Tag Archives: World

Tube Earth Econ

Imagine someone plans to build a gas station far out in an isolated desert. They plan to sell gas and snacks to the truck drivers who come out to deliver gas and snacks. Want to invest?

No? How about if they also sell gas and snacks to passing explorers, out there to signal toughness? Yes, explorers won’t look as tough if they buy gas and snacks from your station. But if the station can lure enough not-so-tough explorers, maybe you’d want to invest.

How about if they also plan to dig oil wells and an oil refinery to make the gas they sell, and a hothouse farm and food processing factory, to grow food for the snacks they sell? How about if they plan to run all this entirely by robots? This plan would make me even less likely to invest. After all, you’d need even more customers to justify a larger scale operation, and I had doubts about enough explorer customers to justify a simple gas station.

This is my reaction to the recent news that some famous investors will spend millions trying to mine asteroids (see here, here, here). Their first product would be rocket fuel to sell to passing NASA rockets. I’m skeptical that NASA wants to buy enough fuel to cover their costs, and I don’t see a flood of other customers eager for robot space gas stations. This new firm also talks about shipping metals like platinum back to Earth, but that seems even crazier anytime soon.

To explore this general issue, let us imagine Tube Earth. While our Earth is a sphere of rock with a 40,000 km circumference, Tube Earth is a very long cylinder of rock with a circumference 1/6 as large, to give it the same surface gravity as Earth. Tube Earth also rotates 24 hours in a day, and has a sun nearby.  The closest spot on the tube to the sun is its “center,” which has Earth-like average surface temperature and seasonal variation. There would be less local temperature variation, as all nearby parts of a tube get the same sunlight.

A length of this tube about twice Earth’s circumference would have about the same surface area as Earth. Imagine that an area of this size held a mix of land and water similar to Earth’s continents. Imagine also that more such clusters of continents are spread all along this tube, spaced roughly twenty Earth circumferences apart. In between is mostly open ocean, with a few small islands.

The tube slowly gets colder millions of km from its center, as those places are further from it sun. Life is spread all along the tube, but so far humans and civilization have only evolved on one near-center cluster of continents. It would take an old style (~12 knot) sailing ship about 4 years to travel in a straight line from one cluster to another, and it would take a jet airliner about 40 days to fly there. Both would need refueling along the way.

My big question here is: how would history, and economic growth, have played out differently on Tube Earth? With all that land out there to colonize, how much more activity would be dedicated to spreading out across the tube? How far would be the furthest flag, subsistence farming town, and modern industrial city at any one time?

My guess is that Tube Earth would look a lot more like our Earth than most space colonization fans expect. Explorers would not have even reached the nearest other continent cluster until the 1800s, and even now there’d be only a few small colonizes there, mostly practicing subsistence agriculture. A several year shipping time would make it very expensive to import modern equipment, and greatly discourage the shipping of mining minerals or farmed food back to the central cluster. Mostly they’d work harder to get more minerals and food from nearby mines and farms.

By 2010 Tube Earth would be lucky to have one monthly airline flight to the next cluster, and a very expensive but welcomed internet connection. Lots of stories would take place there, and it would offer an escape for well-off religious or political refuges. But overall it wouldn’t matter much, because of its huge transport costs.

The key point to note here is that other continent clusters on a Tube Earth are vastly more hospitable and easier to reach than the nearest asteroids or the Moon are from Earth. And the rest of the solar system is even worse. So if other continent clusters would by now matter little for a Tube Earth, asteroids aren’t going to matter much on Earth for a long time to come.

Added: Karl Smith calls it “Invest for Prestige/Get Conned”

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Hail The Radiation Model

We have a revolution in how to best predict transport and commuting rates:

The gravity law is the prevailing framework with which to predict population movement, cargo shipping volume, and inter-city phone calls, as well as bilateral trade flows between nations. Despite its widespread use, it relies on adjustable parameters that vary from region to region and suffers from known analytic inconsistencies. Here we introduce a … radiation model [that] predicts mobility patterns in good agreement with mobility and transport patterns observed in a wide range of phenomena. (more)

The gravity law assumes travel is proportional to the product of powers of the to and from populations, divided by some function of the distance between them:

The gravity law assumes that the number of individuals Tij that move between locations i and j per unit time is proportional to some power of the population of the source (mi) and destination (nj) locations, and decays with the distance rij between them as

Tij = mia njb / f(rij)

where a and b are adjustable exponents and the … function f(rij) is chosen to fit the empirical data.

The radiation model fits better by instead looking at how many people live closer than the destination location:

Step one, an individual seeks job offers from all counties, including his/her home county. The number of employment opportunities in each county is proportional to the resident population. … We capture the benefits of [each] potential employment opportunity with a single number, z, [independently and] randomly chosen. … Step two, the individual chooses the closest job to his/her home, whose benefits z are higher than the best offer available in his/her home county. … We denote with sij the total population in the circle of radius rij centred at i (excluding the source and destination population). … The radiation model is

Tij = Ti mi nj / (mi + sij)(mi + nj + sij)

… Ti … is the total number of commuters who start their journey from location i.

Amazingly, this better fitting radiation model only depends on distance indirectly, via population density. It suggests that while distance matters, it is almost never an overwhelming consideration. In the modern world, while political barriers are often insurmountable, distance is detail.

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Trade Dominance

Me two years ago:

I surveyed the last ten China new articles in the Post and NYT. … Top US newspapers are in full fledged China bashing mode. (more)

I expect similar results today. Often, hostility to foreigners appears as opposition to letting locals buy stuff from foreigners. Yet sometimes it also appears as opposition to letting locals sell stuff to foreigners:

As China moves to invest billions in businesses around the world, one major industrial nation has so far soaked up very little of the cash: the United States. … Chinese business owners who want to invest in the United States say they often have a difficult time obtaining a U.S. visa to be able to travel and see projects. …

In 2005, the Chinese oil company CNOOC dropped its $18.5 billion bid for the U.S. oil firm Unocal, after some members of Congress expressed security concerns and asked whether CNOOC had unfair access to cheap financing. In early 2011, China’s largest maker of telecommunications equipment, Huawei Technologies, withdrew its bid for the assets of the American company 3Leaf after a review by a U.S. government panel on foreign investment raised concerns about Huawei having links to China’s People’s Liberation Army, which the firm denies. “After that, Chinese investors are kind of lost and bewildered; they don’t know what they can invest and what they can’t.” (more)

Presumably this stupidity is due to some sort of psychology, but what? Why object to both buying and selling to foreigners? Can people really think both sides are hurt by a trade?

My guess: because firms are larger than customers and employees, we see the firm as dominant in both firm-customer and firm-employee relations. So buying into ownership of a firm is buying into a position of dominance. Thus people object both to locals buying stuff from foreign firms, and to foreigners buying into local firms, because they object to locals being submissive to foreigners.

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This Is the Plane Era

Once upon a time planes were only a minor part of world transportation. No longer:

A large and growing share of international trade is carried on airplanes. Air cargo is many times more expensive than maritime transport but arrives in destination markets much faster. … We estimate that each day in transit is equivalent to [a tax] of 0.6 to 2.3 percent and that the most time-sensitive trade flows are those involving parts and components trade. …

Ocean-borne cargo leaving European ports takes an average of 20 days to reach US ports and 30 days to reach Japan. Air borne cargo requires only a day or less to most destinations. … In 2005, goods imported into the US faced per kilogram charges for air freight that were, on average, 6.5 times higher than ocean freight charges. … Excluding Canada and Mexico, 36 percent of US imports by value and 58 percent of US exports by value were airborne in 2000. … In 2004, air cargo as a share of export value was 29 percent for the UK, 42 percent for Ireland, and 51 percent for Singapore; 22 percent of Argentine and 32 percent of Brazilian imports were airborne. … From 1965-2004, worldwide use of air cargo grew 2.6 times faster than use of ocean cargo. (more)

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Missing Work Stories

In my culture, most stories are not about work life, and the few stories that are focus on a narrow set of unusual jobs like soldier, detective, politician, artist, doctor, lawyer, or teacher. Why?

One explanation is that work is usually boring. But this seem weak to me. I’m often fascinated to read business-book stories about work teams and firms competing (I’m enjoying The Innovator’s Solution) and Horatio Alger type stories were once more popular in my culture. Furthermore, a recent New Yorker article (quotes below) says similar stories are now very popular in China.

The author of that article seemed displeased by this trend, and what it says about Chinese culture. She talks of “get-rich” “Darwinian” “combat”, “manipulation and deceit”, and a loss of “morals”. And this seems to me a clue about why we don’t tell such stories – they push realism on topics where we’d rather stay idealistic.

Consider that we avoid telling young kids stories about corrupt police and teachers taking advantage of their power, since we are trying to get kids to respect and trust such authorities. Similarly, we avoid telling kids stories about selfishness and betrayal in romantic and sexual relations, as we push idealized accounts of marriage, love, etc. Similarly, we may as adults avoid stories that threaten other ideals.

Stories need conflict. For stories about soldiers, detectives, politicians, artists, doctors, lawyers, and teachers, we know of socially acceptable types of conflict, which do not challenge key ideals. But stories about conflicts in ordinary jobs more easily violate key ideals, and trigger moral outrage.

We don’t mind stories about independent professionals competing to please costumers. But the foragers inside us hates hearing about team members who don’t work entirely for the good of the team, and especially about bosses insisting that things be done their way. Foragers are ok with being “lead” covertly, by someone who has gained their respect and agreement. But taking orders just to get material goods, that seems immoral. The moral priority of war, or of medicine, may make it ok to take orders there. But otherwise, no!

We sometimes have stories about heroic employees resisting an evil boss. But overt moralizing gets boring fast, especially when we realize these employees could just quit their jobs. Worse, we know that most of us don’t resist bosses – we obey them, mainly because we like getting paid. We don’t like admitting that that while we are returning to forager ways in our leisure time, we have become hyper-farmers in our work life. And so in our story worlds, we mostly try to pretend that work doesn’t exist. Props to the Chinese, for facing reality more.

Those promised quotes from that New Yorker article: Continue reading "Missing Work Stories" »

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Sex Ratio Signaling

Nicholas Eberstadt on a “Global War Against Baby Girls“:

An ominous and entirely new form of gender discrimination, … skewing the sex ratios for the rising generation toward a biologically unnatural excess of males, … sex-selective abortion has assumed a scale tantamount to a global war against baby girls. … From a collision of three forces: first, local mores that uphold a truly merciless preference for sons; second, low or sub-replacement fertility trends, … and third, the availability of health services and technologies. … The total population of the regions beset by unnaturally high SRBs [= sex ratio at birth] amounted to 2.7 billion, or about 40 percent of the world’s total population.

Matt Ridley agrees, and is “pessimistic” about this “distortion.” But neither of them object to the lower fertility that is a contributing cause, nor to the morality of the act of abortion. So what exactly is the problem? A simple supply and demand analysis says that selective abortion both expresses a preference for boys and causes a reduction in that preference as wives become scarce. In South Korea this process is mostly complete, with excess boys down from 15% in the 1990s to 7% today (with ~5% as the biologically natural excess).

Eberstadt elaborates:

The consequences of medically abetted mass feticide are far-reaching and manifestly adverse. …[This] establishes a new social reality that inescapably colors the whole realm of human relationships, redefining the role of women as the disfavored sex in nakedly utilitarian terms, and indeed signaling that their very existence is now conditional and contingent.

What “new social reality”? A preference for boys was there and clear to all before selective abortion came on the scene.

Moreover, enduring and extreme SRB imbalances set the demographic stage for an incipient “marriage squeeze.” …  Unmarried men appear to suffer greater health risks than their married counterparts. …. A steep rise in the proportion of unmarried and involuntarily childless men begs the question of old-age support for that rising cohort.

But these are all about things getting worse for men, which is exactly how supply and demand solves such a “problem.” Finally, Eberstadt invokes some externalities:

The “rising value of women” can have perverse and unexpected consequences, including increased demand for prostitution and an upsurge in the kidnapping and trafficking of women. … Such trends could quite conceivably lead to increased crime, violence, and social tensions — or possibly even a greater proclivity for social instability. All in all, mass sex selection can be regarded as a “tragedy of the commons” dynamic, in which the aggregation of individual (parental) choices has the inadvertent result of degrading the quality of life for all.

Now more voluntary prostitution in such a context is not obviously a bad thing. Yes, kidnapping and crime are bad, but there is little mixed evidence such things are increasing due to having more males. There is, however, good evidence that males now compete more by increasing their savings rate, which is overall good for the world.

This topic offers a good example of a conflict between sending desired signals and getting desired outcomes. Since parents who selectively abort girls show favoritism toward boys, it can feel quite natural to signal your opinion that women have equal value by condemning such parents, and favoring policies to discourage their actions. Not doing so can make you seem anti-female. Yet since via supply and demand the abortions chosen by these parents directly increase the value of women, then all else equal discouraging their abortions reduces the value of women. So if you want women to have higher value, your signal is counter-productive.

Of course it is far from clear that the relative value of males and females should be the main consideration here. One might instead argue that if male lives are more pleasant overall, it is good that we create more of them instead of female lives. Yes, supply and demand may eventually equalize the quality of male and female lives, but until then why not have more lives that are more pleasant?

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Old Money Goes Broke

My last post talked about inequality among sand grains, diamonds, firms, and cities. Specifically, that their sizes are distributed like lognormals, but with thicker power law tails. I noted that firms and cities are distributed quite unequally, with a (Zipf’s law) upper tail power near one.

In this post I’ll focus on wealth. In the 1890s Pareto found that the (upper tail of) wealth and income are distributed as power laws. Recent studies of US and world rich folks

estimate powers of 1.3 to 1.5, similar to Pareto’s original findings. This distributes individual wealth more equally than firm and city sizes.

Consider a simple differential equation model:

w‘ = s*w + c*(1-w)

Here the time rate of change w’ of an individual’s wealth w is given by a zero-mean randomly-fluctuating proportional growth s, and a redistribution c. This equation gives a steady state distribution proportional to:

exp((1-a)/w)*w^(-1-a)

This approaches a power law for large wealth, with power a = 1 + c/s. This model illustrates two key points:

1) While a (Zipf’s law) power of one implies no local net change, as with cities and firms, a power above one implies net local change. In particular, the wealth of individual rich (w>1) folk tends to fall on average, while the wealth of individual poor (w<1) folk tends to rise on average. The numbers of the slowly-getting-poorer rich are only held steady by a large influx of recently poorer folks. On average, old money goes broke, while the poorest bounce back.

2) Risk-averse folks (i.e., most everyone) dislike fluctuations s, and would prefer to eliminate them. But when people are forced to suffer larger fluctuations s, the distribution of wealth will spread out, creating more very rich people. Thus policy changes that result in there being more very rich people do not necessarily favor rich people. Policies that induce larger fluctuations s create more very rich but hurt each one of them. In fact, very rich folks are often especially risk averse, investing primarily in bonds. While the US has more very rich folks than other nations, and more than in prior decades, this might be because of policies forcing the rich to suffer more challenges to their positions, and to hold larger stakes in their enterprises.

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The Protection Exception

We have many regulations, justified in many ways. One common type of regulation prevents people from making and enforcing certain voluntary agreements, and one common justification for such regulation is that we protect people from hurting themselves via such agreements. For example:

Chief Justice Robert Bauman ruled in favour of the section of the [Canadian] Criminal Code outlawing polygamous unions. … Bauman said while the law does infringe on religious freedom, it is justified given the harm polygamy causes to children, women and society. (more)

However, almost every such protection comes with one huge loophole, big enough to drive many a truck through: we let people emigrate to other countries. For example, we protect you and your kids from the harms of voluntary polygamy agreements, except that you and your kids may move to a nation that allows polygamy. The same applies to pretty much any other regulatory protection we offer, such as protections against buying unsafe products, hiring unlicensed professionals, paying for sex, or selling yourself into slavery. You are allowed to do any of these things as long as you first move to another nation that allows it.

This raises an obvious question: why do we allow this huge hole in the “protections” we maintain? It would seem to me more consistent to either:

  1. Prevent people from moving to nations that do not preserve the protections we think important, or
  2. Let locals make voluntary agreements that violate our basic protections, as long they plausibly demonstrate that they are so committed to such arrangements that they’d consider leaving the nation to get them.

Its seems pointless to consistently let people leave the nation to evade our “protections,” since after they leave, they aren’t protected. What gives?

Added 11p: Some responses to comments: Continue reading "The Protection Exception" »

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Japan’s Fat Tax

This has been going on for three years, yet I just learned of it:

In 2008, Japan’s Ministry of Health passed the ‘metabo’ law and declared war against obesity. …

Japanese people are normally envied for their lean physiques. In fact, the OECD ranks them, with only 3% population obesity, one of the least obese developed countries. … Comparing the time periods 1976-1980 and 1996-2000, prevalence of obese boys and girls increased from 6.1% and 7.1% to 11.1% and 10.2%. …

The law mandates that local governments and employers add a waist measurement test to the annual mandatory check up of 40-75 year olds. For men and women who fail the test and exceed the maximum allowed waist length of 33.5 and 35.4 inches, they are required to attend a combination of counseling sessions, monitoring through phone and email correspondence, and motivational support. …

Employers or local government … are required to ensure a minimum of 65% participation, with an overall goal to cut the country’s obesity rates by 25% by year 2015. Failure to meet these goals results in fines of almost 10% of current health payments. (more)

Even before Japanese lawmakers set the waistline limits last year, the International Diabetes Federation (IDF) amended its recommended guidelines for the Japanese. The new IDF standard is 90 centimeters (35.4 inches) for men and 80 centimeters (31.5 inches) for women. But the Japanese government has yet to modify its limits. (more; HT Melanie Meng Xue)

Two interesting patterns:

  1. Japanese waist limits are stricter on men, yet since men are taller health-based rules would be stricter on women.
  2. The thinnest rich nation (Japan) passed a big law to make itself thinner just as the biggest medical spending nation (USA) debated a big law (Obamacare) ensuring it would spend more on medicine.

My tentative explanations:

  1. Most societies find it easier to disrespect/mistreat/etc. low status men than low status women.
  2. National policy is more about reaffirming and supporting symbols of national pride than about addressing national needs. The USA is proud of its medicine and Japan is proud of its thinness.

Note that that if you want to regulate health it makes far more sense to regulate weight than medicine, since weight is far more related to health than medicine.

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US Grows Most ’70-’10

What nation increased its total economic consumption most from 1970 to 2010? If you’ve been reading too much about a US “great stagnation” in that period, the answer might surprise you — the US wins by a long shot. The top thirty gains:

United States 583, Japan 183, China 103, United Kingdom 73, Germany 63, France 53, India 47, Brazil 47, Italy 39, Canada 37, Mexico 37, Spain 28, Indonesia 14, Netherlands 11, Greece 9, South Africa 8, Thailand 8, Switzerland 8, Belgium 8, Austria 7, Colombia 7, Sweden 7, Philippines 7, Norway 7, Malaysia 7, Portugal 6, Chile 6, Finland 5, Ireland 5, Denmark 4. (source)

Units are tens of billions of dollars per year. All of Western Europe adds up to 285. Since total world change was ~1460, the US had ~40% of all consumption growth.

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