Month: March 2005

The economics of bankruptcy

by  Tyler Cowen in

I’m against the bankruptcy reform not because I think that one side or
the other is getting shafted, but because I think that easy bankruptcy
is one of the great unrecognized strengths of the American economic
system. Easy bankruptcy is what frees people to be entrepreneurs, to
take risks without fearing that one wrong move will destroy them
forever.

Jane Galt has much more, read it.

More Transhumanism

by  Alex Tabarrok in

In his excellent post yesterday on identity and transhumanism Tyler asked:

Now let’s say
your children could be one percent happier throughout their lives, but
this would mean they were totally unlike you, the parent… How many of us would choose this option?

I think the answer is more than Tyler imagines.  Many poor immigrants have made exactly this choice.  They come from the old country for a better life for their children and in the process their children become something strange and different from themselves, namely American.  The tension between the immigrant parents, never quite learning to speak English properly or to adopt the new ways and mores, and their American children can be hearbreaking.

Transhumanism will never make as large a difference between a single generation as does immigration.

Tyler also writes "Isn’t there a collective action problem here?  Everyone wants a more competitive kid but at the end humanity is very different."

True, but I think the collective action problem is actually a solution to the externality problem.  Consider a slight modification of Tyler’s example.

Suppose that your children could be much happier throughout
their lives, but this would mean they were totally unlike you, the
parent.

Why would parents say no to this offer?  Only because they discount the happiness of their children relative to their own – even if the children gain much more than the parents, the parents lose and they say no.  And yet isn’t this monstrous?

Fortunately, change across a single generation is likely to be small so parents will say yes even though 5 or 6 or 10 generations down the line the changes will be dramatic.  It’s because of this wedge effect that Fukuyama is so worried about relatively small changes today and it’s precisely for this reason that his opposition has no hope of success in a free society.

Bring on the velociraptors.

Why don’t all chains spread nationally?

by  Tyler Cowen in

Matt Yglesias asks:

What prevents the supermarket (or drug store) market from being
consolidated into three or four (or five, or whatever) big truly
national chains? Basically, these places are all the same anyway.
There’s no local character embedded in the Giant brand. Why not reap
further economcies of scale by merging?

He notes that many chains operate only in parts of the country:

We’ve got Duane Reade in New York, along with CVS and Rite-Aid. Here in
DC there’s CVS and a little Rite-Aid, but no Duane Reade and no
Walgreens. I’ve seen Walgreens in Long Island, but not in NYC, DC, or
Boston. I infer from Phoebe’s post that they exist in Chicago. In
Florida there’s a chain drug store called Eckerd, which I noticed they
also have in the Norfolk area. In New York, supermarkets are
D’Agostino, Gristedes, or Food Emporium. Here in DC, they’re Safeway or
Giant. In Norfolk, I saw Food Lion, which I’d heard of because of the
famous lawsuit, and which I also saw when I went to the Outer Banks.
But none of the supermarkets I know from the NYC or DC markets. In the
Boston area, the only supermarkets I saw were Star Market…[TC: what about Wegmans?  Get a car!]

I can think of a few reasons for "incomplete" chains:

1. There is an optimal chain of control and monitoring is costly.  Think of successful companies as based on some fixed factors, such as an excellent CEO.  The value of that factor can only be spread so thinly, which limits the size of the chain.

2. Privately-owned companies offer significant advantages, both on the regulatory front and in terms of coherent control.  You don’t have to please the shareholders with a good quarterly earnings report each period.  Yet privately-owned firms will have a harder time finding the capital to expand.

3. Competing often depends on region-specific skills.  Even if the interior of a Giant is  homogenized, success will depend upon contacts with local distributors, a good pool of local workers, good working relationships with local governments and zoning boards, and so on.

4. Path-dependence matters.  Most suburban areas have room for only so many supermarket brands.  The ones that started first — for purely historical reasons — have a continuing competitive advantage.

5. Many local chains are simply local brand names belonging to a larger national chain with different names across different regions of the country.

6. What are the big advantages of consolidation anyway?  Most of the advertising is local not national.  And to the extent the underlying wholesale markets are competitive, large purchases won’t get you much of a bulk discount.  This, by the way, is one reason why Wal-Mart will decline as trade with the Chinese becomes increasingly common.

My Unconscious is Clear

by  Alex Tabarrok in

The Implicit Association Test is revolutionizing the study of prejudice and bias.  The basic idea is simple, the test taker is asked to categorize a series of faces, hitting a right hand key for a white face and a left hand key for a black face.  Then the taker must similarly categorize a series of words as good or bad, words like wonderful, nasty, peace, hate etc.

Now here is where it gets interesting.  The next list contains both faces and words and the test taker is asked to hit a right hand key if the word is either good or the face is white or to hit a left hand key if the word is either bad or the face black.  Finally, the same task is performed but now the test taker must categorize together good words and black faces and bad words and white faces. The test taker is asked to do the test as fast as possible. 

Bias is revealed, so the argument goes, if response time is faster when good words must be paired with white faces and bad words paired with black faces than the reverse.  Call it the Blink, Blink, Bias test.

Now before you object, it has been shown that the biases revealed by the test do correlate
well with policy preferences and a wide variety of conscious and
unconscious actions.  Also the order of the two important tests, whether you hit the right or left hand keys etc. can all be varied with no change in results.

But what I find most interesting about these tests is that they do not always correlate the way one might expect.  This article from the Washington Post, for example, discusses a number of liberals who took the test and were shocked and appalled to find that they were unconsciously biased.

And now for my confession.  I am well aware of the differences in crime rates, IQ scores, welfare dependency and other factors across races.  I have sometimes been called a racist for mentioning these things.  I would be lying if I said I had a lot of black friends.  Thus, I was prepared to be told the worst about myself and adjust my conscious beliefs accordingly.

But according to the IAT, I showed no signs of bias!  Frankly, I am surprised but my unconscious is clear.

You can take the test here.  Hat tip to Mahalanobis.

DOJ to break-up Marginal Revolution?

by  Alex Tabarrok in

Steve Kirchner at Institutional Economics is worried about a bubble in economics blogs.  But he has a solution:

Clearly government intervention is required to bring order to this sector of
the blogosphere and prevent a blog boom-bust cycle from developing.  As a
solution, I propose the nationalisation of blogs, starting with John Quiggin, who can
then educate us all on the merits of public ownership of the means of blogging.

Marginal Revolution will be broken
up by the Justice Department into two separate blogs, one for Tyler and one for
Alex, to end its market dominance.

Ah, antitrust protectionism, it is the sincerest form of flattery!

Addendum: What’s good for farmers is surely good for writers too.  So says Dan Akst in his own solution to the flooding of the market.

Dutch Treat

by  Alex Tabarrok in

Holland’s Health Minister has proposed a system for organ donation similar to what I have called (in Entrepreneurial Economics) "no-give, no-take."  Under the proposed system people who sign their organ donor cards would receive points which would raise them on the waiting list should they one day need an organ.

My main argument for no-give, no-take has always been efficiency, it would increase the incentives to donate.  It’s fairness, however, especially as it intersects with the politics of immigration that is driving the change in Holland.   

The Liberal VVD minister defended his proposal by pointing out that
Muslims often refuse to donate organs based on religious beliefs. This
is despite the fact they are willing to receive an organ if they are
ill. "That creates a bad feeling," he said.

"If you say: ‘I refuse to donate an organ because of my religion,
but I don’t want to receive one either’, than I will respect it. But I
won’t respect a one-sided attitude of receiving and not giving. I find
that problematic," Hoogervorst said.

Thanks to Dave Undis for the pointer.

Transhumanism: at what margin?

by  Tyler Cowen in

I tend to sympathize with transhumanist ideals, if only for the same reason that I do not hesitate to use antibiotics.  Furthermore I have never had huge hang-ups over the "identity" concept; I don’t celebrate St. Patrick’s Day and I find it embarrassing to admit that I root for the Washington Wizards.  "The Six Million Dollar Man" was one of my favorite TV shows as a kid, although even then I thought the price was too low.

That being said, the economist in me asks not "whether" but rather "at what margin"?  Is there any margin at which concerns of identity should cause us to reject otherwise beneficial transhumanist improvements?

Most people want their children to look like themselves, and to some extent to think like themselves.  We invest many thousands of dollars and many months of our time to acculturate our children.  Now let’s say your children could be one percent happier throughout their lives, but this would mean they were totally unlike you, the parent.  In fact your children would be turned into highly intelligent velociraptors and flown to another planet to live among their own kind.  How many of us would choose this option?  I can think of a few responses:

1. Transhumanism will bring improvements of more than one percent; we should forget about identity and let everyone become healthier and happier.  What’s wrong with uploads?

2. Governments should not restrict transhumanist innovation.  Let people and their children choose their degrees of identity continuity for themselves.  (Isn’t there a collective action problem here?  Everyone wants a more competitive kid but at the end humanity is very different.)

3. The parental analogy is not relevant for policy choices.  Parents should be partial across identities, but governments should be more neutral.  And surely uploads will still be allowed to vote, no?

4. Identity attachments are, very often, petty and small-minded to considerable degree.  We should be cosmopolitan across chimpanzees and intelligent velociraptors, not to mention enhanced humans.

I still favor laissez-faire for transhumanist innovation.  And all the listed arguments have force with me.  But I would feel better rejecting the critics if I had a framework that would simultaneously recognize the value of identity while giving it limited weight to override medical progress.

These thoughts were stimulated by reading the new and useful More than Human: Embracing the Promise of Biological Enhancement, by Ramez Naam.

Addendum: Here is an excellent Nick Bostrom essay, which argues human evolution may otherwise deteriorate.  He also wonders whether happiness and consciousness have evolutionary advantages in the long run.  Thanks to the Vassar family for the pointer.

What I’ve been watching

by  Tyler Cowen in

1. Da Ali G Show: The Complete First Season.  Is there a more powerful comic genius at work today?  This British would-be gangsta rapper has at least four hilarious personae; Yana’s favorite is Funkyzeit mit Bruno, a gay Austrian fashion designer.  Or imagine a funnier Howard Stern interviewing Newt Gingrich, Dick Thornburgh, Ed Meese, and Reed Irvine.  His repeated portrayal of a hapless Kazakh man seeking sex has drawn repeated protests from the embassy; it is now what the country is known for.

2. Laibach: The Videos. Laibach was one of the leading Slovenian punk rock metal industrial fascist-mocking groups of the 1990s (the sentence is not a joke).  Their Let it Be album redoes the Beatles, and their "Across the Universe" is my favorite Beatles cover, with Joe Cocker as a close second.  But note: their Nazi-Wagnerian jackboots reconstruction of "Get Back" will send most of you running away.

3. Goodbye Dragon Inn, The first line of dialogue does not come until about halfway through this 80-minute movie.  And much of the film is you watching other people watching a movie, how is that for meta?  It is about the passing of the old Taiwan, the transitory nature of observation, the power of the image, and the fundamental sillness of watching a movie through.  Not since Tarkovsky has a director used sound and silence so effectively, nor is anyone so good with restroom scenes.  It is a help, not a spoiler, to tell you that the two old men are also (much younger) characters in the movie on the screen.  Tsai Ming-Liang is one of the world’s seminal directors and this is one of his leading entries.  Short enough to endure, even if this is not your cup of tea, and maybe you will love it as I did.

Are economic graduate students conservative?

by  Tyler Cowen in

Economists are often thought of as conservative, but that was not the case in the previous study [1985] nor in this one.  In this study, 47 percent of the students classified themselves as liberal, 24 percent as moderate, 16 percent as conservative and 6 percent as radical.  (Six percent stated that politics were unimportant to them.)  These percentages are very similar to the last study, although the share of those identifying themselves as radicals declined (from 12 percent).  The students perceived their views as slightly more liberal than those of their parents, 40 percent of whom they classified as liberal, 36 percent as moderate, 16 percent as conservative and 3 percent as radical.

By the way, Chicago graduate students are now less conservative than those at Stanford; Chicago is rapidly losing its uniqueness. 

Do note that "liberal" economists are often fairly conservative, at least relative to the left as a broader political class.  Economics gives plenty of reasons (whether you agree with them or not) to defend government intervention.  At the same time the ideas of cost and constraint remain prominent. 

I view most Ivy League economics graduate students as highly peer conscious.  They want to fit into the views of the intelligentsia surrounding them, and above all they would find membership in the Republican party a source of great social embarrassment.  They are fiscally conservative Democrats who are liberals on social issues, but don’t really much toy with the idea of becoming libertarian.  They prefer to put themselves in the class of "good-thinking people," without always engaging in or welcoming the necessary debates.

The above quotation is taken from David Colander’s article in the Winter 2005 Journal of Economic Perspectives.

The definitive work on the policy views of social scientists is being done by Daniel Klein and Charlotta Stern, read more here.  And I am pleased to announce that Dan will be joining us at George Mason next year as a new member of the faculty.

Marxist reforms for the NBA

by  Tyler Cowen in

Bertil Ollmann writes:

The rules of basketball have changed often over the years, so I hope no one will object if I offer a few modest revisions to make this truly wonderful game even better:

First, I would charge an admission fee not only to watch the game but to play in it. And the more one pays, the longer one gets to stay in the game.

Second, there should be a price paid for each shot taken, and the easier the shot, the more it should cost.

Third, as for fouls, one should be able to pay the referees, so that they never call any fouls on you (or walking or double dribble violations for that matter).

Fourth – and maybe most important – there is no good reason that the baskets should be the same height for both teams. It should be possible for the team that pays more to have its basket lowered, and for double that amount to have the basket  the other team is going for raised.

Under present rules, those players who are taller and better coordinated and can run faster and jump higher have all the advantages. My rules would exchange the advantages enjoyed by these people for other advantages that would benefit  a different  group, one that  has been poorly served by basketball as now played. That group is the rich.  With my rules, the rich would possess all the "talent" (what it takes to win) and – more in keeping with what occurs in the rest of society –  never lose a game.

The (ostensible) goal is to educate people about how capitalism really works. But if we are going to play the game of caricatures, I’d like to see a "democratic NBA."  The vote of the crowd determines who wins the game.  Your points can be taken away from you at any time and given to the other team.  And note that foreign policy — arguably the most important thing our government does — is determined solely by the vote of the crowd of the home team.

For those of you who care about real "regulated by a third party private intermediary" NBA basketball, here is an analysis of the top five contenders.  The betting markets tell a different story.