I’d linked to this video this past Friday too, but just in case you haven’t seen it yet:
And a bonus today, Bryan Caplan on the same topic:
I’d linked to this video this past Friday too, but just in case you haven’t seen it yet:
And a bonus today, Bryan Caplan on the same topic:
Not a joke, that is a genuine question.
The AER, by the way, is the American Economic Review. Getting published in the AER for an economist is like a cricketer getting to a century in a Test at Lords. Although drawing this analogy does remind me of what Harsha Bhogle said about Sachin and the Lord’s honours board.1. Nashik, of course, is a city in Maharashtra.
So what’s the reason for the title of today’s blog post?
Amid rising Covid-19 cases in Maharashtra, the Nashik district administration has now issued new restrictions to limit people from visiting the markets unnecessarily. The people in Nashik will now have to pay ₹5 per person for an hour every time they visit any market in the city. news agency ANI reports.https://www.livemint.com/news/india/new-covid-19-restrictions-in-nashik-now-pay-rs-5-for-hour-long-market-visit-11617154785051.html
In the boring but functional language of the economist, no free entry in these markets anymore.2.
What should we anticipate in terms of effects of such policies? Why? Are these policies good, or bad?
(Here’s Tyler Cowen on other, related points about the AER pricing.)
As a student of economics, you should be able to see the similarity between both of these pricing calls, and also see the differences. That allows you to begin to think through whether these will, in fact, be good ideas or not, and why. I’m sure that there are many other points to think about in both cases.
If you are a student of microeconomics (and who isn’t, really), it might be worth your while to think about what I am missing in my analysis. Please, feel free to let me know!
Yash Agarwal, ex-student and good friend recently shared this link on Twitter.
The last line of the article shared by Yash goes like this:
What is starting today is a new age of technological wonder, the Great Acceleration.https://spectator.us/topic/great-acceleration-looking-forward-post-covid-age/
The background to this is that Tyler Cowen had written a book some years ago called The Great Stagnation. The basic thesis in that book is that innovation was slowing down, since the low hanging fruit in terms of technical innovation had already been picked. But the book also spoke about how this was not to say that innovation was forever going to be slow – it’s just that it had slowed down around then.
He wasn’t the only one, by the way. There were quite a few folks who were less than impressed with technological progress aobut a decade ago. Everybody has heard of the comparison between Twitter and flying cars, but there’s much more where that came from:
In the 2010s, we largely decided that we were in the middle of a technological stagnation. Tyler Cowen’s The Great Stagnation came out in 2011, Robert Gordon’s The Rise and Fall of American Growth came out in 2016. Peter Thiel declared that “we wanted flying cars, instead we got 140 characters”. David Graeber agreed. Paul Krugman lamented the lack of new kitchen appliances. Some economists asked whether ideas were simply getting harder to find. When the startup Juicero came out with a fancy new kitchen appliance, it was widely mocked as a symbol of what was wrong with the tech industry. “Tech” became largely synonymous with software companies, particularly social media, gig economy companies, and venture capital firms. Many questioned whether those sorts of innovations were making society better at all.https://noahpinion.substack.com/p/techno-optimism-for-the-2020s
So it’s fair to say that the 2010s were a decade of deep techno-pessimism.
By the way, on a related note (although this deserves its own post, which will be out tomorrow) you may want to read this post by Morgan Housel in this regard.
In any case, Covid-19 has in some ways accelerated innovation, and that’s the point that Bruno Macaes1 is making in the article above.
Take transportation and energy: the demand for driverless cars and delivery vans boomed last year because people were fearful of getting infected. In response companies quickly scaled up their plans. Last October, for example, Waymo announced the launch of a taxi service that is fully driverless. Walmart announced in December its plans to use fully autonomous box trucks to make deliveries in Arkansas later this year. As retail goes online as a result of the pandemic, massive delivery volumes are now placing greater pressure on others to follow suit.https://spectator.us/topic/great-acceleration-looking-forward-post-covid-age/
Note that without Covid-19, we would be having debate about automation, jobs and how technology is promoting inequality. That may well be true. But this is precisely why we study opportunity costs in college!
Perhaps the most interesting (to me) advance this past year has been in terms of we humans understanding how protein folding happens. Understanding is perhaps the wrong word to use (and note that I know as much biology as forecasters know about the future), but we have trained machines to understand it.
At CASP14 DeepMind produced an advance so thorough it compelled CASP organizers to declare the protein structure prediction problem for single protein chains to be solved. In my read of most CASP14 attendees (virtual as it was), I sense that this was the conclusion of the majority. It certainly is my conclusion as well.https://moalquraishi.wordpress.com/2020/12/08/alphafold2-casp14-it-feels-like-ones-child-has-left-home/
As I understand it (and please note once again that I am no expert) this has the potential to change by orders of magnitude how we approach the treatment of a variety of diseases in this century.
But if you are anything like me, you are also curious to know about what else has been going on this past year. Again, before we proceed: this post is about the “what” in terms of scientific advancement. Tomorrow is a rumination about the “why”.
First, I’d referred to this interview in an earlier post, an interview of Patrick Collison by Noah Smith. It refers to some of what we have been speaking about, but much more as well:
I think the 2020s are when we’ll finally start to understand what’s going on with RNA and neurons. Basically, the prevailing idea has been that connections between neurons are how cognition works. (And that’s what neural networks and deep learning are modeled after.) But it looks increasingly likely that stuff that happens inside the neurons — and inside the connections — is an important part of the story. One suggestion is that RNA is actually part of how neurons think and not just an incidental intermediate thing between the genome and proteins. Elsewhere, we’re starting to spend more time investigating how the microbiome and the immune system interact with things like cancer and neurodegenerative conditions, and I’m optimistic about how that might yield significantly improved treatments. With Alzheimer’s, say, we were stuck for a long time on variants of plaque hypotheses (“this bad stuff accumulates and we have to stop it accumulating”)… it’s now getting hard to ignore the fact that the immune system clearly plays a major — and maybe dominant — role. Elsewhere, we’re plausibly on the cusp of effective dengue, AIDS, and malaria vaccines. That’s pretty huge.https://noahpinion.substack.com/p/interview-patrick-collison-co-founder
Second, Caleb Whitney has a lovely blogpost on this topic, and shares with us this chart – and if this chart isn’t beautiful, I do not know what is.
The tiny red vertical line tells you when the cause of the disease was identified, and the tiny green vertical line tells you when the cure was licensed in the United States of America. And now think of what happened with Covid-19!2
There’s much more in that post, and there’s more on Patrick Collison’s website, Matt Clancy’s reading list, Matt Clancy’s Substack, and this blogpost by Eli Dourado. I am sure there is more I have missed – much more! – but isn’t that only reinforcing my point?
It is easy to get caught up in the short term pessimistic narrative, and be overwhelmed by it. It happened to me last year, as I am sure it did to many, many other people on this planet. I gave up on what until then had been my proudest achievement in terms of my work: posting here every single day.
So when things are really bad and grim (and again, this is not over yet), look to the bright side. And not just because it’s a good thing to do! But also because the bright side is likely to be brighter precisely because of everything else being so goddamn dark.
Tomorrow, I’ll attempt to answer a question I have, and I am sure you do as well: why?
I’d written a post last week, the title of which was “Growth. Just, only, simply growth.“
There’s two books that I’d recommend you read to get a fuller understanding of the importance of growth. One is a book about the need for growth in an Indian context. It is authored by Vijay Joshi, and the title is India’s Long Road: The Search for Prosperity.1
There are many reasons why India’s Long Road is an excellent read. The one that is directly relevant here is his succinct summary of why growth in India over the long run is such a challenge:
India should strive for rapid, inclusive, stable and sustainable growth within the parameters of a political democracy.
In the book, Joshi explains why he chooses these aspects as being worthy of his analysis, covers how well India has done along these parameters thus far and what needs to be done from here on in. But the reason I am beginning my review of Stubborn Attachments by speaking about Joshi’s book is because Joshi speaks about growth as being more than just an increase in GDP over the long run.
Rapid growth as measured by GDP, yes, but not at the cost of the environment – therefore sustainable. Rapid growth, yes, but also stable. Rapid growth, yes, but also inclusive. And growth, yes, but not by sacrificing democracy.
You might say that Vijay Joshi is stubbornly attached to growth, but with qualifications.
Here is one way to think about Tyler Cowen’s book, Stubborn Attachments. It is as if he takes Vijay Joshi’s statement above and distils it down to its barest minimum. And in his distillation, he leaves us with the following:
Growth at all costs, except at the cost of human rights and concern for the environment.
It’s not just his own philosophy, but as he puts it, it is his recommendation that this be your philosophy too:
No punches are pulled, this is my account of what I strongly believe you should believe too. My bottom lines, so to speak.https://marginalrevolution.com/marginalrevolution/2018/08/preface-stubborn-attachments-book-especially-important.html
How does he arrive at his stubborn attachment to prioritizing growth above all else, subject to only two constraints?
Before we begin our journey in terms of answering this question, a couple of things to note.
He is trying to answer the question of what is best for “our civilization”. And as the book makes clear, that’s all of us – every single person on this planet is his implicit definition of “our civilization”.
Second, a useful way of reading the book is to think of this book as his answer to the Ultimate Big Picture Question: “But what is the point of all this?”
I think of his answer as a sort of Pascal’s wager: we don’t know yet if there is a point or not. But if and when we discover what the point is, it is better to be prepared to deal with that point, whatever that point may be. And better prepared is, in his view, more growth.
So how does he arrive at his stubborn attachment? He begins by laying out his philosophical starting points:
1. “Right” and “wrong” are very real concepts which should possess great force.Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (p. 19). Stripe Press. Kindle Edition.
2. We should be skeptical about the powers of the individual human mind.
3. Human life is complex and offers many different goods, not just one value that trumps all others.
I have not the slightest objection to any of these points – they’re all but axiomatic to me.
So far, so good.
Next, how to choose which thing to get stubbornly attached to, given the points above? To arrive at that decision, there are, in his view, six things to consider:
All right, so three basic points, and six things to consider. To which he adds two “moves”.
First, whatever it is that our civilization has been able to achieve so far is because of the productive power of our economy. Had our economy not been productive enough, Beethoven may have ended up being a farm laborer. Adam Smith could write about the division of labor precisely because society had been making use of the concept for thousands of years. We are where we are today precisely because of the productive power of our economy. Why not do more of it, then?
The second move is really a restatement of the first of the six things to consider. When in doubt, take the long term view, and whatever your long term view, make it longer.2
From these ingredients then – the three basic points, the six things to consider and the two moves – he reaches the conclusion that growth is a moral imperative. He makes use of a concept called a Crusonia Plant3 to arrive at this conclusion.
Growth, however, measured not by wealth, but by “Wealth Plus”:
Wealth Plus: The total amount of value produced over a certain time period. This includes the traditional measures of economic value found in GDP statistics, but also includes measures of leisure time, household production, and environmental amenities, as summed up in a relevant measure of wealth.Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (p. 30). Stripe Press. Kindle Edition.
And that, of course, is why I began with Vijay Joshi’s book. As I said, a maximizing Wealth Plus is essentially Vijay Joshi’s statement distilled.
And to do this – to maximize Wealth Plus – there are three questions we need to continually ask ourselves:
What can we do to boost the rate of economic growth?
What can we do to make our civilization more stable?
How should we deal with environmental problems?Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (pp. 32-33). Stripe Press. Kindle Edition.
Or, put another way, maximize growth subject to human rights not being violated, and subject to the environment not being ignored.
That is his stubborn attachment, and it is what he would like ours to be as well, all of us.
Please, do read the book to understand his defense of his view. The book is only 150 odd pages long, and written in an easy, conversational style.
I’ve been reading some of the reviews of the book in order to prepare for writing my own. Of the ones I have read, I am in complete agreement with the one that says that Tyler Cowen is basically saying let’s worship a community called humanity. And the one that I found most interesting was the one that put the argument in terms of optionality. I think that is another of way saying “Pascal’s Wager”.
Finally, what would my stubborn attachment be?
There are three reasons I have spent a large part of my review focusing on writing about Tyler Cowen’s assumptions, axioms and approach, rather than his conclusions.
And so my own stubborn attachment: to know more, and to help other people know more. Ideas are the ultimate good. Not only can I share my ideas, I ought to share my ideas. You ought to share yours. Ideas should have sex! That, as Matt Ridley says, is what has built civilization – growth comes from “ideas meeting, and indeed mating.”
Wealth Plus, in other words, is an outcome of more people knowing more. What you really want to maximize is the spread of ideas. A civilization devoted to learning more, and helping everybody learn more, cannot help but accrue more Wealth Plus – it is an inevitable outcome. More, it is a guarantee of maximizing your chances of perpetuating this progress.
Or put another way, what provides nourishment to the Crusonia plant is the spread of knowledge, and without it, the plant may well wither.
And so my own personal stubborn attachment is to the accrual and spread of knowledge. Wealth Plus is a guaranteed, and welcome, consequence.
Joshi’s book is an excellent read in it’s own right, and it provides a pretty good summary of the Indian story since independence. That’s hardly surprising if you are a student of the Indian economy, for Vijay Joshi has authored two excellent books on this already, with his co-author IMD Little. One covers the Indian economy from 1964 until 1991, and the other discusses India’s economic reforms post 1991.
I wrote this essay yesterday, and spent all day on it. I didn’t get anything else done. And in terms of the week coming up, that was an expensive thing to do. But as will become clear after reading this essay, I do not regret it one little bit.
David Perell’s latest essay resonated with me, and for multiple reasons. The essay is centered around a point that I have been playing around with for a while: we live in a society that overrates efficiency.
He uses the metaphor of a microwave meal in this essay. Not the kind of microwave meal that Krish Ashok has in mind, but rather the kind of microwave meal that a large number of urban Indians are increasingly familiar with. Cut packet, dump in a bowl, nuke and eat. That kind of microwave meal.
This is a meal robbed of its soul. It is functional, yes. It is, in its own way, nutritious enough. One could argue that it is tasty enough. But there is no romance, originality or effort in it. As Robert Pirsig might have put it, it is bereft of quality.1
Perell’s essay extends this point about the microwave meal to the economy.2 Most of what we do in our lives today is centered around the same misunderstanding of convenience that gave birth to the idea of a microwave meal. The result, as Perell puts it, is “an economy that prizes function over form and calls human nature “irrational”—one that over-applies rationality and undervalues the needs of the soul.”
What if, for example, I and my family decided to drive down to Goa for a holiday? Which route should we take? We would do exactly what every right-thinking person in our place would do: look up Google Maps. Whatever route Google Maps suggests is the one we will take.
Here’s a quote from Zen and the Art of Motorcycle Maintenance, the first of Pirsig’s two books:
“The best ones connect from nowhere to nowhere, and have an alternative that gets you there quicker.”
He wrote this line in the context of learning which roads in America were the best for motorcycle riding, and the next two to three pages are lessons on how to ignore Google Maps. Google Maps wasn’t even on the horizon when the book was written, of course. It is just that Google Maps is the modern day evolution of the idea that Pirsig was battling when it came to choosing roads to ride on.
That idea being efficiency.
A long, rambling drive through quiet serene countryside might mean an extra day, sure, but isn’t that a price worth paying – at least worth considering? Pirsig isn’t arguing for never getting there, wherever “there” may be. He is saying the same thing that the poet did, years and years ago. We have lost the desire to stand and stare. The monk said the same thing when he spoke about the journey being as important as the destination. Getting there is important, of course it is. But how you get there is equally important, and we live in a society that doesn’t care about the journey anymore. 3
Our society over-applies rationality and undervalues the need of the soul. Pirsig knew this, of course. It is why the last part of his sentence speaks about an alternative that gets you there quicker. He knew the coming of Google Maps was just a matter of time.
Perell’s essay is a lament for what might have been: a world that prioritized the soul and not the other way around. There is a lot of truth in it, and I have absolutely no quarrel with Perell’s solution. But his essay helped me concretize something that I have been playing around with in my mind for quite a while, and that is what this essay is about.
“We’ve overwhelmingly used our wealth to make the world cheaper instead of more beautiful, more functional instead of more meaningful.”
That sentence, to me, is the core focus of David Perell’s essay, and I couldn’t agree more. In fact his argument grows even stronger on reflection, because I think the word cheaper is applicable to more than just prices.
We have also used our wealth, for example, to make the world cheaper in the case of time.
I read more today than I did about ten years ago, but the reading is infinitely more bite-sized in comparison. I much prefer essays to books, blog posts to essays, and tweets to blog posts. 4 And I suspect I am not the only one. I can make the same argument in the case of sports. We as a society have deliberately and consciously chosen ODI’s over test matches, T20’s over ODI’s, and now of course we have The Hundred. Another argument: of all the hours that you have spent staring at video content across all devices, how many hours were spent in watching movies – as opposed to TV series, documentaries, YouTube videos or TikTok?
When David Perell says that we have made the world cheaper, what I think he is saying is that we have figured out ways to cheapen the effort that we are willing to put into the act of consuming something. That something could be a meal, but it could also be extended to reading, viewing, or listening as well – and more besides. 5
The world has also been made cheaper in terms of effort.
I base my buying decisions on the buying decisions that others have made. My PowerPoint templates are standardized ones that Microsoft offers me. My tables in Excel are formatted as per the default mode, or based on the templates made available within the software. What to eat tonight is a function of an algorithm, the title of which is “popular in your area”. Relying upon my own research, or on serendipity is either a lost art, or has become one that is looked down upon.
I teach economics for a living, and the best definition of the subject that I have found comes from a textbook written by Alex Tabarrok and Tyler Cowen:
Economics is the study of how to get the most out of life.
The word “most” in that sentence necessarily implies optimization. And optimization necessarily implies maximizing something, or minimizing something. Getting the most out of life can be thought of in two ways. It could mean living life to the fullest (however you might define this for your own sake). It could also mean getting the most out of life by minimizing time, effort and cost spent on any activity. 6
Consider an example from my life. I love eating good food. In fact, the point of life, if you ask me, is to have as many good meals as possible. How can we apply the points in the paragraph above to my life?
A good meal on a Sunday, for example, could mean spending all day researching the best version of a recipe for a dish I have in mind, then walking to the market to get the best, freshest ingredients possible, then lovingly preparing them, and then getting the whole dish together, so that friends and family can have a wonderful, relaxed meal together.
I’d call that living life to the fullest. It is all but a guarantee that I get nothing else done on that Sunday, but I have maximized contentment.
On the other hand, I could just order the dish from a restaurant whose version I really like. Or I could decide that this particular dish is too expensive, and just make myself a sandwich instead.
I’d call this getting the most out of life by minimizing time, effort and cost. I haven’t maximized contentment, of course, but I have saved time and effort.
And as you may have guessed, I end up doing the latter far more than the former.
And this for something I really and truly love: eating. We feed our passions, even, by minimizing time, cost and effort, instead of maximizing contentment. Our necessities don’t stand a chance.
That is what we have become: a microwave economy.
Chef Rajan is the chef de cuisine at the JW Marriott in Pune. He has, over the years, become a really good friend. By rights, he ought to be best friends with my doctor. For Chef Rajan has ensured over the past seven years or so that there are far too many inches on my waist. But it is for that very reason, of course, that he and I are such good friends. The man loves to feed people, bless him.
The Rajan economy is his fiefdom in the JW Marriott. This fiefdom is the 24-hour restaurant in the lobby, called Spice Kitchen. 7 Procurement, staffing, menu design, day-to-day operations and customer relationship management – Chef Rajan is involved in all of these in one way or the other.
I, my extended family and a lot of other people in Pune are frequent visitors to his restaurant for a variety of reasons. There’s the attention to detail, the friendly customer service, the frequently changing menu and much else besides. But there is one non-negotiable rule that I’ve never broken, and he won’t consider breaking.
There’s never been a question about a discount on the bill.
Chefs who used to be in charge of the restaurant before him have waived off the bill on a couple of occasions – maybe a birthday being celebrated there, maybe some other occasion. Not, let me be clear, because I asked for it. It was their way of deepening the relationship with a customer. And once offered, of course, I was going to take it. Why wouldn’t I?
But ever since Chef Rajan has been in charge of the kitchen (which, if memory serves me right, was in 2015), there has never once been the suggestion of a discount. Not once.
And that has left me even happier as a customer over these past few years.
Because the Rajan economy is not about cost minimization. It is, instead, about maximizing customer delight. 8 The Sunday brunches, or brunches on special occasions such as Christmas day, are expensive affairs. 9 But I doubt anybody can walk away from that spread thinking that they did not get their money’s worth. The extent of the spread, its presentation, the quality of the ingredients, the number of times that freshly prepared batches are brought out of the kitchen – all of these speak to the quality of the restaurant. 10
Chef Rajan’s philosophy at the Spice Kitchen isn’t about cost minimization, it is about maximizing customer delight. Never once have I sat down for a meal at the Spice Kitchen and not been sent a little something that is over and above whatever is on the menu that day. If it is a special occasion, the little something could be quite elaborate. On other days, not so much. But there will always be a little bit more than expected, or a little bit more than is part of the stated deal.
You will pay full price, in other words, but you will get more than you bargained for.
I signed on for an online course conducted by Amit Varma last year, called The Art of Clear Writing. 11 It was a wonderfully organized course, and was slated to last a couple of months or so. But it is still not over! There is a community that has been formed of present and past students. Talks about writing are organized and a newsletter is in the works. Regular writing prompts are handed out to those who wish to continue practice writing. This writing regularly receives community-based feedback. Again, the price of the course is non-negotiable, but you will get more than you bargained for.
There are two ways to live life and conduct business, when thought about from the framework we have been dancing around in this essay so far. Charge the bare minimum and provide the bare minimum is one of them.
There is an argument to be made to go the Rajan/Amit way instead.
One of my favorite books to read was Anti-Fragile, by Nicholas Nassim Taleb. The key point in the book for me was that there are certain things in the world that don’t do well when exposed to risk. These things we call fragile. There are other things that don’t do badly when exposed to risk. These we call robust.
Antifragility isn’t about not doing badly when exposed to risk. It is about getting better because of exposure to that risk. Or as he puts it in the book, robustness isn’t the opposite of fragility – it is antifragility.
In a similar vein, I think we have prayed for far too long at the altar of cost efficiency. We have focussed so much on ridding ourselves of inefficiencies in our society that we have killed off the idea of satisfying the soul.
But there is a very good reason for this – our ability to measure everything, everywhere. It may have been a blessing at one point of time, but today, I would call it a curse.
There is this part in a conversation between Tim Ferriss and Seth Godin in which Tim asks Seth about meditation. After Seth’s answer, Tim has a follow-up question about the length of time that Seth spends in meditating, and if Seth has a preference regarding time of day. Seth’s answer is worth quoting in its entirety:
“No. I don’t quantify that stuff. I quantify almost nothing in my life”
Our ability to measure and therefore quantify every single aspect of our lives is increasingly becoming a problem.12 The reason it is a problem is because quantification gives us the satisfaction of having done something about the task ahead of us – whatever that task may be. We have quantified our effort, and analyzing said quantification allows us to become “better” over time.
Let’s use a concrete example: I can measure the amount of time I spend staring at my phone daily. Apps that allow one to do this are freely available on, or even baked right into, all popular mobile operating systems. The reason I want to do this is because I have a lot of work to do in this quarter, and I want to minimize wasted time.
After a week of logging in the data, I can then decide how to either allocate my time on the phone better (more Kindle app, less Facebook), or reduce the number of minutes I spend on the phone daily.
I might even get good at this. Maybe, after a month, I now spend markedly less time on the phone, and what little time I spend on it, I spend on “good” apps. The problem, however, is that I now have one more thing to do – track, analyze and optimize how I spend my time on the phone.
That is, because I could measure time spent, I optimized it. The point, however, was to do more work this quarter, not analyze how I am spending my time instead. The quality of the work – what I refer to in this essay as soul satisfaction – is inherently immeasurable. And so we optimize the measurable, and continue to ignore the immeasurable.
It is, unfortunately, the immeasurable that is important.
Now you could, of course, attempt to measure the immeasurable. Chef Rajan, or somebody else at the Marriott could conduct a survey to find out how satisfied the customers are. Amit Varma might circulate a Google Form to find out how satisfied his students are with the course. 13
But even if this was attempted, the wrong thing would be quantified. 14 The customer’s satisfaction would be (imperfectly) measured.
What we really want to measure is how soul-satisfied are the creators with their work, and measuring this is pointless: the creator already knows.
In our rush to find something to measure in order to prove that we are efficient, we measure, analyze and perfect cost, time and effort minimization. And we therefore fail to do what we set out to in the first place: good, high-quality work.
If you will forgive a lengthy extract in an already lengthy essay, David Perell points this out in his essay as well:
As Mumford observed almost a century ago, the world loses its soul when we place too much weight on the ideal of total quantification. By doing so, we stop valuing what we know to be true, but can’t articulate. Rituals lose their significance, possessions lose their meaning, and things are valued only for their apparent utility. To resist the totalizing, but ultimately short-sighted fingers of quantification, many cultures invented words to describe things that exist but can’t be defined. Chinese architecture follows the philosophy of Feng Shui, which describes the invisible — but very real — forces that bind the earth, the universe, and humanity together. Taoist philosophy understands “the thing that cannot be grasped” as a concept that can be internalized only through the actual experience of living. Moving westward, the French novelist Antoine de Saint-Exupéry said: “It is only with the heart that one can see rightly; what is essential is invisible to the eye.” And in Zen and the Art of Motorcycle Maintenance, Robert Pirsig describes how quality can’t be defined empirically because it transcends the limits of language. He insists that quality can only be explained with analogies, summarizing his ideas as such: “When analytic thought, the knife, is applied to experience, something is always killed in the process.” All these examples use different words to capture the same idea.https://perell.com/essay/the-microwave-economy/
But a headlong rush to measure, analyze and optimize the measurable has resulted in us losing sight of the big picture. We have become a society of optimization through minimization. We’ve become very good at extracting the very last bit of juice out of a lemon. So good, in fact, that we’ve forgotten all about growing more lemons. 15
The point was to be as content as possible. We’ve settled instead for being as content as we possibly can be after minimizing costs, time and effort.
It is a mouthful, I’ll be the first to admit. And if anybody reading this can coin a better phrase, I’m all for using that one instead. But call it what you will, it is the idea that I am focused on, not its name. We need to move away from minimizing that which we can measure, and try and move towards maximizing that which we can’t.
Cowen and Tabbarok’s definition remains perfectly valid. Economics is indeed about getting the most out of life. All of us are often unclear about what we are optimizing for in life. Is it a fulfilling family life, or is it income, or is it something else? Every economics professor will sooner and later ask her student: “what are you optimizing for?”
I’d suggest a follow-up question: how are you optimizing for it?
And by way of example, let us return to my favorite thing to think about: food.
If, on a Monday night, you are wondering what to cook, don’t think about which recipe can be made as quickly as possible. That would be time, effort and cost minimization.
Choose instead, the recipe you want to make, and cut out everything else in your life that stops you from making that recipe. And if this still doesn’t give you enough time, then try to see if you can eliminate certain steps in the recipe. See if certain steps can be done in advance. See if hacks can be used to accelerate certain processes.
In other words, what you want to maximize is non-negotiable. Don’t give up on your dream. But compromises in order to achieve that dream – well, that is inevitable.
Let me put it another way. Consider these two statements:
I argue that we have, as a society, grown far too comfortable with the first idea, and we need to learn to do more of the second.
But whatever you do, don’t microwave a meal.
Yesterday, I wrote this in my summary of Bloom and co-authors’ paper on productivity in India:
Economists tend to not buy into this because they assume that profit maximization implies cost minimizationhttps://econforeverybody.com/2021/02/23/notes-from-does-management-matter-evidence-from-india-by-bloom-et-al/
So in other words, if firms are not minimizing costs by adopting good management practices, it is because “wages are so low that repairing defects is cheap. Hence, their management practices are not bad, but the optimal response to low wages.”
… which brought to mind of the topic of X-inefficiency, for the second time this year. The first was when Tyler Cowen wrote about it in January. Here’s Wikipedia:
X-inefficiency is the divergence of a firm’s observed behavior in practice, influenced by a lack of competitive pressure, from efficient behavior assumed or implied by economic theory. The concept of X-inefficiency was introduced by Harvey Leibensteinhttps://en.wikipedia.org/wiki/X-inefficiency
X-inefficiency, in essence, is the idea that the economic theory idea about efficient firms in efficient markets is perhaps a little overblown. Here’s a quote from the paper itself:
The simple fact is that neither individuals nor firms work as hard, nor do they search for information as effectively, as they could. The importance of motivation and its association with degree of effort and search arises because the relation between inputs and outputs is not a determinate one. There are four reasons why given inputs cannot be transformed into predetermined outputs: (a) contracts for labor are incomplete, (b) not all factors of production are marketed, (c) the production function is not completely specified or known, and (d) interdependence and uncertainty lead competing firms to cooperate tacitly with each other in some respects, and to imitate each other with respect to technique, to some degree.Leibenstein, Harvey. “Allocative Efficiency vs. ‘X-Efficiency.’” The American Economic Review, vol. 56, no. 3, 1966, pp. 392–415. JSTOR, http://www.jstor.org/stable/1823775
By the way, the entire paper is worth reading, because it contains multiple delightful nuggets. The Hawthorne effect, which I mentioned in yesterday’s blogpost makes an appearance, and it also helps one understand why microeconomic textbooks are a very poor way to learn about the real world. Consider this delightful quote, for example:
One idea that emerges from this study is that firms and economies do not operate on an outer-bound production possibility surface consistent with their resources. Rather they actually work on a production surface that is well within that outer bound.Leibenstein, Harvey. “Allocative Efficiency vs. ‘X-Efficiency.’” The American Economic Review, vol. 56, no. 3, 1966, pp. 392–415. JSTOR, http://www.jstor.org/stable/1823775
OK, so people and firms are both not as efficient as econ textbooks make them out to be. This is not, to put it politely, headline material in the non-econ world. What might be potential solutions?
In situations where competitive pressure is light, many people will trade the disutility of greater effort, of search, and the control of other peoples’ activities for the utility of feeling less pressure and of better interpersonal relations. But in situations where competitive pressures are high, and hence the costs of such trades are also high, they will exchange less of the disutilityibid
of effort for the utility of freedom from pressure, etc
In English, this means the following:
This last part is all but impossible, but oh-so-important.
In any case: x-inefficiencies. An underrated topic from micro!
We’ve been building a series on finance here, and we’re not even at basecamp level just yet in terms of our ascent on Mount Finance. But I just realized that while I’ve started the series, I have not laid out two ideas that I think are central to thinking about finance. One idea for today, and the other for tomorrow.
Today’s idea is about zero sum games.
I’m big on non-zero sum games. Students at GIPE are probably sick and tired of hearing me uttering the phrase now, but it’s never going to stop. The world is where it is today precisely because of the fact that it is a non-zero sum game, and most of our problems in life and society would go away if only we understood and applied the principle in all walks of life. But that’s a separate post, and I’ll get to it one day.
For those of you who are unfamiliar with the concept, a trade in which both parties are left better off than they were before is called a non-zero sum game. Also called a double thank you moment, by the way.
Here’s the thing about finance.
For me to win, you have to lose. There’s debate about whether this is true for all of finance or only a part of it, but options theory in particular is (at least in my view) definitely a zero sum game.
Options and futures trading is the closest practical example to a zero-sum game scenario because the contracts are agreements between two parties, and, if one person loses, then the other party gains. While this is a very simplified explanation of options and futures, generally, if the price of that commodity or underlying asset rises (usually against market expectations) within a set time frame, an investor can close the futures contract at a profit. Thus, if an investor makes money from that bet, there will be a corresponding loss, and the net result is a transfer of wealth from one investor to another.https://www.investopedia.com/terms/z/zero-sumgame.asp
Speaking of the “for me to win, you have to lose” line of argument, consider this snippet of an excellent conversation between Tyler Cowen and Clifford Asness:
AUDIENCE MEMBER: How confident can you be that there will continue to be the steady supply of stupider investors on the other side of the trade so that you continue to make money?https://conversationswithtyler.com/episodes/cliff-asness/
ASNESS: That’s a great set of questions.
Backing up, you’re not going to believe me, you’re going to think I’m just copying you. But myself and a colleague, Antti Ilmanen — he’s Finnish, he didn’t just have odd parents — have been planning, we haven’t written it yet, to write a paper with the literal title, “Who is On the Other Side?” Just a little shorter version of what you said, because we do think that is a very disciplining question.
In fact, if you ask me, this is the core differentiator between economics and finance. The study of economics is (ought to be?) about non-zero sum games. The study of finance is about zero sum games. It’s confrontational, it’s risky, it’s like sports. For there to be a winner, there has to be a loser.
Why I like watching and playing sports even when sports is very much a zero-sum game is also another post by the way. One day.
Still, back to my main point: finance is a zero sum game.
If you want to get into this jungle, do so with eyes wide open. I’m just sayin’.
The best way to learn is by arguing with somebody.
Classes are boring, reading is passive, and videos are both of these things. But when you meet somebody who is well informed, thoughtful, respectful of your viewpoint but is willing to argue with you, well: Merry Christmas.
I’m well aware that social media leaves one with the impression that none of these things are true these days, but that is just our tendency to search out the bad, rather than the good.
When I teach courses in behavioral finance, for example, I often show a discussion between Richard Thaler and Eugene Fama:
That is not the point of today’s blogpost, but it is still a video worthy of your time, whether you’re interested in the topic or not. These two gentlemen (Nobel Prize winners both of them) hold diametrically opposite views when it comes to the efficiency of markets. But they spend a little over forty minutes here, engaged in perfectly civil conversation with each other, without once ceding an inch to the other’s viewpoint. The point isn’t the fact that we’re left without a clear understanding of who is right and who is wrong. The takeaway is that it is entirely possible to argue without turning the argument into a shouting match.
It is, as nine pm teaches us every night in India, a vanishing art.
Macroeconomics is a subject that lends itself to vigorous debate for a variety of reasons. One, and let us be clear about this, nobody has the slightest idea about what works and what doesn’t when it comes to macroeconomics. Yes, really.
Two, counterfactuals are impossible to come by, and so you can engage in endless games of but-have-you-considered.
Three, every macroeconomic crisis that I have had the opportunity to study as it has unfolded has led to all of what is listed below:
What’s worse is that the first two points depend almost entirely upon one’s point of view. And again, no, I am not making this up.
But I am not saying that this makes macroeconomics “bad”. This is precisely what makes it fascinating!
Blanchard’s argument that Biden’s bill is too large rests on the idea that this amount of spending will cause the economy to “overheat” — in other words, that inflation will rise. To prevent this, he suggests shrinking the size of the bill and financing more of it with taxes.https://noahpinion.substack.com/p/covid-relief-isnt-stimulus-its-social
This is a point made by Larry Summers as well, by the way. For a good summary, see this Vox article.
Noah Smith’s point, and it one worth considering, is that this recession isn’t like the others. We say that every time there is a recession, by the way, but Smith’s point this time around is that the spending shouldn’t really be thought of as a stimulus, it should be thought of as social insurance:
If you get a check during a pandemic, you’re not going to go out and spend it at restaurants and bars, because…well, there’s a pandemic. Instead, you’re more likely to stick it in the bank, pay down debt, or pay the back rent that you owe.https://noahpinion.substack.com/p/covid-relief-isnt-stimulus-its-social
In a normal recession, this is exactly what we don’t want people to do. We want them to take their government checks and go out and spend them, to restart the virtuous cycle of economic activity! But in a pandemic, it’s fine.
It’s fine because what we’re trying to do with COVID relief isn’t actually pump-priming — it’s retroactive social insurance. Some people, through no fault of their own, took a big hit from a risk that only a few people were paying attention to. In order to relieve those people’s suffering, we are giving them money that they can use to pay rent and buy necessities, as well as money to pay down debts so they have a bit more financial security.
The rest of the post is worth reading, because it identifies potential flaws in the argument he is making, and provides reasoned counter arguments. So well is this done that you begin to side with him…
…until you read Professor Cowen:
Leave aside the political question of how aggressively to pursue an agenda of a larger, more activist government (and keep in mind that I am more libertarian than many of the participants in this debate). Take a Big Government as a given. History shows that consumption still ought not be the priority.https://marginalrevolution.com/marginalrevolution/2021/02/investment-investment-investment-how-to-think-about-the-biden-stimulus-proposal.html
It’s not as if there aren’t obvious candidates for alternative investment: green energy, broadband and public-health infrastructure for the next pandemic, to name a few. Yes, I am familiar with the argument that spending the extra trillion or so now will make it possible to spend more trillions later, including on such policies. But whatever kind of complicated political story you might tell, the basic laws of economics have not been repealed. Increasing current expenditures does, in fact, involve foregone future opportunities.
And his concluding paragraph is an excellent teacher at work, because he goes back to the Principles of Economics:
I say you can divide the commenters here into two groups. Those who produce complicated arguments about why opportunity cost reasoning does not apply here, and those who stress the relevance of the opportunity cost of allocating another trillion dollars or two. I believe that once you recognize that distinction, you know what to do with it next.https://marginalrevolution.com/marginalrevolution/2021/02/investment-investment-investment-how-to-think-about-the-biden-stimulus-proposal.html
To which a pro-stimulus (or pro social insurance) person might say, “But people first!” Does that argument hold true? If this stimulus results in runaway inflation a couple of years down the line (students of the Indian economy might recall the years 2009-2013, so we’re not talking hypotheticals here), then was the stimulus in fact worth it? How do we balance this argument against the very real need to provide a stimulus today?
I am completely unsure about what the correct answer is – and that is my point in today’s post.
How can one not be fascinated by macroeconomics?
If I ever meet Zeynep Tufekci, a beverage of her choice is due to her from me.
Last week’s post about her take on metaepistomology bought forth two very pleasant consequences. Whether they were intended or not is a question I myself have been grappling with, but I shall deal with that question (and that story) later on this week.
About those consequences:
Which, let’s be upfront and honest, is no answer at all. So, the topic of today’s blogpost: if there were to be a summer school, or a workshop, or a weekend course – whatever – on philosophy at the undergrad level, what all should it contain?
I don’t have a formal training in philosophy, having never taken the subject in my own undergrad days. It wasn’t on offer, I am sad to report, when I was doing my Masters. But I have tried to read a little bit here, and a little bit there, and have jotted down the list below as a starting point. Note that I have tried to ask what should be included in a summer school for students of economics who are studying philosophy for the first time, rather than first time students of philosophy. Also not that I am a complete amateur: please, point out obvious omissions!
That, I’m guessing should be more than enough for a 30 hour introduction, and the reading list is already monstrous.
So when I ask of you, what am I missing, I’m really asking the following: who/what would you include (and why) and who/what would you remove (and why). If there is anybody reading this who could help, please do write in.
I’ve been watching MKBHD videos for a while now, but a favorite activity for my daughter and I this past summer has been to watch them together.
As anybody who has watched them will attest to, they’re impeccably produced, and always manage to strike that perfect balance between being fun and informative. And trust me, getting that balance right is hard. But my daughter, who notices these things much more than I do, also points out his (Marques Brownlee‘s) diction, the way he sets up his backgrounds (or set, or whatever you call it) – and also how much better his voice seems to be than in other videos.
And since she’s mentioned it, it’s hard to ignore. It’s clear that a lot of work goes into producing these videos – and to put out over a hundred of them in one year is seriously impressive – which his channel did last year. What’s even more impressive is the fact that he plans to launch more channels this year, let alone videos.
I got to know about this in a very well done podcast, in which Nilay Patel spoke with Marques about what I wrote about in the preceding paragraph, and a whole host of things besides. Reading the transcript as an economist was interesting, for a lot of things resonated with concepts we teach (and don’t, but should) in class. They weren’t referring to the concepts, of course, for both are (probably) blessedly unaware of boring ol’ econ texts – they were just solving, or thinking, about the challenges they face in the course of their work.
But if you’re somewhere between the age of 18 to 24, and wondering where the hell (and how) to apply things we teach you in your classes – well what better way to learn than this? Ec101 applied to MKBHD videos – whatay way to learn, no?
Notes and brief explanations follow:
Up until the last bullet point above, this post was 2,455 words in length. That, I suppose, is about enough for a blogpost. But there’s more, much more, in this interview. So please, read/listen to it in its entirety.
But hey, I’m clearly on a roll, so I cannot resist one final piece of advice. Take notes, and write down your thoughts about what you’ve consumed. Even if nobody else is ever going to read it.
It really and truly helps.