Month: January 2005
"What Bill Buckley once called the "hysteresis effect". When he was traveling around the world on the Concorde, some years back, he observed that–although long-haul transportation as such had gotten much faster in his lifetime–the total amount of time actually needed to get from point A to point B had not diminished proportionately, because of the increasing amount of distance (and therefore time) between the point of departure and the point of embarcation: that whereas when trains were the done thing, it took maybe 10-20 minutes to get from your front door to the station; with prop aircraft and downtown airports, maybe 30-40 minutes; with jet aircraft and "modern" air terminals, an hour or two; and that–speculatively–if there were ever hypersonic transports capable of going from Los Angeles to Tokyo in 45 minutes, it would take three to four hours at each end to travel to and from the spaceport…"
Gladiators’ combat had become a martial art by the beginning of the first millennium, according to a controversial theory based on reconstructing the fighters’ tactics from Roman artefacts and medieval fight books.
To amuse the crowds around the arena the gladiators would display broad fighting skills rather than fight for their lives, argues archaeologist Steve Tuck of the University of Miami. "Gladiatorial combat is seen as being related to killing and shedding blood," he says. "But I think that what we are seeing is an entertaining martial art that was spectator-oriented."
Traditional game theory assumes that individuals choose strategies. Evolutionary game theory assumes that individuals are strategies.
Our colleague, Dan Houser, has just published an important new paper (co-authored with Robert Kurzban) that supports the assumption of evolutionary game theory. (The paper is also featured in the Economist.) In a public goods game, Kurzban and Houser are able to identify three systematic strategies; cooperate, free ride and reciprocate (cooperate more when others do so). The first surprising result of their paper is that these strategies can be tied to specific individuals. Some individuals cooperate, others free ride and others reciprocate and the strategies that these individuals "choose" are stable. (This doesn’t mean that individuals play strategies robotically regardless of context a better analogy may be to think of strategies like personalities – even a quiet person can yell sometimes.)
Strategy choice is so stable that Kurzban and Houser can create very cooperative groups simply by weeding out the free riders. What is even more surprising, however, is that when individuals are randomly assigned to groups each strategy type earns about the same payoff. Even though the strategies are very different, no strategy dominates the others in a randomly assigned group – this is exactly what one would predict if individuals are strategies in an evolutionary game.
Kurzban and Houser’s paper raises a number of interesting questions. First, if they can pick out free riders why can’t the group members do so – in which case the baseline set of strategies won’t be an ESS. How much does it take to push people away from their natural strategies? Is the proportion of the population that plays each strategy the same in different cultures? And what do the proportions (13% co-operators, 20% free-riders and 63% reciprocators) tell us about conditions in the evolutionary era when such strategies first solidified? I will take these up with Dan.
1. An independent Fed works because the American public fears inflation. If anything, the data suggest that people are too afraid of inflation. American voters do not have similar instincts about an independent investing trust.
2. It is harder to maintain political independence when large amounts of money are being allocated or invested. Note that seigniorage is no longer a significant source of revenue; central bank performance has improved accordingly.
3. If we reform social security, it will lose its status as a "sacred cow." This is not objectionable per se. But it will make it harder to treat an independent investment board as a sacred cow.
4. It took long periods of experimentation and meddling to establish the independence of most central banks. What is the learning process for these investment boards?
5. Most state pension funds (Calpers is one notable exception) are not big enough to influence corporations as the federal government could. Furthermore state pension funds are much less visible than is social security. That being said, state pension funds are starting to meddle.
6. What if Brad DeLong is right that the Bush Administration manages to politicize everything? What if the Democrats learn the same?
A core question is why we don’t run our entire government by independent experts, insulated from political pressure. The answer, in short, is twofold. We both require some degree of accountability, plus our government (and yes I include voters under that designation, not just "evil politicians") cannot precommit to leaving things alone. The Fed works because of a relatively high coincidence of interests in its topic areas, namely monetary policy and bank regulation.
When it comes to the investment board, the greatest danger is simply that voters will get upset if returns are low for a ten or fifteen-year period. They will demand a change — any change — and I fear how this pressure will work its way through the political process.
The bottom line: There is nonetheless a good chance that the independent panel idea could work. Maybe a fifty percent chance. But still I would not do it, as the downside is higher than the upside.
My general perspective is simple. Social security will bring some form of big government, whether we like it or not. Let us do our best to keep private capital markets free to outrace the size of that government. I am confident that markets are up to the task, and afraid of tinkering with this basic fact about our world.
Other people, it seems:
Are you selfish or generous? Or do you follow the herd, always giving whatever the majority of people deem appropriate?
Society is a mixture of these three types of character, but most of us are the last type, altering our generosity to fit the societal norm, new research has found. It suggests that governments could prompt huge swathes of the population to become more charitable simply by giving more itself or by providing other benevolent role models.
I am a little doubtful about that last sentence (remember crowding out?, and note that the policy implication comes from the journalist, not the researchers!), but here is the story from The Economist. The quotation is from the 22 January New Scientist. Here is Dan Houser’s home page. Here is one paper behind the research.
One bottom line: You are not as benevolent or generous as you think. The main reason you gave to tsunami victims is because other people did.
Nicholas Kristof updates his story on the sex slaves that he bought (and freed) in Cambodia. For the main story read the whole thing but the following anecdote caught my eye as saying a lot about problems of development that are not much discussed in the literature: short-time horizons, envy, the dragging down of the ambitious and the almost inherent lack of property rights in small communities.
At first, it turns out, everything went well for Srey Neth. Our plan was for
her to start a shop in her village, near Battambang. She invested $100 I had
given her to build a shack and stock it with food and clothing. For a few
months, business boomed.
The problem was her family. Srey Neth’s parents and older brothers and
sisters had a hard time understanding why they should go hungry when their
sister had a store full of food. And her little nephews and nieces, running
around the yard, helped themselves when she wasn’t looking.
"Srey Neth got mad," her mother recalled. "She said we had to stay away, or
everything would be gone. She said she had to have money to buy new things."
But in a Cambodian village, nobody listens to an uneducated teenage girl.
Indeed, the low status of girls is the underlying reason why so many daughters
are sold to the brothels. So by May, Srey Neth’s shop was empty, and she had no
money to restock it.
Eventually, and with help, Srey Neth moves to the city, in the process recapitulating an important aspect of Western economic development best encapsulated by the German phrase Stadtluft macht frei, city air makes one free (PDF).
…human capital investments play significant, but different roles, in the earnings from jazz music and non-jazz music. Years of schooling and years of playing music are positively correlated with the earnings from non-jazz musical styles. With respect to earnings from jazz music, however, years of schooling has a negative impact while the point estimates for years of music experience nearly double.
You can find the paper here.
Over the last 20 years, public pension funds have grown nearly sevenfold – to more than $2 trillion nationwide, outpacing private-sector fund growth by more than one-third and making them tremendously powerful in boardrooms across the country.
Why do they want to meddle? Because they can. Although private-sector fund managers focus on picking lucrative investments – because that’s how they get paid – public fund trustees have different incentives. Sure, they want funds to perform well. But if they don’t, they know that taxpayers will make up the shortfall. So they’re free to pursue political objectives.
Public funds first discovered their political strength in the mid-1980s, when they successfully pressured companies with business in South Africa to lobby against apartheid or to withdraw from that nation. For years, activist pension funds focused on broad-brush issues like apartheid. They didn’t meddle with corporate management.
But the public funds have taken the corporate scandals of the Enron era as a license to step up their interference with corporate boards. "The age of investor complacency must be replaced by a new era of investor democracy," said Phil Angelides, California treasurer and a member of the board of CalPERS, the state’s main pension fund.
Read more here. Tomorrow I will consider the more general question of whether we should trust our federal government to invest social security funds in private equities.
"Nation Split on Bush as Uniter or Divider."
Here is the story.
Basic microeconomics recommends a simple strategy. Have the number of children that maximizes average utility over your whole lifespan. When you are 30, you might feel like two children is plenty. But once you are 60, you are more likely to prefer ten sons and daughters to keep you company and keep the grandkids coming. A perfectly selfish and perfectly foresighted economic agent would strike a balance between these two states. For example, he might have four kids total – two too many at 30, six too few at 60.
Trust me – you’ll thank me later. Your third child ought to thank me too, but we all know better than to expect gratitude from the young. Now all you have to do is convince your spouse!
My Arnold Kling-like questions: Is Bryan overestimating the gratitude of grown children? And given that most people are unwilling to concentrate their bequests on a single child, will you get more attention if you have fewer children?
1. I would think that Asian central banks, by buying U.S. dollars, have been driving a massive distortion of real exchange and interest rates.
2. I would think that the U.S. economy is overinvested in non-export durables, most of all residential housing.
3. I would think that we have piled on far too much debt, in both the private and public sectors.
4. I would think these trends cannot possibly continue. Asian central banks may come to their senses. Furthermore the U.S. would be like an addict who needs an ever-increasing dose of the monetary fix. This, of course, would eventually prove impossible.
5. I would think that the U.S. economy is due for a dollar plunge, and a massive sectoral shift toward exports. Furthermore I would think it will not handle such an unexpected shock very well.
6. I would buy puts on T-Bond futures and become rich.
7. I would think that Hayek’s Monetary Nationalism and International Stability, now priced at $70 a copy, is the secret tract for our times.
Of course that is not me. But at least someone appears to believe in Austrian business cycle theory. By the way, here is one summary of the theory, although I do not agree with the characterization in all respects.
PartyBuddys, the inspiration of James King and Jason Roefaro, both 30 and both from Union City, N.J., promises to "make normal people feel fabulous for the night," according to its Web site, www.partybuddys.com.
Its night-out package includes a guide (the party buddy) to usher clients "through crowds of jealous bystanders," limousine service, complimentary drinks and V.I.P. treatment at six Manhattan clubs (Cielo, Plaid, Webster Hall, Copacabana, Spirit and China Club).
Fees for the night start at $350 a person; full rock-star treatment is available for $1,200.
Mr. King and Mr. Roefaro, who operate the business out of Mr. Roefaro’s late grandmother’s brick house in Union City, estimate that at least 60 percent of their clients are middle-aged professionals from out of town who have never visited a New York nightclub.
"This service is like paying to drive a race car or be taken up in a fighter plane," Mr. Roefaro said. "They’re not race car drivers or fighter pilots, they’re accountants and lawyers, but for a short time they can imagine they are. For that night, they’re not an accountant; they’re Paris Hilton or P. Diddy."
When I first subscribed to satellite radio, I used it to try out musical genres, such as Country Classic, that I didn’t otherwise listen to much. But now I have become lazy. My search buttons cover seven channels, making it easy to track down favorite songs. By punching a button I can pull up something like "Wooden Ships," "Poli High," or "C Moon." Why bother learning more Merle Haggard? At some margins, diversity makes us less interested in innovation.
Yana, who is now fifteen, likes satellite radio less than I do. She hasn’t accumulated a large enough stock of favorite songs. She wants stations that play the same material over and over again, so she can accumulate such a stock. The Top 20 station fits this bill, but most of the others do not. They are about something different every day, at the whim of the usually silent disc jockeys.
You can discover something you like, and then buy it. But most fifteen-year-olds are poor. She wants to discover something she likes, and hear it again tomorrow for free. (This suggests, by the way, that illegal downloads are the friend of satellite radio, but that is for other families.) This is precisely what satellite radio does not deliver, and why most of mainstream radio resorts to play lists.
By the way, did I mention that "under 25s" drive music sales?
And that is why satellite radio will have a hard time becoming more popular and maintaining its uniqueness. Stay tuned, as they say in the business…