Keeping up with the FITs, 5/24
Allison Schrager and Joel Mokyr; Scott Sumner on California; Glenn Loury and Daniel Kaufman on social science; Infovores on success
Allison Schrager interviews Joel Mokyr. Mokyr says,
You said the question was controversial, so will my answer be, but I don't care. Here is the point. Economic growth and economic progress is not driven by the masses. It is not driven by the population at large. It is driven by a small minority of people who economists refer to in their funny language as upper-tail people, meaning if you think of the world following some kind of bell-shaped or normal distribution, it's the elite, it's the people who are educated—not necessarily intellectuals. They could be engineers, they could be mechanics, they could be applied mathematicians.
…I don't care if 95 percent of people are not willing to question traditional knowledge, or anything like that. I care about the other 5 percent.
Sounds like the people Tyler Cowen and Daniel Gross talk about in Talent. Sounds like Elon. I could have excerpted other parts of the transcript. Strongly recommended.
our Orange County home is worth far more than the Massachusetts home that we vacated. Its value has increased by 80%, vs. 40% in Massachusetts. So why are homes in California worth so much, and still rising rapidly in value, if the state is a dystopian hell that everyone’s fleeing for Texas and Florida?
People who say that California is a failed state sound like Yogi Berra, who reputedly said that the restaurant has gotten so crowded that no one goes there any more.
Daniel Kaufman and Glenn Loury discuss social science methodology, including the hoary issue of how social science differs from natural science. For example, around 12 minutes in, Kaufman makes the point that a chemist has an easier time approaching research objectively, where a social scientist comes in with more ideological baggage.
Because success in the artistic domain is highly variable and path dependent, the aspiring artist needs to do everything possible to expose themselves to positive tail events with potential to launch obscure but talented individuals into the crucial orbit of career-making connections.
Artists who fail to do this, no matter how gifted, rarely get discovered.
The example of the Beatles comes to mind. They had talent, but they would never have been discovered without getting into the crucial orbit of career-making connections. That meant getting taken under the wing of Allan Williams, then Brian Epstein, and then George Martin.
One thing I've found puzzling about my neighborhood is that so many of the buyers of these giant expensive houses are DINKs or empty nestors. There is even one single lady in her 50s (why does she need a five bedroom house)?
One interesting dyanamic is that the cities and states with highest housing price growth have some of the lowest TFR. You might think that would lead to less housing demand, but I think that the extra disposable income that comes from not having kids gets plowed back into housing.
In addition many of the things people complain about in places like California hits people with multiple kids hardest. If you don't have many (any) kids or you have a high enough income to opt out of public goods than its less of an issue.
Net out migration from these states is mostly of middle class families with kids.
Maybe "California is a terrible place to live if you are a middle class family with kids" is the real takeaway. For now that isn't the demographic driving California housing prices.
We'll see how far into the upper middle class CA can push with its idiocy before housing demand breaks.
California has a special problem with real estate value oscillations on a massive scale. The reason for this is an interaction between normal demand variations and the response times associated with the supply of housing (which includes regulatory time delays).
The very nature of a supply/demand system is a feedback loop where an increase in demand causes the suppliers to increase the supply. If the normal time constant for the supplier to provide more housing is only a year or so for construction time, as it was in California when I was young ('50s), and LA was experiencing a huge demand increase, the price only moved a little bid and someone built a new city almost overnight. When the supply time scales become similar to the demand functions, the control system becomes mathematically unstable and will oscillate as a developer spend many years with permissions, and by the time you have housing for sale the demand and prices are going down, which drives as oscillation.
You can't drive a vehicle whose response time is the same as yours and you will make oscillations worse with each control response. All electrical engineers and control system engineers know this, but economists who generally don't understand complex math and system dynamics don't see it. When the supply response function is very slow like with mining, chemical production, oil/gas, etc. projects you get a medium-term inelastic supply response, and the price can skyrocket for decades until the supply increases. https://en.wikipedia.org/wiki/Complex_number
Chapman University's paper has an excellent graph showing Calif. housing (change in price/ft2 over time) similar to the rest of the country on housing before the '70s when we got massive delays added to the supply systems response time (mainly zoning and environmental reports -- the source of delay is irrelevant, only the time is relevant). It is like putting an insulator over your heater/cooler thermostat, which will cause delays in the thermostat response time and make the house temperature oscillate.