Month: May 2004

For fifty years the United States dominated the rest of the world with its scientific advances, Nobel prizes and life-saving drugs. We were the king! We ruled!

But now, Tom Daschle sees “disturbing” signs. “America’s dominant position in the scientific world is being shaken,” he says.

Quake! Hold on!

We are in decline and “it’s frightening,” intones Dr. Armbrecht from the Industrial Research Institute.

“They’re catching up to us,” warns Jennifer Bond.

Run, run for your lives!

Funniest statement is from the aforementioned Jennifer who is a vice-President at something called the Council on Competitiveness, an organization in Washington that seeks “to promote industrial vigor.”

We must not lose our precious bodily fluids.

All of this is from a hysterical and hysterically funny article in the NYTimes, U.S. Is Losing Its Dominance in the Sciences by William Broad. One of the brief nods to sanity in the entire piece is this sentence:

Even analysts worried by the trend concede that an expansion of the world’s brain trust, with new approaches, could invigorate the fight against disease, develop new sources of energy and wrestle with knotty environmental problems.

Of course, the next sentence begins with the word “But…”

Now, the U.S. system has its share of problems. The university system is not a market and as a result price signals don’t allocate labor very well so we have too many English and history majors and not enough natural science and engineering undergraduates. (See Paul Romer for the academic argument and the Invisible Adjunct for the life lesson.)

The basic point, however, is that science is not war. So let us turn away from the mediocrities like Tom Daschle and the New York Times and turn instead to Thomas Jefferson who wrote nearly 200 hundred years ago:

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation.

Read this story about the recent behavior of British troops in Iraq. A full investigation remains pending, but the account may well be true.

Some economists believe that we should bicker less among ourselves. Instead we should devote more resources to convincing the public on matters where most economists already agree. I have mixed feelings toward this attitude. Even if more instruction would improve economic performance, I am concerned it would damage our long-run ability to track truth. Plus for me it would make economics less fun. I, for one, would not devote my life to being a missionary for the theory of free trade and comparative advantage.

That all being said, how much do economists in fact agree? Check out this paper. The authors survey 1000 economists from the AEA roster; the data cover both 1990 and 2000. Here is one result:

…there was strong agreement with the propositions that restraints on free trade reduce welfare…and that market-determined exchange rates are effective…There was also strong disagreement with the propositions that increasing globalization threatens national sovereignty in environmental and labor standards…that U.S. trade deficits are a result of nontariff barriers…and that the increasing inequality in the U.S. distribution of income is caused by the pressures of a global economy.

What else do we have?

Macroeconomic propositions usually met with “moderate” to “substantial” consensus, but never “strong” consensus (the paper defines these terms more rigorously). And over the last ten years the consensus on macroeconomics has lessened (this result runs counter to my intuitions; I think there is now fairly broad consensus on something between loose price level targeting to mild inflation. Of course that is just monetary policy, not all of macro.) Economists have moved slightly closer to some supply side ideas but are more skeptical about the macro stimulus properties of fiscal policy.

Pollution taxes are very popular, and economists are starting to buy the Card-Krueger argument that minimum wage hikes don’t much damage employment.

Read the whole piece, it has more content than I have presented.

And will the Internet and distance learning drive down the demand for professors? There we see strong disagreement. I might add that I see future demand as more robust than Alex does and I can’t bring him around to my point of view.

“There Ain’t No Such Thing as a Free Lunch.” I used to think that originated with Robert Heinlein’s The Moon is a Harsh Mistress. Many others credit Milton Friedman. But read the real story. A San Francisco newspaper is the earliest known source. And Professor Alvin Hansen, preceding Friedman, wrote of TINSTAAFL, which is simply TANSTAAFL with better grammar.

New York City just auctioned off some more medallions. What did they go for? About $300,000. What should one cost? Ask Andrew Chamberlain:

…let’s do the math. Given a medallion cost of $300,000, how much does a cabbie have to make to justify buying one? Assuming he’ll use it for 20 years, and assuming a 5 percent discount rate–the forgone return he could’ve earned on a similar investment–he’d need to earn about … $28,300 a year.

That’s not much. So how much do taxi drivers actually earn? According to the New York Times here and here, most drivers pull in about … $30,000 a year.

Chamberlain also questions whether the medallion system makes sense in the first place. My knee-jerk free market reaction is to say no. That being said, it is easy to imagine that a congestion tax on Manhattan taxis is optimal. How close do current quantity restrictions come to such a tax? Hard to say, but at the very least non-Manhattan driving probably does not require medallions. Should we also allow taxis to raise their prices when it is raining? I have heard that Tokyo residents hailing a taxi will hold up two fingers to pay twice the state fare, three fingers to triple it, and so on.

Addendum: Daniel Akst notes that this calculation assumes a very low shadow price for labor. I’ll predict that the immigrant drivers have discount rates higher than five percent a year, as well. That only intensifies the puzzle. On the other side of the equation, you can sell the medallion after twenty years.

The Trotskyist mayor of Sao Paulo is embracing an idea long advocated by free market economists, creating a market in which zoning rights can be bought and sold. Sao Paulo will sell as much as $300 million in legal rights to build above existing height and bulk limits in certain areas. Penn State University professor of real estate, Abdullah Yavas, notes:

This is a first. The city is doing rezoning for payment and by having a secondary market, the city creates a way for the rezoning to be used by the highest bidders – the people who value the space the most.

Eliminating zoning altogether and relying on covenants and other private solutions, as does Houston, is probably best. But in the meantime, William Fischel, Robert Nelson and others have long-argued that its more efficient to price than to forbid. In a pricing system, land would be better allocated to its highest valued use and both the city and builder would be better off. In addition, open, competitive sale of zoning rights is preferable to widespread corruption and bribery which zoning naturally invites. The mayor of Sao Paulo, a rich communist (really), is more interested in revenues than efficiency but that’s often the way reform occurs.

Aside: The information on Sao Paulo comes from an article by Terry Wade in the WSJ, Wed. April 28, A14B, unfortunately the WSJ provides no way to provide a link if one is not a subscriber. For more on these issues see The Voluntary City (I am one of the editors). Here is Tyler on things Brazil is not doing so well.

Galina Vladimirova is a believer in what she calls “the Russian cult of makeup.” Tucked neatly inside her purse one recent day were her latest acquisitions of lipstick and eye shadow, her first Armani purchases. They were more than twice as expensive as any makeup she had ever bought, even for a woman who spends up to $150 a month on cosmetics…

In the beauty boomtown that is Moscow today, she is no exception. Just a generation removed from the time when their mothers and grandmothers resorted to the peasant trick of reddening their cheeks with beets, Russian women today spend twice as much of their income on cosmetics as Western Europeans do — 12 percent of their entire paychecks on average, according to research firm Comcon-Pharma.

Perhaps no other cosmetics market in the world is as hot as Russia’s, which has quintupled in size over the past four years and is forecast by industry analysts to triple again, to $18 billion, by 2010…Never mind the mystifying economics of it, how a $20 tube of lipstick wouldn’t seem to make sense as a mass-market proposition in a country where average salaries have only just now hit $200 a month.

Here is the full story.

Women will compete for male attention most intensely when it matters what is to be won. So the naive Darwinian economist would expect make-up to be most popular in countries with high income inequality and few social barriers. Russia fits both descriptions. Since many poor Russian women receive an excellent education, they can at least hope to marry well if they catch male attention.

Western Europe has lower rates of income inequality and women there wear less make-up. In Brazil, and Latin America more generally, women take special care with their appearances. This is not a general theory, just some scattered observations on a small number of variables.