Meet Max Roser, and Our World in Data

Of course, you may not know who Paul Graham is. Visit his website, click on essays, and say goodbye to your calendar for the next couple of weeks.

But that’s not today’s blogpost. Today we answer the question, who is Max Roser? And what is Our World in Data?

Here is Max Roser’s introduction of himself from a Reddit AMA (Ask me Anything) he had done a while back:

“Hi Reddit! My name is Max Roser. I visualize global development data on OurWorldInData.org, a free online publication on how living conditions around the world are changing.


Now I am working with a great team and we want to cover global development as broadly as we can to show how our world is changing. Our World in Data now includes data and research on global health, violence, poverty, inequality, economic growth, environmental changes, food and agriculture, energy, technological change, education and more specific topics.

While much of the news is focussing on what happened yesterday or even what is currently “breaking news”, I think that many of the very important changes, which fundamentally reshaped the world that we are living in, happen very slowly and persistently over the course of decades or centuries. On ‘Our World in Data’ we don’t report the ‘breaking news’ and instead zoom out to show the slow trends that dramatically change our world.

Other than that I am a researcher – mostly focusing on inequality and poverty – at the University of Oxford.”

And Our World in Data? Check out their About page.

But better still, consider this extract:

“Why have we made it our mission to publish the “research and data to make progress against the world’s largest problems”?

At the heart of it is a simple truth. When we look around us, it is clear that the world faces many very large problems: 

  • Every year 300,000 women die from pregnancy-related causes, this means that on any average day 830 mothers die
  • The majority of the world – 65% – lives on less than $10 per day.
    And almost 10% live in ‘extreme poverty’, they live on less than $1.90 per day. 
  • The world deforested 47 million hectares of forest in the last decade, that’s an area the size of Sweden.
  • 60 million children of primary school age are not in school.
  • Almost a quarter of the world population – 23% – live in autocratic regimes.
  • 14% of the world’s adults do not know how to read and write.
  • And 3.7% of all children die before they are five years old. This means that 5.2 million children every year and on any average day the world sees 14,200 child deaths.

This is a list of terrifying problems. And as we don’t hear much that would tell us otherwise, it is easy to be convinced that we can’t do anything about them. Even in the extensive 24/7 news cycles we hear little that suggests it would be possible to make progress against these problems. The same is true for our education — questions like how to end hunger, child mortality, or deforestation are rarely part of the curriculum. 

As a consequence it is not surprising that many have the view that it is impossible to change the world for the better. For many large problems the majority in fact believes that they are getting worse.

This however, is not the case. We know that it is possible to make progress against these large problems, because we have already done so.”

How do we know that we have already done so? Take a look at this one chart:

Click on that little toggle next to the world “Relative” in the chart, and the chart becomes even better. Here’s a simple way to think about it: Max Roser is a person who wants to help you understand two things:

  1. Take the glass half full view, because the world is genuinely becoming better over time.
  2. But don’t for a single moment forget the fact that the world needs to become a lot better, and for that to happen, we need to move faster.

Or, in much more eloquent terms:

Because our hopes and efforts for building a better future are inextricably linked to our understanding of the past, it is important to study and communicate the global development up to now. Studying our world in data, and understanding how we overcame challenges that seemed insurmountable at the time, should give us both confidence and guidance to tackle the problems we are currently facing. Living conditions can be improved, we know from the past that they already have been.
For each of the problems we face today we need to also address the difficult question of whether and how we can make progress in the years ahead.

https://ourworldindata.org/problems-and-progress

Here is his website, here is his Oxford Martin school page, and here is a wonderful place to get started if this is your first time on the website Our World in Data.


But if you are a student of economics (and who isn’t, eh?), spend more time on Our World in Data, and help other people find out about the website. A genuine treasure of our times.

Learn Economics By Looking At A Painting

It was the IPL yesterday, so why not art today?

https://commons.wikimedia.org/wiki/File:Stilleven_met_vergulde_bokaal_Rijksmuseum_SK-A-4830.jpeg

Stare at this picture, and do so for a long time. If you are reading this on your phone, please take the time to switch to a laptop or even better, a desktop computer with a large screen. And just look at it, for as long as you like.

Here’s the description of this painting from Wikimedia:
On a table laid with a green table cloth and two linen damask serviettes are displayed: pewter plates with bread and a pewter dish with oysters, a glass of red wine, a glass of olive oil or a vinegar jug, a silver salt cellar, a rummer of white wine, a gilt silver cup, a pewter jug and a Berkemeyer laying on its side.

… which is fine as things go, but the NYTimes takes things to, as they say, another level in their Close Read series. I’ve linked to another one from this series more than a year ago, which is also worth your time. But this particular one, titled “A Messy Table, A Map of the World“, is worth an hour or more of your time.

In loving detail – and rarely must this phrase have been more appropriately used, Jason Farago takes us through the many messages, implications and nuances of this painting, and so much more besides.

I’ve noted below some points that stood out for me in terms of appreciating the painting better after having read the article (please note that I know nothing about art appreciation, so feel free to help me learn more):

  1. The reflection of the window-frame on the glass is remarkably well done, particularly on the wine glass, but also on the jug towards the right. The wine glass, by the way, is called a roemer, and the reason it has a knobbed stem is so that the glass is easier to grip after you’ve had a more than a couple of drinks.
  2. I wouldn’t have noticed it no matter how long I stared at it (but then again, I’m not very good at this), but directly below the half-hidden knife, on the edge of the white napkin is the artist’s signature, and the year in which the painting was created.
  3. The wall in front of which the table stands is drab by choice, so as to focus our eyes on the table itself.
  4. The lemon is mesmerizing. The realism that Heda manages is brilliant, and if you take a look at his other paintings, you will realize that it is a recurring motif.
  5. The texture of the bread in the foreground, the difference in the texture and the luster of the silver cup (or tazza) and the matte texture of the jug (or pewter) is remarkable.

I could go on, but I’ll leave you to both read the rest of the article, and figure out other details yourself.


But (surprise, surprise) what I enjoyed the most were the economic aspects.

  1. Learn more about where Heda was located, and why that mattered in terms of the commerce behind the creation of paintings such as these. Reflect on the section from the article that helps you understand why religious motifs are not to be seen in his works. While you are it, reflect on the fact that this is an artist known for the creation of a genre called late breakfasts. Who has the time to have late breakfasts, and what might that mean for the society that Heda lived in?
  2. Peperduur is a Dutch word, still in use today, that means expensive. It literally means “as expensive as pepper”. The peppercorns in the painting, by the way, are to be found in that little cone of paper towards the left of the painting.
  3. Where did the lemons come from back then? Were they imported? If so, from where? Under what conditions, treaties and laws? With what consequences? If you find yourself wanting to read more about this, I’m happy to recommend to you one of my favorite books about globalization: Vermeer’s Hat.
  4. Which other things came from which other parts of the world? The article tells us about gold, cinnamon, porcelain and pineapples that came from an island called Manaháhtaan. Where is this place, you ask? Well, near a place called New Amsterdam. And where is that, you wonder? Listen to this song, and read the lyrics.
  5. This is a painting that celebrates wealth: the fact that you were able to afford a spice that lives on today in a word that means expensive, that were able to afford to buy, eat and not finish something as expensive as oysters, that you were able to wash down the meal with beer and wine, that you were able to use only a bit of as expensive a fruit as a lemon, and that you could have a meal such as this for a late breakfast – all of this isn’t just telling the viewer a story. It is sending the viewer a message about what the Dutch people were when the painting was created. They were rich, and they wanted you to know it.
    How they became rich, at what cost to the rest of the world, and with what consequences to themselves and the rest of the world are questions that you should ask after you stare at the painting… and then try and find out the answers.

There are many, many ways to learn economics, whether by watching the IPL or by learning about art appreciation – and a million other things in between. Being a student of economics is about so, so much more than the study of an economics textbook. That, if anything, is barely the start.

I hope you have as much fun learning about this painting as I did!

David Warsh’s Take on Inflation

One of the sentences I have most enjoyed reading and internalizing is this one, by Scott Sumner: Never Reason From A Price Change.

I’ve capitalized each word in that sentence because it really is a sentence that makes you think until your head hurts. Here’s an early (perhaps the first) blog post from Scott in which he explains what he’s getting at:

My suggestion is that people should never reason from a price change, but always start one step earlier—what caused the price to change. If oil prices fall because Saudi Arabia increases production, then that is bullish news. If oil prices fall because of falling AD in Europe, that might be expansionary for the US. But if oil prices are falling because the euro crisis is increasing the demand for dollars and lowering AD worldwide; confirmed by falls in commodity prices, US equity prices, and TIPS spreads, then that is bearish news.

https://www.themoneyillusion.com/never-reason-from-a-price-change/

At its simplest – although there is always more to it than that – never reason from a price change means that the price might have changed because of demand, or supply or both. The headaches begin when you try to think through which of these might be more dominant, and the headache acquires splitting migraine status when you realize that you need to also ask about what else might be at play.

If you are a student of macroeconomics, a useful way to spend a morning is by clicking through this set of links and reading other posts by Scott Sumner on this topic. Remember, as always, the point is not to necessarily agree with Scott, but to read and ask how and why he arrives at his conclusions, and if you disagree with him, why do you do so. Best way to learn, especially if you can find a friend nerdy enough to do the exercise with you.


Which is a nice way to segue into our topic du jour: inflation.

A candy bar that cost a nickel in 1950 today costs $1.25 or so, depending on where you buy it. That, in a paper wrapper, is the price revolution of the twentieth century. Why did it happen? The answer usually given is that the quantity of money increased – too much paper money chasing too few candy bars.
A more satisfying explanation, casual though it may be, is to recognize that the global economy has grown considerably more complex since 1950, and the system of money, banking, and credit more complex along with it. The price of the candy bar wasn’t going to return to its previous level, no matter what the Fed or the candy-manufacturers did.

http://www.economicprincipals.com/issues/2022.05.01/2521.html

So begins a lovely little ruminative essay by David Warsh on how to think about inflation. It is lovely, but the emphasis in the previous sentence should be on the word “little”. I wish it was ten times longer!

But students used to textbook definitions of inflation might have their curiosity piqued after reading the second paragraph from the extract: what might complexity have to do with inflation?

A somewhat cryptic answer is given in the very next line that follows the end of the extract, where David Warsh refers to a book he wrote in 1984, called The Idea of Economic Complexity. I haven’t read the book, but I remember being told about it – alas, I can no longer remember who recommended it to me! But the idea of the book, from what I can recollect of the discussion, is as follows:

If you were to manufacture a Nokia 3310 today, odds are that you would be able to manufacture it at a fraction of the price that it commanded when it was first launched. Duh, you might think: so far, so obvious. Warsh’s point in the book is that this doesn’t necessarily mean that phones have become cheaper. In fact, as we can all attest, they go up in terms of price every year. The exact same thing might become cheaper, sure, but we keep making stuff more complex as we go along, and it is this increasing complexity that adds to inflation.

Now, bear in mind that I am treading on extremely thin ice over here! I’m describing a book to you that I haven’t read (strike one), on the basis of a conversation about the book that took place many years ago (strike two), and I’m now about to speculate on what else might be at play where this idea is concerned (strike three!).

All those CYA disclaimers aside, I’d like to think that complexity need not be just about the product itself, but could also be about the way it is manufactured, where all it is manufactured, where it is assembled, and how it is sold. Not to mention how all of this is financed!

As I’ve said before on these pages, macro is hard!


In Economic Development and the Price Level, in 1962, Geoffrey Maynard argued the opposite: that money generally adjusts to trade, rather than trade to money. In very different formats, the argument continues today.
“Development” is a bland word with which to describe the difference between the world economy in the time of Columbus and the world today. Economic philosopher David Ellerman has suggested that diversity describes the key difference, grounding his description in information theory; I proposed complexity in that 1984 book. But what is it that has become more diverse or complex? Not until I read “Increasing Returns an Economic Progress” (1928), by Allyn Young, did it occur to me that the growing complexity I had been thinking about were increases, of one sort or another, in the division of labor.

http://www.economicprincipals.com/issues/2022.05.01/2521.html

What a lovely excerpt, no? So much to add to the “To Read” list, but also how wonderful to pause and ponder on what the link might be between a Smithian division of labor and inflation. I hope you pause and think about this, much as I did when I read Warsh’s post, and again while drafting this paragraph right now.

To be clear: you’d expect division of labor to make systems more efficient, and therefore things cheaper. But Warsh suggests that there might be a way to link division of labor to complexity, and complexity to inflation!

Warsh ends his post in enigmatic fashion:

Are you comfortable with the too-much-money-chasing-too-few-goods story? Do you believe that the Fed could have prevented the rise in its price? And if wasn’t “inflation,” then what was it? The depreciation of money, relative to goods?
As with the sixteenth-century voyages of discovery, money follows development and development follows money. If you have only the quantity theory of money to rely on, you don’t know what is going on.

http://www.economicprincipals.com/issues/2022.05.01/2521.html

And that, I’d argue, is A Good Thing. A Good Thing because it allows us to prioritize reading The Idea of Economic Complexity, and allows to think about what David Warsh might be hinting at. An incentive (a carrot) to read the book, in other words, and one that I plan to use in the coming weeks.

Maximizing Soul: The Banana Edition

I ate a most delicious snack yesterday, and probably more of it than I should have. A student from Vasai had gotten along some fried surmai (which was also outstanding), but in a remarkable event where I am concerned, it was the vegetarian item that won the Kulkarni Tastebud contest yesterday.

The item in question was sukeli, and it looks like this:

https://craftoindia.com/sukeli-sun-dried-banana-of-maharashtra-1kg.html

This is what the website has to say about the product:

Dried bananas are 100% natural Dried Fruit, without any Artificial Flavor, Preservatives or Color. These are Soft, Chewy and full of Sweet Fruity flavor. These are rich in Potassium which regulates the Blood Pressure (BP). It contains Natural Sugar, Soluble Fiber, Minerals, Vitamins and Antioxidants which are essential to maintain good health. Dried Banana is great energy snack favorite of Athletes and Sportsperson. (sic)

https://craftoindia.com/sukeli-sun-dried-banana-of-maharashtra-1kg.html

I wouldn’t know about the nutritional qualities, but I can attest to the sukelis being soft, chewy and full of sweet fruity flavor. Think of it as an intensely addictive cross between bananas and jackfruits.

Ah, but which kind of bananas? Nendran or Rajeli varieties and no other.


Do you know which is the most popular type of banana grown the world over? It is the Cavendish banana, and we produce a lot – a lot – of Cavendish bananas.

Here’s Vikram Doctor in on old piece from the Economic Times:

To get good bananas in Mumbai you must go to CST station. Not to take a train, but because every evening a few hawkers bring baskets of bananas to sell to the evening commuter crowd. The bananas are grown just outside Mumbai and they are small, fat and full of creamy-sweet flavour. They are usually not quite ripe when sold, and tend to ripen unevenly, but nearly all get sold by end of day. It used to be easier to get good bananas.
Long Moira bananas from Goa, plantains from Mangalore that had to be kept till their skins turned black, several types of small bananas, thick red bananas, humble green Robustas and Rasthalis from Tamil Nadu so fat they were bursting out of their skin.
Today you mostly just find one cheap green banana, one small banana and then the type that now rules the market. It is perfectly shaped, perfectly yellow coloured and a taste that is perfectly boring, but just banana tasting enough to be acceptable.
Fruit vendors call it Golden Banana and push it hard, justifying its higher price by telling you it is meant for export. Which is correct since this is a kind of Cavendish, the banana variety that accounts for 99 per cent of the world market.

https://economictimes.indiatimes.com/blogs/onmyplate/no-getting-away-from-cavendish-in-banana-republic/

You might also want to listen to a podcast (now discontinued, alas, but it was truly excellent while it lasted) about the same topic. It used to be hosted by Vikram himself, and all episodes are worth a listen. It no longer seems to be online, more’s the pity, but perhaps the more intrepid readers might be able to surface a source for all of us? My top three episodes were about coffee, butter and bananas.

But back to bananas: as I said, we produce a lot of Cavendish bananas. Why? Well, economies of scale, in the jargon of my tribe. In English, we were optimizing for cost minimization:

Nature has a simple way to adapt to different climates: genetic diversity.
Even if some plants react poorly to higher temperatures or less rainfall, other varieties can not only survive – but thrive, giving humans more options on what to grow and eat.
But the powerful food industry had other ideas and over the past century, humans have increasingly relied on fewer and fewer crop varieties that can be mass produced and shipped around the world. “The line between abundance and disaster is becoming thinner and thinner and the public is unaware and unconcerned,” writes Dan Saladino in his book Eating to Extinction.

https://www.theguardian.com/food/ng-interactive/2022/apr/14/climate-crisis-food-systems-not-ready-biodiversity

The first two lines of that extract above are now a problem, because mass production of one type of banana is the agricultural equivalent of putting all your eggs in one basket. And this is a problem for the same reason that putting all your savings into one asset class is a bad idea.

If a pest comes along that is particularly bad for that particular variety, well, we’re in deep doo-doo (and the infographic in the Guardian article is an excellent way to understand how we refuse to learn from history). And well, such a pest is now with us:

…diversity boosts the overall resilience in our food systems against new climate and environmental changes that can ruin crops and drive the emergence of new or more aggressive pathogens. It’s what enabled humans to produce food and thrive at high altitudes and in the desert, but rather than learn from the past, we’ve put all our eggs in a few genetic baskets.
This is why a single pathogen, Panama 4, could wipe out the banana industry as we know it.
It’s been detected in every continent including most recently Latin America, the world’s top banana export region, where entire communities depend on the Cavendish for their livelihoods.
“It’s history repeating itself,” said banana breeder Fernando Garcia-Bastidas.

https://www.theguardian.com/food/ng-interactive/2022/apr/14/climate-crisis-food-systems-not-ready-biodiversity

And when they say “every continent”, they aren’t exaggerating:

Tropical Race 4 (TR4), the virulent strain of fungus Fusarium oxysporum cubense that is threatening banana crop globally with the fusarium wilt disease, has hit the plantations in India, the world’s top producer of the fruit. The devastating disease which surfaced in the Cavendish group of bananas in parts of Bihar is now spreading to Uttar Pradesh, Madhya Pradesh and even Gujarat, and threatening to inflict heavy losses to the country’s ₹50,000-crore banana industry.

https://www.thehindubusinessline.com/economy/agri-business/india-in-a-race-against-wilt-in-cavendish-banana/article23650060.ece

Well, OK, you might say, bring on the guys in the white coats and figure out the solution. Here’s Wikipedia on the topic, and the relevant section doesn’t have a reassuring heading: it’s called “Disease Management”. Personally, I would have felt better if it was more along the lines of disease eradication. But the first line of this section gives one a sinking feeling:

“As fungicides are largely ineffective, there are few options for managing Panama disease”

The Wikipedia article on Cavendish bananas is equally gloomy on the topic, save for a single line of some hope towards the end:

Cavendish bananas, accounting for around 99% of banana exports to developed countries, are vulnerable to the fungal disease known as Panama disease. There is a risk of extinction of the variety. Because Cavendish bananas are parthenocarpic (they don’t have seeds and reproduce only through cloning), their resistance to disease is often low. Development of disease resistance depends on mutations occurring in the propagation units, and hence evolves more slowly than in seed-propagated crops.[
The development of resistant varieties has therefore been the only alternative to protect the fruit trees from tropical and subtropical diseases like bacterial wilt and Fusarium wilt, commonly known as Panama disease. A replacement for the Cavendish would likely depend on genetic engineering, which is banned in some countries. Conventional plant breeding has not yet been able to produce a variety that preserves the flavor and shelf-life of the Cavendish. In 2017 James Dale, a biotechnologist at Queensland University of Technology in Brisbane, Australia produced just such a transgenic banana resistant to Tropical Race 4

https://en.wikipedia.org/wiki/Cavendish_banana#Diseases

It’s not just bananas, of course. The Guardian article is a lot of fun to read, and I would encourage you to arm yourself with a coffee and spend some time going through it. Corn is another great example!

https://www.theguardian.com/food/ng-interactive/2022/apr/14/climate-crisis-food-systems-not-ready-biodiversity

Cost minimization is a great idea, but as with food, it is the dose that makes the poison. Long time readers will know that I have a bee in my bonnet about this, but I honestly think it is an idea that has been taken too far across multiple dimensions.


So what is to be done? I have absolutely no expertise in what the agricultural/scientific solutions might be, but as with JIT supply chains that focus on China, office redesign that sucks all the fun out of work and so much else besides, so also with this.

Ask what you’re optimizing for, and begin to worry if the answer is a single-minded focus on cost minimization.

Raghuram Rajan got this one right, in a different context: what matters is risk-adjusted returns. And it applies across multiple dimensions, not just finance. Moreover, when you design systems, think of risk across large horizons of time, not just short term optimization.

Be clear about what you’re optimizing for, and realize that cost minimization can only take you so far.

Simple lessons, but oh-so-underrated!

But hey, if you get a chance to try the sukeli out, please do!

On Noahlism

About the title of today’s blogpost: I couldn’t resist, I’m sorry. The post is about something Noah Smith calls the “The Two Paper Rule”, about which much more below – but the title is courtesy Paul Krugman. About which, also, more below.


Noah wrote this post a while ago, in May 2017. His original post is about a Very Simple Idea that hopefully solves a Very Real Problem. Here’s the Very Real Problem:

I don’t know why academic literatures are so often referred to as “vast” (the phrase goes back well over a century), but it seems like no matter what topic you talk about, someone is always popping up to inform you that there is a “vast literature” on the topic already. This often serves to shut down debate, because it amounts to a demand that before you talk about something, you need to go read voluminous amounts of what others have already written about it. Since vast literatures take many, many hours to read, this represents a significant demand of time and effort. If the vast literature comprises 40 papers, each of which takes an hour to read, that’s one week of full-time work equivalent that people are demanding as a cost of entry just to participate in a debate! So the question is: Is it worth it?

https://noahpinion.substack.com/p/the-two-paper-rule?s=r

Anybody who has suffered through a PhD knows the problem all too well. These days, anybody who has been asked to do a literature review for any paper knows the problem all too well. There is just too much to read.

And folks who want to make sure that uppity folks don’t get, well, too uppity always have a fail-safe defense at the ready: “Have you read all the relevant literature?”. There’s so much stuff that is being published about everything imaginable, that you’re never going to be able to get through even a fraction of it. Why, there’s even a law about it! And there’s a law about the law, which only goes to prove the point further, I suppose.


And here’s Noah’s Very Simple Idea to solve this Very Real Problem:

My solution to this problem is what I call the Two Paper Rule. If you want me to read the vast literature, cite me two papers that are exemplars and paragons of that literature. Foundational papers, key recent innovations – whatever you like (but no review papers or summaries). Just two. I will read them.
If these two papers are full of mistakes and bad reasoning, I will feel free to skip the rest of the vast literature. Because if that’s the best you can do, I’ve seen enough.
If these two papers contain little or no original work, and merely link to other papers, I will also feel free to skip the rest of the vast literature. Because you could have just referred me to the papers cited, instead of making me go through an extra layer, I will assume your vast literature is likely to be a mud moat.
And if you can’t cite two papers that serve as paragons or exemplars of the vast literature, it means that the knowledge contained in that vast literature must be very diffuse and sparse. Which means it has a high likelihood of being a mud moat.

https://noahpinion.substack.com/p/the-two-paper-rule?s=r

I love this idea, and for the following reasons. One, I have an immediate repartee whenever I’m attacked with the “But have you read the literature?” question. And it’s not just a repartee, but a genuine request that serves two purposes. The person asking the question had better be able to come up with at least two papers on the spot. There is otherwise not much point in they having asked the question! Second, assuming the person does come up with two papers I haven’t read, there’s more to read and more to learn.

But second, as a student, what a wonderful way to start building up a repository of papers about a series of subjects! Always ask your profs, no matter the subject, about the two papers worth reading about today’s topic, and keep a running list. (Hint: this is a great way to spend a summer!)

Third, and I’m personally very curious about the results in this case, what about asking young profs and old profs this very question about the same subject? If the answers differ, this is a field worth examining rather more deeply, for it obviously has evolved fairly rapidly. I did my PhD in business cycles, and trust me, the answers would never have been the same – by age, adherence to a particular school of macroeconomics thought, or even by nationality.


Paul Krugman loved the idea (Noah links to Krugman’s blog towards the end of Noah’s blog post, but the link seems to be down. The excerpt below is from Google’s cache):

What about trade? Autor/Dorn/Hanson on the China shock may not be the last word, but surely a revelatory approach. In a strange way, I’d put Subramanian and Kessler in the same category: realizing that this globalization is different from anything that came before is a big deal.
I guess that in a way I’m pushing back against Noah’s nihilism (noahlism?) even while endorsing his method. I think there has been a lot of good economics done, even if there are also vast literatures not worth your time.

Click here to access the link, too long to post in its entirety

… and you now know, of course, where the title of today’s post comes from! What I think Krugman is getting at when he refers to his pushing back against Noah’s idea is that perhaps just two papers is too restrictive. And if that be the case, Tyler Cowen agrees:

The difference between total value and marginal value may be relevant. You might conclude a field literature has low total value, but the marginal value of learning more about that area still could be quite high. That is in part because muddy fields and results don’t spread so readily, and so dipping into the muck can yield some revelations. That is another reason why I would not offer the “two paper standard” as practical advice.

https://marginalrevolution.com/marginalrevolution/2017/05/vast-empirical-literature.html

I have quoted only one of Tyler’s points (he’s got nine others), but in general, I don’t think we should be taking the two part of the two paper rule as being sacrosanct. In some cases you may need to read five, in some rarer cases ten. So long as the number is reasonable (and the standard will change), we can still live with the spirit of the two paper rule.


But if you are a student in college, the two paper rule is a good way to build up a repository of about fifty odd papers that you Really Should Have Read. Twenty five courses (roughly speaking), two papers each.

Well, get started! 🙂

About This Measurement Business

(C) GDP figures are “man-made” and therefore unreliable, Li said. When evaluating Liaoning’s economy, he focuses on three figures: 1) electricity consumption, which was up 10 percent in Liaoning last year; 2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and 3) amount of loans disbursed, which also tends to be accurate given the interest fees charged. By looking at
these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are “for reference only,” he said smiling.

https://wikileaks.org/plusd/cables/07BEIJING1760_a.html

This is an excerpt from the Wikileaks archive, and people familiar with modern economic history will know it all too well. This is, of course, the famous Li Keqiang index. If you prefer, you can read the original Economist article about it, although for once, the trademark Economist pun in the headline falls short of their typically high quality.

GDP measurements have always been tricky, and reading about GDP – it’s evolution, the data collection, the computation and the hajjar problems that arise from there – should be mandatory for any student aspiring to learn economics. Here’s a post from six years ago about some sources, if you’re interested.


But back to that excerpt above. What Li Keqiang was saying was that GDP statistics in China would often give a misleading picture, and he preferred to reach his own conclusions on the basis of other economic data. His preferred metrics were the ones mentioned in the abstract above: electricity consumption, volume of rail cargo and loans disbursed. Think of it this way: he’s really asking three questions. Is stuff being produced? Is stuff being moved around? Is stuff being purchased?

But what about covid times? Do these measures stand up, or do we need new proxies for GDP?

The variant’s speed also means that China’s economic prospects are unusually hard to track. A lot can happen in the time between a data point’s release and its reference period. The most recent hard numbers on China’s economy refer to the two months of January and February. Those (surprisingly good) figures already look dated, even quaint. For much of that period, there was no war in Europe. And new covid-19 cases in mainland China averaged fewer than 200 per day, compared with the 13,267 infections reported on April 4th. Relying on these official economic figures is like using a rear-view mirror to steer through a chicane.
For a more timely take on China’s fast-deteriorating economy, some analysts are turning to less conventional indicators. For example, Baidu, a popular search engine and mapping tool, provides a daily mobility index, based on tracking the movement of smartphones. Over the seven days to April 3rd, this index was more than 48% below its level a year ago.

https://www.economist.com/finance-and-economics/omicron-is-dealing-a-big-blow-to-chinas-economy/21808576

But as the article goes on to say, this metric will tell you about movement across cities. But metro traffic gives you an idea of intra-city mobility, as do courier company express deliveries (and we did some very similar exercises in India during the lockdowns, of course. Here’s one example for Pune district.)


But the point isn’t just to come up with what else might be useful as GDP proxies. A follow-up question becomes equally important: do the GDP statistics make sense? As the Economist articles says, good numbers for metrics such as investment in fixed assets are hard to square with declines in steel output. The article contains many other such examples, and what you should take away as a student is your ability to develop a “smell” test for a given economy. Don’t take the reported numbers at face value, but “see” if they seem to be in line with other statistics about that economy.

I really like this article as an introduction to this topic because it also hints at how statisticians need to be especially careful about comparing data over time. Weekly declines might happen because of festivals, bad weather or a thousand other things, which may of course be going on along with pandemic induced lockdowns. Teasing out the effects of just one aspect isn’t an easy thing to do.

And finally, think about how you can apply this lesson in other domains! Should an interviewer look only at marks, or try and figure out other correlates. Or, as Mr. Keqiang puts it, are marks “for reference only”? What about quarterly earnings reports? Press releases? Smell tests matter, and the earlier you start developing them, the better you get at detecting, and calling bullshit.


And finally, the concluding paragraph from the article we’ve discussed today:


To help avoid some of the traps lurking in these unconventional indicators, Mr Lu and his team watch “a bunch of numbers, instead of just one”. In a recent report he highlighted 20 indicators, ranging from asphalt production to movie-ticket sales. “If seven or eight out of ten indicators are worsening, then we can be confident that GDP growth is getting worse,” he says. Right now, he thinks, the direction is clear. “Something must be going very wrong.”

https://www.economist.com/finance-and-economics/omicron-is-dealing-a-big-blow-to-chinas-economy/21808576

Indeed.

The Business of Beer

… happens to be the title of a lovely little essay on just this very topic.

A short read, it is worth your time if you happen to be a student of economics because of the following reasons:

  1. Learn how who gets to tax what and why is (and has always been) a political question rather than an economic one.
  2. Learn how what should be taxed is determined, and ask how this might have evolved over the ages.
  3. Imagine learning about macroeconomics while learning about beer. What better way to start, eh?
  4. Got nothing to do with economics, but I learnt about the etymology of the word spinster.
  5. The Insider Outsider model – heard of it? Read the Wiki article, and ask yourself whether this fits (and if not, why not?)
  6. Should alcohol be subsumed under the GST?
  7. Centralisation of anything isn’t something that proceeds in linear fashion over time. What lessons should we be learning from this today?
  8. The petty tyranny of local inspectors ain’t new. That’s not a new finding, to be clear, but it usually comes as a surprise to newbies in the field of econ history.
  9. Change is important when it comes to society, but the rapidity of this change is rarely welcomed. This is true for individuals, organizations, institutions and society. Trust me on this.
  10. The footnotes have some excellent books to add to your infinitely long reading list.

Game Theory and Nuclear War

What a wonderfully cheerful topic with which to get back to work, eh?

But then again, we’ve to live up to our billing of being the dismal science, and what could be more fitting than trying to analyze the chances of nukes going off sometime this year?


Timothy Taylor kicks things off, by reminding us of the canoe and the rowboat:

For those of you who have not experienced the pleasure of gliding across a northwoods lake or river in a canoe, I’ll just note that a canoe has a point at both ends, which make it maneuverable but also potentially tippy. In contrast, a rowboat has a point at one end but is flat on the other end, which makes it more stable. From this standpoint, are small conflicts between great powers “better” in some sense than larger ones? Yes. But if there is too great a willingness to engage in many smaller conflicts, then the chance that one of them will escalate in the tippy canoe to a larger conflict is worrisome. Is a fight more likely to dump you into the water in a canoe or a rowboat? Once the fight starts, a canoe is tippier. But if neither party wants to end up in the water (in this case, a metaphor for a much broader war or a nuclear exchange), then they might be less likely to start a fight in a canoe than in a rowboat in the first place.

https://conversableeconomist.com/2022/03/06/fighting-in-a-canoe-thomas-schelling-redux/

Read, as always, the entire post. But one point in particular stood out in that post:

There are too many imponderables that could be affecting Vladimir Putin’s decision process to make any definite claims, but one wonders if his decision to invade Ukraine might have been affected by earlier western actions. For example, what if there had been a stronger western reaction when Soviet troops essentially levelled the city of Grozny in Chechnya about 20 years ago? What if the countries of western Europe had been more willing to keep their promises to commit 2% of GDP to military spending over the last two decades? What if Germany had not been so extraordinarily eager to become dependent on inflows of Russian-exported oil and gas? What if various assassinations that appeared to be engineered by Russia had been met with greater pushback? What if the Winter Olympics in 2014 had not been held in Sochi? What if the Russia-Ukraine conflict of 2014, which ended with Russia annexing Crimea and other areas, had received greater pushback when Joe Biden was vice-president?

https://conversableeconomist.com/2022/03/06/fighting-in-a-canoe-thomas-schelling-redux/

Timothy Taylor’s point in the excerpt above is that “saving face” isn’t so much about pride and honor in the present instance (whatever that instance may be), but rather about sending a message about our likely actions in the future. And that the west, because of their earlier actions and decisions, may well have signaled to Putin that they weren’t quite as decisive as they would have been in the past.

Which is a useful segue into reading an NYT profile of Putin:

An important moment in this development appears to have come with Mr. Obama’s last-minute decision in 2013 not to bomb Syria after Bashar al-Assad, the Syrian president, crossed an American “red line” against using chemical weapons. Mr. Obama took the case for war to a reluctant Congress instead, and under the lingering American threat and pressure from Moscow, Mr. al-Assad agreed to the destruction of the weapons.
The hesitation appears to have left an impression on Mr. Putin. “It was decisive, I think,” said Mr. Hollande, the former French president, who had readied warplanes to take part in the planned military strike. “Decisive for American credibility, and that had consequences. After that, I believe, Mr. Putin considered Mr. Obama weak.”

https://www.nytimes.com/2022/03/26/world/europe/vladimir-putin-russia.html

Basic game theory is actually – to use a strong word – useless. And the reason it is useless is because basic game theory assumes two things:

  1. Rationality on part of the actors
  2. Some prior knowledge about the payoffs associated with a game.

But as Noah Smith points out on his substack (the post, alas, is paywalled):

The first is that game theory fundamentally assumes that the players are rational. You have to be a cold calculating machine to think through all the strategies and pick the one that yields the greatest payoff. But it’s not clear that real actors are always rational. Putin might simply be nuts.
In fact, there’s a whole theory called “madman theory”, in which it makes sense to try to fool your opponent into thinking you’re crazier than you really are. If your opponent thinks you’re a madman, they are likely to give you more concessions than if you were rational, simply because they’re less sure about what would push you over the edge into a mutually destructive war. Nixon is said to have used this strategy intentionally by acting unhinged in order to scare the USSR, and Putin might be using it right now.

https://noahpinion.substack.com/p/nuclear-game-theory-and-its-limitations

Is Putin rational? Who knows? Does Putin? Authors have been trying to figure out Vladimir Putin for a very long time, says The Economist:

In “The Man Without a Face” (2012), for instance, Masha Gessen characterised Mr Putin, then set to reclaim the presidency after a pro-forma stint as prime minister, as a killer and extortionist. This version of him—a kgb thug turned mafia godfather—had been “hidden in plain sight”, but obscured by wishful thinking and that grey veneer. Death and terror were politically useful to Mr Putin, the author wrote. He made no distinction between the state’s interests and his own.

https://www.economist.com/culture/writers-have-grappled-with-vladimir-putin-for-two-decades/21808311

Does that sound rational to you? And regardless of your answer, how does it help one think of what Putin will do when it comes to deploying a nuke?

By the way, speaking of Masha Gessen, listen to or read her conversation with Tyler Cowen. Here’s a cheerful tidbit about Russia:

I think that there’s a kind of grumpy and dark culture in Russia. Russians certainly have a lot of discernment in the fine shades of misery. If you ask a Russian how they are, they will not cheerfully respond by saying they’re great. If they’re miserable, they might actually share that with you in some detail.
There’s no shame in being miserable in Russia. There’s, in fact, a lot of validation. Read a Russian novel. You’ll find it all in there. We really are connoisseurs of depression.

https://conversationswithtyler.com/episodes/masha-gessen/

But back to game theory and nukes.

The Economist tells us that using game theory to study the topic isn’t all that simple:

As a showdown between nuclear powers becomes more intense, Schelling observed, the risk that unexpected and perhaps undesired developments cause the situation to spiral out of control rises. (When nuclear forces are on high alert, for instance, false alarms become far more dangerous.) The upper hand, in such a situation, is thus maintained by the side that is more willing to tolerate this heightened risk of all-out nuclear war.
This is the essence of brinkmanship. It is not merely a matter of ratcheting up the tension in the hope of outbluffing the other side. It is also a test of resolve—where resolve is defined as a willingness to bear the risk of a catastrophe. Mr Putin’s move to increase the readiness of his nuclear forces may represent an attempt to demonstrate such resolve (over and above the message sent by the invasion itself). President Joe Biden’s refusal to escalate in kind could be seen as an acknowledgment of the conspicuous fact that an autocrat embroiled in a pointless war has less to lose than the rich democracy to which Mr Biden is accountable.

https://www.economist.com/finance-and-economics/2022/03/19/the-disturbing-new-relevance-of-theories-of-nuclear-deterrence

So is Putin, bizzare though it may sound, being rational by getting some folks to think that he is a madman? That is, if he anticipates that Biden is thinking along the lines outlined in this excerpt above, does it actually make sense for Putin to push this line of thinking in a calculated manner, increasing the chances that Biden will blink first.

Ah, but should Biden see through this and therefore discount the whole thing?

Of course you could model trickery attempts as their own strategies, with some (unknown) probability of success. But when you start introducing more and more options like this, you run into the second limitation of game theory — real-life strategic interactions are hellishly complex. This puts them beyond the modeling power of human theorists — perhaps the A.I. from War Games could handle this, but not even the most piteously overworked grad student is going to draw you a game tree that incorporates every possible feint and misdirection and signal. There are whole scholarly books that try to think about every possible nuclear move and countermove; they’re intellectually interesting, but they end up giving you a near-infinite menu of models to choose from, and thus they’re not very useful in real life.

https://noahpinion.substack.com/p/nuclear-game-theory-and-its-limitations?s=r

Here’s where we are then, after reading all those excerpts:

  1. There is (and there is no sugarcoating this) an increased chance that a nuke will be launched this year.
  2. It helps to try and think through this problem, because the phrase “skin in the game” is applicable for all humanity where this problem is concerned
  3. Game theory is a good place to start, because it seems to be the best, most appropriate tool in our toolkit
  4. Who better to tell us how to think about the game theoretic aspects of a nuclear war than Thomas Schelling? He won a Nobel Prize for it, and his book is the book to read about the topic!

… except it ain’t really about game theory!

But as subsequent writers have pointed out, Schelling’s work wasn’t really a work of game theory. Game theory, as an economist knows it, is an exercise in pure rationality — two rational actors, each knowing that the other knows they’re rational (and knowing that the other knows, and so on) think through the possible set of strategies that they and their opponent(s) might take. This process of thinking through all of the possible moves causes them to arrive at some kind of strategic equilibrium (usually some kind of Nash equilibrium, although there are other kinds that people think about). At that point, playing out the moves of the game is simply pro forma; what people will do is either predetermined, or randomized.
Schelling’s concept of deterrence, in contrast, is full of signaling, misdirection, and guesswork about the opponent’s motives and thoughts. It’s the kind of thing that could only be rationally calculated in its entirety by a supercomputer like the one in War Games. Schelling’s ideas are more like the way real people play most games — feints, blunders, deception, and looking for tells.

https://noahpinion.substack.com/p/nuclear-game-theory-and-its-limitations?s=r

But if you ask me, that is exactly why you should read Schelling about this topic! Precisely because it isn’t just about basic game theory, and because it takes into account signaling, misdirection and guesswork.

Or, if you’d like the same thought expressed in more popular, and less highfalutin’ words, this is a game in which you have to play the man and the cards. And the stakes are ridiculously, scarily high.

As my favorite blogger sometimes says, have a nice day.

Why Studying Economics is Worth Your Time

My way of unwinding at the end of the day is to watch YouTube videos. I suspect I’m not the only one, and yes, I’m well aware of how it’s not the best thing to do before one falls asleep, but it’s a habit that has, well, stuck.

So it goes.

Yesterday, one of the videos I ended up watching was this one:

I came across Veritasium thanks to a recommendation I received sometime last year, and if you aren’t familiar with this channel, I strongly encourage you to look it up. You might also want to read up about the person behind the channel, Derek Muller.


These waves were detected at the Laser Interferometer Gravitational-Wave Observatory. They have a shorter name, thankfully: LIGO.

The design and construction of LIGO was carried out by a team of scientists, engineers, and staff at the California Institute of Technology (Caltech) and the Massachusetts Institute of Technology (MIT), and collaborators from over 80 scientific institutions world-wide that are members of the LIGO Scientific Collaboration.

https://www.ligo.caltech.edu/page/about

Here’s just one of many astounding facts from the LIGO website:

At its most sensitive state, LIGO will be able to detect a change in distance between its mirrors 1/10,000th the width of a proton! This is equivalent to measuring the distance to the nearest star (some 4.2 light years away) to an accuracy smaller than the width of a human hair.

https://www.ligo.caltech.edu/page/facts

Here’s a photo of the laboratory:

Source

Here’s what I found remarkable, as a student of economics: even if one assumes that there was only one person from each of these 80 scientific institutions that worked on this project, it still means that there were 80 people whose job it was to create really, really long tunnels (four kilometers in length!) that would have one trillionth of the normal atmospheric pressure, so that they could detect almost imperceptible gravitational waves that started their journey 1.3 billion light years away. If all this sounds mind-boggling, well, it is.

But think about those 80 people for a minute. Our civilization has become wealthy enough, over many millennia, that we’re able to say to those eighty people that they can spend a significant chunk of their careers on building long tunnels to try and check on barely detectable phenomena that actually took place a really, really long way away.

Was there a time in our past when humanity could afford to dedicate human labour, money and other resources to a pursuit such as this one? You and I may have different opinions about whether we should or not (and I think we should), but I think we can all agree that it is remarkable that we can.

And on that note, read The Company of Strangers:

Homo sapiens sapiens is the only animal that engages in elaborate task-sharing—the division of labor as it is sometimes known—between genetically unrelated members of the same species. It is a phenomenon as remarkable and uniquely human as language itself. Most human beings now obtain a large share of the provision for their daily lives from others to whom they are not related by blood or marriage.

Pg 4, Introduction, The Company of Strangers, by Paul Seabright

And because most human beings now obtain a large share of the provision for their daily lives from others to whom they’re not related by blood or marriage, they are free to do other things with their time. Some of us write blogs on economics, while others build really, really large tunnels to detect barely perceptible gravitational waves. Others create videos about these really long tunnels. But none of these proposals would have gone down well in earlier times, because there were more urgent and pressing tasks at hand, such as growing enough food for everybody to be able to eat.

And so while the completely amateur fan of modern physics in me appreciated learning more about LIGO, the economist in me was struck by how impressive a fact it was they we have the ability to dedicate so much resources to the development of this laboratory.

Again: you and I may have different opinions about whether or not we should be building these laboratories, or sending people to the moon (or Mars, soon enough!), or everything else that we get up to these days. But the fact that we can is truly remarkable.


And don’t forget Derek Muller! Isn’t it remarkable that I, sitting in the comfort of my living room, can cast a video off of my phone on to my television, and watch an excellent video about the LIGO laboratory without having to pay a cent to Derek?

I only learnt of Derek’s existence last year, and I can guarantee you that he is blissfully unaware of mine. And yet, the society we live in has made it possible for me to learn about his work, and this video in particular. I pay YouTube Rs. 189 every month so that I and five other members of my family can watch YouTube videos without being bombarded by ads, but that money apart, I had to pay nothing more to enjoy this video – and by all accounts, Derek is able to do fairly well for himself by putting videos out there for people to watch and learn from.


How did we get from hunter-gatherer societies to here? How did division of labor help? Was agriculture a wonderful, welcome development, or was it all a big fat mistake? What about the development of kingdoms, the advent of religions, the desire to educate our young, the development of the study of physiology and eventually health and medicine, and so, so many other things? What explains how and why we were able to do all of these things, and so many more? If we could reset the clock and play the movie all over again, would all of these things happen, or not? Could we do an even better job? If so, how?

Economics is about so much more than graphs and diagrams and equations (that stuff is important too, of course, but there is so much more to this field than just that).

Every now and then, economics is also about taking a step back while watching a wonderfully well made video, and just reflecting on how far we’ve come as humanity. Yes, there is a lot that remains to be done, and yes, we’ve often taken one step forward and two steps back. And yes, we’ll probably figure out how to take ten steps back in the near future.

But for the moment, I find it remarkable that at least eighty people got together and built a pair of really, really large tunnels to detect Very Small Movements.

That’s division of labor, that’s economics, and it is a truly remarkable thing to think about.

And it’s just one of many, many reasons to study economics.

Nails, Pins and Light-Bulbs

The real price of nails fell by a factor of about 10 from the late 1700s to the middle of the 20th century, averaging a decline of about 1½ percent per year.

Sichel, D. E. (2021). The Price of Nails since 1695: A Window into Economic Change. NBER Working Paper, (w29617).

It’s not just a working paper now, of course, and the paper is also available on the JEP website, but this is a paper that is a must-read if you are a young student beginning your journey in the world of academic econ.

  • Economic progress is real, under-rated, and these days, vastly under-appreciated. I’m willing to argue for each of these three points, and this paper helps us understand why I say that economic progress is real.
  • Of course, this point has been made before, as the very first page in this paper points out. “These declines are paltry compared with more dramatic examples: for example, Nordhaus (2007) calculated that the real cost of computing dropped by a factor of at least 2 trillion times from 1850 to the early 2000s, while Nordhaus (1997) showed that the real cost of lighting fell by a factor of about 3400 times from 1800 to 1992.”
  • But still, this paper is worth reading, for at least the following reasons:
    • It puts technological progress into perspective. Consider this: “Over the same span of 300 plus years during which these transformations occurred, the place of nails in the economy (and in popular accounts) also underwent a huge shift. In 1810 (the earliest year for which I could assemble necessary data), the use of nails in the US economy (measured as production plus imports minus exports) was 0.4 percent of nominal GDP, as shown in Figure 1. To put this share into perspective, in 2019 household purchases of personal computers and peripheral equipment amounted to roughly 0.3 percent of GDP and household purchases of air travel amounted to about 0.5 percent. That is, back in the 1700s and early 1800s, nails were about as important in the economy as computers or air travel purchased by consumers are today. (Emphasis added)
    • The author has included a pun on nails (who could have resisted in his place), but restricted himself to just the one, which shows Michelin chef level restraint.
    • Rare is the academic paper that is able to give literary references (and I have duly added Little House on the Prairie to my reading list)
    • One gets to see the application of basic economic concepts in an econ paper in easily understandable form. For example:
      • Substitutes and complements (run a CTRL-F for nail guns, for example)
      • Production functions and multi-factor productivity, including a very nice applications of the KLEMS growth accounting framework. And if you are from India, have you taken a look at KLEMS database yet?
      • The construction (and the difficulty involved in constructing one) of a price series for nails that incorporates technological progress, quality improvements, and shipping costs.
        “Shipping costs are another characteristic that would be important to some buyers. For example, the 1897 Sears catalog indicates that shipping costs for a 100-pound keg of nails from Chicago to Boston amounted to about 20 percent of the price of the nails. Given the greater number of wire nails that would be in a keg compared with the number of cut nails, shipping costs per nail would have been considerably lower for wire nails than for cut nails”
        On a related note, did you know that it is much more expensive to buy (illegal) beer in Bihar than it is to buy “hard liquor”? Can you figure out why this might be so?
      • Estimating factor shares (probably my personal favorite section in this paper)
      • The last paragraph on pp 146 is positively delightful, and deserves multiple re-reads. How often does an economist get to say this: “Finally, I assume (based on personal experimentation with a hammer and nail gun) that a worker with a hammer can install six nails per minute and that worker with a nail gun can install 20 nails per minute”?
    • And for a useful pairing, read about Baumol’s Cost disease next.