Tag: tyler cowen

Scalars, Vectors, Incentive Design and McKinsey

… not to mention the horror that is poorly done econometrics. On my bad days – and this may well be one of them – I often end up wondering if the phrase “poorly done” is a redundant one in the context of econometrics. But I’m getting ahead of myself.

For the first course, a tweet:

I came across this tweet via The Zvi’s substack, and based on all the posts that I have read so far, I’m happy to recommend that you subscribe.

For salad, two definitions:

You probably know (or in the case of at least some of you, have blessedly forgotten) what scalars and vectors are – but in either case, here is a quick refresher, courtesy ChatGPT:

“Much like a thermometer measures one thing, and one thing only (the temperature), performance in a hedge fund is measured by one dimension: profit. It doesn’t inherently come with a “good” or “bad” direction; it just shows how much or how little.

This could be contrasted with a vector, which might represent the varied ways an organization or individual measures success. For example, a nonprofit might measure success not just by funds raised (the magnitude) but also by social impact (the direction). Here, performance isn’t just about a number; it’s about a number going in a specific direction towards a specific goal.”

(Note that I have tweaked the original answer a little bit to make it a bit more readable)

For the main course:

…the start of a recently published academic paper (h/t @realChrisBrunet over on Twitter), and two charts (hey, this is the main course! I hope you packed an appetite):

And for dessert:

First, an explanation of reverse causality (courtesy ChatGPT):

“Imagine you notice that when ice cream sales go up, the weather tends to be hotter. If you conclude that “Buying more ice cream causes the weather to get hotter,” you’re assuming that the ice cream sales are causing the hot weather. But actually, it’s the other way around – the hot weather is causing more people to buy ice cream. This mix-up is what we call “reverse causality.” It’s when we mistake the effect (hot weather) for the cause (increased ice cream sales), rather than recognizing the true cause (hot weather) for the effect (increased ice cream sales).

So reverse causality is all about getting the direction of cause and effect backward. Instead of A causing B, it’s actually B that is causing A, just like if someone thought that wearing shorts made the day sunny, when in reality, it’s the sunny day that prompts people to wear shorts.”

Does growth lead to more diversity based hiring, or does more diversity based hiring lead to growth?

And second, Cowen’s First Law:

“Cowen’s First Law: There is something wrong with everything (by which I mean there are few decisive or knockdown articles or arguments, and furthermore until you have found the major flaws in an argument, you do not understand it)”

And surely an espresso is called for after such a big meal:

How does Cowen’s First Law apply to this blogpost?

A Drop of Wine Goes a Long, Long Way

I try to answer why is it that the British love Bordeaux wines, and they call them claret. Red Bordeaux is called claret. It’s a very long tradition, and people have often said this is an example of British taste and culture. Well, of course, it isn’t. It’s an example of tariff policies for 400 years.

When Eleanor of Aquitaine married Henry II in France — for those of you who remember the movie The Lion in Winter with Katharine Hepburn and Peter O’Toole — everything that came out of Bordeaux was tax-free to Britain because of this marriage, because Eleanor of Aquitaine was French and came essentially from Bordeaux, and so all Bordeaux products went to Britain tax-free. As a result, the British developed an enormous liking for this wine.

https://conversationswithtyler.com/episodes/fareed-zakaria/

That’s from Fareed Zakaria’s lovely conversation with Tyler Cowen, and there is a lot else there to unpack and think about. But I hadn’t known this particular story, and reading about it took me down a lovely little rabbit hole of factoids and “huh!” moments.

First of course, is the fact that incentives matter! Claret is a word you will come across sooner or later if you read enough of British literature from a particular era – and it turns out that at least part of the reason for it’s popularity is simply the fact (as Fareed Zakaria points out) that this wine was cheaper to drink because there was no tax on it!

Although domestically popular, French wine was seldom exported, as the areas covered by vineyards and the volume of wine produced was low. In the 12th century however, the popularity of Bordeaux wines increased dramatically following the marriage of Henry Plantagenet and Aliénor d’Aquitaine. The marriage made the province of Aquitaine English territory, and thenceforth the majority of Bordeaux claret was exported in exchange for other goods. Upon the ascension of their son, Richard, to the English throne Bordeaux became the base for Richard’s French operations.

As the popularity of Bordeaux wine increased, the vineyards expanded to accommodate the demands from abroad. Henry and Aliénor’s youngest son, John, was in favor of promoting the wine industry, and to increase it further, abolished the Grande Coutume export tax to England from the Aquitaine region. In the 13th and 14th century, a code of business practices called the police des vins emerged to give Bordeaux wine a distinct trade advantage over its neighboring regions.

https://en.wikipedia.org/wiki/History_of_Bordeaux_wine

How to stop reading a completely random Wikipedia article? Or is the correct question to ask this one: why should one stop reading a completely random Wikipedia article? This particular article, about the history of Bordeaux wine, also contained this line:

“In 1855, a classification system was set up that ranked the top chateaus of the Médoc according to their market price.”

That inspired a random series of Google searches (random Google searches is what I was born to do), culminating in I discovering that there is (of course there is) a textbook called Wine Economics:

The third form of reputation originates from recognition by national or supranational authorities. The classification system of wines was started in France in 1855 by order of Napoleon III, who wanted the vineyards of the Bordeaux region to be classified in order of quality for the Exposition Universelle de Paris. In the same year the recognition of the cru classé was attributed to sixty wines (from the Premiers Crus to the Cinquièmes Crus).

The need to create a classification system of wines that clearly and simply identified the best products became even more pressing in the first two decades of the twentieth century when buyers were confused by frauds, phylloxera, and Algerian wine that was passed off as French. In 1935 the French government created the Appellation d’Origine Contrôllée (Controlled Designation of Origin, or AOC), and it established the Institut National des Appellations d’Origine (National Institute of Origin and Quality, or INAO) with the task of regulating the AOC.

Castriota, S. (2020). Wine economics. MIT Press.

How to not then go and read the Wikipedia article on the Appellation d’Origine Contrôllée?

…the INAO was created by a decree initiated by Joseph Capus and enacted on July 30, 1935. Under this law the Comité National des appellations d’origine (CNAO) was given the sole authority to rule on matters related to the quality of wine. The members of the committee included delegates of ministries of agriculture, finance and justice and presidents of viticulture syndicates. They consulted with the top wine producers in each region to define the boundaries of appellations and the rules for a wine to qualify. The CNAO was funded by a fee paid by the producers. Many small wine producers were eager to escape the state regulations imposed on bulk winemakers, and sought to join. However the CNAO enforced high standards and the percentage of French wine designated as AOC actually declined in the first years after the CNAO was formed. The first AOC laws were passed in 1936, and most of the classical wines from Bordeaux, Burgundy, Champagne and Rhône had their initial set of AOC regulations before the end of 1937.

https://en.wikipedia.org/wiki/Institut_national_de_l%27origine_et_de_la_qualit%C3%A9

And to think that all of this completely random “research” took place because I decided to traipse down an interesting little path that branched out from a little anecdote that Fareed Zakaria narrated to Tyler Cowen about writing an article for Slate.

Cheers!

P.S. One final point worth a ponder – one of my favorite songs is a song called “Done with Bonaparte”, by Mark Knopfler. It contains the lines:

“My one true love awaits me still,
The flower of the Aquitaine”.

Might this be a reference to Eleanor of Aquitaine? Maybe somebody could shed some light on this – which would be entirely appropriate, since the etymology of the word Eleanor may be related to the Arabic word”Noor”.

Now Do Cricket!

As you might know, Tyler Cowen wrote a book about the Greatest of All Time in economics. It is a free to read book, and can be read “through” ChatGPT. Here’s the book, if you haven’t read it yet.

The book was written mostly during the pandemic, and the idea for writing the book in the way that it has been written came via Bill Simmons. Who is Bill Simmons is an entirely fair question to ask if you are not a fan of basketball:

In July 2008, Simmons announced that he would be taking 10 weeks off from writing columns for ESPN.com’s Page 2 to concentrate on finishing his second book, The Book of Basketball: The NBA According to the Sports Guy, which was released on October 27, 2009. The book tries to find out who really are the best players and teams of all time and the answers to some of the greatest “What ifs?” in NBA history. It debuted at the top of The New York Times Best Seller list for non-fiction books.

https://en.wikipedia.org/wiki/Bill_Simmons

Long story short, Tyler Cowen wrote a book explaining who his favorite economist was by writing it the way a basketball fan would have written the definitive book about who his favorite basketball player was.

Such a good idea, no?

But wait, it gets better.

Cardiff Garcia interviewed Tyler recently, about just this book. But with a twist: the second half of the interview is about asking who the basketball equivalent of a truly great economist would be.

So, for example:

So if Adam Smith could be compared to one great basketball player, who would it be for you?

https://www.bazaaraudio.com/the-new-bazaar/if-econs-could-hoop

Tyler’s answer, and Cardiff Garcia agrees, is Bill Russell. Now, I know next to nothing about basketball, so I have no clue how to evaluate this answer. He and his team won 11 out of the 13 (!) seasons that he played in the NBA, though, so I’m happy to go along with their pick.

But I have the obvious question, as a fan of cricket: who is the cricketing equivalent of Adam Smith?

To my mind, there are only two possible answers: WG Grace, and The Don. But based on what little I know of both of them, and this little nugget from Tyler and Cardiff’s conversation, I’d probably go with Sir Donald Bradman:

CARDIFF: With all that as a windup, I’m gonna first start by asking you about the three GOATS that you listed in your book. So these again would be Adam Smith, John Stuart Mill, and Milton Friedman, and ask if there are any analogs from the history of basketball. So if Adam Smith could be compared to one great basketball player, who would it be for you?

TYLER: There are analogs for all three. Adam Smith, to me, is the Bill Russell of economics. Or Bill Russell is the Adam Smith of basketball. The first player to get it right, do very well, play the game seriously, bring to it quality, intelligence, work ethic, win a lot of championships, build a great team.

https://www.bazaaraudio.com/the-new-bazaar/if-econs-could-hoop

Perhaps you agree, perhaps you don’t. Perhaps you have another contender, which is awesome, for we can then have a passionate argument about economics and cricket, and what could possibly be better?

(But, uh, you’d be wrong. The only correct answer is Don Bradman.)

But ah, Cardiff’s next question is an even bigger lightning rod for controversy. Which basketball player, Tyler is asked, is the right analog for John Stuart Mill. The reason this matters is because John Stuart Mill is Tyler’s pick for Econ Goat. So who, Tyler is being asked, is the basketball Goat?

Tyler’s pick is LeBron James.

Who, then, is the cricketing equivalent?

I’m forty-two years old, and an Indian. Do you even need to ask?

Read the rest of their conversation to learn more about Goat economists, Goat basketball players, and in order to frame (hopefully) endless debates about Goat cricket players.

But also read the rest of the conversation for some truly delightful nuggets about economics. Of which, this is by far my favorite:

TYLER: The one time I spent time with Robert Solow was the retirement event for Thomas Schelling at Harvard. Solow was so rude to Tom. On the date of his retirement. Tom didn’t want to retire, there was mandatory retirement at 70. They got everyone together to pay tribute to Tom. Everyone else was warm and glowing.

Bob Solow totally cut the legs out from underneath Tom, insulted him, told him he didn’t know enough math, didn’t use enough technique.

CARDIFF: On the day of his retirement?

TYLER: On the day of his retirement, in front of a lot of other people! I couldn’t believe it.

CARDIFF: That’s a little strange. I’ve never heard that story, by the way.

TYLER: Not many people were there. It was organized by Dick Zeckhauser. And Tom even afterwards kind of shrugged and looked at me like, well, I guess this is how it’s going to be, and he took it in good enough humor. But I was appalled.

https://www.bazaaraudio.com/the-new-bazaar/if-econs-could-hoop

Huh.

And finally, wouldn’t it be fun if Indian economists replicated the entire exercise for cricket, and made a podcast or YouTube video out of it?

And I know just the person too…!

How Might I Be Wrong?

Nobody does it better than Tyler Cowen, and it’s not even close.

What am I talking about? I’m talking about the extremely difficult art of asking the question that is the title of this blog post, and then answering it by writing about it.

There was a post over on MR recently titled “Will Milei Succeed in Argentina?”. In the very first paragraph, Tyler points out that he (Tyler Cowen) wants Milei to succeed.

I give him a 30-40% chance, which is perhaps generous because I am rooting for him.  Bryan Caplan, who is more optimistic, offers some analysis and estimates that Milei needs to close a fiscal gap of about five percent of gdp.

https://marginalrevolution.com/marginalrevolution/2024/01/will-milei-succeed-in-argentina.html

But the rest of the post doesn’t lay out reasons for why Tyler is right to root for him, or why Milei might succeed. It is, instead, the exact opposite. Tyler asks the much more difficult question: why might Milei fail?

You may or may not agree with the rest of Tyler’s post, and about his take on whether Milei will succeed or not. The real lesson to take away from here is the point that Tyler is forcing himself to ask, and answer, the most difficult question of them all for a writer: “What is the best possible argument for how I might be wrong?”

And this is a really, really difficult thing to do. Say, for example, that you are opposed to PM Modi. Your task is to write about ways in which his policies have been good for India, and will be good for India in the years to come. On the other hand, if you are a supporter of PM Modi, your task is to write about the ways in which his policies have been bad for India, and will be bad for India in the years to come.

You could take the easy way out and do a round-up of what other people (on the other side of the fence) are saying. But that’s not the point – that simply shows what other people are saying. Worse, supporters and detractors have a way of confidently expressing hopeful assertions. The causal pathways are often missing from their analyses – it isn’t so much an expression of ways in which they might be wrong. Rather, it is a statement to the effect that “if x materializes, I will have been proven to be wrong.”

What we’re looking for is this instead: “Here’s why I don’t think x will materialize. Here are my reasons for thinking what I do, and here are the ways in which I could be wrong, and for the following reasons.”

This is really, really hard to do (trust me). But the more you force yourself to do it, the better a thinker you are likely to become. I try and do these exercises every now and then, and the reason I don’t post the results of such exercises very often is because a) I avoid doing this as much as possible b) I’m not very good at it when I do get around to doing it (if you’re itching to point out the causal link between these two, I’m way ahead of you. Go away.)

So hypocrisy alert aside – I don’t practice what I’m about to preach, you see – do give it a try. Ask yourself how you might be wrong about your model(s) of how the world works.

Good luck, because you will need it.

Does The Supply of An Effective Remedy Create Its Own Demand?

Arnold Kling has an interesting essay in which he attacks… books.

When I finish writing a book review, I will often say to myself, “There! Now nobody has to read the book. I’ve boiled it down for them.” We would be better off if authors did that work themselves.

https://arnoldkling.substack.com/p/the-trouble-with-books

Arnold Kling has read a ton of books, I can guarantee you. He is not saying this because he has always disliked books, or because he dislikes thinking. That, in fact, is what makes this essay worth reading – he is saying this a person who used to love books, and is still in love with what the book represents: knowledge.

But, as any good economist should, he applies his knowledge of economics to the market for consuming books, and tells us that:

  1. Books don’t have that many ideas in them (they are not information dense, to use his phrasing)
  2. Our time today is limited (by which I mean we have a lot of alternate uses for our time)
  3. So either make the books way shorter, or just stop writing them.

If you are someone like me (that is, a book lover), this might fill you with worry. A world without books? What a horrible thought!

Bear in mind that Arnold Kling is talking about non-fiction books, not books in general. And even in such cases, his arguments will not always hold. I don’t read a Bill Bryon non-fiction book to only learn about new ideas, for example. I want Bill Bryson books to contain delightful digressions, delectable diversions and dizzying descriptions. A little spice can liven up even the dullest of subjects, and Bryson is a master in this regard.

But that being said, it is nonetheless true that a book can often be dreadfully dreary. As Arnold Kling says:

But it is hard for a book to be information-dense in terms of ideas. If you have one really important idea, why does it require a whole book? And if you have several important ideas, chances are that readers will miss some of them, or else not remember them. Better to put the ideas into separate essays.

https://wordpress.com/post/econforeverybody.com/13883

A book, like a song from the sixties, is but a vehicle for carrying ideas. The point always was to convey ideas, and lots of them. Inventing the printing press changed humanity for the better, because that allowed for the spread of oh-so-very-many-ideas.

Understanding that electronic screens and artificial intelligence are here to stay will also change humanity for the better, because these will allow for the spread of even more oh-so-very-many-ideas. The supply is already here, who is to say what will happen to demand?

Tyler Cowen Writes A(I) Book

Tyler writing a book has happened quite often, and will happen again. But this is a book written for and in AI. But not, it should be noted, with AI.

Do you yearn for something more than a book? And yet still love books? How about a book you can query, and it will answer away to your heart’s content? How about a book that will create its own content, on demand, or allow you to rewrite it? A book that will tell you why it is (sometimes) wrong?
That is what I have tried to build with my latest work. It’s called GOAT: Who is the Greatest Economist of all Time and Why Does it Matter?

https://goatgreatesteconomistofalltime.ai/en

I have not finished reading the book, but plan to do so in the next couple of days. I’ve finished reading the chapters on Friedman, Keynes and Hayek, along with the introductory chapter – but in a manner of speaking, I haven’t even started.

Not because I’m less than halfway through the book (though there’s that too) – but because I haven’t yet read the book in ChatGPT. And that, I suspect, is where the book will really and truly come alive. But even without that mouth-watering prospect being taken into consideration, the book is already well worth my time (and I know one is supposed to say your mileage will vary, but it will be worth yours as well).

Because how many books about the history of economic thought will talk about basketball, peering in through Gottfried Haberler’s window and Edgeworth looking like a Schnauzer Terrier? And all that in just the first chapter!

The first chapter explains, in typically Tylerian fashion what is being supplied by Tyler, and there are four broad things that are being supplied:

  1. The teaching of economics (duh)
  2. Economics as a vehicle for carrying ideas about the world (about which there is a paragraph below)
  3. Economists and how to think about their talents
  4. Tyler’s adjudication for who is the GOAT in economics

I find it interesting that the title of the book is actually his fourth reason for writing the book. Come for the shortlisting and the prize giving ceremony, Tyler seems to be saying, but stay to learn economics (1), learn more about economists (3), and (maybe, and best of all), learn how to carry ideas about the world in your creations (2).

And again, in typically Tylerian fashion, we learn that the inspiration for writing this books comes not from what you and I would have considered the usual suspects – but from some book about basketball. When I say “some book about basketball”, I do not mean to be disparaging about the sport. I mean to convey how little I know about the sport, and about books written about the sport. But the point is well taken – this is a book written by a fan of the subject. I take that to mean that this book is to be taken the way Tyler’s podcast is to be taken – this is Tyler’s conversation with himself about his favorite subject, not the conversation you wish to have with Tyler about his favorite subject.

By the way, in an interesting coincidence, just yesterday I was talking to a friend about a post I’d written on the blog a while ago, about who, in my opinion, was the worst economist of the 20th century. Two people (who will both remain anonymous) told me in conversations that Milton Friedman is their pick for the worst economist of the 20th century. One of them meant it as a joke, and one of them was quite serious. I disagree, of course. Milton Friedman was undoubtedly one of the best economists of the 20th century, and certainly among the top 10 all time, in my book.

But who would be my pick for the GOAT?

So far, Adam Smith.

But I hope to be able to update you by the end of the week, if not sooner, if my answer changes.

Short Term vs Long Term

Friday’s post contained this line:

“But that simply behooves us to accept the economic principle that Time Matters. Take the long term view, not the short term one!”

Here’s Stephen J. Terry, via Tyler Cowen, over at MR:

R&D investment reduces current profits, so short-term pressure to hit profit targets may distort R&D. In the data, firms just meeting Wall Street forecasts have lower R&D growth and subsequent innovation, while managers just missing receive lower pay. But short-termist distortions might not quantitatively matter if aggregation or equilibrium dampen their impact. So I build and estimate a quantitative endogenous growth model in which short-termism arises naturally as discipline on conflicted managers and boosts firm value by about 1%. But short-termism reduces R&D, and the social return to R&D is higher than the private return due to standard channels including knowledge spillovers and imperfect competition. So at the macro level, short-termist distortions slow growth by 5 basis points yearly and lower social welfare by about 1%.

https://marginalrevolution.com/marginalrevolution/2023/10/the-costs-of-short-termism.html

Here’s a simple (perhaps too simple) way to understand this point:

  1. Imagine you’re 18 years old. What is the best thing you can do to raise your income today? Drop out of college and start working, of course.
  2. What is the best thing you can do to raise your income over the course of your entire lifetime? Do not drop out of college and start working, of course.
  3. Investing in education today maximizes your chances of earning a higher amount of money over the course of your life. Or so the theory goes today, at any rate. That’s a bit like investing in R&D today.
  4. But the reason I added the caveat “perhaps too simple” because I acquiring an education today benefits me, not others (although there might be some spillovers, sure). But R&D today may not benefit only my firm, it might benefit other firms more. Ask ChatGPT to explain this sentence – “the social return to R&D is higher than the private return due to standard channels including knowledge spillovers and imperfect competition”. Which is why this analogy isn’t perfect.
  5. But even so, the point is (or should be) well taken. Think long term! (I struggle with this myself, by the way, but I console myself by saying almost all of us do).

Brad Setser on Tyler Cowen on China

Marginal Evolution

That is an email I had sent to two of my friends, back in February of 2006. I’m sure Marginal Revolution must have been called plenty of things over the last twenty years, but “web resource”? Surely a record of sorts.

How I would like to tell you that I have read Marginal Revolution every single day since then. But even in the post truth era, that would be stretching things a bit. The remarkable bit, of course, is that it has been updated every single day since then – and for roughly three years before then.

I have no recollection of what post I read that day that made me want to share the URL with my friends. But I did go back and take a look at posts written on that day, and this delightful nugget cropped up:

“I am engaged and we are in the process of planning our wedding. There is a huge debate over what is OK to put in the invitations and what is not. My fiance and I have been living together for a little over a year and we aren’t planning on registering because we already have so much. So, monetary gifts would be great for us! Now, how do you put this in your invitation? A few suggestions have come up but we don’t want to seem rude or crass. Please help!”
Tyler: Oh, what a softball.  We have already blogged on the deadweight loss of gift-giving, here and here.  So my major advice is simply to read MarginalRevolution on a regular basis.  I can add only that if you are going to ask for money, set up a college fund.  Your kids-to-be are not yet experiencing the impatience of waiting for the money, which implies an arbitrage opportunity with g > r, or the growth rate of the funds greater than the rate of time discount.  Nor do I think that the mechanisms of Ricardian Equivalence will fully offset this transfer.  Got that?

https://marginalrevolution.com/marginalrevolution/2006/02/dear_tyler_prud.html

Consistently, delightfully weird, and thank god for some things not changing over time.

Other things have changed over time where the blog is concerned, of course. “Caught my Eye” has become “Tuesday Assorted Links“, for example. Or whatever day of the week it is, of course. We’ve had Markets in Everything, Those New Service Sector Jobs, and other long running series. We’ve had offshoots – textbooks, MRU (did you know it launched on the 5th of September?), a podcast and much else besides.

But the one thing that has remained constant is the fact that every single time I’ve visited the blog, I’ve come away with something I didn’t know earlier. And that’s been true for the last seventeen years in my case, and twenty for those lucky enough to have discovered the blog before I did.

I don’t claim to understand everything that I’ve read on MR, and I certainly don’t agree with everything written on it (what do you mean, give cash instead of gifts. Who does that?!). But I do claim, and with a lot of passion, that I have become a better student of economics for having read the blog for as long as I have.

Part of my motivation for starting EFE was to help other people fall in love with economics much the way I had over the years. And while there is a professor in Pune who is a major chunk of the reason I fell in love with economics, the other two reasons happen to be the co-authors of this blog. And certainly the inspiration to try and write daily comes from the fact that Tyler has written on MR every single day from August 2003 onwards.

2003. The year in which Federer won his first Wimbledon, and the year of the World Cup final That Never Happened. Hell, I was an undergraduate student in Fergusson College. And here I am now, father to a ten year old, with a blog of my own to try and post on daily – and MR continues on its own merry way, making the world a much better place, one small step at a time.

It is not for me to say whether the world has become a better place since then. But I can assure you that I have learnt a little about economics over the years, both because I’ve tried to read every single post written on MR, and because I’ve tried to write on EFE every single day. I’m less than perfect in both regards, and the failure is mine alone. But to the extent that I’m a better teacher today – be it ever so slightly – than in the year 2006, it is for the most part because of the inspiration that MR has provided over the years.

Two posts commemorating the twenty year anniversary on MR: here, and here.

Thank you for all that you’ve done, and here’s to the next twenty years. Cheers!

Art Valuation and Football

Yes, I know because I buy them. [laughs] I used to be annoyed by this, and now I think it’s the most delightful thing in the world because there’s all this loose money sloshing around, and so-called contemporary art is like this sponge that just absorbs all of it. There’s none left. Some of the things I buy, I am the only bidder. I get it for the reserve price. No one else in the world wants it, or even knows that it’s being sold, so I am delighted about this. The answer to your question, which artists are undervalued? Essentially, all good artists. The very, very, very famous artists, artists famous enough for Saudis to have heard of them — Leonardo, I would say, is probably not undervalued. But except for the artists who are household names — every elementary school student knows their names — they’re all undervalued.

https://conversationswithtyler.com/episodes/paul-graham/

As with almost all episodes in Conversations with Tyler, this one too is worth listening to in its entirety. I’m only halfway through, but I particularly enjoyed the excerpt I’ve quoted above.

Lots of reasons for me to have liked it – I know next to nothing about art, I enjoy thinking about what is underrated (and therefore undervalued), and I enjoy understanding more about how different markets work.

But also, I like watching and reading about football.

There’s been some seriously big players who’ve made the move into the Saudi league in the past year or so, with the biggest name being Ronaldo, of course. And there’s been a lot of hand-wringing about it.

But you might want to think about the following points, as I have been:

  1. Have the valuations been unusually high for the players that made the move?
  2. Did the football clubs actually get a pretty good deal then?
  3. How should they go about using this money? The same way the Saudi league is snapping up players, or the way Paul Graham buys art?
  4. What is the framework that Paul Graham uses while buying thinking about art? Is the same framework applicable in other markets, and not just football?
  5. Which other markets have the same phenomenon playing out right now (akin to the Saudis buying out the “big” names?)
  6. How should you think about selling in such a market?
  7. How should one think about regulating such a market?
  8. Should one think about regulating such a market?
  9. What does equilibrium even mean in such a market?
  10. With regard to that last question, over what time horizon?

I plan to have a conversation about these questions with ChatGPT, and then with some friends. If you like football, economics or best of all both, it might be a fun way to spend a couple of hours!