Month: January 2006

Markets in everything (if you hurry)

How to Hide Things in Public Places, a book by Dennis Fiery.  The teaser:

Did you ever want to hide something from prying eyes, yet were afraid to do so in your home? Now you can secrete your valuables away from home, by following Dennis Fiery’s eye-opening instructions in How to Hide Things in Public Places. The world around us is filled with cubbyholes and niches that can be safely employed… and this book identifies them…Many [sic] books have been written about hiding. But they all focus on privately hiding things in your own home, car, or on your person.

Here is more information, and for other unusual books look here and here.   You can buy it there but hurry the book service is going out of business.  Thanks to for the pointer.

Law enforcement quotation of the day

"Sometimes it takes five or six interviews to break these girls [prostitutes], to let
them know we’re the good guys," said [police officer] Stack, noting that many have an
inherent distrust of law enforcement officers. "We haven’t gotten any
trafficking victims from these cases. It’s not because we haven’t
spoken to them. It’s not because we’re not trying. It’s just very
difficult to make these girls flip."

Here is the full story.

Should we fear the proposed Iranian oil bourse?

I have read that Iran will construct an "oil bourse" with oil priced in terms of Euros instead of dollars.  Here is one such account:

The Iranian government has finally developed the ultimate “nuclear” weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006.

Here is a related worry.  I don’t know much about what Iran is planning (nor does a Google search yield much trustworthy information), but this fear is based on faulty economics.  As a first-order approximation, it doesn’t much matter whether Iran prices its oil in terms of dollars, Euros, or some other currency.  At the beginning of each day, investors (including the OPEC nations) are holding their preferred bundle of currency positions.  You might need to hold or receive Euros for a moment to make a transaction, but moving from the dollar to the Euro, or vice versa, can be done easily.

Two qualifiers: First, some investors will hold more Euros to begin with.  They don’t know their periodic demands for oil, and they don’t want to be bothered paying a bid-ask spread and calling a broker when the time comes to pay for oil.  But this is likely to be a small effect.  Major market players generally do not regard these conversion costs as a decisive investment factor.  Bid-ask spreads in the dollar-Euro market are small, and if the dollar fell by a large amount it would be worth buying dollars cheaply and bearing subsequent transactions costs of a later reconversion at a superior rate.

Second, the dollar’s status as reserve currency depends in part on perceptions.  If pricing oil in terms of Euros altered those perceptions, the value of the dollar could fall.  But most of all those perceptions depend on relative economic performance.  An Iranian "oil bourse" is likely to be. in psychological terms, a non-event, especially if Iran continues down its path as international pariah.  Note that Saddam’s efforts to price oil in terms of Euros did not end up as a big deal.

If you are going to fear Iran, worry about the nuclear weapons.

Thanks to Michael Katsevman for the pointer.

Can too much Mozart make you sick?

The past ain’t what is used to be.  Norman Lebrecht, a fuddy-duddy if there ever was one, writes:

The key test of any composer’s importance is the extent to which he reshaped the art. Mozart, it is safe to say, failed to take music one step forward. Unlike Bach and Handel who inherited a dying legacy and vitalised it beyond recognition, unlike Haydn who invented the sonata form without which music would never have acquired its classical dimension, Mozart merely filled the space between staves with chords that he knew would gratify a pampered audience. He was a provider of easy listening, a progenitor of Muzak.

Lebrecht, well-known for his argument that classical music is dead, perhaps never thought it was alive in the first place.  Here is one good response.  I’ll offer more on the importance of Mozart next week; you’ll get Mozart blogging (but not just) up through his 250th birthday on the 27th [corrected from before].  I urge other bloggers to devote at least one post next week to Mozart; surely he has played some role in your life.

Would I be a Good Dictator?

The train from Casablanca to Marrakech is packed, I stand at the window and look out at the land; the land is rich but the people are mostly poor (GNI per capita of around $4200 in PPP adjusted terms).  If I were in charge would it be different?  Would I make a good dictator?  My good friend Bryan Caplan says yes!  My good friend Tyler Cowen is not so sure.  The question is not really about me, of course, the question is about what sorts of constraints are holding back poor countries.  Is it constraints about ideas, political/social constraints or even deeper geographic constraints?  Could one person at the top make a difference?

The great man theory of history, receives some interesting support in a paper just published in the QJE by Jones and Olken, Do Leaders Matter? National Leadership and Growth Since World War II.  Jones and Olken look at changes in economic growth  around the time of the natural or accidental deaths of leaders and they find that leaders matter, especially, as one might expect, in dictatorships.  A one standard deviation increase in leader quality leads to a huge increase in economic growth, an extra 1.5 percentage points a year.

It’s much easier to ruin a nation than build one, however, so the effect of leader quality on growth says less about how good a dictator I would be than about how bad a dictator were say Mao, Mugabe, and Amin, call it the great evil man theory of history.

Still, if you are a poor country eager for a better biography, email me and we can talk terms.

The Year of Yes

As a student at New York University in the late ’90s, she [Maria Dahvana Headley] applied that advice to her love life, turning down most men who asked her out and dating only intellectual, literary types. Frustrated by those guys, she reversed course, resolving to spend one year responding positively to all flirting and saying yes to literally anyone who asked her out. The ensuing 150 dates included a homeless man, several non-English speakers, 10 taxi drivers, two lesbians and a mime.

Headley’s memoir of the experience, "The Year of Yes," is now in bookstores, and Hollywood’s already calling. She urges other people to say yes more often, despite some horrible dates. (One guy took her to a bar that, it became clear, was a strip club–and that’s a tame example.) "Lots of women are pretty set in what they think they have to have in order to be happy, but it doesn’t hurt to date people who are not that," she says. It worked for her: during her dating spree, she met a playwright who was divorced and 25 years older and had two children–baggage that would have ordinarily nixed his chances. They married in 2003; now 28, Headley lives in Seattle with two teenage stepchildren. "It’s something I never would have picked, but it’s turned out to be this kind of amazing experience," she says.

Here is the link, courtesy of

In general I favor approaches which shake us up, and force us to overcome our preconceptions and status quo biases.  If you are at a very good restaurant, you often do best by ordering the course you think you are least likely to enjoy.  I do not, however, recommend going to the restaurant you think you are least likely to enjoy.  The trick is to keep part of your filter steady and strong, while, at the same time, inverting some portions of your expectations.  I’ve never gardened, or wanted to garden, but the best book on gardening in Borders still might be worth my while.  Or pick a genre of music you dislike — the more rabidly the better — and go buy what is supposed to be the best CD from that genre.

Here is a skeptical take on Maria’s decision.  Might this surfeit of choice make a suboptimal candidate look better than he ought to?  If nothing else, marriage would allow you to bring the oppressive experiment to an end.  Here is an informal interview with the author.

Microeconomists are encouraged to ponder what model is required to generate "don’t ask anyone out but say yes to all who ask you" as optimum search behavior.  And does Maria’s decision impose negative or positive externalities on men?  (On other women?)  Imagine if all women always said "yes" to all proposed dates…

What is wrong with Bolivia?

James Surowiecki writes:

Neoliberalism failed in Bolivia because a macroeconomic checklist is
not enough to make an economy work. Incorporating a new business in
Bolivia, for instance, takes fifty-nine days, entails fifteen separate
procedures, and costs twice as much as the average person earns in a
year. So, according to a recent World Bank study, most of Bolivia’s
businesses remain “informal,” which means that they have no legal
protection, and limited access to credit markets. Corruption is
rampant–a survey in 2000 found that it was a greater problem in Bolivia
than in about ninety-five per cent of other countries surveyed. And the
state bureaucracy has been more interested in patronage and clientelism
than in good policy.

Even if Bolivia got the big picture right, it got the details all
wrong. And it’s increasingly clear that when it comes to development
God really is in the details. A country’s history, institutions, and
power structures have a profound impact on whether reform can work.

Read the whole thing.  Elsewhere in The New Yorker, here is an article about Battlestar Galactica; season two showed up on my doorstep yesterday.

The best sentence I read last night

Expressed loosely, being smart makes women patient and makes men take more risks.

That is Shane Frederick, in the Fall 2005 issue of Journal of Economic Perspectives.  Here is an on-line version of the paper.  Here is Frederick’s home page.  Here is his fascinating doctoral thesis, an exploration of discounting and personal identity over time.

Frederick dares the economist to judge some people as irrational rather than ascribing all differences to preferences or risk-aversion.  Remember all those tests of expected utility theory?  If subjects with high cognitive abilities tend to choose a certain way, should we not consider that the rational choice?  For instance your ability to get simple numerical problems right is correlated with having a low rate of time preference.  Also check out Frederick’s data on which schools have students with the highest cognitive abilities…poor Toledo University…

Are bigger paintings better?

Believe it or not, some art lovers hold this to be a stupid question

But not I.  So consider a simple model and imagine the rest.  You are an artist and you have better and worse ideas, as defined by either marketplace success or critical acclaim (or both).  You can, to some degree, allocate your ideas across different size canvases.  Some ideas only work well in the small, and some ideas only work well in the large, but still there is some flexibility.  You are most likely to allocate your best ideas to the most saleable medium.  And since larger pictures usually sell for more than smaller ones, why not put your better ideas into the larger pictures?  You won’t waste a tremendous idea on a mere snippet of work, except perhaps as a practice or draft.  The marginal revenue product (or "marginal critical acclaim product") will be higher for the bigger pictures.  Of course we assume that the substitution effect outweighs the income effect.  (Micro question: what assumptions about costs do we need?  Does it suffice to assume that, given the cost of producing ideas, we can produce larger paintings at less than proportional cost?  If you are Ellsworth Kelly, doubling the canvas size just isn’t that big a deal…) 

There are caveats.  If the picture is too large, and cannot hang above a sofa, perhaps it sells for less.  So throw out monotonicity.  You will put your best ideas into the most saleable medium, which does not always mean "bigger." 

Longer songs are not better than shorter songs.  I’ve never paid attention to all of "Nantucket Sleigh Ride."  But the best songs will be close to around three minutes long, the dominant size or "medium" for hit songs.  Songwriters and composers won’t put their best ideas into snippets.  The best movies will be around two hours long, rather than a skit.  Some artists will break these patterns for personal reasons; Peter Jackson wanted a three-hour King Kong for the (ha-ha) sake of the story.  This may be a case of the income effect weighing in and financing self-indulgence.

Books should be better than short stories.  Again, put your better ideas into the better-paying medium.  Of course if customers use length as a signal of quality, these tendencies will be further strengthened.  Intermediaries, such as networks, record companies, and your agent, will help enforce the constraints.

And how long are the best blog posts?  The best comments to your wife?  The best flirtations?  The best comments on blog posts?

Thanks to Robin Hanson and Ilia Rainer for useful discussions of this point, and to Ilia for the question.

Should Verizon be allowed to charge Internet content providers?

I have long feared this development:

Verizon, Comcast, and their ilk have been lobbying Congress to
transform the Internet into a two-tiered system. By tagging content,
broadband providers would ensure that their own packets (or those from
companies paying them protection money) get preferential treatment and
reach subscribers faster than second-tier content. This would give
companies like Verizon a tremendous advantage as they roll out their
own television and VoIP telephone services.

Telco-cable companies have spent billions to lay down broadband pipe
and want a return on their investment. They are tired of bandwidth hogs
like Google, Amazon, and Microsoft getting a free ride. This was fine
when the Internet consisted mostly of e-mail and static Web pages. With
the advent of online video, Internet telephony, and IPTV, Verizon, AT&T, and BellSouth want content providers to share the cost.
Their reasoning: If Google is going to introduce a video service,
shouldn’t it have to pay for some of the bandwidth it scarfs down?

…If the telcos and cable companies get their way, we’ll have a
Balkanized Web. Content providers who can afford to pay for premium
service will market superior products to consumers with fast
connections. Everyone else will make do with second-class companies at
second-class speeds.

There is much more in this fascinating article.  In purely economic terms, the idea of charging Google or other "bandwidth hogs" does not sound outrageous.  (What would the incidence of such a price hike be?  Would cable connections become cheaper, or do the cable companies have too much mononpoly power?)  But in public choice terms, this would bring politically-influenced pricing.  Don’t expect porn or blogs to get a break.  The net would become much more corporate.  The perils of regulation aside, Verizon probably would favor its own products, and no, Harold Demsetz never disproved this tendency. 

The beauty of the status quo is that web sites compete on the basis of consumer surplus alone.  The bandwidth costs end up as a fixed charge on net access as a whole; I suspect this hits many inelastic demanders, a’la the Ramsey rules for optimal taxation.  Admittedly it may be a bad deal for the poor who cannot afford to connect, but the overall arrangement enhances the long-run "competition of ideas" feature of the net.

One second-best solution is to charge users for bandwidth per se, while not discriminating across differing uses of that bandwidth.  In essence this would tax file-sharing while leaving most content decisions unaltered.  Alternatively, a tiered net could lead to more Wi-Fi networks, whether at the municipal level or constructed by Google.  If that is where we are headed anyway, this apparently troubling development could rebound to our collective advantage.  We might end up bearing the fixed costs of the transition sooner than is optimal, but again the dynamic benefits of the new arrangement might swamp that problem.

Comments are open…will my free market readers defend Verizon’s right to charge Google bandwidth fees?

Open-source peer review

[With] open-source reviewing…the journal posts a submitted paper online and allows not just assigned reviewers but anyone to critique it. After a few weeks, the author revises, the editors accept or reject and the journal posts all, including the editors’ rationale…

Open, collaborative review may seem a scary departure. But scientists might find it salutary. It stands to maintain rigor, turn review processes into productive forums and make publication less a proprietary claim to knowledge than the spark of a fruitful exchange. And if collaborative review can’t prevent fraud, it seems certain to discourage it, since shady scientists would have to tell their stretchers in public. Hwang’s fabrications, as it happens, were first uncovered in Web exchanges among scientists who found his data suspicious. Might that have happened faster if such examination were built into the publishing process? "Never underestimate competitors," Delamothe says, for they are motivated. Science – and science – might have dodged quite a headache by opening Hwang’s work to wider prepublication scrutiny.

Here is a bit more.  What might be some arguments against this practice?

1. It is too easily manipulated by your friends, or perhaps by your enemies.

2. The resulting morass of comments must be interpreted.  We are back to editorial  discretion, but it is better to have some referees rather than none.

3. The purpose of journals is not to always make the right decision, but rather to certify the quality of outstanding work to more general audiences.  By blurring the evaluation process, open source reviewing would make journals as a whole less reliable.

4. Don’t we already have this option?  I could post a paper on this blog, open up the comments, and receive a call from the AER, asking for a submission.  I guess my answering machine isn’t working.

5. The current system allows for editorial manipulation through the choice of referees.  This is good.  An innovator needs only to convince a single editor, not a jackal-like pack of seething commentators [hey guys, that’s you!].

What is the goal of publishing anyway?  To assign "just outcomes"?  To make sure that the one percent of worthwhile papers find a prestigious outlet?  To provide incentives for those papers to be written in the first place?  To increase the prestige of science as a whole?  Since I don’t understand why on-line publishing hasn’t already taken over, this scheme is hard to evaluate.  Comments are open….