Tag: econ101

Economics in One Sentence

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.

https://www.overcomingbias.com/2022/10/fossil-future.html

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.

https://www.overcomingbias.com/2022/10/fossil-future.html

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.

https://www.overcomingbias.com/2022/10/fossil-future.html

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.

Opportunity costs matter.

Links for 24th May, 2019

  1. “A few months ago, as I was reading Constance Reid’s excellent biography of Hilbert, I figured out if not the answer to this question, at least something that made me feel better about it. She writes:
    Hilbert had no patience with mathematical lectures which filled the students with facts but did not teach them how to frame a problem and solve it. He often used to tell them that “a perfect formulation of a problem is already half its solution.”
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    A very short, but oh-so-readable essay from Paul Graham. Please read it for a variety of reasons, but mostly to understand that reading is a long term activity with a lot (a lot!) of positive payoffs in the long run.
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  2. “When the Bureau of Economic Analysis (BEA) measures economic output, it categorizes spending with the National Income and Product Accounts (NIPA). Some of this spending, which is counted as C, I, and G, is spent on imported goods.1 As such, the value of imports must be subtracted to ensure that only spending on domestic goods is measured in GDP. For example, $30,000 spent on an imported car is counted as a personal consumption expenditure (C), but then the $30,000 is subtracted as an import (M) to ensure that only the value of domestic production is counted (Table 3). As such, the imports variable (M) functions as an accounting variable rather than an expenditure variable. To be clear, the purchase of domestic goods and services increases GDP because it increases domestic production, but the purchase of imported goods and services has no direct impact on GDP.”
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    From within the link to the Noah Smith article yesterday, a good, short explainer of GDP, and why imports don’t “reduce” from GDP.
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  3. “In economics, there is no free lunch. While TV channels feel that they are saving money by not paying the experts, what they get in return is a total mess and not some meaningful, coherent programming, in which people can take away some learning at the end.”
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    Vivek Kaul explains why people on the news shout so much. Incentives – it’s all, always, about incentives!
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  4. “In a 2009 summary paper of their respective decision-making sub-fields, psychologists Daniel Kahneman and Gary Klein spell out the conditions required for expertise to exist. They discover that in order for expert intuition to work, the practitioner needs to inhabit a domain where:The environment is regular. That is, the situation must be sufficiently predictable, with observable causal cues.
    There must be ample opportunities to learn causal cues from the environment.”
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    An interesting article about whether ideas from one domain should be used in another, and under what circumstances.
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  5. “Whether the East Asian Model will take hold in East Africa and beyond is not a given. But it also isn’t a stretch to see how the African “Lion economies” could accelerate their transformation by embracing the formula that successively produced the Asian Tigers and China.In his seminal Development as Freedom, Amartya Sen equated personal freedom with economic development. But to reach that objective requires traversing through the phase of “development as imitation” of successful models that came before.”
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    Can Africa achieve in this century what Asia did in the previous one, following the same playbook? This is going to be the most important question for this century, and this article helps you understand how to think about it. One useful way to start thinking about it, at any rate.

Links for 23rd May, 2019

  1. “Ec 1152 is an introduction to that kind of economics. There’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts introduced in classes like Ec 10. There is no textbook, only a set of empirical papers. The material is relatively cutting-edge. Of the 12 papers students are required to read, 11 were released in 2010 or after. Half of the assigned papers were released in 2017 or 2018. Chetty co-authored a third of them.And while most economics courses at Harvard require Ec 10 as a prerequisite, Ec 1152 does not. Freshmen can take it as their first economics course.

    “I felt increasingly what we’re doing in our offices and our research is just totally detached from what we’re teaching in the intro classes,” Chetty says. “I think for many students, it’s like, ‘Why do I want to learn about this? What’s the point?’”
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    Honestly, I am not really sure about this. My own take is that if anything, there is too much of an empirical bias in economics today, not too little. And this class seems to take that trend forward, which is… not great?
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  2. “Economists think historians are teaching it. Historians think it is being done by economists. But in truth the study of economic history is almost absent from the university curriculum. Economic history has fallen through the cracks. And economics students across universities are suffering because of its absence.My contention is that our economic past should play a far more central role in the education of economists today. Because I think the study of economic history will make economists into better economists. My mission is to make academic and professional economists aware of the key problems associated with missing out this training from the education of new economists. And then, once the problem is fully acknowledged and understood, to present easy-to-implement pedagogical solutions.”
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    This, on the other hand, I am all in favor of. Economic history needs to be taught. Forget needs to be taught, I need to learn more of it!
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  3. “It was one of the fastest decimations of an animal population in world history—and it had happened almost entirely in secret. The Soviet Union was a party to the International Convention for the Regulation of Whaling, a 1946 treaty that limited countries to a set quota of whales each year. By the time a ban on commercial whaling went into effect, in 1986, the Soviets had reported killing a total of 2,710 humpback whales in the Southern Hemisphere. In fact, the country’s fleets had killed nearly 18 times that many, along with thousands of unreported whales of other species. It had been an elaborate and audacious deception: Soviet captains had disguised ships, tampered with scientific data, and misled international authorities for decades. In the estimation of the marine biologists Yulia Ivashchenko, Phillip Clapham, and Robert Brownell, it was “arguably one of the greatest environmental crimes of the 20th century.””
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    Speaking of economic history, Alex Tabarrok at MR serves us a timely reminder about its importance.
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  4. “In democratic countries, we often talk about this concept called audience costs, which is, if you tell your public one thing and then you do another thing, your public is going to punish you for it. But leaders are not elected in China, so there’s a lot less popular-audience cost. And the regime prides itself on total control over the media and censors everything that it doesn’t like. So even if it, in reality, made important concessions to the U.S., it can simply hide that fact from the Chinese public. Of course, the educated public will find out about it, but so what? The vast majority of Chinese people will be almost completely ignorant of that fact, and that’s fine. So when the U.S. is negotiating with China it should not worry about things like that, because China prides itself on its total control over the media—and there’s a lot of documentation showing that they’re pretty successful in what they do.”
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    The first time I heard the phrase audience costs, which alone is reason enough for sharing this article. But the rest of the excerpt speaks to how audience costs can be waved away – and that is scary!
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  5. “When an American buys a chair from China for $50, it decreases net exports by $50, but it raises consumption by exactly the same amount. The two effects net out exactly. Unfortunately, the way economists decided to define GDP makes imports’ negative contribution to the equation highly visible but hides their positive contribution from view.”
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    And in a neat way to circle back to the set of links today, please read this link in its entirety. Econ 101 matters!