Month: December 2005

Against errands

Here is some wisdom for the new year to come:

Other days are eaten up by errands. And I know it’s usually my fault: I let errands eat up the day, to avoid facing some hard problem.

The most dangerous form of procrastination is unacknowledged type-B procrastination, because it doesn’t feel like procrastination. You’re "getting things done." Just the wrong things.

Any advice about procrastination that concentrates on crossing things off your to-do list is not only incomplete, but positively misleading, if it doesn’t consider the possibility that the to-do list is itself a form of type-B procrastination. In fact, possibility is too weak a word. Nearly everyone’s is. Unless you’re working on the biggest things you could be working on, you’re type-B procrastinating, no matter how much you’re getting done.

In his famous essay You and Your Research (which I recommend to anyone ambitious, no matter what they’re working on), Richard Hamming suggests that you ask yourself three questions:

    1. What are the most important problems in your field?
    2. Are you working on one of them?
    3. Why not?

Here is the full argumentAddendum: Here is the correct link for "You and Your Research."

Don´t Think Too Much About Your Year to Come

Timothy Wilson writes:

In one study, mildly depressed college students were asked to spend eight minutes thinking about themselves or to spend the same amount of time thinking about mundane topics like "clouds forming in the sky."

People in the first group focused on the negative things in their lives and sunk into a worse mood. People in the other group actually felt better afterward, possibly because their negative self-focus was "turned off" by the distraction task…

What can we do to improve ourselves and feel happier? Numerous social psychological studies have confirmed Aristotle’s observation that "We become just by the practice of just actions, self-controlled by exercising self-control, and courageous by performing acts of courage." If we are dissatisfied with some aspect of our lives, one of the best approaches is to act more like the person we want to be, rather than sitting around analyzing ourselves.

Social psychologist Daniel Batson and colleagues at the University of Kansas found that participants who were given an opportunity to do a favor for another person ended up viewing themselves as kind, considerate people – unless, that is, they were asked to reflect on why they had done the favor. People in that group tended in the end to not view themselves as being especially kind.

Here is the full story, and no I don´t have New Year´s resolutions.

My macro final

1. The pessimists commonly argue that the large U.S. trade and budget deficits eventually will require a big fall in the dollar, higher real interest rates, and a general loss of confidence in dollar-denominated assets. We all know that g > r would stop this problem in its tracks. But let us say that g is not big enough relative to r. What other non-pessimistic scenarios can you outline? How valid are they?

2. What is the difference between covered and uncovered interest parity? Which are assumed by the traditional Dornbusch model of exchange rate overshooting? None, just one, or both? How do the observed failures of the expectations theory of the term structure affect the Dornbusch model? 

3. How will the aging baby boom generation affect the following and why? Savings rates, interest rates (real, nominal, short and long term), Fed policy, inflation, and investment.

4. Targeting nominal gdp involves targeting M x V, or Money times Velocity. Do open economy considerations make this a better or worse idea? Make sure your assumptions are clearly stated.

5. Write your own exam question and answer it, do not use open economy macro as your major topic since three of the questions already cover that. The quality of the question matters as much as the quality of the answer.

Some people did very well.  #2 and #4 gave people the biggest problems.

A simple public choice model of currency crises

Assume two classes of asset holders.  The first is liquidity-constrained and does not have rational expectations.  These people extrapolate from present conditions and do not understand intertemporal governmental budget constraints.  Most of their assets are held in a local currency, shall we call it the Argentine peso?  Even if they had more foresight, they cannot afford to set up foreign bank accounts.

The second class of people is wealthier.  They convert all savings into dollar-based accounts, held in Miami, as quickly as possible. 

When the fiscal position of the government deteriorates and a currency collapse comes, both the nominal and real value of the domestic currency will fall.  In Argentina the peso went from 1 to 1 — the former pegged rate — to 3 to 1, the current floating rate.  Prices are a bit higher, but the latter class of investor is much wealthier today.  At home, their overseas dollar holdings are worth more than twice as much as before.  They have greater purchasing power over the local economy, especially over non-tradeables.

The country as a whole is poorer, if only because the currency collapse disrupts  economic activity.  The first class of asset holders is much poorer and many are wiped out altogether.  Non-tradeables are oriented ever more toward wealthy, sophisticated demanders.  Culture will boom, non-shippable foods will improve in quality, and perhaps the women will become more beautiful.  Relatively wealthy vacationers will find that this place is just right for them.  Yet the streets will have more litter and there will be more beggars than before.

This is no conspiracy theory, but it does explain why we do not see greater domestic pressures for fiscal stability.

The economics of napping

Michael at writes:

  • Some see napping as a reflection of a failing. If you were doing everything right, you wouldn’t need to nap. This stems from the American conviction that a person ought to be bursting with dynamism 24/7, and if he isn’t then something is dreadfully wrong.

  • Some see napping as an aspect of a larger problem that needs to to be addressed and licked: "Today, in the news — fatigue, and how to overcome it."

  • To some of a scientific bent, napping is strange — a peculiarity to be investigated. We aren’t perfect robots: Let’s try to explain why not!

  • To others, napping is a productivity question. A person who naps isn’t wasting time. No, he’s doing what needs to be done to be even more productive than he’d otherwise be.

  • And then there’s the "it’s good for you," napping-as-health crowd.

Here is his paean to napping.  Here in Buenos Aires they use naps as a means of abolishing ordinary sleep.  As they are waking up to go out, I wish to go to bed.  A status game (positive-sum?) among the youth leads going-out times to stretch later and later into the night.  Many clubs don´t get going until 2 a.m.  (How do one-night stands work when you are out until 7 a.m. or so?)  The last time I was here I would commonly eat my dinner at the end of their lunch hour.

Addendum: Daniel Drezner has a siesta update from Spain.

Borges and the Eternal Orangutans

He [Rotkopf] joked with the driver, asking if he was a porteño, a native of Buenos Aires, and if he too believed that Buenos Aires, that "simulation", really was a European city, and if, like all porteños, he considered himself to be "that physiological impossibility", a subequatorial Briton.  The driver was not amused.  By the look in his eyes when we got out of the car, it seemed to me that he too would gladly have seized the first opportunity to kill the German.

That is from Borges and the Eternal Orangutans, by Luis Fernando Verissimo, highly recommended.  How many excellent yet philosophical mysteries can you finish in an hour?

Constitutional Torture

Liberals are claiming that President Bush has violated constitutional restrictions on torture and spying on Americans.  Don’t they understand that the constitution is a living document that must be reinterpreted in light of new events and understandings?  An originalist reading of the constitution would throw us back into the
primitive past when the minimum wage was unconstitutional.  Fortunately, conservatives know that constitutional interpretation must change with the times and never more so than now.  We live in a different world.  The Founding Fathers may have been great in their time but they did not face the problems that we face today and we should not be bound by their 18th century ideas of liberty and executive tyranny.

Violations of purchasing power parity

Mercer Human Resource Consulting, which publishes an annual list of the cost of living in cities worldwide, recently put Buenos Aires 142nd, out of 144 cities ranked. What was slightly more expensive than Buenos Aires? Bangalore, India. The only two cities that were cheaper were Manilia, Philippines and Asuncion, Paraguay.

Here is the link.  Yes you can get excellent pasta here for two dollars or less, or a nine-piece stainless steel knife set for $27.  Many of the best restaurants offer entrees for seven or eight dollars.  Some good and apparently legal CD collections can be had for two or three dollars a piece.

Using the state to counter social conformism

Women in search of fashionable clothes the world over have a similar problem: What do you do if you are not a size 6?

Some government leaders in Argentina have an answer.  They have passed a controversial law designed to break what they see as the tyranny of tiny sizes.  Starting Dec.21, Buenos Aires province, which includes the capital’s glitzy suburbs but not the fashion-forward city itself, will require shops catering to adolescent girls to stock clothing in a minimum range of sizes roughly equivalent to sizes 6 to 16 in the U.S.

Provincial inspectors will scrutinize merchants’ clothing racks, "tape measure in hand," says Ana Serrano, the province’s director of commerce and designated sizing sheriff.  Shops that don’t have the prescribed sizes in stock will face fines of up to $170,000.  Officials maintain that the small clothes put pressure on young women to take up extreme dieting.  That in turn contributes to one of the highest rates of anorexia and bulimia in the world, they say.

In a nation where stylishness is a national religion, the sizes law is triggering a fevered debate…Argentina women who aren’t extremely thin have an unusually tough time finding fashionable clothes.

There is another angle:

Some of the problem has to do with the fragmented structure of the local clothing industry, says Donna Reamy…High tariffs, along with Argentina’s history of economic instability, have kept many big foreign chains out of Argentina, leaving only one department store in the city of Buenos Aires and provincial suburbs.

Argentina, by the way, is a leader among Latin American nations in plastic surgery, exercise, eating disorders, and psychoanalysis.  This new policy is a funny kind of paternalistic anti-paternalism: "hey, you, I pull out my gun: tell her it is OK to grow a little fat." 

That is all from the 26 November Wall Street Journal.  A good micro question would be to outline the underlying (implicit) theory of market failure here.

What can Hollywood expect in the future?

The Hollywood studios, as the kings of content, will profit the most from the transformation of the entertainment economy. The theaters and cable operators (unless they can acquire their own content), on the other hand, will have a much more difficult time surviving the increased competition for the clock and wallet of the audience. And the couch potato will have many more, though not necessarily better, reasons for staying home.

Edward Jay Epstein offers five specific predictions.

Purely subjective Argentina impressions

1. It now feels much less safe, and the rate of apparent "derelictism" is much higher.  The streets are noticeably dirtier.

2. Big shopping centers are more prominent.

3. It feels less like people are pretending to be Europeans, and more like a part of Mercosur.

4. The country has average nine percent growth over the last three years.  Some of this is the soya boom, but much of it is making up for financial collapse.  Destruction of a country´s banking system will lead to poverty, coordination failures, and an inability to evaluate and implement new projects.  Old projects will lose their access to liquidity and unemployment will rise steeply.  But few real resources are destroyed.  Once you get over the coordination problems, the factories and pampas are still there and rates of growth will be high.  But don´t be fooled, Argentina has not yet found a recipe for economic stability.  Furthermore the distributional consequences of this "experiment" have destroyed a significant part of the already-tattered social fabric.  Right now they are riding the crest of the psychology of an increasing first derivative.  But beware…

5. I have a new theory about the Argentina economic boom of (roughly) 1890 to 1920.  The country put a large amount of resources into cattle right before refrigerated transport revolutionized the global demand for beef.

6. There is much ruin in a nation.

Facts about W. Arthur Lewis

1. He was born in St. Lucia in 1915 and studied economics at the LSE.

2. He straddled the ground between the Hayekian free market economists and the socialists.

3. He stressed the role of education in economic growth.

4. He fleshed out "dual economy" development models in which labor supply is virtually unlimited.  He argued that the marginal product of labor could be zero in some sectors, and that in developing economies more labor should be allocated to manufacturing.

5. He saw growth as a multi-faceted, multi-dimensional process, requiring balance across sectors.

6. He was the major economic advisor to Ghana in 1957-58.  He resigned in disgust.

7. He ran The University of the West Indies from 1959 to 1963.

8. He won the Nobel Prize in economics in 1979.

9. He is no longer cited much by top development researchers.  Empirically his major propositions do not seem to have stood up (p.262).

10. He finished his career at Princeton.

Did he deserve to win a Nobel Prize?  Robert Tignor’s new W. Arthur Lewis and the Birth of Development Economics never quite asks this question.  He does treat part of the Caribbean intellectual (and cultural) renaissance of the second half of the twentieth century.  I liked this book, but I am still waiting for the broader volume which treats King Tubby, Hector Hippolyte, and Lewis all in the same broader social and economic context.

Here is Lewis’s autobiographical statement.  Here is a brief summary of his work.  Here is a sample chapter of the Tignor book.