Economics & Marginalia: February 10, 2023

Hi all,

I love both stats and sports, so when the two collide, as they did in this moment, when LeBron James broke a record that had stood since 8 months before he was born to become the highest scoring player in basketball history, I’m a very happy man. The last time I felt quite like this was when Muttiah Muralitharan took his 800^th test wicket—but that was also the final delivery of his career. LeBron is still going, and still going as one of the very best players in the world. His path to what seemed like an unbreakable record (much like Murali’s now seems like science fiction for modern bowlers, and no other basketball record seems likely to fall after this one) is remarkable, because he sped up as he approached it, defying all precedent. That shouldn’t surprise us, though—one thing I have always loved and found inspiring about him is how obvious it is that he is constantly learning, and constantly looking at what others are doing to keep getting better and to find new ideas, something he has in common with Kareem Abdul-Jabbar, the man whose record he broke. Kareem’s thoughts on his record falling are worth reading, particularly the weight he puts on LeBron’s character on and off the court. And it’s not even, I think, in his top five career moments (though this list disagrees). The sports reading hasn’t wholly crowded out the economics though, so on to the links.

1. Planet Money loves a good market failure. The show is basically, “hey—here’s this weird thing we noticed out there, so we dug around, and it turns out that the market for this good or service is a hot mess and everything is ridiculously sub-optimal.” It’s catnip for economists because most of us got an early grounding in how wonderful a well-functioning market is, before our teachers pulled a reversal like the first episode of Scrubs and told us that we would now spend the rest of our lives thinking about when markets go bad or when good markets are kept in cages and need to be freed. This week, Planet Money applied this template to a service, childcare, and a good, ice cream (one might say they’re near substitutes). Childcare in the US sounds like an episode of Squid Game: everyone involved is near bankrupt and miserable (transcript). The root here is that, left to the market, you wind up with an awful low level equilibrium where lower-income parents are basically spending all their money on childcare, or quitting their jobs; childcare providers cannot raise prices, so they make no profits and pay low wages, and workers constantly leave because the pay is terrible. Happily, in the UK at least, some relief may soon be on the way. Ice Cream, on the other hand, at least has someone getting paid well: the ice cream makers. It’s a really nice example of tacit collusion. Two ice cream makers divide up the market based on whether the ice cream is smooth or chunky, and don’t compete directly, allowing each to raise prices and make higher profits. My advice: get a good tub of your favourite flavour and enjoy this gateway drug into game theory (transcript).
2. I don’t know what it is about Tyler Cowen, but he really does get his interviewees to open up. I really, really like this conversation he had with Glen Loury, not just from the who’s who of economics that come up.
3. I’m teaching cost-benefit analysis again soon, and I’m always on the lookout for a carefully estimated example of how things can go wrong with it. This VoxDev write-up of new work by Seonmin Heo and co-authors is a really nice example: how the arbitrary boundaries that we draw around who counts as ‘us’ when we measure the costs and benefits to us of a policy can dramatically alter the welfare implications of it. Essentially: actions to reduce air pollution in China has massive spillover benefits to nearby countries, including South Korea—which means that policies that reduce pollution in China tend to be under-provided because it’s only Chinese costs and benefits that go into their calculus. Also on VoxDev: I often point out how often intervention effects fade away over time, but the opposite can also be true. Leah Lakdawala and Eduardo Nakasone find evidence from Peru that large effects of ICT on learning can emerge, but only in the medium term. When you evaluate really matters.
4. Something I find academic economists often underestimate is how well, in the messy field of real-life decision making and policymaking, simple rules of thumb will hold up over the long term compared to their cutting edge modelling and thinking. They economize on the scarcest resource in policymaking (attention) and are usually behaviourally rooted—that is, they work with the grain of how we think and are repeatable and user friendly. Tim Harford discusses exactly this phenomenon in finance.
5. Branko Milanovic’s review of Making it Count by Arunabh Ghosh is structured as a really nice discussion of the ideas and philosophies behind the collection of statistics, and how they affect policymaking. This is a really important topic that we often gloss over: most of the time, the basis on which we categorize, count and report has a material impact on what we do. The data not only never speak for themselves, they also have no natural language.
6. This week in ‘there is a gender gap in everything’: it turns out that the advice we give to people is deeply coloured by their gender. In a really nice experiment by Yana Gallen and Melanie Wasserman, they find that when women ask people in a profession for advice about starting up in it, they are far more likely to be given negative information about the work-life balance of the job than men are.
7. Normally, I have about ten pieces of pop culture trivia to choose for you at the end of the links, but this week I’ve been so occupied by LeBron, the pickings are a bit slim. I leave you instead with quite possibly the greatest photograph in the history of the UK monarchy: the King being completely outshone in the pageantry stakes by Skin, the fiery and brilliant singer of Skunk Anansie, as she received her OBE. And if you’ve never heard her music, this is as good a place to start as any.

Have a great weekend, everyone!

R