Month: February 2005

Wittgensteinian sushi

by  Tyler Cowen in

…the sushi made by Mr. Cantu, the 28-year-old executive chef at Moto in Chicago, often contains no fish. It is prepared on a Canon i560 inkjet printer rather than a cutting board. He prints images of maki on pieces of edible paper made of soybeans and cornstarch, using organic, food-based inks of his own concoction. He then flavors the back of the paper, which is ordinarily used to put images onto birthday cakes, with powdered soy and seaweed seasonings.

At least two or three food items made of paper are likely to be included in a meal at Moto, which might include 10 or more tasting courses. Even the menu is edible; diners crunch it up into a bowl of gazpacho, creating Mr. Cantu’s version of alphabet soup.

Sometimes he seasons the menus to taste like the main courses. Recently, he used dehydrated squash and sour cream powders to match a soup entree. He also prepares edible photographs flavored to fit a theme: an image of a cow, for example, might taste like filet mignon.

"We can create any sort of flavor on a printed image that we set our minds to," Mr. Cantu said. The connections need not stop with things ordinarily thought of as food. "What does M. C. Escher’s ‘Relativity’ painting taste like? That’s where we go next."

Here is The New York Times story.  Thanks to Matt Dreyer for the pointer.

Is Paris the best place to eat in France?

by  Tyler Cowen in

I have been to France many times, but I have mixed feelings about so much eating in Paris.  Yes so many items are wonderful but could not UNESCO have a few branches in Colmar, Avignon, or the Southwest?

Paris has more fine restaurants than ever before, but cheap food in Paris continues to decline in quality.  Why do we observe this apparent paradox?

Think of two differing ways of supporting quality cuisine.  The first relies on external benefits from a tightly knit network of quality food suppliers.  Restaurants, for instance, might have close links to slaughterhouses, fishing boats, and very wise grandmas.  The second method relies on made-to-order directed artisanal production.  These more expensive food outputs are purely professional in nature and are often funded by tourist demand.  The relevant ingredients are often flown in or otherwise hurried in by expensive methods of transport.  The global replaces the local.

As Parisian real estate continues to rise in value, Parisian food moves out of the first category and into the second.  Food supplies and markets get pushed out to the fringes or out of Paris altogether.  Restaurants no longer can locate in the meat-packing district to receive prime fresh cuts of offal at low cost.  Grandmas are less important as a source of food ideas.

As food markets get crowded out to more distant locales, wealthy tourists arrive in greater numbers.  Neighborhood restaurants become less important and no longer attract the best cooking talent.  Culinary knowledge is bought and sold to greater degree, and is less "in the air."  Labor costs rise with the general increase in prosperity and with French labor law.  In sum, more quality can be afforded than ever before, but the marginal cost of quality rises as well.  Quality, on average, shifts into the wealthier sector of the market.

We might say the following.  More people eat well than ever before, due largely to growing wealth.  But for a given income class, good food is more expensive than ever before as well.

So at the mid-level, quality food can become more expensive and harder to find.  Food networks are now selling their knowledge rather than giving it away for free.  Of course you can still go to the provinces, where land remains much cheaper than in Paris.  A $40 meal in Nice or Elsass is much better than along the Right Bank or next to Notre Dame.

Mexican food stalls are an example of a supply chain that still fits the model of neighborhood production.  But even here the best stalls are now in the suburbs of Oaxaca, not in the city itself.

It is wrong to blame McDonalds for the decline of quality in Parisian bistros.  The spread of McDonalds is in fact the result of a broader syndrome, driven by French economic growth and the compact nature of Paris, which exacerbates land value issues.

So is Paris the best place to eat in France?  Is Manhattan the best place to eat in the United States?  The answer is maybe, depending on how much money you wish to spend.

Superbowl Commercials

by  Fabio Rojas in

A new Slate article (click here) reports that Superbowl commericals are very inefficient. You can easily reach many more viewers by purchasing cheaper air time on other "unwatched" shows that air during the Superbowl. Broadcasting and Cable magazine (click here) reports an experiment showing that a computer can generate a buying schedule consisting of non-Superbowl ads that reaches 60% more viewers. Why, then, do firms insist on buying these insanely inefficient commercials? Slate’s Timothy Noah answers:

"I suspect the answer is that, while the Super Bowl may not be an especially smart forum in which to sell the advertisers’ products, it’s a great forum for selling the ad agency itself."

I don’t buy this argument, at least in the way it is presented. The explanation ignores the fact that the client is still paying for the ad time. Does a Chrysler executive really give a $$$ that their hired Saatchi wannabe ad guys have acquired another Mobius award or that they made ESPN’s top 25 sports commercials list? I think the answer is no.

So what is a better answer? I’d revise Noah’s explanation to say that clients are buying ad firm prestige rather than raw viewer numbers. High prestige ads reinforce the company’s position within their industry. Noah doesn’t believe this: "The clients are receptive because having an ad on the Super Bowl confers an undeniable glamour. But glamour doesn’t pay the bills."

Actually, it does. It’s similar to real estate – companies often purchase pricey real estate and fancy architecture not for the immediate impact on profits, but because they want to signal their legitimacy to the business community. In the business world, there’s a tendency to go with "tried and true," and glamour helps reinforce the image. If you were an executive unsure of who to hire and with bosses to impress, would you go with the company that advertised during the Superbowl, or the company that advertised more efficiently on Manimal?

Freezing social security benefits

by  Tyler Cowen in

In previous writings I have argued we should gradually index social security benefits to the rate of price inflation, rather than the rate of wage growth.  Matt Yglesias and Brad DeLong, among others, have objected to this view on several occasions.  Is it not unfair for everyone to grow wealthier but the elderly?  Are we not increasing the relative gap between the young and the elderly over time?  Imagine if today’s elderly had been frozen at the living standard of the elderly in 1930?

We should keep several points in mind, noting that a correct approach will use the rate of price inflation experienced by the elderly:

1. The real standard of living of the elderly still will rise over time.  This will come from private savings and market innovations, rather than from government social security benefits.  We are not freezing the standard of living of the elderly forever.  Furthermore the freeze in real benefits will be done slowly and will be generally expected.

2. The standard of living of the (future) elderly can rise even more, if those individuals choose to save more or earn more.  Just to make it clear, I do not buy the moral theory which says: "They chose not to save, let’m starve."  But if we are judging the relative gap between the elderly and other individuals, surely the (partially) voluntary nature of the standard of living of the (future) elderly has some bearing on this judgment.  Admittedly not all of the elderly have had the life capacity to control their earnings and savings, but most have.   And the richer society becomes, the more will have this capability.

3. It is necessary to freeze social security benefits only because Medicare is in future fiscal trouble.  Social security itself can keep on going at current levels with only marginal adjustments, if we so choose.  But broader fiscal problems loom, as Bush’s critics so correctly and frequently remind us.  Medicare, of course, benefits the elderly.  We would not be freezing social security benefits to throw a giant party for the young.  I will admit that if we can solve the Medicare problem (I don’t know how to), we can drop my social security proposal.  I will also admit that my social security proposal is only one drop in a much bigger bucket; other reforms and spending cuts will be needed also.  Many of these burdens should fall on the young, which will make the relative effects fairer to some degree.

4. The projected growth in Medicare implies a huge shift in relative resources devoted to the elderly.  A gradual freeze of social securty benefits should be viewed in this broader context.  The net flow of resources is still very much toward the elderly.

5. If demographics and productivity growth are more favorable than expected, we can always boost social security benefits again.  Believe me, it won’t take politicians long tocatch on to this idea.

6. Why the big concern about the relative standard of living of the elderly?  I care more about absolute living standards.  If you think that freezing real social security benefits is morally wrong, must you not also think that the current level of benefits is a moral outrage?  Are we not then required to boost social security benefits today?  (Admittedly some of you will accept this attempted reductio.)

To oversimplify just a bit, there are two theories for caring about the poor.  One is prioritarianism, which stipulates that low standards of living are intrinsically bad, whether or not other people are wealthier (NB: there is more to the prioritarian position than this implication).  The greater wealth of others does not make poverty a greater moral problem.  The second is egalitarianism, which objects to the difference in living standards between the rich and the poor.  The presence of wealthy Beverly Hills somehow makes poverty in Mali more obscene, even if Californians had no role in the causal chain of African poverty. 

Now I find prioritarianism more convincing than egalitarianism.  This suggests we worry about the absolute living standards of the elderly, and not their relative conditions vis-a-vis the young.  Now you might argue that the future should pay the elderly more, simply because the future will be richer.  I’ve already recognized this fact in my #1, #2, and #4.  It is not a separate argument in favor of an egalitarian approach to the moral issues.

7. The elderly, by definition, already have had long lives.  If we are judging relative deprivation, as defined over the course of a lifetime, they are not the big losers.  Life itself is the greatest good.  Bigger losers are those who die young; AIDS victims are one example.  I would rather fund more biomedical research, to cite one alternative use of the funds.  And if you have cosmopolitan sympathies, surely we could use the resources to take in more immigrants or otherwise help the very very poor in other locales.

8. Has anyone provided a convincing moral theory as to what the gap between young and old should be?  I believe not.  Until we have a theory of which young-old living standards gap we should be aiming at, we should not object per se to an increase in the relative position of the young.

The bottom line: I still think that a gradual freeze of real benefits is our best current fiscal solution, subject to the caveats offered above.  The biggest problem occurs if the rate of price inflation faced by the
elderly is so high that we don’t save so much money by this reform.  Even if my position is wrong, the opposing view is very much underargued in terms of the underlying moral philosophy. 

Media Bias and Bias about Media Bias

by  Alex Tabarrok

The work on media bias and media markets by economists is really taking off.  John Lott and Kevin Hassett’s paper Is Newspaper Coverage of Economic Events Politically Biased? finds that "American newspapers tend to give more positive news coverage to the same economic news when Democrats are in the Presidency than for Republicans."

Predictably, the research was trashed (read to the bottom), without argument, by some people who have a visceral reaction to the name John Lott.  Those who take this position, however, have to contend with new research from different authors using different methods and different data that nevertheless find similar results.

Riccardo Puglisi, for example, is an LSE graduate student out on the market this year.  One of his dissertation chapters is Being the New York Times: The Political Behaviour of a Newspaper.  Here is the abstract:

I analyze a dataset of news from the New York Times, from 1946 to 1994. Controlling for the incumbent President’s activity across issues, I find that during the presidential campaign the New York Times gives more emphasis to topics that are owned by the Democratic party (civil rights, health care, labor and social welfare), when the incumbent president is a Republican. This is consistent with the hypothesis that the New York Times has a Democratic partisanship, with some watchdog aspects, in that it gives more emphasis to issues over which the (Republican) incumbent is weak. Moreover, out of the presidential campaign, there are more stories about Democratic topics when the incumbent president is a Democrat.

Brain Immaturity

by  Alex Tabarrok in

By most physical measures, teenagers should be the world’s best
drivers. Their muscles are supple, their reflexes quick, their senses
at a lifetime peak. Yet car crashes kill more of them than any other
cause — a problem, some researchers believe, that is rooted in the
adolescent brain.

A National Institutes of Health study suggests that the region of
the brain that inhibits risky behavior is not fully formed until age
25, a finding with implications for a host of policies, including the
nation’s driving laws.

The results are interesting if a tad obvious.  I am bothered, however, by how much of this type of research is suffused with a normative bias.  Why is taking risks always connected with brain immaturity?  Why not say brain atrophy makes people stodgy and boring?  Could it be that the researchers are not teenagers?

This results also leads me to wonder about all those experimental economics studies done on university students.

Thanks to Carl Close for the pointer.

Those Pesky Charter School Reports

by  Fabio Rojas

  1. What exactly are charter schools? A charter school is a public school that has more lax legal requirements about funding, staffing and curriculum. For example, many states allow charter schools to hire non-certified teachers. Somebody who wants to operate a charter school must usually obtain permission from a local or state government. The ease of starting and operating a charter school varies from state to state. Arizonais a charter school hothouse, while other states have none. Depending on state law, the charter school must file reports and be inspected by state officials. Charter schools often receive funding from state or local governments.

  1. Why would someone start a charter school? The reasons vary, but parents are often frustrated with existing schools and school reformers want a shot at operating a school along innovative teaching principles. School reformers see charter schools as offering more options and, sometimes, a step towards competition in education.

  1. Why do people hate charter schools? Critics see charter schools as taking away resources from standard public schools and as havens for poorly qualified teachers. A few see charter schools as opportunities for people to concentrate on serving privileged students, and are a betrayal of the ideal of public education. Some charter school proponents say that charters threaten the power of teacher’s unions because the law permits schools to have non-certified teachers. Click here to read a thoroughly anti-charter school essay by Amy Stuart in the Washington Post.

  1. Who goes to charter schools? This is tough because the data on charter schools is often not available to the public (MR readers should email me if they can find quality raw data). In the 1990s, the student body at charter schools seemed to resemble other schools in the area. (Click here.) A more recent Department of Education report suggests that slightly more white students attend charter schools than at other schools in the same area. The big point, which a lot of people have missed, is that charter schools have not turned out to be sanctuaries for wealthy, highly privileged students. The major migration that many feared never happened. My guess is that wealthier students already live in neighborhoods with high quality schools, either public or private, and have no reason to take a risk on a controversial new type of school. Those who work at charter schools should email me to tell me if my hunch is true.

  1. The Big Question: Do charter schools help students learn more than traditional schools? Reading a few reports, I’d say that charter schools have a mixed record so far. They definitely aren’t disasters (but some individuals schools are bad) but they haven’t shown themselves to be vastly superior to either public or private schools (even though some excellent schools are charter schools). The key in reading these reports is to look for comparisons of similar students. If you simply look at average test scores of charter schools, you miss the point because education researchers know that learning is tied to factors that schools can’t control – academic aptitude/IQ, family, peer effects, etc. Eduwonk and the Constrained Vision Blog have recent posts pointing out that charter schools do OK on some measures, comparable to public schools. Their conclusions are based on findings from recent reports that were said to be devastating critiques of charter schools.

In my opinion, fans and critics miss the best thing about charter schools – bad schools close. Since people are under no obligation to attend these schools, they will actually close if they are poorly managed and do a disservice to their students. Critics see a closed charter school as a victory. Yes, it is a victory, but not for charter school opponents. It is a victory for education in general – a poorly run institution has stopped operating, something you rarely see in other schools.

Update: A reader reminds that I have omitted discussion of Hoxby’s analysis showing that charter schools do well when you control for the types of students who attend the school, which lists data sources. Click here to read the Hoxby paper. When I wrote above about scarcity of data, I was thinking of a single data set available from a data bank such as the ICPSR, not about studies that assemble data from multiple print and electronic sources. Thanks, Yesim!

Schelling is owed an apology (Lomborg too)

by  Alex Tabarrok in

John Quiggin writes that "The wheels are coming off Bjorn Lomborg’s attempt to undermine the Kyoto Protocol," citing an Economist article for indicating that some members are dissenting and reiterating his claim that the Copenhagen Consensus was rigged against climate change.  Methinks it is Quiggin who has prejudged the issue.

In his earlier article Quiggin complained that the panel and the climate change opponents were rigged.  In particular he noted:

[T]he members of the Copenhagen panel were generally towards the right and, to the extent that they had stated views, to be opponents of Kyoto. Indeed, Lomborg’s argument that spending to mitigate climate change would be better directed to aid projects was first put forward by Thomas Schelling, one of the Copenhagen panellists.

Now consider what the Economist article has to say.  True, it notes, "Now, some members of the Consensus are dissenting."  Who you might ask?  Why it’s…Thomas Schelling!

Again from the earlier article, Quiggin attacked the opponents of the climate change paper writing:

The same lack of balance was evident in the selection of ‘opponents’. For Robert Cline’s paper on climate change, Lomborg picked vigorous opponents of Kyoto, Robert Mendelsohn and Alan Manne, and the result was an acrimonious debate.

But who does Quiggin have the temerity to cite as another dissenter?  Why it’s… Robert Mendelsohn! 

Quiggin doesn’t explain why Mendelsohn and Schelling are offering their (mild) dissent – it’s not because they are in favor of spending lots of money on global warming.  Rather, it’s because they think that the author of the climate change chapter, William Cline, exagerates the costs of global warming and proposes far too costly solutions.

Thus, believe it or not, the new theory of how Lomborg rigged the climate change study is that he chose someone to write the global climate change chapter who was too strong an proponent of its importance!  Give me a break.

Bottom line is that the the so-called dissent reinforces the Copenhagen Consensus which is that modest steps to combat global warming may be justified (Mendelsohn proposes an initial carbon tax of $2 to Cline’s $150) but that there are many other more worthwhile development goals.

Cconsensus

What do we know about currencies and interest rates?

by  Tyler Cowen in

Not enough.  Here are a few simple relationships, noting in advance that theory and empirics sometimes conflict.

1. A high nominal interest on a currency "ought to" predict forthcoming depreciation of that currency, on average.  After all, market equilibrium has to offer you more to hold this asset precisely because investors expect it to fall in value.  This is known as uncovered interest parity. 

In other words, exchange rates should not be a random walk.  But returns on currencies should be a random walk.  This means that future exchange rate movements should be predicted by the nominal interest rate differential, but additional exchange rate movements, adjusting for that differential, should behave like a random walk.   

2. In reality these relationships are not obviously true.  Many investors believe that the market overestimates the risk of high nominal interest rate currencies.  If you simply slotted your money into high nominal interest rate currencies from, say, 1970 to 1990, you would have done very very well.  This view, however, is not as popular as it once was.  Starting with the Asian financial crises of the 1990s, investors have been burned speculating in high nominal interest rate currencies.

3. In a world of multiple currencies, nominal interest rates in fact serve as the true real rates of return.  Let’s say you live in America but hold Japanese yen.  (Are there always enough non-liquidity-constrained investors in this position and able to drive a market equilibrium?)  Your real rate of return in dollars depends on your nominal rate of return in yen plus your ability to convert yen into dollars.  Once you take the yen-dollar conversion rate into account, the rate of inflation in Japan should not matter.

4. Given #3, theory suggests that the real interest rate differential between Japanese yen and U.S. dollars should not, ceteris paribus (a daunting stipulation in this context), affect future exchange rates.  The nominal rates should be doing the work.  That being said, theory seems to be wrong.  Real interest rate differentials do have predictive power for future currency movements.

So the puzzle is this.  When it comes to future currency values, nominal interest rates do not obviously matter as much as they ought to, given theory.  Real interest rate differentials matter more than they ought to.  Also see my earlier post on microeconomic vs. macroeconomic perspectives on currency movements.

Why is the Eiffel Tower uglier?

by  Tyler Cowen in

The Eiffel Tower is uglier than ever before; it now has new and garish flashing strobe lights.  And why?

The Eiffel Tower’s likeness had long since been part of the public domain, when in 2003, it was abruptly repossessed by the city of Paris. That’s the year that the SNTE, the company charged with maintaining the tower, adorned it with a distinctive lighting display, copyrighted the design, and in one feel swoop, reclaimed the nighttime image and likeness of the most popular monument on earth. In short: they changed the actual likeness of the tower, and then copyrighted that.

As a result, it’s no longer legal to publish current photographs of the Eiffel Tower at night without permission.

Here is the story.  Here is my previous post on why the French take copyright so seriously.  We can’t blame it all on the French, however, "the cloud" a publicly owned  artwork in Chicago’s Millenium Park is also copyrighted and apparently protected from photographs by security guards.

More College for Everybody!!

by  Fabio Rojas

1. Out of thousands of colleges, only about 100 are actually competitive. That is, only about 5% of colleges will reject more students than they accept. Anybody who wants to go to college can. Charles Manski’s College Choice in America is the classic text on this subject (click here).

2. The higher education sector is growing within this country and around the world. More people are getting more education everyday. Consider the following article (click here – subscription needed) in a recent Chronicle of Higher Education. Mongolia is experiencing a college boom. In the last few years, four universities have opened their doors in the capital of Ulan Bator. The founder of one university was inspired by the Khans!

3. The for-profit education sector is growing. The University of Phoenix, just to choose one example, provides adult education for thousands. I don’t think the for-profit college will ever displace the non-profit university, but it fills an important niche that liberal arts colleges and research universities don’t cover.

The story of higher education continues to be one of expansion and growth as whole, even though individual campuses may have trouble attracting students and generating income. While it is doubtful that any individual will receive the imprimatur of an Ivy League school, most people, if they so desire, have access to an incredible range of options.

Brain Drain at the NIH?

by  Alex Tabarrok in

Last week the NIH announced drastic new rules restricting employees, and their spouses and dependents, from stock holdings in drug, biotech and other companies with significant medical divisions.  Consulting, lecturing and other outside income is also severely restricted.  Even most prizes and awards with money are now forbidden (the Nobel is an exception). NIH employees are furious.

Word on the street is that universities, including GMU, are receiving a flood of applications from talented scientists. (Perhaps the NIH should have consulted with some economists who might have explained the concepts of opportunity costs and compensating differentials).

No doubt there were some conflicts of interest and some abuses but there were also virtues in the old system.  The free flow of scientists to and from commercial and government research is a key part of what made Washington and Maryland’s biotech sector succesful.  Moreover, as Steve Pearlstein notes, it wasn’t that long ago that this free flow of people, ideas and money was encouraged, precisely in order to get the scientists out of their ivory tower and into the real world of medical need.  Expect less from the NIH in the future.