that the Delta variant of Covid hit hard at the end of the summer and people are not getting vaccinated, so the health threat of going out to work and consume did not decline as much as we had expected. Covid was hard on family caregivers, often women. The disruptions to childcare from Covid still are not over. We are seeing a reversal of the massive influx of women into the formal workforce that started in the previous century.

Some people are saying that workers no longer want “dead end jobs,” and there has been a permanent shift in the labor supply, although it is hard to disentangle that from the effect of temporary Covid subsidies.

I am reminded of two very different sources who claimed, before 2019, that what we had in the early 21st century was not sustainable.

First, there were agitators for a $15/hr minimum wage. They marched in the streets while leading Democrats voiced approval. They were pointing out that families in America who depend on $8/hr jobs do not feel like they have a part of the American Dream.

Someone who, I am certain, would be against a federally mandated $15/hr minimum wage was also pointing this out. Tyler Cowen published Average is Over in 2013, when unemployment was still high following the Great Recession. Chapter 1 of Average is Over is called “Work and Wages”. Tyler was concerned that market forces were creating a world where some people have the best jobs that humanity has ever conceived of, by virtue of their compatibility with intelligent machines, while the rest of the workforce is left with jobs that are not so great. At the time, I don’t think people realized how many jobs could be done from the comfort of home or from a hip coffee shop. Covid exposed that. The “not so great” jobs feel especially crappy when you know that people in your city get paid 6 figures to sit at a laptop.

Tyler might have been surprised when unemployment dropped so low in 2019, right after he had written The Complacent Class, which warns us that America isn’t working well for a large group of people.

We are not great at predicting the future.* Some of Tyler’s predictions have come true already, but even he did not try to put a date on things. The point is that maybe the latest job numbers are not as surprising for the reason that the forecasts were more wrong than we thought. Covid has moved us far out of equilibrium, so it is still hard to tell where we are going to land.

Personally, I thought prices at the grocery store, one of the few places you could go in early 2020, would shoot up faster. It seemed to me like we would need to start paying cashiers more as hazard pay.

*In one of my experiments, I asked subjects in the role of employers to predict what their employees would do. They failed to predict how strongly employees would respond to wage cuts. We are not great at predicting.

Weigh costs, benefits, and evidence quality

Living means making decisions with imperfect information. But Covid provides many examples of how people and institutions are often still bad at this. A few common errors:

  1. Imperfect evidence = perfect evidence. “Studies show Asprin prevents Covid”. OK, were the studies any good? Did any other studies find otherwise?
  2. Imperfect evidence = “no evidence” or “evidence against”. In early 2020, major institutions like the WHO said “masks don’t work” when they meant “there are no large randomized controlled trials on the effectiveness of masks”
  3. Imperfect evidence = don’t do it until you’re sure Inaction is a choice, and often a bad one. If the costs of action are low and the potential benefits of action high, you might want to do it anyway. Think masks in 2020 when the evidence for them was mediocre, or perhaps Vitamin D now.
  4. Imperfect evidence = do it, we have to do something Even in a pandemic, it is possible to over-react if the costs are high enough and/or the evidence of benefits bad enough (possibly lockdowns, definitely taking up smoking)

Any intro microeconomics class will explain the importance of weighing both costs and benefits. But how do we know what the costs and benefits are? For many everyday purchases they are usually obvious, but in other situations like medical treatments and public policies they aren’t, particularly the benefits. We have to estimate the benefits using evidence of varying quality. This creates more dimensions of tradeoffs- do you choose something with good evidence for its benefits, but high cost? Or something with worse evidence but lower costs? Graphing this properly should take at least 3 dimensions, but to keep things simple lets assume we know what the costs are, and combine benefits and evidence into a single axis called “good evidence of substantial benefit”. This yields a graph like:

Applied to Covid strategies, this yields a graph something like this:

This is not medical advice- I say this not merely as a legal disclaimer, but because my real point is the idea that we should weigh both evidence quality and costs, NOT that my estimates of the evidence quality or costs of particular strategies are better than yours

Judging the strength of the evidence for various strategies is inherently difficult, and might go beyond simply evaluating the strength of published research. But when evaluating empirical studies on Covid, my general outlook on the evidence is:

Of course, details matter, theory matters, the number of studies and how mixed their results are matters, potential fraud and bias matters, and there’s a lot it makes sense to do without seeing an academic study on it.

Dear reader, perhaps this is all obvious to you, and indeed the idea of adjusting your evidence threshold based on the cost of an intervention goes back at least to the beginnings of modern statistics in deciding how to brew Guinness. But common sense isn’t always so common, and this is my attempt to summarize it in a few pictures.

China Cracks Down on Cryptocurrencies

The Chinese Communist Party (CCP) is all about control. In the well-known words of Chairman Mao:

Every Communist must grasp the truth, “Political power grows out of the barrel of a gun.” Our principle is that the Party commands the gun, and the gun must never be allowed to command the Party.

These days political power is linked to economic power and control of information, as well as raw military firepower. Cryptocurrencies have assumed financial importance and they entail information processing and tracking.

On the other hand, a key driver for cryptocurrencies is precisely to escape from the domination of big central authorities, such as the CCP. Proponents of crypto revel in the fact that anyone with a PC can get in on “mining” and that the crypto universe does indeed operate on the web as a largely democratized enterprise. Anybody can transact large sums with anybody, with a moderate degree of anonymity.

These two different visions of life collided on Sept. 28 when the Chinese government banned nearly all crypto-related transactions:

China’s central bank said on Friday that all cryptocurrency-related transactions are illegal in the country and they must be banned, citing concerns around national security and “safety of people’s assets.” The world’s most populated nation also said that foreign exchanges are banned from providing services to users in the country.

In a joint statement, 10 Chinese government agencies vowed to work closely to maintain a “high pressure” crackdown on trading of cryptocurrencies in the nation. The People’s Bank of China separately ordered internet, financial and payment companies from facilitating cryptocurrency trading on their platforms.

The central bank said cryptocurrencies, including Bitcoin and Tether, cannot be circulated in the market as they are not fiat currency. The surge in usage of cryptocurrencies has disrupted “economic and financial order,” and prompted a proliferation of “money laundering, illegal fund-raising, fraud, pyramid schemes and other illegal and criminal activities,” it said.

Offenders, the central bank warned, will be “investigated for criminal liability in accordance with the law.”

The Chinese government will “resolutely clamp down on virtual currency speculation, and related financial activities and misbehaviour in order to safeguard people’s properties and maintain economic, financial and social order,” the People’s Bank of China said in a statement.

Well, those are the bare facts. It’s good to know the CCP is so diligently safeguarding people’s assets and public order. And as noted, Mao’s successors would not naturally favor systems that allow people to just do what they want to do, free from guidance from the Party. But inquiring minds want to know or at least speculate further regarding the reasons for this move and its consequences.

Brian Liu and Raquel Leslie highlighted two other motivations for this crackdown. One motivation  concerns China’s desire to launch its own state-controlled digital currency. This will give the government heightened ability to track every single transaction by every single user. It would also provide China with a new means of exerting influence over other nations and corporations:

The ban comes as the People’s Bank of China (PBOC), China’s central bank, is piloting its own digital currency, the eCNY or “digital yuan.” Unlike private cryptocurrencies, the eCNY is issued directly by the central government and is being designed to provide the PBOC with near-real-time financial data on user transactions. Some observers fear that the eCNY will be used as a tool to strengthen the Chinese Communist Party’s domestic surveillance. Others worry that the eCNY will be used to retaliate against international companies that speak out on human rights issues. Fan Yifei, a deputy governor of the PBOC, announced last week that the eCNY has entered a “sprint stage” ahead of the February 2022 Winter Olympics in Beijing.

Another motivation may be to help prevent wealthy Chinese from taking their money abroad:

The crypto ban may also be intended to deter capital flight. Despite past crypto crackdowns and strict capital controls, wealthy Chinese have used cryptocurrencies to funnel more than $50 billion overseas in 2020. As China is in the middle of an economic slowdown that has been exacerbated by other regulatory crackdowns on the tech and education sectors, China may be redoubling its efforts to ward off skittish entrepreneurs from exporting their money overseas.

Will this crackdown fully succeed? Many observers doubt it. They think that people will find ways to do what they want to do, using platforms that are hosted outside China.

As for the digital yuan, well, it kind of goes against most of the reasons people have gravitated to crypto. It represents a move back to government control and surveillance. It is not really a “crypto” currency at all, but simply another form of regular money.  It could get traction, however, in international trade among countries who have reasons to try to escape from the current U.S. dollar dominance. Also, China could hand out its digital currency like candy to impoverished nations, to get them on board. Millions, maybe billions of people live without regular banking access, and so a medium of exchange and store of value that requires only a cell phone to move funds around town or around the world could be attractive. At any rate, count on China to make the digital yuan a big “thing” for international visitors due at the February 2022 Olympics.

The price of Bitcoin took this news in stride. It continues to bounce around in the same $40,000-$50,000 range that it has been in for the past three months. And being banned by China is not a death-knell for a financial entity.  Indeed, it could be a contrarian indicator. Consider that China has also banned Youtube, Facebook, Google, Instagram, Pinterest, and even (because of his uncanny resemblance to President Xi) Winnie the Pooh.