by Tyler Cowen
on April 24, 2010 at 6:51 am
1. Nudges gone wrong.
2. The culture that is Wikipedia.
3. Good review of my book on arts policy.
4. The evolution of banking.
5. Faux markets in everything: a (faux) children's book on raising your clone as your kid, and more here.
The Bishop Hill blog alludes to this Wikipedia-fest.
That’s “fest” as in festering idiocy.
Regarding # 4. I don’t have time for a long comment but let give you my explanation of what has happened in the last 80 years of banking in most market economies. The first 50 years reflected the Great Depression and the view that banks had to be tightly controlled. As any heavy-regulated industry, after WWII banks expanded and they could make a good profit (for all practical purposes banks were like public utilities that benefited from the high growth of the postwar period). They couldn’t, however, accommodate the many demands for financial services (I’m ignoring developments related to payment systems) and finally regulation was softened so banks could provide some other financial services. As a soft-regulated industry (banks have continued to be regulated) the new system promised to provide better services but for a number of reasons –including the historical relation between government and banking– some of the new services were poor to the extent that they allowed banks to assume excessive risks (I’m ignoring fraud and government predation because they were not critical in most countries). And now politicians promise to strength regulation to correct past mistakes but you can bet that the cost of the new regulations will be too high and the regulation game will continue forever.
1. So, did I miss the memo that explained why raising prices is out of the question?
I’m not a Republican, but anytime the powers that be, be it a governmental unit or a regulated utility, asks me or urges me to do something, my immediate impulse is to do the opposite. I hate being told what to do, or “nudged” to do something. Occasionally, rationality prevails enough to prevent from cutting off my nose to spite my face in a big way, but not always.
When it comes to measuring humans, it may be more difficult to assign a natural, non-arbitrary cardinal value than an ordinal one. If ordinal, then median, not mean. Mean requires cardinal values.
Contrary to Krugman, the banking industry was very competitive from 1980 to 2005 (as it still is), despite being heavily regulated and prone to rent seeking. I remember reading the Ponzi scheme theory in Shiller, and writing “this is insane” in the margin. Bubbles are not Ponzi schemes. They are caused mainly by the criminal element known as central bankers (note the qualifier mainly), but they are not themselves fraudulent actions.
A median is a form of average, in any case. I agree that without qualification “average” is generally taken to mean arithmetic mean, but it’s wrong to suggest that “average” can only mean that, particularly when context makes it obvious that the median is meant.
Ken, skills (such as driving skills mentioned in the article) definitely do not have the normal distribution. I guess that the exponential distribution would fit better (and its median and mean are different).
For something like driving, I would expect a much higher % than 50 to be above the mean. If you count the mean in terms of accidents per driver. That is a stat that should have really heavy skew in it. And probably multiple peaks.
Maybe Krugman finally hit on something…leverage. Borrowing from banks..Ooooo, He may earn his Nobel yet.
I have to suppress a shudder and force myself plow ahead every time I unknowingly follow a link to Krugman.
The best part of the Wikipedia piece is the reference to the Phantom Time Hypothesis: truly an inspired bit of whackiness. We had a similar theory in grad school that the hours between 7am and 9am didn’t exist — certainly had no direct observation of them.
Umm, Tyler….regarding #3, I think you’ve been had by a plagiarizing spam blog. It’s just a repost of a review of your book from Amazon.com. See: http://www.amazon.com/Good-Plenty-Creative-Successes-American/dp/0691120420/ref=cm_cr_dp_orig_subj
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