Month: February 2005

The African Cliff

Even though I know about AIDS in Africa this figure shocked me.

What I don’t understand is why the discussion of solutions focuses so heavily on AIDS drugs when condoms are cheaper and more effective in preventing spread of the disease.  And why isn’t condom use in Africa skyrocketing?  (A notable exception is Uganda where AIDS rates have begun to level off due to condom use– see graph).  Condoms are cheap – even if not to every African they can be easily subsidized by donor groups or governments but there is still a large condom-gap in Africa.

Note that in theory condom use could increase transmission of AIDS if it increases sex.  Evidence from the US and elsewhere indicates this is unlikely in practice.  Moreoever, it doesn’t explain why more condoms are not being used.

Figure from the Economic Report of the President (2005) via Ben Muse.

Markets in everything

[some University of Michigan students] are getting $100 cash payments for keeping their dorm rooms presentable and opening their doors so prospective students and their parents can take a look during campus visits…

Participants must let tour groups see their room in the middle of the day, and have to be out of bed and dressed [imagine that!], said Randi Johnson, the university’s housing outreach coordinator. Display of anything illegal, offensive or banned is forbidden.

Here is the story, and thanks to Michael Rizzo for the pointer.

Does citrus smell make you buy?

Under certain conditions, a citrus smell seemed to magically open the
pocketbooks of shoppers and increase their desire to spend, according
to Jean-Charles Chebat of the HEC Montreal graduate school of business,
Richard Michon of Ryerson University in Toronto and L.W. Turley of
Western Kentucky University. Their findings appear in the latest issue
of the Journal of Business Research.

But retailers with a nose for sales should not order industrial-size
vaporizers and fill them with orange scent just yet. The researchers
cautioned that the citrus smell provoked additional spending only if
stores were moderately busy. If they were too crowded or too empty, the
power of citrus disappeared. "Crowds have their own smells," Chebat
said in an e-mail. "Citrus can counterbalance the effects of such
smells to a certain extent. However, it has its limitations. As for the
least crowded environments, citrus may be too arousing."

Here is the full story.  Here is another summary, which includes a discussion of using scents to encourage gambling.  Here is a link to the paper and related works.

Do gay men read maps like women?

Gay men employ the same strategies for navigating as women – using landmarks to find their way around – a new study suggests.

they also use the strategies typically used by straight men, such as
using compass directions and distances. In contrast, gay women read
maps just like straight women, reveals the study of 80 heterosexual and
homosexual men and women.

Here is the full story.   

Copyrighting Storms

Writing in the Financial Times, James Boyle makes an interesting comparison between how Europe and the U.S. treat government produced data, everything from "ordnance survey maps and weather data, to state-produced texts,
traffic studies and scientific information."

one side of the Atlantic, state produced data flows are frequently
viewed as potential revenue sources. They are copyrighted or protected
by database rights. The departments which produce the data often
attempt to make a profit from user-fees, or at least recover their
entire operating costs….The other side of the Atlantic practices a benign form of
information socialism. By law, any text produced by the central
government is free from copyright and passes immediately into the
public domain.

Surprisingly, it’s the US which practices the "benign form of socialism."

Take weather data. The United States makes complete weather data
available to anyone at the cost of reproduction. If the superb
government websites and data feeds aren’t enough, for the price of a
box of blank DVD’s you can have the entire history of weather records
across the continental US. European countries, by contrast, typically
claim government copyright over weather data and often require the
payment of substantial fees. Which approach is better? If I had to
suggest one article on this subject it would be the magisterial study
by Peter Weiss called “Borders in Cyberspace,” published by the
National Academies of Science. Weiss suggests that the US approach
generates far more social wealth. True, the information is initially
provided for free, but a thriving private weather industry has sprung
up which takes the publicly funded data as its raw material and then
adds value to it. The US weather risk management industry, for example,
is ten times bigger than the European one, employing more people,
producing more valuable products, generating more social wealth.
Another study estimates that Europe invests €9.5bn in weather data and
gets approximately €68bn back in economic value – in everything from
more efficient farming and construction decisions, to better holiday
planning – a 7-fold multiplier. The United States, by contrast invests
twice as much – €19bn – but gets back a return of €750bn, a 39-fold
multiplier. Other studies suggest similar patterns in areas ranging
from geo-spatial data to traffic patterns and agriculture. “Free”
information flow is better at priming the pump of economic activity.

Link addded.  Thanks to Paul van Hoek for the pointer.

Weather Incentives Work?

The Russians will soon find out.

Moscow Mayor Juri Luschkov said: "Weather forecasters in our city and
the surrounding area will be held responsible for financial losses that
the city incurs through their incorrect prognoses."….

He did not elaborate on how much the fines would be or if the cash
would be taken from the weathermen, or the companies they worked for.

fines come after the head of the Romanian National Meteorology Agency,
Ion Poiana, was fired after he predicted warm weather fronts on days
when temperatures plunged to a record minus 36 degrees centigrade.

Thanks to Carl Close for the pointer.

Brad is wrong, so is Brad

Brad DeLong quotes Brad Plummer:

[I]t really doesn’t make a difference whether you pay 40 percent of your income for private health care, or 40 percent of your income in taxes that then go to government-administered health care. I mean, yes, in one sense it makes a difference: If you think the free market is a better way of delivering health care, you’ll endorse option 1; otherwise, you’ll endorse option 2. But in the end, you’re still paying 40 percent of your income….it’s disingenuous to say, "Oh no! America’s doomed! We’re going to have
to raise taxes massively in the future in order to afford things we’d
be spending a good chunk of our income on anyway!"

Brad DeLong writes "Brad is absolutely right. (I like the way
that sentence sounds: I wish *I* heard it more often from others.)"

Sorry Brad (and Brad), I’d like to oblige but there is a big difference between spending 40 percent of your own income on health and having 40 percent of your income taken in taxes and spent on health even if we assume that the spending is on exactly the same thing.   The 40 percent of your income spent on health is a benefit of work, a reason to work harder, but the 40 percent taken in taxes is a cost of work that creates a dead weight loss.  Moreover, at 40 percent plus the dead weight loss is going to be big.

To make the problem with Brad P.’s thought experiment clear suppose that we documented exactly how everyone spent their yearly income.  Now we tax everyone 100 percent and provide them with exactly what they were buying before.  Nothing changes, right?  Wrong.  At 100 percent tax there is no longer any incentive to work – thus no one works and nothing is provided.  Everything changes.

Why are land taxes special?

Recently Bryan Caplan and I were chatting about Georgism.  Henry George is well-known for his insistence on taxing land.  But why land?  What makes land special rather than labor or capital?

As I understand the doctrine, there is no special case for taxing improvements on land.  Instead government should tax the "barebones" or "in situ" value on land.  Say that land currently sells for $100,000 an acre, but would sell for $50,000 unimproved.  We should levy the tax only on the $50,000.  Supposedly we are then taxing an inelastic factor and creating only minimal distortions.  Did not Adam Smith offer a similar recommendation?  What better way to fund government?

Fair enough, but then why not tax the in situ values of labor as well?  The "barebones" value of labor is of course leisure.  That is what labor is worth when no extra effort is added to the picture.  Therefore an optimal tax system should try to tax leisure.  This may prove difficult, but why should it be harder than taxing the barebones value of land?  Note that sometimes we are content to tax complements to leisure, such as large camper vans. 

What if we taxed complements to the in situ value of land?  These would be the factors — like labor and capital — that add value to barebones land.  So I take the Georgist view to imply two claims.  First, it is easier or better to tax barebones land than barebones labor.  Second, taxing a factor directly is much better than taxing complements of that factor.  Since I am not convinced either of these are true, I hold no particular attachment to the idea of a single tax on land.

I also share Benjamin Tucker’s concern as to how the in situ value of land should be defined.  Some of the problems are conceptual rather than empirical.  Land values are interdependent.  When assessing the in situ value of my land, what assumptions should be made about the values of surrounding lands or the actions of other people?  When the steamship is invented, should all taxes on American land have risen? 

I might add that Bryan has different objections, which he may someday reveal to us all.

Austrian economics and business cycles

My out of print 1997 book Risk and Business Cycles is now available on-line through the new Google search service.  They want $100 for the ebook, but you can search the book here.

The book has four core arguments.  First, rational expectations theory, as a methodological but not descriptive assumption, is the friend of Austrian Business Cycle theory, not its enemy.  Second, classic Austrian Business Cycle theory is not tenable (more on this some other time; the basic argument is that ABC requires an excessively particular theory of how individual investors err).  Third, the theory should be refocused around the category of risky investments, thereby leading to a viable synthesis of Keynes and Hayek.  Fourth, there is some (non-decisive) empirical evidence in favor of such a synthesis.

Here is my previous post on Austrian Business Cycle Theory and its relevance for current events.

Does money make you happier?

"A growing body of literature suggests that additional riches do not make citizens in wealthy countries any happier, at least not above a certain level.  Using information taken from questionnaires, once a country has a per capita income of roughly $10,000 a year or more, the aggregate income-happiness link appears weak.  Helliwell (2002, p.28) argues that the curve flattens out at about half of current American per capita income, or roughly the standard of living in contemporary Greece.  These results might lead us to wonder whether economic growth is so important after all.

Despite this important body of evidence, I nonetheless wish to treat wealth and happiness as comoving in the broad sense.  Questionnaire evidence should not distract our attention from our primary institutional means of improving human well-being, namely economic growth.

The flat-lining of the happiness-wealth relationship may in part reflect a framing effect.  The literature usually focuses on aspiration or treadmill effects, whereby the wealthy expect more.  Their greater wealth therefore translates into less happiness than might have been expected.  But this is not the only adjustment occasioned by growing wealth.  The wealthy also recalibrate how they should respond to questions about our happiness.  If happiness itself is subject to framing effects, surely talk about happiness is subject to framing effects as well.  The wealthy develop higher standards for reporting when they are “happy” or “very happy.” 

So let us assume that both framing effects – concerning both happiness and talk about happiness – operate at the same time.  This will imply that even a constant measured level of reported happiness implies growing real happiness over time.  Life improvements do usually make us happier, while both our expectations and our reporting standards adjust upwardly.  This is the most likely interpretation of the aggregate data.  Most individuals strive to earn higher incomes, even after they have experienced the strength of “aspiration” and “treadmill” effects.    

Note that within a country wealthier people report unambiguously higher levels of happiness, on average, than do poorer people (Dieter 1984).  This result has not been challenged seriously.  Now to some extent this result may reflect a zero-sum relative status effect.  The wealthier people feel better at the expense of the poorer people, because they stand above them.   Nonetheless it is unlikely that the entire effect boils down to a zero-sum game; wealthier lives are easier and happier in absolute terms in numerous ways, as discussed above.  Even if my neighbor does not like the fact that I own a new car, the gainer’s gain exceeds the loser’s loss in many of these cases.  Again, some of the apparent “zero-sum” element will be a framing effect for “talk about happiness,” rather than happiness itself.  If a buy a Mercedes, my polled neighbor may express greater dissatisfaction with his Volkswagen.  That same neighbor, if he had a Lada in Moscow, circa 1978, might express greater satisfaction on the questionnaire.  Nonetheless in absolute terms he still prefers the Volkswagen in contemporary America.

It is also an open question whether the flattening point for the happiness-wealth relationship changes over time.  If the world as a whole became much wealthier, for instance, might the “point of flattening” shift out to a higher income level?  In this hypothetical future, people without access to limb regeneration and daily supersonic transport would feel deprived and thus less happy.  Most likely, this would mean that we had produced a way of shifting up the whole curve.  The standard of living found in contemporary Greece would not make people as happy as in the wealthier society of the future.  At any point in time the curve may have a large flat range, but over time the absolute level of the curve, and thus human welfare, increases nonetheless. 

The happiness literature also takes a limited view of what well-being, interpreted as broadly as possible, consists of.  The contemporary empirical literature on happiness starts with the operational definition of whether an honest, self-aware person would report himself or herself as being happy, if so asked.  Even if this accurately captures one notion of happiness, it is not the only relevant notion. 

For instance a wealthier economy probably gives us more “fleeting” happiness experiences, or at least greater chances to trade-off long and short-term sources of happiness.  Recent research (Kahneman, 2004) looks at the allocation of time during the day and classifies events according to how much (temporary) happiness they produce.  It turns out that intimate relations, time spent with friends, and television, all appear to make people happier in this sense.  Working and commuting make people less happy.  A wealthier economy will offer greater options for structuring these choices, again noting that there may be trade-offs between long- and short-term happiness.  Wealthier economies, on average, are associated with higher levels of leisure time, although they accommodate workaholic preferences as well.

Often context effects matter for temporary happiness.  An individual will admit to being happier if he has recently found a dime, or if his soccer team won rather than lost (Schwarz and Strack 1999).  These sources of happiness will likely be systematically larger over time in the wealthier society.  A diverse commercial economy offers more sources of temporary stimulations and more short-term turns of good fortune.

Most generally, we must ask which institutional structures give people the greatest opportunities to structure their lives to achieve their preferred forms of happiness or well-being.  Some persons may seek temporary stimulations, others may want to feel fulfilled at the end of their lives, and others may seek to maximize the quality of their modal day.  Some will seek happiness through out-competing their peers for status, while others will look inward.  Again, greater opportunities and freedoms will likely favor the wealthier society in these regards.  Well-being is not a single variable to be maximized; rather individuals prefer to structure the kinds of well-being or happiness they can achieve.

Finally, even if we accept the “flat-line” empirical result as valid, the questions are posed to individuals in normal life circumstances.  The answers will not pick up the ability of wealthier economies to postpone or mitigate extreme tragedies, whether in the wealthier or poorer parts of our world.  For instance the happiness measures, by their nature, do not pick up the benefits of greater life expectancy.  The dead and incapacitated cannot complain about their situation, at least not in questionnaire form.  If an immigrant, or a child of immigrants, fills out the form, there is no comparison with a pre-immigration state of affairs.  By its very nature, happiness research draws upon a fixed pool of people in relatively normal circumstances.  This will limit its ability to measure some of the largest welfare changes brought by economic growth.  Happiness research, whatever its positive uses, is poorly suited to underpin a welfare economics of tragedy.

The happiness literature at most shows that many more changes are irrelevant than we had previously thought.  This result would not, however, eliminate the major benefits of economic growth, as experienced over longer periods of time.  It might turn out that (if we believe the happiness literature) many “small” changes are irrelevant or nearly irrelevant for happiness.  Yet sufficiently large changes still can boost or harm our welfare by significant amounts.  If the small changes do not much matter, that is all the more reason to focus on the large changes and thus reason to elevate the importance of infra-marginal welfare economics.

To give a few examples of how large changes matter, most life catastrophes create significant misery.  Very sick individuals have less autonomy, experience more pain, and face the stress of dealing with their condition.  The death of a child or close family member has a strongly detrimental affect on happiness for most individuals, often persisting for many years.  Torture, extreme stress, rape and severe physical pain also produce depression, trauma, and persisting unhappiness.  Individuals who have been through wars, revolutions, and collapses of civil order typically experience recurring flashbacks, nightmares, irritability, depression, alcoholism, troubled relationships, and inability to concentrate.  Well-functioning capitalist democracies tend to minimize these problems.

It is sometimes questioned whether even extreme catastrophes make people less happy.  Individuals who experience severe disabilities or physical handicaps do to some extent adjust their expectations.  Often these victims compare themselves to individuals who are even worse off than they are, or they lower their aspirations in life.  The loss in happiness is not as great as a naïve perspective might expect.  Nonetheless victims of catastrophe still report lower levels of happiness than do comparable healthy individuals.  The happiness difference is most distinct, the greater the extent of the disability.  At the very least, a significant percentage of victims experience an ongoing "core of distress" for many years.

People cope least successfully when the catastrophe or malady is ongoing and involves an ongoing deterioration of condition.  Most of the counterintuitive results come when the bad event has a “once and for all” nature, such as a one-time physical handicap.  In these cases many people recover their initial level of self-reported happiness.  But individuals remain subjectively badly off when they suffer from progressive or degenerative problems.  So to the extent that a poorer society brings an ongoing worsening of conditions for many individuals, the associated human suffering will be greater.  Once again, we are led back to significant benefits from ongoing economic growth."

Read also Will Wilkinson on the topic.  And if the above remarks appear to differ from my previous remarks on these topics, it is because I am still changing my mind.

My favorite things Floridian

I am in Palm Beach for a few days, so here goes:

Film: The classic is Key Largo; Bogie’s speech about Edward G. ("more, you want more…") is a (the?) classic statement of behavioral economics.  An honorable mention goes to Wild Things, a hot and underrated work of teen film noir.  Of course Body Heat was set in Florida as well.  As for comedy, Jim Carrey’s debut feature Ace Ventura: Pet Detective, set in Miami and environs, was made before his brilliant comic talents ossified. 

Literature: I’ll pick Zora Neale Hurston, with my favorite work as her memoir Their Eyes Were Watching God.  She is also quite a libertarian thinker in many ways.

Music: The Allman Brothers, Ray Charles, and Tom Petty are the only competitors I can think of.  They are all overrated, but I will opt for Charles’s "What’d I Say?"  Tampa Red was pretty good, but often he is attributed to Georgia.

Art: Many notable Americans painted Florida, but how about an artist who is truly of Florida?  I’ll opt for the Haitian Edouard Duval-Carrie, here are a few good paintings by him.  And here is Kevin Grier’s favorite Duval-Carrie, scroll down to the bottom.

The bottom line: I love Miami Art Deco and roadside architecture, but doesn’t Florida feel just a wee bit underrepresented on the lists of artistic greats?

Addendum: A number of readers argue persuasively that the Allman Brothers should belong to Georgia, not Florida. 

Brain Drained

Two weeks ago I posted on the brain drain at the NIH brought about by new draconian rules on so-called "conflicts of interest" between NIH workers and outside interests.  I suggested that the policy was a mistake but we now learn from the Washington Post that it is a stupid mistake.

The unexpected finding that as much as 80 percent of the seeming
improprieties were actually the result of errors by government
investigators has undermined the rationale behind NIH Director Elias A.
Zerhouni’s recent decision to impose severe restrictions on the
personal activities and finances of all of the agency’s more than 5,000

The story is simple.  The government asked the pharmaceutical companies for the names of all NIH scientists with whom they had consulting operations and they asked the NIH for a similar list.  Comparing the two lists they found about 100 names on the pharmaceutical list which were not on the NIH list and then jumped to the conclusion that these 100 people were lying.  After months of investigation during which many people’s lives have been turned upside down it turns out that one list included 2004 but the other did not, some of the "John Smiths" on the pharmaceutical list were incorrectly identified with "John Smiths" at the NIH, the pharmaceutical companies didn’t use the same definition of consulting as the NIH etc.  Keystone cops.

And here is an example of the new law in practice.

One scientist who, under the new rules, was informed he could not
accept an unpaid adjunct professorship at Johns Hopkins University was
told he might be unduly influenced in favor of the university because
the appointment came with free campus parking…

The Stories of English

After Shakespeare, playwright Thomas Nashe (who?) contributed more words (nearly 800) to the English language than any other writer.  His successes include: conundrum, grandiloquent, harlequin, impecunious, Latinize, Mediterranean, memorize, multifarious, plausibility, seminary, silver-tongued, terminate and transitoriness.  Balderdash and helter-skelter have been attributed to him as well.

And his failures?

Adequation, apophthegmatical (my personal favorite, it means "pertaining to an apophthegm," what else?), baggagery, clientry, confectionate, intermedium, oblivionize (excellent, no?), bodgery ("botched work"), and collachrymate ("accompany with weeping").  "Chatmate" sounds like a word, and perhaps it will yet receive its due.

"Sparrow-blasting" was intended to mean "being blighted with a mysterious power of whose existence one is skeptical," this could someday come in handy.  By the way, here are some works by Nashe, I am told they include some soft porn.  Here are some amusing quotes from Nashe, including a summary of different ways to be drunk.

The above discussion of words is from David Crystal’s The Stories of English, highly recommended, here is one good review.  The book has more detail than the usual popular treatments of linguistic evolution, yet it remains readable to the educated layman.  Crystal also rebuts the common myth that television is producing a uniform dialect, either in the U.S. or around the world.

The Michelin Dining Guide is coming to New York City

For the last five months [Michelin] gastronomic undercover agents have been working on the Michelin Guide to New York City, the company’s first hotel and restaurant ratings outside Europe. Michelin’s green sightseeing guides have covered the United States since 1968.

Édouard Michelin, the chairman of the French tire company that bears his name, is expected to announce plans for the 2006 New York guide. The book, to go on sale Nov. 15, will rate 500 restaurants in the five boroughs and 50 Manhattan hotels.

Here is The New York Times story.

How will this matter?  Zagat’s guides, the main U.S. competitor, are sold to make profit.  Furthermore they rely on unpaid reader evaluations, which tend to be low-brow or middle-brow.  Michelin Red Guides hire quality inspectors but typically lose money.  They are viewed by the parent company as loss leaders for the company name.  Whether or not this loss leader logic will apply to the U.S., the Michelin inspectors have accumulated expertise in "tony" (some would say snobby) evaluations. 

So use the Michelin guide if you are rich, using an expense account, or have especially good taste in food.  (I put myself only in the latter category.)  The median buyer, just out for fun, can stick with Zagat.

It is well known that Michelin "carries" the Lyon restaurant of Paul Bocuse at the exalted three-star status, even though the place no longer merits such high marks.  Bocuse remains a well-connected French culinary institution.  How much will the guide have to pander to and flatter Americans?  If New York has no three-star restaurants, will U.S. customers view the guide as French culinary snobbery?

Harvey Rosen to Head CEA

Harvey Rosen has been promoted to chairman of the Council of Economic Advisors.  Rosen is a respected professor of public finance and expert on tax policy from Princeton.  Speaking personally, I find his work accomplished but boring.  He can, however, surprise at times.  I like this paper quite a bit, especially the title (fortunately CEA chairman need not pass through a Congressional gauntlet 🙂 ).

The Self-Employed are Less Likely to Have Health Insurance Than Wage Earners. So What?