# The Phenomenal World

## Can you bias a coin?

Challenge: Take a coin out of your pocket. Unless you own some exotic currency, your coin is fair: it's equally likely to land heads as tails when flipped. Your challenge is to modify the coin somehow—by sticking putty on one side, say, or bending it—so that the coin becomes biased, one way or the other. Try it!

How should you check whether you managed to bias your coin? Well, it will surely involve flipping it repeatedly and observing the outcome, a sequence of h's and t's. That much is obvious. But what's not obvious is where to go from there. For one thing, any outcome whatsoever is consistent both with the coin's being fair and with its being biased. (After all, it's possible, even if not probable, for a fair coin to land heads every time you flip it, or a biased coin to land heads just as often as tails.) So no outcome is decisive. Worse than that, on the assumption that the coin is fair any two sequences of h's and t's (of the same length) are equally likely. So how could one sequence tell against the coin's being fair and another not?

We face problems like these whenever we need to evaluate a probabilistic hypothesis. Since probabilistic hypotheses come up everywhere—from polling to genetics, from climate change to drug testing, from sports analytics to statistical mechanics—the problems are pressing.

Enter significance testing, an extremely popular method of evaluating probabilistic hypotheses. Scientific journals are littered with reports of significance tests; almost any introductory statistics course will teach the method. It's so popular that the jargon of significance testing—null hypothesis, $p$-value, statistical significance—has entered common parlance.

## HARD CAPS

### Economic growth vs. natural resources

A recent Foreign Policy op-ed by JASON HICKEL examines “green growth,” a policy that calls for the absolute decoupling of GDP from the total use of natural resources. Hickel synthesizes three studies and explains that even in high-efficiency scenarios, economic growth makes it impossible to avoid unsustainably using up natural resources (including fossil fuels, minerals, livestock, forests, etc).

“Study after study shows the same thing. Scientists are beginning to realize that there are physical limits to how efficiently we can use resources. Sure, we might be able to produce cars and iPhones and skyscrapers more efficiently, but we can’t produce them out of thin air. We might shift the economy to services such as education and yoga, but even universities and workout studios require material inputs. Once we reach the limits of efficiency, pursuing any degree of economic growth drives resource use back up.”

The op-ed sparked debate about the state of capitalism in the current climate crisis, most notably in an Bloomberg op-ed by NOAH SMITH, who claims that Hickel is a member of “a small but vocal group of environmentalists telling us that growth is no longer possible—that unless growth ends, climate change and other environmental impacts will destroy civilization.” Though Smith’s op-ed doesn’t directly engage with many of Hickel’s points, his general position prompted a clarifying (and heated)response from Hickel:

“Noah is concerned that if we were to stop global growth, poor countries would be ‘stuck’ at their present level of poverty. But I have never said that poor countries shouldn’t grow—nor has anyone in this field of study (which Noah would know had he read any of the relevant literature). I have simply said that we can’t continue with aggregate global growth.

...
While poor countries may need some GDP growth, that should never—for any nation, rich or poor—be the objective as such. The objective should be to improve human well-being: better health, better education, better housing, happiness, etc. The strategy should be to target these things directly. To the extent that achieving these goals entails some growth, so be it. But that’s quite different from saying that GDP needs to grow forever.”

• From a study on the limits of green growth: “GDP cannot be decoupled from growth in material and energy use. It is therefore misleading to develop growth-oriented policy around the expectation that decoupling is possible. GDP is increasingly seen as a poor proxy for societal wellbeing. Society can sustainably improve wellbeing, including the wellbeing of its natural assets, but only by discarding GDP growth as the goal in favor of more comprehensive measures of societal wellbeing.” Link.
• In a recent article, Juan Moreno-Cruz, Katharine L. Ricke, and Gernot Wagner discuss ways to approach the climate crisis and argue that “mitigation (the reduction of carbon dioxide and other greenhouse gas emissions at the source) is the only prudent response.” Link.

## The "Next Big Thing" is a Room

If you don’t look up, Dynamicland seems like a normal room on the second floor of an ordinary building in downtown Oakland. There are tables and chairs, couches and carpets, scattered office supplies, and pictures taped up on the walls. It’s a homey space that feels more like a lower school classroom than a coworking environment. But Dynamicland is not a normal room. Dynamicland was designed to be anything but normal.

Led by the famous interface designer Bret Victor, Dynamicland is the offshoot of HARC (Human Advancement Research Community), most recently part of YCombinator Research. Dynamicland seems like the unlikeliest vision for the future of computers anyone could have expected.

Let’s take a look. Grab one of the scattered pieces of paper in the space. Any will do as long as it has those big colorful dots in the corners. Don’t pay too much attention to those dots. You may recognize the writing on the paper as computer code. It’s a strange juxtaposition: virtual computer code on physical paper. But there it is, in your hands. Go ahead and put the paper down on one of the tables. Any surface will do.

## MIDDLE WAGE

### Questioning the great transition into a "global middle class"

Economist STEVE KNAUSS, in a new paper published by the CANADIAN JOURNAL OF DEVELOPMENT STUDIES, examines the "myth" of the global middle class and the claim that the \$2/day measurement tells us anything substantive about poverty and inequality around the world.

"On the defensive in recent years, advocates of globalization have taken to highlighting achievements in developing countries, where globalization has supposedly pulled the majority out of poverty and catapulted them into the swelling "global middle class" remaking our world. This article provides a critical look at this interpretation. Carefully reviewing the global income distribution data behind such claims, it presents original calculations that generate new stylized facts for the globalization era.

The global income distribution approach does potentially have much to offer in terms of revealing the complexity of these changes, but in order to do so, greater attention and resources should be devoted to deepening our knowledge of the socio-historical changes underpinning the new realities of class formation and how they relate to the observed changes in global incomes. Instead of, or in addition to, constructing groups according to income thresholds, or national/global based deciles, ventiles or percentiles, more research should start from the other end, identifying national and global groups based on similarities in class formation and then attempting to trace such trajectories through the global income distribution."

"The question is: does their new petty income from the informal sector compensate for their loss of rural land, livestock, etc? It is not clear that it does. Therefore, we cannot say that this is a straightforward narrative of 'progress'—at least not in all regions."

• Development economist Morten Jerven with a 2010 paper diving into the metrics question in the context of poverty in Africa: "The article therefore concludes that it is futile to use GDP estimates to prove a link between income today and existence of pro-growth institutions in the past, and recommends a searching reconsideration of the almost exclusive use of GDP as a measure of relative development." Link.

## Cash and Income Studies: A Literature Review of Theory and Evidence

What happens when you give people cash? How do they use the money, and how does it change their lives? Every cash study on this list is different: the studies vary in intervention type, research design, location, size, disbursement amount, and effects measured. The interventions listed here include basic income and proxies--earned income tax credits, negative income tax credits, conditional cash transfers, and unconditional cash transfers. The variety present here prevents us from being able to make broad claims about the effects of universal basic income. But because of its variety, this review provides a sense of the scope of research in the field, capturing what kinds of research designs have been used, and what effects have been estimated, measured, and reported. The review also allows us to draw some revealing distinctions across experimental designs.

If you’re interested in creating a UBI policy, there are roughly three levels of effects (after ODI) that you can examine.

## MATERIAL UNDERSTANDING

### The full resource stack needed for Amazon's Echo to "turn on the lights"

In a novel new project, KATE CRAWFORD and VLADAN JOLER present an "anatomical case study" of the human labor, data, and planetary resources necessary for the functioning of an Amazon Echo. A 21-part essay accompanies an anatomical map (pictured above), making the case for the importance of understanding the complex resource networks that make up the "technical infrastructures" threaded through daily life:

"At this moment in the 21st century, we see a new form of extractivism that is well underway: one that reaches into the furthest corners of the biosphere and the deepest layers of human cognitive and affective being. Many of the assumptions about human life made by machine learning systems are narrow, normative and laden with error. Yet they are inscribing and building those assumptions into a new world, and will increasingly play a role in how opportunities, wealth, and knowledge are distributed.

The stack that is required to interact with an Amazon Echo goes well beyond the multi-layered 'technical stack' of data modeling, hardware, servers and networks. The full stack reaches much further into capital, labor and nature, and demands an enormous amount of each. Put simply: each small moment of convenience – be it answering a question, turning on a light, or playing a song – requires a vast planetary network, fueled by the extraction of non-renewable materials, labor, and data. The scale of resources required is many magnitudes greater than the energy and labor it would take a human to operate a household appliance or flick a switch."

Link to the full essay and map.

• More on the nuanced ethical dilemmas of digital technology: "Instead of being passive victims of (digital) technology, we create technology and the material, conceptual, or ethical environments, possibilities, or affordances for its production of use; this makes us also responsible for the space of possibilities that we create." Link.
• As shared in our April newsletter, Tim Hwang discusses how hardware influences the progress and development of AI. Link.

## THE JANUS FACE

### The paradoxical outcomes of university-centered economic growth

A recent paper by RICHARD FLORIDA and RUBEN GAETANI takes an empirical look at the role of research universities in anchoring local economies and driving economic growth. The paper examines the density of patenting and financial investment within the internal geographies of specific American cities and argues that knowledge agglomeration exacerbates economic, occupational, and spatial segregation.

“Although universities certainly affect national levels of innovation and growth, research has shown that they tend to affect innovation and growth by operating through more localized channels. The roles played by Stanford University in the rise and economic performance of Silicon Valley and of MIT in the Boston-Cambridge ecosystem are cases in point.

Universities constitute a rare, irreproducible asset at the local level. At the same time, it is increasingly clear that the knowledge-economy metros and so-called college towns suffer from relatively high levels of inequality and segregation.”

Set to be released in the October issue of MANAGERIAL & DECISION ECONOMICS, the paper presents a nuanced exploration of agglomeration economies and complicates the use of universities as levers for economic revitalization, job creation, and mutual prosperity.

• As spotlighted in a November newsletter, Lyman Stone discusses national problems with the role of the US higher education system: “The problems we face are: (1) the regional returns to higher education are too localized, (2) the price of higher education is bid up very high, (3) the traditional entrepreneurial player, state governments, is financially strained or unwilling, (4) private entrance is systematically suppressed by unavoidable market features.” Link.
• At CityLab, Richard Florida examined venture-capital invested start-ups and found they disproportionately clustered in metropolitan regions with high-performing universities. Link.
• For a deep dive into the role universities play in economic and spatial development, see Margaret O’Mara’s book on Cold War era “Cities of Knowledge." Link.

## WEALTH BEGETS WEALTH

### Matt Bruenig's Social Wealth Fund proposal, and responses

Last week, MATT BRUENIG of the PEOPLE’S POLICY PROJECT published the most detailed version of a bold policy he’s been writing about for a long time: a Social Wealth Fund for America.

“If we want to get serious about reducing wealth and income inequality, then we have to get serious about breaking up this extreme concentration of wealth.

A dividend-paying social wealth fund provides a natural solution to this problem. It reduces wealth inequality by moving wealth out of the hands of the rich who currently own it and into a collective fund that everyone in the country owns an equal part of. It then reduces income inequality by redirecting capital income away from the affluent and parceling it out as a universal basic dividend that goes out to everyone in society.”

The full report contains history on Sweden and Norway, information on the Alaska Permanent Fund, and then a sketch of the “American Solidarity Fund,” including funding and governance. The report stakes conceptual ground, and doesn’t offer new macroeconomic analysis. Link.

• Matt Yglesias summarizes and adds context in Vox, noting that Bruenig’s political angle is not imperative for the SWF idea. Other proposals for government stock ownership “invariably conceptualize the government as a silent partner in the enterprises it would partially own, trying to find a way for the government to reap the fiscal or economic benefits of government stock ownership without the socialistic implications of government officials running private firms. Bruenig’s proposal is the opposite of that, a way to put real meat on the bones of “democratic socialism” at a time when the phrase is gaining momentum as a slogan and an organizing project but also, to an extent, lacks clear definition.” Link.
• In an illustration of Yglesias’s point, Roger Farmer, who has suggested funding a SWF through countercyclical asset purchases, makes his ideological differences clear on Twitter: “You don’t have to be a Democratic Socialist to see value in a scheme whereby government borrows and invests in the stock market…unlike Matt Bruenig I do not see this as a tool for political control of corporate agendas and I have advocated that the Treasury purchase an index fund of non-voting shares.” Link.
• Mike Konczal criticizes the SWF idea along multiple lines. “We want shareholders to ruthlessly extract profits, but here for the public, yet we also want the viciousness of market relations subjected to the broader good. Approaching this as shareholders is probably the worst point of contact to try and fix this essential conflict.” Link.
• Bruenig responds to Konczal. Link.
• Peter Gowan expands on the idea in Jacobin: “Following [Rudolf] Meidner, I think it is worth considering multiple social wealth funds to be established along sectoral lines.” Link.
• Rachel Cohen gets responses from Peter Barnes and others in the Intercept. [Link](https://theintercept.com/2018/08/28/social-wealth-fund-united-stat

## CONSTRAINED POSSIBILITIES

### On the relationship between academic economics and public policy

In a recent working paper, ELIZABETH POPP BERMAN discusses the interconnected fields of academic economics and public policy. The paper conceptualizes the translation of certain academic ideas into public policy, clarifying the relation by describing different economic theories as having certain “affordances”:

"I borrow the concept of affordances, which has been used widely to describe how particular technologies proved the potential for some kinds of action but not others. I suggest that knowledge, like technologies, may afford some possibilities but not others. In particular, some theories produce knowledge that, simply because of the kind of knowledge it is, is useful and usable for particular actors in the policy field, while others, regardless of their truth or the accuracy with which they describe the world, do not.”

The paper also examines the gap between academic theory and policy application and includes takeaways for those interested in the role of academic experts in the process of policy creation:

"It is important to recognize the relative autonomy of the academic field from the policy field. While outside groups may support one school of thought or another, the development of academic disciplines is not determined solely by who has the most money, but also by stakes—including intellectual stakes—specific to the academic field. Similarly, while the academic and policy fields may be linked in ways that facilitate the transmission of people and ideas, the academic dominance of a particular approach does not translate to policy dominance, even given influential champions.”

Link to full paper. ht Michael

• This work builds off a 2014 paper Berman co-authored with David Hirschman, which also explores the degree to which economists, their tools and ideas, influence and create policy. Similar to the concept of “affordances”, Berman and Hirschman argue that “economic style can shape how policymakers approach problems, even if they ignore the specific recommendations of trained economists.” Link.
• A 2010 paper offers a new framework for properly assessing research impact, which includes quantifying conventional citation data as well as other qualitative outputs. Link.

## PRESCIENT HEGEMON

### Branko Milanovic with a speculative paper on globalization from the turn of the millennium

Back in 1999, economist Branko Milanovic wrote a ("several times rejected") paper proposing three periods of globalization—the third being the present one—and the countervailing ideologies that sprang up to contest the first two. From the paper:

“We are currently standing at the threshold of the Third Globalization. the Roman-led one of the 2nd-4th century, the British-led one of the 19th century, and the current one led by the United States. Each of them not only had a hegemon country but was associated with a specific ideology. However, in reaction to the dominant ideology and the effects of globalization (cultural domination, increasing awareness of economic inequities) an alternative ideology (in the first case, Christianity, in the second, Communism) sprang up. The alternative ideology uses the technological means supplied by the globalizers to subvert or attack the dominant ideological paradigm."

• For more Milanovic on the politics of globalization, slides from a recent presentation of his on global inequality and its political consequences features much of relevance to this vintage paper. Some of its broader questions: "Does global equality of opportunity matter? Is 'citizenship rent' morally acceptable? What is the 'optimal' global income distribution? Can something 'good' (global middle class) be the result of something 'bad' (shrinking of national middle classes and rising income inequality)? Are we back to Mandeville?" Link.

## SPATIAL PARAMETERS

### On place-based and adaptable public policy

A recent report published by BROOKINGS INSTITUTE discusses the potential effectiveness of place-based policies for strengthening the economies of depressed areas. Co-authored by Harvard’s BENJAMIN AUSTIN, EDWARD GLAESER, and LAWRENCE H. SUMMERS, the report emphasizes that region-specific, flexible policies may best foster a nation-wide equilibrium:

"Traditionally, economists have been skeptical towards [place-based] policies because of a conviction that relief is best targeted towards poor people not poor places, because incomes in poor areas were converging towards incomes in rich areas anyway, and because of fears that favoring one location would impoverish another. This paper argues for reconsidering place-based policies ...

Indeed, even the most diehard opponent of place-based redistribution should see the logic of tailoring Federal policies to local labor market conditions. Standard social policy rules, like the Bailey (1976)—Chetty (2006) formula for unemployment insurance, depend on parameters that differ across space. If non-employment is particularly harmful in one location and particularly sensitive to public policies, then that diehard could still support a place-based revenue-neutral twist that reallocates funds from benefits that subsidize not working to benefits that encourage employment, without encouraging migration or raising housing prices.”

Link to full paper. The two main policy recommendations are an expanded EITC and subsidies for employment.