When discussing the median voter theorem with my public policy class, I went on an informative and educational tangent about ranked choice voting.

We gave an example in which we would go out to eat, each pay our own way, but we must all go to the same restaurant in town. We went through the multiple rounds of voting, eliminating least popular alternatives, and came to a conclusion. The winning restaurant was Tropical Smoothie. If you are not familiar, it is nothing to write home about. However, it is also inoffensive and they provide what they say that they will.

The students quite enjoyed the exercise and the process drove the point home that there are perfectly reasonable alternatives to the typical one – man – one – vote status quo.

Entirely separate

Last weekend, my family purchased a new beta fish. There are six people in our family with four children, ages ranging from one to six years old. Thanks to an offhand comment by my wife, I realized that it was such a beautiful opportunity to teach the kids about ranked choice voting. Everybody in the family suggested a name for the fish. The options were: Hibiscus, Jack Sparrow, Bubbles the 2nd <3, sparkels, camouflage, and ‘no’. Which do you prefer?

I mentioned this in conversation yesterday and they found it of interest, so here is the prospective usecase for blockchain/crypto that is the main reason I am bullish and things like ethereum:

Artificial Intelligent agents will eventually get to the point where we are comfortable letting them act autonomously on our behalf. For them to maximize their value to us, however, they will need to be able to contract with other AI agents without human middlemen slowing down the process. This means they need a way to form contracts outside of the traditional legal system, particularly since we are unlikely to grant them personhood or power of attorney any time soon. Tokens and the blockchain offer an immutable ledger that will serve as a form of credible contracting for agents absent any legal institutions in real time. I expect they legal human agents will remain necessary for early stage formation and late stage ex post adjudication of disputes, but the micro (nano) contracting facilitated in real time will allow for an allocation (and arbitraging) of personal private capital not previously accessible to any but the largest personal and corporate wealth agglomerations.

There you go. That’s why I own a little bit of ethereum and plan on holding it for a few more decades. Don’t know if it will end up being worth anything, but that’s why I own it. NB: I didn’t google it, so I’m not sure if this is a standard usecase or not.

My parents have moved into an elder community. Having a passing familiarity with nursing homes of decades past and elder care scams of decades current, my family spent considerable time researching options, reputations, and legal concerns. Now that it is done, however, I have sufficient peace of mind to make broader reflections.

The resulting institutions essentially looks like a hybrid college campus/country club, albeit less concerned with status projection than the different manners in which a human might lose their balance. More importantly, however, it is a small scale reminder of the powers of agglomeration and returns to scale. My middle class parents now enjoy greater total amenities than they ever have in their entire life, some for the first time ever. I assure you that it is the rare government engineer to who spends their prime earning years with a heated olympic swimming pool, jacuzzi, steam room, sauna, and modern gym equipment within 200 steps of their front door. A separate restaurant, cafeteria, and bakery sit on the campus. Community transit is available 12 hours a day to connect them to the broader region, but live culture, education, and entertain appear as daily options within each building. I won’t get into the myriad physical and mental healthcare options, but they’re there in spades.

Essentially my parents are living a city for the first time in 50 years. A small, niche catered, contract-chartered city, but a city nonetheless. It’s amazing how many amenities become affordable when you only have to pay for a 100th, 1000th, or 10,000th of the underlying cost of provision.

This raises some questions. First of all, why don’t more of us live like this? Which, with a little reflection, is simply asking why more people don’t live in cities, which in turn invites standard answers regarding preferences for more space and fewer neighbors while also further highlighting the immense costs of 40 years of construction and density obstructionism.

The more interesting question, I believe, is how many of us are going to live like this? When octogenerians peak as a fraction of the population, will we see a new golden age of agglomeration, but in private communities instead of cities? What sort of scales might these communities achieve? Will Boomers rediscover their affection for transit, but as a private club good rather than a government-provided public good? Will generations of rural and suburban Americans find themselves living in cluster micro-cities surrounding major cities, enjoying trips daytime trips into the very urban areas they’ve previously feared were overrun with imagined crimewaves? Who is going to run for mayor? What sort of power is constitutionally invested in the mayor of city whose citizens pay a flat tax i.e. community fees i.e. rent?

What’s going to happen when the Boomers pass on and subsequent Generation X members show up with greater urban affinities, but smaller numbers and fewer children to support them? Will some elder communities collapse and be absorbed into a smaller number of larger elder cities, breeding greater scale returns, but within the economic security of a generation of grown children to foot the bill if the money runs out? Will there be an Orange Julius and Tower Records for me to hang out at? Will chain wallets come back?

Come to think of it, why are we waiting until our 80s? What’s stopping us from living in tightly-knit condominium communities filled to the brim with the social and community public goods that increasingly lonely Americans seem to be in desperate need of? Why can’t I go on reddit and find the apartment complex whose emergent culture of tenants caters to my households specific interests in games, art, and sports?

I started this worried about how my parents were going to live and finished trying to figure out how to live more like them. What I’m saying is the YIMBYs need to win and make it snappy so my household can live its dream of living in a 3 bedroom condo on the 5th floor of a building built on top of the Startcourt mall.

Addendum: I am not the first person to think along these lines.

Apparently Claude 3 Opus AI/LLM is a pretty decent economist:

As much as I appreciate the prospect of an AI economist, allow me to ask the most annoying and, in turn, most important, question an economist can ask of any proposition: “Compared to what?”

It seems to me any consideration of the quality of economic analysis produced by an AI/LLM model demands a series of comparison points. We need bad economic analysis. We need AIs that generate mediocre, decent, atrocious, acceptable, and perhaps if possible, brilliant economic analysis for comparison. Which, it seems to me, is entirely possible given that a large language model (LLM) is trained on reams of text. So, lets do it. Let’s see how many different artificial economists we can produce and observe. A digital zoo of economic Pokemon with less violence and more discussion of underlying elasticities.

What happens when we train Claude on every edition of Mankiw’s principles textbook? Cowen and Tabarrok’s textbook. All of the principles books. The most daunting book in all of graduate economics? What happens when we train it on sociology and anthropology textbooks? NYT and WSJ editorials? What happens when we let it consume nothing but Presidential State of the Union addresses? Campaign speeches? Every book in the Google digital library? Twitter? The economics subreddit? A perfectly respectable blog?

How should we evaluate the outcomes? Should it attempt to complete the prelimary exams to continue your PhD training at the University of Chicago? The final exams in Intermediate Micro and Macro Economics at the University of Virginia? At what price would it have sold shares of Gamestop? Perhaps it could write an explicit function that would advise a family when to buy instead of rent based on age, city, income, and number of children. Maybe it could manage to pull off a reverse-Sokal hoax, writing a paper making a genuine scholarly contribution worthy to pass through the review process at a top 25 peer-reviewed economic journal. Maybe it could convince your brother-in-law to stop asking for stock tips and just buy into index funds.

In the end, the market test for what stands as a valuable contribution from an AI is what will matter for most of us. But the time is quickly approaching when we will leave behind awe- and angsted-filled proclamations of whether an AI model is discretely good or bad, useful or dumb. The next step demands granularity of evaluation and consideration. Perhaps not false cardinal (continuous) values, but ordinal rankings aligned with useful and actionable assessments of their analysis. And in case you think this is dull or tedious, consider for a moment what it will mean to evaluate the analytical skills of AIs stratified by their training materials. It will stand for many as a meta-analysis of the broad merit of entire disciplines, literatures, and oeuvres. It will be coarse and efficient, messy and cruel. It will cultivate and distill the core messages of intellectual and social identities, many of which were previously latent, if not outright inert. Subtext will be made text, it’s merits evaluated and compared.

That last bit is perhaps the most terrifying. The entire culture of etiquette and politeness, of politics, is built around the institutions that ensure that too much is never said too directly. I have no doubt that this has some of you salivating. You are so very comfortable in your truth that it enrages you when you are implored not to call ideas silly, arguments wrong, people stupid. A utopia of the mind awaits us in this new world of AI-adjudicated debates and augmented salons. Be careful what you wish for. And don’t be so sure your imagined AI arbitrator is going to be remotely fair. Or on your side.

An AI is only as good as the material it is trained on. Genuine insights are found in economics journals by the thousands every year, but fallacies and sophistries are found by the billions in the endless sea of casual text that fills the internet, airwaves, and podcasts. We all (all) spend large parts of our day being casually wrong about things because it costs us precisely nothing to be wrong. The law of large numbers, in the parlance of statistics, will innoculate AIs from such intellectual food poisoning as the randomness of our errors cancel out. What that won’t save us from, however, is the raw populism underlying much of the casual text out there. Is it outlandish to say there are more people who receive rewards, pecuniary and non-pecuniary, for telling people what they want to hear rather than the truth? Have you ever consumed any media ever?

I’m not an AI doomer. I remain rather sanguine on the entire enterprise. But part of the human condition is never knowing for 100% sure what is right or wrong. We pass that on to all of our intellectual offspring, no matter how smart or artificial they are. Or least, we should.

Economists rightly make a big deal out of specialization and trade. They proceed to go one step further and say that it’s better to pay someone else to perform some service, even if you can perform it yourself. One the assumptions underlying this advice is that time and money are both fungible and convertible.

How are economists right and wrong about the convertibility of time and money? In one sense, we can change how much we work and change how much income we have. That seems plain. But it also requires some start-up costs to have an easy go-to means of earning more income. For example, Uber drivers are registered with Uber already.  Joe from the street can’t start driving tomorrow without substantial preparation.

If economists are wrong about the convertibility of earned time and earned money, then they still have standing. We all have an endowment of time, if not money. But there are plenty of goods that have a money price and a time price that have an inverse relationship.  The advantage of having a time budget is that you can offset some of the money price of goods with time such that more of the money budget can be spent otherwise.

For example, I had to buy a new golf cart battery. One option was to spend $2,400 for a guy to come replace my old battery for me. The other option was for me to spend $1,500 and one evening to do it myself. Given that I typically do chores in the evening anyway, the time-cost to me didn’t feel all that imposing.

Further, if I free up some time, then what happens to it? I can leisure. That’s what economists call any time spent that isn’t working. But after that leisure, it’s gone. There some saving your time for later in the form of bringing other chores earlier in time. But there’s certainly no allowing your time to earn compound interest. That’s where the advantage of self-service really shines IMO. I can give up $900 and enjoy one evening of leisure. Or, I can given up an evening of leisure, put the savings into an investment account, and then reap double the evening’s worth seven years later. Then I’ll have two nights of leisure rather than one. To me, that’s the biggest difference between time and money. I can earn interest on my money in a way that I can’t earn interest on my time.

The nature of power, the stories people tell about us, and the stories we tell ourselves is a current throughline within seemingly everything I’ve been watching lately.

Dune Part 2. Loved it, IMAX recommended. The sheer scale of story isn’t just something exposited, you feel the crushing weight of it throughout. The film is trimmed to the point where some detail is skipped over, but the upside is the story never loses momentum. The underlying political economy remains relevant at all times.

Shogun feels true to the source material. Beautifully rendered. The possibility of power, and in turn the taking of power from others, can force your hand. How many coups are forced by the expectation of a coup? Funny how a world can hinge on an inelastic resource, be it a planet’s worth of hallucinogen or a single sailor’s navigational human capital.

The Great. Funny, decadent, ludicrous, and pitch dark at different times, I see a shocking amount of my own worldview in the writing. The alchemy of fear and self-interest swirling around power makes for an incredible comedic substrate. I recommend this to anyone who will listen and I’m probably going to write more about it.

The Kid Detective. How did none of you tell me about this movie? Much like Confess Fletch, it is an absolute gem that fell through the cracks of a theater-less pandemic. A dark comedy about the tragedy of being labeled a prodigy and how that can short-circuit a young person’s development, set within a town short-circuited by a crime. It’s not a happy movie, so don’t expect a happy ending, but it felt honest at every step.

Alex Burns recapped a conference session about the market for PhD students in History. It was, predictably, rather despondent as is the nature of the job market for all graduate students in history, but doubly so for those outside the absolutely most elite 3 to 5 schools. The whole thread tells the story of graduate education in history, and the broader humanities, with sincerity and empathy.

Now, if I were a respectable economist, I would note that discussed plans to increase the supply of graduate student labor in a market with already paper thin demand is most certainly not the answer. Economists rarely pass up the opportunity to roll their eyes at any academic failing to understand supply and demand, but fortunately Christopher Jones (a proper historian) already made the appropriate observation:

What caught my eye, however, was the noted recommendation that faculty stop identifying scholarship in their field as a viable career altogether:

This makes my blood run cold for a number of reasons. First, its a trap whose bait is appealing to those students who are simultaneously the most earnest and most insecure. Unsure of what life will be like after college but know in your heart that you loved your classes in rhetoric or 16th century literature? Then why not make the noble decision to forsake the material world for a life of the mind? That’s exactly the kind of trap that makes for the pompous 23-year olds who turn into angry and despondent 30 year olds.

Perhaps worse, however, is the forsaking of an entire discipline that once held the mantle of profession and might now resign itselft to the standing of a hobby. I’m a STEM-y, arrogant economist who consumes very nearly no pre-19th century literature but that doesn’t mean I don’t think the deepest understanding of the foundations of a culture, any culture, doesn’t have profound insight to offer future generations. There is value there, the kind that might even qualify as a public good, whose provision we might want to collectively support, if we so chose.

It’s especially frustrating, however, because I can’t help but think the answer is right in front of them. It just happens to be nearly the inverse of the first suggested policy. History and the humanities need to reduce the supply of graduate students. That’s all there is to it. Yes, research and teaching will be more slower and more arduous without as many graduate assistants. It’s a tough break, but it sure as hell seems a more modest price to pay than the abandonment of scholarly training as something that leads to a viable career. I’d also like to very much hope that it would ease the conscience of faculty taking on graduate students as assistants, then thesis advisees, knowing that 5 years of laborious apprenticeship isn’t destined from the beginning to end in tears. You’ll have fewer graduate students, but hey, at least now you’ll be able to look them in the eye.

There’s a term in urban development: shrinking to greatness. A city can in fact shrink in population and still come out the other side viable, even potentially stronger than ever. That’s the story of Pittsburgh. Embrace what you are, not what you used to be or wished you were. There are a lot of disciplines and subdiscplines that are going to destroy themselves trying to become the STEM fields they wished they were or the recreate past golden ages of dubious veracity. But there will be some, across fields or within single universities, who will recharacterize themselves as custodians and curators of scholarship whose demand may have shrunken, at least for the moment, but whose contributions can carry forward. If that means at a slower pace or smaller scale, so be it. Better to embrace what you are than recruit the naive as kindling for a bonfire lit by arrogance and denial.

At Ave Maria University, we have an open economics faculty position. Indeed, it’s late in the job market and we haven’t settled a match. That’s what accounts for my late post. I interviewed someone today when I otherwise would have been grading. So, I spent my evening writing feedback on papers (pleading for greater concision).

We are a small department at a Catholic liberal arts school. When staffed, we employ 3 full time Econ faculty plus 1 or 2 adjuncts. We’re primarily a teaching university, teaching 3-class loads each semester. The students are great people. They have better moral fiber than I did at their age and the Econ majors tend to be smarter and more capable than I was at their age.

The university is located in Ave Maria, Florida which is a small town near Naples, the very wealthy destination of snowbirds and retirees. Most faculty live near the university, send their kids to the nearby private school, and attend the same masses. There is a lot of community here.

We’re happy to take economists of almost any specialization. A focus on micro or stats or data analysis would be a plus. The link to apply is below. I’d be thrilled to learn that this is how we met.

https://workforcenow.adp.com/mascsr/default/mdf/recruitment/recruitment.html?cid=70cb71c1-96f8-4956-8cce-ce625b0b2943&ccId=19000101_000001&type=JS&lang=en_US&jobId=466997

There are two ways to increase profits or available funds: grow revenues or reduce costs. We typically laud the creative teams that identify paths to greater revenues while, at best, tolerating those in charge of tightening belts. Given the tones in which we speak of austerity, there’s the thought that perhaps those at it’s vanguard are underrated (and they probably are, at least relatively). On the other hand, we often find ourselves operating within an economy of credit and blame. Credit for revenue gains tends to spread to the whole team, while credit for profits attributable to spending cuts specifically accrue to the management imposing those cuts. In such a model, spending cuts would be overemphasized as a profit-maximizing strategy. Growth can also be overemphasized of course – venture capital has come to exist as an institution that seems to only be interested in “home run” investment outcomes, likely at the expense of simply supernormal returns. We could keep pursuing this line of thinking, but I’m not really interested in adjudicating where austerity or growth is overrated. I think there is a broader concern to be considered in the growth/austerity strategy dichotomy. Within such a model of optimal decision-making there is an unstated, but critical, assumption that the relevent set of revenues and costs is perfectly fungible, and in turn comparable, across all contexts.

I think of this phenomena as the Unified Theory of Excel (UTE), an operating principle that can take over decision-making within a company or institution. The UTE carries the false promise that all contexts across an operating entity can be reduced to columns in a spreadsheet and, in turn, a decision made by netting out the effect of changes to those columns. Now, If you think that I, your friendly neighborhood economist, am about to make woo-woo claims deriding the information held within costs and revenues, get used to disappointment. My concern lies in the arrogance, sometimes negligence, in the assumption that numerically identical changes in costs and revenues across different contexts are comparable. It’s not that the information within the columns is bogus or irrelevant, but rather that the lack for context characterizing the relationships between the columns undermines any hope for knowledge to be produced. Data are just meaningless numbers absent a model to characterize the relationships between the numbers. And that’s all a model is – an attempt to place the data in the appropriate context.

Complaints from those on ground about clueless management and soulless beancounters are, essentially, complaints that they are operating without a model. Cutting $100k from a marketing budget is not the same thing as cutting $100k on jet engine inspections and quality control. The world of possible outcomes from marketing cuts might include between $25k to $50k less in sales revenue, a large drop the worst attributable failure possible. In contrast, $100k quality control cuts will result in $100k in increased profits in 99% of possible outcomes, but of course there’s also a 1% chance that 10,000 people die in a fiery blaze, billions are lost in lawsuits, and the company ceases to exist. To be clear, I am fully aware of the resources that companies invest in projecting risk from decisions. Rather, the point is to illustrate the importance of context and the dangers of treating all numbers on a ledger as comparable and complete.

The Unified Theory of Excel is the belief that everything is fungible and can be abstracted to a spreadsheet absent any context or model. This belief in universal business fungibility is especially alluring given that the most recent wave of “people who got rich off of low-hanging fruit” were finance folks who observed the fungibility of risk across debt instruments. This false fungibility ignored the dangers of stripping numbers of context, which in the case of mortgage debt instruments included the relationship of ledgers across markets and higher statistical moments i.e. tail risk. Economic theory is built on abstraction, but abstraction has the fun property of being useful until it is disastrous. It’s the last step that kills you. Or creates a financial crisis. Or produces a jet where those 1% events keep happening.

What I am observing, in the news and broader conversation, is a frustration with management that I think is often being misinterpreted as “frustration with business” but I think is more correctly viewed as “frustration with business done poorly” or, perhaps more precisely, “business done with the wrong model”. Writers, actors, and film crews are frustrated with management operating with models that have been outdated for at least a decade. Journalists are losing their minds dealing with publishers who can’t keep outlets afloat and make payroll on time because an underlying model appears to be absent entirely. If this was purely about competing interests then the answer would, in theory, be available in competitive markets or at the collective bargaining table. But something seems off. It I didn’t know better, I’d be looking for a broad inefficiency, some sort of negative technology shock. An investment or commitment to operating in a contextual vacuum.

The thing about MBAs is they are generalists by training who often, by dint of their advanced credentialing, sometimes think of themselves as specialists. Their speciality being “business” carries with it an implied concept that business can be reduced to the universal application of their training and expertise, both of which have increasingly come to be…well…Excel. Excel is many things, but it is not a model (or at least not a very good one). Neither is “business”, for that matter. A spreadsheet supporting a pivot table embedded in a power point slide deck is something that you can carry from job to job, contract to contract. A 73kb hammer you carry in a world of nails waiting to be enumerated on your LinkedIn. It can accomplish tasks, present outcomes, but it offers no more context than a three-ring binder. It’s a model that says that everything is the same, everything is fungible. That the world can be reduced to mathematics no more complicated than 4th grade arithmetic. The sort of simple answer to a complex problem that HL Mencken warned us of.

One of my grad school classmates had a turn of phrase that I’ve grown to appreciate: “Hippy Hayekians”. These were folks who favored free markets not because business people were geniuses or heros, or because goverment was inherently evil, but because good decision-making comes down to the tacit knowledge that only comes from being in and of something, on the ground, embedded in it day to day. I’m by no means an Austrian economist, and my friend would never have put it this way, but I’m increasingly of the view that good management often does in fact come down to “vibes”. If, of course, by “good management” you mean a holistic understanding of the entire enterprise, including not just ledgers, but also risks, ambitions, culture, customers, and constraints. And by “vibes” you mean the tacit knowledge held and communicated by every single human being within a firm. Perhaps the occasional dog or cat.

I’m a data-driven guy down to my bones. Whether its criminal justice policy or how to produce a successful new brand of toothpaste, the best possible answer is in the data. But interpreting data is impossible without context, without a model. So maybe this whole post is a warning to be careful of anyone, be they managers, consultants, or management consultants, offering advice without a model.