Month: March 2004

Labor Standards and Bicycle Helmets

Robert Samuelson writes in today’s Washington Post (registration required) that China, though in many ways an abominable economic landscape is a lot like the US 100 years ago. He argues that while growth is a messy thing, there is hope for the future in China, and recent progress is encouraging. He notes (citing the World Bank as his source):

†¢ From 1978 to 2002, the average annual per-person income rose from $190 to $960. It’s probably now above $1,000. (The U.S. figure: about $36,000.)

†¢ Life expectancy increased from 61.7 years in 1970 to 71 in 2002.

†¢ Adult illiteracy fell from 37 percent in 1978 to less than 17 percent in 1999.

†¢ Infant mortality dropped from 41 per 1,000 live births in 1978 to 30 in 1999 (the U.S. rate: about seven).

As the election heats up, we’re going to hear a lot about labor and environmental standards and how we need to level the playing field in trade. China remains a very poor country. It cannot afford the luxury of our standards of today any more than America could have afforded them 100 years ago when the average work week was 67 hours (down to 34 today) and the work place was a much more dangerous place.

One way to see this is to think about bicycle helmets. Where are more bicycle helmets worn–Chicago or Shanghai? Manhattan or Mexico City? More are worn in Chicago and New York. Don’t people in China and Mexico know that it’s dangerous to ride a bike in traffic without a helmet? I suspect they do. It’s just too expensive. Poor people are better off foregoing the helmet, keeping their kids in school a little longer and doing the best they can to avoid being hit by a car. Making the Chinese have factories as safe and clean as ours is like forcing them to wear bicycle helmets. It’s a bad deal for them even though there are benefits.

Politically incorrect paper of the month

African-Americans make up a larger proportion of students than teachers. Many educators say that as a result African-Americans students suffer because they lack role models and white students suffer because they lack diversity. In a newly published paper (working paper version), Thomas Dee (Swarthmore College) supports some but not all of this story. Using data from Tennessee’s Project Star, a very important experiment in which K-3 students were randomly assigned to small and regular sized classes, Dee finds that black students improve when they have black teachers. So far so good. Dee also finds, however, that white students improve when they have white teachers. Uh, oh. There goes the diversity is good for everyone story.

Dee is quick to point out that we don’t understand why students perform better with a teacher of their own race. If it is a role-model effect then why would white students perform poorly with black teachers – surely there are enough white role models to choose from that one more or less isn’t going to have an effect on the self-esteem of white students. Another theory, with some support from other studies, is that teachers spend more time helping students of their own race. Note that if it is the latter then better teacher training, to overcome natural biases, could improve the effectiveness of both white and black teachers.

The cite for the paper is Dee, Thomas S. 2004. Teachers, Race, and Student Achievement in a Randomized Experiment. The Review of Economics and Statistics 86(1): 195-210.

Is it a Vermeer or not?

You judge. Here are some scholarly takes, pro and con, along with more photos. It doesn’t look right to me, but many art experts now say yes. About three million pounds is at stake, according to The Telegraph. Since there are only about 35 other Vermeers in existence, and the last one was sold eighty years ago, I suspect it will go for more, no matter what the doubts.

My take: Researchers spent about ten years studying the picture. If it takes so long to tell the difference, spend your money elsewhere.

The French can compete

When the barricades that France’s protectionist auctioneers had erected to prevent the reform of their art market were finally stormed in late 2001, it seemed as though revolution was in the air. Many people believed that “les Anglo-Saxons”, as the French refer to Sotheby’s and Christie’s, were about to sweep their smaller, local competitors aside.

The logic was simple. The 456 licensed French auctioneers (commissaires-priseurs), who had been legally protected against foreign competition since 1556, would be no match for the two international giants now that the latter were allowed to hold sales in France for the first time. However, the reality has proved very different and in less than two and a half years Paris has evolved into the world’s most unpredictable and fiercely competitive art market centre.

And how can the French possibly compete?

The local auctioneers have survived by using their contacts, particularly among lawyers who arrange estate sales, and in some cases by reorganising and bringing in outside investors, which the law reforming the market allowed them to do for the first time. ArtCurial is a new creation, an alliance of three well-known French auctioneers – Francis Briest, Hervé Poulain and Remy Le Fur – with the Dassault aviation and newspaper dynasty and the Monaco real estate millionaire and art collector Michel Pastor. Its main specialities are modern art and vintage cars, and last year it came in third behind Christie’s and Tajan [another French firm] with sales of £41.7 million.

My take: European culture isn’t dead, it is simply oversubsidized and overprotected. Here is the full story. Here is an article about how the French have an unjustified fear of being bought out by foreigners.

Note also that Coca-Cola has postponed and possibly shelved its plans to compete with the leading French mineral waters. The British version of the product, Fasani (a terrible name, no?), turned out to be purified tap water. It is now an open question whether the French release will ever see the light of day.

Addendum: Daniel Drezner points out that McDonald’s is more popular in France than elsewhere in Europe. I blame expensive French food, high labor costs through regulation, and bizarre opening hours (i.e., your favorite place is usually closed). But if you think that French haute cuisine has been harmed, you haven’t eaten in Helene Darroze, where last night I had one of the finest meals of my life.

Tax and Spend

On my way in to work today, I heard a snippet of a President Bush speech on C-Span radio. “Tax and spend is the enemy of job creation,” he said.

That’s probably true. Unfortunately for the President, if tax and spend is the enemy of job creation, so is “borrow and spend,” the President’s recent formula.

The size of the budget and what it’s spent on is more important than how it’s financed. There are really only two choices for financing–taxes today and taxes tomorrow. Borrowing just means taxes tomorrow. The President likes to describe tax cuts as letting people keep more of their own money. I like that idea. Unfortunately, I agree with my hosts Tyler and Alex that the current administration has raised our taxes by increasing spending. So ultimately we’re keeping more of our money today and expecting to give back even more tomorrow.

Ironically, Bush has raised spending in what I would guess is a labor intensive way. By expanding homeland security, a lot of workers have been drawn into public employment rather than the private sector.

Last month’s job growth was “small” and almost all of it was in the public sector. That’s most likely a result of government spending pulling people into public sector jobs rather than the private sector.

This Friday is a big day for Bush and Kerry. The job numbers for March will be released. If they are weak again, Bush will have to keep talking about home ownership being up.

Does file-sharing hurt CD sales?

A new study by two researchers at Harvard Business School and the University of North Carolina, Chapel Hill, finds that sharing digital music files has no effect on CD sales. This is the first study that directly compares actual downloads of music files and store sales of CDs.

The authors, Associate Professor Felix Oberholzer-Gee of Harvard Business School in Boston and Professor Koleman Strumpf of the University of North Carolina, Chapel Hill, conclude that “File sharing had no effect on the sale of popular CDs in the second half of 2002. While downloads occurred on a vast scale during this period – 3 million simultaneous users shared 500 million files on the popular network FastTrack/KaZaA alone – most people who shared files appear to be individuals who would not have bought the albums that they downloaded,” say the authors…

Even in the professors’ most pessimistic statistical model, it takes 5,000 downloads to reduce the sales of an album by a single copy. If this worst-case scenario were true, file sharing would have reduced CD sales by 2 million copies in 2002. To provide a point of reference, CD sales actually declined by 139 million copies from 2000 to 2002.

Here is another interesting tidbit:

31 percent of all individuals who download music live in the United States. Other important countries are Germany with a 13 percent share of worldwide users, Italy with 11 percent, Japan with 8 percent and France with 7 percent. File sharers in the United States are particularly active. While they represent 31 percent of worldwide users, they download 36 percent of all files.

U.S. file sharers download files from all over the world. Only 45 percent of the files downloaded in the United States come from computers in the U.S. 16 percent of music files are downloaded from computers in Germany, 7 percent from Canada, 6 percent from Italy, 4 percent from the U.K. A legal strategy that focuses mostly on the United States is unlikely to change the supply of music files.

In other words, going after domestic uploaders, as the RCAA is doing, won’t cut off supply.

Here is one summary. Here is the original research.

My take: Yes I believe the result. Most downloaders are young or just sampling songs for kicks. But I doubt if this, legal developments aside, would be true five years from now. Over time I expect more people to forgo buying the CD, unless of course the law intervenes.

Addendum: Newmark’s Door offers some additional links. Larry Lessig argues for complementarity. Here is an article that copyright is too strict more generally, and yes The Grey Album is wonderful.

Was Nietzsche right?

In recent weeks there’s been a furor in the Washington D.C. area over lead in the District’s water supply. Today, the Washington Post (registration required) looks at why lead is bad for you and covers some of the science and public policy. That lead is bad for you is open and shut. Too much lead kills you and for kids, too much is not that much. But I am skeptical of recent studies that find that the worst effects of lead happen at the lowest levels of exposure.

Here‘s a typical newspaper account of one of those studies and a quote from a leading researcher on the topic:

“There is no safe level of blood lead,” said Dr. Bruce Lanphear, lead author of the lead study presented Monday at the Pediatric Academic Societies annual meeting.

Edward Calabrese would not agree. Calabrese is a toxicologist at UMass-Amherst and a leading scholar of hormesis, the phenomenon that most if not all toxins are actually good for you at sufficiently low doses. This does not imply that you should start adding mercury to your eggs or lead back into your pots. But the impact of toxins appears to be U-shaped–good for you at sufficiently low levels then bad as exposure increases. Whatever doesn’t kill you makes you stronger.

Hormesis also implies that linear models or threshold models of toxic impact are misspecified and understate the impact of toxins over some ranges of exposure.

Here’s a Scientific American article on Calabrese and hormesis.

Here’s my take on the economics and policy implications of hormesis.

Electronic voting

Many people fear electronic voting. What if there is an error? Don’t we need a paper trial? How can we be sure that the election won’t be stolen? My response is simple. Ever buy gas? When you buy gas do you pay cash or use a credit card? And when the terminal offers to print you a receipt do you take it, save it, and check it against your monthly Visa bill? Or do you press “no receipt” and drive away?

I have never once checked a gas receipt against my monthly credit card bill and I suspect most people don’t either. The credit card companies have big incentives to record transactions quickly and accurately. The system isn’t perfect but it’s good enough so that I don’t worry about being ripped off and, the key point, the electronic system is certainly more accurate than the primitive process of counting out paper and metallic tokens and handing them over to a minimum-wage cashier who repeats the process by counting out change. I see no reason why electronic voting should not be far superior to punch cards or other manual machine.

Obviously, we need to be careful, which brings me to a suggestion. How about open-source software for voting machines? Opening the source makes life easier for outsider hackers but harder for inside-hackers and open source is less-susceptible to bugs. Open-source would also be well, open – as in an open society.

I would say turn this project over to Linus Torvalds but he’s a Finn and we have to be careful about them but surely there are some skilled programmers who would like to lay the core for voting in the twenty-first century?

Addendum: Yup, here is an open-source voting project.

Are video games art?

Some time ago I asked whether video and computer games would provide the next artistic explosion. I concluded: “I’m still waiting to see the payoff.”

The New York Times ($) has nominated one such game, as an aesthetically worthy experience, click on the link if you are curious. The game combines elements of music, travelogue, diaries, narrative, and digitally constructed artwork. One of the artworks has been included in the recent Whitney Biennial.

My take: Judge for yourself, but for me it is an interesting novelty more than a sustaining attraction. That being said, I didn’t like Faulkner at first either.

A nation turns its lonely eyes to you

Traveling last week and removing my shoes as I snaked through the rope-lines made me wonder whether the airline security people might not benefit from a consultation with the remarkable Temple Grandin. She works at finding ways at making cattle comfortable as they are led to slaughter. Oliver Sacks profiled Grandin, who is autistic, in his marvelous An Anthropologist on Mars.

Bootleggers and Baptists

The Arizona Daily Star reports that Nogales, Arizona will be opening a new state-of-the-art truck inspection station:

The governor touted the new Motor Carrier Inspection Station as a state-of-the-art facility that will improve homeland security while not slowing down international traffic between the United States and Mexico.

It gives state and U.S. federal officials a one-stop shop to inspect drivers’ immigration papers, the safety of their semi-trucks, and the quality and safety of cargo crossing into the country.

But a legal challenge hangs over the new facility:

Attorneys about to argue a federal lawsuit against the NAFTA plan allowing Mexican trucks into the United States aren’t satisfied. They will plead their case before the the U.S. Supreme Court on April 21.

The problem with the new station: It isn’t required to check emissions on incoming trucks.

That means they aren’t being held to the same standards as U.S. trucks and will only worsen air quality standards, said John Weissglass, the San Francisco-based attorney representing the International Brotherhood of Teamsters in the lawsuit. In 2002, the Teamsters, watchdog group Public Citizen, and environmental groups sued the U.S. Department of Transportation to stop the NAFTA plan, citing environmental concerns, which eventually forced the government to conduct a $1.8 million study looking at the plan’s environmental impact.

They say politics makes strange bedfellows, but the Teamsters and Public Citizen? Bruce Yandle of Clemson explains it with a theory he calls Bootleggers and Baptists. The bootleggers like prohibition because it gets rid of competitors. But a politican who wants to listen to the bootleggers needs a more high-minded cause to sell to the public. The Baptists give the politicians cover with the argument that drink is from the devil–it leads to social unrest, unemployment, higher social costs and so on. Same with Mexican trucks. Who can justify keeping out lower cost Mexican trucks just to keep the wages of Teamsters high. Enter Public Citizen. This isn’t about greed. It’s about keeping American air clean.

The appeal of self-righteousness partnering with self-interest also explains why companies often support regulation of their industry. They’ll claim a concern for safety or the environment but often such regulations fall more heavily on smaller competitors and will drive them out of business.

There’s nothing wrong with politicians having both high-minded and low-minded motives. The real problem is that the bootleggers always push the form of the regulation to create higher profits.

NAFTA was supposed to allow Mexican truck companies to compete in the US. We’re still waiting. Before the environmental issue, the alleged worry of the Teamsters was safety. My take on that claim is here.

Microsoft, bundling and all that

Brad DeLong argues that he has been harmed by getting IE for free with Windows.

Remember the days when there was not one single dominant browser that came preinstalled on 95% of PCs sold? Back then there was ferocious competition in the browser market, as first a number of competitors and then Netscape and Microsoft worked furiously to upgrade their browsers and add new features to them….Progress in making better browsers was rapid, because browser-makers wanted to make a better product and any new idea about what a browser should be was rapidly deployed to a large enough user base to make it worthwhile for web designers to try to use the new feature.

But why was competition in the browser market so furious? Hmmm… couldn’t have been because each firm knew that the winner would be a monopoly, could it? The alternative to Microsoft winning the browser war was not competition between many firms but a different dominant monopolist. Focusing on the economics, i.e. without getting into arguments about which firm was the better innovator etc., is there any reason to prefer one monopolist over another?

The double monopoly problem, first explained by Augustin Cournot in 1838, suggests that Microsoft might be the better monopolist. The double monopoly argument says that if two products are going to be monopolized its better if they are monopolized by one firm than by two (or more). The reason is that the single monopolist will take into account complementarities between the two products. The better the brower, for example, the more operating systems Microsoft will sell and vice versa. Separate the two products and you lose this added incentive to lower price and/or improve quality. (If you know the tragedy of the commons argument, the double monopoly problem is the same thing with the customers serving as the common resource).

An unappreciated aspect of this argument is that the reason that Microsoft might make the better monopolist is the same reason it will likely win in any battle with a stand-alone competitor. Microsoft has more to lose from losing and more to win from winning than does the stand-alone and will therefore put more resources into winning. This explains why the European directive requiring Microsoft to sell two versions of its operating system, one with and one without the media player, is pointless. Microsoft will simply sell the two versions at the same price – then which one would you choose?

Aside: I also think that Brad doesn’t appreciate enough the power of potential competition. Low marginal costs and ease of distribution in the software market mean that one of the now relatively small competitors to IE could grow very rapidly. Microsoft knows this and cannot rest on its laurels/behind (your choice). Consider how rapidly the browser substitutes known as RSS readers are growing.