Tyler Cowen's Blog, page 212

Yet another case where prediction markets would come in handy

From the Financial Times (not Pravda):

Nikolai Vasiliev, a Crimean businessman, can hardly wait for his region to be annexed by Russia. It would “give us a new lease of life”, he says.

Mr Vasiliev is the general manager of AO Pnevmatika, a former state-owned engineering company that has struggled since the Soviet break-up. Now, he hopes, a bold future beckons in a newly minted Russian province.

“A huge market will be opened up to us,” he says. “We will have access to cheap Russian raw materials and low-priced gas and electricity. And the wages of our workers will rise to Russian levels.”

…Alexander Basov, head of the local chamber of commerce, echoes a widely held view that a Russian-ruled Crimea would garner more attention – and investment – from Moscow than it ever got from Kiev.

“Since independence, Ukraine has treated Crimea like an unloved stepchild, not a real son,” he says. “No big factory has been built here in the last 20 years. The only spending was on repairs to the road from Simferopol to the state dacha in Yalta.”

Yet on the other hand:

There are plenty of dissenting voices. One leading Simferopol businessman, who asked not to be named, said the impact of union with Russia on Crimea’s economy would be devastating, especially if the rest of the world refused to recognise it. “There will be no foreign investment in a place with such a dodgy legal status,” he says. “And the odds are that even Russians will not want to invest here.”

There is also concern that Crimea could not survive a total break from mainland Ukraine, the source of much of its water and electricity, with fears that if the peninsula votes to secede in a referendum planned for Sunday, Kiev could retaliate by switching off the lights or imposing an economic blockade. Already, Mr Vasiliev said, train links between Crimea and other parts of Ukraine had been cut or scaled back and online bank transfers from the Ukrainian Treasury shut down.

The huge bureaucratic headaches any change in Crimea’s status would cause are also worrying the business community. “I’ll have to get a new passport, re-register my business, my house,” said Ibrahim Zinedin, who trades in construction materials. “All that will take time and cost a lot.”

Loyal MR readers will not be surprised to read I would put my bets on the more negative scenario.  There is more here.

Assorted links

1. Are cash transfers overrated?

2. The behavioral benefits of castration (a new topic for behavioral economics?)

3. METRICS: waging war on sloppy science.

4. Interview with Greg Clark.

5. The new economics of financial aid for boarding school.

6. Robin Hanson on Piketty and hidden asset taxes.

Bill Gates on poverty

Should the state be playing a greater role in helping people at the lowest end of the income scale? Poverty today looks very different than poverty in the past. The real thing you want to look at is consumption and use that as a metric and say, “Have you been worried about having enough to eat? Do you have enough warmth, shelter? Do you think of yourself as having a place to go?” The poor are better off than they were before, even though they’re still in the bottom group in terms of income.

The way we help the poor out today [is also a problem]. You have Section 8 housing, food stamps, fuel programs, very complex medical programs. It’s all high-overhead, capricious, not well-designed. Its ability to distinguish between somebody who has family that could take care of them versus someone who’s really out on their own is not very good, either. It’s a totally gameable system – not everybody games it, but lots of people do. Why aren’t the technocrats taking the poverty programs, looking at them as a whole, and then redesigning them? Well, they are afraid that if they do, their funding is going to be cut back, so they defend the thing that is absolutely horrific. Just look at low-cost housing and the various forms, the wait lists, things like that.

As you would expect, the interview is interesting throughout.  For the pointer I thank Samir Varma.

The Cost of Aging Infrastructure

The complete destruction of a building in NYC from a gas explosion makes this report (pdf, summary here), from which the graphic is drawn, from the Center for an Urban Future timely. The Center also reports that the cost of building infrastructure in NYC has risen by 50% since 2000 alone. As I said in Launching the Innovation Renaissance:

Building in the United States today, for example, requires navigating a thicket of environmental, zoning and aesthetic regulations that vary not only state by state but county by county. If building a house is difficult, try building an airport. Passenger travel has more than tripled since deregulation in 1978, but in that time only one major new airport has been built: Denver’s. That airport is now the fourth busiest in the world. Indeed the top seven busiest airports are all in the United States, not so much because we are big but because without new construction we are forced to overcrowd our existing infrastructure. The result is delays and inefficiency. Meanwhile, China is building 50 to 100 new airports over the next 10 years.

…Our ancestors were bold and industrious. They built a significant portion of our energy and road infrastructure more than half a century ago. It would be almost impossible to build that system today. Could we build the Hoover Dam today? We have the technology. We seem to lack the will. Unfortunately, we cannot rely on the infrastructure of our past to travel to our future.

Can we trust online physicians’ ratings?

That is a new paper by Susan F. Lu & Huaxia Rui, here is the abstract:

Despite heated debate about the pros and cons of online physician ratings, very little systematic work examines the correlation between physicians’ online ratings and their actual medical performance. Using patients’ ratings of physicians at RateMDs website and the Florida Hospital Discharge data, we investigate whether online ratings reflect physicians’ medical skill by means of a two-stage model that takes into account patients’ ratings-based selection of cardiac surgeons. Estimation results suggest that five-star surgeons perform significantly better and are more likely to be selected by sicker patients than lower-rated surgeons. Our findings suggest that we can trust online physician reviews, at least of cardiac surgeons.

The pointer is from Andres Marroquin.

Which countries will fare worst from a Chinese slowdown?

If you want to look at some good tables ranking the vulnerability of emerging countries to China, you could do worse than check Craig Botham of Schroders’ views summarised at http://blogs.ft.com/beyond-brics/2014/03/13/ranking-em-vulnerability-to-china/#axzz2vlzb3Xby. According to this, Chile, Columbia, Russia, South Africa and Peru are the most exposed, but few countries in Asia get off lightly, or Brazil for that matter. And while Australia doesn’t figure, of course, Perth should. And because of other concerns people have about the lack of demand in Australia ex-Perth, creeping weakness in employment,  and looming instability in housing and mortgage markets, this is definitely a ‘watch-this-space’.

Looking at copper, half of China’s usage is accounted for by infrastructure and construction, and a further third by consumer and industrial goods. To the extent this reflects China’s development model, i.e. with an emphasis on fixed investment and exports, respectively, it is clear that economic rebalancing away from these sectors to household goods and services must entail a significant fall-out in terms of the commodity intensity of growth.

China’s consumption of other commodities also accounts for a hefty share of global production, though not as large as for base metals. In the case of non-renewable energy resources, the proportion is 20%, and for major agricultural crops, it’s 23%.

That is from George Magnus.

Assorted links

1. Why does Pi appear in Einstein’s theory?

2. The 182-year-old tortoise.  Still active.

3. A new class on Buddhist economics.

4. How many years of austerity will be needed?

5. Why are audiences more open to new choral music?

6. Speculative claims about Siberian megaliths.

Two premieres

Here is Josh Barro for The New York Times, on why it still feels like we are in a recession to so many people.

Here is Catherine Rampell for The Washington Post on why low labor turnover is a bad sign for the economy.

We welcome both to their new jobs and look forward to reading more, I am big admirers of them both.

Storage vaults for Bitcoin?

…a raft of bitcoin thefts at exchanges like Mt. Gox is raising the question of whether the sophisticated currency still needs the same sort of physical security infrastructure—impenetrable steel vaults, armed security guards, and even paper ledgers—as cash and gold.

A Silicon Valley startup called Xapo is among a handful of young companies trying to become the Fort Knox of bitcoin, building secret bank vaults deep in the earth that would safely store millions of dollars worth of bitcoin code on computer drives. And if modern bank robbers still manage to pry open the vault? Xapo promises to fully insure all deposits.

On Wednesday, Xapo said it raised $20 million in funding led by venture-capital firm Benchmark, to support a network of underground vaults that the company says are in mountainous regions on multiple continents.

There is more here.  I think of this as a lesson in how bid-ask spreads tend to reemerge, one way or another, no matter how hard we try to abolish them.  One key question about Bitcoin is whether it has found a better place to “put” the bid-ask spread.

Interview with Nate Silver about 538

Here is an excellent interview with Nate Silver about his new project, interesting throughout.  Here is one bit:

People also think it’s going to be a sports site with a little politics thrown in, or it’s going to be a politics site with sports thrown in. I understand why people say that — what we’ve been known for, plus ESPN, plus ABC News. But we take our science and economics and lifestyle coverage very seriously.

Some of the interview made me a little nervous.  He inveighs against New York Times Op-Ed columnists (juicy passages, click on the link if you wish), but their knowledge is more synthetic and also more novel than I think Silver recognizes.  I am not sure why “predictable” points of view are necessarily less likely to be true, or less likely to be important, even though they are (to me as well) less interesting to read.

Here are some more words from Silver:

We’re not sociopaths, which means that we look at the world and have opinions. But we’re not trying to do advocacy here. We’re trying to just do analysis. We’re not trying to sway public opinion on anything except trying to make them more numerate. I would say we’re not going to do a ton of public-policy coverage. We think that space is pretty rich now with competition. I also think with something like the health-care bill, it’s going to take years to get a good sense of how that’s working and how it’s affecting the market.

That too makes me a little nervous.  For instance there is the risk of assuming that the most important issues always or usually involve measurement.   Technocrats who rail against the ideologies of others are often the most ideological people around, even if their biases do not line up with the political spectrum in the usual manner.  Is there really such a thing as “just do analysis”?  Is it not better to make the underlying value presuppositions more explicit?  And why the knock at people who don’t have opinions about public affairs?  They’re not sociopaths, and frankly I’m not even fully comfortable with a blanket condemnation of sociopaths.

Earlier today I was reading John Hauer’s excellent The Natural Superiority of Mules.  It is a deliberately species-ist book, without a shred of objectivity, and the title reveals the blatant biases of the author.  The book has data, but is not data-driven.  It is “advocacy of mules driven.”  Get the subtitle: “A Celebration of One of the Most Intelligent, Sure-Footed, and Misunderstood Animals in the World” (eyes roll).  Yet I learned a great deal from it, and I will read any web site that can do as well.