Ufuk Akcigit and Nathan Goldschlag (my co-author and former student) have an important new paper on the employment and invention dynamics of US inventors. Amazingly they link data on inventors from patents to census data using anonymized, person-level identifiers, known as Protected Identification Keys (PIKs) so they also have individual data on earnings and employment and they link that data to data on firms.
Ultimately, we observe the employment histories of approximately 760 thousand inventors associated with 3.6 million patents granted between 2000 and 2016.
What they find is twofold. First, an increasing number of inventors are being hired by large incumbent firms (left below). Second, when inventors move to large incumbent firms they earn more but they invent less, compared to similar inventors who go to young firms (right below). Why would an incumbent firm pay more for less productive workers? One possible answer is the Arrow replacement effect, namely a monopolist has less incentive to innovate than a competitive firm becasue the monopolist has a bigger opportunity cost, namely it’s own profits. As Arrow put it: “The preinvention monopoly power acts as a strong disincentive to further innovation.” A logical extension is that a monopolist will be willing to pay not to innovate and one way of doing that is to hire inventors who, if they worked at an entrant, would threaten their monopoly profits.
This is an important paper on declining dynamism in the US economy.
One model of a future course is a super-textbook: lectures, exercises, quizzes, and grading all available on a tablet with artificial intelligence routines guiding students to lectures and
exercises designed to address that student’s deficits and with human intelligence—tutors—on call on an as-needed basis, possibly for extra marginal fees.
…last week, the private Khan Lab School campuses in Palo Alto and Mountain View welcomed a special version of the [GPT] technology into its classrooms.
Rather than solve a math problem for a student, as ChatGPT might do if asked, Khanmigo is programmed to act like “a thoughtful tutor that’s actually going to move you forward in your work,” says Salman Khan, the technologist-turned-educator who founded Khan Academy and Khan Lab School.
Khanmigo was developed in concert with OpenAI, the nonprofit tech start-up that created GPT-4, the underlying technology for the latest version of ChatGPT. OpenAI did not respond to a request for comment on the partnership.
Fifty years ago today, on March 23, 1973, Alexander P. Butterfield, the Administrator of the Federal Aviation Administration, issued a rule that remains one of the most destructive acts of industrial vandalism in history.
“No person may operate a civil aircraft at a true flight mach number greater than 1 except in compliance with conditions and limitations in an authorization to exceed mach 1 issued to the operator under Appendix B of this part.”
This text was slightly modified in 1989 and again in 2021, but the upshot remains the same. The rule imposed a speed limit on US airspace. Not a noise standard, which would make sense. A speed limit.
This speed limit has naturally distorted the development of civil aircraft. For fifty years, the aviation industry has worked to improve subsonic aviation. Commercial passenger aircraft are safer and more economical today than they were in 1973, but they are no faster.
If we had propagated the rate of growth in commercial transatlantic aircraft speeds that existed from 1939 to the mid-1970s, we would have Mach-4 airliners by now. But the overland ban put an end to all that. It made small supersonic aircraft, which need to fly shorter overland routes, essentially illegal, closing off the iteration cycle that could drive progress in the industry.
That’s Eli Dourado who notes that modern designs greatly reduce sonic boom. I would also add the following. In 2019 there were 811 million passengers on US domestic flights and 241 million passengers on US international flights. The average duration of a domestic flight is about 2.5 hours and an international fight about 7.3 hours so Americans spend about 3.7 billion hours every year on airplanes. If we could cut even 20% of that time that’s a saving of 757 million hours which has to be weighed against a few people experiencing sonic booms near airports. Indeed, since the people on the airplane are subjected to a lot of the noise the total amount of noise experienced could easily go down with faster aircraft!
The central claim of our work is that GPT-4 attains a form of general intelligence, indeed showing sparks of artificial general intelligence. This is demonstrated by its core mental capabilities (such as reasoning, creativity, and deduction), its range of topics on which it has gained expertise (such as literature, medicine, and coding), and the variety of tasks it is able to perform (e.g., playing games, using tools, explaining itself…). A lot remains to be done to create a system that could qualify as a complete AGI.
In The New Madness of Crowds I argued that SVB failed because “Greater transparency and lower transaction costs have intensified the madness of the masses and expanded their reach.” A piece by Miao, Zuckerman and Eisen in the WSJ now adds to to the other side of the problem. Depositors were working on twitter time, the regulatory apparatus was not.
Depositors were draining their accounts via smartphone apps and telling their startup networks to do the same. But inside Silicon Valley Bank, executives were trying to navigate the U.S. banking system’s creaky apparatus for emergency lending and to persuade its custodian bank to stay open late to handle a multibillion-dollar transfer.
Instead of hearing a rumor at the coffee shop and running down to the bank branch to wait on line to withdraw your money, now you can hear a rumor on Twitter or the group chat and use an app to withdraw money instantly. A tech-friendly bank with a highly digitally connected set of depositors can lose 25% of its deposits in hours, which did not seem conceivable in previous eras of bank runs.
But the other part of the problem is that, while depositors can panic faster and banks can give them their money faster, the lender-of-last-resort system on which all of this relies is still stuck in a slower, more leisurely era. “When the user interface improves faster than the core system, it means customers can act faster than the bank can react,” wrote Byrne Hobart. You can panic in an instant and withdraw your money with an app, but the bank can’t get more money without a series of phone calls and test trades that can only happen during regular business hours.
It’s not obvious whether the right thing to do is slow down depositors, at least in some circumstances, or speed up regulators but the two systems can’t work well at different speeds.
I talk with entreprenreur Niklas Anzinger on the Stranded Technlogies Podcast. Niklas summarizes some of the discussion:
This episode is an intellectual journey that discovers insights that can be used by entrepreneurs and city developers. We talk about the Baumol effect that Alex uses to explain the now infamous price chart.
Alex’s recommendation to new city or governance startups like Prospera, Ciudad Morazan or the Catawba DEZ is to think of city development as a “dance between centralization and decentralization”.
Economists have developed concepts that are waiting to be commercialized, e.g. prediction markets. In this episode, we talk about dominant assurance contracts and how they could be used in new city developments and fundraising.
We have innovations like Uber and Airbnb and many others only because entrepreneurs didn’t have to ask for permission. Had we put these ideas to the vote they would have been defeated. Allow almost anyone with a car to drive customers around town? Stranger danger! Let any house be turned into a hotel? Not in my neighborhood! Once the innovations were brought into existence, the masses saw the benefits but they would not have seen those benefits if the idea had been put to a vote. Demonstration is more powerful than imagination.
More and more, however, the sphere of individual action shrinks and that of collective action grows.
A small but sadly amusing case in point is building in San Francisco. A plan was proposed to build the apartments at right. Love it, hate it. I don’t care. But it shouldn’t be up for collective action. Instead, what we have, however, is a planning process in which the President of the SF Planning Commission, Myrna Melgar, can opposed the plan because:
….I have to just state that I hate the design. Nothing against the architect, I think that the big windows, to me, are a statement of class and privilege. …having that building, with all of those windows it’s such a statement of, to me, class privilege because you know, poor people don’t do that, they don’t you know, like, win- you know, have everything out on the street. It just, so it just, it really rankles me the wrong way. So I just have to say it is a design issue. To me, design guidelines for what’s going to come are going be really important because I do think it does say to the community – is this still our community, what are we building for?
The building was proposed as a replacement for an auto shop (!) in 2014! Building didn’t start until 2022 and as of January 2023 it still wasn’t complete, although it looks like they got most of the windows approved.
In Modern Principles of Economics, Tyler and I use asteroid defense as an example of a public good (see video below). As of the 5th edition, this public good wasn’t being provided by either markets or governments. But thanks to NASA, the era of planetary defense has begun. In September of 2022 NASA smashed a spacecraft into an asteroid. A new set of five papers in Nature has now demonstrated that not only did NASA hit its target, the mission was a success in diverting the asteroid:
DART, which was the size of a golf cart, collided with a Great Pyramid-sized asteroid called Dimorphos. The impact caused the asteroid’s orbit around another space rock to shrink — Dimorphos now completes an orbit 33 minutes faster than before the impact, researchers report1 today in Nature.
…As DART hurtled towards Dimorphos at more than 6 kilometres per second, the first part that hit was one of its solar panels, which smashed into a 6.5-metre-wide boulder. Microseconds later, the main body of the spacecraft collided with the rocky surface next to the boulder — and the US$330-million DART shattered to bits….the spacecraft hit a spot around 25 metres from the asteroid’s centre, maximizing the force of its impact….large amounts of the asteroid’s rubble flew outwards from the impact. The recoil from this force pushed the asteroid further off its previous trajectory. Researchers estimate that this spray of rubble meant Dimorphos’ added momentum was almost four times that imparted by DART.
…Although NASA has demonstrated this technique on only one asteroid, the results could be broadly applicable to future hazards…if a dangerous asteroid were ever detected heading for Earth, a mission to smash into it would probably be able to divert it away from the planet.
Academic freedom and intellectual merit are under attack in the United States, from both the left and the right. The norms of the university and intellectual life are fragile and need protecting because such norms are always in tension with political and economic power.
The undersigned members of the GMU Department of Economics express their commitment to academic freedom and to intellectual merit.
Addressed to the George Mason University (GMU) community and the public at large
~~~
American universities have professed allegiance to two ideals. First, the ideal of academic freedom – the right of students and faculty to express any idea in speech or writing, without fear of university punishment, and secure in the knowledge that the university will protect dissenters from threats and violence on campus.
Second, the ideal of intellectual merit – the right and duty of academic departments to hire and promote the most brilliant, creative, and productive faculty in their fields, and admit the most intellectually promising students, without pressures from the administration.
These ideals are the cornerstones of liberal education. They protect faculty and students who hold views unpopular on university campuses. Academic freedom protects existing students and faculty who dissent from current dominant academic opinion and ideology. No matter how unpopular their views, they know the university will protect them. As stated in the University of Chicago Statement on freedom of expression and as quoted in GMU’s “Free Speech at Mason” Statement:
[We must hold a fundamental commitment to] the principle that debate or deliberation may not be suppressed because the ideas put forth are thought by some or even by most members of the University community to be offensive, unwise, immoral, or wrong-headed.
Intellectual merit protects prospective students and faculty who speak and write against current dominant viewpoints. No matter how unpopular their views, they know that university administration will not obstruct or prejudice their admission, hiring, or promotion.
Recently, both of these ideals have come under attack. Pressure for conformity has intensified and universities have increasingly interfered with departments’ personnel decisions. For example, at some universities, one of the more egregious new practices is the requiring of written “diversity” statements by prospective students, staff, or faculty, then used to discriminate among candidates, often by quarters of the university with interests other than those of the department or unit. Such methods recall arrogations of the past, such as The Levering Act of 1950, used against radicals.
We strongly believe the attacks on academic freedom and intellectual merit are deeply mistaken. The classic rationales in favor of these ideals are sound. To protect them, viewpoint diversity must be celebrated and academic departments must maintain their ability to select, hire, and promote students and personnel based on intellectual merit. We insist that the degree of institutional autonomy that the GMU Department of Economics has traditionally enjoyed is vital to the health of viewpoint diversity not only within the university but within the academy writ large.
It is vital that every department in a university enjoys independence, so it can dare to be different and keep viewpoint diversity alive. George Mason University has excelled in supporting viewpoint diversity with a variety of diverse departments, centers and organizations. Viewpoint diversity at George Mason has benefited the university, the United States, and the wider intellectual world.
Indeed, some of the Department’s chief contributions have taught that all forms of authority can exert power to excess, and that guarding against such excess calls for the very ideals affirmed here, respect for dissent and intellectual merit.
We, the undersigned members of the GMU Department of Economics, look forward to continuing our independence to do good economics according to our judgment, guided by the ideals of academic freedom and intellectual merit.
Signed by the following GMU Department of Economics faculty (full-time & emeritus):
1. Jonathan P. Beauchamp
2. James T. Bennett
3. Donald J. Boudreaux
4. Bryan D. Caplan
5. Vincent J. Geloso
6. Timothy Groseclose
7. Robin D. Hanson
8. Garett Jones
9. Daniel B. Klein
10. Mark Koyama
11. David M. Levy
12. Cesar A. Martinelli
13. John V.C. Nye
14. Thomas C. Rustici
15. Vernon L. Smith
16. Alex Tabarrok
17. Karen I. Vaughn
18. Richard E. Wagner
19. Lawrence H. White
ARSTechnica: On Monday, researchers from Microsoft introduced Kosmos-1, a multimodal model that can reportedly analyze images for content, solve visual puzzles, perform visual text recognition, pass visual IQ tests, and understand natural language instructions. The researchers believe multimodal AI—which integrates different modes of input such as text, audio, images, and video—is a key step to building artificial general intelligence (AGI) that can perform general tasks at the level of a human.
In 2020 Metaculus forecasters were predicting weak general AI by around 2053. Now they are predicting weak general AI by 2028 and strong general AI which includes:
Has general robotic capabilities, of the type able to autonomously, when equipped with appropriate actuators and when given human-readable instructions, satisfactorily assemble a (or the equivalent of a) circa-2021 Ferrari 312 T4 1:8 scale automobile model. A single demonstration of this ability, or a sufficiently similar demonstration, will be considered sufficient.
I never expected to witness the birth of aliens. It is a very strange time to be alive. If you think the world isn’t changing in a very uncertain and discontinuous way you just aren’t paying attention.
In 1947 the British Town and Country Planning Act made planning permission a requirement for land development; ownership alone no longer conferred the right to develop the land. A decline in construction was predictable but housing is a durable good. Even today more than a third of the British housing stock dates to before 1947. So it has taken time but, according to a new study, the act has had a slow but long-run depressing effect on construction with the result that today the average house in England costs more than ten times the average salary.
Britain has a severe housing crisis, especially in the most prosperous places in the Greater South East. Across England, the average house costs more than ten times the average salary, vacancy rates are below 1 per cent, and space per person for private renters has dropped substantially in recent decades.
This report explores the root cause of the UK’s housing problem, how policy in this area has developed over the last 75 years, and what action policymakers need to take to deliver enough homes in the UK.
…This report uses this new data and other sources to compare British housebuilding and outcomes to that in Ireland, France, Belgium, the Netherlands, (West) Germany, Austria, Switzerland, Denmark, Sweden, Norway, and Finland from 1955 to 2015. It finds that Britain’s housing shortage began at the beginning of the post-war period…
Housebuilding rates in England and Wales have dropped by more than a third after the introduction of the Town and Country Planning Act 1947, from 2 per cent growth per year between 1856 and 1939 to 1.2 per cent between 1947 and 2019.
This has been a key factor behind the UK’s long-standing housing crisis, which has led to inflated property prices and soaring rents in recent decades.
Give Directly is looking for a proverb to promote the idea of giving directly:
The most common critique of giving cash without conditions is a fear of dependency, which comes in the form of: “Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.”
We’ve tried to disabuse folks of this paternalistic idea by showing that often people in poverty know how to fish but cannot afford the boat. Or they don’t want to fish; they want to sell cassava. Also, we’re not giving fish; we’re giving money, and years after getting it, people are better able to feed themselves. Oh, and even if you do teach them skills, it’s less effective than giving cash. Phew!
Yet, despite our efforts, the myth remains.
The one thing we haven’t tried: fighting proverb with (better) proverb. That’s where you come in. We’re crowdsourcing ideas that capture the dignity and logic of giving directly.
The best suggestions are not a slogan, but a saying — simple, concrete, evocative (e.g.). Submit your ideas by next Friday, March 3, and then we’ll post the top 3 ideas on Twitter for people to vote on the winner.
Interactive tools help students learn economics and help teachers deliver great econ education. To celebrate, the MRU team has just released a 6-day high school unit plan on inflation complete with lecture slides, videos, and interactive practice and we’re offering high school teachers a chance to win billions of dollars to check it out. (Ok, Zimbabwean billions but still pretty cool!)
Anna was excited to open her birthday present from her husband. He had been hinting at something special for weeks, and she couldn’t wait to see what it was. She tore off the wrapping paper and lifted the lid of the box. Inside was a beautiful necklace with a pendant shaped like a heart. It sparkled in the light and looked very expensive.
“Oh, honey, it’s gorgeous!” Anna exclaimed, hugging her husband. “Thank you so much! How did you afford this?”
He smiled and kissed her cheek. “Don’t worry about that. It’s your birthday, and you deserve the best. I love you.”
Anna put on the necklace and admired herself in the mirror. She felt like a princess. She decided to wear it to the party they were going to that night.
At the party, Anna received many compliments on her necklace. She felt proud and happy as she showed it off to her friends. She thanked her husband again for his wonderful gift.
Later that night, as they were driving home, Anna noticed that her husband seemed tense and nervous. He kept checking his phone and looking at the rearview mirror.
“Is everything okay?” she asked him.
He nodded quickly. “Yeah, yeah, everything’s fine.”
Anna shrugged and leaned back in her seat. She closed her eyes and smiled, thinking about how lucky she was.
Suddenly, she heard a loud bang and felt a jolt of pain in her chest. She opened her eyes and saw blood spilling from her necklace. The pendant had exploded.
She looked at her husband in horror. He had a gun in his hand and a cold expression on his face.
“I’m sorry, Anna,” he said calmly. “But I had no choice.”
He pulled the trigger again.
There are religious and spiritual undertones regarding temptation, sin, and mortality in this story. The pendant, the gift, represents the forbidden fruit of knowledge that leads to a fall from grace. The gift made Anna happy but also made her prideful and sinful. The sequence of Anna putting on the necklace, showing it off to other people, and then being killed with it can be seen as a metaphor for pride preceding a fall. The husband manipulates Anna by giving her such an extravagant gift before revealing his violent nature. This reflects how abusers often use a “cycle of abuse”, alternating between kindness and cruelty to reinforce control. The husband wants Anna to understand that she has done something terribly wrong even if she isn’t yet aware of what it is. The husband appears evil but the heart shaped pendant indicates a kind of true love. “I’m sorry,” he said calmly, “But I had no choice.”
The USA is confronted with three epic-size problems: (1) the need for production of energy on a scale that meets the current and future needs of the nation, (2) the need to confront the climate crisis head-on by only producing renewable, green energy, that is 100% emission-free, and (3) the need to forever forestall the eruption of the Yellowstone Supervolcano. This paper offers both a provable practical, novel solution, and a thought experiment, to simultaneously solve all of the above stated problems. Through a new copper-based engineering approach on an unprecedented scale, this paper proposes a safe means to draw up the mighty energy reserve of the Yellowstone Supervolcano from within the Earth, to superheat steam for spinning turbines at sufficient speed and on a sufficient scale, in order to power the entire USA. The proposed, single, multi-redundant facility utilizes the star topology in a grid array pattern to accomplish this. Over time, bleed-off of sufficient energy could potentially forestall this Supervolcano from ever erupting again. With obvious importance to our planet and the research community alike, COMSOL simulation demonstrates and proves the solution proposed herein, to bring vast amounts of green, emission-free energy to the planet’s surface for utilization. Well over 11 Quadrillion Watt hours of electrical energy generated over the course of one full year, to meet the current and future needs of the USA is shown to be practical. Going beyond other current and past research efforts, this methodology offers tremendous benefits, potentially on a planetary scale.
Then all nine remaining students entered, each carrying a piece of paper. One by one they read a paragraph….I had used racist language. I had misgendered Brittney Griner. I had repeatedly confused the names of two black students. My body language harmed them. I hadn’t corrected facts that were harmful to hear when the (now-purged) students introduced them in class. I invited them to think about the reasoning of both sides of an argument, when only one side was correct….
One might be tempted to dismiss this as another old, white male complaining about the kids but the speaker is Vincent Lloyd, highly-regarded director of Africana Studies at Villanova and the author of Black Dignity, “a radical work by one of the leading young scholars of Black thought…an effort to describe the philosophy underlying the Black Lives Matter movement.”
I have no doubt that I would disagree with much of what he has to say but Lloyd has a calling, he believes in his students, in the virtue of teaching and in the power of the humanities to make us better:
…a seminar requires patience. Day by day, one intervention builds on another, as one student notices what another student overlooked, and as the professor guides the discussion toward the most important questions. All of this is grounded in a text: Specific words, phrases, arguments, and images from a text offer essential friction for conversation, holding seminar participants accountable to something concrete. The instructor gently—ideally, almost invisibly—guides discussion toward what matters.
The seminar assumes that each student has innate intelligence, even as we come from different backgrounds, have different amounts and sorts of knowledge, and different skills. We can each be formed best if we take advantage of our differing insights to push each other, over time, again and again. When this practice is occasioned by carefully curated texts—not exclusively “great books,” but texts that challenge each other and us as they probe issues of essential importance—a seminar succeeds.
A seminar takes time. The first day, you will be frustrated. The second and the third day, you will be frustrated. Even on the last day, you will be frustrated, though ideally now in a different way. Each intervention in a seminar is incomplete, and gets things wrong. Each subsequent intervention is also incomplete, and also gets things wrong. But there are plenty of insights and surprises, for each participant looks at a text with different eyes.
It is tempting to add: Such is life. Such is democratic life. We each have different, partial knowledge. We each get things wrong, over and over. At our best, we enter the fray by listening to each other and complementing and challenging the insights of our fellows. In the process, over years, decades, we are oriented toward justice and truth.
You can feel Lloyd’s pain when his students reject this gift.
As a crazy person who argued for skipping phase III and going directly to an open label, voluntary phase IV study I think the real problem came with the mandates.
The right has a very strong personal independence streak and above all they despise it when some mandarin explains that the government, but also major corporations and academics, can bring the full force of law to bear to compel compliance (particularly in a world where any attempt to do so for right-coded things like abortion is suddenly the coming of the apocalypse). It is one thing to have a guy like me point out the historical track record for the side effects of vaccines (pretty much universally among the lowest for any type of medical intervention ever tested), it as another to have organized campaigns where people get fired. And it is particularly galling when the basic science shows these sorts of mandates are woefully wrong. Job loss doubles the risk of suicide, which means that for any cohort outside of the elderly and severely immune compromised, a vaccine mandate enforced by recission of employment is expected to kill more people than could have been reasonably avoided with even wildly effective vaccine mandates.
And it was further made much, much worse when the public health folks doubled down on medically illiterate standards….And of course any comparison about how people making decisions that fostered disease transmission with Covid and HIV is going to be very hard to avoid a bunch of cultural diktat that rubs conservatives the wrong way.
As in many cases, vaccines ran afoul of the ability of folks to increase their petty empires. They became a way for the goodthinking folks to exercise control and dominion over the ignorant. And exactly as predicted by culturally competent medicine or any cursory study of human nature, these high-handed methodolotrous actions will not induce much compliance, but will instead polarize the medicine and risk one of the greatest medical achievements of all time – childhood vaccinations.
So where do we go from here? I would submit that it is going to require some clear and objective limitations on public health powers. It is going to require public apologies and maybe compensation for folks who made medically valid claims that their prior infection resulted in sufficient immunity to avoid vaccination or repeated boosters. Some public and high profile olive branches are going to need to be offerred to the resistant. And it is going to have to involve some tradeoff between the rights of corporations to dictate the terms of business they offer and the rights of individuals to make medical decisions free of compulsion going forward. At the very least we are going to need to have some semblance of similarity between how corporations can handle folks who are HIV+ (or likely to become so) and how they handle folks who are unvaccinated.
…But will not mandates work? Well empirically they failed massively with Covid.
…Well among health care workers in 2019 (i.e. before Covid mucked everything up), health care workers were ~80% vaccinated against influenza. And if you had a straight requirement to get vaccinated? It brought the number up to 97%. Which is fine, except for the fact that resistant healthcare workers self-select into non-mandatory positions (e.g. long-term care positions). Absent a safety valve into remunerating work, we see the same fracas that happened with Covid.
So adults, even among the most medically literate professions with the strongest mandates for uptake, still do not vaccinate enough to prevent epidemics.
So how did we get vaccination to work in the first place? We had a brief window in the mid 20th century when people remembered their kids dying from these diseases and were wildly more trusting and cooperative than ever before in American history (you back when we set records for church attendance, trust in politicians, and marriage rates). And we created a strong cultural norm that kids get vaccinated before going to school.
That is weird. It does not fit with normal American practice. And for the love of God do not muck with it. If the kids ever revert to the natural habits of their parents we are talking about very bad juju.
Which is precisely why the only sensible position is to advocate for early and widespread vaccine access, be highly critical of all the politicking about vaccine timing around the election, and to avoid mandates unless you intend to enforce them at gunpoint. Keep the damn vaccines out of politics because once they go in, it is damn hard to get them out. Give people as early of access as they want and be straight forward that we will continue phase IV safety studies even as we roll out access. And we will not do mandates absent a direct democratic initiative to give it all the legitimacy in the world.
Because we live in a world where the default is not to vaccinate, politics poisons everything it touches, and the childhood mandates are historical accidents that could very well fall to concerted political action.
Eat the horse a bite a time, educate the patients, and pay the danegeld to Trump to soften the blow. But going all high handed and making this political (at all, in any direction)? I can think of few stupider things to do.
Here’s something odd: We’re getting worse at construction. Think of the technology we have today that we didn’t in the 1970s. The new generations of power tools and computer modeling and teleconferencing and advanced machinery and prefab materials and global shipping. You’d think we could build much more, much faster, for less money, than in the past. But we can’t. Or, at least, we don’t.
…A construction worker in 2020 produced less than a construction worker in 1970, at least according to the official statistics. Contrast that with the economy overall, where labor productivity rose by 290 percent between 1950 and 2020, or to the manufacturing sector, which saw a stunning ninefold increase in productivity.
In the piquantly titled “The Strange and Awful Path of Productivity in the U.S. Construction Sector,” Austan Goolsbee, the newly appointed chairman of the Chicago Federal Reserve and the former chairman of the Council of Economic Advisers under President Barack Obama, and Chad Syverson, an economist at the University of Chicago’s Booth School of Business, set out to uncover whether this is all just a trick of statistics, and if not, what has gone wrong.
After eliminating mismeasurement and some other possibilities following Goolsbee and Syverson, Klein harkens back to our discussion of Mancur Olson’s Rise and Decline of Nations and offers a modified Olson thesis, namely too may veto points.
…It’s relatively easy to build things that exist only in computer code. It’s harder, but manageable, to manipulate matter within the four walls of a factory. When you construct a new building or subway tunnel or highway, you have to navigate neighbors and communities and existing roads and emergency access vehicles and politicians and beloved views of the park and the possibility of earthquakes and on and on. Construction may well be the industry with the most exposure to Olson’s thesis. And since Olson’s thesis is about affluent countries generally, it fits the international data, too.
I ran this argument by Zarenski. As I finished, he told me that I couldn’t see it over the phone, but he was nodding his head up and down enthusiastically. “There are so many people who want to have some say over a project,” he said. “You have to meet so many parking spaces, per unit. It needs to be this far back from the sight lines. You have to use this much reclaimed water. You didn’t have 30 people sitting in an hearing room for the approval of a permit 40 years ago.”
This also explains why measured regulation isn’t necessarily determinative. Regulation provides the fulcrum but it’s interest groups that man the lever.
Some of this is expressed through regulation. Anyone who has tracked housing construction in high-income and low-income areas knows that power operates informally, too. There’s a reason so much recent construction in Washington, D.C., has happened in the city’s Southwest, rather than in Georgetown. When richer residents want something stopped, they know how to organize — and they often already have the organizations, to say nothing of the lobbyists and access, needed to stop it.
This, Syverson said, was closest to his view on the construction slowdown, though he didn’t know how to test it against the data. “There are a million veto points,” he said. “There are a lot of mouths at the trough that need to be fed to get anything started or done. So many people can gum up the works.”
The Canadian government has said it will stop issuing real return bonds, i.e. inflation indexed bonds. Real return bonds are extremely useful to anyone who wants a steady stream of income that keeps up with inflation—retirees, for example. A real return bond would also be ideal for funding an endowment such as a university chair or scholarship program. I agree with John Cochrane and Jon Hartley writing in the G&M that ending sales of these bonds is a bad signal.
So why stop issuing real return bonds? The government may suspect that inflation will go up a lot more, and it will then have to pay more to bondholders. Non-indexed debt can be inflated away if the fiscal situation worsens. The cumulative 11-per-cent inflation since January, 2021, has inflated away 11 per cent of the debt already. Argentines have seen a lot more.
But issuing indexed debt makes sense if the government plans to be responsible. Tax payments and budget costs rise with inflation, and fall with disinflation, so the budget is stabilized if inflation-indexed bond payments do the same. And issuing indexed debt that can’t be inflated away is a good incentive not to turn around and inflate debt away.
International travel to the United States is well below pre-pandemic levels, hurting our tourism industries, and embarrassingly long times to get a visitor visa are probably part of the problem.
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