Tag Archives: economics

January 2018 in Review

Most frightening stories:

  • Larry Summers says we have a better than even chance of recession in the next three years. Sounds bad, but I wonder what that stat would look like for any randomly chosen three year period in modern history.
  • The United States is involved in at least seven wars: Afghanistan, Iraq, Syria, Yemen, Libya, Somalia, and Pakistan. Nuclear deterrence may not actually the work.
  • Cape Town, South Africa is in imminent danger of running out of water. Longer term, there are serious concerns about snowpack-dependent water supplies serving large urban populations in Asia and western North America.

Most hopeful stories:

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

cities and gamification

This article is about applying gamification to the planning and running of cities.

Cities and the politics of gamification

Gamification is widely intended as the mobilisation and implementation of game elements in extra-ludic situations, including the management of social problems and issues. By mobilising virtual rewards and playful elements, mobile apps, websites, social initiatives and even urban policies are getting more and more gamified. The aim of this viewpoint paper is to stimulate a critical discussion on the potential relationships between gamification processes and cities, particularly by reflecting on the cultures of gamification and by discussing potential lines of research for urban studies.

December 2017 in Review

Most frightening stories:

  • The U.S. has lost ground relative to its peers on road deaths, and is now well below average. I noted that something similar has happened with respect to health care costs, life expectancy, infant mortality, education, drug addiction and infrastructure. Maybe a realistic goal would be to make America average again.
  • A lot of people would probably agree that the United States government is becoming increasingly dysfunctional, but I don’t think many would question the long-term stability of our form of government itself. Maybe we should start to do that. The Consumer Financial Protection Bureau has been doing a decent job of protecting consumers and reducing the risk of another financial crisis. The person in charge of it now was put there specifically to ruin it. Something similar may be about to happen at the Census Bureau. A U.S. Constitutional Convention is actually a possibility, and might threaten the stability of the nation.
  • Daniel Ellsberg says we are very, very lucky to have avoided nuclear war so far. There are some tepid ideas for trimming the U.S. nuclear arsenal, and yet it is being upgraded and expanded as we speak. The North Korea situation is not getting better. Trump may be playing to religious fundamentalists who actually are looking forward to the Apocalypse.

Most hopeful stories:

  • Exercise may be even better for your brain than it is for your body, and exercising your body may be even better for your brain than exercising your brain itself.
  • Macroeconomic modeling is improving. So, just to pick a random example, it might be possible to predict the effects on a change in tax policy on the economy. Now all we need is politicians who are responsive to logic and evidence, and we could accomplish something. At least a few economists think the imperfect tax plan the U.S. Congress just passed might actually stimulate business capital investment enough to move the dial on productivity. The deliberate defunding of health care included in the bill is going to hurt people, but maybe not all that dramatically.
  • Moody’s introduced a new methodology for assessing climate risk in municipal bonds.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • There are life forms surviving in space right now, most likely of Earth origin. I wondered if maybe we should purposely contaminate other planets with them.
  • Microsoft is trying to one-up Google Scholar, which is good for researchers. More computing firepower is being focused on making sense of all the scientific papers out there.
  • Futuristic technologies keep coming along. Something vaguely like the “liquid metal” from Terminator 2 is being used for experimental aircraft parts. Vital signs might be monitored soon using a simple RFID device. A tiny electric shock of just the right size to just the right part of your brain might cure you of bad habits. And Magic Leap may finally release…something or other…in 2018.

the tax plan and the mandate

I assumed that the end of the “individual mandate” would seriously undermine funding for Obamacare, and in fact that is exactly what Trump is claiming. But Politifact says we all have that wrong. In fact, those penalties cover only about 3% of the cost of the Affordable Care Act. The main point of the penalty was always a psychological incentive for people to go to the exchanges and find out if they qualified for free or subsidized insurance. People wanted to avoid that penalty even if avoiding it meant they pay more for insurance than they would have paid for the penalty. Not only that, but people who qualify for Medicaid, which is free, have been more likely to find out they qualify for Medicaid because they go to the exchanges after wrongly thinking they are subject to the penalty. So it was somewhat of a psychological trick all along rather than a serious funding mechanism. This doesn’t mean that removing it will have only a 3% affect on premiums for the subsidized private plans – the effect may work in reverse, with more people never going to the exchanges and some not realizing they qualify for free Medicaid benefits. The CBO guesstimate is a 10% increase in premiums as a result of this effect. It’s still going to hurt the working class who need health insurance the most and it’s still immoral. The really immoral part is that as U.S. health care costs continue to spiral out of control in both the public and private sectors, our immoral dishonest politicians are going to point to Obamacare as the cause, and our uninformed citizens are going to believe them.

the CFPB

Simon Johnson says the Consumer Financial Protection Bureau has actually been doing a good job up until now of, well, protecting consumer finances.

The CFPB was established by the 2010 Dodd-Frank financial-reform legislation to do exactly what its name implies: protect consumers in their various financial transactions. A new agency was needed because existing regulators, including the Board of Governors of the Federal Reserve System, had manifestly and repeatedly failed to protect consumers from abuses, such as deceptive and fraudulent mortgage-lending practices, some of which were at the heart of what went wrong in 2007-08.

As Elizabeth Warren (then a consumer advocate, now a US senator from Massachusetts) powerfully pointed out, there was a lot more protection for people buying toasters than for someone taking out a 25-year mortgage. Finance is complex, and a lot of devils could be, and were, hidden in the details. The CFPB was designed, above all, to bring greater transparency to consumers’ financial transactions – actually a very pro-market contribution.

And the CFPB has done exactly what Congress designed it to do. So far, the Bureau has arranged for the return of almost $12 billion to 29 million consumers. At the same time, banks are reporting record profits – on the order of $171 billion, according to the latest data. The CFPB is good for business, or at least for the straightforward, transparent business of traditional lending.

Unfortunately, all this seems likely to end as Trump has appointed someone to head the agency who is actually against the agency’s existence, not unlike his approach to the environment, housing, and education. Johnson seems to think the public will catch on to this and punish the Republicans politically when the little guy starts to get hurt by it. I don’t know, it probably depends on the timing. Nobody wants to see another financial blow-up, but if it has to happen mid-2020 seems as good a time as any.

macroeconomic models and tax cuts

The Economist has a piece on macroeconomic models used to evaluate tax policy.

Lurk near PhD economists online or at conferences, and you will hear them talk about “crisis in macro”. They mean that the models and assumptions most dominant among macroeconomists have failed repeatedly since 2007 to predict or even describe what’s happening. A defence, popular among academics, goes like this: we did get it wrong, but as responsible social scientists, we’re busy and fascinated right now, trying to figure out what was broken and how to fix it. It is a fair defence. In particular young macroeconomists have been using bigger datasets and faster computers to more accurately predict human behaviour. Economists are more likely to accept now, for example, that people with and without access to credit or wealth react differently to the same policy, an idea that is slowly working its way into models at central banks and even at the Joint Committee on Taxation.

This progress is unfortunate for Republicans. In the 1990s social science was on their side. Because data and computing power were harder to come by, macroeconomic models relied on thought experiments. The seminal model showing the ideal capital-gains tax rate as zero, for example, dates to 1986. It assumes that the economy consists of only one person. Also, she is immortal. The Wonder Woman economy, if you will. That model is now interesting only for a lecture on the history of economic thought. We’ve moved on, macroeconomists protest. But economists have. And Republicans haven’t…

But if you are going to insist on modeling the future and then planning around it, you have to do it right. The economists at the Joint Committee on Taxation are thoughtful. They read the most recent research. They examine their own models and, when they can, update them—conservatively. If, as Republicans have been insisting for 20 years, we have to assess our tax policies with dynamic scoring, there is no better way to do it than through the JCT. Unfortunately, as modeling has improved, it has not improved in the direction Republicans prefer, which leaves them where they are now. They wanted social science in policy-making, and they got it, in the form of a $1trn tax bill.

I don’t know how any ethical person can support the Republican party right now. They don’t care about facts, logic, or evidence, and certainly not economic growth or raising the living standards of their constituents. They are blantantly and shamelessly committed to lining the pockets of their big-business funders. It’s corrupt, undemocratic and shameful.

Richard Thaler

Richard Thaler has been awarded the Nobel Prize in economics for his work on behavioral psychology.

Limited rationality: Thaler developed the theory of mental accounting,explaining how people simplify financial decision-making by creating separate accounts in their minds, focusing on the narrow impact of each individual decision rather than its overall effect. He also showed how aversion to losses can explain why people value the same item more highly when they own it than when they don’t, a phenomenon called the endowment effect. Thaler was one of the founders of the field of behavioural finance, which studies how cognitive limitations influence financial markets.

Social preferences: Thaler’s theoretical and experimental research on fairness has been influential. He showed how consumers’ fairness concerns may stop firms from raising prices in periods of high demand, but not in times of rising costs. Thaler and his colleagues devised the dictator game, an experimental tool that has been used in numerous studies to measure attitudes to fairness in different groups of people around the world.

Lack of self-control: Thaler has also shed new light on the old observation that New Year’s resolutions can be hard to keep. He showed how to analyse self-control problems using a planner-doer model, which is similar to the frameworks psychologists and neuroscientists now use to describe the internal tension between long-term planning and short-term doing. Succumbing to shortterm temptation is an important reason why our plans to save for old age, or make healthier lifestyle choices, often fail. In his applied work, Thaler demonstrated how nudging – a term he coined – may help people exercise better self-control when saving for a pension, as well in other contexts.

Will robots take my job?

If you want to know if robots will take your job, you can go to willrobotstakemyjob.com. It turns out my job (“environmental engineer” is the closest match) is particularly hard to automate at just a 1.8% chance robots will take my job, so I’ve got that going for me. I typed in ten other other career choices to see what I would get, then ranked them from most to least at risk.

  • auto mechanic: 59%
  • electrician: 15%
  • electrical engineer: 10%
  • mathematician: 4.7%
  • biochemist/biophysicist: 2.7%
  • materials scientist: 2.1%
  • chemical engineer: 1.7%
  • computer scientist: 1.5%
  • mechanical engineer: 1.1%
  • nurse: 0.9%

I won’t bother typing in the obvious ones like taxi driver (89%) or court reporter (50%). Okay, I did and that last one surprised me a little. The ten I picked weren’t random, they were ones I thought would be safe, and it turns out I was right except for auto mechanic. I’m a little surprised at that. Vehicles are merging with computers and getting more complex all the time, which means they are going to require more troubleshooting, updating, and will become obsolete faster than the past. I would also think a car mechanic could cross-train as a robot mechanic pretty easily. So the mechanics of the future will have to be equal parts grease monkey and tech support. Maybe they won’t be called mechanics, but the complicated systems we are creating are going to break in unpredictable ways and skilled troubleshooters are going to be in demand.

Anyway, the bottom line is that most types of engineering, and research positions related to genetics and/or materials, are pretty safe. Nursing is a field where supply just never seems to catch up to demand, and medical technology (and spending) just keep marching forward as the population ages and lives longer. You can still make a living as an electrician or a plumber.

I also learned something about the Standard Occupational Classification system used by the U.S. Department of Labor.

The 2010 Standard Occupational Classification (SOC) system is used by Federal statistical agencies to classify workers into occupational categories for the purpose of collecting, calculating, or disseminating data. All workers are classified into one of 840 detailed occupations according to their occupational definition. To facilitate classification, detailed occupations are combined to form 461 broad occupations, 97 minor groups, and 23 major groups. Detailed occupations in the SOC with similar job duties, and in some cases skills, education, and/or training, are grouped together.

 

what’s new with satellites

What’s new with satellites is there are a lot more being launched lately and they are a lot smaller, according to Bloomberg.

https://www.bloomberg.com/news/features/2017-06-29/the-tiny-satellites-ushering-in-the-new-space-revolution

At 9:28 a.m. on Feb. 15, these animals watched anxiously as an Indian rocket lifted off, roaring through the hot, sticky air. Its payload consisted of 104 satellites, dwarfing the previous world record of 37 set by Russia in 2014. The largest of them weighed 1,500 pounds and was designed to map India’s infrastructure and monitor urban and rural development. Nestled alongside were around a dozen smaller satellites from universities, startups, and research groups. What made the launch a record were the 88 shoebox-size “Dove” satellites built by Planet Labs Inc., a startup in San Francisco.

For the past few years, Planet has been sending batches of its Doves into orbit, each carrying a high-powered telescope and camera programmed to photograph a different swath of Earth. The 88 launched from Sriharikota would join 61 others to become the largest fleet ever put in orbit. Images beamed back by the 61 have been used far and wide: Hedge funds scour Walmart parking lots to measure traffic flows during back-to-school seasons. Farmers assess crop health and estimate optimal harvest times. Activists track Amazonian deforestation and Syrian refugee camps. Spies monitor military buildups and trafficking operations. With all 149 satellites in place, Planet will be able to photograph every inch of Earth’s surface every day—something even the U.S. government can’t do.

This satellite constellation is one of many signs that the relationship between humans and space is changing in ways unseen since Russia and the U.S. began sending rockets into orbit six decades ago. Thanks to modern software, artificial intelligence, advances in electronics and materials, and a generation of aggressive, unconventional entrepreneurs, we are awash in space startups. These companies envision an era in which rockets take off daily, filling the skies with satellites that sense Earth’s every action—in effect building a computational shell around our planet. The people constructing this bustling new economic highway promise it will improve life down below, but the future they describe is packed with wonder and controversy in equal measure—and although few have noticed, it’s coming to pass right now.

Overall, this seems good to me. A lot of the problems we have managing our economy are caused by lags between when things happen, when information is available, and when we are able to take action to respond. Real time information gets rid of the lag between when things happen and when we can know about them. This should help us understand what is going on with the natural environment better too, and maybe we can take some action based on that. Finally, I view any move toward less secrecy as a net positive in an era when governments, corporations, and even individuals are going to have ever more dangerous and ever more accessible technology at their disposal.

The biggest drawback might be that we will grow ever more dependent on this type of technology to the point we forget how to live without it, and then when it has inevitable glitches, that is going to cause new problems even as we are solving some older ones.

HSBC on peak oil

The idea of peak oil is definitely not dead, according to HSBC. While low demand and high supply have pushed down prices over the past several years, the market is headed back for an equilibrium, demand is growing, output from traditional fields is declining while investment in new discoveries and new technologies has dropped sharply in recent years. A crunch could be coming.

  1. The oil market may be oversupplied at present, but we see it returning to balance in 2017
  2. By that stage, effective spare capacity could shrink to just 1% of global supply/demand of 96mbd, leaving the market far more susceptible to disruptions than has been the case in recent years
  3. Oil demand is still growing by ~1mbd every year, and no central scenarios that we recently assessed see oil demand peaking before 2040
  4. 81% of world liquids production is already in decline (excluding future redevelopments)
  5. In our view a sensible range for average decline rate on post-peak production is 5-7%, equivalent to around 3-4.5mbd of lost production every year
  6. By 2040, this means the world could need to replace over 4 times the current crude oil output of Saudi Arabia (>40mbd), just to keep output flat
  7. Small oilfields typically decline twice as fast as large fields, and the global supply mix relies increasingly on small fields: the typical new oilfield size has fallen from 500-1,000mb 40 years ago to only 75mb this decade
  8. New discoveries are limited: last year the exploration success rate hit a record low of 5%, and the average discovery size was 24mbbls
  9. US tight oil has been a growth area and we expect to see a strong recovery, but at 4.6mbd currently it represents only 5% of global supply
  10. Step-change improvements in production and drilling efficiency in response to the downturn have masked underlying decline rates at many companies, but the degree to which they can continue to do so is becoming much more limited