Author Archive for Steve Landsburg

Alex Tabarrok!

I am delighted to announce that Alex Tabarrok, of George Mason University and, will be speaking at the University of Rochester this Wednesday (February 21) on the topic “Is the FDA Safe and Effective?”. The event will start promptly at 6:30PM in Goergen 101, and is open to the public.

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Good Intentions; Bad Policy

I learn from Scott Sumner’s blog that in many California cities, residents with past marijuana convictions will jump to the head of the line for licenses to sell the drug legally — this by way of compensating them for past persecution.

Scott approves. I don’t, for two reasons:

First, if you want to compensate people for past persecution, the right way to do it is with cash, not by misallocating productive resources. If there must be licenses, they should be allocated to those who can use them most efficiently, regardless of any past history.

Second, drug dealers have never been the primary victims of anti-drug laws. They can’t be, because there is free entry and exit from that industry. Anti-drug enforcement leads to exit, which in turn leads to higher profits for those who remain — and the exit continues until the profits are high enough to compensate for the risks. One way to think about this: All those “persecuted” drug dealers were, in effect, employing the government to stifle their competition, and paying a fair price for that privilege in the form of occasionally being convicted and punished themselves.

The primary victims of anti-drug legislation are potential consumers who were deterred by artificially high prices. How do you compensate those victims? You can’t. In a population of 1000 people who have never used drugs, it’s quite impossible to identify the 200 or 300 or 400 who would have happily indulged if only the price had been lower.

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The Tax Bill

Compared to an ideal tax code, it’s awful.

Compared to the pre-existing tax code, it’s a vast improvement.

Compared to my expectations going in, it’s a pleasant surprise. It required some real political courage to pass this thing, and political courage always surprises me. There’s also a lot of good sense in it, which sometimes surprises me even more.

Compared to what I suspect we could have had, if only that same good sense and political courage had been harnessed by a president who was capable of understanding the bill’s content, participating in its formulation, and selling it to the public, it’s something of a disappointment.

Scott Sumner does a superb job of summarizing the good, the bad and the neutral. Instead of quoting him extensively, I’ll (strongly) encourage you to go read the original. A few additional remarks:

Continue reading ‘The Tax Bill’

Matters of Money

I have some questions about how money works.

I’ll start by talking about Bitcoin, though my questions are more general than that.

As you are probably aware, Bitcoin is a cryptocurrency that is currently trading for US Dollars at the rate of (depending on the exact moment when you’re reading this) somewhere between $15,000 and $20,000 per Bitcoin.

As you are somewhat less likely to be aware, Bitcoin Cash is another cryptocurrency that is currently trading for US dollars at the rate of something less than $2000 per Bitcoin Cash token. Despite the similar name, Bitcoin Cash is (now) entirely separate from Bitcoin. It originated in a “hard fork”, where each holder of Bitcoin was given an equal amount of Bitcoin Cash for free (so if you were holding, say 50 Bitcoins, you got 50 Bitcoin Cash tokens). After the fork, the two currencies have evolved, and will continue to evolve, separately.

The technology of Bitcoin Cash is very similar to the technology of Bitcoin. It offers the same sorts of anonymity, security, and so forth. There are some reasons to believe that in the future, Bitcoin Cash will be a bit easier to trade than Bitcoin (though that is not true in the present), and there are some other technological differences between them, but I’d be surprised to learn that those differences are accounting for any substantial fraction of the price differential.

The total supplies of Bitcoins and of Bitcoin Cash are currently about equal (because of the way that Bitcoin Cash originated). In each case, the supply will gradually grow to 21 million and then stop.

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Too Many People?

It was both an honor and a pleasure to deliver the annual Hayek Lecture at the Institute for Economic Affairs last week. Here’s the video:

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WTF?! Indeed!

Like most bloggers, I assign each of my posts to one or more Categories, which are listed in small print somewhere near the top of the post. Among the categories I use are “Economics”, “Politics”, “Policy”, “Math”, “Logic”, “Cool Stuff”, “History”, “Oddities” and “WTF?”. The last of these is perfect for this post, which is written to call your attention to Peter Leeson‘s rollicking new book WTF?!: An Economic Tour of the Weird.

(Edited to add: I see now that the jacket copy on Leeson’s book describes it as “rollicking”. Apparently I’m not the only one who thought this was the right adjective here.)

Leeson, some of whose work I’ve blogged about here in the past, takes us on a tour of some of the world’s seemingly most inexplicable behavior — both historical and contemporary — and uses economic insight to render that behavior explicable after all. His explanations are generally plausible and provocative, though I’m sure many an insightful reader will find plenty to argue with. That, after all, is part of the fun.

Here are the blurbs from the back of the book:

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Exploding Debit Cards

A Guest Post


Bennett Haselton

The government sometimes issues stimulus checks in the hopes that the windfall will induce people to spend and stimulate the economy. Regardless of the merits of this idea generally, the effectiveness is partly reduced because people choose to save the money rather than spending it.

So: What if, instead of issuing stimulus checks, the government issued “exploding debit cards”, which have to be spent in a given time period or the cards cease to work?

This would seem to have several advantages over stimulus checks:

  • Rather than cutting checks knowing that some of it will be spent, the government is handing out cards knowing that almost all of it will be spent. This means the dollar amount can be less in order to achieve the same stimulus effect. (Even though this is a political consideration, not an economic consideration.)
  • It gives the government more fine-tuned control over when the money is spent — you can issue the cards to different subgroups at different times and require the groups to spend the money in separate time frames.
  • Since the card balance is difficult to convert to cash, this reduces the chance that the money will be spent on illicit purchases the government may want to prevent.

Some people would still find ways to work around it — perhaps by buying goods they could re-sell for cash, or selling their cards for cash (if merchants are lazy about doing ID verification), or buying goods and then returning them for store credit — but, given the effort required, the number would be much lower than the number who would simply save their stimulus checks instead of spending them. (Many people would prefer to save, but the goal here is to achieve a specific economy-wide outcome, not to give every person what they would prefer.)

Not everyone agrees with the merits of issuing stimulus checks. But it seems that any argument in favor of stimulus checks would be an even stronger argument for using exploding debit cards instead. Am I missing something?

Book Title

For a book of brain teasers with economic morals, how do we collectively feel about this title?

Rational Explanations: 100+ Puzzles to Make You Smarter About Economics

I’m interested in whether we like it, but more interested in whether we think it will sell books.

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Winston Churchill Foresees Donald Trump

Those who are possessed of a definite body of doctrine and of deeply-rooted convictions upon it will be in a much better position to deal with the shifts and surprises of daily affairs than those who are merely taking short views, and indulging their natural impulses as they are evoked by what they read from day to day.

Churchill, The Gathering Storm

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Too Many People?

While most Americans are celebrating Thanksgiving, I’ll be in London, giving the annual Hayek Memorial Lecture sponsored by the Institute of Economic Affairs. Topic: Is the World Over or Under Populated, and How Would We Know? Tickets are required but free, and are available here. If you come to the talk, don’t leave without saying hello!

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Weight Loss Advice From Big Name Economists

In my dream, Greg Mankiw and Larry Summers are advising a friend about weight loss.

Mankiw says: If you eat fewer calories, you’ll lose weight.

Summers replies: Not so fast! Sometimes if you eat less ice cream, you crave more cake. Then your calorie intake won’t change and you won’t lose weight. Greg’s advice is fine as an academic theory, but I doubt it will work in practice.

(Note here that Greg never mentioned ice cream in the first place.)

Of course Greg is 100% right, both in theory and in practice. If you eat fewer calories, you will lose weight. Summers responds that if you don’t eat fewer calories, you might not lose weight. True, but entirely off the mark.

I mention this because Mankiw had a recent blog post where he argued that if you cut taxes on capital income you’ll see a big rise in wages. (I happen to have blogged about this twice already in the past 24 hours, but those posts are irrelevant here.) Summers has replied that Mankiw is right in theory but likely to be wrong in practice, and lists three reasons. The first of those reasons comes down to saying that if you cut the corporate income tax, corporations are likely to end up paying more in other taxes, so you haven’t really cut the capital tax after all.

(Note here that Greg never mentioned corporate taxes in the first place.)

Okay, fine. So if you haven’t cut the capital tax, then Greg’s observation doesn’t apply. Likewise, if you haven’t really cut calories, you shouldn’t expect any weight loss. That’s not remotely a refutation.

Continue reading ‘Weight Loss Advice From Big Name Economists’

Mankiw Followup

Earlier today, I blogged about Greg Mankiw’s calculation on the effects of capital tax cuts.

Following a tax cut, Mankiw computes the ratio of the long-run increase in wage payments to the short-run shortfall in government revenues, and, with reasonable assumptions, shows that this ratio has an astonishingly high value of 3/2.

I know how to make that ratio even higher.

The Mankiw Plan is: Cut capital taxes today and watch wages rise tomorrow. The Landsburg Plan is: Cut capital taxes tomorrow and watch wages rise the next day.

Under the Landsburg Plan, the short-run government revenue shortfall (today) is zero, while the long run increase in wages is positive. That gives me a ratio of infinity, which beats Mankiw’s 3/2 ratio by a factor of … infinity.

This is not meant to cast doubt on Mankiw’s result (which is entirely responsive and relevant to the current public debate he was addressing); it is meant to cast light on what’s driving it. When you cut taxes, government revenue falls by more in the long run than in the short run. The long run fall in revenue is what’s driving the wage growth (as I showed in my earlier post), and what drives the result is that the long run fall in revenue is greater than the short run fall. If you can drive down the short-run fall, you can drive up the ratio.

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It’s All About the Rectangles

Greg Mankiw has a provocative post on how wages are affected by a cut in the tax rate on capital income. The short version: The effect is huge. If the government commits to a permanent tax cut that costs it $1 in revenue this year, then in the long run, annual wage payments will rise by $1.50 (and the annual revenue shortfall will be even less than $1).

That strikes me as huge. Wages grow by more than government revenue falls — in fact, by a factor of about 1/(1-t), where t is the initial tax rate. Mankiw’s $1.50 comes from plugging in an initial tax rate of 1/3.

Although Mankiw’s calculation is simple, straightforward and convincing, it managed to drive me crazy for a substantial chunk of a day, because I didn’t really understand what was driving it. Now I do. So let me explain.

Continue reading ‘It’s All About the Rectangles’


Readers: I need your help!

More than once, my blog readers have proved themselves to be cleverer, smarter and more insightful than I am about a great many things. I need your cleverness, intelligence and insight now more than ever.

Yesterday, I delivered a manuscript to my editor at Houghton-Mifflin. Sometime in 2018, this manuscript will become a book. What it needs is a title!

The book is a compendium of puzzles and brain teasers designed to teach lessons about economics, statistical inference, and related matters. A recurring theme is that what’s “obvious” is often wrong. Here is a brief excerpt from the introduction.

The title should be catchy, clever, attention-grabbing and indicative of the content. What, specifically, should that title be?

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Vladimir Voevodsky

Time is scarce, and lately I’ve been devoting it mostly to things other than blogging — but I feel the need to emerge from hiding just long enough to acknowledge the shocking death today of the extraordinary mathematician Vladimir Voevodsky at the age of 51.

Voevodsky is best known for finding the right definition of motivic cohomology sometime around the year 2000. This was a Holy Grail, the quest for which had been set in motion by the earth-shattering vision of Alexander Grothendieck. I happen to have been leafing through my well-worn copy of Voevodsky’s book on Cycles, Transfers and Motivic Homology Theories (co-written with Andrei Suslin and Eric Friedlander) when I heard of his death.

More recently, Voevodsky had turned his attention to logic and the foundations of mathematics. Here is video of his talk “What if the Current Foundations of Mathematics Are Inconsistent?”

A brief obituary is here. A brief mathematical autobiography, written by Voevodsky, is here. I might return and add a few personal reminscences.

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I have not read the Senate “health care” bill, but from the various summaries around the web, I am confident that Barack Obama is exactly correct in his pronouncement that this is not a health care bill. Republicans seem to be supporting the bill because it stems the tide of income redistribution and Democrats seem to be opposing it for the same reason.

But a health care bill that does nothing but change the distribution of income is (again in Obama’s words) not a health care bill. It’s an income redistribution bill, and a fairly stupid one at that. If you want either more or less redistribution, the way to do that is to adjust taxes on rich people and payments to poor people, not to muck around with the health care system.

On the other hand, if your goal is to make the health care system more efficient, then you’ll want a health care bill. What would it take to make the health care system more efficient? For one thing, it would require making people less reliant on insurance and more reliant on their own savings (probably in the form of Flexible Saving Accounts and Health Saving Accounts) so that their choices are constrained by an awareness of costs. This Senate bill, it seems, does absolutely nothing to address those issues. In fact, from what I’ve read, it leaves in place the tax deduction for employer-provided insurance (thereby continuing to incentivize people to buy too much insurance) and (at least according to some news articles) adds new taxes on Health Savings Accounts (thereby incentivizing people to rely even more on insurance). If we’re supposed to be marching toward more efficient health care, this sounds like a step backward, not forward.

Continue reading ‘Unhealthy’

A Momentous Week

The most exciting news of the past week had nothing to do with James Comey or Donald Trump.

The University of Montpelier has released high-quality scans of about 18,000 pages of notes and scribbles by Alexandre Grothendieck. If you’re competent in both French and the art of deciphering handwriting that was never meant to be readable except to the author, you can while away some hours sifting through them here.

It would be an understatement to say that Grothendieck was never shy about revealing and publicly analyzing his thought processes, but these notes are presumably less filtered than the tens of thousands of pages he chose to share in his lifetime. FOr the many who are already sifting through them, and for the many more who are waiting to hear the reports of the sifters, they will yield new insights into one of the most extraordinary minds in human history.

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Politico Economy

Matthew Nussbaum of Politico tweets that:

There are 50,000 coal miners in the United States. There are 520,000 fast food cooks. Coal miners seem to loom a lot larger in our politics. Wonder why.

If Mr. Nussbaum had read pages 36 and 37 of The Armchair Economist, he’d know the answer. Coal mines are in pretty much fixed supply; new fast food joints are created all the time. Therefore new coal mining jobs are far harder to create than new fast food jobs.

So if conditions get better for coal miners, that’s good for existing coal miners. By contrast, if conditions get better for fast food cooks, more people will become fast food cooks, driving down the wages of existing fast food cooks and negating the improved conditions.

That makes it worthwhile for coal miners to lobby for better conditions, but not for fast food cooks. What’s relevant is not so much the current population of coal miners, but the ease with which that population can expand.

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Information, Please

Why do we need a national health policy, any more than we need a national grocery policy or a national automobile policy or a national matchmaking policy?

Over on another recent thread, one of our commenters keeps pointing to allegedly unique “information issues” in the market for health care. So let’s see how unique those issues really are.

First, there are issues like adverse selection. The very fact that you’re buying insurance makes sellers suspect you’re sick, and they charge accordingly. Therefore if you’re not sick you overpay, and because you overpay you’re likely to underinsure.

That issue is not unique to health insurance. It also plagues the markets for car insurance and homeowner’s insurance, along with plenty of other markets. The very fact that you’re selling a used air conditioner makes buyers suspect there’s something wrong with it, and they lowball their offers accordingly. Therefore, you can’t get a good price even for a perfectly good air conditioner, and because you can’t get a good price you’re less likely to list it for sale in the first place. That’s exactly the same adverse selection problem (with buyers and sellers reversed), but there’s no general clamor for a national used-air-conditioner policy.

That’s not to say that adverse selection is unimportant, or that we shouldn’t try to address it, and it’s not deny that it might loom larger in some markets than others. But it’s far from unique to the market for health insurance.

Another information issue — one being flogged endlessly by a persistent commenter in that other thread — is that providers generally know a lot more than their customers do about the merits of various medical procedures. This is presented as if it were a reason for providers (e.g. doctors, insurance companies, or federal program administrators) to make key decisions, as opposed to presenting the customer with a price list from which to choose — the same method that seems to work perfectly well in restaurants, auto repair shops and lawyers’ offices.

But all of this overlooks the biggest information issue of all which is this: Only the customer knows whether he’d prefer, say, three weeks of pain relief to, say, a new car stereo, or whether he’d prefer, say, a slight lifelong reduction in heart attack risk to, say, an extra five restaurant meals every year.

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The Dire Prognosis

Here is what I wrote on this blog the day after the election:

The big loss is that there will be no unified right-of-center voice in American politics. Toomey, Portman and the rest of them will do what they can, but it’s Trump who will be taken to define Republicanism, which is to say that Republicanism will henceforth be pretty much the same thing as Democratism.

It gives me no pleasure to observe that with the new Trump-endorsed Republican health care plan, I stand vindicated.

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Missed Opportunities

I haven’t seen any of the details, but it looks like the Republican health care plan suffers from many of the same defects as Obamacare, and is in some ways worse.

Mainly: As far as I am currently aware, the plan pretty much leaves in place the main ongoing problem with health care, which is that most people are grossly overinsured, so that health care choices are too frequently made by insurance companies instead of by (cost-aware) consumers and providers. The solution, in broad terms, is to replace insurance with individual health savings accounts (which, if you’re worried about this sort of thing, can be just as heavily subsidized as insurance is). Plenty of Republicans know this, and have been saying it for a long time. But — at least according to what’s in the early news reports — they seem to have come up with a bill that ignores it.

In fact, the Republican bill makes things worse in at least one way, by lifting the Cadillac tax on employer-provided health care plans, thereby encouraging even more overinsurance.

Presumably this was the compromise among feuding factions that the Republican caucus was able to hammer out. Presumably, too, a little leadership from the one person with veto power could have yielded a much better outcome. Too bad the one person with veto power is a self-obsessed loonybird. I do believe a President Bush or a President Cruz — or even, perhaps, a President Clinton — would have insisted on something far far better.

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Ken Arrow, RIP

Ken Arrow was, until his passing today, the world’s greatest living economist. There are so many tributes to him all over the web that it would be superfluous for me to write another. Here’s a nice one.

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You Gotta See This

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How Many Deaths Does It Take Till He Knows….?

President Trump wants to impose a 20% tariff on Mexican imports. How many Americans will that kill? Let’s play with some numbers.

The Bureau of Labor Statistics reports (I’m looking at Table 13 in that link) that in 2012, approximately 125 million U.S. households spent an average of $731 on fruits and vegetables. That’s about $91 billion altogether.

I learn from this page that the US imports about $9 billion worth of fresh fruits and vegetables each year from Mexico. That is, then, about 10% of our fruit and vegetable consumption.

I learn from various research reports around the web that the price elasticity of demand for fruits and vegetables is somewhere in the vicinity of .50. (Some say higher, some say lower). This means that a 20% tariff — as the president has just called for — will reduce imports by about 10%.

So the Trump tariff should reduce total U.S. fruit and vegetable consumption by about 10% of 10% — that is, about 1%.

(This is, deliberately, a considerable underestimate, since it entirely ignores the fact that the tariff will also lead to increases in the price of American vegetables, leading to further reduced consumption.)

Now here I learn that low fruit and vegetable consumption is associated with a higher risk of degenerative diseases, including cancer, cardiovascular disease, cataracts and brain dysfunction. “More than 200 studies in the epidemiological literature show, with great consistency, an association between low consumption of fruits and vegetables and high cancer incidence.” Many of the mechanisms for this are well understood. For example, folic acid deficiency leads to chromosome breaks and then to cancer. Your health risks do not drop off continuously with your vegetable consumption; instead there are sudden changes — you’re either above or below the level where chromosome breaks occur. (There are similar issues with at least eight other micronutrients — in addition to folic acid — that we get from fruits and vegetables.) About 10% of the U.S. population is below that critical level. Most of those have very low incomes. (The World Health Organization estimates that worldwide, about 5 million people a year die from inadequate fruit and vegetable consumption, and most of those are very poor.) For a first (very rough) approximation, let’s assume that those with folic acid deficiencies are in fact the poorest 10%. You can see here that these are people with individual incomes below about $10,000.

Continue reading ‘How Many Deaths Does It Take Till He Knows….?’

Alternative Realities

Romans Pancs, my friend from what is slated to be the other side of The Wall, observes in an email that a substantial fraction of the US population attends church, where they are fed a steady diet of alternative facts and fake (old) news. Yet not many people seem terribly outraged by this, and in fact churchgoers are widely respected for the power of their fact-free, unconditional faith.

Why, then, all the angst and anger and disrespect for those who place their unconditional faith in the fake news and prophesies purveyed by Donald Trump? Whence the double standard?

I have a separate question, motivated by the same observation: To what extent have the churches, by training people to accept obvious nonsense without blinking, created the condiitions in which Trumpism can flourish?

I’ll be glad to hear your answers to either question, or to both.

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McCloskey at Chicago, Take Two

It was a pleasure and an honor to reminisce about Dee McCloskey for the Festschrift volume just released by the University of Chicago Press. It was less of a pleasure to discover that the U of C Press had ignored all the editorial corrections I sent them.

If you run into this volume, please don’t read my chapter. Read the corrected version here instead.

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The Long and Short Of It

The indispensable Don Boudreaux riffs on a comment here at The Big Questions to observe that one cannot consistently argue that both a) Citizen’s United gives outsized political power to corporations and b) corporations need to be nudged out of their excessive focus on quarterly statements. Political contributions, after all, do not ordinarily pay off within one or two quarters.

One can, I think, maneuver around Don’s point by maintaining that corporations focus on both the short and long runs, putting too much emphasis on the short run, but still putting enough emphasis on the long run to make it worth manipulating the political system. But that’s a tricky maneuver, and kudos to Don for pointing out that there’s at least some serious tension here.

Continue reading ‘The Long and Short Of It’

Why She Lost

Hillary Clinton Campigns In Iowa, Meeting With Small Business OwnersFor your consideration:

I submit that Hillary Clinton lost because she did not make even a minimal effort to make herself palatable to people like me — people who care primarily about economic growth, fiscal responsibility, limited government, individual freedom and respect for voluntary arrangements.

Because I care about those things (and for a number of other good and sufficient reasons), there was never a chance I would vote for Donald Trump. I gave money to Jeb Bush. Then I gave money to Ted Cruz. Then I gave money to the “Never Trump” movement that was trying to foment a revolt at the convention. Then I gave money to pro-growth Senate candidates. For me, the only remaining choice was between voting for Clinton and not voting for Clinton. (I also considered sending her money.)

I knew that if I voted for her, I’d never feel good about it. That was too much to ask. But I’d still have voted for her, if only she hadn’t gone out of her way to make me feel awful about it. And that she just would not or could not stop doing.

Every time I listened to her recite the litany of reasons not to vote for Trump, I cheered her on. But she seemed incapable of getting through a speech without veering off into the loony-land of free college and unfree trade. Most disturbingly — partly because it was most disturbing and partly because she harped on it so often — was the glee with which she looked forward to rewriting other people’s labor contracts and vetoing their voluntary arrangements. Do you want to accept a wage of less than $12 an hour in exchange for, say, more on-the-job training or more flexible work hours? Hillary says no. Do you want to forgo parental leave in exchange for, say, a higher salary? Hillary says no. And on and on.

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The Awesomeness of Immersive VR for Molecular Modeling

Johanna Bobrow is by day a biologist at MIT, often by night a musician (both solo and in groups), sometimes in between an aerialist, and always my friend. When I first saw this video, I told her it was awesomer than the most awesome awesomeness ever. I firmly stand by that judgment.

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How to Feel (Much) Better About the Outcome of the Presidential Election

I want to really marry the public and the private sector.

–Hillary Clinton

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