Pollution as Growth Killer
India’s Outlook Business has an excellent issue focusing on pollution not just as a people killer but as a growth killer (as I have emphasized pollution reduces wealth and health, see especially this video).
I am interviewed; here is one bit:
Q. Doesn’t the demographic dividend argue for growth first?
The demographic dividend is people. If you poison the people, you shrink the dividend. A young workforce with lower cognitive scores, more respiratory illness and shorter working lives is a smaller asset than the headcount suggests, and the damage to today’s children shows up as lower productivity in future decades.
The premise also assumes that India’s pollution is a byproduct of economic growth. Much of it isn’t. Farmers burning rice stubble in Punjab and Haryana produce more smoke than GDP. Burning garbage, road dust and old coal plants running without scrubbers are not engines of the economy. Families cooking with wood and dung are polluting because they are poor. Cleaning up these sources costs very little output, and some of the fixes would raise it.
Bad air is a tax on talent. And not just Indian talent. Who wants to visit Delhi in November? Foreign skilled professionals, firms and tourists all have options. Clear skies are a selling point for incredible India.
See also Anumita Roychowdhury, executive director of research and advocacy at the Centre for Science and Environment, who argues:
The evidence increasingly shows that air pollution is imposing significant economic and health costs on India. Several studies from credible institutions have estimated the scale of these losses.
For instance, a Lancet study estimated that air pollution was costing India roughly 9.5% of its GDP. The World Bank has put the figure at around 6% of GDP, while a Dalberg [a consultancy] study highlighted substantial losses to Indian businesses, estimating the costs at around 3% of GDP.
The economic impact is visible in several ways. When people fall ill, there is a significant loss of productivity. We have also seen reports of reduced consumer footfall during periods of severe pollution in Delhi. There are also concerns about people shifting their base and businesses, raising questions about operating in highly polluted locations such as Delhi.
So, the evidence increasingly suggests that pollution is under-mining economic activity. We may talk about economic growth, but if a significant part of that growth is being eroded by pollution-related health and productivity losses, the gains are not being fully realised.
Social media and political radicalization
For a while now, we have been hearing claims that social media radicalize the American electorate, and that social media damage teen mental health.
Well, we just held a major set of elections that produced resoundingly moderate results, repudiations of both Trump and the extreme Democratic left. You may or may not like those results, but they are pretty clearly moderate.
And the recent trends in teen mental health are positive. All the while social media usage continues unabated, and furthermore short video continues to rise.
Neither the political nor the mental health trend is guaranteed to continue, but this is a sign that the standard anti-social media polemics are radically incomplete and currently failing in their predictions.
My very good Conversation with Richard Hanania
Here is the video, audio, and transcript. Here is part of the episode summary:
The first half of the conversation stays close to the text [Conrad’s Nostromo], covering the novel’s political backdrop, its deliberately scrambled timeline, the near-total absence of religion in Conrad’s universe, Nostromo’s own vanity and treatment of women, a close reading of the “folly and murder” passage, the Fredric Jameson claim that no Latin American author could have written this book, and their very different research methods for preparing. Then the conversation opens outward, moving through why Latin America has unusually high crime despite not being especially poor, Panama’s surprising success story, Shakespeare’s objective greatness, the state of media criticism after the AI boom, who on the populist right is actually worth reading, why conservative women hug and liberal women shake hands, what Hanania wants to write and learn next, and more.
Excerpt:
COWEN: Here’s one thing that struck me, and I’m not sure you’ll agree. Early in the novel, there’s all this talk about the Italians and Garibaldi and liberty, and the extent to which I think this book is also a critique of classical liberalism is what surprised me reading it for the second time. The first time was probably, I’d guess, 30 years ago, that Conrad is not against the classical liberal prescription, really, but he views it as another pathology inserted into a hopeless situation.
It just morphs into some form of corruption and interest groups. It’s replaced by the autocrats, but it turns out to not really matter more. There’s, again, this dead hand of history. The indigenous groups, their customs, their norms are really what rule the area. The foreigners come and go, and they may steal or extract wealth, but at the end of the day, the talk of liberty and democracy, for him, it’s a kind of fraud. I think it’s also a recognition that imperialism was not going to do the job.
HANANIA: Don’t you think that the Occidental Province had a higher GDP per capita than the rest of the country? It wasn’t just they made money. It seems like there was real wealth. Getting to the end, to the spoilers, the miners actually march on the city because they’re so loyal to Gould. They like what’s going on. There is actual improvement in people’s lives. It’s not that nihilistic, right?
COWEN: It may be higher GDP, but keep in mind GNP may be what counts. I don’t think Conrad thought in those terms. I don’t read him as a consequentialist, though I’m mostly one myself. For him, progress is about moral progress. He doesn’t see a lot of moral progress in this setting. The point that that’s not happening is, for him, at least more important than, oh, living standards went up a bit or, well, isn’t this better than the even poorer societies they had earlier on? I think he grew up in what we now call Poland, but then was ruled by Russia. The idea of foreign rule is something he had such a strong instinctive dislike of. And you see it in his other books as well that he’s a cynic about foreign presence, though I don’t think he’s saying things were better before.
HANANIA: No, I don’t think I agree.
COWEN: I didn’t think you would agree. That’s why I said that.
HANANIA: There is a noble savage idea. There’s one part where he goes into the rant when Sotillo, the general, is torturing Hirsch. I think he goes into a rant about how primitive man did not devise as much sadistic torture, which I don’t think is probably true, but that’s Conrad’s idea. Basically, there’s a kind of innocence there.
I look at the Hernandez and the robbers and the people who are living in the countryside. Those people are purest case of noble savage. There is part of that. You’re right. Conrad is into honor. This is a book about love and men caring about women. There’s Monygham, the doctor’s loyalty to Mrs. Gould, and then Decoud’s loyalty to Antonia. His other books are about this. Yes, he’s a romantic. He’s not a romantic in politics. He thinks politics is a dirty—
COWEN: Agreed.
HANANIA: —unromantic world. If he thinks socialism and populism on a scale of one to 10 are like a one and classical liberalism is a four, to me, he’s a classical liberal, even though he’s not an eight or a nine on classical liberalism.
COWEN: I think I read him as believing in contingency as the most important truth of politics and a geographic relativism. I don’t think he has much Rousseau in him of idealizing the noble savages, but he sees the noble savages are not noble. They’re terrible, but what’s terrible in them gets recreated in us at higher levels of wealth and power. That, for him, is the most fundamental truth of politics.
Interesting throughout, recommended. And here is Richard’s prescient recent book Kakistocracy: Why Populism Ends in Disaster.
What Drives Censorship on College Campuses?
There has been widespread concern about self-censorship on university campuses, and especially that conservative voices are being stifled. Using survey data from a private elite college, we show that self-censorship is not simply about being conservative: it is students with the most moderate views who self-censor the most. This pattern is associated with confidence and salience — students who are more confident in their views or who see an issue as especially important tend to hold more extreme views and to self-censor less. At the same time, conservatives self-censor at higher rates than liberals, and the same individual is more likely to self-censor on the views where they are relatively more conservative than on those where they are relatively more liberal; conservatives are also far more likely than liberals to cite concerns about social exclusion as a reason for self-censoring, and report self-censoring less outside the university community. Groups perceived as marginalized self-censor less than majority groups, and especially so on issues salient to them (e.g., Black students on BLM).
That is from a new NBER working paper by
Wednesday assorted links
The election
Procedurally it seems to have gone just fine, and the people predicting “the end of democracy in America” now look foolish. They have been suffering under fundamental misunderstandings of how this country works. During this election cycle, democracy never was under threat and the United States has not been under risk of fascism.
Rising in status:
Matt Yglesias (socially moderate Democrats did very well)
Normie social science results on campaign finance
Falling in status:
Tariffs
War with Iran
Wealth taxes (losing in CA)
Gerrymandering (came back to hurt Republicans, given the Blue wave)
And there you go.
Trade and the end of antiquity, or did Islam serve to deglobalize the world?
How did trade and economic activity evolve at the End of Antiquity, when political power shifts away from the Mediterranean towards the Middle East and northern Europe? No records of ancient production, consumption, and trade exist. Yet the composition of coin finds reveals information about monetized transactions, as coins gradually diffused along trade routes. To recover trade and consumption time series, we assemble a database of half a million ancient coins from the fourth to the tenth century and estimate a dynamic model of trade and money. Our estimates suggest that: Mediterranean trade was disrupted by the newly formed border between Islam and Christianity; economic activity shifts away from the Mediterranean starting in the sixth century; real consumption peaks in the Middle East in the eighth century; and by the end of the ninth century, Islamic Spain and Frankish northwestern Europe are the wealthiest regions of the ancient western world.
Recently published in Econometrica, by Johannes Boehm.
Ireland fact of the day
Almost half of Ireland’s corporation tax haul comes from just three companies: Apple, Eli Lilly and Microsoft.
Here is much more from Jude Webber at the FT, on why Ireland does not always feel or operate like a wealthy country.
Tuesday assorted links
1. Jason Furman on AI and the CEA.
2. Matt Kahn uses Refine and gets results.
3. Cyril Hilsum, RIP (flat screen TV, NYT).
4. How much of the return to education is in fact a return to genes?
5. Essay contest on how AI will affect developing economies.
6. AI sanity from Nicholas Decker. And Samir Varma on AI constitutions.
Thoughts on Owning a Self-Driving Tesla
My Subaru was showing its years so I recently bought a Tesla. My thinking was I can buy a car or I can buy a car+driver for the same price. Simple choice. I’ve driven about 2000 miles including one long trip (6 hours) to North Carolina and back.
FSD is incredible. I don’t mind driving but about 95% of the miles on my Tesla have been FSD. You might wonder why bother with FSD when you still have to supervise but supervising is easier and more pleasant than driving. I was in Washington, DC one evening and I needed to go to an address I was not familiar with. I could have gotten there but it would have required going back and forth between the road and the map, and DC can be confusing–do I drive straight under the mini-underpass or is this the one where I drive over the pass (DC drivers will understand). Instead, FSD drove me at night, flawlessly.
FSD uses 8 cameras to build a 3D, bird’s eye view of the car and everything around it, so it sees in all directions at once. It picks out every car, pedestrian and cyclist and predicts where each is going, much as an LLM predicts the next word. Then it predicts the best move a good driver would make, and makes it. All of this runs on one big neural network, trained on data from billions of miles of Tesla fleet driving. The ride is smooth. Since ChatGPT launched, FSD has improved about as much as LLMs have, and for the same reasons.
Supervision is needed, in my experience, mostly due to navigation. It gets a bit confused on the HOV and normal lanes on I-66 (as does Google Maps). It stopped perfectly, however, for a school bus and even for a police officer who stopped traffic by standing in the middle of the street.
Another example of how supervising is much less taxing than driving. I was listening to Tyler talk with Gita Gopinath on my way home from North Carolina. It’s a great conversation but full-on PhD mode and I became a little lost trying to remember my international econ. No problem, just ask Grok. I had a whole conversation with Grok, reviewed Mundell-Fleming, reminded myself of the great Alan Stockman model (the only international econ model that makes sense) and then returned to the podcast. I could not have done that while driving.
Grok is a significant benefit. Essentially, Grok runs the car’s controls the way it might run your computer, and you just talk to Grok. It’s a more seamless interaction than talking with the car directly. I can even review (verbally) email and send emails as I drive. If you also use Grok Bot you have the bot book an appointment at a dentist or start working on your PowerPoint slides. FSD is $99 a month and the premium connectivity needed for Grok is $10 a month (Grok Bot a bit extra). FSD plus Grok is about what I am saving on gas, so it’s roughly a wash.
My colleague, who long held that self-driving would be worthwhile only if he could sleep, was amazed at the experience of driving my Tesla and immediately ordered two.
It was also pretty cool when I “summoned” the Tesla from the nearby parking lot and we watched it drive itself to us. You might wonder, by the way, how all this innovation is possible. Maxwell Tabarrok, writes about a key part of the answer:
The Department of Transportation (DOT) sets strict safety requirements for cars, but manufacturers are allowed to release new designs without first getting the DOT to sign off that all the requirements have been satisfied. The law is enforced ex post, and the government will impose recalls and fines when manufacturers fail to follow the law.
The FAA, by contrast, enforces all of its safety rules ex ante. Before aircraft manufacturers can do anything with a design, they have to get the FAA’s signoff, which can take more than a decade.
(By the way, it’s amusing to re-read Max’s post in light of Tesla’s flying car.)
If you do enjoy driving, the Tesla is fun, with sports-car acceleration and great responsiveness.
What about range anxiety? If you run out of electrons, the car is dead and no one is going to bring you a portable battery to get you to the nearest charging station. You must be carried–carried on a flatbed, not towed! (Moreover, if you leave the car unplugged for weeks the low-voltage battery can die, in which case you can’t even open the frunk without a special jump start.) You don’t want to run out.
It works fine, however, if you adjust behavior. In a gas car you drive until you are low on fuel and then assume you will find a gas station. If you try this with an electric car, you will be anxious. Tesla chargers are quite common but they are often in odd places like behind a restaurant. There is no big T sign out front. So what do you do? The Tesla knows where the chargers are so put your final destination into navigation, switch on self-driving, and then, if needed, the Tesla will find the nearest charger along your route and drive you there and even back you in nicely. Thus, you trust the Tesla system–car plus network–not just the car. This works much better than with any other electric car.
Normal range for the Model Y is about 250 highway miles on an 80% charge. This is less restrictive than it appears because in many cases you don’t need to charge to full. Returning from North Carolina, for example, I was projected to arrive home with 2% charge–a bit too close for comfort. So the Tesla stopped and charged for 5 minutes (no slower than a gas stop) and I arrived home with 18% charge. I then charged to full overnight. Being able to charge at home is a big advantage (~$1500 to add a charger). Overall, driving the Tesla long distances you will have more frequent stops but unless you are driving cross-country, you will rarely need to stop for longer than a bathroom break and a cup of coffee.
Aside from FSD the rest of the car is nicely designed. I like the flush exterior door handles. The headlights are pixel-based, so when you drive with high beams on and come up behind another car, the pixels aimed at that car turn off while keeping the rest on, so you don’t blind the driver in front. Neat.
A few negatives. Tesla reliability is good but not great; Consumer Reports ranks Tesla 9th among brands. Despite the safety benefits of FSD, Teslas aren’t cheaper to insure than other similarly priced cars, largely I think because repair costs are not low. (Tesla’s own insurance gives lower rates for FSD miles and might be cheaper for me. I had my other car and an umbrella policy with another insurer so I didn’t switch, but I might.) I do find the pure electronic approach a bit much at times–must I really open the glove compartment verbally? Do those nice door handles only work when the battery is working?
Bottom line: FSD is revolutionary–a step change in what it means to drive. I don’t think any other car at a similar price comes close. It’s the best car I have ever owned.
The economics of tips
Tipping is large and growing, but we know little about its consequences for workers and firms. We link point-of-sale and payroll records at 20,000 U.S. firms, which lets us observe tips from customer payment to worker earnings. We find that tips are a nearly constant share of revenue, which means hourly pay moves with revenue. Firms that begin collecting tips claw back between 23 and 33 cents of each dollar of tips through lower base wages. Tips reward effort: workers at tipping firms earn more by serving more customers. We show this with demand shocks constructed from customer spending at other businesses. A demand shock raises revenue nearly twice as much at tipping firms as at non-tipping firms, while base wages and prices do not respond. Output per hour rises more despite a larger increase in hours. Effort drives the gap because each worker is more productive, so the firm expands and recovers about a third of the tips. Yet not every firm adopts tipping: the gain is smaller where customers tip less. A model calibrated to the demand-shock estimates implies that tipping benefits workers and firms, raising job value by about half and firm profit by about 30 percent in firms where customers are prone to tip. These gains may explain why tipping has recently grown in many industries.
That is by Dylan Balla-Elliott and Isaac Norwich, Isaac being on the job market this year from University of Chicago.
Are economists declining in status?
That is the theme of my latest Free Press article. Excerpt, which offers the beginning of the story:
If we look at the 1960s, the John F. Kennedy and Lyndon Baines Johnson administrations brought James Tobin, Robert Solow, Kenneth Arrow (all three later Nobel laureates), Arthur Okun, Walter Heller, Gardner Ackley, Otto Eckstein, and Walt Rostow into government. Those were all names with significant academic heft who could count among the world’s leading macroeconomists. Nobel laureate Paul Samuelson served as a consultant to the government. Heller and some of the others helped to shape the Kennedy-Johnson tax cut of 1964.
That cluster of talent and its influence should come as no surprise. This was an age of elites, of love for science, of the moon landing project, and of network news shows with an establishment bent. Americans were used to deferring to elites, who had won World War II for them, and who were not out there making fools of themselves on the internet. With the Cold War raging, Americans felt their government had to get it right…
Most of this respect was still in place by the 1980s. President Ronald Reagan appointed Martin Feldstein to chair his Council of Economic Advisers (CEA), Feldstein being a Harvard professor and one of the leading market-oriented economists of his time. Two of the junior economists working for Feldstein were Paul Krugman and Lawrence Summers—before they became famous, but the intellectual firepower was already there. Michael Mussa and William Niskanen were other notables in the administration, and Milton Friedman and Friedrich A. Hayek were standing sources of inspiration.
And this:
On top of those political trends, there are further mechanisms at work pushing down the social status of economists. The Trump administration is proposing to eliminate social sciences funding at the National Science Foundation, and there are declining enrollments on the horizon for American colleges and universities. Academia is now seen as more politicized and left-leaning than used to be the case. Our best AI models are often better economists than the humans, just as they are proving theorems that human mathematicians cannot. All of those trends, even if you might consider some of them good news overall, are reinforcing a declining status for economists.
Worth a ponder.
*Fjord* and *Fatherland*
Both of these movies I found worth watching. Fjord won the Golden Prize at Cannes, and it concerns the rights of the family vs. the rights of the state, when it comes to raising children. As I interpreted the story, it was so right-wing and so based I am shocked it won. It is by the Romanian director Cristian Mungiu, who is best known for 4 Months, 3 Weeks, and 2 Days, also referred to as “the Romanian abortion movie.” His new outing is a quality film but I found theh messaging a bit heavy-handed at times (and am I one to defend European bureaucracy?), noting that some critics are still debating which side the director took so “maybe it is just me.”
Fatherland is a Polish take on postwar Germany and some travels of Thomas Mann and his daughter Erika. A German director might have been afraid to portray the communism of East Germany as this movie does, in any case I found that convincing. It captures what I imagine the immediate postwar era to have been like, and the moral dilemmas people faced as they had to decide their future relationships with Germany (and indeed Germanies), past, present, and future. At one hour, twenty-two minutes it worked very well, though it requires the viewer to know a good deal about German history, literature, and culture.
Monday assorted links
1. Why is it now so common to be asked about your food allergies? (GPT Pro answer)
2. Training for alignment, applies principal-agent theory.
3. Do people offload empathy when they think AI can give it instead?
4. The Wallace line.
5. AI can draw blueprints now.
Expensive Pharmaceuticals for Targeted Diseases
My latest paper, The Price of a Cure: Luxturna and the Economic Dilemmas of Precision Medicine, is in the Journal of Law, Medicine and Ethics. I discuss the economics of the pharmaceutical industry and the special issues that arise with targeted drugs that cure. We are going to get many more of these drugs in the future–more value but smaller patient group–so this paper is timely.
The $850,000 price for the gene therapy Luxturna is often framed as a story of private profiteering from publicly funded science. This paper challenges that narrative. Pharmaceuticals are a hit-driven industry: most projects fail, so the few successes must earn revenues well in excess of their own direct costs if the portfolio as a whole is to attract investment. Precision medicine intensifies this logic through two core economic challenges: (1) the “sticker shock” of one-time cures, which compress decades of value into a single payment, creating a financing problem more than a value problem; and (2) the “targeting dilemma,” in which precisely targeting drugs to smaller patient groups shrinks the market, requiring higher rewards per treated patient to maintain incentives to innovate. Rather than simply controlling prices, the paper proposes a policy toolkit that includes amortizing payments over time, bundling diagnostics with drugs and insurance, and streamlining regulation to lower development costs. The aim is to preserve innovation while expanding patient access.