Month: September 2004

Aaron Director, 1901-2004

Aaron Director was the key figure in the formative years of Chicago antitrust analysis. Although he didn’t write much himself his thoughts were transmitted through a legion of famous students including Robert Bork (before Bork became cranky) and Richard Posner. George Stigler once said “most of Aaron’s articles have been published under the names of his colleagues.” Director also founded the very influential Journal of Law and Economics which he co-edited with Ronald Coase.

Director is Rose Friedman’s older brother. When Rose was to marry Milton he gently teased that he was not in favor because Milton was too supportive of the New Deal! Appreciations from Don Boudreaux, the Washington Post, and the University of Chicago.

Good news: your children will be slackers

The concept of discretionary time is what you have left after sleeping, eating, and a minimum of personal hygiene:

…contrary to much of public opinion, the lifetime discretionary hours spent earning a living have declined by about one-third over the past century…In 1880 four-fifths of discretionary time was spent earning a living. Today, the lion’s share (59) percent is spent doing what we like. Moreover, it appears probable that by 2040, close to 75 percent of discretionary time will be spent doing what we like, despite a further substantial increase in discretionary time due to the continuing extension of the life span.

That is from Robert Fogel’s The Escape from Hunger and Premature Death.

What is the biggest breakthrough in economics over the last fifty years?

Read the answers of some some Nobel Laureates. Milton says it is acceptance of the idea of inflation as a monetary phenomenon; Vernon Smith cites Hayek.

My answer?:

Rigorous and consistent application of the idea of incentives. This includes the public choice revolution, principal-agent theory, much of law and economics, principal-agent theory, and, I would argue, the collapse of central planning (the problems of incentives were prior and more important than those of knowledge). Yes the basic idea dates back to Adam Smith and Aristotle, but try reading the American Economic Review from 1950 and you will see how far we have come.

Compared to what?

..a New York Times survey comprising scores of detailed interviews exploring the families’ [of September 11 World Trade Center victims] emotional, physical and spiritual status. That survey found lives colored by continuing pain. Almost half still have a hard time getting a good night’s sleep. A few said they no longer flew on airplanes. About a third have changed jobs or quit. About one in five have moved since 2001, and a fifth of those who still live where they did on Sept. 11 would move if they could. Very few who lost a spouse have remarried.

What do these numbers mean? Without some comparision group, almost nothing. Robert Musil has the numbers and a good lesson in statistical thinking.

Addendum: Thanks to Newmark’s Door for the link. Of course, I take it as understood that proper statistical thinking in no way diminishes our profound sympathy for the victims of 9/11.

Minimum Wage Effects in the Longer Run

The minimum wage reduces employment, especially among low-skilled workers for whom the minimum wage is most binding. That remains the consensus view but note that holding the consensus view does not preclude thinking that the decrease in employment is small relative to the increase in the wages of those who remain employed. If the employment effect is small, however, it is also important to understand why it is small – the policy implications of monopsony, which I think implausible, are quite different from the implications of the the idea that other aspects of the labor-contract adjust in response to enforced changes in wages (i.e. the converse of the hot water argument). See also Tyler on this.

When I discuss minimum wages in class I tell my students that one of the best ways to get a high-paying job is to get a low-paying job and work your way up. The minimum wage can put the least employable out of work and have permanent negative effects when training and work skills not acquired in youth are difficult to accumulate later on. I think the theory makes sense but until recently it had not been extensively investigated.

David Neumark and Olena Nizalova
look at the how exposure to the minimum wage in the past impacts workers today. They find that teenagers who grow up in states with a minimum wage that is significantly and consistently higher than the federal minimum have lower earnings and work less a decade or more later when those workers are in their late twenties. The negative effects are larger for blacks, for whom the minimum wage tends to be more binding.

To generate variation, Neumark and Nizalova use data on minimum wages by state relative to the Federal minimum. The data is more aggregated than I would like and the variation by state only picks up in the late 1980s so there is less data than meets the eye. In theory, there is nothing special about the minimum wage as the driving factor that pushes people out of the work force, unemployment brought about by bad economic conditions should have similar effects. Thus, I wish that they had discussed the literature on hysteresis and unemployment. Welfare could also pull people out of the work force. I’m not fully convinced that they adequately control for economic conditions although they do use some clever techniques to try to address some of these issues. Nevertheless, my priors are supported so this must be a good paper! More seriously, Neumark and Nizalova are to be credited with opening the question of the long run effects of the minimum wage.

The bottom line? If you don’t work at McDonald’s when you are a teenager, don’t expect to manage a McDonald’s when you are middle-aged.

Addendum: Thanks to John Thacker and others who pointed out that one of my sentences, now fixed, was difficult to parse if you hadn’t read the paper – which sort of defeats the purpose of the blog, doesn’t it?

Why isn’t cryonics more popular?

In discussing prizes, Alex wonders why cryonics isn’t more popular?

Who better to ask than Robin Hanson? Read his very short paper on the topic.

Individuals may pay for medicine mostly to convince groups of their loyalty, and groups may pay to convince individuals similarly. This can explain many puzzles, including the low health value of medicine, and the lack of interest in private info about quality of medicine. Together with a few simple auxiliary assumptions, it can also explain many other health puzzles.

This theory also suggests why people might be particularly uninterested in cryonics. At present cryonics is something individuals buy for themselves, which if it works will transport them to an alien social world where they can do little to aid their current social allies. That alien world seems unattractive and downright scary to most current allies, and spending all that money on going there reduces one’s ability to aid current allies. Buying cryonics can then naturally be interpreted as symbolizing betrayal and abandonment. And with medicine mostly being a symbolic purchase, people aren’t in the habit of looking any deeper than that.

This suggests that cryonics is mainly going to be popular among people who think of the distant future not as a scary alien place, but as their home and social world, and especially among tight-knit groups of people who expect to move there together. It suggests that perceptions of social fragmentation (such as when many split off from Alcor) are especially damaging, and that evidence of the effectiveness of cryonics technology is only marginally important.

Have you noticed that women in particular are hostile to the idea of their men surviving them and coming back for another life?

Alas, I am a cryonics pessimist and I have yet to sign up for the extant services. (It is an interesting exercise to sit down and calculate how much resurrection would be worth to you, your implicit probability expectation, and your value for the modest yearly fee; many people have to fudge the numbers to justify their absolute dismissal of the idea.) But I also am pretty sure that most people, including prospective donors, reject the idea for the wrong reasons.

Artworks ruined by overexposure

The ever-insightful James Twitchell offers a list:

1. The Mona Lisa

2. Grant Wood’s American Gothic

3. Washington Crossing the Delaware

4. Whistler’s Mother

5. Munch’s The Scream (we will see whether its theft resurrects its aesthetic oomph)

I’ll add Gilbert Stuart’s portraits of George Washington to the list. Nor am I happy about the “Mondrian bag” and “Mondrian shampoo.” Twitchell continues: “Monet, Picasso, Degas, Cezanne, Gauguin, and van Gogh are just on the edge of becoming cliches.” And you’ll have to Google those images yourself, I won’t add to the problem!

We have a classic tragedy of the commons. I like surprise and power in art, but many different suppliers of images wish to be the ones who deliver the effect. The end result is that the surprise is used up too quickly; the images then bore rather than delight. Many of the most serious public goods problems are embedded in the neuroeconomy of the human mind.

The Test of Time is so difficult to predict in art. A given image can appear powerful in 2004 but by 2030 it is trite. Sitting in 2004, it is hard to imagine how the power might go away.

The same is less true for music, which taps into our nervous systems more directly and is more universal. But still there are examples:

…who can ever listen again to Sousa’s “Liberty Bell March” without seeing that giant foot come down from above, squashing the cartoon figures from Monty Python’s Flying Circus [TC: could this be an improvement?], or hear Liszt’s Hungarian Rhapsody no.2 without seeing that great piano virtuouso Bugs Bunny pounding it out with such wabbit aplomb?

Not to mention Rossini’s William Tell Overture, better known as the theme song for The Lone Ranger. Thomas Schelling once told me that he refused to listen to Bach every day because he wanted to keep those delights for his old age.

The material is from Twitchell’s new and excellent Branded Nation: The Marketing of Megachurch, College Inc., and Museumworld.

Into the Fire

May your strength give us strength
May your faith give us faith
May your hope give us hope
May your love give us love

May your strength give us strength
May your faith give us faith
May your hope give us hope
May your love bring us love

You gave your love to see, in fields of red and autumn brown
You gave your love to me and lay your young body down
Up the stairs, into the fire
Up the stairs, into the fire
I need you near, but love and duty called you someplace higher
Somewhere up the stairs, into the fire

May your strength give us strength
May your faith give us faith
May your hope give us hope
May your love give us love

May your strength give us strength
May your faith give us faith
May your hope give us hope
May your love bring us love

May your strength give us strength
May your faith give us faith
May your hope give us hope
May your love bring us love

It was dark, too dark to see, you held me in the light you gave
You lay your hand on me
Then walked into the darkness of your smoky grave
Up the stairs, into the fire
Up the stairs, into the fire
I need your kiss, but love and duty called you someplace higher
Somewhere up the stairs, into the fire

May your strength give us strength
May your faith give us faith
May your hope give us hope
May your love bring us love…

May your love bring us love.

Bruce Springsteen. From The Rising.

The Economists’ Voice

We–that is, Joe Stiglitz, Aaron Edlin, and I [Brad DeLong]–aim to start an online publication, The Economists’ Voice, to be “published” by Berkeley Economic Press, to try to remedy this situation. The two youngest of us are confident that we have a very good chance of succeeding. Our confidence is based on one fact: Joe Stiglitz thinks that this will work, and his judgment in this area is very good, as is shown by the remarkable success of the Journal of Economic Perspectives which has greatly increased the flow of information across the subfields of economics, and done a remarkable job of welding the American Economic Association into a stronger intellectual community.

The Economists’ Voice will aim for pieces longer than an op-ed and shorter than (and much more readable than) a piece for a standard journal. We thus avoid the op-ed problem–the problem that op-ed space is too short for an argument, and only provides space to be shrill. But we also hope to stay short enough to be readable, and understandable. And we will aim for quick turnaround–days rather than the years of journals.

The level will be non-technical but sophisticated: perhaps what one expects to read in the Financial Times and the news pages of the Wall Street or National Journal, or perhaps a notch above. The aim will be to provide an economist’s argument and point of view on some salient and interesting issue: a survey of something interesting happening in the economy, or a call for some change in policy or institutions–which would consist of a review of what the principal important factors are, what the objective function is, what the constraints are, why the objective function is maximized at the particular set of policies or institutional arrangements that the author prefers.

We will launch the The Economists’ Voice later this year. We will succeed if we become *the* place on the internet where economists, journalists, interested observers, staffers, and others turn in search of high-quality comprehensible economic analysis.

Here is Brad’s full post.

Most of all, something like this is badly needed.

More conceptually, I view this attempt as an implicit criticism of Google. There is nothing stopping economists from posting such writings right now, and of course longer pieces can be linked to. But who will find/read them? How much credibility will those writings carry? So Brad and Co. are betting they will prove better finders, branders, certifiers, and marketers than current institutions.

Is the initial problem one of generating a greater supply of readable but sound content for the web? (“Build it and they will write.”) Or is the problem that of mobilizing audience attention for work that is already being done? (“Build it and they will come.”) A related question is why most established economists have not found blogging to be a useful medium to date.

Should the functions of certifying and commissioning/editing always be combined? What about an additional economics blog or journal that simply selects the best material already out there, analogous to or

Stay tuned…

What do you give the man who has nothing?

Looking to aid the homeless? Voice mail is one good way to start.

Here is some explanation:

“It just makes people feel a lot better about themselves,” said Larry Sykes, Community Voice Mail director at The Stewpot, which hopes to offer more than 2,500 voice mail lines in Dallas within three years. “Unless they tell somebody they’re eating at The Stewpot or sleeping under a bridge, nobody knows it.”

In Cornelison’s case, Goodwill Industries was aware of his plight when it used the voice mail system to contact him and offer him a job at one of its warehouses at $5.68 an hour.

For now, the 40-year-old Dallas man still lives on the street. “But once I start getting paydays, I’ll be able to not do that anymore,” said Cornelison, who hopes to move into a motel, if not a more permanent home.

If Mexico can do it…

Mexico’s Treasury department submitted a tight budget for 2005 to Congress yesterday, calling for the public sector deficit to drop to 0.1 per cent of gross domestic product, down from 0.3 per cent this year…

However, there has been cross-party consensus on the need for a tight budget, and the deficit has fallen as a proportion of GDP each year. Francisco Gil Diaz, the Treasury minister, also retains powers to make spending cuts during the year if there is a risk that the deficit target will not be met.

Note that these budgets are based on the assumption of a steep drop in oil prices, which for Mexico is not a “rosy scenario.” Here is the full story.

How much time do workers spend on the Web?

“It feels both inaccurate and inadequate to describe The Office as a comedy. On a superficial level, it disdains all the conventions of television sitcoms: there are no punch lines, no jokes, no laugh tracks, and no cute happy endings. More profoundly, it’s not what we’re used to thinking of as funny. Most of the fervently devoted fan base watched with a discomfortingly thrilling combination of identification and mortification. The paradox is that its best moments are almost physically unwatchable. Set in the offices of a fictional British paper merchant, The Office is filmed in the style of a reality television show. The writing is subtle and deft, the acting wonderful, and the characters beautifully drawn: the cadaverous team leader Gareth (Mackenzie Crook); the monstrous sales rep, Chris Finch (Ralph Ineson); and the decent but long-suffering everyman Tim (Martin Freeman), whose ambition and imagination have been crushed out of him by the banality of the life he dreams uselessly of escaping. The show is stolen, as it was intended to be, by insufferable office manager David Brent, played by codirector-cowriter Ricky Gervais. Brent will become a name as emblematic for a particular kind of British grotesque as Basil Fawlty, but he is a deeper character. Fawlty is an exaggeration of reality, and therefore a safely comic figure. Brent is as appalling as only reality can be. –Andrew Mueller”

Yes you will find the anti-capitalist mentality in this show, but I doubt if few will walk away with a fervent belief in government planning as the proper response.

Is keeping a diary bad for you?

Better to just forget about your troubles, it seems:

…regular diarists were more likely than non-diarists to suffer from headaches, sleeplessness, digestive problems and social awkwardness..[the researcher] speculates that diarists buck the usual trend because instead of a single, cathartic outpouring to offload trauma, diarists continually churn over their misfortunes and so never get over them.

Writing about trauma is most closely correlated with poor health, although the researchers admit that correlation is easier to show than causation. I’ll predict a similar result will hold for personal blogs, though I don’t know of any data.

Addendum: The ever-insightful Randall Parker offers further commentary.

Sponsoring Prizes

Wouldn’t it be fun to endow a prize like the X-Prize or the space elevator prize I discussed yesterday? I’m surprised that more rich people don’t do this. Of course, we have the Nobel and similar prizes but these are awarded for general achievement in the past and as such are unlikely to exert a significant incentive effect. Foundations can last a long time but there is a history of foundations, for example the Ford and Carnegie Foundation, spending money in ways that their founders would not approve. If you fund a prize, however, you can specify the conditions for success reasonably precisely and for that reason the money is more likely to be allocated in a way close to what you would have wished. Furthermore, if you set the prize up so that the seed money is invested in the market until it is won you can almost be guaranteed that one day the prize will be won and you will be thanked for your contribution to humanity.

As noted, I like the space elevator idea but I think that if I had a few million to spare I’d endow a cryonics prize. This is the sort of research which seems doable, has a big payoff but for which there is virtually no serious funding. I’d endow the prize with a series of staggered awards, so much for succesfully reviving a rat after 1 week, so much for a rabbit after 2 months, so much for a pig after 5 years. The Grand Prize? That would be for reviving me.