Sunday assorted links
Sky Roomba!
I bought a robot window cleaner. I have some high windows which need a ladder just to get the bottom and with this I can just start the robot at the bottom, it cleans the window and then returns to the start point. The bot cost me considerably less than it would have cost to have my windows cleaned once.
So did the robot put a human window cleaner out of work? Probably not since the price of the human cleaner was so high I wouldn’t have paid it. Thus we get an efficiency gain–clean windows, more work for the robots and more for the robot makers too.
What should I ask Fuchsia Dunlop?
Yes I will be doing a fourth (!) Conversation with her, based in part on her forthcoming book Five Tastes: Delicious Recipes for Chinese Flavors. I am sure it is excellent, and will read it very soon. Her works are not just great cookbooks, they are among the best books period.
Here are my previous CWTs with Fuchsia. So what should I ask?
The economics of agents
From Patrick Collison:
Assorted things I’ve been mulling over regarding agents in the economy:
• Companies are in some sense the original superintelligence. It’s often the case that they can use their amortized cognitive surplus to advance their interests against those of certain consumers: relative to the optimization capacity of companies, consumers can be inattentive, underinformed, irrational, etc. (Think, say, of some of the classic insurance upsells at the end of a booking process, which is typically priced substantially above what a regular policy would cost.) Herbert Simon introduced the idea of bounded rationality, and firms often end up benefiting from it. Thanks to personal agents, we will probably get somewhat more rational in how we engage with companies.
• How exactly will outcomes change? Well, certain kinds of price discrimination will work less well (how do coupons work if every agent hunts fastidiously for them?), and certain kinds of customer cross-subsidy will change (today, people who forget to cancel subscriptions subsidize those who don’t). Taken across the economy as a whole, I’m not sure what the incidence of all of this will be.
• In corporate strategy, people have long debated the relative importance of distribution and product quality. Perhaps you’ve made something better, but does anyone know about it? Won’t people just continue to buy the ACME Corp Mousetraps? Personal agents will, I think, act as a kind of structural subsidy for product quality. How would markets look different if individuals always spent at least 10 hours researching their purchases? On the margin, focusing on making a product better is, I think, going to become a more effective strategy for companies. This is good!
• If true, a corollary is that information about product quality will become more important and impactful. Today, most people have very limited ability to aggregate and integrate such data, but agents will have insatiable thirst for such signals. (It’s often said that data is becoming more valuable because it helps in the training of models. That’s obviously true, but I think there’s a secondary way in which it’s more valuable simply as a complement to cheaper intelligence.)
• A big question is whether agents will increase superstar effects (rational agents all settle on the same product) or increase dispersion (because everyone has slightly different tastes and preferences, which agents are good at eliciting, finally overcoming the artificial clustering we’ve been subjected to).
• Many internet companies have monetized demand routing, which is in turn often predicated on short attention spans. “I’ll click on the first thing I see.” This has led to some amount of inefficiency, as companies try to propitiate capricious ranking algorithms and incur various placement fees. It’s not all deadweight loss (willingness to pay is itself a kind of signal, which is valuable to buyers), but it’s not great. How will the nature and value of this routing change in a world of personal agents? I don’t know the answer, but I think that the effects might be pretty big.
• Much of what I’m writing hinges on the assumption that personal agents will be on the consumer’s side. I suspect that that will be the winning strategy, but whether it’s true, and what it means to be true, involves a lot of other questions. Taken as a whole, the market is a massively parallelized, decentralized, and highly imperfect value attribution machine, and, taking stock of all of the effects, it seems to me that the quality point may well be the biggest: that agents will change the nature of the backpropagation such that the rewards for better products increase. Maybe this is too optimistic, but I suspect (and hope) that companies that make things that they’re proud of will feel that the universe is a little more partisan in their favor.
In addition to those mechanisms, I might also expect some prices to be more volatile. Suppliers will attempt to use agents to collude, and the law may not have a simple way of stopping this practice, due to illegibility. The practice could be illegible and unintended by the merchants themselves. But collusion of course tends not to be stable. So (some) prices may swoon upwards for a while, and then take sudden dips as either the collusion breaks down or new entry occurs…
Saturday assorted links
Earth facts of the day
- Global call center headcount is 5.3% below its December 2023 peak, ending more than a decade of growth. It has fallen year over year for eight straight quarters, a decline that started in high-income countries and coincided with the rise of AI chatbots.
- Call center support is falling behind other white-collar work in the same countries. Before ChatGPT, call-center headcount tracked other office and administrative roles in middle-income countries. After its launch, however, call centers have stalled or declined while the rest of white-collar work has continued to grow.
- The better-paid white-collar roles in these middle-income countries are still growing, but most former call-center workers never reach them. Only 10.8% of those who move land in technical support, customer success, or software and data, where median pay rises 7% to 13%. Half end up in other customer service, sales, or office jobs, usually for less pay.
Here is more by Caelan Wilkie-Rogers.
California in-migration and out-migration
Long-run U.S. population movements have been driven more by natural amenities than by jobs, and California, rich in both uniform and complementary climates, should be a persistent net gainer of domestic migrants. It has instead lost residents to other states every year since about 1990. This paper argues that its amenities are unchanged and that the location rents they generate have been captured politically. Capture through a land tax would be borne by landowners and would move no one. Capture through mobile tax bases-above all a steeply progressive income tax-and through restrictions on housing supply does move people, and moves particular people. Where the revenue also finances redistribution, high earners pay far more than the value of the services they receive, which pushes them out on a second count; the income tax also raises the pre-tax wages firms must pay, so jobs leave with households. Proposition 13 shifts capture onto mobile tax bases and locks long-tenured owners in place, so observed out-migration understates the underlying pressure. Internal Revenue Service data show that in 2022-23 California’s out-migrants outnumbered its in-migrants by 40 percent overall but by 64 percent among households with incomes of $200,000 or more, a pattern reversed in low-tax states. A simple cross-state comparison, which cannot hold production advantages constant, shows no relation between tax burdens and natural amenities, suggesting that competition among amenity-rich states limits capture; California, which taxes well beyond what its neighbors charge, loses residents disproportionately to them. Border comparisons and data on homeowners’ length of residence are consistent with the argument.
Here is more from Philiip E. Graves, via the excellent Kevin Lewis.
The origin of risk
From the QJE, by Alexandr Kopytov, Mathieu Taschereau-Dumouchel, and Zebang Xu:
We propose a tractable model in which risk, at both the micro and macro levels, is endogenous and driven by incentives. In the model, each firm chooses the mean and the variance of its productivity process, as well as how it covaries with the productivity of other firms. Aggregate risk arises when firms select productivity processes that are correlated with one another. The theory predicts that larger firms and those with lower markups are less volatile and less correlated with aggregate productivity. We find support for these predictions in the data. Through their impact on risk-taking decisions, distortions such as taxes and markups can make GDP more volatile in equilibrium. In a calibrated version of the model, removing distortions significantly reduces GDP volatility.
Fischer Black! (And my own earlier book Risk and Business Cycles). Via the excellent Kevin Lewis.
Ethiopia update
Ethiopia is the center of the world right now as it has returned to war. Ethiopian forces retook Mekelle from rebel forces, but the fighting has extended beyond Tigray. Eritrean forces allegedly entered Tigray, and Ethiopia responded with drone attacks. The war could go a number of ways. The war extends beyond Ethiopia. Sara Al-Saeed explains how Egypt extended its rivalry with Ethiopia across the Horn of Africa. Relations with Eritrea have soured. Pay attention to the Assab Port. Learn more about Abiy, internal divisions, and the regional struggle. This post provides a helpful update. Follow the conflict with ACLED. One thing is clear: The war is a betrayal of Tigray.
Friday assorted links
A Sentiment Analysis of Cowen, Hanson, Caplan, and Krugman
Supplied by Bryan Caplan, performed by ChatGPT, excerpt:
So Cowen isn’t well described as either “positive” or “negative.” A much better description is:
High appreciation + high concern + very low emotional agitation.
He seems to think there is an astonishing amount of wonderful stuff in the world and an astonishing number of things worth worrying about.
That combination is unusual.
Insightful throughout. And have a nice day!
On *Stubborn Attachments* and religion (from my email)
Hey Tyler
I consider Stubborn Attachments your most dogmatic and religious book. Pondering on it, here are my Abrahamic readings of it:
Jewish: Ten Commandments, obviously. While the bigger canon of Jewish laws tend to be overly conservative because people will fail following them anyway, the Ten Commandments are the laws the Jews should be stubbornly attached to. It’s easy to to rewrite the two guidelines of Stubborn Attachments as “Thou shalt … “. Another fun Jewish phrasing of the book would be “That which is good for the economy, is good for you. The rest is commentary”
Catholic: I think you yourself mentioned the Mormonic reading of the book. I’d add that the book is subtly a commentary on many philsophical debates, and revoking most of them. Just like the New Testament
Islamic: The absolute and stubbornness, but that is also there in the Jewish Ten Commandments.I bring two more subtle spiritual readings. There is an Islamic concept which says: in paradise, you will see the effect of every good deed you did, be it a direct or a very non-linear effect. It’s like the spiritual-and-butterfly-effect-ish definition of compounding growths magic. The second concept is “Barzakh”, in some theological readings, it’s a realm where both the dead, highly accomplished “living” souls and the unborn souls reside at the same time. I would liken this to your zero-discount rate concept for future generations.
What do you think?
Best
Hasan
Predictions for economics, given AI
With math essentially being delegated to OpenAI, here’s what I predict for economics and the social sciences more generally:
The top tier of research will just become better and it will be normal human-led research where AI is used for scale (e.g. conducting qualitative interviews with relevant populations, running behavioral interventions in the field, analyzing massive text data, etc.)
Field experiments will rise in value and generally making “connections” with firms and being able to run stuff (potentially testing AI pipelines) will be in high demand
Research with administrative data will become even more valuable, but the benefits might be concentrated among some prolific authors who are allowed by the government agencies to use local models to analyze the data at scale. PhD students can probably forget about it
Economic history will have a very exciting boom and there will be an enormous race and big rewards for digitizing archives as a source to both identify new research strategies and document new descriptive facts.
Review and verification systems will become massively improved with AI assistance and it will become standard practice to do a 360 review of the paper + code + data at the *submission* stage.
Research that in principle can already be almost completely outsourced to the AI (download and analyze public data, run simple survey experiments, write theory models) is in for a big shock. This would be very bad from the perspective of researchers who depend on this “bread and butter” research, but I think this type of work will just be outsourced to public agencies who can answer their own questions without the need for “peer-reviewed” research.
All of those make sense to me.
Thursday assorted links
2. How the math breakthroughs might matter.
3. Short proof of quasi-Riemann.
4. App for finding art exhibitions.
5. Podcast on African economic growth.
6. New and very good book: The Madrid Model: How Freedom and Openness Created an Economic Powerhouse, by Diego Sánchez de la Cruz.
How and why did the Victorians succeed?
From Samuel Hughes, in Works in Progress:
The elites of Victorian Britain operated differently. Their schools and universities were not terribly academic and had very little STEM. As adults, they got up late, drank a lot, and spent a remarkable share of their waking hours partying. They loved feasting, sports, holidays, dancing, and dressing up. Contrary to their stodgy reputation, they were probably a lot of fun.
Here is some further detail:
Most socially elite Victorian boys began formal education at the age of seven or eight, spending about five years in a ‘preparatory school’ before passing on to a ‘public school’ (which, to the enduring confusion of international observers, is a kind of elite private school). There was a hierarchy of public schools, with the nine ‘Clarendon schools’ at the top, and just one, Eton College, clearly at the apex. About 30 percent of nineteenth-century cabinet ministers and 40 percent of prime ministers were Old Etonians.
Most students at both preparatory and public schools were boarders, meaning that elite Victorians were generally sent away from home by the age of eight and spent their childhoods more with peers than with family. In this respect they were distinctive even in their own time: elite families in continental Europe and the United States were far more likely to keep their children at home and educate them at small local private schools. It is plausible that this contributed to the lack of subnational loyalties in the British elite, in contrast to the distinct elites of, for example, the Southern United States, Catalonia in Spain, or Hungary in the Austrian Empire.
Nor did the Victorians wake up early in the morning. Recommended, there is much more at the link, though the answer to the question remains somewhat of a mystery to me.