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Problem

The US, and to a lesser extent much of the developed world, has concentrated interest groups (e.g. big pharma), which have incentives to increase medical spending. The main check on pro-expense interest groups used to be patients’ desire to spend less of their money. We’ve carefully eliminated that incentive for most patients. That leaves us with a situation in which spending increases to absorb much of the increase in disposable income.

I originally started writing this post in reaction to Aduhelm’s conspicuously bloated price. But it now seems that the system has enough sanity to avoid major waste there.

I’m also interested in the situation with statins. There’s reasonably good evidence that they saves the lives of a small fraction of people who take statins, but also some reason to doubt that cholesterol best describes what problem they fix (I don’t have a good link for these doubts. Here are some mediocre ones: 1, 2, 3).

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Book review: The Amish, by Donald B. Kraybill.

It feels appropriate to review this book right after The Dawn of Everything (TDOE). There are strange contrasts between the cultural views of the two books.

TDOE clearly exaggerated the extent to which European civilization disapproved of freedom and equality, yet Amish culture shows an important kernel of truth behind that exaggeration.

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Book review: The Dawn of Everything: A New History of Humanity by David Graeber and David Wengrow.

This book is about narratives of human progress. I.e. the natural progression from egalitarian bands of maybe 20 people, to tribes, to chiefdoms, to states, with increasing inequality and domination by centralized bureaucracy. That progress is usually presumed to be driven by changes in occupations from foragers, to gardeners, to farmers, to industry.

Western intellectuals focus on debates between two narratives: Hobbesians, who see this mostly as advances from a nasty state of nature, and those following in Rousseau’s footsteps, who imagine early human societies as somewhat closer to a Garden of Eden. Both narratives suggest that farming societies were miserable places that were either small advances or unavoidable tragedies, depending on what you think they replaced.

Graeber and Wengrow dispute multiple aspects of these narratives. The book isn’t quite organized enough for me to boil their message down to a single sentence. But I’ll focus on what I consider to be the most valuable thread: we should be uncertain about whether humanity made (is making?) a big mistake by accepting oppression as an inevitable price of material wealth.

The Dawn of Everything asks us to imagine that humans could build (and may have been building) sophisticated civilizations without domination by powerful states, and maybe without depending on farming.

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Book review: The Resilient Society, by Markus Brunnermeier.

This is a collection of loosely related chapters on current political topics such as pandemic response and macroeconomics. I haven’t read the whole book. But since each chapter is designed to stand alone, I feel comfortable reviewing a subset of the book.

They’re more readable than the comparable Wikipedia pages, but less rigorous.

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Book review: The British Industrial Revolution in Global Perspective, by Robert C. Allen.

Here we have yet another explanation of the most important event in history, this time from an economic historian.

Allen mostly focuses on one key piece of the causal chain: British wages were high compared to the cost of energy.

Nearly everything he says seems correct, but I have some medium-sized complaints about what he neglects.

High Wages

British wages were higher than those of just about any other country, at least after 1575. That was an important component in Britain’s lead at producing technological innovation. The initial steps in many key technological advances were crude enough that they wouldn’t have made sense if they were competing with cheap labor.

It seems important to focus on what caused the high wages. Allen is a bit weak here.

He mentions British diets, mostly as evidence of high British wages. But he also hints that the high calorie, high protein diet enabled higher productivity, which may have perpetuated the high wages.

A low ratio of workers to land seems to be part of the story. Malthusian forces usually pushed societies away from this. The Black Death provided some respite from high population density. Allen mumbles something about the Black Death’s effects maybe still being important a couple of centuries later. But why was this more true of Britain than of neighboring countries?

Some urbanization was also important, as inventors needed other skilled craftsmen nearby as sources of ideas, tools, and parts. So maybe it took a good deal of luck for Britain to get just the right population density?

Cheap Energy

Before the 1700s, most countries used wood instead of coal, even when they had an ample supply of coal. Switching to coal required significant redesigns to most systems that burned wood.

Countries such as Britain didn’t recklessly exhaust their supply of wood. Demand for wood in Britain grew due to population growth, and the resulting rise in wood prices would have constrained London’s population growth if it weren’t for increased use of coal. But that was due at least as much to the high cost of transporting fuel over long distances as it was to the limited supply of wood.

Something was fairly unusual about Britain’s best coal mines. They produced unusually cheap coal. That helped Britain switch from wood to coal for heating and machinery, well before other countries did.

That didn’t mean that coal was much cheaper in London than in other major cities. High transportation costs made coal a mediocre option almost anywhere other than right at a mine.

China is a key country to look at when wondering where the industrial revolution could have started. How did China’s cheapest coal mines compare to Britain’s? Allen presents no data. Pomeranz seems to care about the quantity of coal reserves, not the cost of the lowest hanging fruit. Coal use in 1700 seems to have been too small relative to reserves for the quantity of reserves to matter much.

It’s unclear whether anyone knows whether China had locations where coal was as cheap as Britain’s cheapest coal mines.

If China didn’t have cheap coal, how much of that was due to natural conditions, and how much of it was due to less interest in developing cheap coal mines? I’m frustrated at how little I’ve found on this subject. The closest that I’ve found to an answer is this claim from Vries:

My thesis would be that China, in a way, also had its ‘coal’ and its colonies, but that government was a serious hindrance in making the most of them. When it comes to coal mining, the Qing often prohibited opening mines in the first place or wanted those already opened closed down. Initiatives by government itself to open mines or to ‘modernize’ them are absent.

Allen implies that cheap coal is obviously good. I see some tension between that and evidence from the past century concerning the effects of natural resources on economic development. There are enough examples of failing resource-rich countries that economists often refer to a curse of natural resources. The curse appears to mostly depend on large international commodity markets, which didn’t exist for coal until sometime after 1800. So it’s not a strong argument against Allen’s theory. It’s merely a warning that it’s easy to overestimate the benefits of natural resources.

Coal seems like a plausible guess as to why Britain developed key technologies before highly similar societies such as Denmark and the Netherlands. But there were numerous differences between Britain and China. I don’t see a clear argument that coal prices deserve to be treated as one of the top two relevant differences. I’ll guess that, in spite of the “Global” in the book’s title, Allen hasn’t studied China enough to have much insight about why it lagged behind Europe.

Steam Engines

Allen gives a detailed description of the development of steam power, as a clear example of where innovation depended on wages being high relative to energy costs. The first steam engines were inefficient enough that they were only worthwhile at coal mines, where they were used to pump water out of the mines. The inefficient use of fuel made it very sensitive to fuel costs.

It took decade of R&D for Newcomen to perfect this underwhelming machine. That much effort could only be repaid where there were many mines that were willing to buy such machines. Britain had far more coal mines than other European countries, partly because the low price of coal led Britain to heat more homes with coal. So Britain was able to afford more R&D.

It took nearly a century of refining steam engines before it made commercial sense for other countries to adopt steam engines.

Why was Britain’s early adoption of the steam engine important? It took a century or so to produce large benefits, at which time other countries copied it.

Was it because the technical knowledge enabled British innovators to be the first to develop better steam engines, and use them in a variety of applications such as railroads, ships, better factories, etc.? Or was the steam engine mainly a symptom of British innovation abilities?

Allen suggests that Britain’s cheap coal and first-mover advantages were more important than cultural or institutional features, at least up to WWI.

The steam engine and cheap iron were dependent on cheap coal, and had important influences on automating factories and transportation. That included a bit of recursive self-improvement: factory automation was used to mass-produce machines used to automate factories.

Why 1575?

To the limited extent that Allen identifies a start to the industrial revolution, it was around 1575, when British wages began to diverge from the Malthusian patterns seen in most of Europe and Asia (it took at least another century before British wages exceeded Amsterdam wages).

Allen says cheap coal was around well before then, and doesn’t suggest any other resource-based explanation of what changed in the 1500s to break northwestern Europe out of the Malthusian pattern.

Was it due to lingering effects of the Black Death? Wages certainly increased in the 1300s relative to natural resources, particularly land. That’s a potentially important contributor to high wages two or three centuries later.

But why was that effect stronger and more lasting in Britain than in other parts of Europe? Allen’s coal-related explanation is somewhat plausible from the early 1700s to about 1900. But why did wages stay somewhat above Malthusian levels in the 1600s in northwestern Europe? I’m unclear as to whether Allen thinks he has an answer. I think he attributes it to increased agricultural productivity, driven by growing cities. But I don’t see how those cities provided more of a force in Britain than in the rest of Europe and Asia.

It is now time to compare Allen’s ideas with those of my current favorite book on this topic: Henrich’s The WEIRDest People.

Culture

Henrich promotes a clear answer of why the 1500s were special: the rise of Protestant culture.

Allen downplays cultural explanations, enough that I got 90% of the way through the book before realizing that he admits culture played a nontrivial role in the industrial revolution.

Early in the book, he points to versions of cultural arguments that I agree are weak enough to be dismissed. Those versions were probably somewhat popular when the book was written (2009), but have been fading since then. Toward the end of the book, Allen more respectfully mentions several better ideas about cultural influences, mostly from Mokyr.

Here are some relevant cultural influences for which Allen provides some evidence, and which Henrich convinced me are more important than Allen admits:

Industrial Enlightenment

Allen describes Industrial Enlightenment as a process by which the Scientific Revolution influenced industry.

Allen shows that scientific knowledge contributed to some key inventions, such as the steam engine, via better knowledge of the principles by which those inventions worked. But he also argues that other important industries such as cotton advanced without much contribution from scientific knowledge.

The harder-to-evaluate impact of science involves indirect cultural effects. The social networks associated with science may have indirectly influenced innovation, e.g. by encouraging more experimentation in industry.

I’m reminded of this quote from Shut Out:

The evolution of capitalism has led to almost universal acceptance of middle-class values. Whereas the elite of most societies have sought control and leisure, these few modern open access societies have a citizenry that seeks to be productive, to cooperate, and to innovate. It is common to hear complaints that wealthy children today have an unfair advantage because they can access the best schools, get the best education, and therefore perpetuate inequality by working in the most lucrative careers. But everyone should appreciate how revolutionary this is. Elites of the past would scoff at the notion that this even describes elites. Elites don’t need to be productive. Elites have access and control.

Did this change in elite culture begin around 1500? It was certainly far from common for elites to involve themselves in business, but Allen says some important inventors came from elite backgrounds. How much did this differ from other parts of the world?

There are a variety of ways that elite interest in industry might have improved innovation: more spare time and resources to devote to investments that don’t provide quick payoffs, or maybe better cognitive abilities due to better nutrition and/or better genes.

Literacy, Numeracy

These certainly correlated with the changes that seeded the industrial revolution. Allen expresses doubts about the direction of causality.

Marital Rules / Habits

Protestant culture has some features which slow population growth. Europe, and especially northwestern Europe, had several cultural norms which prevented early marriage, and left a relatively large number of people unmarried.

Without something like that, it seems hard to explain why low population density persisted long enough after the Black Death for technology to sustain high wages.

Trade Secrets

Allen reports that innovators depended on learning from mentors. Many cultures have a distrust of strangers that limits such learning to a small circle of people who trust each other because they’ve lived together most of their life.

Protestant culture promoted trust among all Protestants, paving a path to the accumulation of a richer body of trade knowledge. I’m unsure whether Chinese culture had work-arounds which provided adequate substitutes for this source of trust.

Noncomformity

Allen notes that Luddites threatened innovation, particularly in the key cotton industry. Most cultures value conformity more than Protestant culture does. I can imagine that no other culture would have produced entrepreneurs who persevered in the face of that kind of opposition.

Historians versus Scientists

Henrich, and to a lesser extent Allen, have helped to illustrate the differences between historians and scientists.

Historians focus on building stories about particular, unique, events. Whereas scientists seek general theories whenever possible.

Was the industrial revolution a unique event, or was it a long pattern of related events that might be better explained by a broad theory? Historians seem biased toward the former, scientists toward the latter. Allen seems to be mostly a historian, but has enough economic training to be more neutral on this issue than most authors. Whereas Henrich is mostly trying to be a scientist, and not a historian.

To the extent to which it was a long pattern of events, I value the opinions of scientists who focus on theories about which features of 16th through 18th century Britain caused it to stand out. That would help me predict what countries will become more powerful. So I want to avoid erring in the direction that historians err, more than I want to avoid the opposite mistake.

Here are several considerations that lead me to give more weight to Henrich’s cultural model:

There are many markets today which English-speaking countries dominate in ways that are somewhat hard to explain by coal or high wages: the internet, universities, medicine, movies, etc. That seems to create some presumption in favor of explanations that focus on general-purpose abilities such as culture and institutions.

Allen’s perspective encourages us to imagine that a good deal of British success comes from a first-mover advantage that has been self-sustaining for a couple of centuries. That seems to be somewhat large compared to other historical examples of first-mover advantages or resource-based advantages.

What are the best such examples? Cities built around ports have smaller but longer-lasting advantages, due to natural resources (harbors). I guess that’s a good enough comparison that I can’t say that Allen’s perspective is too far-fetched.

Cultural models provide a clear explanation of the timing of the industrial revolution. I don’t see how resource-based models explain the timing.

Allen says that other countries adopted British technology when it became profitable to do so. Yet that only seems true for countries with cultures similar to Britain’s. Asian countries seem to have adopted it mainly after they imported parts of Western culture.

Conclusion

Allen’s account is the strongest analysis I’ve yet seen of the resource-related forces that contributed to the industrial revolution.

I see almost no conflict between Henrich’s account and Allen’s account about what happened after 1500, only some big disagreements about what was important. They disagree a good deal about what pre-1500 causes were relevant, and they both seem relatively weak there.

Allen emphasizes Britain’s geographic luck, and encourages us to imagine that key inventions were just barely useful enough to create a sustainable take-off. Whereas Henrich attributes northwestern Europe’s luck to cultural choices that were in place by 1520 at the latest, and wants us to believe that take-off was close to inevitable by then. The evidence is weak enough that we may never know which is closer to the truth.

Reading both Allen and Henrich will produce a better understanding than either one of them alone will produce. But if you only read one book, read Henrich’s.

Book review: The Money Illusion: Market Monetarism, the Great Recession, and the Future of Monetary Policy, by Scott Sumner.

This is the best book on macroeconomics that I’m aware of, with a focus on the causes of the 2008 recession.

Most of the book’s important points are based on ideas that economists respect in many contexts outside of macroeconomics, but which seem controversial in the context of macroeconomics.

It’s ironic that Sumner finished writing this book during one of the few recessions that could not have been prevented by better monetary policy.

Note that this review is primarily for people who already know something about monetary policy. It’s hard enough to do that well that I don’t want to attempt anything more ambitious.

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I’ve been pondering whether we’ll get any further warnings about when AI(s) will exceed human levels at general-purpose tasks, and that doing so would entail enough risk that AI researchers ought to take some precautions. I feel pretty uncertain about this.

I haven’t even been able to make useful progress at clarifying what I mean by that threshold of general intelligence.

As a weak substitute, I’ve brainstormed a bunch of scenarios describing not-obviously-wrong ways in which people might notice, or fail to notice, that AI is transforming the world.

I’ve given probabilities for each scenario, which I’ve pulled out of my ass and don’t plan to defend.

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Interest rates have declined from over 5% in the late 1960s to under 0.5% in 2020 (I’m using long-term treasury bond rates as an estimate of pure risk-free rates).

There’s clearly something unusual about savings rates, and it’s causing a semi-stable decline in interest rates.

In my review of Shut Out, I guessed that demographic effects of the boomer generation explain 25% the housing boom, via high savings rates and the resulting low interest rates. I’m now revising that estimate down to 10%.

I now see a similar but bigger effect from a different set of demographic changes. I changed my mind due to the paper by Mian, Straub, and Sufi titled What Explains the Decline in r*? Rising Income Inequality Versus Demographic Shifts (think or r* as an idealized version of interest rates).

Wealth affects savings rates more than age does.

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“Transitory Inflation”

Many pundits are arguing that this year’s inflation is due to temporary pandemic-related problems.

I expect that they’re half-right – we’ve got a one-time pandemic-related burst of inflation, but it’s likely to be bigger than pundits imagine, and the price changes are unlikely to be reversed much when the effects of the pandemic fade.

Also, the presence of one-time effects shouldn’t reassure us about the absence of longer-term pressures.

When evaluating inflation, I focus mainly on the supply of and demand for money. Supply chain problems may be important for many purposes, but they don’t explain a general pattern of dollars becoming less valuable.

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