Month: August 2004

The Bush vision for term two

The Bush team apparently has announced its economic priorities for a second term. The general vision speaks of an “ownership society,” here is one sketchy summary. Partial social security privatization stands at the center of the plan. Brad DeLong wonders where the money will come from. Rather than pursuing this issue, I have wondered what the vision should look like. Here are a few ideas:

1. Eliminate all farm subsidies, tariffs, quotas and price supports.

2. Tell Western Europe it is paying for its own defense from now on.

3. Admit that the Medicare drug prescription bill was a mistake. Repeal it, and consider a revenue-neutral benefit that does not discriminate against prescription drugs. Introduce means-testing for Medicare to stop that program from bankrupting us. I would rather cut this benefit than repeal the tax cuts [tax shifts, correctly, though spending discipline could turn them into real tax cuts.] The long-run benefits of greater capital accumulation remain significant.

4. Negotiate bilateral free trade agreements as rapidly as possible. Start with Japan, the second largest economy in the world.

5. Strengthen America’s commitment to science. This will have implications for educational policy, immigration policy, and regulatory policy. Don’t restrict stem cell research. Hope that science comes up with affordable and politically sustainable solutions for global warming and clean energy independence. You might have libertarian objections to science subsidies, but the realistic alternative today is more government intervention.

6. Strengthen early warning systems against infectious diseases. Increase research into cures, vaccines, immunity, and the like. We don’t want the world to lose fifty million people to avian flu or some other malady.

7. Take in more immigrants, but demand higher levels of skills and education. At the very least, take in any revenue-positive immigrant.

8. Abolish the Department of Education.

9. Abolish the Department of Energy.

10. Repeal all corporate welfare.

11. Repeal the corporate income tax. Repeal the Alternative Minimum Tax. Admittedly these are “ifs,” depending on fiscal considerations.

12. Get on TV and tell the nation that a free economy is a critical source of our strength. Tell them you mean it, and then mean it. Economic growth is the greatest long-run gift we can give to the world.

What I liked about Bush, way back when, was that he seemed willing to talk tough truths and then follow through. Where has that gone?

What are the most expensive pets?

In the United States, that is:

1. White Lion Cubs – $138,000

2. Chimpanzee – $60,000 – $65,000

3. Lavender Albino Ball Python – $40,000

4. Striped Ball Python – $20,000

5. Reticulated Albino Type II Tiger Python – $15,000

6. DeBrazza’s Monkey – $10,000

7. Tonka Monkey (Baby Female) – $10,000

8. Hyacinth Macaws – $6,500 – $12,000

9. Savannah Cat – $4,000 – $10,000

10. Mona Guenon – $6,000

11. Chinese Crested Hairless Puppy – $4,000 – $5,000

12. Squirrel Monkey – $4,000

13. Snow Macaque – $3,500

14. Bengal Cat – $800 – $3,000

Here is the Forbes story, hat tip to

Royal Purple

Why was purple considered the royal color? The answer lies in economics not in aesthetics. Purple is rare in nature. A Toga’s worth of Tyrian purple die, about 1.5 grams, required the beating, drying and extracting of mucus from the hypobranchial gland of some twelve thousand Murex mollusks.

Legend credits its discovery to Herakles, or rather to his dog, whose mouth was stained purple from chewing on snails along the Levantine coast. King Phoenix received a purple-dyed robe from Herakles and decreed the rulers of Phoenicia should wear this color as a royal symbol.

The practice was later adopted by the Romans; to wear purple, therefore, was to show off your great wealth. Purple is an interesting example of a snob or Veblen good because it is clear that if purple had not been expensive it would not have been greatly desired. Indeed, do we see any great demand for purple today? If purple paint were say 25 or 50% more expensive then people would switch to substitutes but make it 500 or 1000 times as expensive and it becomes a fashion statement.

The quote is from here, more information than you would ever want to know about Tyrian purple is here.

The German earthquake, a continuing series…

A taboo in German higher education may soon be broken: Politicians of all parties are bracing for the possibility that German students will have to pay fees for their university studies for the first time since tuition was abolished in 1969.

Don’t expect large fees, but sense is being brought to Europe’s center slowly but surely. You can bet on the “slowly” most of all.

Here is the full story. Here is the last MR installment on German reforms.

Is American television taking over the world?

No, quite simply:

European broadcasters are meeting their legal targets for showing European programs, according to European Commission figures… The research from the commission, the European Union’s executive authority, indicates that, on average, two-thirds of the programs shown on European television are made in Europe, which is safely above the 50% minimum level set by the European Union’s Television Without Frontiers directive [TC: how’s that for an oxymoron, a protectionist directive that speaks of doing away with frontiers?]. The figures for 2001 and 2002 cover the existing 15 European Union countries at that time — the EU expanded to 25 countries in May. The proportion of European programming broadcast was 66.9% in 2001 and 66.1% in 2002.

Here is the link.

People wish to share their movie stars with global audiences more than they feel the need to share their TV stars in the same way. Hollywood movies sometimes take up to eighty percent of those same European markets. In part the large movie screen offers more room for good special effects, an area where Hollywood has a near monopoly. But the biggest single factor is demographics. Moviegoing, a social event, is the province of the young. The young are the most peer-conscious group around, and that is why the cinema occasions such charges of cultural imperialism, while TV screens are filled with local content.

What price lower insurance rates?

In two new tests, car owners will be able to let insurance companies monitor their driving via new technology in exchange for lower rates. The technology will track some combination of when, where, how far and how fast they drive, giving insurers a way to reward low-risk driving. Now just experiments, the technology might be a glimpse of the future of car insurance.

How about this?

In Minnesota, where the highway speed limit is 70 mph, drivers who go over 75 less than 0.1% of the time get an extra 5% discount. Drivers who avoid the most dangerous times – midnight to 4 a.m. on weekends – get bigger discounts than those who don’t.

Not surprisingly, one of the experiments is in Great Britain, the land of near-universal surveillance (I’m still waiting for those camera-based speeding tickets to arrive from Scotland). Insurers on both sides of the Atlantic are watching the experiment closely.

Here is the full story.

My take: I used to think that Amartya Sen’s Paretian liberal paradox had few real world implications. Now I’m not so sure.

Overall I don’t view this as a welcome development [addendum: though I don’t favor regulation]. Better monitoring and quality differentiation can make insurance markets work worse rather than better. In the limiting case, if the company could predict exactly who will have an accident, they won’t sell insurance at all. Plus my libertarian blood gives me “slippery slope” fears about this information ending up in the hands of government. Furthermore it is easy to imagine the practice becoming less voluntary over time. Yes people will drive slower but right now I’ll just say “Nein, danke.”

Addendum: Young women are rapidly becoming much worse drivers.

Strengthening competition in health care markets

Michael Porter offers some suggestions for restructuring competition in the sector:

…competition in the health care system occurs at the wrong level, over the wrong things, in the wrong geographic markets, and at the wrong time. Competition has actually been all but eliminated just where and when it is most important.

We should have more competition for service and innovation and less competition for cost-shifting:

In a healthy system, competition at the level of diseases or treatments becomes the engine of progress and reform. Improvement feeds on itself. For that process to begin, however, the locus of competition has to shift from “Who pays?” to “Who provides the best value?”

This implies some specific proposals, including the following:

1. Greater specialization of providers and facilities.

2. Large deductibles combined with medical savings accounts. But most importantly, copayments should be the same both “within the network” and “outside of the network.”

3. Transparent prices independent of group affiliation.

4. Public availability of provider track records.

5. Better risk pooling for the self-employed. And do not allow premium boosts for the sick.

6. No malpractice suits in all but extreme cases.

7. A federal mandate for minimum standards of health insurance coverage.

In Porter’s view “Attempts to limit patients’ choices or to control physicians’ behavior would end.”

My main worries: Let’s say insurers can’t get rid of people. Won’t they simply decrease the quality of service to their most costly charges? If reputational forces won’t stop insurers from unloading the sick, how will those same forces stop them from treating the sick badly? Yes transparency will be greater, but is such bad behavior today any secret? Can the federal government really regulate every margin of service?

My second worry is how all these changes will be implemented and enforced in a radically decentralized system. We might end up with more centralized control than, say, the Democrats are contemplating. That is unlikely to favor beneficial market incentives. In essence the whole proposal could amount to nationalizing the insurance industry.

Here is one short account of the proposal, with a longer version available for $5.

Grandmasters are Popperians

In no sphere of human life is self-deception punished so brutally as in chess:

…novices were more likely to convince themselves that bad moves would work out in their favour, because they focused more on the countermoves that would benefit their strategy while ignoring those that led to the downfall of their cherished hypotheses.

Conversely, masters tended to correctly predict when the eventual outcome of a move would weaken their position. “Grand masters think about what their opponents will do much more,” says Byrne. “They tend to falsify their own hypotheses.”

I enjoyed this bit:

…in reality, many people find falsification difficult. Until the latest study, scientists were the only group of experts that had been shown to use falsification. And sociological studies of scientists in action have revealed that even they spend a great deal of their time searching for results that would bolster their theories.

Here is the full story. The recent saga of Bobby Fischer indicates, however, that such fidelity to the truth is often strictly context-specific. And here is a depressing account of medical experts and possible self-deception.

I have long believed that chess players are an especially unhappy lot. If you lose, you cannot even blame it on the weather. And everyone is ranked on a common rating scale with a clearly defined dimension of winning or losing. Sad to say, but a strict meritocracy is not great fun for the majority of participants.

My first mentor starts blogging

Walter Grinder is a new blogger over at the libertarian Liberty & Power blog.

Meeting Walter at the age of thirteen was a formative moment in my life. Walter had been a friend of my father’s, and one night we had dinner together. Walter was (and remains) a polymath to top all polymaths. Meeting him hooked me on the world of ideas. I looked forward to each meeting with Walter more than anything else (hey, I was a nerd). I spent the whole time asking him what I should read and why. Walter is a longstanding friend of liberty and one of the world’s great teachers and role models.

Elsewhere in the blogosphere there is a new economics blog,, just remember that is the British spelling. And Jane Galt has started a second blog, right now she is drawing on Mark Twain for content. Here is her explanation.

Cultural diversity and copyright

These are usually considered two separate issues, but now they are moving together:

1. Countries that keep out foreign films with strict quotas, such as South Korea, encourage their citizenries to turn to piracy. South Koreans are perhaps the world’s most notorious illegal downloaders of movies.

2. Lately the French have made a big push for tough copyright enforcement. No, they are not concerned about Madonna’s royalties. Rather they believe that enforceable copyright is a prerequisite of cultural protection. They cannot keep out American culture if the medium is illegal downloads.

3. 16 million songs and one million movies are illegally downloaded in France each day, four times more than are purchased legally (see Variety magazine, July 26 issue, p.11). It is believed that Hollywood movies are the most popular downloads.

4. Given the new option of (illegal) movie downloads, Hollywood filmmakers have more to lose from quotas than before. It will lead foreign consumers to expect to receive movies for free. The foreign market now accounts for more than half of Hollywood box office revenue.

5. It is unusual to see France and the United States so closely aligned on a cultural issue — film and music copyright — albeit for different reasons.

In the United States the major artists typically scream loudest about copyright infringement. They care more about being paid than about being widely distributed. Many niche artists see downloads, legal or not, as a new way to reach audiences.

If niche artists can live with downloads, why cannot the French, who are not a popular culture juggernaut? Most likely, some of the French care more about keeping out American culture than about boosting French niche artists. Their goal is to protect a French mainstream culture, not to enable French innovation. And given these preferences, they hold the consistent albeit disagreeable position of favoring both cultural protectionism and strict copyright enforcement.

Are people becoming happier over time?

We are much richer yet in a survey format Americans do not express greater satisfaction with their lives than they did in times past. What does this mean?

Some individuals suggest that we are pursuing an excess of material goods at the expense of true joys and satisfactions. Arnold Kling offers another interpretation:

Imagine that you could go back a few hundred years and ask people if they are “very happy,” “fairly happy,” or “not happy.” Suppose that this survey showed that happiness was approximately the same back then as it is today. Would it be fair to conclude that the tangible goods that we have today contribute nothing to happiness? People a few hundred years ago had no idea what it was like to live with indoor plumbing, abundant food, and antibiotics. People today have no idea what it was like to live without them. How can a “happiness survey” provide a meaningful comparison of the two eras?

In [Robert] Frank’s view, what the surveys show is that consumers have been behaving myopically, striving for more tangible goods without increasing their happiness. An alternative hypothesis is that in answering the surveys the consumers are behaving myopically, reporting on their happiness relative to a near-term baseline. That is, when you ask a consumer in 2004 if she is happy, she instinctively makes a relative comparison to how she remembers 2003. If she could remember how she felt in 1974, and she were focused on that as a baseline, she might answer the question differently.

Happiness research can be used to account for behavioral failures to maximize utility. Most alcoholics are not happy by traditional standards yet they drink of their own volition. So we might use happiness research to suggest a higher tax on alcohol than on vaccines for children. Or happiness research tells us to get the bad news over with, rather than suffering under its expectation. Happiness research is not a suitable tool for making broad comparisons of well-being over long periods of time.

Here is a useful dialogue on happiness research and economics. Here is Bryan Caplan’s earlier post on the policy implications of happiness economics.

Addendum: Try living with 1954 technology for a mere ten days, thanks to the ever-excellent for the lead.

Decentral Intelligence Agency

I have yet to see a good argument for creating a new director of intelligence. It’s true that the intelligence agencies failed to share information. But an epi-central director of intelligence doesn’t solve that problem and may make it worse. The implicit model of the 9/11 Commission is command and control – move all the information from the roots of the tree to the top of tree and then one all-encompassing-mind will evaluate it and make the right decision. Does that model sound familiar? Sure it does, that’s the model of economic planning that is currently lying on the ash-heap of history. It’s the model that Mises and Hayek subjected to withering criticism in the socialist calculation debate of the 1930s.

In brief, consider the following two defects of the economic Czar model. First, even if the information were to make it all the way to the top it would be difficult, well nigh-impossible, for a single mind to grasp it all and make it useful. This is especially true when there are no prices and hence no way of aggregating the information into a common unit (the so-called terror market was one way of alleviating this problem). Second, information is lost as it moves up the hierarchy – it has to be because not all information is easily communicable, bandwidth isn’t infinite, and the people at the top demand information loss because as you move up the tree the amount of information becomes overwhelming.

An intelligence-Czar faces exactly the same problems. So what can be done? The intelligence agencies need tools that can spread information rapidly and widely and that are open to anyone with information whether they are at the bottom or the top of the hierarchy…Sound familiar? Yes, blogs and wikis are the right idea. And no I am not being flip. A central information repository that everyone can access may be part of the solution but centralizing information is not the same as centralizing decision making authority (remember “groupthink?” – the solution to our intelligence problems must face the problems of 9/11 and the problems of Iraq which are not the same.) Other ideas are to reward information sharing instead of hoarding – we should probably classify less information not more – and to rotate staff across bureaus in order to encourage collaboration and informal information sharing. Others more expert in this area will have more specific suggestions but my primary suggestion is that the models to follow are those of markets, webs, and networks.

Addendum: See also Tyler’s related and important discussion.

Wonder Bread

I’ve been buying this organic bread recently. I’m not a big organic guy (could you guess?) but it’s low-carb and yet doesn’t taste like cardboard. Several times, however, the bread has gone moldy within a day or two. Yuck. So I took some back to the store all indignant about how I only just bought this bread and now its moldy. The clerk explained it to me – heh, it’s organic – no preservatives, get it? Oh, that’s what preservatives do. I will never question civilization again.

Open doors and locks with your skin

Unlocking cars and activating devices securely could soon be a matter of simply touching them, thanks to a communications system that transmits data across the skin.

“We are using the body as a signal transmitter,” says CEO Peter Rosenbeck. “You simply have a transmitter, a person and a receiver.”

Rosenbeck says the system operates at just 30 nanoamperes, making it entirely safe for people to use. The code transmitted by the electric signal allows cars to be unlocked, doors opened or other devices started.

You do need to carry a credit card-sized object in your pocket. Here is the full story.