Finally the social bubble seems to be bursting. Do remember that in 2000 there was backlash against Amazon as well, and it’s still around. Still, global oil demand level is low. Most people seem to agree that some of the “fixes” to the 2008 financial crisis were only band-aids, and the fundamental structural problems were put off for another day. Is that day now? Pessimism is cheap, but if you feel it, why not share it? I mused about a possible recession in May of 2007, and some of the comments were kind of funny and tragic. I’ll quote, with names removed to protect the guilty:
I heard about the chart above on Marketplace. Track enough variables, and you’ll find some which correlate well with GDP…until they don’t. So this is a neat story, but is it true? Well, I do accept the underlying logic here. So I’m hoping this is a statistical artifact of some sort….
This clip with Dan Ariely telling off a dentist who tried to sell him on a more expensive item is classic. Would that we all behaved in such a manner, no? The problem when you interact with a particular set of professionals, in particular in healthcare, the information asymmetry is such that it is very difficult for you to make an informed choice as a consumer. I’ve had an experience very similar to Ariely with dentists.
Economic forecasting is a mug’s game. There are simply too many unknowable factors that affect “the economy” for anyone to make accurate predictions. The Fukushima earthquake and nuclear disaster, for instance, had a noticeably negative macroeconomic impact around the world, and nobody knows what lurks inside the hearts of central bankers. Plus, if I did possess the secrets to the future, I’d be making a fortune as a speculator, not telling you about it.
There are plenty of financial types who have funds where investment is contingent upon expectation of macroeconomic conditions. You know what they think because you know how they invest, and they’ll tell you what they think as well. What’s the point of journalists and academics even offering predictions if they don’t have “skin the game”? You can basically just say anything to be contrary, perhaps like in a publication such as Slate.
One example of cyclicality that continues to today is the practice of law. The basic principles of Roman private law and the complaints that people made about lawyers and litigation were remarkably similar in the 300s to what they are today.
In the 6th century Justinian the Great sponsored a compilation of the body of law which was being widely practiced in the Roman Empire at the time, what is now known as the Corpus Juris Civilis. This is not an abstract or obscure point in the history of modern law:
The present name of Justinian’s codification was only adopted in the 16th century, when it was printed in 1583 by Dionysius Gothofredus under the title “Corpus Juris Civilis”. The legal thinking behind the Corpus Juris Civilis served as the backbone of the single largest law reform of the modern age, the Napoleonic Code, which marked the abolition of feudalism.
Imagine that the astronomical models of Ptolemy served as a basis for modern astrophysics! There’s only a vague family resemblance in this case. The difference is that law is fundamentally a regulation of human interaction, and the broad outlines of human nature remain the same as they were during the time of Justinian and Theodora. In this way law resembles many humanities, which don’t seem to exhibit the same progressivity of science. Our cultures may evolve, but there are constraints imposed by our nature as human beings. Human universals in humanistic enterprises speak to us across the ages. The story of Joseph and his brothers in in Genesis speaks to us because it is not too unfamiliar from our own. The meditations of Arjuna are not incomprehensible to the modern, even if they come from the imagination of Indians living thousands of years in the past. The questions and concerns of the good life are fundamentally invariant because of the preconditions of our biology.
The right questions to be asking aren’t “why does Silicon Valley create so few jobs;” it’s “why doesn’t everyone move to the Bay Area” (the rent is too damn high) or “how come there’s only one high-tech cluster.” After all, if industrial age capitalism had just created the prosperity of the Detroit area in its heyday, we’d look on it as a huge bust. But we had lots of industrial production clusters, of which the Detroit automobile industry was just the most famous.
I think there’s a standard geographical reason why capital intensive production of material goods exhibits polycentrism: the cost of transport matters. Many of the early industrial nuclei were located relatively close to the inputs for manufacturing. Additionally, once the goods were produced they had to be distributed as cheaply as possible, so location was another essential fixed parameter. Big eastern industrial centers loom large in the public imagination, but the same logic applies in other regions of the nation. Cheap electricity and abundant clean water is why many tech-oriented manufacturers are based out of the Pacific Northwest. It isn’t as if you could just relocate the Columbia river.
This article in The New York Times focuses on cash in terms of paper currency, but the lessons are generalizable to coinage as well, which pre-dates paper currency by 1,500 years. Some fascinating numbers:
…In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.
…Indeed, cash remains so pervasive, and the pace of change so slow, that Ron Shevlin, an analyst with the Boston research firm Aite Group, recently calculated that Americans would still be using paper currency in 200 years….
… Thanks to technological advances, the average dollar bill now circulates for 40 months, up from 18 months two decades ago, according to Federal Reserve estimates….
…. In 1989, the Fed replaced 46 percent of returned dollar bills. Last year it replaced 21 percent….
In the mid-2000s many regular folks knew that something was weird in housing. Of course everyone was aware that there was a short term windfall to be made if you could flip. But there were normal discussions about the bubble, and when it would burst, or if the weird arguments by some economists and the real estate industry that there wasn’t a bubble were true. In contrast regular people weren’t aware of the possibility of a financial crisis. I recall saying stupid things about the “Great Moderation,” parroting what I’d heard smarter people who I assumed knew better say, in the summer of 2008. Or take a look at some of the comments when I mooted the possibility of a recession in mid-2007: “They’re practically glorified hiccups nowadays. I don’t get what the big deal is.”
With that in mind I looked at Google Trends for two queries, “housing bubble” and “financial crisis.” The top panel is search query, and the bottom panel is news query. The financial crisis query is what you’d expect:
The housing bubble query is more interesting:
Steve Hsu points me to this essay which discusses ‘high-frequency trading’, How to Make Money in Microseconds. This might elicit a takfir from my friends at the Singularity Institute, but that piece makes me less ill-disposed to a Butlerian Jihad. A lot of this stuff on the margins and frontiers of finance reminds me of intragenomic conflict or cancer; entities and phenomena which are generally proposed to serve as means toward particular ends develop their own internal logic and ends through a co-evolutionary “arms race” in their own domains.
…Last year, pharmaceutical giant Merck announced plans for a research collaboration with BGI, as the Chinese company’s revenue hit $150 million—revenue projected to triple this year. “I admire their passion and the willingness to take risks,” says Steven Hsu, a physicist at the University of Oregon, adding that “it permeates the organization.”
Satellite research centers have been set up or are underway in the U.S., Europe, Hong Kong, and four other locations in China, and the number of researchers at the main headquarters in Shenzhen has more than doubled during the past year and a half. The institute now employs almost 4,000 scientists and technicians—and is still expanding.
“I’ve seen it happen but sometimes even I can’t believe how fast we are moving,” says Luo Ruibang, a bioinformaticist, who at 23, fits perfectly within the company’s core demographic. The average age of the research staff is 26.
Li Yingrui, 24, directs the bioinformatics department and its 1,500 computer scientists. Having dropped out of college because it didn’t present enough of an intellectual challenge, he firmly believes in motivating young employees with wide-ranging freedom and responsibility. “They grow with the task and develop faster,” he says. One of his researchers is 18-year-old Zhao Bowen. While still in high school, Zhao joined the bioinformatics team for a summer project and blew everyone away with his problem-solving skills. After consulting with his parents, he took a full-time job as a researcher and finished school during his downtime. Fittingly, he now manages a project on the genetic basis of high IQ. His team is sampling 1,000 Chinese adults with an IQ higher than 145, comparing their genomes with those of an equal number of randomly picked control subjects. Zhao acknowledges that such projects linking intelligence with genes may be controversial but “more so elsewhere than in China,” he says, adding that several U.S. research groups have contacted him for collaboration. “Everybody is interested in intelligence,” he says.
Knowledge, information, innovation, these are the only ways that the human race will beat back the Malthusian trap in our age. The world is aging now, and many nations will be moving past peak labor soon. We’ll need to be squeeze more productivity our of fewer at some point.
One of the most annoying aspects of the post-Westphalian era is the conceit that all national administrative units are equivalent in some deep fundamental sense. So, for example, you get comparisons of per capita income for nations, and Luxembourg and Lichtenstein inevitably show up at the top of the rankings. Everyone knows that this is a farce, but a nation is a nation, and one must honor the ideal, even when it leads us to bizarre assessments like this. Luxembourg has a population of 500,000, and is a little dot of a nation. It’s really ludicrous to compare it to Italy, which spans the gamut from Milan’s value-added wealth to Puglia’s spare poverty.
But with modern statistical tools and GIS software we can disaggregate the mishmash of administrative units which coalesce together to constitute large amorphous nations, and actually compare like to like. In this way those of us who haven’t traveled all around the world, and actually lived “on the ground,” can get a sense for fine-scale variation which all the locals have as part of their background information. This is what the Eurostat Yearbook is handy for. In particular, I love their NUT2 and NUT 3 visualizations. NUT 2 specifically is good for someone like me with a modest amount of geographical knowledge, since these units often correspond to historical regions which we’re familiar with (e.g., Catalonia, Tuscany, etc.).
Below are a selection of maps which I think are informative and interesting. But please note that some of these maps are generated from mid-2000s to 2007 data. This means there are going to be some obvious inflation of values for Ireland, inflation through fraud in Greece, and the property bubble in Spain. With those caveats, here’s GDP:
A few days ago Robin Hanson brought this chart of world population to my attention:
On the x-axis you have time, 12,000 years ago to the present. On the y-axis an estimate of the total world population log-transformed. The data is derived from the US Census low estimate. Granting the data’s accuracy for the purposes of reflection, Robin’s question was what could have occurred between 1000 and 500 BC to produce such a rapid population rise?
One of the major parameters which shape individual success, and macroeconomic growth in the aggregate, is time preference. Time preference basically measures an individual’s future-time orientation. Would you for example take $1,000 in the present, or wait 30 days and accept $1,500 dollars? It doesn’t need to be money, children can exhibit time preference as well. Would you like one candy bar now? Or two candy bars in an hour? I also think time preference permeates our lives more concretely. Would you like to eat some greasy food now, or would you forgo epicurean pleasures in the present for a sleeker frame in the future?
Here’s an illustration of the correlates of time preference:
In one of the most amazing developmental studies ever conducted, Walter Michel of Stanford created a simple test of the ability of four year old children to control impulses and delay gratification. Children were taken one at a time into a room with a one-way mirror. They were shown a marshmallow. The experimenter told them he had to leave and that they could have the marshmallow right then, but if they waited for the experimenter to return from an errand, they could have two marshmallows. One marshmallow was left on a table in front of them. Some children grabbed the available marshmallow within seconds of the experimenter leaving. Others waited up to twenty minutes for the experimenter to return. In a follow-up study (Shoda, Mischel, & Peake, 1990), children were tested at 18 years of age and comparisons were made between the third of the children who grabbed the marshmallow (the “impulsive”) and the third who delayed gratification in order to receive the enhanced reward (“impulse controlled”).
The third of the children who were most impulsive at four years of age scored an average of 524 verbal and 528 math. The impulse controlled students who scored 610 verbal and 652 math! This astounding 210 point total score difference on the SAT was predicted on the basis of a single observation at four years of age! The 210 point difference is as large as the average differences between that of economically advantaged versus disadvantaged children and is larger than the difference between children from families with graduate degrees versus children whose parents did not finish high school! At four years of age gobbling a marshmallow now v. waiting for two later is twice as good a predictor of later SAT scores than is IQ.
The issue of causality is probably one which you will immediately bring up. There is a correlation between higher IQ and low time preference (consuming less in the present to have a potential for more consumption in the future), but who knows how the feedback loops here work? For example, unlike many males my age I gave up playing video games around the age of 16. I calculated that I was substituting video games for reading, and that that would have long term consequences which I was not pleased with. Video games were very pleasurable in the short term, addictive even. But I decided that there simply were not enough hours in the day that I could do everything I needed to do, so I stopped playing them (I am aware that many, many, very smart people are avid video game enthusiasts. I’m just using it to illustrate the trade offs one might make). How much less erudite, as Dr. Dan MacArthur might say, would I be if I did continue to expend many hours per week on video games?
A new working paper on the SSRN website has some interesting data on time preference cross-culturally. How Time Preferences Differ: Evidence from 45 Countries:
The figure of $400 annually (as expressed in 1990 international dollars) is commonly is used as a measure of “bare bones subsistence” and was previously believed to be the average income in England in the middle ages.
However the University of Warwick led researchers found that English per capita incomes in the late Middle Ages were actually of the order of $1,000 (again as expressed in 1990 dollars). Even on the eve of the Black Death, which first struck in 1348/49, the researchers found per capita incomes in England of more than $800 using the same 1990 dollar measure. Their estimates for other European countries also suggest late medieval living standards well above $400.
This new figure of $1,000 is not only significantly higher than previous estimates for that period in England — it also indicates that on average medieval England was better off than some of the world’s poorest nations today including the following (again average annual income as expressed in 1990 dollars).
Here’s a chart of the wages of unskilled English workers:
The increase after 1300 is usually attributed to the population collapse induced by the Black Plague. England’s population remained stagnant until ~1500. At that point higher productivity started to get eaten up by population growth. An “iron law” of human history. Table 24 on page 61 of the working paper has estimates for various nations. I plotted them on a chart for 1300 to 1700: Read More
Ancient Egyptian farmer ploughing a field
Recently several weblogs have pointed to a new working paper on the role of plough-based agriculture vs. hoe-based agriculture in shaping cultural expectations about male and female labor force participation specifically, and the differentiation of gender roles more generally. My first reaction was: “doesn’t everyone know this already?” I am a cursory reader of the anthropological literature and the assumption that a shift from relatively extensive hoe-based agriculture (e.g., slash & burn, gardening, etc.) to a more intensive plough-based mode of production seems to suffuse the literature. Before touching on the major points in the paper itself I did a quick literature search, on the order of five minutes, and found something from 1928 which already assumed the major parameters which are now being mooted today, The Division of Work According to Sex in African Hoe Culture. I read the whole paper, and it remains surprisingly relevant (though some of the terminology and frameworks are a bit dated naturally). Here’s a selection:
Eduard Han, to whom the ethnological study of economics owes a considerable number of important discoveries which have been published repeatedly and in varying forms, seems to have paid scarcely enough attention to the good work of the scholars who preceded him in the fight for the recognition of the outstanding position of women in the lower forms of soil cultivation. Steinmetz and quite recently Koppers,’ have pointed out that Buckland already attributed to the female sex the invention of the most ancient method of soil cultivation, or hoe culture…Here we find, in particular,a clearer statement of the arguments of Grosse, Bachofen, and others about the connexion of matriarchal society and lower forms of soil cultivation. Matriarchy and hoe culture are assigned to definite chronologically determined stages of civilization (older forms of the so-called ‘two class culture’, and later ones of ‘bow culture’). Koppers, of the Austrian branch associates matriarchy and hoe culture with these two civilizations….
It is not our business here to study in detail the researcheson the zones of culture,which may be regardedas successfulup to a certain point, though we shall have to refer to them incidentally. It suffices to state that a connexion between woman and hoe culture, nay more, between that social system where the woman rules, matriarchal society, and primitive soil cultivation is universally acknowledged to exist.
Ignore some of the terms and concepts which might seem loaded or outmoded today. Rather, observe that in 1928 a distinction between hoe-based and plough-based agriculture was widely accepted in terms of the cultural consequences. Why? Just take a look at an old-fashioned plough vs. hoe (at least old-fashioned compared to the sort of mechanized devices you can find in catalogs today):
In the the 19th century the Democratic party, rooted in large part among Southern planters who were dependent on exports of commodities and imports of finished goods, was the party of free trade. The northern Whigs, and later the Republicans, were the party of tariffs. They were the faction which drew support from the industry of the North which benefited from protection against European competitors. The Republican support for tariffs and Democratic opposition persisted into the early 20th century. Only after World War II did this long standing division between the two parties diminish, so that by 1993 a much larger proportion of Republicans than Democrats supported the ratification of NAFTA.
Because of NAFTA’s prominence in my mind, as well as the tinge of economic nationalism on the labor Left and the maturing anti-globalization sentiment on the cultural Left, I had assumed that the Republicans tilted toward free trade more than Democrats. Not so. Pew came out with a survey a few days ago, and the results indicate that my preconception was wrong.
I asked this on twitter, but no one responded. If you had to choose between two scenarios, which would you choose:
– A world population of 10 billion where 90% were not malnourished?
– A world population of 500 million were 90% were malnourished?
The first scenario has 2.2 times as many malnourished individuals as the second.
This issue of relative and absolute values matters. Most of you are likely aware of the economic literature on the “big fish small pond” vs. “small fish big pond” effect. Perceptions of poverty are to some extent standardized to local distributions.
I just listened to a discussion between John Horgan and Madhusree Mukerjee, and the conversation ended on a moderately down note as Mukerjee seemed pessimistic about the prospects for the world’s poor. Where do these people get the idea that things are getting worse? I recall the same sentiment from Massimo Pigliucci. These are people with advanced degrees in science (Mukerjee has a doctorate in physics from University of Chicago, and Pigliucci has multiple advanced degrees), but they seem totally immune to the empirical trendlines of our age.
Here is China’s life expectancy over the past 50 years:
And below are a series of vital statistics for the world which are “looking up.” I’m not arguing here that things will inevitability get better, I’m arguing to at least acknowledge that things have noticeably gotten better.
I recently had an exchange on twitter about the term “Third World” (starting from a tweet pointing to the idea of “Third World America”). Here’s Wikipedia on the origins of the term:
The term ‘Third World’ arose during the Cold War to define countries that remained non-aligned or not moving at all with either capitalism and NATO (which along with its allies represented the First World) or communism and the Soviet Union (which along with its allies represented the Second World). This definition provided a way of broadly categorizing the nations of the Earth into three groups based on social, political, and economic divisions.
Although the term continues to be used colloquially to describe the poorest countries in the world, this usage is widely discouraged since the term no longer holds any verifiable meaning after the fall of the Soviet Union deprecated the terms First World and Second World. A term increasingly being used to replace “Third World” is “Majority World”, which is gaining popularity in the global south. The term was introduced in the early nineties by the Bangladeshi photographer and activist, Shahidul Alam.
I don’t think the term “Third World” has much utility, but I think it’s not useful to replace it with another dichotomous categorization which simply falls into the trap of a human cognitive bias. The bias seems universal, and doesn’t brook ideology. Racial nationalists and multiculturalist liberals both accept the dichotomy between “people of color” and whites. I believe most white liberals today would agree with the framework that white nationalist Lothrop Stoddard outlined in The Rising Tide of Color Against White World-Supremacy; they would simply invert the moral valence, looking positively upon developments which Stoddard viewed with concern. Many racial minorities in the West also buy into the white vs. non-white dichotomy for purposes of cooperation between different groups. Though it has tactical utility in white majority societies it’s frankly ignorant to presume that there’s any fundamental solidarity between “people of color.” I assume that dark-skinned South Asians and Africans who have lived in East Asia, or even the Gulf states, can confirm that racism is not necessarily conditional on the existence of white people.*
In yesterday’s link dump I expressed some dismissive attitudes toward the idea that loss of linguistic diversity, or more precisely the extinction of rare languages, was a major tragedy. Concretely, many languages are going extinct today as the older generation of last native speakers is dying. This is an issue that is embedded in a set of norms, values which you hold to be ends, so I thought I could be a little clearer as to what I’m getting at. I think there are real reasons outside of short-term hedonic utility why people would want to preserve their own linguistic tradition, and that is because I am no longer a total individualist when it comes to human identity. I have much more sympathy for the French who wish to preserve French against the loss of their linguistic identity against the expansion of English than I had a few years ago.
Language is history and memory. When the last speaker of English dies, or, when English is transmuted to such an extent that it is no longer English as we today understand it, our perception of the past and historical memory, our understanding of ourselves, will change. There is a qualitative difference when Shakespeare becomes as unintelligible as Beowulf. Though I tend to lean toward the proposition that all languages are a means toward the same ends, communication, I agree that there are subtleties of nuance and meaning which are lost in translation when it comes to works of literature and other aspects of collective memory. Those shadings are the sort of diversity which gives intangible aesthetic coloring to the world. A world where everyone spoke the same language would lose a great deal of color, and I acknowledge that.