Month: October 2003

Blogs make media more personal

Personality is a key reason why blogs will continue to gain readers. Consider this:

Media was institutional. Now it is personal.
By personalizing media, I don’t mean customizing it (My Yahoo, Your Yahoo, All God’s Children Got Yahoos).
I mean humanizing it, taking on the personalities of people, not of institutions. Consider:
: The success of FoxNews can be attributed to the rise of the personalities and opinions of its anchors…People magazine personalized all news, for now every story has a People angle. I was at the magazine at this tipping point. Once was, a big TV show on the cover yielded big sales. That ended with the remote control and its revolution of choice. The institution — the show — no longer mattered. Now what sold was the event in the star’s life. It was personal. And soon, it wasn’t just entertainment but news of any sort that got that treatment in People and everywhere. News was personal.

Reality TV is a similar phenomenon. For the full opinion, with links, read here.

Many people love the idea of getting their news from Glenn Reynolds as a filter, with his personal commentary, rather than looking to an institutional filter. We all want celebrities or authorities of one kind or another, and blogs help to fill this demand.

Reforming the corporate income tax

Not as sexy a topic as cads and dads, see immediately below. But here is the best short article I have seen on why we should reform the corporate income tax.

Levi Strauss was able to put about $100,000 into a sham Brazilian venture that netted it $180 million in tax deductions. And it was all perfectly legal.

The answer?:

Loopholes need to be closed, rules simplified and the 35 percent rate reduced. And serious thought has to be given to augmenting the corporate tax with an export-friendly value-added tax like the ones used by nearly every other industrial country.

I agree with the first sentence of that paragraph, but not the second. I worry about the transition costs to a VAT, I expect we would end up with both a VAT and an income tax and on that one I vote no.

Why do women like cads?

“About 60 percent of the women said they would prefer to have sex with a cad when considering a brief affair,” said Daniel Kruger, a social psychologist at the U-M Institute for Social Research (ISR), the world’s largest academic social science survey and research organization.

…the findings imply that the dad versus cad distinction is intuitive to women and remains a key element of contemporary mating strategies. Women’s preference for cads for short-term relationships supports what evolutionary psychologists call the “sexy son hypothesis,” Kruger said. Even though cads aren’t good bets to stick around and help raise children, the genes that make men successful cads will be passed along to their sons, who will increase their mothers’ eventual reproductive success by providing numerous grandchildren.

That being said, few women want their daughter to marry a cad:

…the distinction between dads and cads is intuitive enough that women showed a strong preference for dads [the contrasting male category, defined as caring, nurturing types] as potential sons-in-law. Only 13 percent of the women said they would prefer to see an imagined 25-year-old daughter engaged to a cad. “A cad would be less likely to provide paternal support for offspring,” Kruger said, “which means that a daughter might turn to the maternal family for help. That could adversely impact the grandmother’s overall reproductive success.”

Here is Kruger’s home page. Here is a link to the journal Human Nature, which lists the article as forthcoming. Here is the home page of co-author Maryanne Fisher.

My take: I can’t get my hands on the original paper. But the explanation, as offered, leaves a gap. It shows that a “cads equilibrium” is stable, once in place. But why are the sons of cads, themselves cads presumably, seen as sexy? One woman may want a cad, if she knows that other women will (later) want her son. But where does the female preference for cads, viewed more generally, come from?

Why don’t the French work more?

If France were to reduce its effective tax rate on labor income from 60 percent to the U.S. 40 percent rate, the welfare of the French people would increase by 19 percent in terms of lifetime consumption equivalents. This is a large number for a welfare gain. This estimate of the welfare gain takes into consideration the reduction in leisure associated with the change in the tax system and the cost of accumulating capital associated with the higher balanced growth path. The reduction in leisure is from 81.2 hours a week to 75.8 hours, which is a 6.6 percent decline in leisure. I was surprised to find that this large tax rate decrease did not lower tax revenues.

That’s the take of Ed Prescott, one of America’s smartest economists, here is the original research paper.

Consider just how radical the flip has been:

Americans now work 50 percent more than do the Germans, French, and Italians. This was not the case in the early 1970s when the Western Europeans worked more than Americans.

According to Prescott, changes in marginal tax rates are the main reason for this shift. The Prescott cite is from www.2blowhards.com, a never-ending source of interesting material.

My take: Prescott’s critics like to squawk about his oversimplified models and his use of the representative agent construct. Having a background in Austrian economics, I have some sympathy for these criticisms. But on this matter, it is hard to deny that Prescott has nailed it.

The Effect of Police on Crime

Estimating the effect of police on crime is more difficult than it sounds because places with a lot of crime tend to have a lot of police and vice-versa. As a result, naive analyses tend to find that police cause crime! Jon Klick and I, following the amazing Steve Levitt, have what we think is a pretty clever solution. We look at what happens to crime in Washington DC when the terror alert level rises from elevated to high. During a high-alert period the police put on extra shifts, monitor closed circuit cameras on the National Mall and in general step-up policing. We find that crime falls a lot during these high-alert periods. Our new paper is, Using Terror Alert Levels To Estimate the Effect of Police on Crime. Comments welcome.

Here is the abstract:

We argue that changes in the terror alert level set by the Department of Homeland Security provide a shock to police presence in the Mall area of Washington, D.C. Using daily crime data during the period the terror alert system has been in place, we show that crime drops significantly, both statistically and economically, in the Mall area relative to the other areas of Washington DC. This provides strong evidence of the causal effect of police on crime and suggests a research strategy that can be used in other cities.

Persuasion

…if a panhandler asks for 17 cents or 37 cents, will he collect more donations than if he asks for 25 cents? Answer: He will receive about 60 percent more.

Here is another study…Students, acting as fundraisers, went door-to-door asking for donations. At half the houses they added one sentence to their spiel: “Even a penny would help.” Did this have any effect? Answer: It nearly doubled donations.

…Is it better to a) lecture students that they should be neat and tidy, or b) compliment them for being neat and tidy. Answer: In this study, the lecture method was useless, while method “b” led to a three-fold increase in the collection of litter.”

From a forthcoming review by J. Scott Armstrong, here is the whole review, it covers a book The Age of Propaganda, by Anthony Pratkanis and Elliot Aronson.

Here is another bit on persuasion, from Nalebuff and Ayres:

In 1990, H. Wesley Perkins, a professor at Hobart and William Smith College, discovered that most students think that they drink less than the average – and thus increase their consumption to be more like others. When the true drinking data is publicized, and students discover that few of their peers have more than five drinks at a party, peer pressure to binge is greatly reduced. The results were so successful in reducing heavy drinking that this approach has been employed throughout the California state university system and beyond. Rather than telling students to “Just say no,” it is more effective to say, “Just be like most everybody else.”

McCloskey and Klamer tell us that “One Quarter of GDP is Persuasion.”

Drinking errors

Both teenagers and adults misjudge how much they pour into glasses. They will pour more into short wide glasses than into tall slender glasses, but perceive the opposite to be true. The delusion of shape even influences experienced bartenders, though to a lesser degree, a researcher at the University of Illinois at Urbana-Champaign has found.

Click here for the full story.

What we buy from China

Our top categories of imports, by billions of dollars:

$8.6 Shoes
$6.1 Toys
$5.6 Input-output units
$5.1 Data processing machine parts
$3.2 VCRs
$2.6 Wood furniture
$2.0 Transmission equipment
$1.7 Data storage units

Get past the first two categories, and this is not just low-tech junk at your local Wal-Mart.

Now, consider our top imports from China, as a percentage of the overall imports in the stated category:

88% Radios
87% Christmas and festive items
83% Toys
70% Leather goods
67% Shoes
67% Handbags
65% Lamps and lights

From The Fruits of Free Trade, a publication by the Federal Reserve Bank of Dallas, the piece offers many nice illustrations of the benefits of trade.

In the average can of mixed nuts, you might find almonds from Italy, walnuts from china, Brazil nuts from Bolivia [sic], cashews from India, pistachios from Turkey, hazelnuts from Canada – a true international assortment.

Being a nut lover, that was my favorite bit from the brochure.

Milton Friedman tribute

I am pleased to report from a Milton Friedman tribute conference, held by the Federal Reserve Bank of Dallas. Milton, now 91 years old, remains incredibly sharp and quick on his feet. Gary Becker, in his talk this evening, challenged Milton as to why he does not believe in competitive supply of currency. Milton replied by saying he does not have a good answer to that question, but that he does not see how to get government out of the money business, given that dollars are already in place. He did suggest freezing the supply of high-powered money, and otherwise letting markets work and supply whatever forms of outside money might be demanded. Richard Ebeling discusses how Friedman’s thoughts on this issue have evolved.

My take: For a long time I favored Friedman’s position. In the meantime I have been more influenced by behavioral economics. I fear that some downward adjustments of prices and wages might be required, which people often find painful or resist, so I wonder if a very slight rate of price inflation might be superior. Of course a frozen supply of high-powered money does not necessitate deflation, but sometimes it will bring it. I also wonder how much short-run interest volatility would result. The supposed advantage of freezing high-powered money is to limit the potential for a repeat of the bad monetary policy of the 1970s, but has the Fed or government really engaged in effective precommitment? I doubt it. So right now I count myself as a monetary agnostic.

Addendum: Virginia Postrel, who is attending the conference, tells us about a forthcoming television biography of Friedman.

Second addendum: Here is a detailed conference report, written by a very smart and articulate attendee, his blog will be giving you updates as well.

On Whether To Rebuild Iraq and Whether to Pay for It

I am frankly puzzled about what justification there might be for “rebuilding” Iraq and why outsiders, the United States in particular, should pay for it. Is there some powerful theoretical argument or empirical evidence I am not aware of that suggests that Iraq is likely to become a significantly more friendly and civilized place if its electrical grid, highways, and water and sewage systems are substantially upgraded? And if so, is there some special virtue to outsiders paying for it? If there are strong arguments for either proposition I have not heard them. It would seem to me that helping the Iraqis establish the rule of law, a stable currency, secure property rights, will be far more valuable, considerably cheaper, and sad to say difficult enough. My sense is that a large infusion of cash from the outside will have a pernicious effect. It will encourage the (re)development of a rent-extraction industry.

Dalkon Shield, Silicone Breast Implants, Fen-Phen

A bill to move class action lawsuits out of the state courts and into federal courts narrowly failed in the Senate. Senator Tom Daaschle, explained his opposition to the bill this way, “It is the Dalkon shield, it is silicone breast implants, it is fen/phen.”

Good list. Wrong conclusion. The A.H. Robins Co. was driven into bankruptcy and forced to pay 3 billion dollars in damages but the Dalkon shield has been shown to be effective and safe. Silicone breast implants have been reviewed in studies by the AMA, the Institute of Medicine, the Canadians, the French, the British and others. All conclude that there are no unusual problems with the implants (any surgery has risks of course). The FDA will probably soon allow the implants back onto the market but in the meantime Dow-Corning has been driven into bankruptcy and tens of millions of dollars have been spent on lawsuits. Fen/Phen does looks like a serious health risk but tort law had nothing to do with removing the product from the marketplace. (Moreover, the issue is complicated. Only the Fen in Fen/Phen looks dangerous and that was approved in 1973).

We should spend More on Health Care

Tyler appears to be growing more skeptical of the value of health care spending (see his posts here and here). A simple model explains most of what is going on and why he and another of my very smart colleagues Robin Hanson, are wrong. In the graph below spending on health care is on the X axis, health outcomes are on the Y axis. Spending shows diminishing returns. We are currently at point Q on the graph labeled T1 – note that at this point marginal increases in spending have little effect on output (Tyler asks, What margin has low value? Answer: The marginal dollar). Even fairly large increases or decreases in spending will not change outcomes very much given that we are currently at point Q.

Why are we spending so much as to push us into the flat portion of the production function? One reason is that out-of-pocket expenses for medical care are much lower than true costs – we typically are spending someone else’s money. A second reason is that the marginal utility of wealth is low if you are dead so spending on health care near the end of life has unusually low opportunity cost. A third reason may be that various psychological factors make the desire to avoid regret particulary strong for health care, as Tyler speculated earlier.

Although the marginal dollar has low return the value of improvements in medical technology is enormous. These gains are illustrated by the shift from T1 to T2. It has been estimated, for example, that increases in life expectancy from reductions in mortality due to cardiovascular disease over 1970-1990 has been worth over $30 trillion dollars – yes, 30 trillion dollars (for this research see: book, papers, summary). A conservative estimate is that 1/3rd of these improvements in life expectancy were due to better medical technology. One third of the annual benefits is $500 billion – this is much more than total government spending on medical research (the budget of the entire NIH is around 25 billion).

The low value of medical spending at a particular point in time and the high value of medical research over time suggest that we would be much better off if we cut back on medical care spending and devoted the funds to medical research. We should spend less on Medicaid, Medicare, Prescription drug plans etc. and use the savings to better fund the NIH (or other methods of increasing medical research such as prizes etc.)

HealthModel.JPG

Privacy dilemmas

On most privacy issues I am willing to say “tough.” If you don’t like how your persona and image get processed by others, well, stay at home and keep your mouth shut.

But I am disturbed by this recent development, namely cameras hidden in cell phones. Consider this:

About 80 million of the palm-sized camera phones are in use worldwide, mostly in Europe and Asia. They are fairly new in the USA; fewer than 6 million are in use in North America. But falling prices – they now average about $380 – and improving picture quality are likely to spur growth.

Critics warn that as the phones proliferate, they are turning users into would-be paparazzi, with anyone nearby potential prey.

Not surprisingly, some locker rooms are starting to ban the phones, as are some celebrity events. Some firms are worried about industrial espionage. I can’t imagine a good regulatory solution here (how do you track down offenders who post photos on the web?), but these phones are pretty small, so we should not expect that private bans will be effective.

Is there a brighter side? Yes:

In Scotland, rescue workers use the phones to transmit pictures of accident victims to doctors while en route to hospitals, Mawston says. Camera phones were used to photograph a rape in England, and the pictures were turned over to police for evidence, Katz says.

About 2% of the 20,000 photos now posted each day on the Web site Fotolog.net, which allows people to create their own photo journals or share their pictures with others, are taken by camera phones. That number is rapidly increasing, site co-founder Adam Seifer says.

“People don’t leave their house without a phone,” says Seifer, who just purchased his camera phone. “So they’ll never miss those cool little moments that emerge throughout the day.”

My take: Social benefits will exceed social costs.

Government subsidies for witches

You have to go to Norway to get one. Consider this:

A Norwegian witch has won a £5,000 [53,000 kroner] business grant from her government to make and sell magic potions.

Her specialty products include night creams for vivid dreams, a day cream to combat indecisiveness and a foot cream to change a user’s bad habits.

I guess it is better than burning them, but how about laissez-faire?

From Cronaca.com, which right now has an especially good set of blog posts for browsing. The full story is from Ananova.com.