Month: October 2005

How much is your blog worth?

Type in your blog name here.  MR comes out as worth over $850,000, based on proportional allocation and the price of the AOL-Weblogs deal.  Alternatively, we could ask how much Alex and I would pay for MR, (well, Alex? Monique?) and treat the rest as the option value at the corporate level for creating additional blogs.  Or perhaps you should just sell AOL short (again).

Thanks to Shawn DuBravac for the pointer.

Freakonomics of the sea

"Before the 1880s, it was unusual to see lobster on menus," said Jones. "It was considered trash fish that people didn’t want"

Glenn said his interest in menus as historical resources evolved from a project in which he assigned students in a coastal resources class to study seafood price data based on prices in a 1950s restaurant menu he came across.

Besides documenting the rise and fall in popularity and prices of fish and mollusk species in restaurants, menus also provide scientists with serious documentation of the economics of commercial fishing over the decades, he said.

"Sea scallops don’t show up on the menus until the 1940s," Jones said. "Before that, it was all bay scallops on menus. Now, bay scallops are pretty rare and the ones you get are real small"

Other U.S. seafood resources are depleted as well, Jones said. Industry records show oyster harvests from Chesapeake Bay are down 96 percent from annual hauls in the early 1900s, he said.

In recent decades, American consumers in particular have chewed their way through two trendy delicacies, Jones said.

"In the 1970s and 1980s, orange roughie starts showing up on menus," Jones said. "But it’s a very slow-growing species and they were harvesting it much faster than the species could replace itself so it’s becoming commercially extinct"

Fishing boats simply shifted from chasing roughie in waters around New Zealand and Australia to pursuing Chilean sea bass in the southern Pacific and southern Indian oceans.

"They just moved on to another species," Jones said, citing catch statistics. "Now, the same thing is happening with the Chilean sea bass"

The same type of progression took place among Atlantic ocean species from the 1850s into the 1900s, Jones said.

Analysis so far has included menus mostly from coastal cities like New York, Boston, San Francisco and Providence, R.I., Jones said.

Here is the full story, and thanks to Dylan Alexander for the pointer.  Here is another summary, try this one too.  In Colonial America, servants wrote contracts specifying they would not be asked to eat lobseter (how fresh? and did they give you a bib and that little fork?) more than twice a week.  Here is a Canadian summary of the work.

Did I mention that we are running out of many species of fish, and that we will be consuming lower and lower items on the marine seafood chain?  I favor private ownership of fish stocks, to alleviate the commons problem, but a) this is not always technically feasible, and b) where possible, it would cause current prices to skyrocket, making those fish a luxury good.  Quotas can be a second best solution but they are hard to enforce.  I hope you like seaweed.

What is left for libertarians?

Democrat Matt Yglesias writes:

If you did have a progressive president, there’s no longer a particularly large amount of popular resistance to expanding the activist state. Even most Republicans don’t especially care about small government.

Republican David Brooks (see Sunday’s NYT, no free link anymore, but read this good summary, or try this) tells us that George Bush and activist government have saved the Republican Party from irrelevance.

Libertarian Albert Jay Nock titled his book Memoirs of a Superfluous Man.

But not so fast: I have a simple theory: in any period of time, government grows as large as it can, given available technology and a few cultural constraints.  For better or worse, voters support this growth.  The railroad and electricity were the most significant agents for big government in the twentieth century, toss in the radio for good measure.  Short of technological retrogression and negative economic growth, we should not expect government to ever get smaller.  Just look at the size of welfare states in oil-rich countries. 

But neither does this spell the end of libertarianism.  Some people realize that this process can go too far, as it has in the growth-stunted Western Europe.  In more extreme cases, government can grow so large as to endanger the foundations of civilization. 

The complainers are the libertarians.  They will always lose, and they will always be intellectually important. 

The secret history of the minimum wage

It’s no surprise that progressives at the turn of the twentieth century supported minimum wages and restrictions on working hours and conditions.  Isn’t this what it means to be a progressive?  Indeed, but what is more surprising is why the progressives advocated these laws.  A first clue is that many advocated labor legislation "for women and for women only."

Progressives, including Richard Ely, Louis Brandeis, Felix Frankfurter, the Webbs in England etc., were interested not in protecting women but in protecting men and the race.   Their goal was to get women back into the home, where they belonged, instead of abandoning their eugenic duties and competing with men for work.

Unlike today’s progressives, the originals understood that minimum wages for women would put women out of work – that was the point and the more unemployment of women the better! 

Much more on the secret history of the minimum wage in Tim Leonard‘s paper, Protecting Family and Race: The Progressive Case for Regulating Women’s Work.

Mark Cuban’s War against Hollywood

Why don’t we have a convergence to immediately available video-on-demand?  Edward Jay Epstein blames Wal-Mart:

What has prevented the studios from closing the video window is simple: Wal-Mart. The company, which is the single biggest seller of DVDs, has made it clear that it does not want to compete with home delivery. Wal-Mart executives told Viacom’s home entertainment division in no uncertain terms that if any studio does away with the 45-day video window for a single title, they would risk losing access to Wal-Mart’s shelf space for all of its titles. Wal-Mart provided studios with more than one-third of their U.S. DVD revenue in 2004. In the face of Wal-Mart’s retail power, the studios have not dared (yet) to do away with the protective video window.

Read: Wal-Mart will lose this battle sooner or later.  Here is the full article, which contains much more about Cuban.

Should professors podcast their lectures on-line?

John Palmer, the Eclectic Econoclast, wonders whether he should podcast his lectures on-line; be sure to scroll down to his point #7.  Here is a recent article about podcasting university lectures (who owns the rights? who should own the rights?).

A few weeks ago, Russ Roberts at Cafe Hayek asked whether there was much demand for economics podcasts.  Being excessively terse by nature, I feel ill-suited to the podcast medium.  And I fear that podcast lectures would make some of my students stay home and also would make me more self-conscious in class.  But what do you all think?  Comments are open.

Ben Bernanke, economist

I associate Ben Bernanke with several major contributions:

1. The theory of irreversible investment, circa 1983.  Before Bernanke, Dixit, and Pindyck, models often assumed that investments could be reversed or "taken back."  Bernanke outlined how the irreversibility of investment might matter.  Often individuals will choose to wait and sample more information, rather than make an immediate decision.  Small changes in information could lead to big fluctuations in investment.  Large changes in interest rates might have little effect.  Bad news can hurt you more than good news helps you.  This was Bernanke’s first major contribution to economics.

2. The credit channel for monetary policy; here are the papers, most of all the 1992 piece with Alan Blinder.  Bernanke took an old Keynesian idea and gave it empirical rigor.  During upturns and downturns, does money or credit play the leading role?  Bernanke showed that credit has greater importance.  Bernanke’s work in particular helped combat the Litterman and Weiss paper of 1983; L&W had showed that once you put the nominal interest rate in a Vector Autoregression (a relatively atheoretical statistic technique), money didn’t seem to matter.  Bernanke rescued the relevance of money but showed it mattered through the associated channel of credit.  This work stands among the most important contributions in macroeconomics in the last twenty years.  It also suggests that Bernanke, as Fed chair, will look closely at credit indicators.  Here is a Bernanke speech on money and the stock market.

3. Inflation targeting. Very few if any economists will now defend the old Friedmanesque recipe of monetary targeting or a fixed rule for money supply growth.  It has become increasingly popular to look toward inflation targeting.  New Zealand and Canada led the way in terms of policy when their central banks explicitly adopted a range for inflation targeting; 0-2 percent in the case of New Zealand.  Bernanke would like to see the Fed put greater emphasis on price stability.  He did not invent this view, but he is the individual who made it politically credible.  Right now the major debate in the theory of monetary policy concerns whether inflation targeting should be tight or loose.  Bernanke has been a major force on these issues, and he has often been praised for his leadership in this area, even by those who disagree with him.  Here is a 1999 Bernanke essay on inflation targeting.

4. Causes of the Great Depression; here is one paper, here is part of his book.  Bernanke did a good deal of comparative work and concluded that the Great Depression became great because of deflation, its international transmission, and rigid exchange rate policies.  Recall that Sweden, which cut the link from gold and let its currency float, had a much milder depression during the 1930s.  This has become part of accepted wisdom; in a policy context it implies Bernanke has a low tolerance for deflation.  Here is a Bernanke speech on the Great Depression.  Here is an Anna Schwartz review of his book.

5. The global savings glut.  Trade and budget deficits are enormous, so why aren’t we collapsing?  Why do real interest rates remain so low?  Bernanke cited the possibility of a global savings glut; here is one explanation of the idea, here is another.  The bottom line is this: some Asian countries have high levels of savings, but poor financial institutions.  They invest their savings in the United States, and often we invest in back in Asia.  In essence they are "outsourcing" their savings to foreign financial institutions.  This recycling of Asian savings may help explain what is going on in the global economy.  It also suggests that the current U.S. position is at least temporarily sustainable.  Here is a relevant Bernanke speech; here is some commentary on the idea.

Here is Bernanke’s vita.  Here are his books.  Here is his talk on making the transition from academic life to the policy world.  Here is a White House bio.  Here is Wikipedia.

Bernanke the man? I met him once and had lunch.  He came across as a nice guy; most importantly, he listened to everyone at the table (or at least seemed to!), no matter what their academic status.  In the profession he is popular.

If you know more, comments are open.  Here are various blogger reactions.

Ben Bernanke

The new Fed nominee is Ben Bernanke, an excellent choice and a first-rate economist. 

What must a good Fed chair do? 

1. He should have a mastery of data and an understanding of the macroeconomy.  He must not be a dogmatist.  Bernanke gets an A or A+ here.

2. He should have the ability to lobby the President and Congress for support.  It is not clear who is listening but Bernanke gets in relative terms at least a B+ here.

3. He should have the personality to hang tough.  This requires the "test of time" but we have no reason to be pessimistic.

4. He should recognize that the Fed can only succeed if fiscal policy is responsible.  Give him an A.

5. He should be credible abroad and on Wall Street.  Bernanke is not fully senior in this regard, at least not within the policy community, but he could achieve this stature within a year’s time.  B.

6. He should have that Greenspan magic touch.  Grade?????

Next I will post on Bernanke’s contributions to economics.  Comments are open…

Terrorists with nuclear weapons

Tom Schelling writes in today’s WSJ:

[Terrorists] will discover, over weeks of arguing that the most effective use of the bomb, from a terrorist perspective, will be for influence.  Possessing a nuclear device, if they can demonstrate possession — and I believe they can, if they have it, without detonating it — will give them something of the status of a nation.  Threatening to use it against military targets, and keeping it intact if the threat is successful, may appeal to them more than expending it in a destructive act.  Even terrorists may consider destroying large numbers of people and structures less satisfying than keeping a major nation at bay.

No permalink is currently available, although it may pop up on the on-line edition.  Also pick up the paper copy for the front-page story about Caroline Hoxby and the recent disputes over her work on educational competition.

Addendum: Here is a link.

The Moral Consequences of Economic Growth

Benjamin Friedman has just published The Moral Consequences of Economic GrowthPublisher’s Weekly notes: "This probing study argues that, far from fostering rapacious materialism, economic growth is a prerequisite for the creation of a liberal, open society." 

Here is Joseph Stiglitz’s review from Foreign Affairs, a classic example of first lip service to growth and then bit-by-bit retraction.  Thanks to for the pointer.

What is the social responsibility of business?

Milton Friedman has long suggested that the social responsibility of business is to maximize profits.  Recently he tried to clarify this view:

I shall try to explain why my statement that “the social responsibility of business [is] to increase its profits”…

Note first that I refer to social responsibility, not financial, or accounting, or legal. It is social precisely to allow for the constituencies to which Mackey refers. Maximizing profits is an end from the private point of view; it is a means from the social point of view. A system based on private property and free markets is a sophisticated means of enabling people to cooperate in their economic activities without compulsion; it enables separated knowledge to assure that each resource is used for its most valued use, and is combined with other resources in the most efficient way.

Of course, this is abstract and idealized. The world is not ideal. There are all sorts of deviations from the perfect market–many, if not most, I suspect, due to government interventions. But with all its defects, the current largely free-market, private-property world seems to me vastly preferable to a world in which a large fraction of resources is used and distributed by 501c(3)s and their corporate counterparts.

Friedman has qualified his social responsibility claim for force and fraud, but what about negative externalities more generally (just ponder Tamiflu licensing if you want the appropriate headache)?  Is Friedman’s claim:

1. Profit maximization is the best rule available, even though it fails society in particular instances (in that case, isn’t there some slightly more convoluted rule that can cover at least some of these situations and modify the outcomes?  If only "very simple" rules are allowed, why?)

2. Businesses have no responsibility to behave in an act utilitarian fashion.  Rules are rules, and we should follow them, come what may.

3. Following the doctrine of fiduciary responsibility — in this case to shareholders — is the greatest social good in these situations.  It outweighs potential act utilitarian considerations pointing in other directions.

4. Force and fraud aside, profit maximization always coincides with the social good, at least in the absence of bad government interventions.

5. It is a public choice argument.  The claim is a noble lie, for otherwise business will be regulated by government in a counterproductive manner.

6. So much anti-corporate nonsense has been written, so we need to shock people with an extreme claim in the opposite direction.

In response to Friedman, John Mackey, the CEO of Whole Foods, argues: “I believe the entrepreneurs, not the current investors in a company’s stock, have the right and responsibility to define the purpose of the company.” 

My take: No simple rule can sum up what is right to do, for a business or otherwise.  So I have to read Friedman as falling back on #5 and #6, with his partial belief in #4 convincing him he needn’t worry about the complications so much.