Group differences galore

Kari Stefansson of deCode genetics interviewed (podcast and stream) on Biotech Nation. He discusses published and unpublished results on genetic variation between continental groups, with emphasis on disease resistance. deCode uses genetic and medical data from the homogeneous population of Iceland to find disease-related genes.

See related post here.

The wisdom of Ponzi

I bring you the wisdom of Ponzi Q. Globalization, lifted from the comments on DeLong’s blog.

Beloved corporations like Microsoft and Intel have already learned that they can get good technology R&D cheaply by outsourcing to places like China and India. These are American companies benefiting from innovation abroad. Why is it such a benefit to America to have the R&D and innovation done by Americans in America?

Isn’t Summers an economist? If so, then why is he not for free trade? We need not innovate in any science here in America in order to prosper. Given our high living standards, it’s a waste of money.

Economic orthodoxy states that it’s an absolute good for all nations to focus on what they have a comparative advantage in. The U.S. is not exempt from this. Let the Chinese and the rest of the world do the scientific dirty work. We in America will do the work that suits us. And, as Alan Blinder has pointed out, the work that suits America is personal services, not innovation in biotechnology. Subsidies for innovation or R&D or whatever are a form of protectionism and must be shunned.

Amen.

…We Americans do not have a monopoly on brains. American multinationals can fund biotech innovation abroad and get more for their money. The innovation will be done, just not by Americans in America. American businesses will still get the rewards from the innovations. What’s so bad about that?

…What’s wrong with having America business funding R&D in biotech or whatever the next big thing is overseas? Giving the differences in living standards and labor regulations, they can get a bigger bang for their buck. What’s not to like?

If Americans get screwed out of doing this type of work, so be it. They can go into the one line of work where Americans seem to have a comparative advantage, personal services, and I’m sure everyone will be better off. It’s not a zero sum game, you know.

All this sounds like industrial policy to me. And being a good believer in those most perfect of human intellectual inventions, free markets and free trade, I am appalled at its promotion on this board.

…Economists are needed to provide an ideological framework that justifies the screwing of the weak for the benefit of the powerful. They are thus more important to those who matter than any scientist.

The economists most listened to already are established and thus can even promote policies that screw their own kind without fear. The economists who are not established must follow the orthodoxy. Apart from the pressure to conform, economic theory is very complicated and, thus, it is too difficult for a novice to deviate from the orthodoxy.

However, most economists are not masochists. When enough economists suffer sufficiently from extensions of the policies they promote today, then the economic theory will adjust to so that its implementation will ease their suffering.

…There is no market failure here. Given the high costs to do anything here in the good old U.S. of A., it is better if innovation and product development are done abroad if possible. And with each passing day, because of technology and the neo-liberal globalizationized regulatory regime, it becomes more possible.

Americans should stick to the types of work in which they have a comparative advantage. Here I agree with Alan Blinder that America should focus on personal services.

So to heck with biotechnology and science/technology research in general. Let them go the same way we let go of making televisions and other stuff. There’s one big global labor pool now. Let us take advantage of it! Or should I say, let corporate ‘America’ take advantage of it! Because what’s good for corporate ‘America’ is good for America. And we will all share in the prosperity that trickles down from the executive suites and brokerage firms someday.

This is Economics 101 people.

Summers on the biology century

Via Brad DeLong and Economist’s View, Larry Summers argues for industrial policy favoring life sciences.

Gee, is there a market failure? If life sciences are so important to society, why doesn’t the market reward researchers the way it does hedge fund managers? Does government really need to interfere? Obviously I agree with Summers, but I don’t think strong believers in markets as resource allocators for society can do so without questioning some of their beliefs.

Note, though, it’s a bit more complicated than Summers makes it out to be. Biologists who start companies can become rich, but it’s a longer and riskier road than heading directly into business or finance.

See related posts here, here and here.

[Very nice discussion over at DeLong’s blog, including explanation of market failure vs externalities, why the science track is for masochists, comparative advantage, etc.]

FT.com / Columnists / Lawrence Summers – America must not surrender its lead in life sciences: If the 20th century was defined by developments in the physical sciences, the 21st century will be defined by developments in the life sciences. Lifespans will rise sharply as cures are found for chronic diseases and healthcare will come to be a larger share of the economy than manufacturing. Life science approaches will lead to everything from further agricultural revolutions to profound changes in energy technology and the development of new materials….

It is natural to ask whether the US will lead in the life sciences in this century as it did in the physical sciences in the last. It is a profoundly important economic question, but one whose implications go far beyond to embrace issues of national security and moral leadership. At present, if one looks at levels of investment or at research output or at the prestige of leading institutions, the US is clearly leading in the life sciences. But past performance is no guarantee of future success. In the first third of the 20th century, Europe and Europeans were the dominant source of discoveries in physics….

If America is to maintain its leadership in life sciences in the 21st century, important steps must be taken. Most abstract but most important, there needs to be respect for the scientific method and its results. In sharp distinction to the situation in other industrial countries, there is an increasing move away from respecting the scientific method in US schools….

Second, funding…. During the past three years, when there has been more possible in the life sciences than there has ever been, when we are on the cusp of achieving important breakthroughs in everything from stem cells to the treatment of cancer, government funding for science research has been cut in real terms. This has been particularly hard on young researchers starting out in their careers….

In today’s economy an outstanding graduate of a leading business school earns a substantially higher salary than a potential Nobel prize winner graduating with a PhD in biology. Several years after graduation the differences are even more pronounced. It should not be a surprise that in light of this economic reality more of our talented young people are not headed towards careers in basic research in the life sciences.

Third, we need to control the role of politics in allocating science dollars, which are currently tossed around like so many political footballs…. [I]t is not a step towards a healthier 21st century to allow the views of a vocal minority in effect to cut off funding for embryonic stem cell research — which is likely to lead to revolutions in the treatment of Parkinson’s disease, diabetes and cancer within the next generation.

Finally, we need to support clusters of extraordinary performance. If competition is individualistic, the US is going to have a very difficult time because salary levels adjusted for talent are going to be much lower in other parts of the world. Rather than focus on each individual as an island unto him or herself, the US needs to focus on fostering clusters of innovation such as Silicon Valley in information technology, Boston in the life sciences, New York in finance — where each talented individual derives his or her strength from all that is around. Competing with that on price is much more difficult…

Intellectual honesty? in the eye of the beholder

PrawfsBlawg, a blog written by a collective of law school professors, recently ran a post entitled Princeton, Berkeley and Asians, about the Jian Li discrimination lawsuit against Princeton and Affirmative Action (AA). It links to an earlier post here on the same topic.

Posts on PrawfsBlawg seem to get anywhere from zero to ten comments. But traffic soared after Instapundit linked to the AA post. Over 50 comments appeared overnight, most soundly critical of the original (pro-AA) discussion. The result? “The comments to this entry are closed” despite PrawfsBlawg’s motto “Where Intellectual Honesty Has (Almost Always) Trumped Partisanship Since 2005” 🙂

Graduate admissions, human capital and globalization

I’m on the graduate admissions committee this year. We’re in the middle of reviewing over 200 applications for about a dozen places in our PhD program. About 3/4 of the applicants are foreign, the vast majority of those from China, while less than a quarter are domestic. We’re a middle-level PhD program at a flagship public university — not ranked among the top 20 physics departments, but probably not very different from the next 20 departments, with several very strong research specialties.

Through some independent research, I’ve learned that the top 5% or so of students from the very best universities in China (e.g., Beijing University or Tsinghua University) can expect to be admitted to the top 10 programs in the US, so they might not apply at Oregon. A typical student admitted here from China will be in the top 10-20% of their class at one of the top 5-10 departments. The modal GRE quant score is a perfect 800 (>94 percentile) and a typical GRE subject score of an admitted Chinese applicant is above 90th percentile. Very few American applicants score above the 90th percentile on the subject test (the top ranks are dominated by foreigners), and those individuals usually end up at top US grad schools.

Our yield (ratio of students who enroll to those who are accepted) is about 10%, probably because most of these applicants are accepted at multiple programs of similar quality. Among our applicants I’ve already spotted winners of the Chinese national physics and math Olympiads (these teams often score 5 golds at the world competition) and numerous graduates of the “Special Youth” program which admits young talents to university early. One applicant is 19 and took general relativity at age 18. (As I mentioned already, the very strongest Chinese applicants are only applying to the top 5 or 10 US graduate programs, so we may not see them in our pool.)

How do these students perform in graduate school? Typically very well in the courses and on the comprehensive exams. The top scorers on the PhD candidacy exam, both here and when I was a professor at Yale, are disproportionately from China (and rarely Americans, although I think when I was a grad student myself at Berkeley there were often Americans at or near the top). The harder question is whether, in the long term, these Chinese students are as productive researchers as the domestic students. I haven’t seen any systematic studies of this, but I suppose they are at least comparable since a lot of professors these days are PRC immigrants who went through graduate school here. I suspect that mastering English might be harder for many of these students than the physics itself.

One thing I am sure of — without these foreign applicants the strength of US graduate programs in physics would be reduced significantly (I am sure the situation is the same in engineering and other sciences). We’re reaping the benefits of a very well organized system for training students up to the BS and MS levels; most of these students want to stay in the US after finishing their educations. I suppose more and more good students are staying at home for their PhD, rather than coming to the US, but at the moment we can still draw on a huge pool of human talent from abroad.

China to diversify FX reserves

A lot of interest in this over the last few days. Someone sent me a UBS report which contains the following. I’m sure US banks and hedge funds are queuing up for a chance to manage some of these funds. Will we see Chinese FX reserves recycled into equities and other less liquid assets?

China’s inter-agency Financial Work Conference ended over the weekend, and we’ve started to see gradual information flow about the results. This was a rare occasion for the senior leadership to meet and decide on the direction of financial sector policies for the next few years to come.

The main issues included restructuring of state bank management, new bond market regulations, creation of a deposit insurance scheme, fostering rural finance – and, of course, potential changes in FX reserve management and portfolio allocation. With regard to the latter, we do expect to see changes ahead, but we don’t see any near-term implications whatsoever for US or other overseas asset markets.

Going into the conference, the issue of management and allocation of China’s US$1 trillion of FX reserves was clearly one of the biggest policy issues on the table. Needless to say, popular proposals over the past few months have run a wide gamut, including diversification of the PBC’s own portfolio, transferring reserves to the existing Central Huijin Investment Company, allocating reserves to a new State Investment Corporation, creation of a new energy-related private equity vehicle, recapitalizing the National Pension Fund, etc.

At the conclusion of the meetings, it is clear that policymakers did agree on some form of restructuring – however, it is also clear that there has been no detailed decision as to what form that restructuring might take. Premier Wen Jiabao announced that China will “actively explore and broaden the channels and manner of using its foreign exchange reserves”, but that is the only statement we have from the senior authorities on the topic. While we could see further announcements over the next few quarters, as we argued in last week’s note (Big News on Chinese Reserves?, UBS Asian Economics, January 18), we don’t see any significant near-term implications for the US dollar or US treasury market.

China anti-satellite capability and nuclear deterrence

There seems to be quite a bit of confusion over the recent demonstration of Chinese anti-satellite capability using medium range ballistic missiles. It’s certainly true that this capability raises tremendous headaches for US military planners, who have become reliant on GPS and satellite intel for precision strikes and use of advanced weaponry. In any conflict over Taiwan, the US now has to factor in what might happen to its satellites. Certainly, it would have been in US interests to negotiate a treaty on anti-satellite weapons before the Chinese had a chance to test their capabilities.

But there’s another aspect to this issue which I’ve not seen discussed. Because China’s arsenal of ICBMs is quite limited (their longest range missiles are still liquid fueled, perhaps numbering less than 20, and their submarine-launch capabilities remain limited), any US missile defense system is a potential threat to Chinese nuclear deterrence. The US has continued to spend billions on a Star Wars program, ostensibly motivated by N. Korea, but such a system impacts the Chinese as well. The planning scenario for PLA strategists goes like this: (1) US first strike against Chinese ICBMs causes significant losses, (2) US missile defense system may be sufficient to stop a second strike consisting of only a handful of ICBMs. The Chinese anti-satellite capability helps guarantee their second-strike capability. They certainly have enough medium range missiles to do serious damage to the US spy satellite infrastructure, perhaps enough to disable any missile defense system.

Most scientists will tell you that the current US system is far from capable of (2), and that the whole thing is essentially military welfare for defense contractors and the aerospace industry, but nevertheless foreign strategists have to take the system seriously — just as the Soviets took Reagan’s original Star Wars efforts seriously. So, Chinese planners need to make sure they have a counter-counter measure against our missile defense system.

Incidentally, those credulous folk who believe the proponents of the current anti-missile system might want to ask themselves how credible the Livermore/Star Warrior/Reaganites were 25 years ago when they claimed they could actually build something to defend against the entire Soviet arsenal. The current system is much more limited in scope — meant to stop one or a handful of incoming missiles — but still hasn’t been convincingly tested. If the Star Warriors were exaggerating then, they’re quite likely exaggerating now.

Callow youth at Columbia and the benevolence of financiers

If you want a cynical but amusing take on finance and Wall St., I suggest the tabloid blog DealBreaker. A recent article there highlights some interviews with Columbia University seniors bound for glory and treasure in investment banking. I don’t detect much benevolence or altruism in their motivations 🙂 Related posts here and here.

DealBreaker: Do you know anything about investment banking? If you answered ‘yes,’ hold on to your seat, because today’s top story in Columbia’s The Eye, “Wall Street Indiscreet,” is going to blow you away. Writer Dan Haley interviewed the pseudonymous “Paul Owen,” a senior with plans to work on the Street after graduation and the results are pretty eye-opening. You should obviously check it out for yourself, but here are a few highlights:

The majority of students who find employment in investment banks come from Ivy League-caliber schools. In the banking industry, these are referred to as “target” schools. Columbia is one. So is Cornell—but less so. Middlebury is not a target school. Don’t even think about Binghamton.

“Investment banking isn’t this advanced math, these advanced quantitative techniques. There’s Excel for that,” he tells me. “Investment banking is really just critical thinking. They way I put it, if you’re good at Sudoku, you’ll be a good investment banker.”

When you get a job in I-banking, it doesn’t matter if you were previously the biggest tool at school; the guy who always got picked last for gym, always got stuffed in his locker. You are now a certified badass.

With $145,000 in his pocket—projected earnings, it is not all actually in his pocket at the moment—Owen tells me that senior year has been “an absolute shitshow.” … “The best description of it I can give,” said Owen, “is that the third week of school I took Monday and Tuesday off from class to go to Puerto Rico.”

At first, it’ll be a lot of late hours and hard work, for sure. But once you pay your dues, it’ll be pussy, pussy, pussy. “At first, as an analyst, you’re doing grunt work,” he said. “But then, as you go on, as you get to the vice president and managing director levels, it’s all about client relations. Expensive dinners, golf trips, schmoozing. I can’t say I would mind that at all.”

When you work in I-banking, you can, like, make people do shit for you. “I was 21 and my secretary was about 15 years older,” Chan [who interned in Hong Kong last summer] said. “I could ask her to fax stuff for me, or get me coffee, or pens, or even ask her to bring me my bank account statement.”

If you work at a good enough firm, they’ll pay for your prostitutes. Of course, it wasn’t all work in Hong Kong. On Friday and Saturday nights, with no work the next day, the bankers would cut loose. This meant hitting up one of the three big expatriate bars/clubs in the city. These clubs were usually filled with two groups of people: bankers and “models.” The “models” would get in without paying the cover charge and drink for free while the bankers would have to cough up $1,000 for a table, although sometimes the firm paid for them.

Brutal, just brutal

Via Gene Expression, three essays on intelligence and education by Charles Murray. Yes, I know they appeared on the WSJ editorial page, and yes, I know what book Murray co-authored back in the 90’s. Nevertheless, there’s sometimes value in what he writes. At least, he’s willing to raise some important issues that others dare not. Some excerpts below. Warning, not for the politically correct ability egalitarians who think anyone can play basketball like Michael Jordan or compose music like Mozart if they just try hard enough. If you don’t like his continued use of IQ as a measure of intelligence, just pretend you have your own measure (or even measures) and substitute it each time he writes “IQ”, keeping in mind your measure will have an average – let’s call it “100” for simplicity – and probably be roughly normally distributed, as most human traits are.

1) What fraction of the population is capable of absorbing a university education or mastering college-level material? It might be smaller than the proportion attending college today.

To have an IQ of 100 means that a tough high-school course pushes you about as far as your academic talents will take you. If you are average in math ability, you may struggle with algebra and probably fail a calculus course. If you are average in verbal skills, you often misinterpret complex text and make errors in logic.

These are not devastating shortcomings. You are smart enough to engage in any of hundreds of occupations. You can acquire more knowledge if it is presented in a format commensurate with your intellectual skills. But a genuine college education in the arts and sciences begins where your skills leave off.

In engineering and most of the natural sciences, the demarcation between high-school material and college-level material is brutally obvious. If you cannot handle the math, you cannot pass the courses. In the humanities and social sciences, the demarcation is fuzzier. It is possible for someone with an IQ of 100 to sit in the lectures of Economics 1, read the textbook, and write answers in an examination book. But students who cannot follow complex arguments accurately are not really learning economics. They are taking away a mishmash of half-understood information and outright misunderstandings that probably leave them under the illusion that they know something they do not. (A depressing research literature documents one’s inability to recognize one’s own incompetence.) Traditionally and properly understood, a four-year college education teaches advanced analytic skills and information at a level that exceeds the intellectual capacity of most people.

There is no magic point at which a genuine college-level education becomes an option, but anything below an IQ of 110 is problematic. If you want to do well, you should have an IQ of 115 or higher. Put another way, it makes sense for only about 15% of the population, 25% if one stretches it, to get a college education. And yet more than 45% of recent high school graduates enroll in four-year colleges. Adjust that percentage to account for high-school dropouts, and more than 40% of all persons in their late teens are trying to go to a four-year college–enough people to absorb everyone down through an IQ of 104.

2) On the highly intelligent fraction and their contributions to society.

If “intellectually gifted” is defined to mean people who can become theoretical physicists, then we’re talking about no more than a few people per thousand and perhaps many fewer. They are cognitive curiosities, too rare to have that much impact on the functioning of society from day to day. But if “intellectually gifted” is defined to mean people who can stand out in almost any profession short of theoretical physics, then research about IQ and job performance indicates that an IQ of at least 120 is usually needed. That number demarcates the top 10% of the IQ distribution, or about 15 million people in today’s labor force–a lot of people.

In professions screened for IQ by educational requirements–medicine, engineering, law, the sciences and academia–the great majority of people must, by the nature of the selection process, have IQs over 120. Evidence about who enters occupations where the screening is not directly linked to IQ indicates that people with IQs of 120 or higher also occupy large proportions of positions in the upper reaches of corporate America and the senior ranks of government. People in the top 10% of intelligence produce most of the books and newspaper articles we read and the television programs and movies we watch. They are the people in the laboratories and at workstations who invent our new pharmaceuticals, computer chips, software and every other form of advanced technology.

Combine these groups, and the top 10% of the intelligence distribution has a huge influence on whether our economy is vital or stagnant, our culture healthy or sick, our institutions secure or endangered. Of the simple truths about intelligence and its relationship to education, this is the most important and least acknowledged: Our future depends crucially on how we educate the next generation of people gifted with unusually high intelligence.

How assiduously does our federal government work to see that this precious raw material is properly developed? In 2006, the Department of Education spent about $84 billion. The only program to improve the education of the gifted got $9.6 million, one-hundredth of 1% of expenditures. In the 2007 budget, President Bush zeroed it out.

Just to clarify for Murray: he’s not proposing a hard cutoff in IQ for any particular achievement (becoming a chip designer, writing a senior thesis on French literature), but merely that the fraction of people capable of that achievement with IQ below the value he gives is very small (e.g., very few medical researchers with IQ less than 120). Therefore, we can use the estimated value as a way to guess what percentage of the general population is sufficiently capable. There are of course other factors involved in success at a particular task than raw cognitive ability (motivation, organization, communication skills, …). See earler post on success vs ability.

For more on theoretical physicists, see here. This will sound terribly arrogant (so shoot me), but Murray’s estimate of few per thousand is way too high. That’s about the ability level of the average Caltech undergrad, and I would guess only the top 5-10% of students there could be theoretical physicists.

Podcast roundup

For fans of Borges, an hour long discussion on the BBC radio program In Our Time.

Scott Kriens, CEO and Chairman of Juniper, speaking at the Stanford Entrepreneurial Thought Leaders lecture series, emphasizes the role of dumb luck in startup success. Stanford students are lucky to have the opportunity to attend these lectures; thanks to podcasting we can all enjoy them. Other lectures in this series I found particularly good (available at the link above): Marissa Mayer (Google), Chong-Moon Lee (Ambex), Carol Bartz (Autodesk), Mark Zuckerberg (Facebook), Jeff Hawkins (Palm). All of these people are smart and have valuable insights to offer.

Another podcast series I recommend is Bloomberg On the Economy, which is a mix of academic and “market” economists (the latter work at banks and investment funds) and the occasional portfolio manager like Bill Gross. I find it very amusing that one can easily find two “market” economists confidently stating completely contradictory predictions on the same day (e.g., right before an employment report or Fed meeting). Sometimes I listen to the podcast a day or two late, so I actually know the outcome already as I listen to the poor guy (sometimes it’s a woman) laying out their case for a prediction that turned out completely off the mark. These people must be selected for lack of Socratic self-examination, because the models they play with are so obviously lacking in predictive power, yet they never figure this out. (I suppose it’s possible they do realize this, but then they all deserve Oscars for Best Actor or Actress, since they project sincere belief in their predictions.) The academics are typically more thoughtful and, being tenured, aren’t under pressure to predict the next tick 🙂

I know I’m belaboring the point, but if you forced one of these guys to give error estimates, I am sure you would find them making 3 sigma errors with regularity: e.g., my model says the jobs number is going to be low, only 90k new jobs created last month, with standard deviation of 30k — gulp, the real number is 180k! And this guy is a Sr. VP or MD at Bear/Merrill/CS/Goldman, whatever. But they never subject themselves to this discipline — if they did, they’d realize their actual one sigma error is so big that their central value is useless.

You might get the impression I’m only listening to the Bloomberg podcast for comedic value, but I find the reasoning and intuition of the various guests interesting, even if they can’t predict anything. At least it helps you understand what a sizeable fraction of market participants are actually thinking.

Finally, if you’re interested in recent progress in biotech, I suggest Futures in Biotech with Marc Pelletier (a postdoc at Yale). They cover topics ranging from protein folding to microarrays to neuroscience through interviews with leading scientists. The only problem with this show is that sometimes the real scientist being interviewed forgets the target audience is supposed to be kind of sophisticated and they resort to the usual pop science cliches.

I listen to this stuff when I’m running or at the gym. Thanks to Steve Jobs, instead of fighting boredom or replaying 80’s hits from my youth, I can learn something while sweating.