Month: August 2005

Markets in everything

Welsh expatriates missing the sweet smell of home can now buy a bottle of air from the hills of Wales – for £24.

Businessman John Gronow will launch on Thursday to sell Welsh atmosphere around the world.

Here is the full story, and thanks to Chris Tracey for the pointer.  And while we are on the "Markets in Everything" topic, did you know Sirius Satellite Radio is starting an all-Elvis channel?

Economists who revolutionized macroeconomics

This list is from my lecture Monday night:

David Hume: His essay on money, circa 1752, remains one of the best writings on the topic.  Honorable mention goes to Isaac Gervaise, who in 1734 outlined international mechanisms of adjustment.

Adam Smith: Growth is everything, no?

Thomas Malthus: A much underrated macroeconomist.  He grasped aggregate demand, and price-cost margins, not to mention the importance of demographics.

David Ricardo: Not an original macroeconomist, but he showed you could apply the quantity theory of money to the policy issues of the day.

Henry Thornton: Super-smart, he integrated the best of all previous macroeconomics without making an error.  He didn’t have much influence until Wicksell and the Austrians, however.

Knut Wicksell: He showed it was possible to have an integrated analysis of the real and monetary sectors of the economy.  He also anticipated about 90 percent of modern real business cycle theory.

John Maynard Keynes: If you want another perspective on him, read his monetarist Tract on Monetary Reform, or Essays in Biography, both masterpieces.

Milton Friedman: Many of his most important ideas were a resurrection of previous wisdom, most of all from Irving Fisher, but his practical influence has been vast. 

The 1979-1990 Theory Boom: We applied every idea in the toolbox — from game theory to adverse selection to imperfect competition — to macroeconomics.  But who gets the credit?

Next on the horizon: ?????  When it comes to high theory, we live in slow times.

Dark horse pick: Friedrich Hayek (or is it Mises?); even Paul Krugman is borrowing his ideas

Addendum: Wesley Clair Mitchell also deserves mention, and read the second comment below for other names.

Variety magazine on the Serenity movie

1. The movie is a "space oddity."

2. It feels like a TV production, even on the big screen.

3. It won’t take off without a big marketing push.

4. The cast has good chemistry and the movie has a strong human
dimension.  Yet by now many of the premises appear less than fresh.

5. The movie’s colors are dark and unappealing and the score is mediocre.

Variety reviews are usually reliable.  Unlike most
newspapers and magazines, they do not offer an aggregated and confusing
"weighted average" assessment of both quality and popularity.  Written
for insiders, the periodical tells you how good the movie is, how
popular it will be, which countries will like it (sometimes), and how
it will do on DVD.

If you are lost, here is background information on Serenity.  If you saw the movie on its brief early release, don’t put any spoilers in the comments.

Corruption in everything: renting your own baby

From Bangalore:

Just as the painful ordeal of childbirth finally ended and Nesam
Velankanni waited for a nurse to lay her squalling newborn on her
chest, the maternity hospital’s ritual of extortion began.

Before she even glimpsed her baby, she said, a nurse whisked the infant
away and an attendant demanded a bribe. If you want to see your child,
families are told, the price is $12 for a boy and $7 for a girl, a lot
of money for slum dwellers scraping by on a dollar a day. The practice
is common here in the city, surveys confirm.

A 1999 survey by the center found that 9 of 10 families whose relatives
gave birth in the hospitals reported paying a bribe, usually to see the
baby. The average amount paid has since dropped to $7 from about $16.
But 8 in 10 women still reported paying bribes in 2003 – to have their
baby delivered, to see the child after birth, to get their newborn
immunized or to obtain medicines that were supposed to be free.

Here is the story, which also contains a good general discussion of corruption.  This is yet another indication why the Indian economy is less of a threat than outsourcing critics might think.  Bangalore is arguably one of the most advanced and modern corners of India.

Teaching with blogs

I am requiring my Ph.d. macro class to read some blogs, and yes there will be a test.  They are to read Brad DeLong, Brad Setser, Macroblog, Nouriel Roubini, and some of Econbrowser, all to be found on the blogroll to the left.  I am a proponent of debate as a means of educating; we are programmed to remember interpersonal exchanges better than written or spoken drones.

Are we moving away from tipping?

A top New York restaurant is replacing tipping with a mandatory twenty percent service charge.  In many other areas, such as hotels, tipping is declining as well.

Most economic analyses of tipping ask why so many customers will give up money for no apparent return.  Put this puzzle aside, and ask why an establishment might move to the fixed charge. 

Ralph Frasca explains the legal difference between a tip and a service charge.  The employer may legally keep the service charge but not the tip.  This suggests at least three hypotheses:

1. A restaurant is using the new service charge to raise prices.  One of the new service charges is set at 20 percent, which is more than most people tip.  (Do note: this one particular New York restaurant claims they wish to redress the distribution of tip money in favor of the kitchen and away from serving staff.  Furthermore the restaurant is fancy, and some customers do tip 20 percent or more there.)

2. The balance of power in labor markets is shifting against workers.  We therefore see owners trying to capture tipping income.  Some of this income will be given back in the form of higher wages, but some of it will be kept by owners.  Perhaps this is the most palatable way of rewriting the implicit labor-management contract.

3. Employers can monitor waiter/waitress quality better than before.  So why leave compensation in the hands of the customers?  Under this hypothesis, employers are not looking to capture tipping income, rather they seek to control it by their own standards.

Here is James Surowiecki on tipping.  Here is a New York Times article on tipping.  Here is my previous post on tipping.  Comments are on, and thanks to Stephen Bainbridge for a pointer and suggestion.

Addendum: One ranting waiter notes: "Experience has shown that customers use verbal praise to supplement a poor monetary reward."

Did government invent the Internet?

Here is a useful corrective:

Back in the mid-1980s the Internet was the sole province of universities and government institutions. Private individuals who just wanted to send e-mail over the Internet would have had a hard time doing so.

But that doesn’t mean there weren’t vibrant computer networks. In fact there were tens of thousands of Bulletin Board Systems around the country that were relatively cheap to join and offered e-mail, files, discussion forums and a whole host of things that are now largely on the web; although some remnants of this BBS culture still exist.

The main problem with the BBS system was a lack of standards for interconnection. As the 1990s approached and computers became more powerful and modems supported more bandwidth there were several competing proposals for graphical interconnection standards, but those were wiped out by the Internet tsunami.

It is interesting, given [Barbara] Ehrenreich’s view that the Internet was an innovation made possible by the government, that prior to the early 1990s almost nobody outside of governments and universities had home access to the Internet while several million had logged on to a BBS at one point or another. What caused the change? Something Ehrenreich and her left/liberal friends usually fight tooth and nail — privatization. The floodgates of the Internet came open only after key resources became privatized and companies and individuals could operate on the Internet. For much of its existence, commercial activity on the Internet had been forbidden. The removal of that barrier is primarily responsible for the Internet we have today, where both anarchists and Abercrombie and Fitch use the web to broadcast their respective messages.

The Internet, in fact, reaffirms the basic free market critique of large government. Here for 30 years the government had an immensely useful protocol for transferring information, TCP/IP, but it languished with almost no added benefit other than to the military and academia. In less than a decade, private concerns have taken that protocol and created one of the most important technological revolutions of the millennia.

So can we interpret the history of the Internet in largely laissez-fiare terms?  Well, uniform standards are useful, the U.S. had better telecommunications policy than most other countries (including a system of managed competition), and local phone calls were set at price zero.  All of these helped the Internet, if you have other interventions in mind add them to the comments.  It is nonetheless correct that private initiative made the Internet what it is.

Here is the link.

African private safety nets

Here is an encouraging development from Africa:

In most of Africa, there is no such help for informal workers like Ms. Sow, who sells ndambe, a hearty bean paste that she mixes with tomatoes and onions and slathers on bread. Across the continent, fewer than 10 percent of working people have health insurance, pension coverage or other forms of social security, according to the International Labor Organization, the United Nations’ oldest specialized agency.

But that is slowly changing, and not just because some African governments are expanding their ailing social security systems, vestiges of the colonial days and geared mostly to the vast number of people on the government payroll.

The bigger push is coming from everyday Africans who are tired of waiting for politicians to address their needs and have begun spinning their own safety nets.

Plans in which neighbors come together and create their own makeshift health coverage are the rage in Africa, particularly in the continent’s west. Here, the plans now have a significant presence in 11 countries and membership has grown beyond 200,000 people.

Some of these mutual health organizations, as they are known, include fewer than 100 beneficiaries. The tiny group negotiates with a local clinic and forges a better price for care. Others have linked dozens of community groups to produce sophisticated plans that cover 10,000 or more people and offer an array of services.

"Every day there’s a new group," said Olivier Louis Dit Guerin, who helps set up these microinsurance plans as part of a program run by the Labor Organization. "They’re growing and growing to fill the big gap."

Here is the story.


At the DNA level, all the major cereals — wheat, rice, maize, millet, barley, and so on — are surprisingly alike.  But despite their genetic similarity, maize looks and acts different from the rest.  It is like the one redheaded early riser in a family of dark-haired night owls.  Left untended, other cereals are capable of propagating themselves.  Because maize kernels are wrapped inside a tough husk, human beings must sow the species — it cannot reproduce on its own…no wild maize ancestor has ever been found, despite decades of search.  Maize’s closest relative is a mountain grass called teosinte that looks nothing like it…And teosinte, unlike wild wheat and rice, is not a practical food source; its "ears" are scarcely an inch long and consist of seven to twelve hard, woody seeds.  An entire ear of teosinte has less nutritional value than a single kernel of modern maize…

…the modern species [of maize] had to have been consciously developed by a small group of breeders who hunted through teosinte strands for plants with desired traits.  Geneticists from Rutgers University…estimated in 1998 that determined, aggressive, plan breeders — which Indians certainly were — might have been able to breed maize in as little as a decade…modern maize was the outcome of a bold act of conscious biological manipulation — "arguably man’s first, and perhaps his greatest, feat of genetic engineering," [Nina Federoff]…"To get corn out of teosinte is so — you couldn’t get a grant to do that now, because it would sound so crazy…Somebody who did that today would get a Nobel Prize!  If their lab didn’t get shut down by Greenpeace, I mean."

That is from 1491: New Revelations of the Americas Before Columbus, by Charles C. Mann.  I loved this book, which also tells you why Norte Chico, at its peak, may have been as advanced as the Sumerians.  The book covers much of the New World, and the evidence in this area is in general muddy.  So the text is virtually certain to contain mistakes.  But the judgments are generally well-reasoned, the author is remarkably well-read, and the area I know best — the Nahua culture of early Mexico — is presented in a sober and balanced manner.

UHaul Pricing

I’m not convinced by his example but Andrew Roth (a former student of mine) has a found a nice source of data that could be used to discuss demand and supply, the difficulties of identifying price discrimination, and why it’s efficient to have "women enter free" nights at clubs. 

Some high income earners are leaving
California because of its punitive tax rates. Could low- and
middle-income workers be leaving as well? One crude measure is to
examine the one-way rental rates for U-Haul vans. Using U-Haul’s website, I queried a one-way rental for a 10-foot van for October 1st, 2005.







One-Way Trip Price
Los Angeles to Las Vegas $454.00
Las Vegas to Los Angeles $119.00

Hattip to E. Frank Stephenson at Division of Labor.