Month: November 2004
Of course not. The New York Times reports on new survey research by Dan Klein on the voting behavior of academics. Anthropologists are comfortable living with cannibals in South America but they vote Democrat 30 to 1. Economists are among the least "biased", they vote Democrat to Republican at about 3 to 1.
This reminds me of the great Adlai Stevenson line. A supporter once called out, "Governor Stevenson, all thinking people
are for you!" And Adlai Stevenson answered, "That’s not enough. I need
Addendum: Thanks to Vicki White for directing me to the correct quote which I had earlier misattributed.
Shoot at animals over the Internet and activate a real gun to kill them. Here is the website, and thanks to GeekPress.com for the pointer.
My question: If you add them all up, what percentage of these "Markets in Everything" installments is actually appealing?
One way to structure a vaccine comitment would be to guarantee a price of, say, $15-20 per person for the first 200-250 million people immunized, in exchange for a commitment from the developer to subsequently drop the price in the poorest countries to a modest markup over manufacturing cost. A commitment of this size would offer firms an opportunity for sales comparable to those available in commercial markets. It would be extremely cost-effective, saving more lives than virtually any imaginable health expenditure.
That is from Strong Medicine, by Michael Kremer and Rachel Glennerster. The authors have an excellent book and a noteworthy idea, but I have some worries.
Some poor countries, such as Ghana, have quasi-functional government. But other governments won’t allow this to proceed unhindered. Remember when some Nigerian states banned the polio vaccine for (supposedly) spreading sterility and AIDS? That is an extreme example, but how about this?
In Africa, for example, it is estimated that only between 2-15% of children slept under bed-nets in 2001-a simple, effective and proven method to prevent malaria.
If the cure for AIDS were a single glass of clean water, millions of the infected still would die.
This is why economic development is so hard and so resists formulaic treatment. Correcting any single screwed up incentive won’t bring as big a payoff as you might think, given how many other things are screwed up. We have to go one step at a time, but every step brings both short-term costs and political opposition, while not showing much in the way of immediate benefits.
Prizes work best when the prize-giver is aiming at a well-defined end, where success is easy to measure. This fits "inventing a malaria vaccine" better than "distributing a malaria vaccine." I would be willing to try this scheme, given the high upside returns. But it is quite possible we could go ten years or more without seeing much in the way of tangible results, even once something is invented.
Space tourism is romantic but is it realistic? On the basis of 40 years of data, I argued that rockets are dangerous and show no signs of the sort of safety improvements that are required to sustain a serious space tourism industry. Response fell into two camps, those who misunderstood the argument and those who wanted to deny it.
David at Cronaca pointed to the continuing demand to climb Mount Everest despite a fatality rate on the order of 4 percent. Quite right, but that is precisely my point. At best and for the foreseeable future space travel will remain akin to climbing Everest, dangerous and uncommon. Yes, we might see 100 flights a year but that’s not space tourism – tourism is fat guys with cameras. Branson and Rutan, for example, have predicted that in 10-12 years, 100,000 or more "ordinary people" will fly into space. No way.
The other type of response is well illustrated by Rand Simberg’s reply at TechCentralStation. Simberg argues that forty years of data are irrelevant because with SpaceShipOne "everything changed." According to Simberg, SpaceShipOne is "a complete discontinuity", "an entirely new and different approach", and yes – you saw it coming didn’t you? – "the beginning of a new paradigm."
These are statements of faith not of reason. Simberg has no data to back these claims because none exist. Let’s also remember that we have heard this sort of thing many times before. As far back as the 1960s PanAm was selling advance tickets for its inaugural moon flight. Need I remind you where PanAm is today?
I admire Rutan and I have little doubt that he has made significant advances in rocket design but what I showed in my article was that safety could have improved by a factor of ten or even 100 and rockets would still be too unsafe to support a large tourism industry.
What’s so great about space tourism anyway? Even though an increase in rocket safety of a factor of ten is not much when considering the safety of large numbers of people it is very significant when thinking about satellite launches or temporary low-orbit launches. A reduction of risk of this amount means much lower insurance costs that will open up space to new private development.
The Washington Post reports that the Bush Administration is courting James Poterba to replace N. Gregory Mankiw at the Council of Economic Advisers. Harvey Rosen may head the bipartisan committee on tax reform, among other tidbits.
Today’s WSJ lists four candidates to succeed Greenspan, all four are renowned economists: Martin Feldstein, Glenn Hubbard, John Taylor, and Ben Bernanke.
I’m not confirming any of these speculations, just passing them along.
Will you be travelling to space anytime soon? What about your children? Richard Branson is betting that the answer is yes. I think not. Space travel remains incredibly dangerous and that is not about to change. My article at TechCentralStation, Is Space Tourism Ready for Takeoff? lays out the facts.
Professors at the Claremont schools are at it again. Last year a visiting psychology professor sprayed her own car with racial and religious
epithets, slashed her tires and then reported the incident as a
hate crime. Why? In order to draw attention to the issue, of course.
More recently, SUVS at adjacent Pomona college were painted with anti-SUV messages like "My SUV wastes 33% more gas than a car" and "Is your image a good reason for people to die." (The paint is apparently washable). When the offending students were caught they had a surprising defense: their vandalism was part of an approved class project!
Bizarrely the students were taking a class in German Studies and were given an assignment to "develop your own political voice." According to the Dean of Students:
Approximately one week before the assignment was due, the students
asked for and received written approval from the professor for several
alternate projects, including the one that was carried out. Considering
that they acted from what they thought was within the parameters of the
class, we believe that they should not be sanctioned for their actions.
The professor claims the approval was "inadvertent." It doesn’t inspire confidence, however, when one reads the description of another one of her courses:
132 National Socialism and Today’s Media. Ms. Houy. Attempts
to manipulate public opinion have become more effective through mass
media; new communication technologies can empower resistance to such
attempts. This course studies the propaganda machinery of National
Socialism in order to explore current abuses of communication
technologies and imagine ways of resisting such abuses.
Ok Kristallnacht it ain’t but this does suggest the professor knew what she was doing.
Thanks to Right Reason and an anonymous tipster.
From Jane Galt, read the whole thing.
For me the most intriguing passage (but not the central point) is:
Something that conservatives, and especially libertarians, have been slow to grapple with is that the more productive our society gets, the greater the possibility that some peoples’ labour simply isn’t productive enough to support them at a minimum level. Can we really tell former welfare mothers to go bunk ten to a room the way my Irish ancestors did? We’re a pretty rich country. Are we comfortable telling people to live as if they’re nineteenth century peasants, if their cognitive gifts, or education, won’t stretch to more?
I wonder whether increasing wealth will ever eliminate the case (sound or not) for, say, welfare payments or the public funding of education. Won’t the U.S. at some point, however near or distant, become rich enough so that government won’t have to…fill in the rest of the sentence yourself…? Or does growing wealth jack up land prices so much that subsistence becomes increasingly harder to achieve? I’m not talking about a relative status effect here, or changing expectations as to what is a decent life (though those factors play a role too). To some extent higher real wages also boost the cost of producing human beings (i.e., raising children), analogous to William Baumol’s "cost disease." You can raise a family of seven in Mexico on one thousand dollars a year, just try that in Fairfax County. And might further economic growth only exacerbate this contrast?
Some mid-level developing countries address this problem by allowing shantytowns to spring up in or near their major cities. The wealthy live in the "normal" city, the poor in the shantys. There are other ways of setting up parallel colonies on low-wage land. Randall Parker writes of old people moving to low-cost cruise ships (no, not ice floes), and of course many of the elderly migrate to Mexico or Costa Rica. The default of course is to keep everybody in the higher-rent, higher-value network, and not coincidentally raise general taxes over time. We will all continue to pay lip service to the integrationist ideal, but let’s say you think the case for welfare will never go away, no matter how wealthy we become. This view implies that the pressure for "separate colonies" will only increase over time.
A non-nuclear method of increasing the national self-esteem of the large (either population-wise or economically) non-nuclear countries could do a lot of good.
That is from Matt Yglesias.
I am not qualified to judge the science, but this article increased my skepticism. Thanks to Orin Kerr for the pointer.
The field of education is littered with reforms designed to increase student performance – everything from the "new math," to more teachers to better pay. Yet the most obvious reform of all has hardly been tried – pay the students to learn. That’s the simple idea of an impressive young economist, Roland Fryer (earlier I posted on Fryer’s controversial work with Steven Levitt on the causes and consequences of distinctively black names).
Fryer was here on Monday and he told me of a large scale experiment he is running in 24 of the poorest performing New York schools. Every three weeks students are tested and if they improve they are paid on the order of $20. Control groups are also tested. Early results are very encouraging. No other reform has anywhere near the bang for the buck as paying the students.
As Fryer said to me, ‘for years white parents have been giving their kids money for As, now we are trying the same system for black kids.’
This new vehicle is slow but it gets 4.7 million miles to the gallon.
U.S. stocks yield six to eight percent on average, while T-Bills yield just a bit over one percent. Might we reap higher social returns by investing a social security trust fund in equities? That of course is one motivation behind many plans for social security reform. Even if our government is borrowing more, the higher equity returns might more than compensate.
Under one common view, stocks yield more because they are riskier. Yet stocks outperform bonds for any thirty year period in U.S. history. So perhaps a sufficiently long-lived institution can ignore the short-term risks. The return differential could instead exist because a) equity markets are not perfectly liquid, and b) many of us are irrational fraidy-cats, or have excessively short time horizons.
To make the case as strong as possible, let us put risk aside. But even then the measured returns differential does not measure the gain from investing social security funds in equities:
1. Once the plan is announced, the price of equities will rise, eliminating some or all of these returns. Current equity holders will be the beneficiaries on a once-and-for-all basis. Of course if equity markets are not perfectly liquid — one of the assumptions — the current equity holders won’t capture all of these gains.
2. Higher stock returns, driven by a change in liquidity, might just redistribute wealth rather than creating more wealth. The real question concerns not measured nominal returns but rather the real output of goods and services. Say that one group of people suddenly earned far more on their investments. Without a corresponding rise in productivity, the economy as a whole does not have greater opportunities. We have simply divvied up the pie in a new way.
3. So what is the real gain? When stock prices rise, it becomes more profitable for a company to issue new stock shares. This will increase investment and eventually output. But the magnitude of this effect is not given by the measured differential in stock and bond returns. The real questions concern a) the elasticity of investment with respect to equity values, and b) the value of the next marginal investment to be made; we should not confuse average returns with marginal returns.
Note that companies do not usually prefer to finance investments from new equity issues. Retained earnings and debt are more popular. The value of a company typically falls on the stock market when new equity issues come forth. This suggests that markets do not think so much of new investments financed by new equity issues.
The bottom line: There may be some equity premium to be captured, but it is much less than the measured return differential between stocks and bonds. Most likely, the equity premium is not a strong argument for investing the trust fund in equity or social security privatization; Alex agrees. The more relevant argument is simply that savings will increase.
The current academic publishing system is slow, tedious, and error prone. David Zetland, a clever economics graduate student at UC Davis, has a better idea. Zetland suggests that journal publishers should buy manuscripts in an auction. You probably already have some objections, Where would the money come from? Why would journal editors buy what they can get for free? etc. But wait. Here comes the clever part:
The money paid in the auction would flow not to the author of the paper but to authors cited by the paper and their publishers. For example, if a journal buys a paper by A.Tabarrok for $1000 which cites an article by T.Cowen published by Oxford University Press and an article by M. Friedman published by the University of Chicago Press then Cowen, Friedman and their publishers would each receive $250 (the author/publisher split could vary.)
The cleverness of the idea now becomes apparent. Publishers will be willing and able to pay for papers because they expect to earn revenues when in turn those papers are cited. Publishers will pay $1000 for the paper by A. Tabarrok, for example, if they expect that paper to be cited many times.
Once it gets off the ground, the market for journal articles is self-sustaining and self-fulfilling.
A market established in this way has all kinds of beneficial properties. Publishers will have an incentive not only to seek out the best papers and pay for them but also to improve those papers in order to make them more citable. Publishers might offer online data collection and color graphs, for example. Similarly, if this proposal takes off we might expect a big improvement in the speed and accuracy of the refereeing process. Who knows, editors might even edit papers!