Literature Review is a Difficult Intellectual Task

Joy Buchanan4 Comments

As I was reading through What is Real?, it occurred to me that I’d like a review on an issue. I thought, “Experimental physics is like experimental economics. You can sometimes predict what groups or “markets” will do. However, it’s hard to predict exactly what an individual human will do.” I would like to know who has written a little article on this topic.

I decided to feed the following prompt into several LLMs: “What economist has written about the following issue: Economics is like physics in the sense that predictions about large groups are easier to make than predictions about the smallest, atomic if you will, components of the whole.”

First, ChatGPT (free version) (I think I’m at “GPT-4o mini (July 18, 2024)”):

I get the sense from my experience that ChatGPT often references Keynes. Based on my research, I think that’s because there are a lot of mentions of Keynes books in the model training data. (See “”ChatGPT Hallucinates Nonexistent Citations: Evidence from Economics“) 

Next, I asked ChatGPT, “What is the best article for me to read to learn more?” It gave me 5 items. Item 2 was “Foundations of Economic Analysis” by Paul Samuelson, which likely would be helpful but it’s from 1947. I’d like something more recent to address the rise of empirical and experimental economics.

Item 5 was: “”Physics Envy in Economics” (various authors): You can search for articles or papers on this topic, which often discuss the parallels between economic modeling and physics.” Interestingly, ChatGPT is telling me to Google my question. That’s not bad advice, but I find it funny given the new competition between LLMs and “classic” search engines.

When I pressed it further for a current article, ChatGPT gave me a link to an NBER paper that was not very relevant. I could have tried harder to refine my prompts, but I was not immediately impressed. It seems like ChatGPT had a heavy bias toward starting with famous books and papers as opposed to finding something for me to read that would answer my specific question.

I gave Claude (paid) a try. Claude recommended, “If you’re interested in exploring this idea further, you might want to look into Hayek’s works, particularly “The Use of Knowledge in Society” (1945) and “The Pretense of Knowledge” (1974), his Nobel Prize lecture.” Again, I might have been able to get a better response if I kept refining my prompt, but Claude also seemed to initially respond by tossing out famous old books.

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Interest Rates & Wining

Zachary BartschLeave a comment

There’s so much to say about interest rates. Many people think about them in the context of whether they should refinance or in terms of their impact on borrowing. But interest rates also matter for production beyond impacting loans for new productive projects. Interest rates aren’t just a topic for debtors.

Interest rates impact all production that takes time. That’s the same as saying that interest rates affect all production – but the impact is easier to see for products that require more time to produce.

There’s this nice model called ‘Portfolio Theory’. Taken literally, it says that everything you own can be evaluated in terms of its liquidity, the time until it will be sold, its expected returns, and the volatility and correlation of those returns. Once you start to look at the world with this model, then it’s much easier to interpret. Buying a car? That’s usually a bad investment. It’s better to tie up a smaller amount of money into that depreciating asset rather than to let a larger sum of money experience dependably negative returns. Of course, this assumes that there are alternative uses for your money and alternative places to invest your resources – hopefully in assets with growing rather than decaying value. People often recommend purchasing used cars rather than new cars. Both new and used cars are bad investments and you can choose to invest a lot or a little.

Producers make a similar calculation. All kinds of things motivate them: love, tradition, excellence…  But everyone responds to incentives. Consider vintners. They might be a farmer of grapes and a manufacturer and seller of wine. They might like to talk about nostalgia, forward notes, a peppery nose, and other finer things. But even they respond to prices and opportunity cost.

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What Makes Rhode Island Special?

James Bailey3 Comments

Other than being the smallest state, of course. In other places I’ve lived, it was more obvious what made them stand out. Boston has the most high-quality universities, including the oldest one (though it is expensive and traffic-ridden). New Orleans has the best food, live music, and festivals (though terrible crime and roads). I’ve lived in Rhode Island since 2020 and I’ve enjoyed how it seems to have no big negatives the way many other places do- it’s been pretty nice all around. But it has been harder to see anything where Rhode Island really stands out.

What should a tourist see or do here that they couldn’t do elsewhere? The Italian food is great, but that’s true of several other cities. You can find Portuguese food here in a way you can’t in most of the US. Probably the Cliff Walk in Newport is our best entry: a 3-mile trail along cliffs where you can see the Atlantic on one side, and Gilded-age mansions on the other.

For those living here, what stands out is the compactness. This makes sense for the smallest state, but it is even more true than you would expect, because even within Rhode Island most people are clustered within the small portion of the state that is within 5 miles of Providence.

Because of this, I almost never feel the need to drive more than 10 miles or 20 minutes; this wasn’t so true any of the other ~dozen places I’ve lived. I can easily walk to the Bay, the Zoo, and my kids’ school; then its a 20 minute drive or less to work, several good hospitals and universities, sailing, several beaches, forest hikes, the state capital, the excellent airport, Amtrak, every good grocery store, leaving the state, et c. Most other places either lack some of those things entirely or involve longer drives to get to them, though probably there’s somewhere else like this I don’t know about.

Or perhaps the best thing about Rhode Island is our people:

What do you think I missed about Rhode Island? Or if you haven’t been here, what do you think is most special about where you live?

What Are the Effects of TCJA? It’s A Little Hard to Say

Jeremy HorpedahlLeave a comment

The Tax Cuts and Jobs Act was passed in late 2017 and went into effect in 2018. For academic research to analyze the effects, that’s still a very recent change, which can make analyzing the effects challenging. In this case the challenge is especially important because major portions of the Act will expire at the end of next year, and there will be a major political debate about renewing portions of it in 2025.

Despite these challenges, a recent Journal of Economic Perspectives article does an excellent job of summarizing what we know about the effects so far. In “Sweeping Changes and an Uncertain Legacy: The Tax Cuts and Jobs Act of 2017,” the authors Gale, Hoopes, and Pomerleau first point out some of the obvious effects:

  1. TCJA increased budget deficits (i.e., it did not “pay for itself”)
  2. Most Americans got a tax cut (around 80%), which explains #1 — and only about 5% of Americans saw a tax increase (~15% weren’t affected either way)
  3. Following from #2, every quintile of income saw their after-tax income increase, though the benefits were heavily skewed towards the top of the distribution ($1,600 average increase, but $7,600 for the top quintile, and almost $200,000 for the top 0.1%)

Beyond these headline effects, it seems that most of the other effects were modest or difficult to estimate — especially given the economic disruptions of 2020 related to the pandemic.

For example, what about business investment? Through both lowering tax rates for corporations and changing some rules about deductions of expenses, we might have expected a boom in business investment (it was also stated goal of some proponents of the law). Many studies have tried to examine the potential impact, and the authors group these studies into three buckets: macro-simulations, comparisons of aggregate data, and using micro-data across industries (to better get at causation).

In general, the authors of this paper don’t find much convincing evidence that there was a boom in business investment. The investment share of GDP didn’t grow much compared to before the law, and other countries saw more growth in investment as a share of GDP. Could that be because GDP is larger, even though the share of investment hasn’t grown? Probably not, as GDP in the US is perhaps 1 percent larger than without the law — that’s not nothing, but it’s not a huge boom (and that’s not 1 percent per year higher growth, it’s just 1 percent).

Ultimately though, it is hard to say what the correct counterfactual would be for business investment, even with synthetic control analyses (the authors discuss a few synthetic control studies on pages 21-22, but they aren’t convinced).

What’s important about some of the main effects is that these were largely predictable, at least by economists. The authors point to a 2017 Clark Center poll of leading economists. Almost no economists thought GDP would be “substantially higher” from the tax changes, and economists were extremely certain that it would increase the level of federal debt (no one disagreed and only a few were uncertain).

The Dietary Salt Wars

Scott BuchananLeave a comment

For many years, it has been stated as settled science that Americans need to cut back their sodium intake from the current averages of about 3400 mg/day to less than  2400 mg sodium (about 1 teaspoon of table salt). The 2400 mg figure is endorsed by the National Academies, as described in the 164-page (we’re from the government and we’re here to help) booklet Dietary Guidelines for Americans published by USDA and HHS. The reason given is that supposedly there is a roughly linear relationship between salt intake and blood pressure, with higher blood pressure correlating to heart disease. The World Health Organization (WHO) recommends less than 2000 mg.

The dietary salt boat has been rocked in the past several years by studies claiming that cutting sodium below about 3400 mg does not help with heart disease (except for patients who already incline toward hypertension), and that cutting it much below 2400 mg is actually harmful.

The medical establishment has come out swinging to attack these newer studies. A 2018 article (Salt and heart disease: a second round of “bad science”? ) in the premier British medical journal The Lancet acknowledged this controversy:

2 years ago, Andrew Mente and colleagues, after studying more than 130000 people from 49 different countries, concluded that salt restriction reduced the risk of heart disease, stroke, or death only in patients who had high blood pressure, and that salt restriction could be harmful if salt intake became too low. The reaction of the scientific community was swift. “Disbelief” was voiced that “such bad science” should be published by The Lancet.  The American Heart Association (AHA) refuted the findings of the study, stating that they were not valid, despite the AHA for many years endorsing products that contain markedly more salt than it recommends as being “heart healthy”.

This article went on to note that, “with an average lifespan of 87·3 years, women in Hong Kong top life expectancy worldwide despite consuming on average 8–9 g of salt per day, more than twice the amount recommended by the AHA recommendation. A cursory look at 24 h urinary sodium excretion in 2010 and the 2012 UN healthy life expectancy at birth in 182 countries, ignoring potential confounders, such as gross domestic product, does not seem to indicate that salt intake, except possibly when very high, curtails lifespan.”

A more recent (2020) article by salt libertarians, Salt and cardiovascular disease: insufficient evidence to recommend low sodium intake, stated in its introduction:

In 2013, an independent review of the evidence by the National Academy of Medicine (NAM) concluded there to be insufficient evidence to support a recommendation of low sodium intake for cardiovascular prevention. However, in 2019, a re-constituted panel provided a strong recommendation for low sodium intake, despite the absence of any new evidence to support low sodium intake for cardiovascular prevention, and substantially more data, e.g. on 100 000 people from Prospective Urban Rural Epidemiology (PURE) study and 300 000 people from the UK-Biobank study, suggesting that the range of sodium intake between 2.3 and 4.6 g/day is more likely to be optimal.

… In this review, we examine whether the recommendation for low sodium intake, reached by current guideline panels, is supported by robust evidence. Our review provides a counterpoint to the current recommendation for low sodium intake. We suggest that a specific low sodium intake target (e.g. <2.3 g/day) for individuals may be unfeasible, have uncertain consequences for other dietary factors, and have unproven effectiveness in reducing cardiovascular disease. We contend that current evidence, despite methodological limitations, suggests that most of the world’s population consume a moderate range of dietary sodium (1–2 teaspoons of salt) that is not associated with increased cardiovascular risk, and that the risk of cardiovascular disease increases when sodium intakes exceed 5 g/day.

The keepers of orthodoxy fired back the following year in an article with an ugly title Sodium and Health: Old Myths and a Controversy Based on Denial  and making ugly accusations:

Some researchers have propagated a myth that reducing sodium does not consistently reduce CVD but rather that lower sodium might increase the risk of CVD. These claims are not well-founded and support some food and beverage industry’s vested interests in the use of excessive amounts of salt to preserve food, enhance taste, and increase thirst. Nevertheless, some researchers, often with funding from the food industry, continue to publish such claims without addressing the numerous objections.

Ouch.

I don’t have the expertise to dig down and make a ruling on who is right here. But I do feel better about eating my tasty salty chips, knowing I have at least some scholarly support for my habit.

It won’t be liberals that kill the Cybertruck

mdmakowsky1 Comment

The rise of large pickup trucks and SUVs in the US is generally tied to the implicit subsidy borne of their exemption from Corporate Average Fuel Economy (CAFE) standards. The seemingly ever-growing scale of these vehicles has produced a perfect example of negative externalities in the form of increased risk to other drivers, cyclists, and pedestrians (yes, a pedestrian is in danger from any vehicle, but the decreased maneuverability from greater carriage remains relevant).

This particular negative externality is not wholly uninternalized by large truck drivers, however. They pay higher premiums to the insurance companies that must cover the payouts to negligent and catastrophic loss of life when their customers are found at fault in collisions. Without the internalizing of these externalities through civil cases, trucks would likely be even larger and more dangerous.

Which brings me to the Cybertruck. I don’t care for it as a vehicle for a variety of reasons, but I similarly don’t care for Lamborghinis. My tastes are irrelevant. What is relevant is that it is made out of 30-times cold-rolled steel, a design choice I believe reflects its ambition to appeal as a sort of post-apocalyptic survivor’s vehicle that can literally physically dominate other vehicles.

This is likely to be a very, very expensive choice.

It will probably take a while for the insurance market to internalize the externality, but as the number of Cybertrucks on the street increase, so will the number of collisions and, in turn, fatalities. Fatal accidents are high variance, high cost events that loom large in the vision of insurers. The actuaries will crunch the numbers and premiums will increase. And not just because of short term increases in fatalities. Insurance companies are in the forecasting business as well. If they anticipate that courts may respond to a vehicle whose makeup makes it a disproportionate threat to others on the road by tilting the scales of fault towards their drivers, then its entirely possible that there remains no feasible premium that remains profitable. There’s a reason Jackie Chan can’t get life insurance.

What happens when a $90k, 6,800 pound steel battering ram requires that it’s drivers be self-insured? What happens in states that don’t allow drivers to self-insure? Even if there remains a small number of companies that offer “exotic” vehicle insurance, the premiums will turn push prospective ownership further up the demand curve, turning the Cybertruck into the kind of road oddity you see every few years. I have seen a Lotus Exos exactly once.

It won’t be liberals that kill the Cybertruck. Hell, if they manage to repeal the CAFE exemption it’ll be the single biggest boost a giant EV truck could hope for. No, it’s going to be the market that kills the Cybertruck.

Writing with ChatGPT Buchanan Seminar on YouTube

Joy Buchanan3 Comments

I was pleased to be a (virtual) guest speaker for Plateau State University in Nigeria. My host was (Emergent Ventures winner) Nnaemeka Emmanuel Nnadi. The talk is up on Youtube with the following timestamp breakdown:

During the first ten minutes of the video, Ashen Ruth Musa gives an overview called “The Bace People: Location, Culture, Tourist Attraction.”

Then I introduce LLMs and my topic.

Minute 19:00 – 29:00 is a presentation of the paper “ChatGPT Hallucinates Nonexistent Citations: Evidence from Economics“

Minute 23:30 – 34 is summary of my paper “Do People Trust Humans More Than ChatGPT?”

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Florida Ballot Initiatives 2024

Zachary BartschLeave a comment

The November election in Florida will include 6 proposed amendments to the Florida State Constitution. They only pass if at least 60% of voters vote YES. Here are some brief takes from an economic perspective.

Amendment 1: Partisan Election of Members of District School Boards

Currently, school district boards are locally elected and they do not have a party affiliation listed on the ballot. If passed, the amendment would permit party affiliation to be on the ballot. Partisan primaries would also be introduced, reducing the number of candidates in the general elections. The argument in favor is that party affiliation itself communicates information to voters. Removing that information forces voters to abstain, vote randomly, or to vote based on other information.

An argument against is that, in Florida, only registered party members may vote in primaries. If passed, parties will endorse particular candidates according to the primary results, winnowing the field. I happen to live in a county with an overwhelming republican majority, so the party-endorsed candidate will probably win. The outcome will be that the median republican primary-voter will choose the winning candidate in the primary rather than the median voter during the election. Voting “YES” aggregates information from a smaller set of voters.

I’ll vote NO.

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Forecasting Swing States with Economic Data

James Bailey1 Comment

Ray Fair at Yale runs one of the oldest models to use economic data to predict US election results. It predicts vote shares for President and the US House as a function of real GDP growth during the election year, inflation over the incumbent president’s term, and the number of quarters with rapid real GDP growth (over 3.2%) during the president’s term.

Currently his model predicts a 49.28 Democratic share of the two-party vote for President, and a 47.26 Democratic share for the House. This will change once Q3 GDP results are released on October 30th, probably with a slight bump for the dems since Q3 GDP growth is predicted to be 2.5%, but these should be close to the final prediction. Will it be correct?

Probably not; it has been directionally wrong several times, most recently over-estimating Trump’s vote share by 3.4% in 2020. But is there a better economic model? Perhaps we should consider other economic variables (Nate Silver had a good piece on this back in 2011), or weight these variables differently. Its hard to say given the small sample of US national elections we have to work with and the potential for over-fitting models.

But one obvious improvement to me is to change what we are trying to estimate. Presidential elections in the US aren’t determined by the national vote share, but by the electoral college. Why not model the vote share in swing states instead?

Doing this well would make for a good political science or economics paper. I’m not going to do a full workup just for a blog post, but I will note that the Bureau of Economic Analysis just released the last state GDP numbers that they will prior to the election:

Mostly this strikes me as a good map for Harris, with every swing state except Nevada seeing GDP growth above the national average of 3.0%. Of course, this is just the most recent quarter; older data matters too. Here’s real GDP growth over the past year (not per capita, since that is harder to get, though it likely matters more):

RegionReal GDP Growth Q2 2023 – Q2 2024
US3.0%
Arizona2.6%
Georgia3.5%
Michigan2.0%
Nevada3.4%
North Carolina4.4%
Pennsylvania2.5%
Wisconsin3.3%

Still a better map for Harris, though closer this time, with 4 of 7 swing states showing growth above the national average. I say this assuming as Fair does that the candidate from the incumbent President’s party is the one that will get the credit/blame for economic conditions. But for states I think it is an open question to what extent people assign credit/blame to the incumbent Governor’s party as opposed to the President. Georgia and Nevada currently have Republican governors.

Overall I see this as one more set of indicators that showing an election that is very close, but slightly favoring Harris. Just like prediction markets (Harris currently at a 50% chance on Polymarket, 55% on PredictIt) and forecasts based mainly on polls (Nate Silver at 55%, Split Ticket at 56%, The Economist / Andrew Gelman at 60%). Some of these forecasts also include national economic data:

Gelman suggests that the economy won’t matter much this time:

We found that these economic metrics only seemed to affect voter behaviour when incumbents were running for re-election, suggesting that term-limited presidents do not bequeath their economic legacies to their parties’ heirs apparent. Moreover, the magnitude of this effect has shrunk in recent years because the electorate has become more polarised, meaning that there are fewer “swing voters” whose decisions are influenced by economic conditions.

But while the economy is only one factor, I do think it still matters, and that forecasters have been underrating state economic data, especially given that in two of the last 6 Presidential elections the electoral college winner lost the national popular vote. I look forward to seeing more serious research on this topic.