Tyler Cowen Interview with Cliff Asness

An economist interviews an academic/investor (sic) on anomalies in the markets for stocks, bonds, and other investment products. A truly thought-provoking dialogue that reveals some interesting quirks about human nature.

Tyler Cowen is proving himself to be a great interviewer, mainly by avoiding the annoying features of most interviews (idle chatter, unnecessarily long introductions) and by unleashing a steady barrage of creative and thought-provoking questions.

Bee-lieve It or Not

We can thank the beekeepers for maintaining the honeybee colony population in the face of colony collapse disorder.

The blog post doesn't discuss the fact that the number of bee colonies is still way down from a 1989 high, nor the ecosystem effects (if any) of beekeepers' more rigorous application of the traditional methods for replacing lost colonies. It does discuss the increase in the price of honey which seems to have been caused by these efforts.

I still feel some more context is needed to understand the full story of what is happening with the honeybees and CCD. While I am a believer in the free market, WHICH IS MAGIC just as the blog post says, something is missing (or several somethings).

Not from a Pulp Magazine: Indian Temple Gold Edition

1. An ancient temple in India has treasure vaults filled with gold and gems, and is popularly believed to be protected by snakes and a god's curse.

2. The government in India is encouraging temples to deposit their gold in banks, so that it can be lent out at interest and help the economy by expanding credit.

3. Unfortunately, the rumored snake guardians and divine protection were not enough to prevent the theft of 266 kg of gold from Sree Padmanabhaswamy Temple in Kerala.

Addendum: Video with pictures of some of the treasures housed in the Sree Padmanabhaswamy Temple.

Workers of the World, Invest!

Or, Socialist (in the sense of 'worker-owned') Capitalism: An Immodest Proposal.

This is from David D. Friedman's Machinery of Freedom, a libertarian classic from 1973 (still in print, and now in its third, revised edition) currently being reviewed by the incomparable Scott Alexander of the blog Slate Star Codex.

Alexander highlights the following passage from Friedman's book for our consideration, which, though I have read the book, I had quite forgotten about:

How much would it cost workers to purchase their firms? The total value of the shares of all stocks listed on the New York Stock Exchange in 1965 was $537 billion. The total wages and salaries of all private employees that year was $288.5 billion. State and federal income taxes totalled $75.2 billion. If the workers had chosen to live at the consumption standard of hippies, saving half their after-tax incomes, they could have gotten a majority share in every firm in two and a half years and bought the capitalists out, lock, stock, and barrel, in five. That is a substantial cost, but surely it is cheaper than organizing a revolution. Also less of a gamble. And, unlike a revolution, it does not have to be done all at once. The employees of one firm can buy it this decade, then use their profits to help fellow workers buy theirs later. 

When you buy stock, you pay not only for the capital assets of the firm—buildings, machines, inventory, and the like —but also for its experience, reputation, and organization. If workers really can run firms better, these are unnecessary; all they need are the physical assets. Those assets—the net working capital of all corporations in the United States in 1965—totalled $171.7 billion. The workers could buy that much and go into business for themselves with 14 months’ worth of savings.

As Alexander points out, under current conditions it would probably take longer for this to work, but the general idea still seems sound.

Of course, from Friedman's point of view, this is mostly a thought experiment to show that the workers actually benefit from the expertise of the owners of capital and the employees they hire to manage their capital and their workers. But, even if Friedman is correct about this, if his underlying argument is sound (perhaps a big 'if'!), then it seems that workers could still just purchase stocks in firms or otherwise become owners of capital themselves through saving and investing, thus de facto obliterating the distinction between workers and capitalists.

Of course, as many people have already pointed out, this has already partially happened, since a greater percentage of the population have investments in private corporations through their benefits packages etc., but Friedman's proposal suggests that this process could be greatly expanded and accelerated.

Dialogue between Yuval Noah Harari and Daniel Kahneman

This is a fascinating, thought-provoking dialogue about the future of humanity, but it's heavy on speculation, and light on evidence. 

For example, here is Yuval Noah Harari speculating about a future in which advances in technology have rendered most humans worthless as workers:

Yes, the social side is the more important and more difficult one. I don't have a solution, and the biggest question maybe in economics and politics of the coming decades will be what to do with all these useless people. I don't think we have an economic model for that. My best guess, which is just a guess, is that food will not be a problem. With that kind of technology, you will be able to produce food to feed everybody. The problem is more boredom, and what to do with people, and how will they find some sense of meaning in life when they are basically meaningless, worthless.

Harari makes a lot of assumptions. The fundamental assumption is that many or most people will not find ways to make their labor a useful complement to the labor of machines and computers.

This assumption is present in most discussions about Our Robotic Future, or Our Future after the Singularity. And for all I know it may be true. But surely it isn't the only possible scenario. By analogy, the Industrial Revolution didn't render manual laborers obsolete--it just required them to gain the skills necessary for working with machines in factories.

Now, there's certainly no guarantee that many or most workers will be able to gain the skills necessary to make their labor valuable in Our Robotic Future. And Tyler Cowen and other economists have presented evidence that income inequality is currently on the rise precisely because only some workers have managed to gain the skills and training necessary to make their labor a useful complement to the labor of computers. But I don't see a discussion of this or other evidence by Harari and Kahneman, which makes most of their comments pretty speculative.

Applied Public Choice Theory, Regulatory Capture Edition

Intuit, the makers of Turbo Tax, have spent $11.5 million (as of 2013) lobbying politicians to keep the federal income tax a complex mess.

European Financial Rumblings

I'm a philosopher, not an economist, so the subtleties of central banking and international public finance are quite beyond me. Yet this is a fascinating article by Frances Coppola at Forbes on recent changes at the Swiss National Bank (SNB) and European Central Bank (ECB). 

Essentially, the SNB halted its pegging the Swiss franc to the euro, and Coppola argues that this was to avoid financial ruin in the wake of the ECB's soon-to-commence unconstrained quantitative easing (QE) activities.

Here is an especially insightful passage from the article, about how the operations of different central banks can affect each other:

Central banks cannot be broken by markets when defending a rising currency (though they can when defending a falling one). But they can be broken by a central bank with more firepower. The ECJ Advocate General’s opinion was a game changer. No way is the most powerful central bank in the world going to allow the minnow on its border to derail its hard-won QE program. The SNB, considerably smaller than the ECB and subject to both democratic and legal constraints, had no choice but to end its Euro purchases or face destruction of its balance sheet to no purpose.

Tip of the hat to Tyler Cowen at Marginal Revolution.

Our Dystopian Future?

A recent review by Rick Searle shows the continuing relevance of economist Tyler Cowen's Average Is Over when it comes to understanding Our (possible) Dystopian Future.

From Searle's review:

In Cowen’s world the rich with money to burn are chased down with a combination of AI, behavioral economics, targeted consumer surveillance, and old fashioned, fleshy persuasion to part with their cash, but what will such a system be like for those chronically out of work? Even should mass government surveillance disappear tomorrow, (fat chance) it seems the poor will still face a world where the forces behind their ever more complex society become increasingly opaque, responsible humans harder to find, and in which they are constantly “nudged” by people who claim to know better. For the poor, surveillance technologies will likely be used not to sell them stuff which they can’t afford, but are a tool of the repo-man, and debt collector, parole officer, and cop that will slowly chisel away whatever slim column continues to connect them the former middle class world of their parents. It is a world more akin to the 1940’s or even the 1840’s than it is to anything we have taken to be normal since the middle of the 20th century.

Why Are Left Wing Economists So Influential?

A propos The Economist's recent list of most influential economists:

Some attempts to explain why there are so many left-leaning economists on the list:

1. Paul Krugman.

2. An insurance industry analyst replies.

3. Krugman again.

Japanese Fertility Musings

Is Japan's fertility problem worse than previously thought, or is it only thought that Japan's fertility problem is worse than previously thought?