Month: July 2004

Dumb Delta

E-Loan offers customers a choice of processing their loan paperwork in 12 days using all-domestic workers or 10 days by bringing on some workers in India, 85 percent choose the quicker turnaround.

Delta is now considering something “similar,” charging a fee to have calls handled by U.S. agents. What genius came up with this? You don’t need to be a behavioral economist to predict that framing the deal this way just won’t fly. Instead, offer your customers a new option; lower prices if they choose to use overseas agents. Or, as Gary Leff suggests, offer the customers shorter wait times. “All our US agents are busy right now, would you like to be directed to an overseas agent for immediate service?”

How did Scotland grow so quickly?

Scotland had been an economic backwater at the time of the 1707 union with England. By 1770 at least the Scottish cities were among the most developed and intellectually advanced parts of Europe. How could this happen?

Arthur Herman supplies at least one piece of the puzzle:

…the fact that Scotland was very much the junior partner in this union also turned out to be an advantage. The new Parliament largely ignored Scotland; outbursts such as the malt riots and the threat of Jacobitism apart, the government in London paid little attention to what was happening north of the border. Scots ended up with the best of both worlds: peace and order from a strong administrative state, but freedom to develop and innovate without undue interference from those who controlled it. Over the next century, Scots would learn to rely on their own resources and ingenuity far more than their southern neighbors would…

A strong government that leaves well enough alone: this was the dual, seemingly contradictory, nature of the British state as it became part of life in post-union Scotland. Scots became used to these dualities, and learned to accept them as basic reality, just as the Union itself involved a fundamental duality: “a ship of state with a double-bottomed hull,” as Jonathan Swift put it. They also learned to think in a new way as a result of the Union: in terms of the long term.

Many economic development problems today stem from a similar conundrum. Ideally we would like a state that is both strong and not too large. Most parts of the world are unable to institute this duality; of course Hong Kong was a notable exception. I am not in general an imperialist, but the most successful instances of imperialism are likely to be highly successful indeed.

Monkey see, monkey do

Chimpanzees yawn in response to seeing other chimps yawn, reveals a new study. The discovery bolsters the idea that chimps are able to understand their own and others’ state of mind.

There is more:

In research on people, those subjects that perform contagious yawning also recognise images of their own faces and are better at inferring what other people are thinking from their faces. What is more, brain imaging studies have shown that people watching others yawning have more activity in parts of the brain associated with self-information processing.

“Our data suggest that contagious yawning is a by-product of the ability to conceive of yourself and to use your experience to make inferences about comparable experiences and mental states in others,” Gallup told New Scientist.

Here is the full story. And did you know that some monkeys (and some people) yawn to show annoyance?

Addendum: Read Clay Shirky on the same evidence. Note that monkeys also can recognize unfairness.

Universal domain in Scotland

TC to Glasgow cabbie: “What kinds of food do they eat up in the Northern Highlands?”

Cabbie: “Fish n’ chips, haggis, burgers…they’ve got everything.”

The scenery, of course, is lovely up here. The Orkney islands, my current location, have a distinctive feel, in some ways more akin to Norway than to Scotland.

The biggest surprise? So far we have experienced no more than fifteen minutes of rain.

The Movie Review Index Fund

Index funds are one of the most important practical spin-offs of academic economics. If fund managers are unable, on average, to beat the market index, why not just buy-and-hold the market index, saving transactions costs? Millions of people have profited from this insight.

If you like movies, an analogous tool is available at Instead of posting a review of a new movie, tabulates ALL the reviews of ALL the new movies, and archives them forever. I have used this tool for a couple years, and find that – unlike individual reviewers – this “index fund” of reviewers is amazingly informative. For example, based on today’s post, I’m going to try to talk my wife out of seeing The Village and into seeing The Manchurian Candidate. (Aside: If you haven’t seen the original, you must!)

Good as this index fund is, I do have three caveats:

1. Comedies are systematically under-rated. If half of a comedy’s reviews are positive or mixed, it is probably worth seeing.

2. If any review contains the words “measured pacing,” the movie is probably over-rated. I’d only go if the reviews are 80% positive.

3. Contrary to popular stereotypes, action movies are not graded more harshly. Lots of action movies get great reviews. The Bourne Supremacy, for instance, got 11 positive, 0 mixed, 1 negative.

Gratitude Journals and Loewenstein’s Challenge

Background: George Loewenstein is one of the leading figures in Economics and Psychology.

While walking in Pittsburgh one afternoon, Loewenstein tells me that he doesn’t see how anybody could study happiness and not find himself leaning left politically; the data make it all too clear that boosting the living standards of those already comfortable, such as through lower taxes, does little to improve their levels of well-being, whereas raising the living standards of the impoverished makes an enormous difference. (full story)

Of course, you don’t need Loewenstein to make this point. You could just listen to my favorite song by Johnny Cash, featured in the so-good-it-hurts soundtrack for Kill Bill, Volume 2:

How many times have
You heard someone say
If I had his money
I could do things my way

But little they know
That it’s so hard to find
One rich man in ten
With a satisfied mind

Money can’t buy back
Your youth when you’re old
Or a friend when you’re lonely
Or a love that’s grown cold

The wealthiest person
Is a pauper at times
Compared to the man
With a satisfied mind

The answer to Loewenstein’s challenge can be found in the growing psychological literature on gratitude. Several interesting experiments (like this one) ask subjects to keep a “gratitude journal.” Main idea: Every day, write down things you are grateful for. Depending on the experiment, control groups either do nothing, or keep an “ingratitude” diary, or write down a random childhood memory. The main finding is that keeping a gratitude journal makes people happier than the other treatments.

So what? Almost all redistributive rhetoric urges people to dwell on the negative – you or other people aren’t getting what is due. This in turn makes people want to “do something” about the problem. And you can rest assured that no matter how much redistribution there is, egalitarians will never say “OK, life’s fair now. We’re done complaining.” No, what they foster is literally a lifestyle of ingratitude – a recipe for unhappiness.

If we really want to make people happier, we would do almost the opposite. Tell people to be grateful for what the market gives them, and try to emulate more successful people instead of envying them. Children hear this all the time, and it is damn good advice. Adults should practice what they preach.

Paul Krugman, Guilty Pleasure

There are lots of good reasons to be annoyed with Paul Krugman. (Like here, here, and here). But as a cock-eyed optimist, I’m very happy to have him around. Think about it: The world’s most famous left-wing economist:

1. Blames European unemployment on labor market regulations that hold wages above the market-clearing level. (The Accidental Theorist, Part 1)

2. Publicly and articulately advocates free trade without hemming or hawing. (Pop Internationalism)

3. Identifies anti-globalization activists as the enemies of the world’s poor. (The Accidental Theorist, Part 3)

4. Titles an essay “In Praise of Cheap Labor: Bad Jobs at Bad Wages Are Better than No Jobs at All” (The Accidental Theorist, Part 3)

5. Points out that if you oppose Big Government, you should favor cutting Social Security, Medicare, and other popular programs. (“The Lost Fig Leaf”) Sure, he’s hoping to scare us away from libertarian rhetoric, but there’s no use running away from the truth.

Yes, he’s been slipping. And it’s tiring to hear an economist so much more successful than me prattling about equality! I don’t begrudge you your publications, Paul, why can’t you let Bill Gates, Monty Burns, and Scrooge McDuck count their billions in peace?

Still, I can’t imagine Paul Samuelson doing any of the above, much less Galbraith. At least in economics, the intellectual climate hasn’t been as good as it is now for a century.

Is more Congressional oversight good?

The bipartisan committee on terrorism has argued that Congress did not exercise sufficient oversight of the CIA and other intelligence agencies. For a pithy analysis read Daniel Drezner here and here.

More oversight will make the intelligence agencies, however they are structured, more risk-averse. The President or Congress will peep in every now and then, and the agencies will scurry to respond to the emergency of the day. They will work harder not to look bad. This is hardly the best way to encourage imaginative, long-run thinking in defense of our nation.

Excess risk-aversion already happened with Iraqi WMD. One CIA analyst noted: You have to understand,” he said. “We missed the Indian and Pakistani nuclear tests last spring. We’re under a lot of pressure not to miss anything else.”

Now you might think that risk-aversion in intelligence is a good thing. Should we not take all possible care to protect America against foreign threats? But bureaucratic risk-aversion is not the same as a secure national defense. It brings groupthink, excess formalism, protecting against yesterday’s threat, and an unwillingness to take responsibility for mistakes. Furthermore it can make effective pre-emption virtually impossible; decisionmakers and their allies will no longer trust their intelligence communities.

Rather than making intelligence agencies more accountable, how about making them more independent? Create some small, elite groups and staff them with the best people we can find. Pay them well. Give them arsm-length protection from political pressures. Treat them like the Federal Reserve, an independent agency renowned for the quality of its staff. Give them a culture of internal pride. Richard Clarke reminds us that: “It is no accident that the only intelligence agency that got it right on Iraqi weapons of mass destruction was the Bureau of Intelligence and Research at the State Department – a small, elite group of analysts encouraged to be independent thinkers rather than spies or policy makers.”

Sometimes the way to get what you want involves less control, not more control.

Should we ban the peanut?

I have to point out that many common foods — the peanut is a good example — couldn’t pass the screening of GMOs [genetically modified organisms] in the United States.

That is from James Trefil’s illuminating generalist tract Human Nature: A Blueprint for Managing the Earth — By People, For People. Trefil argues that better science will prove the most effective way to save our planet from environmental disaster. He is an unabashed fan of ecological management and is skeptical about the idea of pristine wilderness. How about this?:

The real advance in genetic modification…[will come] from a second wave of plants already being developed. One example of this new wave is what are called neutraceuticals [nutraceuticals]. These are food plans that have been engineered to produce molecules that are specifically beneficial to humans. You can imagine, for example, a banana whose DNA has been modified so that it produces the recommended daily allowance of vitamins. Once such trees are planted, they would continue to produce the vitamins without any further intervention…

We can even imagine a banana that would provide protection from cholera or other diseases. Golden Rice already has the potential to alleviate vitamin A deficiencies; read an update here.

Nerd Pride

The word “nerd” appears to have been coined in 1950 by none other than Dr. Seuss. From the webpage of Eric Raymond:

nerd: n.

1. [mainstream slang] Pejorative applied to anyone with an above-average IQ and few gifts at small talk and ordinary social rituals.

2. [jargon] Term of praise applied (in conscious ironic reference to sense 1) to someone who knows what’s really important and interesting and doesn’t care to be distracted by trivial chatter and silly status games. Compare geek.

The word itself appears to derive from the lines “And then, just to show them, I’ll sail to Ka-Troo / And Bring Back an It-Kutch, a Preep and a Proo, / A Nerkle, a Nerd, and a Seersucker, too!” in the Dr. Seuss book If I Ran the Zoo (1950)… How it developed its mainstream meaning is unclear, but sense 1 seems to have entered mass culture in the early 1970s (there are reports that in the mid-1960s it meant roughly “annoying misfit” without the connotation of intelligence.

When I was a kid, no one wanted to be a nerd. Nowadays, though, nerds are “out of the closet.” People (well, guys) are proud to be nerds. Is this just part of the nerd life cycle – unpopular at 10, proudly nerdy at 33? I very much doubt it. Nerds of my dad’s generation (like, say, my dad!) wanted to fit in with regular folks, not embrace their nerdity.

Why the change? Alex Tabarrok attributes it to the rising education premium. The ratio of nerd to non-nerd earnings has gone up, and the group’s status has risen along with it. This is probably part of the reason, but I primarily credit the Internet. Communication, not economic success, is the foundation of group identity. Lots of non-nerdy sub-cultures have profited from the free-fall in the cost of social interaction. But in contrast to most other sub-cultures, nerds are virtually 100% computer literate. The Internet has been the One Ring of nerddom.

In case you haven’t guessed, yes, I consider myself a nerd. I’m such a nerd that I worry that my sons will fail to embrace their nerd heritage. The best game show in history, Beat the Geeks, began by asking each contestant “What’s the geekiest thing about you?” I still wish I could have been a contestant just to give my response:

“I am the Dungeon Master for an all-economists’ Dungeons and Dragons game.”

Beat that, geeks!

Us and the heart of civilization

Blogging about the convention, William Saletan hits on a profound point. It’s not just Democrats, however, the framing of “us” and “them” is perennial and it’s the expansion of “us” that is at the heart of our civilization.

Obama, like other speakers at this convention, complains about “companies shipping jobs overseas” and workers “losing their union jobs at the Maytag plant that’s moving to Mexico.” At the same time, Obama holds himself out as a symbol of a diverse, welcoming America. How can Democrats be the party of diversity at home but xenophobia abroad, the party that loves Mexican-Americans but hates Maytag plants in Mexico, the party that thinks Obama’s mom deserves a job more than Obama’s dad does? I understand the politics of it. But what about the morals?

Daniel Drezner and Jean Buridan

Daniel Drezner remains on the fence, concerning the next Presidential election.

He writes about supporting Bush, Kerry, or perhaps a third party candidate (unlikely). But why should he restrict himself to “pure strategies”? Why can’t he support some candidate with some positive probability? How about, for instance, “I support Bush with p = 0.63.” Or “I support Kerry with p = 0.57”, and so on. That way we would know how strong (or weak) his current view is.

We could interpret those p’s in several ways. First, it could be Dan’s current estimate of where his final support will end up. Second, it could be a general measure of expected relative enthusiasm for the candidates.

It is not enough to make up your mind, you should also give the world some sense of your confidence in such judgments. And “Bush with p = .50000001” is a very different story than “Bush with p = .997”. (As an aside, note a potential paradox of voting. How many meta-rational voters, aware of their own fallibility, can justifiably believe that their error-prone participation will improve the final outcome?)

Then a question arises. Once you are playing around with these p’s, you don’t need to have a final point of view at hand. You will have some “p” right now.

Dan writes: “This year I can’t muster even the tiniest amount of enthusiasm for any candidate.” Fair enough, but why not give us a number?

What about me?

Alex is precluded by the Constitution, so can I go with “Dan with p = 0.73”? He is photogenic, and could handle both economics and foreign policy.

Addendum: I enjoy asking people the mischievous question “with what probability do you believe in God?” It is amazing on one hand what strong opinions people have on religion, and on the other hand how ill-prepared they are to come up with an actual number.

Markets in everything

Price a Chilean cemetary charges for an alarm built into coffins to ensure against mistaken live burial: $462

That is from Harper’s Index, in the latest issue of Harper’s. Here is a related link.

Here is some evidence on the likelihood of being buried alive.

The Italians take things further, albeit at a higher price:

In 1995 a $5,000 Italian casket equipped with call-for-help ability and survival kit went on sale. Akin to bleeping devices which alert relatives to an elderly family member’s being in trouble, this casket is equipped with a beeper which will sound a similar emergency signal. The coffins are also fitted with a two-way microphone/speaker to enable communication between the occupant and someone outside, and a kit which includes a torch, a small oxygen tank, a sensor to detect a person’s heartbeat, and even a heart stimulator.

What I would want: Satellite radio, Spenser’s The Faerie Queene, and a cell phone with a good battery.

The Eye of the Needle

“If I could have the answers to five questions in political science/sociology, the appeal of Stalinism to intellectuals would be one of them,” wrote Tyler not long ago. There are few statements, in my judgment, that shed more light on his question than the following passage from the diary of Joseph Davies, US Ambassador to the USSR from 1936-38. (His diaries were later published as Mission to Moscow).

Davies freely admitted that Stalin was guilty of massive atrocities, but admired him anyway for his good quasi-Christian intentions. I kid you not:

Both Germany and Soviet Russia are totalitarian states. Both are realistic. Both are strong and ruthless in their methods. There is one distinction, however, and that is as clear as black and white. It can be simply illustrated. If Marx, Lenin, or Stalin had been firmly grounded in the Christian faith, either Catholic or Protestant, and if by reason of that fact this communistic experiment in Russia had been projected upon this basis, it would probably be declared to be one of the greatest efforts of Christian altruism in history to translate the ideals of brotherhood and charity as preached in the gospel of Christ into a government of men… That is the difference – the communistic Soviet state could function with the Christian religion in its basic purpose to serve the brotherhood of man. It would be impossible for the Nazi state to do so. The communistic ideal is that the state may evaporate and be no longer necessary as man advances into perfect brotherhood. The Nazi ideal is the exact opposite – that the state is the supreme end of all. (Journal entry, July 7, 1941)

This all makes me very glad that Liberation Theology did not come along earlier. A Christian Marxism would have fared far better with the common man.

On the Contradictions of the People

Larry Bartels has gotten national attention for his work on Bush’s income tax cut, inheritance tax cut, and public opinion. (Here is the full article; here is the digest version; here is what Alex Tabarrok had to say about Bartels). Bartels’ main point is that public opinion verges on contradictory: the public believes that inequality has gone up, agrees that inequality is bad, agrees that the rich should pay more taxes, BUT still supports two tax cuts that mostly benefit the rich.

Bartels is right, although since I belong to the tiny minority of people who favors however much inequality the free market delivers, for once I have to celebrate the public’s folly.

What Bartels does not seem to realize, however, is that the contradiction he laments is only one of many. Here are a few more:

1. Spending. The public wants less total government spending. In the 1996 General Social Survey, for example, here were the public’s views on cutting government spending:

Strongly in Favor of 40%
In Favor of 41%
Neither in Favor nor Against 10%
Against 4%
Strongly Against 2%
Don’t Know/No Answer 3%

However, the public also opposes cuts in virtually every kind of government spending except for foreign aid! Browse any of the numbers at the GSS webpage by clicking on “subject,” then “spending.”

2. Regulation. The public leans strongly toward less government regulation of business. From the 1996 GSS:

Strongly in Favor of 15%
In Favor of 33%
Neither in Favor nor Against 31%
Against 14%
Strongly Against 3%
Don’t Know/No Answer 3%

But the public is favorable toward virtually all particular forms of regulation. Browse any of the numbers at the GSS webpage by clicking on “subject,” then “economy.”

3. Welfare. 64% believe we spend too much on welfare, according to the excellent National Survey of Public Knowledge of Welfare Reform and the Federal Budget. But only 26% are willing to actually enforce a 2-year limit if welfare recipients would have to take a “low wage that would make it difficult to support a family.” Just 16% favor cutting off benefits to a person who is “unable to get a job” (whatever that means).

Since low-wage jobs are the only ones that former welfare recipients are likely to get (and who should do low-wage jobs, if not former welfare recipients?!), the public is in a quandary. It wants to spend less, but as a practical matter is unwilling to kick anyone off the rolls. In fact, the public heavily favors not only job training, but guaranteed government jobs/community service when the deadline runs out. Yea, that’ll save a lot of money.

The big lesson is that public opinion is not just wrong, but downright silly. On balance, the leftists who hate the Bush tax cuts should be thankful. If the public started being logical, we could easily see spending cuts, deregulation, and American citizens “forced” to take the “demeaning” jobs currently done by illegal immigrants. As Eric Cartman would say, “Sweeeeeeet!”