Knowledge that Transforms

Prediction Machines: The Simple Economics of Artificial Intelligence, by artificial intelligence (AI) experts, Ajay Agrawal, Joshua Gans, and Avi Goldfarb, pulls no punches. AI is all about prediction—machines learning precisely what to do for us and to us. The learning is occurring at warp speed, as AI uses big data to pick our brains for what we know and what we like. The authors are partly infatuated and partly terrified by AI’s parasitic potential. Readers should read this chilling and insightful book, but they should do so with a bottle of scotch, ideally from one of Scotland’s ancient distilleries that has recently been fully automated. (JEL C45, C55, E26, M10, M20, O30)

In The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era, Barry Eichengreen relies on historical and contemporary evidence to analyze major episodes of populism in the twenty-first century, the Trump election in the United States, and Brexit in Europe. Populism—an anti-elite, authoritarian, and nativist movement—rises in times of economic and political discontent because elites, the winners of the preceding period, are unwilling or unable to share their winnings with the losers. This review asks for a model that would allow one to differentiate a destructive populism wave and a constructive adjustment of the political system to changing circumstances.(JEL D72, D73, N40)

Recent years have seen several 100-year anniversaries of the women’s vote, and today universal and equal suffrage is an inseparable part of democracy. Dawn Teele’s book, Forging the Franchise, is an inquiry into the reasons why male politicians elected by male voters gave women the right to vote in the United Kingdom, the United States, and France. It offers a theory of the political origins that focuses on electoral expediency and mobilization of women’s groups and it provides quantitative evidence from the three countries. It argues that women got the right to vote when the incumbents saw and needed an electoral advantage of expanding the right to vote to females. The book is of interest not only to those who want a deeper understanding of the historical process of women’s enfranchisement or who are interested in the political economy of democratization, but to everyone with a concern about gender inequality in politics today. (JEL D72, E16, J16, N30, N40)

This article reviews the history of race laws in the United States as distinct from the rule of law, an idea found in the writing and speeches of Sadie Tanner Mossell Alexander, the first African American PhD in economics (1921). We review the race laws of slavery, lynching, Negro Jobs, and the making of the Black ghetto. We highlight the life and writings of Alexander and other early African American economists as an example of the cost of racial exclusion in the economics profession and how it has impeded the production of useful knowledge about the workings of the US economy. (JEL J15, K38, N31, N32, N41, N42)

The existence of an effective legal system is assumed throughout economic analysis, and yet there has been little study of the economics of legal markets themselves. Research to date has focused narrowly on the economics of markets for lawyers. In this review, I distinguish legal markets from the market for lawyers and show how excessive regulation of our legal markets—by lawyers themselves—distorts economic activity and growth. It does so primarily by inhibiting investment in the legal and regulatory technologies needed to respond to the transformation of the economy wrought by globalization, digitization, aspirations for inclusion, and the coming of artificial intelligence. (JEL J44, K00, K40, L84)

This essay examines the extent to which research on the economics of race and crime produced by Black economists or published in the flagship journal of the organization of Black economists, the Review of Black Political Economy (RBPE), is undervalued by mainstream economics. We use modern bibliometric methods to test for citation biases in the economics of crime literature. We also identify the contributions of three streams of research overlooked in the mainstream literature: identity, police use of force, and mass incarceration. We find evidence that Blacks publishing on race and crime in top economics journals are less likely to be cited than non-Blacks and that articles published in the RBPE are less likely to be cited than articles published in other journals. A review of some under-cited articles reveals that themes related to identity, police use of force, and mass incarceration hold valuable insights for policy makers and those seeking solutions to problems of persistent racial disparities in the criminal legal system. (JEL A11, A14, H75, J15, K42)

Economic models often depend on quantities that are unobservable, either for privacy reasons or because they are difficult to measure. Examples of such variables include human capital (or ability), personal income, unobserved heterogeneity (such as consumer “types”), et cetera. This situation has historically been handled either by simply using observable imperfect proxies for each of the unobservables, or by assuming that such unobservables satisfy convenient conditional mean or independence assumptions that enable their elimination from the estimation problem. However, thanks to tremendous increases in both the amount of data available and computing power, it has become possible to take full advantage of recent formal methods to infer the statistical properties of unobservable variables from multiple imperfect measurements of them. The general framework used is the concept of measurement systems in which a vector of observed variables is expressed as a (possibly nonlinear or nonparametric) function of a vector of all unobserved variables (including unobserved error terms or “disturbances” that may have nonadditively separable affects). The framework emphasizes important connections with related fields, such as nonlinear panel data, limited dependent variables, game theoretic models, dynamic models, and set identification. This review reports the progress made toward the central question of whether there exist plausible assumptions under which one can identify the joint distribution of the unobservables from the knowledge of the joint distribution of the observables. It also overviews empirical efforts aimed at exploiting such identification results to deliver novel findings that formally account for the unavoidable presence of unobservables. (JEL C30, C55, C57, D12, E21, E23, J24)

This essay reviews Deaths of Despair and the Future of Capitalism (hereafter, DEATHS) by Anne Case and Angus Deaton, a fascinating account of life and death in the United States during the late twentieth and early twenty-first centuries. While primarily targeted toward a popular audience, the volume will be of interest to many economists and other social scientists. It postulates how American capitalism run amok—combined with and partially causing the declining economic circumstances of the less educated—has increased mortality from drugs, suicide, and chronic liver disease. After describing the material in DEATHS in considerable detail, I suggest a variety of research questions that need to be answered to confirm or refute Case and Deaton’s arguments and describe challenges to their key hypotheses. Among the latter are the ability of the postulated relationships to explain the sharply differing mortality trajectories of non-Hispanic Whites, compared with other groups, and the timing of the observed mortality changes. Along the way, I raise doubts about the usefulness of the “deaths of despair” conceptualization, with its strong implications about causality. (JEL I12, I14, I18, J11, J18)