Must-Read: Kieran Healy (2015): America’s Ur-Choropleths: “Choropleth maps… showing various distributions geographically… make it easy to present a geographical distribution to insinuate an explanation… https://kieranhealy.org/blog/archives/2015/06/12/americas-ur-choropleths/

…Gabriel Rossman remarked… that most… in effect show population density more than anything else. (There’s an xkcd strip about this, too.) The other big variable, in the U.S. case, is Percent Black. Between the two of them, population density and percent black will do a lot to obliterate many a suggestively-patterned map of the United States…. If it turns out it’s more useful to know one or both of them instead of the thing you’re plotting, you probably want to reconsider your theory…. As a public service, here are America’s two ur-choropleths, by county:

Should-Read: Noah Smith: The Racism of the Rust Belt: “Wow. This article about the Rust Belt is amazing… https://twitter.com/Noahpinion/status/911318880500408320

…A must-read: John Austin: Segregation and changing populations shape Rust Belt’s politics https://www.brookings.edu/blog/the-avenue/2017/09/14/segregation-and-changing-populations-shape-regions-politics/. Rust Belt culture was defined by black-white segregation. This force shaped everything about the Rust Belt. Segregation either caused or was caused by a culture of xenophobia, which is now being turned against immigrants: Ronald Brownstein: Places with fewest immigrants push back hardest against immigration http://www.cnn.com/2017/08/22/politics/immigration-trump-arizona/index.html. Now, nonwhite immigration is one of the only things keeping the economically stagnant Rust Belt afloat. But white Rust Belters with a culture of white flight just can’t afford to escape from skilled, high-earning nonwhite immigrants!

So the more xenophobic Rust Belt white people are flipping out over the very immigration that is saving their communities from ruin! But less xenophobic communities in the Rust Belt are embracing the new polyracial America, and thriving!

The Rust Belt, it seems, has a stark choice: Xenophobia and decline, or immigration and a better future.

Should-Read: Both Carmen Reinhart and Vincent Reinhart are very smart and very much worth listening to. But this is simply wrong. They have not looked under the hood of the model of Robert Barro (2005): Rare Events and the Equity Premium http://www.nber.org/papers/w11310 with sufficient care…

Barro’s model hinges on the requirement that there be no safe assets in his model at all—they have a price and an interest rate, which is what they would sell for/yield if they were to exist but if net demand for them were zero, but they are not there. In our real world, they exist: the entire point of Barro (and of Reinhart and Reinhart) is to explain why the very large quantities of safe assets that do exist in our world sell for such high prices/offer such low yields.

Moreover, in Barro’s model prices of risky assets are not low when disaster is feared, but high: the logic of his model is that stock prices were so high in 2000 because the chances of a future disaster were high, and that stock prices were so low in 2009 because the chances of a future disaster were low. “That’s crazy!” you say. Yes. “That can’t be right!” you say. But it is—that is what drops out of the math.

Moreover, most true geopolitical or even economic disaster scenarios generate not deflation but inflation—nominal government debts, even those of sovereigns with exorbitant privilege, become much less valuable. Fear of such disasters cannot rationally support high values for nominal government debt. Of course, “rational” is doing a lot of work here…

Carmen Reinhart and Vincent Reinhart: The Fear Factor in Today’s Interest Rates: “The theory of “rare disaster risk” has progressed considerably in recent years, owing to the work of the Harvard economist Robert Barro… https://www.project-syndicate.org/commentary/north-korea-fear-drives-low-interest-rates-by-carmen-reinhart-and-vincent-reinhart-2017-09

…The core insight is that no one can rule out the occurrence of an Old Testament-style event – war, famine, pestilence, or societal collapse. Such disruptions to a settled way of life slash output, consumption, and human welfare. Because they do not happen often, they are far removed from the smooth center of the probability distribution from which baseline scenarios are drawn. The experience of the Great Recession tells us what to expect from financial markets when output plummets: as inflation tumbles, so do nominal and real (inflation-protected) yields on Treasury bills. The yield curve flattens because owning a long-term term claim on a safe-haven asset is valuable insurance. As yields on Treasury securities fall, other spreads widen relative to them.

In the current context, geopolitical tensions create the remote possibility of a disaster – the odds of which shift daily – that would make everyone much worse off. We claim no special insight into the mind of Kin Jong-un, but knowing that there is an unknowable helps to make sense of current asset prices. In such circumstances, risk-averse investors, especially those more directly in harm’s way along Asia’s Pacific Rim, will want to insure against an adverse event by taking advantage of the expected financial-market effects now. Nominal, real, and inflation-break-even Treasury rates are lower than the cyclical position of the economy warrants, owing to investors’ perception of acyclical and atypical risk….

The growing perception of rare disaster risk has three implications. First, low interest rates do not necessarily indicate that advanced economies are mired in a low-growth trap as a consequence of adverse demographic trends and slow productivity growth. Rather, they tell us that competition for safe assets has heated up.

Second, this is no counsel for government to ramp up spending. The near-term cost of financing deficits is low because households are worried that the possible “seven lean years” will be very lean, indeed. If citizens are storing up for the worst case, are their leaders – even officials concerned about the cyclical management of aggregate demand – justified in throwing caution to the wind?

And, third, low policy interest rates in the advanced economies are not necessarily evidence of ample accommodation by the monetary authorities. This is because monetary-policy ease is measured in terms of the difference between the actual rate and the equilibrium rate. The current low policy rates maintained by the US Federal Reserve, the European Central Bank, and the Bank of Japan may not look so low if the equilibrium rate is actually low.

The idea of rare disaster risk complements other explanations for the current low level of real rates globally…

Should-Read: Alan Beattie: As they unwind QE, central banks must come clean about inflation: “The Fed has tightened policy and the BoE is now prefiguring a rise. Neither can point at serious signs of inflationary pressure… https://www.ft.com/content/a5dbddfa-9ebe-11e7-9a86-4d5a475ba4c5

…Both are working on the idea that traditional relationships between inflation and measures such as growth and employment are still sufficiently predictable to base monetary policy on them. In the Fed’s case, it has already raised interest four times since December 2015… [and] is clearly signalling another increase in December. This is beginning to look rather like the Fed has returned to its traditional cyclical mode of a long series of interest rate changes in one direction, rather than each move being as likely down as up. This will only be worsened if, as rumoured, the former Fed governor Kevin Warsh replaces Janet Yellen when her term as Fed chair comes up next year. Mr Warsh, who served at the Fed between 2006-2011, was a notorious worrywart about the possibility of inflation re-emerging, a threat that spectacularly failed to materialise.

As for the BoE’s warnings about rate rises in the near future, it has been here several times before and looked somewhat foolish each time. In 2013 the MPC gave unusually precise “forward guidance” that it would not raise interest rates until the unemployment rate had dropped below 7 per cent, a pledge it scrapped six months later as too inflexible. In 2014 Mark Carney, the bank’s governor, said a rise in the bank rate could come “sooner than markets currently expect”; in 2015 he said the decision on raising rates would “likely come into sharper relief” at the end of the year. Nonetheless, rates remained resolutely on hold before the Brexit-related cut in 2016.

As a Labour MP sardonically put it in 2014, the BoE has acted like an “unreliable boyfriend”. Its new idea of remedying this situation seems to be committing itself to getting married, or at least cohabiting, even though the relationship is manifestly not ready for it….

There is one decent argument for higher rates… to restrain credit growth. But that runs at a tangent to central banks’ inflation-targeting mandate. Short-term interest rates are a very blunt instrument with which to go after excessive credit growth or asset price bubbles. If central banks have decided to focus on an outcome other than inflation, they should say so. If this means admitting that their macroprudential tools for control of credit and growth essentially do not work, so be it. Credibility and transparency do not come from clandestinely trying to achieve contradictory goals with one tool.

Should-Read: Blakeley B. McShane et al.: Abandon Statistical Significance: “The status quo is a lexicographic decision rule in which any result is first required to have a p-value that surpasses the 0.05 threshold… http://www.stat.columbia.edu/~gelman/research/unpublished/abandon.pdf

…only then is consideration—often scant—given to such factors as prior and related evidence, plausibility of mechanism, study design and data quality, real world costs and benefits, novelty of finding, and other factors that vary by research domain. There have been recent proposals to change the p-value threshold, but instead we recommend abandoning the null hypothesis significance testing paradigm entirely, leaving p-values as just one of many pieces of information with no privileged role in scientific publication and decision making. We argue that this radical approach is both practical and sensible.

• Should-Read: I’m just glad for the sake of his coworkers and innocent bystanders that Matt Yglesias did not have the workplace accident Bruce Banner had at Los Alamos. Just saying:

Matt Yglesias: The staggering hypocrisy of Bill Cassidy and Lindsey Graham: “Bill Cassidy… safe seat in Louisiana, could… have spent the past six months… https://www.vox.com/policy-and-politics/2017/9/19/16330094/cassidy-graham-hypocrisy

…lying low and voting for whichever health care bills leadership puts in front of him. But Cassidy was a medical doctor before he was a politician, his state has gained enormously from Medicaid expansion, and in the early days of the Affordable Care Act repeal process he made a name for himself as a rare GOP coverage hawk. The legislation he co-authored with Maine Republican Susan Collins would essentially have allowed state governments that like their Obamacare to keep it. And he vocally touted what he termed the “Jimmy Kimmel test” for health care policy. “Coverage does not have to have bells and whistles,” he told Business Insider’s Bob Bryan on May 14, “but does the coverage cover a tragedy that could occur in someone’s health or to a loved one?” Around this time, his colleague Lindsey Graham of South Carolina was expressing concern about the rushed process and hasty drafting….

Four months later, Cassidy and Graham are the lead authors of what’s become the GOP’s final stab at repealing Obamacare. Their bill brazenly casts aside all of their previous doubts, featuring the most slipshod legislative process yet and no guarantees of adequate coverage whatsoever. And neither of them has bothered to explain to anyone why they changed their minds… [and are] spearheading a process that is, if anything, more slipshod and ridiculous. The scoreless AHCA that Graham rightly objected to had, at least, been scored in an earlier form, even though the final amended text had not. The Congressional Budget Office has done no analysis at all of Cassidy-Graham, and it’s entirely the fault of Graham and Cassidy personally, who didn’t bother to turn their half-baked policy idea into legislative text until it was way too late. Now the Senate will vote on legislation without “estimates of the effects on the deficit, health insurance coverage, or premiums.”

But it gets worse…. Because the Senate’s reconciliation instructions expire on September 30… there’s no chance to amend or fix any aspect of a bill that’s had no real committee hearings, markup, or formal analysis….

[In] May… Cassidy was operating in a universe in which people are going to need health care services and thus the government needs to find a way to ensure that they can afford them. His new Cassidy-Graham bill casts all that to the wind…. It also lets insurance companies bring back the time-honored practice of pricing insurance for people with preexisting conditions at a higher — prohibitively higher if need be — rate, violating the absolute core of the Jimmy Kimmel test…. Neither Cassidy nor Graham nor a few dozen other Senate Republicans appear to have given this any thought or bothered to do any analysis of how it will play out. And for the few dozen, that’s not surprising even if it is shocking. Replacement-level Senate Republicans have never taken an interest in health policy or cared much about process. This bill repeals Obamacare and cuts spending, and that’s all they need to know.

But Cassidy and Graham both went out of their way to brand themselves as more concerned about such matters. They didn’t need to do that. They aren’t representing purple states or otherwise facing electoral vulnerability. Unlike Dean Heller or Jeff Flake or many of their House colleagues, they won’t personally pay an electoral price for destabilizing the American health care system. They just used to believe it would be a mistake to do so — that it would be wrong, morally speaking, to massively imperil Americans’ health insurance coverage via a slipshod legislative process. So they said so. And then, for some reason, they changed their minds.

Must-Watch: Joshua Gans: Danny Kahneman on AI versus Humans: “At our AI conference last week, Nobel Laureate Danny Kahneman was commenting on a paper by Colin Camerer: <https://digitopoly.org/2017/09/22/kahneman-on-ai-versus-humans/>

Rough Transcript:

That was conclusions from yesterday—when I couldn’t understand most of what was going on, and yet had the feeling I was learning a lot. So I will have some remarks about Colin [Camerer] and then some remarks about the few things that I noticed yesterday that I could understand.

I certainly agree with Colin—and I think it’s a lovely idea—that if you have a mass of data and you use deep learning you will find out much more than your theory. I would hope that machine learning can be a source of hypotheses: that is, that some of these variables that you identify are genuinely interesting.

At least in my field, the bar for successful publishable science is very low. We consider theories “confirmed” even when they explain very little of the variance as long as they yield statistically significant predictions. We treat the residual variance as noise. A deeper look into the residual variance—which machine learning is good at—is clearly an advantage. So, as an outsider here, actually I have been surprised not to hear more about that about superiority of AI to what people can do. Perhaps as a psychologist this is what interests me most. I’m not sure that new signals will always be interesting, but I suppose that some may lead to new theory and that would be useful.

I don’t really fully agree with Colin’s second idea: that that it’s useful to view human intelligence as a weak version of “artificial intelligence”. There certainly are similarities. Certainly you can model some of human overconfidence in that way. But I think that the processes that occur in human judgment are really quite different the processes that produce overconfidence.

I left myself time for some remarks of my own on what I learned yesterday. One of the recurrent issues both in talks and in conversations was whether AI can eventually do whatever people can do. Will there be anything that is reserved for human beings? Frankly, I don’t see any reason to set limits on what they can do. We have in our heads wonderful computers. They are made of meat. But they are computers. It’s extremely noisy. It does parallel processing. It is extraordinarily efficient. There is no magic there. So it’s very difficult to imagine that with sufficient data you there will remain things that only humans can do.

The reason that we see so many limitations is that this field is really at its very beginning.

We are talking about developments—deep learning—that took off—I mean the idea is old but the development took off—eight years ago. That’s the landmark date that people are mentioning. And that’s nothing. You have to imagine what it might be like in 50 years. The one thing that I find extraordinarily surprising and interesting in what is happening in AI these days is that everything is happening faster than was expected. People were saying: “it will take ten years for AI to beat Go”. And it took eight months. This excess of speed at which the thing is developing and accelerating is very remarkable. Setting limits is certainly premature.

One point made yesterday was the uniqueness of humans when it comes to evaluations. It was called “judgment”. Here in my noggin it’s “evaluation of outcomes”: the utility side of the decision function. I really don’t see why that should be reserved to humans.

I’d like to make the following argument:

1. The main characteristic of people is that they’re very “noisy”.
2. You show them the same stimulus twice, they don’t give you the same response twice.
3. You show the same choice twice I mean—that’s why we had stochastic choice theory because thereis so much variability in people’s choices given the same stimuli.
4. Now what can be done even without AI is a program that observes an individual that will be better than the individual and will make better choices for the individual by because it will be noise-free.
5. We know from the literature that Colin cited on predictions an interesting tidbit:
6. If you take clinicians and you have them predict some criterion a large number of time and then you develop a simple equation that predicts not the outcome but the clinicians judgment, that model does better in predicting the outcome then the clinician.
7. That is fundamental.
8. This is telling you that one of the major limitations on human performance is not bias it is just noise.

I’m maybe partly responsible for this, but people now when they talk about error tend to think of bias as an explanation: the first thing that comes to mind. Well, there is bias. And it is an error. But in fact most of the errors that people make are better viewed as this random noise. And there’s an awful lot of it. Admitting the essence of noise has implications for practice. And one implication is obvious: you should replace humans by algorithms whenever possible. This is really happening even when the algorithm don’t do very well. Humans do so poorly and are so noisy that just by removing the noise you can do better than people.

When you try to have humans simulate the algorithm and that idea by by enforcing regularity and processes and discipline on judgment and on choice, you improve you reduce the noise and you improve performance because noise is so poisonous.

???? said yesterday that humans would always prefer emotional contact with with other humans. That strikes me as probably wrong. It is extremely easy to develop stimuli to which people will respond emotionally. A face that changes expressions, especially if it’s sort of baby-shaped, are cues that will make people feel very emotional. Robots will have these cues. Furthermore, it is already the case that AI reads faces better than people do, and can and undoubtedly will be able to predict emotions and their development far better than people can. I really can imagine that one of the major uses of robots will be taking care of the old. I can imagine that many old people will prefer to be taken care of by robots by friendly robots that have a name and that have a personality that is always pleasant. They will prefer that to being taken care of by their children.

Now I want to end on a story. A well-known novelist—I’m not sure he would he appreciate my giving his name—wrote me some time ago that he was planning a novel. The novel is about a love triangle between two humans and a robot. What he wanted to know is how would the robot be different from the individuals. I propose three main differences:

1. One is obvious the robot will be much better at statistical reasoning and less enamored with stories and narratives than people.
2. The robot would have much higher emotional intelligence.
3. The robot would be wiser.

Wisdom is breadth. Wisdom is not having too narrow a view. That’s the essence of wisdom: it’s broad framing. A robot will be endowed with broad framing. And I really do not see how, when it has learned enough, it will not be wiser than we people. We don’t have broad framing. We’re narrow thinkers. We’re noisy thinkers. It’s very easy to improve upon us. I don’t think that there is very much that we can do that computers will not eventually be programmed to do.

Thank you.

Should-Read: The discovery of Uranus came about because Saturn was not moving like it should move were it to be the outermost planet. Republican senators are not moving like they should move unless they were under the strong influence of some very powerful, very strange, and very destructive force:

John Cole: Damn I Love The Jag and the Jet and the Mansion: “Graham/Cassidy… bad policy… will devastate many GOP states… hurt tens of millions… https://www.balloon-juice.com/2017/09/23/damn-i-love-the-jag-and-the-jet-and-the-mansion/

…gut protections for people with pre-existing conditions, something Trump claims he is against.

It’s bad politics. It betrays every alleged GOP “principle”… add to the debt, has not been debated properly, no one has read the bill, etc. It’s wildly unpopular. The members of the Senate don’t even like the bill and don’t even really know what it does. But yet, they are desperate to pass it.

Here’s why:

As more than 40 subdued Republican senators lunched on Chick-fil-A at a closed-door session last week, Senator Cory Gardner of Colorado painted a dire picture for his colleagues. Campaign fund-raising was drying up, he said, because of widespread disappointment among donors over the inability of the Republican Senate to repeal the Affordable Care Act or do much of anything else.

Mr. Gardner is in charge of his party’s midterm re-election push, and he warned that donors of all stripes were refusing to contribute another penny until the struggling majority produced some concrete results.

“Donors are furious,” one person knowledgeable about the private meeting quoted Mr. Gardner as saying. “We haven’t kept our promise.”

The backlash from big donors as well as the grass roots panicked Senate Republicans and was part of the motivation behind the sudden zeal to take one last crack at repealing the health care law before the end of the month. That effort faltered Friday with new opposition from Senator John McCain of Arizona, the perennial maverick who had scuttled the Senate’s first repeal effort. Now Republicans must confront the possibility that they will once again let down their backers with no big win in sight.

It’s all about the Benjamins and catering to the donor base. Literally nothing else matters to these guys. F—–g the poors and pissing off teh left would just be a bonus.