The formula in the pic above is one that I use to generate a simple Cobb Douglas production function (if you don’t know what this is, don’t worry) while teaching Excel, introductory micro, or both. Here is the file, if you’re interested.
But if you think this is doomsday writ large for programmers, please also watch this video (you should watch the whole video, but clicking on the phrase will take you to the “relevant” bit):
Hat-tip for the ExcelBot: Shashank Patil, former student and now a very good friend.
Constructing a good chart to tell a story is a vastly underrated skill, even among those of us who work (or have worked) in the corporate world. But in the econ community, I’d argue this skill is even more underrated.
A wonderful resource to follow to try and get better at this skill is Jan Schultink’s blog. I’ve been following him for over a decade, and while his blog may not have helped me become a better creator of effective charts (I think I still have a long way to go), it has certainly made me a better consumer of charts. Let me be clear: the fact that I’m not good enough at creating great charts is my fault, not Jan’s! His blogposts are an invaluable resource if you want to become a student of creating better charts.
The productivity proximity between US and various EU countries and the difference in GDPs per capita is explained by the social choice of fewer worked hours, longer vacations, demography and labour market features, as illustrated in the slide below for France and the US (2021).1/ https://t.co/kffwt7VWLEpic.twitter.com/rvIi0sxokC
I know economists who will say that this doesn’t pass the cost-benefit test, and spending that extra time to create this chart isn’t worth it. But I would disagree: effective dissemination of research, especially to the general public, is an equally important part of the process, and we need to do a better job of it. Especially so in our brave new world of far too much information and not enough time to process it.
A simpler, clearer color scheme, and simple bar charts help in telling this story better than the original chart in the embedded tweet. Spend the time it takes to build a better chart, because we need all the help we can get in communicating our community’s research better.
Two final points:
If you are a student, Jan offers free access to his awesome software, and I would recommend that you try it.
The explanation is probably simple: opportunity and motive. Part of what makes dictatorships dictatorships is that questioning the official line is dangerous. At the same time, autocratic regimes have a strong incentive to report healthy growth: its absence may be taken as a sign of incompetence or weakness, which dictators can ill afford. Autocrats’ subordinates face similar incentives. In a related study Jeremy Wallace, a researcher, found misreporting by Chinese provinces, too. As he notes, a leaked American diplomatic cable from 2007 revealed the view of Li Keqiang, the prime minister, then a provincial party secretary. He had said, with a smile, that gdp figures were “for reference only”: he relied instead on proxies, such as electricity use.
Incentives matter is the very first slide in my presentation on Principles of Economics (as it should be). But there’s always more to learn and think about where this deceptively simple idea is concerned, and this chart and the accompanying article from the Economist are a great example about the deceptive bit.
Once you understand the incentives associated with a particular entity in a particular context, you should then learn the art of being appropriately sceptical about their statements. One shouldn’t assume that they’re lying, nor should one assume that they’re telling the truth – one should understand what the incentives are of the person reporting a particular claim, and adjust one’s expectations accordingly.
Incentives matter, and understanding a person’s incentives matters at least as much, if not more.
Like their leaders, citizens in dictatorships often assume they are being lied to. Outsiders should be similarly sceptical.
I’d go one step further, and recommend that while reading, listening or viewing anything, one should keep the incentive of the creator in mind. It makes for a more interesting experience while consuming said content, and you are, at the margin, less likely to be taken for a ride.
That is a bit of a misleading title, because the focus of this blogpost isn’t about answering the question. It is, rather, about how to go about answering this question.
If you are a student new to economics, and someone were to ask you the question that is the title of this blogpost, how would you go about answering this question?
Note that GDP data comes with a lag of about two months. You really should be looking at more recent data. But that being said, a good place to begin will be by tracking India’s quarterly GDP growth for the past (say) twelve quarters or so. This is actually bad advice for this specific time period, because of the pandemic, but under usual circumstances, not a bad place to start.
Take a look at electricity generation numbers for the country. Check if there has been an increase, and if so, by how much.
Take a look at India’s foreign trade data. Note that I have not used the word trend for these two points. That’s not because trends aren’t important (they are!) but because I want to lament the fact that India – the country that makes software for literally the entire world – isn’t able to come up with better ways to represent its own government’s data. Why does this not improve?!
Take a look at the “Quarterly Financials of Listed Companies” on the CMIE website. Take a look at the trends for Net Profits and the PAT margins. This is usually on the right hand side of the website, you’ll have to scroll down a bit.
Finally, note that this list is by no means complete. Other economists might well have more indicators they would like to recommend, and please don’t hesitate to show this list to them, and ask what they might like to include.
Then, and only then, should you start to read opinion pieces about how well/badly the Indian economy is doing. See if your assessment matches with what is written or being said by others. If it doesn’t, ask yourself why. Check if you should look at other data sources, or other opinion pieces.
Robin Hanson wrote a blogpost the other day about a book called Fossil Future. I haven’t read the book, and given my infinitely long to-read list, I don’t think I’ll get around to it anytime soon. But the blogpost is worth a read, and for many more reasons than just learning more about the book itself:
My main intellectual strategy is to explore important neglected topics where I can find an original angle to pursue. As a result, I lose interest in topics as they get more attention.
It’s good advice in general, I would argue. Do stuff that other people are ignoring, and do it by picking up on something that others haven’t thought of. There’s some causality at play here, in the sense that other folks are ignoring this (whatever this may be) precisely because there’s a way to do it that they haven’t thought of.
Epstein is right that our elite academic and media systems focus on a few celebrated and quoted climate expert/activists, who are not that representative of the larger world of experts. And these activists are opposed to nuclear fission, nuclear fusion, and hydroelectricity, all of which avoid CO2 warming. They even tend to oppose new solar and wind energy projects, and any land development, that have substantial environmental impacts. It seems that, thought they may deny it in public, what they really want is a smaller human world, with fewer people using less material and energy.
Other people have written on this topic, with varying degrees of exasperation. But I think Robin Hanson latches on to an important point: the key issue is a fundamentally different worldview. It’s not so much about the opportunity costs of more materials and energy – there is no price at which the trade-off is worth it is the opinion of some climate experts/activists. “OK fine, where do you lie on the spectrum of trade-offs when it comes to more energy being generated?” is a question that doesn’t make sense, because they wouldn’t want to be on the spectrum altogether. As Robin Hanson makes clear in the blogpost, it isn’t about painting one side of this debate as being “right” or “wrong”, it’s about folks on both sides not willing to think about the world in opportunity costs:
He doesn’t really distinguish the marginal value of more energy from that of more other kinds of modern inputs and capital. And he doesn’t seem to want to admit that CO2 emissions might have mild negative externalities which could justify mild taxes.
And Robin Hanson then comes up with one of my favorite sentences ever:
“As an economist I’m sad to think we can’t make a more reasonable choice in the middle, where everything we value gets traded off via conscious calculation mediated by mundane prices.”
Who defines what is reasonable? Where is this “middle” to be found? Do we all value everything equally? How do we set up markets and institutions that allow for these trade-offs? How do we get prices to become mundane? What does that even mean? What if certain things don’t have prices, mundane or otherwise?
Start thinking about these questions, and whether you like it or not, you’ve enrolled yourself in an econ course. And in my opinion, the world would be a much better place if everybody did just that: enrolled in an econ course.
I have a teen-age son who is studying economics for the first time.
What's the best book out there that will get him excited about economics and take it beyond the dull Econ101 territory full of formulas and curves that he is encountering now?
I’ll be the first to put my hand up and admit that I’m a sucker to try out new things. But even discounting for my puppy-like enthusiasm for new shiny tech baubles, it’s hard not to get excited about Microsoft’s announcement regarding Microsoft Designer:
For the first time ever, I’m excited to announce Microsoft Designer, a graphic design app in Microsoft 365 that helps you create stunning social media posts, invitations, digital postcards, graphics, and more, all in a flash. Microsoft Designer is powered by AI technology, including DALL∙E 2 by OpenAI, which means you’re able to instantly generate a variety of designs with minimal effort. Our cutting-edge AI supercharges your ideas. With Designer, there’s no need to spend time building cards or social media posts from scratch. And you no longer need to search through thousands of pre-made templates. Designer invites you to start with an idea and let the AI do the heavy lifting. For example, with ‘start from scratch’ within Designer, you can simply describe an image you want to see, and the app does the work for you to create something totally unique. As you work in Designer, every surface of the app is powered by AI to help ensure consistent, aligned, properly scaled, and beautiful designs, even with or without any inherent design ability.
Students introduced me in the past couple of years to Canva, and I have been trying to develop some sort of a design aesthetic ever since. I can’t say I’ve become very good at it, alas, but I’m certainly better than before. Which is not saying much, but leave that be for the moment.
With Designer, I no longer have to try to be good, it would seem. Most excellent.
And please do read this blogpost by Tyler Cowen:
It almost goes without saying that the AI revolution currently underway is impressive. It is likely to have a huge impact in some parts of art world, such as the commercial sphere — consumers are generally not interested in who made any given ad or logo. It either works or it does not, and those conditions favor the machine. AI will also give the world quality (automated) personal assistants and autonomous vehicles, among many other advances.
AI will also give students the ability to submit excellent assignments:
There will undoubtedly be many collaborations between AI and human creators, with the humans put forward as the public face of the joint effort. Periodic scandals about authorship will surface (“did he write any of that song?”), just as allegations of cheating with AI have risen to prominence in chess. AI-generated art will attract the most interest when the aesthetic of the creation and the personality of the human accompanist appear to be in sync.
Ben Thompson writes a lovely (as usual) essay about the latest Meta-Microsoft partnership. There’s a lot to think about and ponder in that essay, but for the moment, I want to just focus on a part of it that appears in the introduction:
That was why this Article was going to be easy: writing that Meta’s metaverse wasn’t very compelling would slot right in to most people’s mental models, prompting likes and retweets instead of skeptical emails; arguing that Meta should focus on its core business would appeal to shareholders concerned about the money and attention devoted to a vision they feared was unrealistic. Stating that Zuckerberg got it wrong would provide comfortable distance from not just an interview subject but also a company that I have defended in its ongoing dispute with Apple over privacy and advertising. Indeed, you can sense my skepticism in the most recent episode of Sharp Tech, which was recorded after seeing the video but before trying the Quest Pro. See, that was the turning point: I was really impressed, and that makes this Article much harder to write.
When you’re writing about a particular topic, and particularly if you write often enough, you realize that there are two ways to go about it: the easy way, and the hard way. The easy way isn’t necessarily about slacking off – in fact, part of the reason it might be easy to write is precisely because you haven’t bene slacking off for a long time in terms of writing regularly.
Doing so – writing regularly, that is – gives you a way of thinking about what to write – a mental framework that lays out the broad contours of your write-up, a way to begin the first paragraph, and even a nice rhetorical flourish with which to end.
I speak from personal experience – every now and then, I can see the blogpost that will be written by me while I’m reading something. And this is a truly wonderful superpower – the ability to know that you can churn out a somewhat decent-ish piece about something in very short order. Which is why both writing regularly and writing with self-imposed deadlines is on balance a good thing.
But there is, alas, no such thing as a free lunch. The downside of this is that one also then develops the inability to push oneself more. Why bother coming up with a different way of thinking what to write about, and how to go about it? Even if you’ve developed the intuition while reading something that your regular mental framework will do just fine, and it might well be what your audience is expecting from you anyways, you know that you really should be framing it in a different way. Either because that’s really what the subject matter at hand demands, or because you’re somehow convinced that this new, different way will result in a better framing – but you just know it in your bones.
That’s the hard bit: should you then stick to what you know and thump out a piece, or should you take the time to pause, reflect and push yourself to build out a better essay? Should you pursue that contrarian take, even though it might take longer?
And if you have a regular schedule to keep up with, the answer need not necessarily be yes. But I would argue that every now and then, it does make sense to take a step back, allow yourself the luxury of time, and write the more difficult piece instead.
Yes it will take longer, and yes it will be more tiring, but now what to do. Such is life.
All that being said, three quick points about Ben’s essay that really stood out for me:
What is Mark Zuckerberg optimizing for with this move, and what cost to himself and his firm? Why? Weirdly, it would seem as if he is pushing the technology (VR) at the cost of at least the short-term growth of his firm, and he seems to be fine with it. Huh.
Who are likely to be the early adopters of your service, and how likely are they to eventually become your marketers for free is a question that never goes away, but remains underrated.
I’ve never used a VR headset, but even after reading Ben’s article, it becomes difficult to see why this might take off at current costs – and those costs aren’t just monetary, but also about mass adoption, inconveniences and technological limitations. I just don’t get it (which, of course, is a good thing. More to learn!)
“Let’s start at the very beginning, a very good place to start”…
…isn’t just the start of one of my favorite songs. It is also excellent advice as regards where one should get one’s information from.
Let’s say you’re interested in economics, and learn, for example, that Bernanke, Diamond and Dybvig have won the Nobel Prize in Economics. Quite naturally, you wish to learn more about the work that they’ve done. How should you go about it?
Maybe Twitter is a good idea? What about the more popular newspapers in your country? Perhaps some news channels? Your econ prof, perhaps?
All excellent ideas, to varying degrees. But the very best place to start, if you ask me, will be the Nobel Prize website itself:
This year’s laureates in the Economic Sciences, Ben Bernanke, Douglas Diamond and Philip Dybvig, have significantly improved our understanding of the role of banks in the economy, particularly during financial crises. An important finding in their research is why avoiding bank collapses is vital.
It’s always difficult to be sure as an economist, because we do love our jargon so very much. But I honestly do think that these two sentences can be understood by absolutely anybody who is able to read them. What was the Nobel Prize in economics awarded for this year? For helping society improve its understanding of what banks do in an economy. And especially so during crises. Plus, it is critical that we avoid bank collapses.
Well duh, you might think. I could’ve told ’em that myself. And I wouldn’t blame you for thinking so, for it really does sound obvious. But that, as it turns out, is true for quite a few Nobel Prizes that have been awarded in the past. They sound too simple to be worth even an assignment in college, let alone worthy of a Nobel Prize.
Here are three examples, drawn from one of my favorite books on microeconomics, ever:
The Cartoon Introduction to Economics, Volume I: Microeconomics, by Grady Klein and Yoram Bauman, pp 60The Cartoon Introduction to Economics, Volume I: Microeconomics, by Grady Klein and Yoram Bauman, pp 49The Cartoon Introduction to Economics, Volume I: Microeconomics, by Grady Klein and Yoram Bauman, pp 47
And neither the authors of this excellent book (which you absolutely must read if you have not yet) nor I are saying that the Nobel Prize is awarded for painfully simple ideas. What I’m saying is that it takes rare ol’ skill to take a look at the world around you, ask why it works the way it does, and figure out the answer to this question. More, to come up with ideas to make it a better place. And above all, to then put it as simply as possible, so that the world can both understand your idea, and then go about implementing it, if it chooses to do so. That’s special.
But to come back to the topic at hand, if you want to learn more about what they did, the Nobel Prize website is really the place to start. Once you’re done reading the very brief description, tackle the Popular Science Background write-up. And if you’re a glutton for punishment, slay the Scientific Background dragon next.
Read next the Wikipedia pages of the winners: here, here and here.
Then, and only then, start to take a look at what others have to say. Maybe you’ll agree with them, maybe you won’t. Maybe you’ll learn a little bit more. Maybe you’ll figure out that their opinions are wrong. Who knows?
But if you form your opinions on the basis of other people’s opinions, you always be playing catch-up. First do the hard work involved in forming your own, and then take it onto the battlefield of ideas, and test it.
EconForEverybody 