I really like this recent long-form piece by The Economist’s Ryan Avent. It’s a reflection on why high-achieving people nowadays choose to work long hours.
I get up at 5.30am and spend an hour or two at my desk at home. Once the children are up I join them for breakfast, then go to work as they head off to school. I can usually leave the office in time to join the family for dinner and put the children to bed. Then I can get a bit more done at home: writing, if there is a deadline looming, or reading, which is also part of the job. I work hard, doggedly, almost relentlessly. The joke, which I only now get, is that work is fun.
[…]
But my work – the work we lucky few well-paid professionals do every day, as we co-operate with talented people while solving complex, interesting problems – is fun. And I find that I can devote surprising quantities of time to it.
What is less clear to me, and to so many of my peers, is whether we should do so much of it.
And he says it’s not that there’s increased competition through – say – globalization, but instead people choose to work a lot:
The problem is not that overworked professionals are all miserable. The problem is that they are not.
And when he talks about his father’s attitude to work, it reminds me of how my grandparents view work and private life:
Work was a means to an end; it was something you did to earn the money to pay for the important things in life.
It’s a luxury that only well educated people in richer countries can afford. I’m sometimes surprised to see young people in countries like Brazil who are so much more focused on a straight career with high incomes than me and my peers in Germany. I think that’s because work there isn’t so much fun as you work for your father’s textile company, or a financial company or as a lawyer in São Paulo, but the things it allows you to do, are. But he wants more:
The pleasure lies partly in flow, in the process of losing oneself in a puzzle with a solution on which other people depend.
It boils down to choosing a lifestyle which comes with both long work hours and all the perks like intellectual stimulation and nice coworkers. He calls this the “package deal” that you get. And you cannot pick the best of both. He ends with:
[…] As I explain this, a circularity threatens to overtake my point: to build my career is to make myself indispensable, demonstrating indispensability means burying myself in the work, and the upshot of successfully demonstrating my indispensability is the need to continue working tirelessly. Not only can I not do all that elsewhere; outside London, the obvious brilliance of a commitment to this course of action is underappreciated. It looks pointless – daft, even.
And I begin to understand the nature of the trouble I’m having communicating to my parents precisely why what I’m doing appeals to me. They are asking about a job. I am thinking about identity, community, purpose – the things that provide meaning and motivation. I am talking about my life.
I see the point for convenience in buying a car in cash and some people might like to store their wealth in physical banknotes or make transactions in cash. But for most that’s not advisable anyway and it makes it things too easy for criminals. Also, in many countries in Europe there is already a limit on how large cash transactions may be. So I guess I see the point for getting rid of the 500 note, but I’m not quite ready to side with economists like Kenneth Rogoff who argues for abolishing cash altogether.
The profits from seigniorage that come from this underworld business should be quite large. The drug lord Pablo Escobar stored his wealth in the ground in dollar notes in Colombia and he reportedly lost 10% of his wealth every year due to “depreciation”. So if these notes were just by rats (and not stolen and spent somewhere else), then this amounts to an annual 10% tax for the United States government on Escobar’s wealth.
A similar thing is at play when bank notes from one country are used in another. Whether they are held by the Russian mafia to store wealth or by Cambodian shopsellers to trade, dollars in circulation in another country are a direct source of income for the United States government. The reason is that the Federal Reserve can print more money and exchange it for goods without pushing up domestic inflation.
So countries looking for higher seigniorage revenues have an incentive to have high denomination banknotes to tempt criminals in other countries to use their currency. Maybe it’s not a coincidence that the countries with the highest denominations are Switzerland and Singapore? So seen from that angle, capping the denomination of banknotes is a coordination game among countries.
The ECB’s decision to end usage of the 500 euro note might be a good idea, but is difficult to implement properly. For once, the stop is not immediate and, secondly, the existing 500 euro notes in circulation will keep their worth infinitely.
They’ll stop giving them out by the end of 2018. So until then, people can convert as much of their cash into 500 notes as they wish.
Will there be a second market for 500 notes after 2018? A large number of 500 euro notes are outstanding.
People might hold on to them for years. But bank notes aren’t made to last forever, so they’ll probably be used until they are worn down and at that point somebody will exchange them at a bank for different denominations.
Update: Lawrence Summers thinks the ECB’s policy makes sense but is just a start:
First, the world should demand that Switzerland stops issuing SFr 1,000 franc notes. After Europe’s bold step, these notes will stand out as the hard-currency world’s highest denomination note by a wide margin. Switzerland has a long and unfortunate history with illicit finance. It would be tragic if it were to profit from criminal currency substitution.
And I would add that it’s not just “substitution”, but benefiting from it through seigniorage.
By chance, I came across the first part of the biography of John Maynard Keynes by Robert Skidelsky and started reading it, not quite expecting to finish. It’s very well written and much more profound than I had hoped for in a biography.
Right from the first sentence, the book shines:
“John Maynard Keynes was not just a man of establishments; but part of the elite of each establishment of which he was a member. […]
This position was largely achieved by the force of his dazzling intellect and by his practical genius. But he did not start life without considerable advantages which helped him slip easily into the parts for which his talents destined him. There was no nonsense about his being in the wrong place or having the wrong accent. Of his chief advantages was being born at Cambridge, into a community of dons, the son of John Neville and Florence Ada Keynes.
[…]
When he was five his great-grandmother Jane Elizabeth Ford wrote to him, ‘You will be expected to be very clever, having lived always in Cambridge.’” (p1)
For an economics student, Keynes is worth reading about in any way, but the more I read about Keynes the more fascinating he becomes.
Skidelsky wrote this three-volume biography over almost twenty years with this first volume coming out in 1983 and the last volume in 2000. In this first part, Skidelsky covers Keynes’ upbringing in Cambridge, his education at Eton and Cambridge, his time in London with his Bloomsbury friends and his time at the Treasury during and after World War I.
How about this:
“He never did take an economics degree. In fact, his total professional training came to little more than eight weeks.” (p166)
and also
“Like most economists at the time, Keynes started teaching economics without having taken a university degree in the subject. […] Compared with today, there was little to learn, and that was not difficult. […] In this way he acquired a firm understanding of a fairly limited range of theory.” (p206)
I was surprised to read that Keynes never traveled further east than Egypt.
Skidelsky explains in length the intellectual development in Cambridge which included Keynes father John Neville Keynes who he sums up with:
“In producing one book on pure, and a second on applied, logic, Neville had circumnavigated the range of his intellectual interests. He was thirty-eight. He lived another sixty years. Apart from a few contributions […] and the odd essay, his pen was henceforth confined to revising previous work, writing his diary and letters, and drafting minutes. […]
Perhaps he is to be admired, rather than pitied, for keeping silent when he had nothing to say.” (p64)
People at the time struggled with the gradual loss of theology during the transition from the Victorian to Edwardian period and searched for something to replace it. The names of the people involved are quite familiar to students of economics:
“Both [Marshall and Sidgwick] inherited the problems of collapsing theology and both engaged in essentially the same enterprise: the attempt to find authoritative theology-substitutes. […] Sidgwick was mainly a classicist; Marshall was mainly a mathematician. […] For many intellectuals brought up on Christianity still felt the need for authoritative guidance on how to conduct their lives – which they did not get from economics.” (p32)
“The difference was that Sidgwick had a need, which Keynes never had, to find a way to bring all these things into a rational, coherent, relationship with each other.” (p34)
There’s also a part on the Keynes’s family’s finances:
“The Keynes life-style was sustained by an income which was never less than comfortable, and grew more so.” (p55)
“As Maynard grew up his parents grew steadily more affluent. Capital and earnings went up, while prices went down. […]
But what strikes one today is how secure his position was. He just went on getting richer without great effort on his part. That is what the Victorians meant by progress.
Neville found his affluence all the more agreeable because his enjoyment of it was unclouded by any sense of guilt.” (p56)
This reminds me of Piketty’s “historical fact” \(r > g\) (with \(r\) the real return on wealth and \(g\) the growth rate of incomes). Piketty cites Jane Austen, who implicitly states that real rates are about 5% which allows for a comfortable life of existing wealth.
It is amazing, how much of Keynes’ conversation is documented and how much of his life can be reconstructed. I recently came across this article which states that we are left with 20,000 of Goethe’s letters. How many of us keep records of our emails or our Facebook and Whatsapp conversations?
I liked this part on Keynes’ mind:
“One never feels that he had a sense of a single current of history carrying the world forward to the natural order described by the classical economists, or some other kind of utopia. Rather he was always impressed, some would say over-impressed, by the fragility of the civilisation inherited from the Victorians, by the feeling that it was an exceptional episode in human history.” (p92)
And this reminds me of many people I know who are very good at what they do:
“Once again [writing an essay at Eton] he was showing his ability to get totally absorbed in a subject remote from his official interests.” (p113)
Reading about Bloomsbury I’m reminded of my time at UCL when I often passed Keynes’ house at Gordon Square. Consider these bits about the Bloomsbury Group for example:
“For it was [G. E.] Moore who tried to redefine the content of ethical discussion by insisting that the primary question was not ‘what ought I to do’ but ‘what is good’; and that the primary question could be answered only by reference to some conception of the good life. The virtues, Moore said, have no value in themselves. They are valuable only as a means to what is good, and must be rationally proportioned to it. If Bloomsbury can be defined by a common attitude of mind – as it surely can – this is it.” (p245)
“Bloomsbury, it is true, was devoid of Christian belief. […] And there is no doubt that it encouraged, thought it did not entail, political passivity.” (p246)
“Bloomsberries, as they called themselves, might be curious about outsiders. They were also frightened of them, and could be chilling to them.
[…]
Bloomsbury was a particular expression of, and gave direction to, the ‘revolt against the Victorians’.” (p248)
I was most touched by the parts on Keynes’ and his Bloomsbury friends’ response to World War I.
“Although the Archduke […] had been assassinated on 28 June, only a month later was there a first reference [in Keynes diaries] to the worsening international situation. Characteristically it was in the context of Stock Exchange speculation. […] Next day Germany invaded Belgium. On 4 August 1914 England declared war on Germany, and Bloomsbury’s – and Maynard’s – world collapsed.” (p285)
Keynes gradually came to oppose British participation in the war and so did his Bloomsbury friends. He considered quitting his job at the Treasury, but he thought it was better to be inside the circle of knowledge. He wrote to his mother that he would resign from the Treasury only if they started
“Robert Skidelsky [and Sylvia Nasar] raised the bar for economic biographies some time ago.”
I cannot compare what people used to expect from biographies, but the quality of this took me by surprise and makes me update my assessment of the genre in general.
I liked this interview with David Card and Alan Krueger which I found here. Some good bits:
Krueger: […] So I encourage economists to use a variety of different research styles. What I think on the margin is more informative for economics is the type of quasi-experimental design that David and I emphasize in the book.
But the other thing I would say, which I think is underappreciated, is the great value of just simple measurement. Pure measurement. And many of the great advances in science, as well as in the social sciences, have come about because we got better telescopes or better microscopes, simply better measurement techniques.
In economics, the national income and product accounts is a good example. Collecting data on time use is another good example. And I think we underinvest in learning methods for collecting data—both survey data, administrative data, data that you can collect naturally through sensors and other means.
This reminds me of a talk by Hal Varian in Bonn last year, in which he said that one of the new frontiers in social science is to make use the data that is created when we use our smartphone or shop online.
And I knew that Scandinavia was famous for its administrative matched data, but I didn’t know that Germany stands out, too:
Krueger: We’ve long been behind Scandinavia, which has provided linked data for decades. And we’re now behind Germany, where a lot of interesting work is being done.
And this was interesting, although a bit general:
Krueger: And we haven’t caught up in terms of training students to collect original survey data. I’ve long thought we should have a course in economic methods — […] — and cover the topics that applied researchers really rely upon, but typically are forced to learn on their own. Index numbers, for example.
In 300 BC, a new plow was developed in China. It required the effort of only one oxen, where before several were needed for the same work. It had a heavier design, but overall reduced the necessary effort.
The stunning thing is that other parts of the world, and in particular Europe, did not use this better design until the 17th century AD. When it arrived, the adoption of this type of plow was important for Europe’s agricultural revolution.
Although the invention seems obvious and all necessary materials had been around for a long time, people did not come up with it. Maybe technological progress isn’t really as linear and inevitable as it seems in retrospect?
I found this in “1491” by Charles C. Mann. He uses this example of the Europeans failure to invent or adopt the Chinese plow to put into perspective that the Maya’s used the wheel for toys, but not to grind maize or to carry burdens. Mann takes this from Robert Temple’s “The Genius of China” and expanding on Mann’s original citation we find (with added emphasis):
“Of all the advantages which China had for centuries over the rest of the world, the greatest was perhaps the superiority of its plows. Nothing underlines the backwardness of the West more than the fact that for thousands of years, millions of human beings plowed the earth in a manner which was so inefficient, so wasteful of effort, and so utterly exhausting that this deficiency of plowing may rank as mankind’s single greatest waste of time and energy.” (p17)
“For farmers, this was like going from the bow and arrow to the gun.” (p19)
“The increased friction meant that huge multiple teams of oxen were required, whereas Chinese plowmen could make do with a single ox, and rarely more than two. Europeans had to pool their resources, and waste valuable time and money in getting hold of six to eight oxen to plow the simplest field. […] It is no exaggeration to say that China was in the position of America or Western Europe today, and Europe was in the position of, say, Morocco.” (p20)
The following would be interesting to study:
One could first look at why people didn’t adopt the better plow much sooner. Maybe we have records on which cities or regions adopted this plow first. Do places, that adopted first, differ? I might expect larger urban places with more diverse populations that traded heavily to adopt this innovation first. This paper leads me to think that “openness to disruption” might have helped.
And there could be occasions when the arrival of the new technology could be treated as a “quasi-experiment”. Can we see the effects of new technology in action? How did output, wages and profits react?
Apparently it was the Dutch who first brought the plow back from China and then brought it to England as Dutch laborers working there. And from there it next went to America and France. And then:
“By the 1770s it was the cheapest and best plow available. […] There was no single more important element in the European agricultural revolution.” (p20)
Initially I started with Fabrizio Zilibotti’s template for dissertation theses. I took some inspiration from the style of the Journal of Economic Perspectives. I think some of the preamble might come from Rob Hyndman.
I started from the “Dresden” theme and changed it a bit, by removing some of the unnecessary information like affiliations and using less strong colors. Also I find a black side at the end (in the PowerPoint style) quite useful to end presentations. I took the blue color from colorbrewer2 (recommended here).
This uses Chris Paciorek’s template. I changed the top a bit and added site numbers and a date that automatically updates to the current month and year.
I enjoy backpacking greatly and I often use the Lonely Planet’s travel guides to do so. I read Maureen and Tony Wheeler’s history of how they came to write the first Lonely Planet in which they tell how they travelled from London to Australia. This made me curious to read the original guide from 1975 and it turns out the electronic version is freely available on Amazon.
Here are my thoughts on it:
Many countries back then turned you away at the border if you looked like a hippie.
There’s a lot of talk about where to get the best dope.
Back then, Bali was a real island paradise.
The change in where it’s safe to travel to then and now is quite drastic. Back then, Iran, Afghanistan and Pakistan were safe to go to. People thought of them as a little boring and mostly rushed through. But Kabul, especially, was exciting. Again, mostly for the drugs. Compare that to Southeast Asia, were in those days it was only safe to go to Singapore, Malaysia, Thailand and Burma.
Nowadays, the guides are more careful with their language.
Prices in nominal terms seem to be ridiculously cheap to us, but in real terms they were also very cheap.
Selling blood was a good source of income while travelling. Kuwait had the highest prices. Is this still the case?
The highway through Yugoslavia (the “Autoput”) was what my father told be about it: quite dangerous.
Money and communication were a much, much bigger hassle back then.
How good are people at forecasting political or economic events? Why are some people better than others?
Philip Tetlock and Dan Gardner have written “Superforecasting” based on a tournament started in 2011 in which they have 2800 people predict a number of events. They then scored how they did and analyze the results.
Tetlock is famous for his 2005 book “Expert Political Judgment” in which he summarizes a 20 year study in which pundits, researchers, analysts and political experts forecasted events. He finds overall disappointing forecasting performance, but is able to draw a clear line between “foxes” (who are good forecasters) and “hedgehogs” (who are not). For this metaphor, he draws on an essay by Isaiah Berlin with reference to the ancient idea of: “The Fox knows many things, but the hedgehog knows one thing well.”
Hedgehogs are guided by the one thing they know – their ideology – and they form their forecasts to fit into their way of thinking. But foxes consider different possible explanations.
I was intrigued when I first read Tetlock’s 2005 book, because it seemed to play with the debate in economics on how “structural” vs. “reduced-form” our research should be. A structural model is backed by theory and tries to explain why things happen. A reduced-form model imposes less theory and tries to find patterns in data and predict what comes next, but it usually cannot explain why things happened.
Tetlock and Gardner’s new book does not resolve this conflict. They argue, again, that those people are good at prediction who produce good ballpark estimates (what they call “fermi-tizing”) and are carefully adjusting their probability estimates when new information becomes available. I liked this bit:
“Confidence and accuracy are positively correlated. But research shows we exaggerate the size of the correlation.” (p138)
and
“[…] granularity predicts accuracy […].” (p145)
They criticize after-the-fact explanations with: “Yeah, but any story would fit.” This is the basic criticism of structural models. Any number of models could fit your data points. How do we know which is right?
They say:
“Religion is not the only way to satisfy the yearning for meaning. Psychologists find that many atheists also see meaning in the significant events in their lives, and a majority of atheists said they believe in fate, defined as the view that “events happen for a reason and that there is an underlying order to life that determines how events turn out.” Meaning is a basic human need. As much research shows, the ability to find it is a marker of a healthy, resilient mind.” (p148)
In my opinion, the authors don’t take the necessity for models serious enough: We need models and we want them. And, actually, we will always have a model in our mind, even if we don’t make it explicit and admit it. Even Nate Silver (who is famous for his accuracy in prediction) says:
“For example, I highly prefer […] regression-based modeling to machine learning, where you can’t really explain anything. To me, the whole value is in the explanation.”
And in fact the authors become more humble near the end:
“In reality, accuracy is often only one of many goals. Sometimes it is irrelevant. […] ‘kto, kogo?’” (p245)
This last reference is Lenin saying: “Who did what to whom?”
They describe how good forecasters average the estimates they derive from different methods. For example, taking the outside view “how likely is it that negotiations with terrorists ever work?” and then the inside view “what are the motivations of the Nigerian government and what drives Boko Haram?”.
But that only works because Tetlock’s forecasts are quite specific. They’re relevant, yet they exclude a large number of things. Of the top of my head, here’s a list of what they didn’t forecast:
Long-run events: “What will the Gini coefficient in the United States be in 2060?”, “Will China have at least 80% of the number of airport carriers of the United States in 2100?”, “Will the growth rate of German real GDP per capita be above 1% per annum from 2020-2060?”, “How likely is it that there will be a virus that kills at least 10% of the global population within 3 years from 2020-2150?”
High-frequency events: “How should we trade this stock in the next 10 seconds?”
Predictions or classifications involving a large number of objects: “Can we identify clusters in these 3 million product descriptions?”, “Do these 10 million pictures show a cat?”
The first of these events might be the most relevant of all, but they are also the most difficult to form an expectation about. The questions are unanswerable if we don’t want to wait and if we did wait Tetlock’s superforecasters might well be good at forecasting them. So I have to grant them that.
The second kind (“high-frequency prediction”), I actually find the least relevant and interesting. I think here this would really just be number-crunching, pattern-matching, so “reduced-form” in its purest form and means writing or applying algorithms to do the work. Still, we don’t really learn anything about this kind of forecasting from Tetlock’s books, but it’s what a lot of people in finance think of when they hear “prediction”.
The third has recently become more relevant, but much more so in the realm of machine learning analysts and statisticians. They are the kind of problems one might find on kaggle. Again, they’re prediction but Tetlock’s recipes don’t work here.
I like the idea of ballpark estimates and “fermitization”, but something there irritated me. Isn’t their whole point about taking all information into account and not sticking with narratives, but to instead make careful probabilistic estimates? Tetlock and Gardner discuss the example of how many piano-tuners there are in Chicago. They then go through a textbook example of how to answer a consulting interview question. They come up with an estimate of 62 and present a highly dubious empirical estimate of 80. A number of things strike me as odd: First, they next go on to say how the empirical frequencies of events should be our baseline. So shouldn’t we first have googled for it and seen, “ok, there seem to be about 80 of these guys in Chicago”. Then, in the next step, we could think about where our estimate might have gone wrong. Maybe not everybody of them has a website? Maybe we didn’t find all? Maybe there’s double counting? And then we could adjust for that. Or, you could do both, their Fermi “structural” estimate and the Googling “reduced-form” estimate and then average both using weights that depending on how relatively certain you are.
Their iterated statement that we need to measure what we are talking about, reminds me of Thomas Piketty’s, Abhijit Banerjee and Esther Duflo’s and Angus Deaton’s books who also spend large portions of their texts arguing that we need to have good data about the things we care about. I completely agree.
I also liked their discussion on how all human beings need narratives and how that might even be good for our mental health and resilience. And I do suppose I would be miserable as a superforecaster. I already devour large amounts of news, blogs and more every day, but I dread getting updates by Google News about all the topics that I would have to cover. In fact, I did consider taking part in Tetlock’s superforecasting experiment. Back in 2011, it went through the blogs and I came across it. I looked at it a bit and I thought I might enjoy it, but really I didn’t want to commit so much time to something like that. With hindsight, I’m glad I didn’t participate.
He also discusses Keynes’ citation:
“When the facts change, I change my mind. What do you do, Sir?”
This sounds like a really foxish, Bayesian statement. I recently came across the assessment by Marc Blaug (in the introduction to his book) that Keynes was initially a Fox and became a Hedgehog. Tetlock then presents the nice twist that it’s unknown if Keynes really stated that. But he was ready to admit it, because it wasn’t fundamental to his (Tetlock’s) identity.
I also like the idea of a “pre-mortem” (p202), so thinking about reasons that my project might fail. (But as for research projects, maybe it’s better to actively resist this, otherwise you never get going.)
He ends with a plea for opposing parties to get together and use their different view to come up with a better forecast:
“The key is precision.” (p268)
The problem here is that we are talking about conditional vs. unconditional forecasts. Different groups want to change that condition. Also, some forecasts are political – such as those concerning GDP or population size – where the forecast itself might even have an impact on what will happen.
Last, I also agree with Tetlocks thank you note:
“[…] I thank my coauthor […] and editor […] who helped me tell my story far better than I could have – and who had to wrestle for two years against my professional propensity to “complexify” fundamentally simple points.” (p288)
When you compare Tetlocks two books on this topic, this last is much more pleasant to read without loosing in accuracy or depth.