Month: October 2003

The fate of co-blogger Alex

You haven’t heard from Alex for a few days, he is out at Lake Tahoe addressing, get this, a conference of bounty hunters. In fact he is the keynote speaker, having done some excellent work on the topic. I mean work as a researcher, not work as a bounty hunter. I hope he will tell us more about this when he returns. And if he doesn’t come back, we will have some inkling of the reason.

The new Nobel Prize

Read David Warsh on the new Nobel Prize selections. There has been a paucity of interesting press on these picks, in part because the contributions are so technical. But this commentary, like everything else by David, is worth reading.

Here is one good point:

It was the third time in four years that the award was given for contributions to the tool-kit of empirical economists…The committee seems to be buttressing the case for the Nobel award itself…coming so quickly on the heels of the earlier award, this year’s prize may be directed less at the lay public, which is always hoping to understand what is going on in economics, than at the award’s real constituency – the scientists of the Royal Swedish Academy of Sciences, mainly physical scientists, who actually vote the award.

At the end of the link you will find a separate bit, comparing Arnie to Massachusetts governor Mitt Romney.

Here is a result I do not believe

Consider this hypothesis: In the past, such as the nineteenth century, resources were far less mobile. So corrupt officials had to keep their ill-gotten gains at home. This (supposedly) helped the growth prospects of those economies:

In the relatively closed economies of the 19th century, the gains from corruption remained inside the country and became part of the economy’s productive capital. In contrast, in today’s open economies, corrupt agents smuggle stolen money abroad depleting their country’s stock of capital.

Here is a link to the paper. Here is a recent and slightly misleading summary from The New Scientist.

My take: This can’t be right. Most corrupt agents hold and want money, they do not keep capital goods under their pillow. Let’s say that those agents simply burned the money. This would not destroy any real capital for the economy; co-blogger Alex and I used to call this the “Junker fallacy” (recall the mistaken old view that early Germany did not grow because the Junkers bought land instead of investing in capital). So sending money abroad should not be the fundamental problem. Furthermore the distorting effects of corruption are more important than any so-called loss of capital.

The authors do have an interesting empirical result, namely that corruption damages wealth more when the economy is open. But even if this relationship is causal, we have to look for another mechanism. My best intuitive shot is the following: if the economy is open, international investors will, sooner or later, punish it for the corruption, a’ la Indonesia or Argentina.

Is it cheap corn that makes Americans fat?

Read here. Here is a short bit on the scientific developments behind cheap corn. I wouldn’t want to take any of these developments back, as they have saved millions of lives around the world. Nonetheless the biological/behavioral arguments for market failure are growing in importance (human beings did not evolve to handle fully abundant fats and sugars), relative to the traditional externalities arguments. If you don’t believe me, check back in thirty years.

Movies and capitalism

I continue to be amazed at the high-quality specialized blogs out there. The latest: a new blog about how capitalism is portrayed in the movies, courtesy of Larry Ribstein, legal scholar.

From the blog, here is a list of movies that portray business and private enterprise in a favorable or semi-favorable fashion:

Mr. Deeds Goes to Town (1936)
It’s a Wonderful Life (1946)
The Bad and the Beautiful (1952)
Executive Suite
Charley Varrick (1973)
Heaven Can Wait (1978)
Tucker: The Man and His Dream (1988)
Do the Right Thing (1989)
You’ve Got Mail (1998)
Cast Away (2000)

Thanks to ProfessorBainbridge.com for the pointer.

Addendum: David Hecht points out that “Sabrina” and “Working Girl” are missing from this list. And I haven’t seen “You’ve Got Mail,” but I recall that the previews villainized book superstores.

Second addendum: Here is a very useful discussion of “You’ve Got Mail,” from ProfessorBainbridge.com.

Are focus groups any good?

“Unconscious thoughts are the most accurate predictors of what people will actually do,” Zaltman said in an interview. “In the space of 5 or 10 minutes in a focus group, which is the average airtime per person, you can’t possibly get at one person’s unconscious thinking.”

Evidence suggests focus group participants often lie. “The correlation between stated intent and actual behavior is usually low and negative,” writes Harvard Business School professor Gerald Zaltman in his influential book How Customers Think. After all, he notes, 80 percent of new products or services fail within six months when they’ve been vetted through focus groups. Hollywood films and TV pilots–virtually all of which are screened by focus groups–routinely fail in the marketplace.

My take: Some people lie outright, but mostly we don’t know what we really want, when confronted with a choice outside of context. Have you ever had the feeling that you cannot specify your reservation price in advance, but must first hear the relevant offer? I feel this way all the time, despite being perceived by my friends as a relatively definite and thoughtful personality type.

Click here for the full story.

Why Botswana?

From 1965 to 1995, Botswana was the fastest growing country in the world. During this 30 year stretch, Botswana’s average rate of growth was 7.7% per year. Relative to other nations, Botswana rose from the third poorest nation in 1965 to an “Upper Middle Income” nation.

Of course the rest of Africa has not nearly done so well. The account of Acemoglu, Johnson, and Robinson, later published in Dana Rodrik’s In Search of Prosperity: Analytic Narratives on Economic Growth, suggests the following (summary taken from Beaulier):

1. Botswana possessed relatively inclusive pre-colonial institutions, placing constraints on political elites.

2. The effect of British colonialism on Botswana was minimal, and did not destroy inclusive pre-colonial institutions.

3. Following independence, maintaining and strengthening the institution of private property was in the economic interests of the elite.

4. Botswana is rich in diamonds. This resource wealth created enough rents that no group wanted to challenge the status quo at the expense of “rocking the boat.”

5. Botswana’s success was reinforced by a number of critical decisions made by
the post-independence leaders, particularly Presidents Khama and Masire.

Scott Beaulier, a graduate student at GMU, attempts to amend this view. He argues that British colonial policy was not so beneficient toward market institutions and rule of law. Most of all, “Botswana’s success was the result of good post-colonial policy choices.”

In other words, countries are not trapped by their past. I don’t know enough history to judge this research, but I do know that topics such as Botswana, or Mauritius (another success story), are underexplored by economists.

Addendum: Abiola Lapite refers me to his interesting blog post, he suggests that the relative ethnic homogeneity of Botswana is a critical factor.

Will Web TV destroy global culture?

Eli Noam is the pessimist, Richard Epstein is the optimist. I agree with Epstein, who notes:

…the use of internet technology also reduces the costs of various forms of global co-operation. The best path for content-savvy foreign producers is to enter into deals whereby they combine their content with the technical expertise that is more cheaply available from the high-tech American platforms. The distribution channels cannot tell American from Hungarian electrons, and if content from other nations has sufficient appeal, then no evident cost disadvantage should keep it from reaching the marketplace, so long as technical services can be freely bought and sold.

Noam is worried that the Internet might make it easier for American content to take over markets, thus limiting the scope for local programming. But American television programs are losing ground internationally. Increasingly American TV shows and movies are part of a broader menu of satellite programming, offering viewers a truly global choice. A 2001 Nielsen survey found that 71 percent of the top 10 programs in 60 countries were locally produced.

Here is the full exchange, my only complaint is that we don’t hear enough from Richard.

Two things I learned about sleep

Old ideas that REM sleep deprivation led to insanity have been convincingly disproved…

Now I hope this second part was not funded by government money:

…although studies show that depriving someone of sleep, for example by prodding him or her awake repeatedly, can definitely cause irritability…

What else did I learn?

Body size appears to be a major determinant in the amount of sleep that a species needs. In general, the larger the animal, the less sleep it requires. Data suggest that one of the functions of sleep is to repair damage to brain cells. The higher metabolic rates of small animals lead to increased cellular injury and may, consequently, require more time for repair.

Opossums sleep eighteen hours a day, elephants three.

From the November issue of Scientific American, the article, “Why We Sleep,” is not yet on-line.

How do religious people vote?

Myth 1: Evangelicals all vote Republican. People often confuse the words “fundamentalist” and “evangelical.” Fundamentalists are very conservative and almost entirely Republican because they view the deterioration of traditional morality as the primary public policy crisis. But fundamentalists are a subset of evangelicals, which is a more diverse group.

John Green, a professor at the University of Akron and the foremost scholar of evangelical voting behavior, spliced and diced data some time ago and managed to delineate a group of moderate evangelicals. I like to call them “freestyle evangelicals” because they are socially more liberal (they don’t vote strictly for pro-life candidates, for example) and politically “in play.” There are about 8 million to 10 million of them. This group went for Bill Clinton 55 percent to 45 percent over Bush Sr. in 1996 and 55 percent to 45 percent for W. over Gore in 2000. That’s a swing of about a million votes.

To read about six other myths, see today’s Slate.com.

An insight on the Kyoto treaty

Sidelight: Why does Germany favor the Kyoto Treaty? Not so much for greenhouse reasons but so that Berlin can shut down the country’s subsidized, politically powerful coal-mining industry. German leaders have wanted for decades to cut subsidies for coal production–even the presumably pro-labor current government wants this–because coal mined in Germany costs more than twice the world price, mainly owing to featherbedded work rules. Every move to reign in the German coal industry has been greeted by public howls. But if Berlin could blame a coal shut-down on an international obligation, and polls show the Kyoto accord is very popular among Germans, the equation would change.

From Gregg Easterbrook, thanks to Michael Green for the pointer.

Fingers

Of the strange beliefs that Tyler examines he finds craziest the idea that slender hands might signal artistic ability. Maybe, but you know what they say about truth and fiction. Recent research indicates that finger length relative to height and the relative length of the ring to index finger can predict a great deal about male depression and intelligence, who is most at risk for heart attacks and sexual orientation. The theory is that testosterone and other hormones like androgen are the direct causes but fingers are a particulary good marker for hormone production.

Stressed populations yield fewer males?

When a country experiences a dramatic, faltering economy, there is an equally dramatic, faltering effect on the birth rate. Specifically, there are more female births than male births, according to new research from the University of California, Berkeley. Although this phenomenon has long been observed in herd animals, this is the first time it’s been shown to happen in humans, too.

Here is the full article. Here is a press release from Berkeley. Here is Ralph Catalano’s [the researcher] home page. Here is the article itself, but the whole thing will cost you $19.00.

By the way, here is another puzzle: more boys are born in southern Europe than in northern Europe. More females are born in Mexico. Could this all correspond to stress? Here is another study, it says that stressed out parents are more likely to have girls.

My take: I can believe the result, but I haven’t much raised my priors. Note that the spike in East German female births comes in 1991, when the East German economy collapses. OK, we have found some related results elsewhere, and for other animals, that counts for a good bit in my eyes. Nonetheless I am reminded of Brad DeLong’s excellent article Are all Economic Hypotheses False?”, with Kevin Lang. If you spend enough time looking, and there is publication bias, some results will pop up, whether they are true or not. The cynical would say that behind this article, as described in the press releases, there is really only a single data point, namely 1991. N.B.: I haven’t paid the $19 to read the article itself, final judgment is reserved for those who pay and read.

Addendum: Jon Klick read the piece and sent me the following:

You’re exactly right that you’re really only focusing on one data point to identify the hypothesized effect. One wonders why he didn’t include the GDP numbers directly rather than simply including a “collapse” variable. Doing so would have allowed for more variation. If the claim is endogeneity (isn’t it always), then that’s not really solved through the collapse variable since it would be endogenous too. Also, isn’t it kind of funny how he uses a 55 year pre-period relative to an 8 year post period. If the ARIMA structure went through any significant changes around the 1991 period, you would be implicitly weighting your early data (and their ARIMA parameters) more heavily than the potentially new parameters. Thus, the 1991 change could be due to these structural parameters rather than anything GDP related; impossible to sort the effect in this design.

…[it] potentially suffers from huge omitted variable bias. That said, there are intuitive reasons to believe the thrust. Apparently, boys are more expensive in every way during the early years of life (e.g., they have more health problems which cause financial and physical drains on parents . . . this shows up in the evidence that mothers of boys die earlier and the like). Presumably then, the reproductive system has developed such that boys are spontaneously aborted when their births are likely to be most troublesome (e.g., when economic and psychological stresses are particularly acute).

Look Out for the Big, Messy Countries

Over the next 50 years, Brazil, Russia, India and China – the BRICs economies – could become a much larger force in the world economy. We map out GDP growth, income per capita and currency movements in the BRICs economies until 2050.

The results are startling. If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025 they could account for over half the size of the G6. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050.

The list of the world’s ten largest economies may look quite different in 2050. The largest economies in the world (by GDP) may no longer be the richest (by income per capita), making strategic choices for firms more complex.

We are also told that India has the greatest long-term potential for growth over the next thirty to fifty years.

From Goldman-Sachs, click here to get the whole study.

My take: These numbers are very speculative. Don’t assign them any predictive weight, but the article does outline one possible scenario. Don’t forget, circa 1960 or so, many economists were picking Ceylon (Sri Lanka) and the Philippines as the next big winners.

Thanks to Bart Oosterveld for the pointer to the piece.