How This Economist Cares for a Baby

I have four children, and all them were or are babies. As an economist, I know that becoming more productive includes contributions to labor, capital, and technology. Caring for and pacifying babies is no different. Here are some of my methods for pacifying and employing babies who are 4-18 months old.

Own a pacifier. You don’t need to use it or even force it into your baby’s mouth. But just have it around. Paul Romer said that we learn and innovate by interacting with capital. So, let’s get the capital.

Employ your baby’s labor. Children as small as 2 or 3 can go get the eggs from the hen house. But what about a smaller baby? Of course we need to stimulate, feed, water, change, and rest the baby. But sometimes, you just need them to be quiet. What to do? Babies respond to Pavlovian stimulus at a very early age. If they’re crying or even just somewhat bored, then place the pacifier in their hand and say, in a very low but normal voice, ‘pacifier’. Babies will instinctively put the pacifier in their mouth. If you have it clipped on, then eventually, they’ll be able to find it when they need it. Developing physical human capital takes work experience and time. I always insist that my older children place the pacifier in the baby’s hand rather than the baby’s mouth. Greater human capital will yield productivity gains.

There came a point when my baby would awaken at night. I wouldn’t even get out of bed. I’d just calmly, and dispassionately say ‘pacifier’. And our baby would pop the pacifier in their own mouth. Employ your baby’s labor. Innovation happens when you interact with capital.

In the same vein, I’d balance the baby bottle on my child’s front side, and place their hands on it. Next thing I knew, my baby was holding their own bottle earlier than the internet said that I should expect them to. Those little hands aren’t useless. They’re low marginal product labor just waiting to be employed. Given that home production is a team effort and labors have interaction effects, that small marginal product for the baby frees your labor to have a larger marginal product for the household. Take advantage of interaction effects, specialization, and comparative advantage.

How do you produce sleep in a baby? Let’s examine the production function. It typically includes: warmth, a clean diaper, darkness, a full belly, maybe some motion, and a lack of disruptive noise. Once the baby is asleep, you really only need the warmth, darkness, and peaceful noise. Leverage your capital to make yourself more productive. Capital may not be able to replace you in helping your baby fall asleep. But it can replace you to help keep them asleep. Repurpose your current stock of capital. If only there was a warm, dark, white noise chamber in your house already. There is. It’s called a bathroom. Get your infant to fall asleep, then put them in the dark bathroom with the fan on. Now you can grade your papers, clean the house, or write your articles.

Addendum on diaper changing:

When it comes to changing a diaper, you should act like you have a low discount rate. That is, you should bear the cost of preparing a changing space so that your future self is thankful. This means preparing the changing pad, opening the new diaper, unfolding the wipes, preparing for diaper disposal, and preparing any new clothes. This makes the diaper changing process much easier and mitigates stochastic costs like leaks, mid-change accidents, etc. Further, your MPL is lower when you have to mind a baby who’s on an elevated surface. Employ your labor when it’s more productive – before you lay them down.

Do you have a baby who fights or cries during diaper changes? Take a hint from the Fed and engage in forward guidance. Did you know that if you blow in a baby’s face, that they instinctively close their eyes and mouth and stop flailing? Early on this can act as a reset and interrupt crying. As a baby gets older, they’ll learn to anticipate the blown air. But only if you build your reputation.

When my 12 month old would start to fight, I’d audibly inhale. My baby would immediately stop fighting and clothes her eyes and mouth, and stop flailing in preparation of me blowing in her face. That’s called forward guidance. Building a reputation of action means that signaling action is often just as good as the act itself. But be careful, if you always blow in their face, they grow accustomed to it due to expectations augmented responses. So, I introduce stochastic bluffs wherein I audibly inhale, but then neglect to blow in their face. Stimulus only works repeatedly if you can violate their expectations.

Stay tuned for more economist parenting tips.

Pistol Squats Complete the Home Workout

A good strength workout includes a push, a pull, and legs. When I can get to the gym I like to alternate bench press and incline press for the push; rows and pulldowns for the pull; and squats and deadlifts for the legs. But with a baby to take care of at home, its been hard to find time for the gym. Between driving, waiting for equipment, and the actual lifts, the gym takes an hour. Doing a similar workout at home can take just 10 minutes, and has the advantage that you can watch a baby while doing it.

But the big challenge with home workouts was finding a good leg exercise. Pushes are easy: just do pushups. Pulls are pretty easy: just buy a $15 pullup bar to hang over a door. But how to do a good leg workout without costly barbells and plates that take up lots of space? Enter the pistol squat.

The idea is simply to start from a stand and lower yourself down almost to the ground on a single leg, then come back up on one leg, with the other leg out front for balance:

Source: Snapshot from this video, which shows how to do the standard pistol plus many variations

I find this to be about as difficult as doing a traditional two-legged barbell squat with 1x bodyweight on the bar. The traditional squat has two legs lifting 2x bodyweight (your body itself, plus 1x bodyweight on the bar); the pistol squat has one leg lifting 1x bodyweight (just your body itself), which is about equal. This was perfect for me because I was doing about 3 sets of 5 reps of squats with 1x bodyweight on the bar, so I just do the same number of pistol squats. But what if you’re not exactly at that weight?

Going lighter is easy– just put one hand on something sturdy nearby like a table and lean on it until it takes enough of your weight that you can do the squat. This helps with balance too if that is an issue. Going heavier is harder, but you could carry something heavy in your hands, turn the rise into more of an explosive jump, or just do more reps.

I’d still rather be at the gym, but the complete home workout seems like a good application of the Pareto Principle– you get most of the benefits of the gym while paying only a small fraction of its time and money costs.

Supply & Demand, With gifs

I’ve discussed the ways to teach supply and demand in the past. Regardless, almost all principles of economics classes require a book. But even digital books are often just intangible versions of the hard copy. Supply and demand are illustrated as static pictures, using arrows and labels to do the leg-work of introducing exogenous changes. There’s often a text block with further explanation, but it lacks the kind of multi-sensory explanation that one gets while in a class.

In a class, the instructor can gesticulate and vary their speech explain the model, all while drawing a graph. That’s fundamentally different from reading a book. Studying a book requires the student to repeatedly glance between the words and the graph and to identify the appropriate part of the graph that is relevant to the explanation. For new or confused students, connected the words to one of many parts of a graph is the point of failure.

This is part of why the Marginal Revolution University videos do well. They’re well produced, with context and audio-overlaid video of graphs. It’s pretty close to the in-person experience sans the ability to ask questions, but includes the additional ability to rewind, repeat, adjust the speed, display captions, and share.

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National Health Expenditure Accounts Historical State Data: Cleaned, Merged, Inflation Adjusted

The government continues to be great at collecting data but not so good at sharing it in easy-to-use ways. That’s why I’ve been on a quest to highlight when independent researchers clean up government datasets and make them easier to use, and to clean up such datasets myself when I see no one else doing it; see previous posts on State Life Expectancy Data and the Behavioral Risk Factor Surveillance System.

Today I want to share an improved version of the National Health Expenditure Accounts Historical State Data.

National Health Expenditure Accounts Historical State Data: The original data from the Centers for Medicare and Medicaid Services on health spending by state and type of provider are actually pretty good as government datasets go: they offer all years (1980-2020) together in a reasonable format (CSV). But it comes in separate files for overall spending, Medicare spending, and Medicaid spending; I merge the variables from all 3 into a single file, transform it from a “wide format” to a “long format” that is easier to analyze in Stata, and in the “enhanced” version I offer inflation-adjusted versions of all spending variables. Excel and Stata versions of these files, together with the code I used to generate them, are here.

A warning to everyone using the data, since it messed me up for a while: in the documentation provided by CMMS, Table 3 provides incorrect codes for most variables. I emailed them about this but who knows when it will get fixed. My version of the data should be correct now, but please let me know if you find otherwise. You can find several other improved datasets, from myself and others, on my data page.

Joy’s Fashion Globalization Article with Cato

I am published by Cato this week:

Fast Fashion, Global Trade, and Sustainable Abundance

This is part of a 10-part series called “Defending Globalization: Society and Culture

Imagine trying to explain the world today to a person who time traveled forward from 300 years ago. How could someone who lived in France in the year 1600 understand our modern problems?

Person from the Past: So, how is it with 8 billion people?

Me Today: It’s bad. We have too many clothes.

PftP: Right. With 8 billion you wouldn’t have enough clothes for everyone.

MT: Too many.

PftP: Not enough?

MT: I said we have TOO MANY clothes. Not even the poorest people in the world want them. Shirts pile up on the beaches and pollute the ocean.

PftP: …

My article highlights the fact that we live in an era of unprecedented clothing abundance. First, that was not always true.

Most of human history has been characterized by privation and low‐​productivity toil. As one American sharecropper exclaimed in John Steinbeck’s Depression‐​era novel The Grapes of Wrath, “We got no clothes, torn an’ ragged. If all the neighbors weren’t the same, we’d be ashamed to go to meeting.”

https://www.cato.org/publications/globalization-fashion

Secondly, not everyone is celebrating.

The United Nations Economic Commission for Europe called the fashion industry an “environmental and social emergency” because clothing production has roughly doubled since the year 2000. Their main concerns are fast fashion’s environmental impact and working conditions. 

Some of my article is a response to the critics of modern low-cost mass production.

Thirdly, I explain how we could keep most of the benefits of cheap clothes with less litter in the environment. The item I am most optimistic about is using our new artificial intelligence tools to re-sort the world’s junk. We would produce and throw away fewer clothes if we had a better system for rearranging the stock of goods that we already have. The problem I see today is that I have “perfectly good” clothes in my house that I don’t really want; however, attention and time are so scarce that no one will pay me for them. Even if I donate them, I worry that half will end up in the trash. Someone on this earth could use them but identifying that someone and making the trade still has high prohibitively high transaction costs. Very smart AI could come to my house and scan my stuff and pay me for it because very smart AI could get it to someone with a positive value for it.

If you’d like to see a trail of blogs that I wrote while in the research phase for this article, use https://economistwritingeveryday.com/?s=fashion

Lastly, we thank Tyler for the Marginal Revolution link.

Malinvestment Produces Knowledge

Austrian economists rightfully have some gripes about mainstream macroeconomics – specifically about aggregation. The conventional wisdom says that a fall in output can be prevented or remedied in the short-run by an expansion of total spending (via increasing the money supply). Total output is stabilized and the crisis is averted. Even if rising spending preceded the output decline, the standard prescription is the same.

The Austrian Business Cycle theory says that, actually, the prior expansion in spending resulted in yet-to-be-realized poor investments due to easy credit. The decline in output is self-inflicted by unsustainable endeavors, and the money supply expansion response prevents the correction. The consequence is more malinvestment. The Austrians say that the focus on gross investment is a misleading aggregation and commits the fallacy of composition that all investment is the same or the same on relevant margins.

Both schools of thought are on firm ground. I don’t see them as conflicting. They both make valid points and are correct about the world. The conventional wisdom is able to paper-over short-run hiccups, and the Austrians recognize that resources are suboptimally allocated. The two sides are talking past each other to some extent.

The market process of seeking profits and satisfying consumer demands is a messy process. Prices and profits (and losses) incentivize firms with information that they use to adjust their behavior. They innovate and reallocate resources from bad projects and toward money-making projects. When firms earn negative profits (a loss) they learn that their understanding of the world was wrong and that they malinvested their scarce resources. Therefore, malinvestment is a standard and *necessary* part of the market process of identifying and serving the changing and unknown demands of individuals. Without malinvestment we lack the necessary information to distinguish success from failure.

Mal-investment is harmful insofar as it represents resources that were invested such that future output did not rise as it could have otherwise. So, while malinvestment is necessary to the market process, a preponderance of it makes us poorer in the future. Luckily, firms have incentives and finite resources such that mal-investment remains somewhat tamed. Indeed, malinvestment is the cost that we bear for innovation and identifying what works.

The issue is that the above discussion is oriented to the long-run. The conventional wisdom is oriented toward resolving the short-run threats. The two meet one another when malinvestment realizations occur in a correlated manner. It’s not that policy causes malinvestment. Rather, depressed interest rates and easy credit prevent firms from identifying which of their projects turned out to be more or less productive. Firms persist in bad investments because they can’t discriminate between the failed and successful projects ex ante.

So, when interest rates suddenly rise, low or negative productivity projects are identified and resources are reallocated. The discovery and reallocation process takes time. And if many projects are found to be failures at once, then the result is a drop in economic activity that is detectable at the aggregate level. The problem is not that malinvestment exists. The problem is that malinvestment was permitted to persist and grow such that the eventual realization of losses is correlated and has macroeconomic effects. We observe spending, output, and employment declines. That’s the ‘business cycle’ part of the Austrian Business Cycle. Interest rates rising helps to identify the bad projects. That’s good. But policy that increases the popularity of bad projects is bad. It makes us poorer in the long-run and more vulnerable to declines in the short-run.

Video for new ChatGPT users

Have you not gotten around to trying ChatGPT for yourself yet?

Ethan and Lilach Mollick have released a series of YouTube videos that encapsulate some current insights, aimed at beginners, posted on Aug. 1, 2023. It covers ChatGPT, Bing, and Bard. Everyday free users are using these tools.

Practical AI for Instructors and Students Part 2: Large Language Models (LLMs)

If you are already using ChatGPT, then this video will probably feel too slow. However, they do have some tips that amateurs could learn from even if they have already experimented. E. Mollick says of LLMs “they are not sentient,” but it might be helpful to treat them as if they are. He also recommends thinking of ChatGPT like an “intern” which is also how Mike formulated his suggestion back in April.

  • I used GPT-3.5 a few times this week for routine work tasks. I am not a heavy user, but if any of our readers are still on the fence, I’d encourage you to watch this video and give it a try. Be a “complement” to ChatGPT.
  • I’ll be posting new updates about my own ChatGPT research soon – the errors paper and also a new survey on trust in AI.
  • I hear regular complaints from my colleagues all over the country about poor attempts by college students to get GPT to do their course work. The experiment is being run.
  • Ethan Mollick has been a good Twitter(X) follow for the past year, if you want to keep up with the evolution and study of Large Language Models. https://twitter.com/emollick/status/1709379365883019525
  • Scott wrote this great recent tutorial on the theory behind the tools: Generative AI Nano-Tutorial
  • It was only back in December 2023 that I did a live ChatGPT demonstration in class, and figured that I was giving my students there first ever look at LLMs. Today, I’d assume that all my students have tried it for themselves.
  • In my paper on who will train for tech jobs, I conclude that the labor supply of programmers would increase if more people enjoyed the work. LLMs might make tech jobs less tedious and therefore more fun. If labor supply shifts out, then quantity should increase and wages should fall – good news for innovative businesses.

Hand-in-Hand: Demand & Technology

In standard microeconomics, the long-run demand is unimportant for the market price of a good. Firm competition, entry, and exit causes economic profits to be zero and the price to be equal to firms’ identical minimum average cost. This unreasonably assumes that they have constant technology. That is, they have a constant mix of productive inputs and practices.

Just so we’re clear: time is passing such that firms can enter, exit, and adjust the price – but no productive innovation occurs. For the modeling, we freeze time for technology, but not for other variables. The model ceases to reflect reality on the margin of scale-induced innovation. The standard model assumes an optimal quantity of production for each firm and the only way for total output to change is for there to be more or fewer firms. The model precludes adopting any different technology because firms are already producing at the minimum average cost – if they could produce more cheaply, then they would.

Enter Scale

One of my favorite details about production was taught to me by Robin Hanson.* Namely, that the scale of production isn’t merely with the aid of more raw materials, labor, and capital. There are perfectly well-known existing technologies and methods that reduce the average cost – if the firm could produce a large enough quantity. This helps to illustrate what counts are technology. A firm can achieve lower average costs without inventing anything, and merely by adopting a superficially different production method.

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Dysfunctional Virtue: A Tale of No Profits

For-profit firms are well-oriented. The managers within firms may not make profit their only explicit priority, but it is pre-requisite to their other concerns. Without profits, firms eventually cease to exist. Non-profits are different. They might have revenues due to sales and operate much like a for-profit firm. But, they many times operate on revenue from donations and endowments. Because the success of non-profits is harder to measure, the signals of triumph and defeat do not orient the employees as clearly. The result can be that there is a lot of ruin in a non-profit. Plenty of tasks are done inefficiently, poorly, or not at all.

Mission-driven non-profits are able to attract enthusiastic, dedicated employees given the pay that they offer. But, supporting the mission of such an organization often acts as an implicit “belief test”, filtering out other would-be job applicants who self-select out of applying to open positions for which they are otherwise qualified. Indeed, part of the purpose of mission statements is to filter for the kind of employees that the organization managers or donors desire. While the employees may be enthusiastic and dedicated to the mission, that is mostly separate from whether they have the technical skills to flourish in their position and to effectively serve the organization.

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Everyone Happy? Student Loan Repayment

I like a good lump sum tax. People *must* pay the tax without exception and the advantage over current progressive marginal income taxes is that the marginal wage received doesn’t fall with greater earnings. Employment rises and output rises. To the extent that college students fail to understand their student loans, the indebted graduates essentially pay a lump sum tax each period.

Of course, the exception is income based repayment (IBR) – especially with forgiveness after X years. IBR adjusts the incentives substantially. Under the standard system, your wages are garnished if you fail to make loan payments. Under IBR, lower earnings trigger lower monthly payments. Clearly, in contrast to the standard method, IBR incentivizes more leisure, less income, more black market activity, and higher loan balances. Indeed, all the more so if there is a forgiveness horizon. Someone just has to have low enough income for say 15 years, and their past debt is forgiven (with caveats & conditions).

My principal objection to IBR policy is the resulting malinvestment in human capital. Defaulting on loans is a sign that some investment was inadequately productive to repay the resources consumed by its endeavor. We call that a loss. Real resources of time, attention, and goods and services were consumed in order to produce capital that failed to serve others more than the opportunity cost of those resources.

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