Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

Marginal REVOLUTION
From the comments
by Tyler Cowen on August 15, 2016 at 2:50 pm
The authors of an article entitled Mysticism in Literature (by H.C. Gardiner and E.
Larkin) were surprisingly dismissive of Blake, an I-It enthusiast (like Wordsworth and
fantasy novel world-builders); apparently the real success in the Mysticism in
Literature world is in the I-Thou (Carmelite poets, very generous people, that sort of
thing) area. I have long thought that JM Keynes whose General Theory is in places
as well written as Finnegans Wake, as I once read somewhere on this blog was to his
brother Geoffrey (the Blake specialist) what the fictional Sherlock was to Mycroft; a very
bright sibling but clearly the exponentially less capable of the two. Economics, though,
is often just common sense reiterated and refined with the mistakes thrown out; it
seems almost comical to associate something that takes such a long time with young
students. I read my first economics book, with a banana-yellow cover, in high school
(bought at a Waldenbooks at a Bay Area shopping mall, long vanished; at the same
mall, I was in line behind a young woman, now in her 70s, who bought a cassette
recording of Rachmaninoffs 24 variations on a theme of some long-forgotten fiddler. I
still remember the shy happy smile on her face the money she spent must have
meant something to her and how well she was dressed, as if she believed one had to
dress elegantly to buy a Rachmaninoff cassette. Writing a comment on this almost (or
completely) male-only comment thread, all I can say is she was as likely to be right
about the necessity of elegance as me, if not more so. If she is reading this, I dont
remember the town, but it was somewhere just north of Pleasanton).
It doesnt matter what the post was, that is from another vote another time zone, if only E. Harding
were so eloquent

Japan fact of the day

by Tyler Cowen on August 15, 2016 at 12:40 pm
Japans central bank is set to become the top shareholder of 55 companies in the
Nikkei
Here is more.

http://marginalrevolution.com/

Page 1 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

Monday assorted links

by Tyler Cowen on August 15, 2016 at 11:44 am
1. Contemporary art exhibit for dogs, via Yana.
2. Tyler Cowen asks what I think the five biggest open questions are in the current economic
debate. That is from Adam Ozimek, those are pretty close to my own list, I would toss in some
China too like what the hell is going on there?.
3. Smart tattoos can control your phone and what else?
4. Taxidermist robotic deer there is no great stagnation.
5. Ive been telling you that foreign agents will continue to be a big and growing issue (NYT,
#Ukraine, #Russia, #Manafort).
6. Iran fact of the day: per gdp, they are number one in medial count, USA is number three.

Testing for Racial Discrimination in Police Searches of Motor

Vehicles
by Tyler Cowen on August 15, 2016 at 3:33 am
That is a new paper by Camelia Simoiu, Sam Corbett-Davies, and Sharad Goel, the abstract is
familiar but depressing:
In the course of conducting traffic stops, officers have discretion to search motorists for
drugs, weapons, and other contraband. There is concern that these search decisions
are prone to racial bias, but it has proven difficult to rigorously assess claims of
discrimination. Here we develop a new statistical methodthe threshold testto test
for racial discrimination in motor vehicle searches. We use geographic variation in stop
outcomes to infer the effective race-specific standards of evidence that officers apply
when deciding whom to search, an approach we formalize with a hierarchical Bayesian
latent variable model. This technique mitigates the problems of omitted variables and
infra-marginality associated with benchmark and outcome tests for discrimination. On a
dataset of 4.5 million police stops in North Carolina, we find that the standard for
searching black and Hispanic drivers is considerably lower than the standard for
searching white and Asian drivers, a pattern that holds consistently across the 100
largest police departments in the state.

http://marginalrevolution.com/

Page 2 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

For the pointer I thank the excellent Samir Varma.

Faroe islands fact of the day

by Tyler Cowen on August 15, 2016 at 12:37 am
A lot of the women go away to study and dont come back:
There are already 2,000 more men than women on the Faroes which has a total
population of just under 50,000 and some of those men have taken matters into their
own hands by importing wives and companions from the Philippines and Thailand.
Filipinos and Thais make up two of the largest groups of foreigners on the Faroe
Islands . There are now 200 Thais and Filipinos mostly women spread out over the
islands.
In the tiny hamlet of Klaksvk located in the northern part of the islands, there are
already 15 women from Asia.
Bjarni Ziska Dahl, who married his Filipino wife in 2010, said that the foreign women
could well be the answer to the issues facing the Faros.
We must recognise that there is a problem, and welcome these strangers with dignity,
Dahl told DR Nyheder. We need these people.
Both Dahl and his wife Che said that they have a lot in common: island life, a dedication
to family and a longing for simplicity. Dahl said that Asian woman are often willing to
take jobs that Faroese women will not do.
Here is the full report, one Faorese woman does not like having to say hello to everyone she meets
in the street there. And this is not just a news story, the married and younger Asian women were
one of the first things I noticed getting on the plane to Faroe. (They looked not unhappy by the
way. The other thing I noticed right away was how many disparate groups on the flight seemed to
know each other. And that you have to be careful not to assume that people who look somewhat
alike are brothers, or sisters, or parents and children.)
You might consider this a metaphor for some broader social trends around the world, albeit in this
case unusually concentrated along the dimensions of geography and nation/territory. Some
women just dont want to hang out with the guys even the best guys who are selling to a
market of 50,000 people. Other women are happy to move into that situation. Solve for the
equilibrium.

http://marginalrevolution.com/

Page 3 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

Sunday assorted links

by Tyler Cowen on August 14, 2016 at 2:30 pm
1. Mistakes people make with publishing academic books.
2. What makes a McMansion bad architecture? Great piece.
3. Why so many lottery jackpots this year? (NYT)
4. The US and UK versions of Cloud Atlas are quite different.
5. So far the worst predictions about Brazils Olympics have not come true. And which are the
most popular Olympic sports? I didnt know people enjoy watching volleyball so much.
6. The FDA wants to make it harder to buy and sell poop. Are the pro-choice forces lining up
against this one? I hope they will. There is in fact a new saying My colon. My choice. You dont
even have to worry about the status of the fetus

Further research on the limits of solar energy

by Tyler Cowen on August 14, 2016 at 10:21 am
There is yet another paper on this topic, called Buffering Volatility: A Study on the Limits of
Germanys Energy Revolution, by Hans-Werner Sinn. Here is the abstract:
Based on German hourly feed-in and consumption data for electric power, this paper
studies the storage and buffering needs resulting from the volatility of wind and solar
energy. It shows that joint buffers for wind and solar energy require less storage
capacity than would be necessary to buffer wind or solar energy alone. The storage
requirement of over 6,000 pumped storage plants, which is 183 times Germanys
current capacity, would nevertheless be huge. Taking the volatility of demand into
account would further increase storage needs, and managing demand by way of peakload pricing would only marginally reduce the storage capacity required. Thus, only a
buffering strategy based on dual structures, i.e. conventional energy filling the gaps left
in windless and dark periods, seems feasible. Green and fossil plants would then be
complements, rather than substitutes, contrary to widespread assumptions.
Unfortunately, however, this buffering strategy loses its effectiveness when wind and
solar production overshoots electricity demand, which happens beyond coverage of
about a third of aggregate electricity production. Voluminous, costly and inefficient
storage devices will then be unavoidable. This will make it difficult for Germany to
http://marginalrevolution.com/

Page 4 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

pursue its energy revolution beyond merely replacing nuclear fuel towards a territory
where it can also crowd out fossil fuel.
Here is yet another NBER paper on this topic. You may recall the recent JPE paper estimating that
the costs of solar intermittency are higher than the costs of carbon.
Overall the message seems to be that not going nuclear was an even bigger mistake than we had
been thinking.

What Ive been reading

by Tyler Cowen on August 14, 2016 at 12:57 am
1. Samuel Fleischacker, The Good and the Good Book: Revelation as a Guide to Life. A nice,
articulate, and well-reasoned account of how a reasonable person might turn to faith and believe
that faith and reason are compatible. The author is a well-known Adam Smith scholar.
2. Abraham Hoffman, Unwanted Mexican Americans in the Great Depression. The best and most
readable book I have found on the deportation of Mexicans during the Great Depression, most of
all during the 1931-1935 period. Reading up on this era puts todays America in useful perspective.
3. The Curse of Cash, by Kenneth Rogoff. The quality of argumentation and presentation is high,
as one would expect from a Ken Rogoff book. Still, I dont think it has so much to convince those
who might be worried about a currency-less surveillance Panopticon, or those who think negative
interest rates are mostly a contractionary and not-so-useful tax on financial intermediation.
4. Mats Lundahl, The Political Economy of Disaster: Destitution, plunder and earthquake in Haiti.
More of a potpourri of Haitian economic history than what the titles indicates, the best 20 percent of
this book has insights you wont find in other places. For me that is a high hit rate, I liked it.
5. John Hardman, The Life of Louis XVI. Im only about fifty pages into this one, but so far it is a
first-rate biography, both detailed and conceptual in nature, likely to make the list of the years best
non-fiction books.

*Common Sense Economics*

by Tyler Cowen on August 13, 2016 at 3:02 pm
The third edition is now out, and the authors are James D. Gwartney, Richard L. Stroup, Dwight R.
Lee, Tawni H. Ferrarini, and Joseph P. Calhoun.
Self-recommending, this is a very good introduction to economics for say a smart high school
http://marginalrevolution.com/

Page 5 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

student who reads books. Sadly, more and more politicians and indeed professional Ph.d.
economists need this wisdom too.

Saturday assorted links

by Tyler Cowen on August 13, 2016 at 1:25 pm
1. Real witchcraft shop wont sell to Harry Potter fans.
2. Virtual reality and the theory of moral sentiments.
3. French swimwear banned for excessive modesty. Photo at the link.
4. World Bank staff vs. World Bank president.
5. Coasean dont you wear our Lacoste shirts you crummy cumbia band failed markets in
everything, Spanish language only. Coase didnt hold.
6. Birds on a wire the spooky cormorants of Tokyo. And will Trump discredit conservatism or
populism?

Does inefficient risk-bearing change the opportunity cost of

government borrowing?
by Tyler Cowen on August 13, 2016 at 2:08 am
Lets say the private sector is using a hurdle rate of five percent and the government a rate of one
percent. (Those numbers are illustrative only.)
Furthermore say the private sector uses five percent because it faces private risk which is in fact
not social risk from a welfarist point of view. In other words, the private sector ought to use a one
percent hurdle rate, even though it does not, but people worry about their own portfolios rather than
the broader social portfolio of projects in toto. If the private sector switched to the one percent rate,
of course, it would invest much more and lower the marginal rate of return on capital from five
percent down to one percent, adjusting for all the required adjustments (taxes, transactions costs,
etc.).
In such a world, if a new government project displaced private capital, the opportunity cost would
be one percent at the margin.
But we are not in such a world, even if you think we ought to be. If a new government project
http://marginalrevolution.com/

Page 6 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

displaces some private sector capital, the marginal cost there is still five percent.
You can read Brad DeLongs take on my post yesterday on the opportunity cost of extra
government projects. Brad longs for that cross-sector equalization down to one percent on both
sides of the ledger and he makes many fine points. But there is nothing in his argument which
rebuts, or even tries to rebut, the claim that, given current imperfections the marginal opportunity
cost is still five percent.
So the message of my original post stands as well, and you will note that is simply the mainstream
micro take on this question which has been around since the 1970s, with the commonly understood
answers pretty much crystallized by the early 1980s.
Addendum: Here is me, from the comments: It is amazing how much free lunch economics one
can read in these comments. Of course we should in fact apply multiplier analysis to the
percentage of previously unemployed resources targeted by the new project, and a higher hurdle
rate to the rest. You can argue over what is the percentage mix here, but please dont pretend
scarcity is no longer a ruling economic principle.

Xenophon paragraphs to ponder

by Tyler Cowen on August 13, 2016 at 12:23 am
Australias government needs to scrap its free trade Taliban mentality, buy more local
products and properly scrutinise foreign investment, says Nick Xenophon, the leader of
one of the minor parties that holds considerable sway following last months election.
Most of all, it hurts that he is called Xenophon; some of you will know that Xenophon from ancient
Greece was the first (surviving) author to point out the phenomenon of division of labor.
Apparently there is a Great Xenophon stagnation or even retrogression. This passage
notwithstanding, the Taliban, by the way, did not favor free trade.
Here is the full FT piece by Jamie Smythe.

The culture and polity that is Singapore, Germany, and Belarus

by Tyler Cowen on August 12, 2016 at 10:41 pm
Singapore leads the way, offering three-quarters of a million U.S. dollars to gold-medal
winners, followed by Indonesia ($383,000), Azerbaijan ($255,000), Kazakhstan
($230,000) and Italy ($185,000).
http://marginalrevolution.com/

Page 7 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

I would say Italy should not be on that list, as they have some fiscal troubles, plus plenty of other
sources of national pride. And there is this:
other countries offer alternative bait like military exemptions (South Korea), a
lifetime supply of beer (Germany) and unlimited sausages (Belarus).
Here is the article, via James Crabtree.

The roots of Trump support

by Tyler Cowen on August 12, 2016 at 1:27 pm
It seems to be living near failure, not necessarily experiencing it yourself:
Yet a major new analysis from Gallup, based on 87,000 interviews the polling company
conducted over the past year, suggests this narrative is not complete. According to this
new analysis, those who view Trump favorably have not been disproportionately
affected by foreign trade or immigration, compared to people with unfavorable views of
the Republican presidential nominee. The results suggest that his supporters, on
average, do not have lower incomes than other Americans, nor are they more likely to
be unemployed.
Yet while Trumps supporters might be comparatively well off themselves, they come
from places where their neighbors endure other forms of hardship. In their
communities, white residents are dying younger, and it is harder for young people who
grow up poor to get ahead.
The Gallup analysis is the most comprehensive statistical profile of Trumps supporters
so far. Jonathan Rothwell, the economist at Gallup who conducted the analysis, sorted
the respondents by their Zip code and then compared those findings with a host of
other data from a variety of sources.
That is from Max Ehrenfreund and Jeff Guo at the always-excellent Wonkblog. And there is this:
White households tend be more affluent than other households, and Trumps
supporters are overwhelmingly white. The same is true of Republicans in general. Yet
when Rothwell focused only on white Republicans, he also found that demographically
similar respondents who were more affluent viewed Trump more favorably.
These results suggest that personal finances cannot account alone for Trumps appeal.
His popularity with less educated men is probably due to some other trait that these
supporters share.

http://marginalrevolution.com/

Page 8 of 9

Marginal REVOLUTION Small Steps Toward A Much Better World

8/15/16, 6:31 PM

Rothwells results also very much downplay the roles of trade and China, compared to some other
estimates. Here is a link to Rothwell summarizing some of these results, I am not sure if there is a
link to the full study proper.

Friday assorted links

by Tyler Cowen on August 12, 2016 at 11:56 am
1. Why is Russia escalating in Ukraine?
2. Those new service sector jobs: consultant to autodidact physicists.
3. Do Greenland sharks live for 400 years? And it seems they dont reach sexual maturity until
150, and their age is dated with reference to the golden age of nuclear bomb testing.
4. About your cat(s)
5. Zhangs parents apparently allow him to carry the doll but are still very insistent that he should
still get married.
6. Yes, yes The Great Satan but John Cochrane is right too.

http://marginalrevolution.com/

Page 9 of 9