This is from The Price of Peace by Zachary Carter. What strikes me is the fact that a fleeing refugee doctor enabled Keynes to join the fight, again at the age of 58.
The following passage starts on page 316: “In the meantime, Keynes was at last in good health again. He owed his new energy in part to Hitler’s aggression. In 1939, Keynes had hired János Plesch, a Hungarian Jewish doctor who had relocated to London after fleeing Nazi persecution.
[Plesch resolved Keynes persistent throat infections by administering one of the earliest antibiotics (that was developed in German labs by Bayer before the war!).]
“After two decades of depression, however, the British economy was entering the fight of its life in ragged condition. … On the eve of war, worker productivity was 125 percent higher in the United States than it was in Britain.
“In the meantime, Germany had shifted its offensive focus to London. The Blitz…
“British diplomats didn’t have time to waste. After trying everything else, they brought in Keynes.”
“So Keynes went to Washington in May 1941 to negotiate more practical terms of cooperation and promptly infuriated nearly everyone he met.”
My thoughts: Money wins wars. Wars redistribute talent. Talent makes money. Is the cycle still going? Is this a post-industrialization phenomenon only? Will Tyler’s upcoming book on talent shed any light on this topic?
Podcast with Anne Applebaum on dictators (May overlap considerably with your Twitter stream of info, but at least you could walk while learning and take a scrolling break.)
I have a credit card that gives me rewards. I get a nice 5% cash-back on purchases from Amazon and a lower cash-back rate on other purchases. Sometimes, there are promotions that provide a rate of 10% or even 15%. But what are these rewards worth?
To simplify, there are two reward options:
Option 1 adds to my Amazon gift-card balance. It’s attractive. When I’m checking out at Amazon, it shows me my reward balance and it also shows me what the total cost of my purchase could be if I applied the gift card. It’s like they’re trying to pressure me to redeem my rewards in this particular way.
Option 2 is simply to transfer my rewards as a payment on my credit card or as a credit to my bank account (for the current purposes, they’re identical). Either way, the rewards translate to the same number of dollars.
Say that I spend $1,000 at Amazon. Whether I choose option 1 or 2 has value implications.
Option 1
The calculation is simple. If I spend $1,000 at amazon this month, then I can spend another $50 in gift card credits at Amazon next month. That’s the end. There are no more relevant cashflows. I used my credit card one month, and then was rewarded the next month. The only detail worth adding is the time value of money, which at 7% per year*, yields a present value of rewards at $49.72. Option 1 is nice in the moment. It’s so enticing to have a lower Amazon check-out balance due.
The success of Wordle has inspired a host of similar games. My personal favorite is Worldle, where you guess a country based on its shape. But the one that’s most econ-relevant and the one that I learn the most from is Tradle. You have to guess the country based on its exports:
This one would be a lot easier if I knew what Kaolin is
I’ve written about the social benefits (in terms of the value of lives saved) of COVID mitigation measures, such as wearing face masks, before. But at this juncture in the pandemic (and really for the past 12 months), the key mitigation measure has been vaccines. How much does it cost to save one life through increased vaccination?
Robert Barro has a new rough estimate: about $5,000. In other words, he finds that it takes about 250 additionally vaccinated people in a state to save one life, and the vaccines cost about $20 to produce (marginal cost). So, about $5,000.
Barro gets this number (specifically, that 250 new vaccinated people saves one life) by using cross-state regressions on COVID vaccination rates and COVID death rates. Of course, there are plenty of potential issues with cross-state regressions. It’s not a randomized control trial! But Barro does a reasonable job of trying to control for most of these problems.
Another way to restate these numbers: if we assume that the VSL of an elderly life is somewhere around $5 million, then the social benefit from each person getting vaccinated is around $20,000. In other words from a public policy perspective, it would have made sense to pay each person up to $20,000 to get vaccinated!
Or thought of one more way: each $20 vaccine is worth about $20,000 to society. That’s an astonishing rate of return. And we’re not even including the value of opening up the economy earlier (from both a political and behavioral perspective) than an alternative world without the vaccines.
In one of those truth-can-be-stranger-fiction events, two weeks ago Elon Musk tweeted this challenge to Vladimir Putin: “I hereby challenge Vladimir Putin to single combat. Stakes are Ukraine,” adding in Russian, “Do you accept this fight?”
I am not aware of this challenge affecting the course of Russia’s war on Ukraine, but Musk has made a significant contribution in another area. Modern warfare is all about rapid, voluminous information gathering, processing, and dissemination. The internet has become the backbone of much communication. In areas like Ukraine with less-developed cable and fiber infrastructure, internet access is commonly via cellular service.
Ukraine’s cellular service was significantly degraded by the first week of the invasion by loss of territory and widespread bombing of infrastructure. What could be done? It turns out that Elon Musk’s Starlink swarm of low-orbit satellites is designed to provide internet service for areas of the globe that are underserved by standard methods like cable and cellular. Ukraine’s Vice Prime Minister and Minister of Digital Transformation, Mykhailo Fedorov, tweeted to Musk, “While you try to colonize Mars – Russia try to occupy Ukraine! While your rockets successfully land from space – Russian rockets attack Ukrainian civil people! We ask you to provide Ukraine with Starlink stations and to address sane Russians to stand.”
Musk responded within days by launching and/or repositioning satellites and providing thousands of ground-based Starlink terminals, providing much-needed communications for the beleaguered Ukrainians. Starlink is now the most-downloaded app in Ukraine, and is used to direct Ukrainian attacks on Russian tanks. Such is the power of private enterprise. One wonders if the U.S. governmental agencies would have been able to provide such service so quickly.
As reported by The Wire, the Russians have complained that Musk’s actions constitute interference: “When Russia implements its highest national interests on the territory of Ukraine, Elon Musk appears with his Starlink, which was previously declared purely civilian.” Musk’s ironic reply: ““Ukraine civilian Internet was experiencing strange outages – bad weather perhaps? – so SpaceX is helping fix it.”
A reader (though perhaps not yet a loyal one) wrote me:
“I don’t know if you take reader requests – but on the Nurse/Teacher/Kitchen Staff post from a little while ago – I am curious what the economic data might say about career switchability. I.e. sure, a teacher or nurse may feel trapped, but how free does everyone else actually feel? I’m assuming it’s hard to get data on this (what counts as an actual career change?) – but I (as someone scanning a list of blog titles and clicking on the one titled “It’s a Trap!”) would be interested in your perspective on this from an economics angle.”
I’m not quite sure how to go about answering this question directly, but I’ll venture a couple things. Some lazy searching on google scholar turned up a paper from 1988 that itself rediscovered a survey by the San Diego Teachers Association from 1964(!) that found “A feeling of being trapped in the profession” to be the #1 cause of burnout reported by teachers. A couple thoughts!
First, 1964! Second, while the reasons for feeling trapped in the teaching profession in 1964 were no doubt different than they are today (*cough* extreme institutionalized sexism *cough*), but we need to consider that the profession of teaching at the primary and secondary levels isn’t one that creates a lot of opportunities for adding to your human capital, which can lead to feeling, correctly and incorrectly, of the job market passing you buy.
A more recent paper from 2002 notes that “The lack of anything resembling a genuine career ladder contributes to the feeling of many teachers that they are trapped in a career that has become not only joyless but futureless.” As someone who’s been there myself, I can tell you there grows quickly in the mind a specific anxiety that that to stay a teacher too long is to risk being left on a career ladder with no rungs. If there was ever a reason to have the now clichéd “quarter-life crisis”, that’s it.
While teachers may leave the profession early for fear of being trapped by atrophied human capital, nurses appear to be more a story of over-specialized human capital. A relatively simple analysis found that nurses with more education and experience were more likely to stay within the professions. Nothing terribly shocking (or causally identified) there, but other work has found within-profession concerns of overspecialization as well: one paper found that emergency department nurses were especially concerned about becoming trapped ED-only nurses, particularly those in more rural hospitals, losing access to more lucrative urban jobs that require more advanced care-giving and physician support related skills.
This is a great time to remember that causal identification is important, but it isn’t everything. Sometimes its really useful to create a super-charged summary statistic and look for patterns, like the above.
To get back to the readers question about extending beyond teachers and nurses, I think the key to understanding the transition costs of a career is to appreciate the two channels for becoming trapped:
Human capital atrophy
Human capital overspecialization
Atrophy speaks to a lack of options because of an absolute disadvantage, while overspecialization is because of an intense comparative advantage. The first is, in most ways, far scarier because you have limited options save to stay in a career where years tenure is your only real advantage. The second, on the other hand, is really only problematic if you have a strong preference against the field of your specialization or you fear the risk of obsolescence. That doesn’t mean you shouldn’t take overspecialization fears seriously. We’ve all seen a againg musician who can still fill an audience but looks like they’d rather get a root canal than spend another evening on stage. They’re not there because they want to, they’re because they’re second best option can’t cover their mortgage.
Do I have an career advice for maximizing career advancement and adaptability ?
Do I ever! Get an advanced degree in economics from a respectable school. Or, barring that, a school entirely absent in respect or prestige. More specifically (and more seriously), my advice is this: major in tools, minor in substance.
Substance can be acquired piecemeal, in a disjointed sequence with random and sometimes large intermittent breaks. Acquiring tools, on the other hand, is far more dependent on uninterrupted periods of intense learning and application. You can read about the Ottoman empire over coffee breaks and bus rides. Learning Python, R, real analysis, econometrics, virology, chemical spectroscopy, or evolutionary game theory are all far more easily learned if you can dedicate months or years to them in large uninterrupted bursts of focus.
Further, tools tend to exist in their own phylogenetic hierarchy. Once you’ve acquired a tool, it is often an order of magnitude easier to acquire a new, closely related tool. It might have taken 2 years to get really good at C++ or Java, but because of that you can learn Python in a couple weeks of fooling around on a side project. Those first tools are the most important ones you will ever acquire, but they are also the hardest.
A secondary bit of advice: major in something that people know is always at least a little hard. I try not to overrate the “signalling theory of education” but there remains the hard to deny reality that education does have some signaling value. One of the signals is “I’m smart”, but as a signal I think it’s highly overrated. A more important signal is “I’m willing to learn things that are hard”. Most careers within persistance advancement and robust demand require the continuing acquisition of new skills and adaptation to new circumstances. You want very badly to signal, early and often, that you are someone who is willing to put in the effort to adapt and remain productive.
Despite that some members within my vocation may suggests, however, the answer to every problem is not in fact more school. Which leads me to my final, most important, but probably most trite piece of advice:
Quit.
No, seriously, quit. If you can pay your bills and you want out, get out. If you can’t, start laying the groundwork for your exit. Yesterday would have been better, but today is a close second. There’s no room for sunk cost thinking in careers. You only booked two commercials in 7 years in LA? Move to Kansas City and learn to code. You want out of the service industry? Jump start your BS in chemistry two classes a semester. You hate nursing? Start applying for admin positions in your hospital, apply for reimbursement for a 2 year executive MS in IT management through your hospital. You hate your PhD program and realize there’s no market for your degree outside of academia? Start writing ad and social media copy for local restaurants trying to get off the ground.
This isn’t me trying to admonish you with “by-your-bootstraps” ra-ra BS. This is me saying that the time you’ve put in shouldn’t matter if you want something else. But maybe you don’t want something else. That’s fine too! Just don’t tell me you’re trapped then, just say that you’re bored and you need a new hobby. And then sell your hobby on Etsy. And then market your hobby through google. And then write a book and tell Martha Stewart about it. That’d be pretty cool.
But then again, it’s easy to give advice. Do your best. Feed your kids. Keep trying. It’ll be fine.
There is a new paper available at Cliometrica. It is co-authored by Mathieu Lefebvre, Pierre Pestieau and Gregory Ponthiere and it deals with how the poor were counted in the past. More precisely, if the poor had “a survival disadvantage” they would die. As the authors make clear “poor individuals, facing worse survival conditions than non-poor ones, are under-represented in the studied populations, which pushes poverty measures downwards.” However, any good economist would agree that people who died in a year X (say 1688) ought to have their living standards considered before they died in that same year (Amartya Sen made the same point about missing women). If not, you will undercount the poor and misestimate their actual material misery.
So what do Lefebvre et al. do deal with this? They adapt what looks like a population transition matrix (which is generally used to study in-,out-migration alongside natural changes in population — see example 10.15 in this favorite mathematical economics textbook of mine) to correctly estimate what the poor population would have been in a given years. Obviously, some assumptions have to be used regarding fertility and mortality differentials with the rich — but ranges can allow for differing estimates to get a “rough idea” of the problem’s size. What is particularly neat — and something I had never thought of — is that the author recognize that “it is not necessarily the case that a higher evolutionary advantage for the non-poor over the poor pushes measured poverty down”. Indeed, they point out that “when downward social mobility is high”, poverty measures can be artificially increased upward by “a stronger evolutionary advantage for the non-poor”. Indeed, if the rich can become poor, then the bias could work in the opposite direction (overstating rather than understating poverty). This is further added to their “transition matrix” (I do not have a better term and I am using the term I use in classes).
What is their results? Under assumptions of low downward mobility, pre-industrial poverty in England is understated by 10 to 50 percentage points (that is huge — as it means that 75% of England at worse was poor circa 1688 — I am very skeptical about this proportion at the high-end but I can buy a 35-40% figure without a sweat). What is interesting though is that they find that higher downward mobility would bring down the proportion by 5 percentage points. The authors do not speculate much as to how likely was downward mobility but I am going to assume that it was low and their results would be more relevant if the methodology was applied to 19th century America (which was highly mobile up and down — a fact that many fail to appreciate).
The destruction of value is graphic and tragic, caused by Russia invading Ukraine this month. Of course violence is common, around the world and throughout history. Violence and repression lead to poverty. Only in rare circumstances have autocracy and despotism been escaped, so that commerce can flourish and wealth can be shared.
Last week I blogged about my nice experience at Disney World. I was happy to see them telling the story of technological growth at The Carousel of Progress ride. At Disney, people really commit to their stories. Adults don’t wear mouse ears or Jedi robes ironically, in the park. The Carousel of Progress message is 100% optimistic about our future, without any cynicism or hedging. There is no mention of government institutions or which legal arrangements will allow progress to continue.
Here is some political economy that is missing from the ride. I quote, without indenting, from the late P.J. O’Rourke’s book On the Wealth of Nations. O’Rourke explains, sometimes using Adam Smith’s words, how in rare circumstances humans managed to rise out of poverty and subjugation.
Beginning of Chapter 7: The first two books of The Wealth of Nations are Adam Smith’s creed of economic progress. Smith placed his faith… in the logic of common sense. We are required to care for ourselves. We act upon this requirement. Our actions are demonstrably beneficial to others. The economy progresses, QED. Or it would, Smith wrote, “if human institutions had never thwarted those natural inclinations.”
More from Chapter 7, on pre-Medieval history of Europe: Smith wrote that the “rapine and violence which the barbarians exercised” left Western Europe “sunk into the lowest state of poverty.” Commerce was destroyed, towns were deserted, fields were left uncultivated. But although the rule of law and the legal title to property that goes with it were destroyed, the result was not “Imagine no possessions/ I wonder if you can.”
End of Chapter 7, an explanation of how economic progress started in the Westwhen the merchants gained some freedom: Adam Smith argued that the inclination of the feudal overlords to be selfish was so strong that it overwhelmed their instinct for self-preservation:
All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with other persons. For a pair of diamond buckles… they exchanged… the price of the maintenance of a thousand men for a year, and with it the weight and authority which it could give them. The buckles, however, were to be all their own… whereas in the more ancient method of experience they must have shared with at least a thousand people… and thus, for the gratification of… vanities, they gradually bartered their whole power and authority.
Never complain that the people in power are stupid. It is their best trait.
Joy writing again: “Stupid” refers to the fact that the European lords could have maintained their own power if they had been willing to keep themselves and everyone else poor through continued violence. Consider who is currently being being crazy versus “stupid,” in Europe and elsewhere.
In Disney World’s Magic Kingdom, you can get off the Carousel of Progress and walk across the park, past the Main Street shops, to a dark scary ride called The Pirates of the Caribbean. Someone could teach a travel course where students do both rides and then discuss wealth creation. It would pair nicely with a Doug North reading. Then, everyone could ride “It’s Small World” ironically.
By the time most students exit undergrad, they get acquainted with the Aggregate Supply – Aggregate Demand model. I think that this model is so important that my Principles of Macro class spends twice the amount of time on it as on any other topic. The model is nice because it uses the familiar tools of Supply & Demand and throws a macro twist on them. Below is a graph of the short-run AS-AD model.
Quick primer: The AD curve increases to the right and decreases to the left. The Federal Reserve and Federal government can both affect AD by increasing or decreasing total spending in the economy. Economists differ on the circumstances in which one authority is more relevant than another.
The AS curve reflects inflation expectations, short-run productivity (intercept), and nominal rigidity (slope). If inflation expectations rise, then the AS curve shifts up vertically. If there is transitory decline in productivity, then it shifts up vertically and left horizontally.
Nominal rigidity refers to the total spending elasticity of the quantity produced. In laymen’s terms, nominal rigidity describes how production changes when there is a short-run increase in total spending. The figure above displays 3 possible SR-AS’s. AS0 reflects that firms will simply produce more when there is greater spending and they will not raise their prices. AS2 reflects that producers mostly raise prices and increase output only somewhat. AS1 is an intermediate case. One of the things that determines nominal rigidity is how accurate the inflation expectations are. The more accurate the inflation expectations, the more vertical the SR-AS curve appears.*
The AS-AD model has many of the typical S&D features. The initial equilibrium is the intersection between the original AS and AD curves. There is a price and quantity implication when one of the curves move. An increase in AD results in some combination of higher prices and greater output – depending on nominal rigidities. An increase in the SR-AS curve results in some combination of lower prices and higher output – depending on the slope of aggregate demand.
Of course, the real world is complicated – sometimes multiple shocks occur and multiple curves move simultaneously. If that is the case, then we can simply say which curve ‘moved more’. We should also expect that the long-run productive capacity of the economy increased over the past two years, say due to technological improvements, such that the new equilibrium output is several percentage points to the right. We can’t observe the AD and AS curves directly, but we can observe their results.
The big questions are:
What happened during and after the 2020 recession?
To get anywhere new, you need to step off the treadmill
Before tenure, most academics need to publish their work in peer-reviewed journals if they want to keep their jobs. After tenure, most can publish their work anywhere or nowhere and still keep their jobs. This is a dramatic change in incentives, and you’d think it would lead to dramatic changes in behavior, particularly in a field like economics that studies incentives. In some ways it does- most professors spend less time on research after tenure. But if they do keep doing research, it is generally the same kind they did before- it seems surprisingly rare for economists to change what kind of research they do in response to their changed incentives.
On Monday the President of Providence College told me I’ve been promoted to tenured Associate Professor. I spent much of the last 10 years focused on publishing the 26 academic articles that got me here. So now I’m wondering, what do I change when freed from constraints? I’m planning a pivot toward higher-risk, longer time-horizon, potentially higher-reward research:
Different venues– publish things where people will read them, not where its most prestigious. More white papers, working papers, open access. More blog posts and popular articles, more books– not everything needs to be a peer-reviewed academic paper.
Different topics and methods– focus on work that might have policy impact even if it doesn’t publish well. Do more replications, forecasting and related work that moves us toward being a real science that establishes real truths, even if it doesn’t publish well and might anger some people. Make a point of posting data and code publicly so that its easy for others to use.
New skills– develop generalist skills or a 2nd specialty, ideally in a young/developing field like metascience or superforecasting. Breakthroughs are more likely to come that way, especially for someone not at the top of their 1st field. Create slack so that when big opportunities or needs arise, I’m not “too busy” working on old articles to do anything about it (like I was with Covid in February 2020, Bitcoin mining in 2011, et c). Of course, many of the directions I’m considering (prediction markets, consulting, angel investing, hanging around the state house) might never be “research” even if they do pan out.
The GMU economists are good role models here, though they are such outliers now that people don’t realize they often started their careers focused on publishing journal articles (admittedly some weird ones). For instance, Bryan Caplan’s first book came out 4 years after he got tenure. I’d like to hear more examples of people whose research changed for the better after tenure if you have them. I’d also like to hear about the projects you wish someone not concerned about career risk would take on.
I’m happy to be an Associate Professor at Providence College. While I wouldn’t mind hitting some higher rungs of the academic career/prestige ladder (full professor, endowed chair, NBER invitations, et c), I don’t view these as incentives strong enough to distort my choices the way needing to get a job and get tenure did. Now the goal is simply to do the best work I’m capable of, as I see it. As you can tell I’m pulled in a lot of different directions about what this will look like, but I hope that within 5 years it will be clear I’m doing quality work beyond standard applied microeconomics I’ve been exclusively focused on till now. If not, you’ll have this post to hold over me.
“I consider the “wasting of tenure” to be one of the aesthetic crimes one can commit with a wealthy life, and yet I see it all the time” –Tyler Cowen
Economist Writing Every Day 