Month: December 2004

Phantom markets

A woman’s effort to assuage her 6-year-old son’s fears of his grandfather’s ghost by selling it on eBay has drawn more than 34 bids with a top offer of $78 [TC: the price is now up to 15K, as of Sunday morning].

Mary Anderson said she placed her father’s "ghost" on the online auction site after her son, Collin, said he was afraid the ghost would return someday. Anderson said Collin has avoided going anywhere in the house alone since his grandfather died last year…

Anderson also put her father’s metal walking cane up for auction so she would have something to actually send the winning bidder. The proceeds from the auction will go to buy Collin a special present, she said.

Here is the full story.  Here is the auction.  Here is an elastic supply of copycats.

Books of the year

The Economist and The New York Times (password required) have put out their "best books of the year" lists.  Each list is at the respective link, the common elements are:

Philip Roth – The Plot Against America

Anne Tyler – The Amateur Marriage

Colm Toibin – The Master

Alan Hollinghurst – Line of Beauty

David Mitchell – Cloud Atlas

Orhan Pamuk – Snow

Moving on to non-fiction, we have:

Ron Chernow – Alexander Hamilton

Seymour Hersh – Chain of Command

The 9-11 Commission Report, and

Stephen Greenblatt – Will in the World

As for my favorites in fiction, Susannah Clarke’s Jonathan Strange and Mr. Norrell is my clear pick, with nods to Garcia Marquez and Alice Munro.  For non-fiction, my memory summons up Craig Seligman’s Sontag & Kael: Opposites Attract Me, Suketu Mehta’s Maximum City: Bombay Lost and Found, and Bart Schulz’s Henry Sidgwick: An Intellectual Biography.  For science I’ll nominate Brian Greene’s Fabric of the Cosmos.  I’m leaving off everything that has made our "Books we Recommend" list over the months.

My apologies if I forget your book.  No, I haven’t forgotten its content (yet), I simply have no idea whether it came out this last year.  Age has compressed my sense of time into two rather gross categories: "my plans for the future" and "the distant past."

Bhagwati talking to Stiglitz

He [Joe Stiglitz] actually told me that he faced [spoke to] a hundred thousand people at Bombay…I did tell him that he should not get too excited, because I grew up in Bombay and when I went for a walk to the beach, I normally saw about two hundred thousand people! So that doesn’t mean very much in Bombay.

Here is the whole interview, which has numerous interesting bits on India, globalization, and economic development.  Here is my earlier post on population density in Bombay.

How good was your day?

The researchers [Norbert Schwartz, Daniel Kahneman, Alan Krueger, David Schkade, and Arthur Stone] assessed how people felt during 28 types of activities and found that intimate relations were the most enjoyable, while commuting was the least enjoyable.

More surprisingly, taking care of their children was also among the less enjoyable activities, although people generally report that their children are the greatest source of joy in their lives…

In addition to intimate relations, socializing, relaxing, praying or meditating, eating, exercising, and watching TV were among the most enjoyable activities. Commuting was the least enjoyable activity, with working, doing housework, using the computer for e-mail or Internet, and taking care of children rounding out the bottom of the list.

Interactions with friends and relatives were rated as the most enjoyable, followed by activities with spouses or significant others, children, clients or customers, co-workers and bosses. At the bottom of the list: activities done alone.

…"When people are asked how much they enjoy spending time with their kids they think of all the nice things—reading them a story, going to the zoo," said University of Michigan psychologist Norbert Schwarz, a co-author of the Science article. "But they don’t take the other times into account, the times when they are trying to do something else and find the kids distracting. When we sample all the times that parents spend with their children, the picture is less positive than parents expect. On the other hand, we also find that people enjoy spending time with their relatives much more than they usually assume."

General reports of what people enjoy may also differ from descriptions of how people actually feel in a specific situation because many people hesitate to report socially inappropriate feelings. This is less of a problem when they report on specific episodes. "Saying that you generally don’t enjoy spending time with your kids is terrible," Schwarz said, "but admitting that they were a pain last night is quite acceptable." The new Day Reconstruction Method provides a better picture of people’s daily experiences by improving accurate recall of how they felt in specific situations…

…general life circumstances—such as how secure people think their jobs are, or whether they are single or married—had a relatively small impact on their feelings throughout the day. These factors were closely linked with how satisfied people said they were with their lives in general, but had little influence on how positive they felt during specific activities.

"It’s not that life circumstances are irrelevant to well-being," notes Schwarz. "On the contrary, we found that people experience large variations in feelings during the course of a normal day. This variation highlights the importance of optimizing the allocation of time across situations and activities. If you want to improve your well-being, make sure that you allocate your time wisely."

Unfortunately, that’s not easy. When the researchers examined the amount of time spent on various activities, they found that people spent the bulk of their waking time—11.5 hours—engaged in the activities they enjoyed the least: work, housework and commuting.

Here is the full story, with thanks to the ever-excellent  Here is more information, and it seems you can order the study here.

The unhealthy price of textbooks

Henry over at Crooked Timber wants to know why some books are so expensive.  The answer is that the books he has in mind are textbooks and the person choosing the textbook isn’t the one paying the price.  In effect, the professor is buying the book but with someone else’s money.  Hmmm, does this remind you of any other markets?  Here’s a hint, the 3rd edition of Health Economics by Charles Phelps is $122.60.  Here’s another application.

Addendum: Mark Steckbeck has a nice post explaining one reason why textbooks prices have increased in recent years.  The internet has made resale easier thus adding to the book’s value and, as publishers realize that demand has increased, to the book’s price.   Interesting possibility mentioned by Mark is that increases in nominal prices are consistent with decreases in real (after resale) prices.

Republican fact of the day

The speed with which Republicans have forgotten their "core values," as David Brooks put it after the vote on the DeLay rule, has been shocking. Earlier this year, a Boston Globe article made a few comparisons between the 1993-94 Congress that Newt Gingrich ousted and the one now ending. The Republican Congress added 3,407 pork barrel projects to appropriation bills in conference committee, compared to 47 for 1994, the last year Democrats held both houses. The Republican Congress allowed only 28 percent of the bills on the floor to be amended, "barely more than half of what Democrats allowed in their last session in power in 1993-94." The number of nonappropriations bills "open to revision has dropped to 15 percent."

Read the whole thing, but please note I don’t think a contemporary Democrat majority would be any better.

Addendum: Alex said it best.

The newspaper model of the future?

Las Ultimas Noticias (LUN) – The Latest News – is Chile’s most widely read newspaper today, setting tongues wagging, talk-show hosts chatting, celebrities and politicians denying, serious folks wailing, and advertisers calling.

No, it’s not a tabloid, insist the employees at the slightly shabby downtown newsroom. Rather, they say, it’s a revolution in journalism, a reader-driven product that reflects the changing values and interests of a postdictatorship public that grew up on a diet of establishment news and now wants more. Or, as some say – because of the often low-brow content – less.

This revolution has occurred, says the paper’s publisher Augustine Edwards, thanks to his decision to listen to "the people." Three years ago, under Edwards’s guidance, LUN installed a system whereby all clicks onto its Web site ( were recorded for all in the newsroom to see. Those clicks – and the changing tastes and desires they represent – drive the entire print content of LUN. If a certain story gets a lot of clicks, for example, that is a signal to Edwards and his team that the story should be followed up, and similar ones should be sought for the next day. If a story gets only a few clicks, it is killed. The system offers a direct barometer of public opinion, much like the TV rating system – but unique to print media.

What news, then, did readers choose in a week when a dozen world leaders gathered in Santiago for an important trade meeting? Among the top stories: Where Secretary of State Colin Powell went to dinner and what he ate (shrimp with couscous). Also, a rundown – with a photo of scantily clad waitresses – of which delegations gave the best tips (Japan).

Note that blogs, by drawing away some smart readers, may in fact hasten the "dumbing down" of some other media sources.  I predict that mainstream newspapers will become less intellectual in their coverage, while (and because) niche options expand dramatically.

Here is the full story.  Here is the newspaper, don’t worry about the Spanish, the photos make it easy to vote.  Circa Thursday, here was the leading entry under the category of "Economia", no we won’t ask her to guest blog.

Could the Euro become the global reserve currency?

The dollar’s share of global foreign-exchange reserves has already fallen from 80% in the mid-1970s to around 65% today. And yet does the dollar really risk losing its status as the world’s main currency? The same question was asked in the early 1990s after the dollar’s previous long slide, but the dollar’s pre-eminence survived. Then, however, there was no alternative to the dollar. Today the euro exists, and could yet emerge as a rival to the greenback.

The requirements of a reserve currency are a large economy, open and deep financial markets, low inflation and confidence in the value of the currency. At current exchange rates the euro area’s economy is not that much smaller than America’s; the euro area is also the world’s biggest exporter; and since the creation of the single currency, European financial markets have become deeper and more liquid. It is true that the euro area has had slower real GDP growth than America. But in dollar terms the euro area’s economic weight has actually grown relative to America’s over the past five years.

Where the dollar has failed is as a store of value. Since 1960 the dollar has fallen by around two-thirds against the euro (using Germany’s currency as a proxy before 1999) and the yen (see chart 1). The euro area, unlike America, is a net creditor. Never before has the guardian of the world’s main reserve currency been its biggest net debtor. And a debtor may be tempted to use devaluation to reduce its external deficit–hardly a desirable property for a reserve currency.

Here is the full story.

My (cautious) take:  The Euro area is rich in accumulated bank accounts but running a massive long-run deficit, most of all on human capital.  Plus what will happen when countries start rejecting the EU constitution in their referenda?  And don’t currency markets have some tendency to long-run mean reversion, suggesting the dollar will make a comeback someday? So I say no, the Euro will not become the world’s reserve currency.  That being said, every prediction I have made about the Euro has been wrong to date.  I said it wouldn’t happen, it can’t last long, and it won’t rise in value.  That is 0-3, must I now step away from the plate? 

Thanks to Kevin Postlewaite for the pointer.

In praise of me-too drugs

Today’s Op-Ed in The Financial Times defends me-too drugs:

There is a tendency among the medical fraternity to tut-tut about the proliferation of drugs as unproductive and unnecessary. Marcia Angell, a former editor of the New England Journal of Medicine, argues in her book The Truth About Drug Companies that me-too drugs are symptomatic of Big Pharma’s intellectual bankruptcy.

Dr Angell says there is "almost no evidence of price competition in the me-too business" and trials "almost never compare me-too drugs with one another for the same condition at similar doses". One or two drugs would do: "I know of no rationale for, say, the seven brand-name Ace inhibitors that are sold to treat high blood pressure and heart failure."

There is something to her critique. One of the attractions of me-too drugs has been that pharmaceuticals companies have been able to market them heavily in the US – spending $3.3bn (£1.7bn) on direct-to-consumer advertising in 2003, and giving $16bn of free samples to doctors. This makes them look more like branded consumer goods companies than research-based scientific organisations.

But there are already signs of drug proliferation leading to falling prices. In Europe, the existence of alternative treatments has helped governments to cap prices. Pfizer is fighting a German proposal to pay the same for all cholesterol drugs, cutting the sum it gets for Lipitor by a third. Even in the US, drug companies increasingly have to compete to get their drugs on to approved prescription lists.

That means direct comparisons on both price and effectiveness. Despite the industry’s traditional resistance to "head-to-head" trials, they are becoming more commonplace. Bristol-Myers Squibb financed a head-to-head study of Pravachol and Lipitor in an effort to displace the market leader, only to find this year that Lipitor worked better.

…This may all sound terribly wasteful to a doctor, but it is the same thing that is good for consumers in other markets: open competition. The problem until now has not been too much of it, but too little. The last thing that a patient should want is a choice of only one drug. As the Vioxx withdrawal shows, me-too pills may inspire little affection, but they would be missed if they were not there.

Why have me-too drugs been so prevalent?  Are they an inefficient form of product mimicry?  An artifact of bad patent or FDA policies?  The long-run path to affordable medical care?  I don’t have the expertise to answer these questions, so in my spare time I bug Alex to write more about them.

Europe’s pension problems are worse than I had thought

Immigration can help offset some of the side-effects of an ageing population in Europe but would be nowhere near sufficient to salvage struggling pension schemes, the United Nations said on Monday.

The UN’s 2004 world economic and social survey said even with immigration projected to average 600,000 a year between 2000 and 2050, Europe’s population was expected to decline by 96m in that period.

“Incoming migration would have to expand at virtually impossible rates to offset declining support ratios, that is, workers per retirees,” the UN report said.

It estimates that France would have to bring in nearly 90m migrants to 2050 to maintain 1995 support ratios, compared with the nearly 4m projected. Germany would have to accept more than 181m immigrants, against 10.5m projected between 2000 and 2050.

Europe does not need to replicate previous support ratios, but still the prognosis is grim.  By the way, don’t take this as an argument against immigration, there is no way to solve the problem without it.  But many different things will have to go well to avoid a major European fiscal crisis.

And this fact will surprise many:

The study revealed that Latin American immigration to the US roughly doubled over the 1990s, while the total number of Latin American migrants remained stable, as the end of military conflicts in Central America allowed many migrants to return home…

Here is the full story. Here is the original UN report.

China fact of the day

China now has the world’s largest shopping mall:

It takes about two days to explore Beijing’s new Golden Resources Shopping Mall – the world’s largest. Minnesota’s "Mall of America" is 4 million square feet. Golden Resources, built in an impressive 20 months and opened Oct. 24, is 6 million square feet.

With 230 escalators, more than 1,000 shops, restaurant space the size of two football fields, and a skating rink – the Art Deco mall is a testament in glass and steel to the communist party’s desire to create a stable, happy, middle-income consumer class.

Here is the full story, and thanks to Mises Blog for the pointer.  It is reported that mall offerings are still far ahead of local purchasing power.

Warring against the division of labor

A group of British scientists has come up with a brain-taxing spin on the old formula of 100 things to do before you die.

The group – which includes the evolutionary biologist Richard Dawkins, astronomer Sir Patrick Moore, neuroscientist Susan Greenfield and the inventor James Dyson – urges us all to take samples of our DNA, measure the speed of light with chocolate, and solve the mathematical mystery of the number 137.

The list, compiled by New Scientist magazine, suggests booking to see Galileo’s middle finger (preserved in Florence) or ordering liquid nitrogen to make the "world’s smoothest ice-cream" at home.

Another option is learning Choctaw, a language with two past tenses – one for giving information that is definitely true, the other for passing on material taken without checking from someone else.

Here is a summary article; I cannot find the entire list on-line, here is the book.  My personal "before I die" goal is to study Indian classical music before my dexterity gives out completely; I no longer expect to play in the NBA or even to hold season tickets.