Month: April 2005
One of my Ph.d. students asked me that question. Similarly, you might wonder whether Hayek adds to the Arrow-Hahn-Debreu equilibrium framework. Joe Stiglitz insists no; my answer ran as follows:
The invisible hand theorem assumes some (possibly weakened) version of perfect markets. It suffices for everyone to simply maximize utility or profit, and then all supply and demand curves will cross. Under spontaneous order, cross-market externalities are more significant. Markets are imperfect, so people look to institutions — and other markets — to orient their behavior and to predict the unknowable future. Market choice is a game of interpreting symbols, drawing inferences, and mapping an understanding of context to the appropriate situations. The resulting order is greater and more complex than the partial equilibrium story we might tell about any single market.
As for Adam Smith, he was closer to Hayek…But the dilemma of the Austrian School is whether it can tell this story without economic analysis collapsing into pure context-dependence. How much do we really know about how people interpret economic signals? So far experimental economics — as exemplified by Vernon Smith — has done the most to bridge these gaps.
Another question I heard this week: "Why is it that older people start going deaf, yet still object more to loud music?" I couldn’t really answer that one either.
This quote from a conclavist to Cardinal Ferrieri in the conclave of Leo XIII says a lot about the process. I love the last sentence.
The Germans are on his side as will be the Spanish tomorrow because Franchi has now sided with Pecci; Howard, who up to now has voted for Simeoni, will vote for Pecci tomorrow; as I’m sure Your Eminenccy is aware, Bilio declared to Barolini that if he were to be elected he would not accept, for he considers it a heavy burden; Monaco and Randi will continue to vote for Martinelli; Franzelin likes Monaco, but he is wasting his time: Your Eminency, you must accept the truth, God has chosen Pecci.
The quote is cited in The Papal Conclave: How do Cardinals Divine the Will of
God?. The author, J.T. Toman has collected voting data (from diaries etc.) of voting in many of the conclaves in order to produce a paper that combines econometrics, theology, and voting theory!
If that doesn’t sound like your cup of tea, perhaps you will enjoy Incredible Popeman, a new comicbook which "shows the late Polish pontiff meeting comic book
legends such as Batman and Superman to learn how to use superpowers to battle Satan."
Thanks to Daniel Strauss Vasques and Stan Tsirulnikov, respectively, for the pointers.
University of Alberta political economist Wenran Jiang calculates China spends three times the world average on energy — and seven times what Japan spends — to produce $1 of gross domestic product. It also is far more inefficient than nations like Brazil and Indonesia…Chinese steelmakers on average use about twice as much energy as Japanese or Korean rivals per ton of output. Only 5% of the country’s office and residential towers meet China’s own minimal energy-conservation standards.
That is from the 11 April Business Week, pp.50-51.
A member of the Canadian parliament apparently required that constituents who wanted his help in obtaining visitor visas first post a bond promising that the visitor would return to the home country. (It’s unclear whether any actual exchanges of money took place or whether this was a publicity stunt designed to promote a bill implementing a more formal procedure.)
The ethics of an MP offering money for services is questionable but the basic idea is sound. Australia, for example, has had a Security Bond system for nearly five years. Family who wish to sponsor visitors may be asked to post a bond which is subject to forfeiture if the visitor fails to keep to the terms of the visa. The bond system is good for the government which has fewer illegal visitors to track down (note that I am not here taking a position on the merits or demerits of immigration) but it’s also good for prospective visitors.
Under the old system if the government thought that a visitor might violate the terms of the visa they didn’t let him in. Now the family can post a bond and the visitor is allowed entry – moreover, since the money is returned when the visitor leaves, the system has low costs for honest entrants and their families. Since implementing the system most visitors (68%) are required to post bonds and the entry rate has increased. A good deal all around.
Henry Hazlitt’s Economics in One Lesson is now on-line. The first economics book I read was The Incredible Bread Machine; I believe that Milton Friedman’s Capitalism and Freedom was number three. Then I tried some Galbraith and also picked up (and promptly put back down, I was only thirteen) Friedman and Schwartz’s Monetary History of the U.S.. Thanks to Mahalanobis for the pointer.
The [research] team focused on the 106 international rugby or soccer matches between 1995 and 2002. On non-match days, the number of assault victims averaged 21 per day, and on match days when Wales lost this rose to 25. But the situation was worse after a win, with 33 admissions per day on average…
Addendum: Thomas Edwards points to this explanation.
Brad DeLong notes:
When can deficit spending in a recession help?
- When it is part of a stable and sustainable structure of economic policy, so that nobody fears that it is the beginning of a process of rampant inflation or expropriation. In that case deficit spending will have no deleterious effects on investment, and to the extent that it gets more money into the hands of those who are temporarily short of cash it will boost demand and employment.
- When things are already so bad (as in 1933 and 1934) that there is no investment anyway: if business confidence is already at its nadir, deficit spending cannot do any harm by reducing investment, and does good by putting people to work and boosting their incomes and their demand.
I’ll add further conditions, none of them absolute. First, it should be accompanied by an expansionary yet stabilizing monetary policy (similar to Brad’s first condition). Second, the money should be well spent, ideally on durable infrastructure. Third, fiscal policy should be a signal of a government’s competence or seriousness about fighting the recession. Fourth, I doubt it does much good if the core problem is bankrupt or otherwise malfunctioning financial institutions.
Mostly I am a skeptic about fiscal policy, if only because discretionary fiscal changes tend to be small relative to modern wealthy economies.
Deborah Franklin (NYT, $) says you should not stockpile. She claims you will have to pay too much, you might store the drug incorrectly, and you may exacerbate drug resistance.
We can dismiss the first argument out of hand, as those costs ($65-$100 for a five day course) are internalized by the purchaser.
As for the second argument, will a centralized stockpile involve less wastage? Just pick the correct temperature for storing the pills. I’ll predict that bureaucracy and distribution and rent-seeking costs will be high if there is panic demand for Tamiflu. If you’re smart enough to read MR, you’re smart enough to have lower storage and distribution costs than our government. Which other assets — other than military hardware — do you prefer they hold for you?
Resistance is a real issue, especially if you stop taking the drug too soon. But I suspect fanatical early stockpilers are the people least likely to make this mistake.
A further question is whether you are most deserving to have some Tamiflu, in case a pandemic comes. Maybe it should all go to the vulnerable elderly. (What if the hoarders are the vulnerable elderly?) On the other hand, early stockpilers tend to be relatively rich in human capital. And your stockpiling behavior, in the meantime, bids up the price, runs down stocks, and encourages more production.
Howard Markel, a medical historian at U. Michigan, offered a revealing comment for the NYT article:
"Historically, whenever there’s a crisis you’ll find stockpiling, hoarding, black marketeering and generally bad [sic] behavior"
No, I am not buying. But as you can see, I am thinking about it.
Start with the idea that the United States can no longer really be regarded as a "new nation." There is no doubt that America is singularly lacking in ancient chateaux and schlossen…But this scarcely constitutes evidence of youth. The first settlers arrived when James I was on the throne and England was not yet Britain. Galileo was offered a chair at Harvard University, which was founded in 1636, before Charles I had his head cut off. The Declaration of Independence was signed a century before the unification of both German and Italy…Many of the traditions which define Britain as an old country in the minds of admiring Americans — the pomp and circumstance of empire, the rituals of Charles Dickens’s Christmas, Sherlock Holmes’s deer-stalker hat – were invented a century after the American constitution. "The youth of America is their oldest tradition," Oscar Wilde quipped more than a century ago.
At least I think it is true. That is from The Right Nation: Conservative Power in America, by John Micklethwait and Adrian Wooldridge. This book is the best introduction to the history of the so-called "American Right." It is a worthy successor to George Nash’s earlier tome.
Seth Roberts is a psychologist at Berkeley who for the past twelve years has obsessively kept data on himself in an effort to generate and test new ideas. In a recent paper in Behavioral and Brain Sciences he explains some of his methods and findings (a number of comments, most of which I think are blah, blah, blah are also included).
Roberts, for example, drank 5 liters (!) of water every day for 4 months to test a theory of weight loss (he lost weight but he couldn’t keep up the drinking!). He also began standing for more than 8 hours a day, initially to test the affect on weight loss but instead he found that standing, especially 10 hours or more a day, dramatically improved his sleep. Eventually, he did find a novel form of weight loss involving fructose water (read the paper). Some of his findings seem bizarre, such as watching faces on tv in the morning improved his mood the next day but lowered it that night.
It’s tempting to dismiss all of this (especially before reading the paper and looking at the care with which Roberts kept his data) and clearly, I wouldn’t take any experiment with 1 subject as definitive. Roberts, however, is making the case that careful measurement of self-response is a way of generating new ideas. Roberts, for example, did not set out to test the idea that viewing faces improved mood this was a surprising discovery.
A virtue of self-experimentation is that it doesn’t take a million dollar lab and a bevy of graduate students, with some willpower and a willingness to carefully document and measure results, anyone can do cutting-edge science.
Bottom line: The public thinks the FDA is great. Regular economists think it’s pretty good. And economists who specialize in the FDA think it’s pretty bad.
That is Bryan Caplan, read more here.
Addendum: I’ll grant that those who specialize in studying a particular agency may tend to be the critics. That being said, the "man in the street" simply has not, in most cases, considered the economic criticisms of the FDA.
At this point, we all face a dilemma. For instance Paul Krugman cites the predominance of academic Democrats as an argument against the Republican party. Must he then accept this evidence on the FDA? Must Caplan become a Democrat? When is citing professional consensus opinion most persuasive? What is the professional consensus on this question?