Month: July 2004
Markets in everything?
I cannot verify this one, but it popped up in this week’s News of the Weird:
China Daily reported in May that businessman Hu Xilm, who claims that a housefly in food 10 years ago ruined a big business deal for him, has since spent thousands of dollars on an obsession to eliminate as many flies as he can; with help from a team of volunteers he recruited, he claims to have killed 8 million.
My question: What does it cost to kill eight million flies? [And should it be a labor-intensive activity? Should it in fact be outsourced to China? Were the “volunteers” acting out of charitable motives?] If I knew the true cost, I would hold a lottery among MR readers, with a big prize for the winner.
Has the real standard of living fallen for the poor?
Don’t look at wage data, look at consumption data. The ever-wise Arnold Kling summarizes some of the evidence. For instance in 1970 only 45 percent of all households had a dryer. As of 2001 45 percent of poor households had a dryer. Three-quarters of poor households had a microwave oven, again circa 2001.
Kling writes:
Given these statistics, what explains the fact that, adjusted for inflation, the pay of the lowest-wage workers has not increased much over the past thirty years? There are a number of factors involved, but I suspect that the largest component of the explanation is a shift in the composition of the low-wage work force. In the 1970’s, many of the people at the bottom of the wage scale were heads of households. Today, many low-wage workers are providing second or third incomes to families.
The important point to bear in mind is that “the bottom fifth of the wage distribution” does not represent some permanent group of people. Instead, it signifies the earnings of workers who at that time have the lowest levels of skills and experience. My college-age daughters, doing temporary clerical work, are in the bottom fifth. But even if the income of the bottom fifth were to stagnate over the next twenty years, my daughters will earn higher incomes as they acquire valuable knowledge.
Read the whole thing, as they say.
Addendum: Here is another Kling post on productivity; it also has links to excellent pieces by DeLong and Postrel.
Minimum wage update
Eric Rasmusen offers an update on recent minimum wage controversies in the blogosphere; you’ll find the relevant links in his post, including to my own views.
Why did we become the world’s policeman?
The ever-effervescent Jane Galt poses this obvious yet profound question:
…why did we agree to be the world/s policeman? The rest of the developed world essentially opted out of military development in favour of building their welfare states–why didn’t we? After all, we were perhaps the country least threatened by the Soviet Union.
I don’t think the standard imperialist answer holds. Sure, we have done some unsavoury things in order to promote our country’s economic interest, but shockingly fewer such things than any other country I can think of. The US has generally pursued its imperialistic expeditions in ways that are fairly altruistic — either ideological, or in pursuit of broadly stabilising actions such as trying to keep the Middle East fairly peaceful so that oil continues to flow, an action that benefits anpetrological countries far more than the US. Why did we take on the superpower project, and why didn’t we exploit our role as much as we could have?
My take: Even if the rest of the world hates us (debatable, in my view, but let’s say), being the world’s policeman is high status in American eyes. On top of that, most American leaders, and most ordinary Americans, think it is the proverbial “right thing to do,” and think that we do a relatively good job of it. Plus we get some economic benefits, such being able to bribe or bully people to open up their markets or buy our Treasury securities. When relative status, perceptions of right and wrong, and (some) economic self-interests all push in the same direction, the mix is potent. For the clincher, people have strong psychological tendencies to want to feel “in control.” Many people fear flying so much, precisely because they feel they have no control over the risk. Forget about the world, some people even try to control their teenagers, how is that for a laugh?
Or you might pose another, simpler question. How many Presidents run for a second term? Almost all of them. It’s not good for their income, and arguably it is not even good for their happiness. Most look like hell when they leave office. But they like being in control.
The bottom line? Whether you like it or not, America is not going to give up this policeman role anytime soon.
Who are Kerry’s economic advisors?
On economic policy…a core group of four once held the key to the policy process: Bianchi, campaign economic aide Jason Furman, investment banker Roger C. Altman and Gene Sperling, former top economic adviser in Bill Clinton’s White House.
Now, things are more complicated. Three more economists — London Business School Dean Laura D’Andrea Tyson, Princeton University’s Alan S. Blinder and the Brookings Institution’s Peter R. Orszag — are consulted on virtually every policy decision. Former Treasury secretary Robert E. Rubin also weighs in on major policy pronouncements.
Another circle, including Akerlof, University of California at Berkeley economist Alan J. Auerbach, Princeton’s Cecilia E. Rouse, and Harvard University labor economist Lawrence F. Katz, advises on specific issues.
A separate “New York group” — including investment bankers Eric Mindich, Blair Effron and Steven Rattner — tutors Kerry on matters of domestic and international finance, while helping to raise money and woo business support.
This spring, when Kerry was pushed to put policy flesh on his political rhetoric about “Benedict Arnold CEOs” and jobs moving abroad, it took weeks and “innumerable meetings” to formulate a proposal, said one of the participants.
Whew!
And how about this?
George A. Akerlof, a Nobel prize-winning economist and Kerry adviser, recently became so agitated about what he considered Kerry’s muddled campaign message that he crafted an entire speech for him, straying far from his economic expertise to pit what he calls the Democratic Party’s moral view of human nature against the sinister forces that Republicans see driving humanity. The campaign politely declined.
“I thought it would be useful to see if I could write a speech,” the University of California at Berkeley economist mused. “It was just in me.”
Compare Akerlof’s feelings to this claim:
“The mark of too many cooks would be drift,” said Lael Brainard, a Kerry adviser and international economist at the Brookings Institution. “I don’t see drift. I see decisions. That leads me to believe the big tent is bringing in a broad range of opinions and is bringing about well-crafted decisions.”
If that’s not enough for you, here is the full story.
My take: It is nice to see so many smart people involved. That being said, what can we really expect from such a complex and unwieldy policy process? If you fear, as I do, that Kerry might bring too much government, this is definitely good news.
Alas, the Law Conkers All
As a child, I lived in England for a year. There I learned to play the ancient and venerable game of conkers. A conker is the seed of a horse chestnut tree tied to a string. The basic rules of the game are elementary. The receiver dangles his conker steadily while the striker attempts to strike his opponent’s conker as hard as possible. A hit results in another turn for the striker; with a miss play passes to the receiver. As you might imagine, the striker sometimes misses so holding your own conker steadily in the face of a whizzing “sixer” can take some courage. Fingers may be bruised.
Sadly for young Britons, the playing of conkers is being banned by British schools under an onslaught of American-like lawsuits. Some say the lawsuits are brought on by the legalization in 2000 of contingent fees for lawyers. Others point to a long-term decline in the tradition of the stiff upper-lip.
In either case, it’s miserable. What’s next? Will young teens no longer be able to enjoy a shandy at the local pub?
Teaching with blogs
That’s right, make your students write a blog. I suggested this idea some time ago, now David Tufte has tried it. Here is the result. Keep in mind they are undergraduates. Here is one cynical but not totally inaccurate post about “bad economists.”
The advantages of this teaching method? People tend to remember and care about what they write. And getting students to write regular short bits is probably better than giving them a procrastination-inducing longer paper.
The disadvantages? There are not enough constraints on blather and fallacious reasoning. And perhaps the students decide that whatever they wrote is in fact true, a kind of lock-in bias. [Not that we professional bloggers ever have this problem…]
Here is Tufte’s own blog, and he directs my attention to this post. It is reported that only ten percent of published Journal of Money, Credit, and Banking papers can be replicated by outside parties.
Is economics a science? Yes, but let’s keep in mind that being a science, taken alone, doesn’t get you very far.
Robin Hanson tells me this will be huge
There’s a big advantage that you missed, btw. Check out, for example, the “gnu radio” open source software radio project. Then consider this: the FCC can pass any rule that it likes saying you can’t copy digital television off the air or what have you, but anyone who decodes HDTV with a software defined radio (SDR) can just change the software to ignore the desires of the regulators, and open source SDRs are already here. This is yet another instance where general purpose computers make regulation very difficult.
Really, though, SDR isn’t that interesting until it is coupled with another major advance that is creeping up — phased array active antenna technologies. These have the capacity to literally make the amount of bandwidth available in radio unlimited. I do not use the word “literally” figuratively here — I mean “literally”. With phased arrays, you and I can broadcast as much as we want on exactly the same frequency, and so long as we’re slightly spatially separated no one will care.
Consider the way radio works now. Two stations can’t be broadcasting at the same frequency unless they are so far apart that receivers can only hear one of them at a time. Bring them too close together and the
primitive sensors we use for electromagnetic radiation will get both signals and become confused.
Now consider the situation with another sort of electromagnetic sensor — the human eye. There is no rule that says you and your friend can’t wear the same color shirt in the same room for fear that people will
be unable to distinguish the two of you. The eye has no trouble seeing multiple sources of the same electromagnetic frequency and distinguishing them. You can easily focus on any one of several sources of the same electromagnetic frequency even though you are receiving others.
What’s the difference between your eye and your FM radio? Entirely that your eye is directionally sensitive and the radio is not. The radio has much the same view of the world that a non-directional photocell with a color filter would have — it can tell that a particular frequency has arrived but not from where and it can’t distinguish multiple signals directionally. Imagine if you had to see the world that way.
Well, as it turns out, you don’t have to see the world that way. There’s a technology out there (the details aren’t important) called “phased arrays” that allows you to broadcast a signal very directionally (like shining a light at one and only one person) or to focus very directionally on a single signal (so that you can listen to
one FM broadcast on 99.5 and not hear another originating one mile away at the exact same frequency.)
This is not a theoretical technology — it has been in use in military radar systems (such as the one used on the very expensive Aegis ships the navy has) for decades. However, it depends on doing very complicated signal correlations, and until now that has been very expensive. However, if you do the work in software, it turns out to be pretty straightforward and the expense falls by 50% every year.
There are already companies playing this game — look at Vivato (www.vivato.com) for example, which is making phased array WiFi equipment.
With phased arrays, there’s no reason why everyone can’t be using the same spectrum at once. Couple phased arrays, spread spectrum (a modern technology for reducing interference) and SDR and suddenly the way we use radio today looks totally silly.
Bartering the Big Kahuna?
For reasons mostly involving ego, Shaq and Kobe no longer wish to play together. The economic question is why two superstars can’t seem to get along on the same team. L.A., arguably America’s largest sports market, is the value-maximizing place to play ball, but pride, envy, and relative status seem to have won out.
And what would the Lakers get? Butler, a small forward/guard, can start on most teams in the NBA. Odom and Grant give them a plausible front line. The idea is that Kobe and Odom will be the new Jordan and Pippen. Unlikely, but the Dallas Mavericks were not offering anyone who could play defense.
Shaq is 32, has played twelve seasons (mostly long and tough), and no longer has stellar games on a back-to-back basis without a few days’ rest. He doesn’t try very hard throughout most of the regular season, which is poison for team morale, and he is on the verge of being a defensive liability. Miami may make the Eastern finals, but if the Lakers can’t get through Detroit I bet Miami won’t either. Miami already made the second round of the playoffs this year. In two years what will they have left?
The Lakers would be taking on risks too. If Odom is caught smoking pot again, he has to sit out an entire year. And how about this bit?
“Even though his scoring average dropped from 15.2 to 9.2 points last season, [Caron] Butler has great potential.
Butler also has a checkered past, being arrested 15 times before age 15. He spent a year in jail for bringing a gun and cocaine to school.”
Here is the analysis of the ever-smart Marty Burns on the pending deal. Tony Kornheiser agrees.
The bottom line? This would be one of the biggest deals in NBA history. But oddly neither team is giving up or getting very much.
And oh yes, this guy could stop the deal.
Miracles are Everywhere?
In the course of any normal person’s life, miracles happen at a rate of roughly one per month…during the time that we are awake and actively engaged in living our lives, roughly for eight hours each day, we see and hear things happening at a rate of about one per second. So the total number of events that happen to us is about thirty thousand per day, or about a million per month. With few exceptions, these events are not miracles because they are insignificant. The chance of a miracle is about one per million events. Therefore we should expect about one miracle to happen, on the average, every month.
Got that? That’s one miracle a month.
So next time something extraordinary happens to you, keep this calculation in mind.
What About Me? I feel cheated. I had a great last month, but no miracle. No miracle the month before that either. I’m not sure I’ve ever had a miracle of this kind. According to this calculation, my history of no miracles is a miracle in and of itself. Now I feel better.
The information is from the August Scientific American, p.32, quoting Freeman Dyson; pick it up if you can, it is one of their best issues this year.
Addendum: Charles Martin points out that a miracle is relative to what you expect. The exact time I arrived at the office this morning was no miracle, although that particular time was extremely unlikely ex ante. So you can eliminate miracles from your life simply by expecting a wide class of possible events. You can increase your number of “miracles” by expecting some very specific outcomes.
Investment advice
Brad DeLong gives a correspondent some good investment advice. Here is the entry in full.
I don’t think I’m qualified to give investment advice, so I don’t. But if I did think I were qualified to give advice, I would say:
1. Large house–a bit larger than you think normal–financed by a fixed-rate mortgage. (Unless you are in New York, DC, SF, or LA, where things are weird right now.)
2. 401Ks–as much money as you can put into them and other tax-shielded vehicles.
3. Additional savings–automatic, and a few steps more than you are comfortable with: the future if very uncertain, and there may well come a point where you will want to have more money than you thought you might possibly need.
4. Vanguard, I say. Put your money in one of the equity-heavy Vanguard index funds, one that places a large share of its assets overseas. Vanguard’s fees are very low. You get all the risk-reducing benefits of diversification, and you get a high expected return. You can do better only if you are a professional investor–and only then if you are in the top fifth of professional investors.
5. For intellectual background… start with Burton Malkiel’s Random Walk Down Wall Street and Benjamin Graham’s The Intelligent Investor. For something more amusing, try Adam Smith [George Goodman’s] The Money Game. For something heavier, try Graham and Dodd’s Security Analysis.
My two bits: The reason for the house is that it is a forced savings plan with tax advantages. An obvious point but one overlooked by many (but not MR readers, I suspect) is that if your firm offers any kind of investment matching you must, must, must invest at least as much as the matching amount. Yes on Vanguard – Brad, in fact, is being generous to professional money managers (see here, for example). In addition to Malkiel’s A Random Walk Down Wall Street, I recommend Taleb’s Fooled by Randomness. Read these books so you will have the courage not to do dumb things.
Living on Pennies
Here is a heart-breaking series of stories about living in poverty in the third world. The Congo is so poor there are no jobs just “se debrouiller – French for getting by, or eking a living out of nothing.” Sweatshops in these countries would be a blessing but corruption, war and violence keep foreign investment away.
Even the corruption, however, is sadly understandable. The government has no money and so pays its workers with the opportunity to take bribes. And thus the country is trapped. The corruption tax prevents the people from starting businesses and accumulating capital, corruption can’t be fought without funds to pay workers but there are no funds because corruption prevents the earning of income.
But even a society living on the edge needs civil servants. Men with government seals, such as Pancrace Rwiyereka, a grandfatherly former schoolteacher who runs Goma’s Division of Work, engage in their own version of se debrouiller.
They don’t bring home an actual salary, but the majority still show up for work every day. A government job gives them the opportunity to demand money from businesses and members of the public. Their official jobs are a charade.
“Bribes are the answer,” said a mid-level government employee in the finance department. “Why do you think we would never give up our jobs or strike to get our salaries?”
Authorities require entrepreneurs importing goods to obtain stamps from at least six agencies: the main customs office, an immigration office, a health agency, a separate health office that certifies goods for consumption, the governor’s tax revenue office and a provincial office that collects money from truckers for nonexistent road rehabilitation.
Thanks to Marc Andreessen for the pointer.
What are the most expensive pieces of real estate?
Currently on the market, that is. Here is the list, along with a separate tally of top “equestrian properties.” Oddly there is only one of the homes that I would prefer to my current (modest) abode in Fairfax, Virginia. I simply do not wish to live in Aspen, Palm Springs, Palm Beach, or Long Island, no matter how luxurious the quarters. If I had billions, I would buy in New York, Los Angeles, Freiburg, and Mexico, and otherwise opt for hotels.
You may notice that the post is from a new and intriguing economics blog, CommonKnowledge.blogs.com, run by two graduate students out of our own George Mason.
Gordon Tullock triumphant
My colleague Gordon Tullock, along with Thomas Schelling, is one of the most deserving scholars never to have received a Nobel Prize [Ed Prescott and Eugene Fama are also obviously deserving, though they are much younger].
A new Liberty Fund series may help rectify this injustice. In ten cheap volumes ($12.00 for the first, 450 pp.) we will receive the greatest hits of Tullock. The first book, just published, presents Tullock’s best essays, including his classic article on rent-seeking behavior; read this summary as well.
Gordon’s degree is in law, many of his formative experiences were in post-WWII China (some say he was a spy), and he took only a single economics class, from Henry Simons at Chicago. Nonetheless Gordon is an economist to the core and full of intellectual surprises.
Gordon is best-known for his co-authorship of Calculus of Consent, which set the foundation for how economists think about voting rules and “politics as exchange.” But I think as much about his lesser-known contributions. He wrote early works on the economics of scientific organization, the economics of trials, and the economics of animal societies, including insects. These works have yet to be mined for their full insights. His Politics of Bureaucracy remains a classic.
Gordon is very much a systematic thinker, although he is oddly reluctant to admit this fact. I take his central insight to be the importance of law, but also that real laws are given by economic incentives, rather than by what is on the books. Here is Gordon’s 46-page vita, with a brief written introduction.
Kudos to Charles Rowley for having edited the volumes, and here is a more general link to the Liberty Fund publishing program.
The greatest poet of the twentieth century?
I don’t think it is crazy to pick the late Pablo Neruda, whose one hundredth birthday is today. (Yeats or Wallace Stevens are serious competition, however. Not to mention Rilke, who is probably my first choice…) Read this appreciation. Here are three poems in English, but no most poetry doesn’t translate well. Here is a (much better) concordance of poems in Spanish.
But why did so many artists love Stalin?
Neruda had become an ardent communist. Over the years he wrote a lot of sincerely felt, but otherwise weak, didactic poems denouncing Western imperialism. His strident praise for the Communist Party seems at best naive, and his admiration for Stalin, whom he never disavowed, can be hard to stomach. Such figures as Octavio Paz and Czeslaw Milosz broke with him over communism. In his Memoirs, completed just a few days before his death, he called himself “an anarchoid,” and that seems closer to the truth. “I do whatever I like,” he said.
Nonetheless, Neruda’s social and political commitments were crucial to his life and work. He was elected senator for the Communist Party in Chile in 1945. He campaigned for Gabriel González Videla, who became president the next year — and whose government then outlawed the Communist Party. Neruda denounced him, and in 1948 he was accused of disloyalty and declared a dangerous agitator. After a warrant for his arrest was issued, he went into hiding in Chile, then fled to Argentina and traveled to Italy, France, the Soviet Union and Asia. (His brief stay on the island of Capri during his exile was fictionalized in the touching film “Il Postino.”)
If I could have the answers to five questions in political science/sociology, the appeal of Stalinism to intellectuals would be one of them.
Addendum: Tom Myers notes that it is also the hundredth birthday of Deng Xao-Ping, here is a full list of famous July 12 babies.