Tyler Cowen's Blog, page 546

Test-tube hamburger is on its way

The world's first test-tube hamburger, created in a Dutch laboratory by growing muscle fibres from bovine stem cells, will be ready to grill in October.

"I am planning to ask Heston Blumenthal [the celebrity chef] to cook it," Mark Post, leader of the artificial meat project at Maastricht University, said at the American Association for the Advancement of Science annual meeting in Vancouver.

The story is here.  Both Alex and I have blogged about comparable (but less successful) projects in the past.  Here is a longer article on the same development.

The most interesting man in the world?

At 9, he settled a dispute with a pistol. At 13, he lit out for the Amazon jungle.

At 20, he attempted suicide-by-jaguar. Afterward he was apprenticed to a pirate. To please his mother, who did not take kindly to his being a pirate, he briefly managed a mink farm, one of the few truly dull entries on his otherwise crackling résumé, which lately included a career as a professional gambler.

From the NYTimes obit of John Fairfax and oh did I mention he rowed across the Atlantic…and the Pacific.

Congress gets two right

In a rare display of function, Congress extended the payroll tax cut and in the same deal they arranged to sell more spectrum, both good ideas and ones that I have argued for extensively. Frankly, I am pleased but surprised. Any inside knowledge on how this was accomplished?

J.C. Bradbury emails me on the allocation of talent

I hope you are doing well. I have a Micro III question that I thought might interest you. I often have such Tyler questions, but keep them to myself, yet this morning I decided to share with you.

What does Jeremy Lin tell us about talent evaluation mechanisms? This article ( http://www.wired.com/wiredscience/2012/02/what-jeremy-lin-teaches-us-about-talent/?utm_source=dlvr.it&utm_medium=twitter ) argues that the standard benchmarks for evaluating basketball and football players at the draft level are flawed. The argument is that Jeremy Lin couldn't get the opportunity to succeed because his skill wasn't being picked up by the standard sorting procedure. This got me thinking.  Baseball sorts players in a different way than basketball.  In professional basketball (and football), college sports serve as minor leagues, where teams face a high variance in competition (the difference between the best and worst teams in a top conference is normally quite large), with very little room for promotion. There is some transferring as players succeed and fail at lower and higher levels, but for the most part you sink or swim at your initial college. This is compounded by the fact that the initial allocation of players to college teams is governed by a non-pecuniary rewards structure with a stringent wage ceiling, which likely hinders the allocation of talent.  At the end of your college career, NBA teams make virtually all-or-nothing calls on a few players to fill vacancies at the major-league level.  In baseball it's different. Players play their way up the ladder, and even players who are undrafted can play their way onto teams at low levels of the minor league. At such low levels, the high variance in talent is high like it is in college sports; however, promotions from short-season leagues through Triple-A, allow incremental testing of talent along the way without much risk.  I have looked at metrics for predicting major-league success from minor-league performance and found that it is not until you reach the High-A level (that is three steps below the majors) can performance tell you anything.  Players in High-A who are on-track for the majors are about-the age of college seniors.  Performance statistics from Low-A and below have no predictive power. Baseball is also much less of a team game than basketball, so this should make evaluation easier in baseball but it is still quite difficult by the time most players would be finishing college careers.  Also, a baseball scout acquaintance, who is very well versed in statistics, tells me that standard baseball performance metrics in college games are virtually useless predictors of performance (this is contrary to an argument made in Moneyball).  Even successful college baseball players almost always have to play their way onto the team.

Back to Lin. He played in the Ivy League and his stats weren't all that bad or impressive in an environment that is far below the NBA. If Lin is a legitimate NBA player, he didn't have many opportunities to play his way up like a baseball player does.  In the NBA, he experienced drastic team switches, and even when making a team he received limited opportunities to play. MLB teams often keep superior talent in the minors so that they can get practice and be evaluated through in-game competition.  An important sorting mechanism for labor market sorting is real-time work.  Regardless of your school pedigree, most prestige professions (lawyers, financial managers, professors, etc.) have up-or-out rules after a period of probationary employment where skill is evaluated in real world action. Yes, there is a D-League and European basketball, but the D-league is not as developed as baseball's minor-league system, and European basketball has high entry cost and may suffer from the same evaluation problems faced by the NBA.  Thus, I wonder if the de facto college minor-league systems of basketball and football hinder the sorting of talent so that the Jeremy Lins and Kurt Warners of the world often don't survive.  Thus, another downside of these college sports monopsonies is an inferior allocation of talent at the next level.

J.C.'s points of course apply (with modifications) to economics, to economies, and to our understanding of meritocracy, not to mention to how books, movies, and music fare in the marketplace.  Overall I would prefer to see economics devote much more attention to the topic of the allocation of talent.

Here is J.C. on Twitter, here are his books.

Political markets in everything

Forgive the music at the link, from Lucknow:

Your vote would not only change the fate of Uttar Pradesh, but it could also fetch extra marks for your child. In a unique first, many schools in the city have decided to award extra marks to students whose parents will cast vote in the assembly election.

And there is this:

The incentive would not be limited to exams alone, it would also find a mention in the character certificate of a student. Mishra suggested that a column for marking whether or not the child successfully convinced his/her parents to vote and hence displayed a sense of civic consciousness will be added in the report card. In case of a student is of 18 years then the relevant entry will be a mark on his/her own performance on the election day.

For the pointer I thank Sharath Rao.

What good are hedge funds?

How can they beat the market consistently, especially if we take EMH seriously at all?  And if they don't beat the market, how is 2-20 to be justified?  Here is a snippet from an interesting Amazon review:

…this kind of comparison misses the entire point of most hedge funds. A market-neutral fund is not designed as a stand-alone investment, but as a diversifier for an equity portfolio. It can have half the return of equities with the same volatility, and still be valuable. The question isn't whether putting 100% of your money in hedge funds did better than putting 100% in stocks, it's what portion of assets an investor should allocate to hedge funds. Using the author's own numbers, an investor would have done best to have 30% of assets in hedge funds, rebalancing annually, from 1998 to 2010. That produced 4.2% annual alpha (return in excess of what you could have gotten investing in stock index funds and t-bills with the same volatility). That number is certainly overstated, hedge fund investors typically do worse than the index suggests, but it demonstrates that you can't consider only stand-alone returns. This point is borne out by the finding that endowments and pension funds that make use of hedge funds have consistently better risk-adjusted performance than those that do not.

The review, by Aaron C. Brown, offers other points of interest.  I've ordered the underlying asset itself (the book) and I will report back on it.  It was reviewed in today's FT, still no permalink.

Here is a recent story on hedge fund closures.

Assorted links

1. Measuring the output gap, an excellent post looking at capacity utilitzation and changes in inflation rates to back out an answer to this question.  The bottom line is that the output gap probably isn't nearly as large as is often claimed.  And Karl Smith comments, I would note the connection between the ppf and trust.

2. Obama's hardline turn against medical marijuana.

3. Markets between everything and everyone, and Literary Saloon reviews Allan Meltzer.

4. Testing Milton Friedman, new TV show with Caplan, Yglesias, Dalmia, Williams, others.

5. Graphs about Hollywood.

The Patrick Melrose novels

I usually find "derelict fiction" unappealing (I don't for instance enjoy Trainspotting, although I admit its aesthetic merits, nor did I like Drugstore Cowboy; someone should write an essay on the merits and demerits of drug-based fiction), but these books are for me compulsively readable and the prose is more vital than almost anything else being written.  They are by Edward St. Aubyn and you can buy the first four of them here, the final one here.   By no means should you let these novels be defined by their excerpts, but here are a few:

How could he ever hope to give up drugs?  They filled him with such intense emotion.  The sense of power they gave him was, admittedly, rather subjective (ruling the world from under the bedcovers, until the milkman arrived and you thought he was a platoon of stormtroopers come to steal your drugs and splatter your brains across the wall), but then again life was so subjective.

And:

If he got her he would give up drugs forever, or at least have someone really attractive to take them with.  He giggled wildly, wrapping a towel around himself and striking back into his bedroom with renewed vigour.

And:

Fergus took me to the coast and forced me to go snorkeling.  All I can say is that the Great Barrier Reef is the most vulgar thing I've ever seen.  It's one's worst nightmare, full of frightful loud colours, peacock blues, and impossible oranges all higgledy-piggledy while one's mask floods.

If you are wondering, drug addiction is a central theme in only some of these books, no more than half actually.  There are also scenes of child abuse, family, and Australia.

Headlines to ponder

"Whitney Houston: 15 ebooks on singer published since her death"

For one thing, this may blunt the "affiliation demand" to buy CDs or music downloads to honor her life.

Hat tip goes to Bookslut.

Further assorted links

1. The internet as a driver of cognitive inequality?

2. Is Duck Duck Go a better search engine?

3. The collapse of EU emissions trading.

4. How to mobilize a bureaucratic glitch against yourself, and the demand for vanity license plates.

5. Angus on the Fed.