Tyler Cowen's Blog, page 19

We ignore robot alarms, do we have to ignore robot alarms?

How many robot alarms are there anyway?

Every day, the bedside cardiac monitors threw off some 187 audible alerts. No, not 187 audible alerts for all the beds in the five ICUs; 187 alerts were generated by the monitors in each patient’s room, an average of one alarm buzzing or beeping by the bedside every eight minutes. Every day, there were about 15,000 alarms across all the ICU beds. For the entire month, there were 381,560 alarms across the five ICUs. Remember, this is from just one of about a half-dozen systems connected to the patients, each tossing off its own alerts and alarms.

And those are just the audible ones.

If you add the inaudible alerts, those that signal with flashing lights and text-based messages, there were 2,507,822 unique alarms in one month in our ICUs, the overwhelming majority of them false.

That is all from Bob Wachter, an interesting piece.

What do I think of the Iran deal?

Ian Bremmer tweeted:

There will surely be cheating on the Iran deal. But I still consider it a better outcome than letting negotiations fail. Close call.

That seems about right to me.

What should I ask Jeffrey Sachs?

I may not follow any of your suggestions, but thought I should ask for advice, for my dialogue with Jeff next week.  I am the interviewer, he is the interviewee, more or less.  Keep in mind the goal here is to have an interesting and constructive dialogue, not to repeat the usual petty squabbles.

#CowenSachs, and you can sign up for the live stream here.

By the way, I thought you had many good suggestions for questions for Peter Thiel.

Thursday assorted links

1. The Not Very Serious People.  And fill out a Tim Kane survey on how well you were managed as an employee or in the military.

2. Why is there so little analytics in tennis?

3. NPR tries out economics jokes at a Brooklyn comedy club.

4. The credit card obsessives who game the system.

5. The economics of The Economist.

6. “There is no Nobel Prize in economics.”  Ouch!

7. The economics of (illegal) cocaine dealing in the Netherlands.

My conversation with Peter Thiel

The YouTube version is here, the podcast version is here.

I was very happy with how it turned out, as I deliberately set out not to copy the content of any of Peter’s other dialogues.  You can learn how he thinks we will leave the “great stagnation,” whether the AI hype is justified, how he would boil his thought down to the smallest number of dimensions, whether NYC is over- or underrated, why globalization is likely to decline and what that means for different regions, the parts of the Bible which have influenced him most, “the Straussian Jesus,” to what age he thinks he will live, why Japan is special, how his German background matters, his favorite opening chess move, how and why company names matter, and even his favorite TV show, which he calls “schlocky.”

And much, much more, with commentary and questions from me throughout.  A transcript is being prepared as well.

Shout It From the Rooftops: Parking is a Scarce Resource!

Donald Shoup, whose work on parking has been featured on MR on several occasions, is retiring. Patrick Siegman, “the first Shoupista”, has written an appreciation which includes this excellent quote from Shoup’s classic study, Cashing Out Employer-Paid Parking:

Minimum parking requirements in the planning profession are closely analogous to bloodletting in the medical profession. For over two thousand years doctors prescribed bloodletting to cure most diseases, and medical textbooks contained elaborate parking-requirement-like tables telling exactly how much blood should be let from exactly which part of the body, and when, for every disease…

One strong similarity between bloodletting and minimum parking requirements is the general public acquiescence to both practices without any scientific research on their effects…

Another similarity between bloodletting and minimum parking requirements is the harm caused by both practices. In the case of bloodletting, the problem was magnified because physicians didn’t clean their instruments before proceeding to the next patient. In the case of parking requirements, the problem is magnified when planners require far more parking than is demanded even when all parking is free. Recall here that Willson (1992) found that the number of parking spaces required by zoning ordinances was double the peak accumulation of cars parked at suburban office sites in Southern California.

A final similarity between bloodletting and minimum parking requirements is that the practice of bloodletting gradually fell out of use, and minimum parking requirements in zoning ordinances are gradually being replaced by parking caps.

For much of his career, Shoup was a lonely voice shouting in the wilderness but he shouted reason and fact and his work has had increasing influence in recent years.

Addendum: Here is Tyler’s NYT column on Shoup’s work, Free Parking Comes at a Price.

Adjudicating the Krugman-Bernanke debate on secular stagnation

Here is Krugman’s long and complex post, do read it carefully.  Here are a few points:

1. Bernanke said that non-secular stagnation in other countries might cause capital outflows and thus exchange rate depreciations in the potentially ss (secular stagnation) countries, thereby boosting their exports and demand.

2. Krugman argues in return that those real interest rate differentials will be offset by expected exchange rate appreciation, so the capital outflows won’t be so profitable.  Why switch funds from a stagnating Europe to a non-stagnating India, if expected euro appreciation will wipe out potential profits in India from the point of view of an investor in Europe?

3. I think that is the wrong comparison of interest rates and the wrong metric of expected currency appreciation.

4. Rather than looking at real interest rate differentials, take the market’s implied prediction for the euro to be the forward-futures exchange rates.  These futures rates match the differences in nominal rates on each currency across the relevant time horizons.  Those equilibrium relationships hold true with or without secular stagnation, whether in one country or in “n” countries, and from those relationships you cannot derive the claim that expected currency movements offset cross-border differences in real rates of return.

4b. (It is the nominal rate here because, from the point of view of a European investor, your final real return in terms of your own unit of account depends on a combination of the nominal rate abroad, combined with expected future currency conversion rates.  Got that?)

5. In that setting, rates of return in non-ss countries still will drive capital flows toward those countries (and an exchange rate depreciation, and thus higher exports, for the origin country, in this case the eurozone.)

6. The best way to speak of the non-ss countries, for international economics, is that their corporate sectors offer nominal expected rates of return which are relatively high, compared to their nominal government bond rates.  Once you see this as the correct terminology, it is obvious that capital still will flow outwards to the non-ss countries, even with expected exchange rate movements.  The excess profits are there, capital flows out, the euro weakens or appreciates less strongly, and eurozone exports are stimulated, as Bernanke had analyzed.

7. Theory aside, some of the empirics suggest exchange rates often are close to a random walk (pdf), as opposed to being predicted by nominal interest rate differentials.  This still supports the Bernanke hypothesis.

8. Yes, I am familiar with the Frankel (1979) strand of the literature on how real interest differentials can forecast currency changes, but it is actually a theoretical puzzle that domestically measured real interest rates (sometimes) have had this explanatory power.  And most importantly in this literature high real rates of return tend to predict currency appreciation, not depreciation, so funds should flow all the more to the higher return venues.   It is not a rigorous relationship in any case.  And on top of that Mishkin (1984), among others, has shown such an equalization on the real interest rate, across borders, is rejected by the data.

9. So I agree with Bernanke.  We should not think of real interest rate differentials as being washed out by expected currency movements.  And then the flow of investment abroad can break the secular stagnation chain of reasoning.

10. Bernanke is not arguing that “currency movements and export boosts will set everything right.”  I take him to be suggesting “if the problem were so fully one of the demand-side, currency movement and export boosts could set everything right.”  But since it seems they can’t set everything right, we should infer it is not a problem of the demand side only.  That is a subtle but important difference in argumentation.

11. Personally, I favor supply-side over demand-side analysis for the long run.

Capital average is over

Peter Orszag reports:

During roughly the same period, the return on invested capital — that is, how much profit is generated for each dollar of investment — also grew more unequal between companies. While the typical return was roughly constant, at about 10 percent, returns became more dispersed over time.

In particular, from 1965 to 1967, only 1 percent of non-financial firms earned returns of 50 percent or more, but from 2005 to 2007, 14 percent did. In other words, 50 years ago, one out of 100 firms earned 50 percent returns. More recently, one out of seven did.

These data suggest three things: First, the typical return to capital hasn’t changed much, which is what you would expect, given that the capital-output ratio excluding land and housing has been stable.

Second, from company to company, that return has become much more unequal, as has productivity. Some of this inequality between companies in returns and productivity tends to spill over into wages. And this is precisely what we’ve seen. It explains more of the rise in overall earnings inequality than does the increased gaps between the pay of higher earners and rank-and-file workers within a given company.

The full article is here.

MOOC sentences to ponder, and the law of demand still holds

“What jumped out for me was the survey that revealed that in some cases as many as 39 percent of our learners are teachers,”

There are two ways to view this.  One is that educators are simply talking to each other.  The alternative — more likely in my view — is that on-line and face-to-face education are in fact complements, but also that our educators know much less than they sometimes let on.  They need MOOCs to learn the material, or more optimistically to improve their presentations of it.

And how is this for the law of demand?:

Across 12 courses, participants who paid for “ID-verified” certificates (with costs ranging from $50 to $250) earned certifications at a higher rate than other participants: 59 percent, on average, compared with 5 percent. Students opting for the ID-verified track appear to have stronger intentions to complete courses, and the monetary stake may add an extra form of motivation.

I’ve long thought the standard meme “Only [small number goes here] percent of starters complete free MOOCS” was a weak argument.  This shows you why.

The piece discusses other interesting results as well.

Assorted links

1. Soda taxes don’t seem to work.

2. Can a health care company actually satisfy the customer?

3. How hard is it to become really good at table tennis?  And the common law origins of the infield fly rule.

4. Summers responds to Bernanke.  And Robert Moses responds to Robert Caro.  And Bernanke on the global savings glut.

5. John von Neumann documentary.

6. The original markets in everything.