Month: October 2004

Kids pick the President

Regular readers will know that I am not greatly impressed by the first-born=conservative, later born=rebel view of birth order. Nevertheless, my kids were eager to vote after hearing that they could do so at the Nickelodeon website. The six year old was strongly in favor of George Bush, “because a new President will change the laws and I want to keep the same laws.” The three year old said, “I didn’t used to like John Kerry but now I do. John Kerry! John Kerry! John Kerry!”

Of course, the two kids then got into a fight.

Could the kid vote be a good predictor of how their parents will vote? Click here for the kids’ choice.

The World Just Keeps Getting Better

I lost my watch. I wanted to replace it with the exact same model, because I’ve memorized the the pushbutton sequences and I don’t deal well with change. So I went down to the Wal-Mart where I’d bought this watch, oh, probably about six years ago, but Wal-Mart, which deals with change better than I do, had “upgraded” to a more fashionable selection.

So how do you shop for a Casio watch without knowing the model number? And how does your answer change if I tell you that Casio makes over 1000 models?

Answer: You spend about a minute and a half on Google and discover a site called, which knows about every one of those models (and of course about a gazillion other watches from about a gazillion other makers too). Dealtime asks you a bunch of questions about the watch: Digital or analog? Casual or dressy? Square face or circular face? It brings up a page with pictures of the 32 models that fit your criteria. There in the middle of the page is your watch.

You click on the watch, and dealtime brings up a list of five websites where you can buy this model, in a neat little chart showing prices and customer ratings of the sellers. At the top of the list is, offering your watch for $14.99. Two days later, you have your watch.

All that technology to sell me a fifteen dollar watch! Oh, God, I love the web.

Quantum Game Theory

Let’s play a coordination game: You and I are each asked a single question, either “Do you like cats?” or “Do you like dogs?”. Our questions are determined by independent coin flips. We both win if our answers differ, unless we’re both asked about dogs, in which case we both win if our answers match.

Here’s a pretty good strategy we could agree on in advance: We’ll contrive to always differ. Whatever we’re asked, I’ll say yes and you say no. That way we win 3/4 of the time.

Can we do any better? No, if we live in a world governed by classical physics. Yes, if we live in the world we actually inhabit—the world of quantum mechanics.

All we need is a pair of entangled particles, easy enough to create in the laboratory. If I get the cat question, I’ll measure my particle’s spin (which is either up or down) and answer “yes” or “no” accordingly. If I get the dog question, I’ll do the same thing, but first I’ll rotate my measuring apparatus by 90 degrees. You do the same, but start with your measuring apparatus rotated 45 degrees from

The thing about entangled particles is that the outcomes of these measurements are correlated in a very particular way, and remain so forever, even if the particles are separated. In particular, our answers will differ about 85% of the time unless we both make “dog” measurements, in which case they’ll agree about 85% of the time. Overall, then, we’ll have about an 85% win rate. Those particular correlations would be impossible to achieve with any set of measurements if our electrons obeyed the laws of classical physics.

(More precisely, our win rate is cos2(pi/8).)

I took this example from a beautiful paper by Richard Cleve, Peter Hoyer, Benjamin Toner and John Watrous. (The paper has a lot of other cool examples too.) The moral is that game theory changes dramatically when players have access to quantum technology—which might sound very science fictiony at the moment but probably won’t in another couple of decades.

Why are music companies suing their customers?

Isn’t it bad business to sue the people you hope to sell a product too? Why is the music industry going down the path of litigation? Can they hope to succeed with this strategy?

I address these questions in my recent column for the Social Affairs Unit in the United Kingdom. You might know that an international music consortium has just started bringing lawsuits in the UK and on the continent as well, thus prompting the essay.

Here is the bottom line:

I see the music companies as trying to hold back a new commercial norm. Specifically, the music companies are trying to maintain the old norm that you should always pay for music.

Two years ago most [American] downloaders did not know that their activities were illegal. Few uploaders felt guilty about making large numbers of songs available for free on the Internet. It was viewed as akin to lending your CDs out to your friends, except that the “friends” here were both anonymous and large in number. “Art should be free,” right?

Since the United States lawsuits, there has been a subtle shift of opinion. Many people, especially those beyond their teenage years, are now proud of not being downloaders. They brandish their Apple iPods with pride. The cultural climate has shifted to the point where people, even if they download, are embarrassed to admit as such. Only in the under-twenty crowd is illegal downloading still a badge of honor. And many of these children now face (admittedly imperfect) regulation from their parents.

The music industry knows that the long run will bring a network of free music. It knows that free music may have illegal status, a “grey” status, white status (recorded from the radio), or perhaps be pirate (from abroad) but not illegal in the actionable sense. But there will be two networks, a pay network and a free network.

The pay network stands a good chance of competing against the free network. Perhaps the pay network can offer better sound quality, tie-ins (concert tickets, T-shirts, etc.), upgrades and maintenance service, better information such as album liner notes, song selection services, easier interface, and other benefits. The future course of technology is difficult to predict. Nonetheless it is easy to see why a pay network will have a greater ability to finance these goodies than will a free network.

The music companies – present and future suppliers of the pay network – do not wish to face a ten year period where everyone is used to getting music for free. They do not want an entire generation to grow up thinking of music as a free commodity. They do not want hackers and illegal downloaders to become established as folk heroes.

Once commercial norms become established, they are difficult to dislodge. We are all used to breathing air for free. Imagine the response if suddenly we had to pay for air as we now pay for ice cream cones. Maybe the air would have a better quality and the price would be very low. Still I predict there would be a public outcry. It would be very difficult, in the legal and public arenas, to set up a business to charge people for breathing clean air.

Similarly, bread riots were a common phenomenon of the twentieth century in the Third World. When bread subsidies were removed or cut, the price of bread would rise. The new price of bread still might be lower than would be found in many other poor countries. Still rioting might occur. People cared not only about the absolute level of the bread price, but the level of the price relative to what they had been expecting.

The music companies know they are in for a rough ride. They will never win the competition on the basis of price, but they hope to win on the basis of quality. They feel they need commercial norms on their side. And this means that downloading cannot be allowed to proceed unanswered and unhindered. They cannot live with a norm that music should be free.

Note that the music companies are demanding far smaller penalties than they might hope to win in a formal lawsuit. This is not out of benevolence to the illegal downloaders. The lawsuits are about spreading the idea that downloading is wrong and illegal, not about inflicting the maximum possible punitive damage. Think of the lawsuits as one way to buy space in the newspaper, but without paying advertising rates. And the company gets the journalists – a more credible outside source – to be the ones reporting that downloading is illegal. Too high a penalty would make the companies look mean.

I am not here to attack or defend the behavior of the music companies, but rather to explain it.

A social experiment

Even outer-space aliens can see the effects of communism.


Also check out North Korea’s creepy Ryugyong Hotel, built at a cost of some 2% of GDP the hotel towers over Pyongyang but it’s a shell that has never been completed because of stuctural problems due to poor quality. The North Koreans have gone so far as to remove it from some maps but there is no hiding the 7th tallest building in the world!

Thanks to Mahalanabois for the picture and Ted Frank for the hotel recommendation.

More on Vaccines

Though Alex has already blogged about the Kremer/Snyder paper on vaccines versus cures, there are, I think, a couple of comments worth adding.

According to Kremer and Snyder, monopoly sellers would rather sell cures than vaccines. To get this result, they need some heterogeneity: we all have different probabilities of getting sick (though we all find it equally costly to get sick).

But what if you introduce the opposite kind of heterogeneity? (That is, we all have different costs of getting sick, even though we all face the same probability of getting sick.) Then it’s a nice little exercise for your students to show that the cure and the vaccine are equally lucrative monopolies (ignoring the positive externalities of the vaccine).

A more important observation: In the Kremer/Snyder setup (still ignoring positive externalities), it’s a good thing for sellers to invest in cures rather than vaccines. The reason cures are more profitable is that they in essence allow perfect price discrimination. So with cures, there’s no deadweight loss due to monopoly; with vaccines there is.

The analysis changes if you assume, say, that a vaccine prevents a four-day illness, but a cure only cuts two days off your illness. Then vaccines might or might not be socially preferable to cures—but in that case, willingness-to-pay for vaccines versus cures would double. This gives sellers an incentive to produce vaccines. The incentive isn’t perfect, but it goes in the right direction.

Steven Landsburg to Guest Blog!

We are thrilled that Steven Landsburg will be guest blogging at Marginal Revolution over the next week! No one is better at explaining complicated ideas than Steven, his columns and books are a marvel of both clarity and depth. When you read a Landsburg column you first learn why the obvious idea is wrong but uniquely by the time you get to the end of a Landsburg column you also know why the correct idea is obvious! I remember my reaction the first time I read Steven’s explanation of Ricardian Equivalence (in Macroeconomics written with Lauren Feinstone). What a revelation! It’s so obvious! And that was after I already “understood” the idea!

If you read this blog and haven’t read The Armchair Economist and Fair Play, I envy you. You have a treat in store!

This year’s corruption index

Transparency International just published its new corruption index:

Countries with a score of higher than 9, with very low levels of perceived corruption, are predominantly rich countries, namely Finland, New Zealand, Denmark, Iceland, Singapore, Sweden and Switzerland. “But the poorest countries, most of which are in the bottom half of the index, are in greatest need of support in fighting corruption,” said Eigen.

On the basis of data from sources that were used for both the 2003 and 2004 index, since last year an increase in perceived corruption can be observed for Bahrain, Belize, Cyprus, Dominican Republic, Jamaica, Kuwait, Luxembourg, Mauritius, Oman, Poland, Saudi Arabia, Senegal, and Trinidad and Tobago.

On the same basis, a fall in corruption was perceived in Austria, Botswana, Czech Republic, El Salvador, France, Gambia, Germany, Jordan, Switzerland, Tanzania, Thailand, Uganda, United Arab Emirates and Uruguay.

In absolute terms, the biggest losers are Bangladesh, Haiti, Nigeria, Chad, Myanmar, Azerbaijan and Paraguay.

Here is the press release, which links to the original study and some charts.

The index appears to have had an impact:

Governments as diverse as Papua New Guinea, Cameroon and Bosnia-Herzegovina have started or stepped up anti-corruption programmes as a result of publicity generated by the index, Berlin- based Transparency International (TI) says. South Korea has even pledged to reach position 10 or above by 2007 – a tall order, as Seoul was ranked 50th last year.

On the negative side, the Financial Times asks whether such indices simply scare off investment in the poorer countries, but of course this is the reason why the index works at all.

The Microeconomics of Social Security Privatization

Social security privatization has a little-discussed benefit, done properly it is equivalent to a cut in marginal tax rates. A problem with the current system is that there is little relationship on the margin between taxes paid and benefits received. On average, of course, those who pay more taxes get more benefits (although not proportionately there is a subsidy to low-earners). But because the rules are complex and based on average earnings over a long period of time there is little connection between your social security taxes on an additional hour of work and your social security benefits for that additional hour.

To see why this is important consider the difference between social security and an IRA. If a worker works an additional hour, earns $10 and puts $1 into the IRA he knows the $1 will produce a benefit 30 years down the line when he retires. The $1 contribution to the IRA is not a tax, it’s consumption, a benefit of working extra hours. On the other hand if a worker earns $10 and $1 is taken and paid into social security there is no clear connection to retirement benefits. Social security payments, therefore, are taxes – and like other taxes they deter work effort and create a dead weight loss.

Privatizing social security, or in some other way creating personal accounts, would reestablish a link between marginal payments and marginal benefits and thus would be equivalent to a cut in tax rates.

The insight goes back to my colleague Jim Buchanan and his 1968 paper “Social Insurance in a Growing Economy: A Proposal for Radical Reform.” National Tax Journal, Vol. 21 (December 1968): 386-95

See also Tyler, Arnold Kling, Victor Davis and Brad DeLong who have been discussing the political issues of social security privatization.

What are Presidents blamed for?

In United States presidential elections, the incumbent party’s fortunes depend significantly on recent economic conditions, as numerous studies have shown. Many details of how economic voting takes place, however, are still not well understood. Here we present evidence on four issues. 1) Which is more important for determining people’s votes, national or local economic conditions? 2) What time frame do people consider in economic voting? 3) Which demographic groups are most sensitive to the economy in their voting behavior? 4) How does economic voting depend on the political context–in particular, whether a candidate is running for re-election, and whether the incumbent party also controls Congress? Our study includes the first county-level analysis of economic voting in presidential elections. We find the answers to our four questions are: 1) national conditions, by far; 2) the most recent year; 3) blacks, females, and the non-elderly; and 4) no.

Here is the full article.

I do not approve

The headline in the Washington Post yesterday read “FDA Approves Artificial Heart for Those Awaiting Transplant.” The language annoys me – it sounds as if the FDA gave a Good Housekeeping Seal of Approval to the artificial heart. Consider how much clearer the tradeoffs of medical policy would be if instead the headline read, “FDA lifts ban on artificial hearts for those awaiting transplant.”

Thanks to Dan Klein, my co-author on, who first alerted me to these issues.

Addendum: Unfortunately, as I wrote earlier, the artificial heart will not save lives and follow up here.

Guess Who is Getting Flu Shots?

“Flu Vaccines Abundant and Free on Capitol Hill,” is the headline in today’s on-line Washington Post.

While many Americans search in vain for flu shots, members and employees of Congress are able to obtain them quickly and at no charge from the Capitol’s attending physician, who has urged all 535 lawmakers to get the vaccines even if they are young and healthy.

I can (sometimes) see the efficiency rationale for this, but it is funny to see our Representatives try to defend their special treatment:

Sen. Joseph I. Lieberman (D-Conn.), 62, said in an interview yesterday: “I haven’t done it yet, but I want to. We’re not in the priority category” set by the CDC. “But I think the [Capitol’s] doctor makes a good case. We can pick it up and spread it” through interactions with constituents.

Here is the article.

Harold Bloom at work

A conversation between [Samuel] Johnson and Goethe is all but inconceivable. Perhaps a gathering of Shakespeare, Plato, and Oscar Wilde, put together in Eternity, could create it. Shakespeare would convey the inability of the English critic and the German poet to listen to each other, while Plato would mold the irony of the encounter, and Wilde suggest the wasted wit.

That’s from Harold Bloom’s new Where Shall Wisdom Be Found?. It doesn’t matter how flawed Bloom’s recent books may be, he is still a smarter reader than just about anyone else. I buy his stuff on sight and gobble it up within twenty-four hours.

Another good Christmas gift is Richard Dawkin’s The Ancestor’s Tale, his most systematic treatment of evolution to date.

Addendum: Alan Hollinghurst’s Line of Beauty just won the Mann Booker Prize; here is more info.