On Cylindrical Revolutions

mdmakowskyLeave a comment

The three technological innovations new to my life in the last year with the greatest impact are:

  1. Pfizer mRNA vaccines (price = $19.50, input costs: no less than $2 Billion, probably more)
  2. Amazon Basics Foam Roller (price $18.99, input costs: $4.44 per ounce of styrofoam)
  3. Zoom teleconferencing (price: $no idea what my school pays for it, input costs: $146 Million in venture funding)

The vaccine, of which I am scheduled to receive my first dose of tomorrow, will allow me to (sort-of) return to my pre-pandemic life. The introduction and regular use of a cylinder of high-density styrofoam has given me a better functioning left leg than I’ve enjoyed in 5 years. Zoom has arguably done more to maintain my the short-term integrity of my income (i.e. it’s allowed me to teach online effectively).

That is a very oddly shaped distribution of investments in high-utility yield innovations.

Biotechnology and medicine as a high investment, high risk, big payoff innovation game is well understood. Less known was whether or not a rapid “innovation on demand” vaccine project was an achievable outcome, no matter how much money was thrown at it. Turns out it was, and we’re left with what might be the most impressive feat of willed innovation since the moon landing. High-resolution teleconferencing technology, on the other hand, is exactly the kind of product we’ve grown accustomed to modern tech firms producing– the supply of such innovative products via the private capital-entrepreneurship pipeline is almost always less in question than the eventual demand it may or may not find in the marketplace.

But what of treating your muscles like sugar cookie dough? This is neither a sophisticated new composition of materials nor, at face value, a particularly complex theory of musculature. But, to my knowledge, this is not something even professional athletes were doing 7 years ago, yet now is both the bleeding edge of physical maintenance and such common knowledge that everyone who’s strained a muscle in the last 6 months currently has one of these cylinders leaning against a wall in their home. And, while I don’t mean to oversell it, the introduction of foam rolling has massively improved the quality of my life, not just when I try to play any sort of sport, but when I walk down a flight of stairs. It’s not crazy to suggest it may buy me an extra decade of easy use of my preferred mode of transportation, and while using my natural knees at that.

Investment in innovation is an interesting thing – there appears to be significant returns to scale at the micro, meso, and macro levels. Firms flush with capital can focus teams on single problems, fill them with talent, and grant them the keys to every piece of equipment deemed to hold even the slightest possibility of aid en route to an end product. There are simply innovative outcomes on the horizon for the Pfizers of the world that will never be available to scrappy new start-ups. At the same time, we can see the network-driven returns to scale in markets, a la Silicon Valley or Hollywood, that only begin to appear when a critical mass of agents all find themselves drawn to the bubbling creative soups that appears in the diners, salons, and coffee shops of whatever place has become the place.

But there are scale returns at the most macro of macro levels as well, and that is where we get miraculous cylinders of foam, as well as wheels on suitcases and the polymerase chain reaction. People are many things. Occupiers of space. Emitters of carbon dioxide. Consumers of fried dough. Sometimes while doing all three they also come up with ideas.

Humans as idea machines lies at the core of Michael Kremer’s theory of economic growth, and it is perhaps my favorite idea within economics in the last 40 years. Simply put, more people leads to more ideas. Population growth is not just a product of innovation, it is a source of it. Every individual is a lottery ticket that we hope pays off with a world changing eureka moment that the rest of us can benefit from and build on for all time going forward. More people, more lottery tickets.

Those organic globules of cognitive betting slips coalesce into the long tail of innovation return on investment. We take the brightest minds, throwing them and piles of cash at our biggest problems, hoping that for the closest thing to a assured payoff. But it’s within the billions of people, and their billions of bad ideas that sometimes aren’t, within which we get countless miracles that change our lives for the better bit by bit, one smoothened middle-aged stride at a time.

The Future of the World’s Tiniest Billboards

Joy Buchanan1 Comment

Ben Lange, a business student at Samford, writes:

In January of this year, Apple made a big announcement. It wasn’t about a new iPhone. Apple announced that it will soon release an update to their software that allows users to choose whether they give permissions to apps such as Facebook to track their browsing history on other companies’ apps and websites.(WSJ) This has implications for data usage and availability in advertising. As technology has advanced, regulations surrounding exactly what a company is allowed to do with your data has  stayed relatively stagnant, especially for smartphones. Companies such as Facebook and Twitter are allowed to monitor your searches not only on their apps, but also on your phone browser and other apps.

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Wait for the Lower Cost Version of Policy

Zachary BartschLeave a comment

I’ve written previously about initial US state compulsory schooling laws in regard to literacy and in school attendance rates. I ended with a political economy hypothesis. Here’s the logic:

  1. Legislators like lower costs, all else constant (more funding is available for other priorities).
  2. Enforcing truancy and educating an illiterate populous is costly.
  3. Therefore, state legislatures that passed compulsory attendance legislation will already have had relatively high rates of school attendance and literacy.

That’s it. Standard political economy incentives. But is it true? Well, we can’t tell what’s going on in politician heads today, much less 150 years ago. Though, we can observe evidence that might corroborate the story. In plain terms, consistent evidence for the hypothesis would be that school attendance and literacy rates were rising prior to compulsory schooling legislation. The figures below show attendance and literacy rates for children ages 10 to 18.

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Working Hard for the Money

Jeremy Horpedahl4 Comments

40 hours. That’s what we think of as a typical workweek. 8 hours per day. 5 days per week. Perhaps the widespread practice of working from home during the pandemic (as well as the abnormal schedule changes for those unable to work from home), has led some to rethink the nature of the workweek. But the truth is that the workweek has always been evolving.

Take this chart, for example. It comes from Our World in Data (be sure to read their excellent related essay as well), and the historical data comes from a paper by Huberman and Minns. I’ve singled out 4 countries, but you can add others at the OWiD link.

The historical declines are dramatic. This is especially true in Sweden. The average Swedish worker labored for over 3,400 hours per year in 1870. Today, that’s down to 1,600 hours. In other words, the typical Swede works less than half as many hours as her historical counterpart. Wow! The decline for the US is not quite as dramatic, but still astonishing: a US worker today labors for only about 57% of the hours of his 1870 predecessor.

It’s tempting to focus on the differences across countries today: the average worker in the US works about 250 hours more than the average French worker. That’s 6 weeks of vacation! And as recently as 1980, the US and France were roughly equal on this measure. We might also wonder why these historical changes happened. For a very brief introduction to the research, I recommend the last section of this essay by Robert Whaples.

But still, the historical declines are dramatic, even if we in the US haven’t seen much improvement in the past generation (and those poor Swedes, working 100 hours per year more than 40 years ago).

I think another natural question to ask is whether GDP data is distorted, at least as a measure of well being, given these differences in working hours. The answer is partially. Let’s look at the data!

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Chip Shortages Shutting Down Auto Assembly Lines; Buy Your Car Now Or Else

Scott Buchanan4 Comments

Global supply chains and just in time inventory work great – – until they don’t. Every car these days is a rolling computer, with semiconductors in every vehicle. No chips, no cars. For various reasons, there is a big worldwide shortfall in the chips needed for cars and trucks, which is causing auto assembly lines to shut down for extended periods. Car prices are already rising in response.

Chip production as a whole was slowed down this past year because of Covid effects at the factories. More importantly, chip production was switched away from automobiles to lighter consumer products. Auto assembly lines were curtailed due to the virus, resulting in reduced demand for those specific chips in 2020. The thinking among chip makers was that in the midst of a deadly pandemic, consumers would be sitting home ordering goodies from Amazon or Alibaba, rather than cruising car dealers or spending on travel. Indeed, U. S. spending on durable goods exploded in 2020, fueled in part by generous unemployment and stimulus payments, and this has soaked up existing chip production.

However, car buying has come back earlier than expected. Chip manufacturing is a lengthy process, taking some 26 weeks from start to finish. Chip makers are scrambling to add new capacity and to reconfigure their manufacturing lines for autos, but this shortage will not resolve until later in the year.

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Berkson’s Paradox nay Bias and Spring Break Blogging

mdmakowskyLeave a comment

You may be tempted to observe a negative correlation between the length of my blog posts and fraction of the previous 7 days that can be accounted for as “Spring Break”, but I submit that you may simply be omitting from the sample all of the short blog posts I could hypothetically be writing in crisp fall months.

Do read Lionel’s whole thread though. It’s good.

Can 5G Hurt You?

Joy BuchananLeave a comment

One of the many self-inflicted wounds on humanity right now is a fear of new vaccines that is somehow associated with fear of new 5G cell phone technology. This BBC story documents some really nutty stuff including a cell phone tower being attacked in Bolivia where there is not yet any 5G service.

I have my opinion of these people, but what’s the point of printing that? Let’s try to shed some light on what 5G actually is.

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Thoughts on end-of-semester lectures (Part 1)

nortonnole1 Comment

At the end of the semester, I like to make a splash with students. For example, in my intermediate microeconomics course I put together a fun lecture. We have some laughs talking about models. We talk Rolling Stones songs like “you can’t always get what you want” (budget constraints) as well as Queen songs like “I want it all” (monotonicity).

We wax philosophical with Robert Frost’s “The Road Not Taken” about opportunity cost. We reiterate that the arguments in utility functions can be a richer set of desires than food and shelter. As Adam Smith says, “Man naturally desires not only to be loved, but to be lovely.” We emphasize that our models are simplified because good models try to get to the heart of the matter.

Sometimes models are dangerous. Like the “monkey illusion” we become so distracted we miss the heart of the matter. One prime example is how Samuelson continued to update the projection about when the USSR would surpass the US economy (check this out for more info) or Easterly’s depiction of the World Bank notion that if you build it, growth will come.

We discuss the importance of models, how they organize our thinking, the dangers of being too wed to a model but also the importance of empirical testing. We use MobLab in class to test our models as I’ve written about here. But, MobLab can’t give us an empirical test of all the important questions. We have to look elsewhere, out in the world to find evidence. One of my favorite examples of this are cross-border comparisons like East and West Germany, North and South Korea, Haiti and the Dominican Republic, etc.

I remind students that incentives matter. Economic institutions influence the costs and benefits of human action. When costs and benefits change, we expect for behavior to change. Throughout the semester we learned to formalize these ideas and they are not without consequence. As this New York Times piece discusses the work of Amartya Sen,

“Nature causes floods and droughts, but most societies have found ways to get food to those afflicted most of the time. Human folly causes famine, which occurs when those ways are blocked. Amartya Sen, a Harvard economist, argued that there has never been a serious famine in a country — even an impoverished one — with a democratic government and a free press. The press acts as a warning system and the pressures of democracy dissuade rulers from famine-producing policies.”

While economics is fun, interesting, and can be light-hearted, economics can also be deadly serious. The stakes of economic illiteracy are enormous.

Next week we go on to Part 2 where I pivot from this section of the end-of-semester talk to the applications of economic ideas to the everyday life of students.