Month: January 2006

What I’ve been reading

1. Land of Plenty: A Treasury of Authentic Sichuan Cooking, by Fuchsia Dunlop.  The other night I made a sauce with five chopped green onions, blended to a smooth paste with one tablespoon sichuan peppers (first dunked into hot water).  Add three tablespoons chicken stock, one teaspoon light soy sauce, one and one half teaspoons sesame oil.  Apply to cooked chicken.  More generally, buy Chinese cooking wine and black (Chinese) vinegar and you are almost ready to go.

2. Penguin Guide to Jazz on CD, seventh edition.  This is not just a reference work, it is also the best book on jazz, period.  The main drawback is a lack of material on Norwegian jazz, a recent interest of mine.

3. This NYT article on previously-covered Dana Schutz.  Or try this article on nuns and the origins of reggae.

4. Recent books by Julian Barnes and Zadie Smith, while entertaining enough, won’t attract interest thirty years from now.  Question: What is the optimal lag time before deciding a work of fiction is worth reading?  Few novels require urgent reading, so how about fifteen years?  Why do I violate this rule so regularly?

5. Swallowing Clouds: A Playful Journey Through Chinese Culture, Language, and Cuisine, by A. Zee.  This unique book lives up to its subtitle; it teaches you how to make sense of Chinese characters, how the Chinese think about food, and how it all fits into a bigger picture.

Why the War on Drugs is hard to win

Here is a summary of forthcoming work by Gary Becker, Michael Grossman, and Kevin Murphy:

In an important new study, world-renowned economists–including a Nobel
Prize winner and a MacArthur "genius"–argue that when demand for a
good is inelastic, the cost of making consumption illegal exceeds the
gain. Their forthcoming paper in the Journal of Political Economy is a
definitive explanation of the economics of illegal goods and a
thoughtful explication of the costs of enforcement.

The authors demonstrate how the elasticity of demand is crucial to
understanding the effects of punishment on suppliers. Enforcement
raises costs for suppliers, who must respond to the risk of
imprisonment and other punishments. This cost is passed on to the
consumer, which induces lower consumption when demand is relatively
elastic. However, in the case of illegal goods like drugs–where demand
seems inelastic–higher prices lead not to [TC: much?] less use, but to an increase
in total spending.

In the case of drugs, then, the authors argue that excise taxes and
persuasive techniques –such as advertising–are far more effective uses
of enforcement expenditures.

"This analysis…helps us understand why the War on Drugs has been so
difficult to win…why efforts to reduce the supply of drugs leads to
violence and greater power to street gangs and drug cartels," conclude
the authors. "The answer lies in the basic theory of enforcement
developed in this paper."

Here is an earlier version of the paper.

Bargaining in the Souk

Bshhal?  (How much?), I say, pointing to an objet d’art.

He gives a figure.

La?!  (No?!), in mock shock at the price he has quoted.  Bezzaf!  (Expensive!)

How much you pay?

I get out a small pad of paper and pen (invaluable in the souk) and write a much lower figure.

Now it is his turn to be "shocked," handmade, silver, he says launching into a spiel.

We bargain some more back and forth.  The call to prayers starts in the background, he says, "listen, good sign."

I say, yes but for which one of us?  He laughs.  I am not budging much on the price so he tries to distract me with a less valuable piece.

C’est la ou rien, I reply.  For some reason the use of English, Arabic and French is not confusing.

Then he says "you give me maximum price, top, price serioux."

La, I reply, you give me minimum price, price serioux.

He laughs.  You professor?

Now, I am shocked.  Yes, how did you know?

I smelt it, he says touching his nose. "Everywhere professors have good eye but no money."

I seize an unexpected advantage, na’am (yes) no money.

We bargain some more and come to a deal.  I ask for my pen back.  He says no, small gift, small gift, mon amis.

Twenty dirhams!, I reply.

Professor, you must be Berber.

I laugh.  He keeps the pen.

Addendum:  If you go, ask for mon amis Rashid at Zemouri Ahmed Belhaj in the Souk.  Tell him that the Professor, day after Christmas, sent you.  He says he will remember. 

Scary sentence of the day

Until a stable nuclear statelmate with the United States is restored, Moscow and Beijing will surely buy deterrence by decentralizing their command-and-control systems and implementing "launch on warning" policies.

That is Benjamin Schwartz from the January/February 2006 Atlantic Monthly.  As for the other interesting article in that issue, I would like to see someone estimate the welfare gains of this "epidemic," not just complain about the costs.

Is American FDI more productive and am I dizzy?

Dan — As erg noted, I argue that the anecdotal evidence points to
corporate tax arbitrage as a key explanation. But if you come across
the definative b-school explanation, do let me know. So ask Bill Gates,
or the big pharma CEOs with big profits in Ireland for the answer, not
old George Soros.

I’ll set aside my argument that investing in US dollar denominated
assets is actually very risky for a foreign investors looking to
maintain their real wealth in local currencies terms. The big current
account deficit and all. Not everyone agrees with it.

But I don’t think the US just is good at borrowing at low cost to
buy high yielding assets argument works that well. For a couple of
reasons. First, US returns abroad really aren’t that good. The shocking
thing is that reported foreign returns on their FDI are really bad —
less than they would have gotten holding long-term Treasuries
generally. It isn’t US skill, at least not skill at anything other than
taking foreign direct investors for a ride that shows up in the data
(now if FDI in the US doesn’t want to show profits in the US for tax
reasons, the story changes … ). Second, most US FDI is just not in
risky markets, nor are most US debt securities claims on risky places.
Most US FDI is in the UK. lots more is in Switzerland. Throw in Japan,
Canada and the Eurozone and you have a decent mental image of US assets
abroad. Read the CBO report on this topic. Or look at the data the IMF
has assembled on the sources of FDI in China (hint — it ain’t mostly
coming from the US). US investors also own foreign bonds — but they
are mostly the securities issued in well developed markets that are
almost as liquid as our own. UK, Japan, Canada, eurozone and the like.

We have lent tons of money to the Caymans too; I bet the Caymans
also invests a lot in the US …. hhmmm? Maybe some b-school prof can
help us out there. Or tax attorney.

Bosnia and Herzegovina fact of the day

…all the synthetic economies put together, with about 10m players, are about the size of Bosnia and Herzegovina.

That is Tim Harford, reviewing Edward Castronova’s Synthetic Worlds: The Business and Culture of Online Games, from the 14 January Financial Times, p.W5.

Addendum: Here is the recent WSJ piece on economists and TV game shows, thanks to

Invisible hand podcasts

Here is the link, I am told that many of these podcasts concern business and economics books.  I am excited by podcasts, but only in the abstract.  I can read faster than you can, but I cannot listen any faster; the rest is comparative advantage.  If you know of other good economics-related podcasts, please tell us in the comments.  Here is a list of Slate-recommended (non-economics) podcasts.  Here are recommendations from Michael at; these include the excellent Radio Economics.  Interviews with Krugman and Sachs are new on that site.

Are neighborhood effects really family effects?

Neighborhoods and Academic Achievement: Results from the Moving to Opportunity Experiment

Families originally living in public housing were assigned housing vouchers by lottery, encouraging moves to neighborhoods with lower poverty rates. Although we had hypothesized that reading and math test scores would be higher among children in families offered vouchers (with larger effects among younger children), the results show no significant effects on test scores for any age group among over 5000 children ages 6 to 20 in 2002 who were assessed four to seven years after randomization. Program impacts on school environments were considerably smaller than impacts on neighborhoods, suggesting that achievement-related benefits from improved neighborhood environments are alone small.

Here is the paper, and thanks to Sven Wilson for the pointer.

Random thoughts from Marrakesh

I see about as many women in Marrakesh in full scale (eye slit only) chadora as on a typical day on the campus of George Mason University.  Tyler is correct; globalization makes every place increasingly different and all places increasingly similar.  Of course, I have yet to see snake charmers in GMUs central square.

The dates and apricots from the street sellers are the best I have ever tasted.  I could subsist on the dates, apricots, pistachios and the incredible orange juice alone.

I visited a harem today; alas the women were long gone or at least moved to the new palace.

The monkeys look sad.

As I am blogging I can hear the call to prayers in the background.  Ancient and modern in one experience; how cool is that (insert exclamation point here).

Why was British food so bad for so long?

English cuisine was historically bad in the cities because England urbanised fast and hard in advance of good transport and good food storage – hence corned beef, pickled everything, and mushy tinned peas. After that it’s a matter of lack-of-demand creating lack-of-supply – until recently. Multi-ethnic British cities are a fantastic place to find food these days (it ain’t the 50s any more, folks).

That is from reader comments on Brad DeLong’s blog, do have opinions on why British food was so bad?

Why they might drum me out of the Economists’ Corp

Some of you are still asking me what I think of Steve Landsburg’s argument that we should pull the plug on people who did not buy (would not have bought?) fairly priced ventilator insurance. 

If you like invective, here is what Kevin Drum thinksDaniel Davies distinguishes between willingness to pay and willingness to be paid; fair enough.  You might also wonder how much long-term insurance is available in the first place.

But my objection is more fundamental.  I do not accept that ex ante choices provide definitive information about ex post values.   Taking another context, assume you think the chance of cancer is only five percent when in fact for you it is (for genetic reasons) fifty percent.  You fail to buy insurance, but does that mean you don’t value your life much?  In this case I am willing to downgrade the economic values we might infer from market behavior; it was based on faulty information.

Now take the underinsured, now-dead woman (Tirhas Habtegiris).  She thought, either implicitly or explicitly, that her chance of needing "plug-pulling insurance" was small.  Maybe this seemed reasonable at the time.  But in reality she needed that insurance with p = 1.  She was wrong.

Does the cancer case differ from the ventilator case?  Perhaps they are not identical in their moral implications (the probability mistakes may differ in their ex ante reasonableness), but in both cases, if we are going to use economic methods, I prefer to use the valuations based on better rather than worse information.  And based on correct information, the now-dead woman had a high value for that plug not being pulled.  Look at the ex post valuation, not the ex ante valuation.  After all, we know she is (was) on the ventilator, why go back to an imaginary state of affairs where this information is missing?

For selfish people, the value of life will be, in terms of willingness to pay, their entire wealth.  In terms of willingness to be paid, the value of life will be infinite or undefined.  When the "perfect information market valuations" turn out so screwy and disparate, that is a sign the whole method has broken down.  Note also the neat trick that altruistic people, who care about bequests, will appear to have lower values of life; that is fishy too.

Mark Kleiman makes some related (but non-identical) points, and here are his lecture notes on the topic.

I don’t buy Rawls or Harsanyi, both of whom begged the question on the moral force of ex ante agreement.  I also don’t think we should value human lives by looking at the value of risk reduction, although this may provide broadly relevant information.  You’ve just got to decide how much a particular life is worth.  If you are thinking "yikes," you are right, but, forgive the pun, that is life.

Are we spending too much money keeping people alive in their final throes?  From a rules perspective, yes.  On a case-by-case basis, maybe not.  I don’t know how to reconcile "rules" and "act" perspectives, even in simpler contexts. 

In any case our decision comes down to an ethical judgment, where the money and the life meet each other, mano a mano, on an open plain.  When it comes to this lady, a terminal cancer patient who was alert at the time, the marginal costs of keeping her going just didn’t seem that high.

Addendum: If you are interested in pursuing these issues, try John Broome’s "Trying to Value a Life," Journal of Public Economics 1978, and the discussion in the 1982 M. Jones-Lee book, The Value of Life and Safety.  Or read the comments below.

Would you take an architectural pilgrimage?

Donald at nominates some architectural pilgrimages worth taking.  I suggest the Ford Rouge plant in Dearborn, Michigan:


Here is a brief history, with some stunning black and white photos.  I also enjoyed my pilgrimages to Tulsa and Kansas City (barbecue too).  Buenos Aires has the best public sculptures.  I’ll nominate the Taj Mahal for the most overrated site; it looks just like the postcard and I liked the saris of the visitors more than the site itself.  Here is a picture of Magnitogorsk, which I hope to visit.  Here is a broader index of Magnitogorsk pictures.  Brasilia is another dream of mine, and yes I do find that image attractive.

Here is an on-line version of Ludwig Lachmann’s Capital and its Structure, courtesy of Liberty Fund.

Economic Journal Watch — new issue

Comments: Miscounting Money of Colonial America: Ronald W. Michener and Robert E. Wright argue that Farley Grubb, writing in Explorations in Economic History, has mistaken the unit of account for the medium of exchange and grossly misestimated the money supply of colonial America. Farley Grubb responds vigorously to them, and not for the first time.

The Intellectual Tyranny of the Status Quo: Previously, Richard Timberlake criticized the “golden fetters” interpretation of the Great Contraction, and argued that the failing stemmed, rather, from the Fed’s adherence to the Real Bills Doctrine. While endorsing Timberlake’s vindication of the gold standard, Per Hortlund argues that Timberlake and others misfire with respect to the Real Bills Doctrine. Also in the previous issue, Kurt Schuler’s Argentina article indicted more than 90 economists for mistakes in understanding and description—among them, David Altig and Brad Setser, who here criticize Schuler’s charges. Schuler responds.

Do Economists Reach a Conclusion on pressing policy issues? Adrian T. Moore and Ted Balaker exam the case of taxi policy.

Economics in Practice: William J. Baumol explains why modern textbook theory is entrepreneurless.

Character Issues: In 1981, as the Thatcher government got its legs, 364 economists signed a letter protesting the direction of monetary and fiscal policy in Britain. Geoffrey Wood examines how well the letter has stood up.

Does the American Economic Association lean Democratic? William A. McEachern investigates the 2004-election cycle campaign contributions of AEA members, committee members, officers, editors, referees, authors, and acknowledgees.

Daniel Klein explores Gunnar Myrdal’s plea for disclosure of one’s ideological sensibilities, surveys the research into the ideological character of the AEA, and reports new findings on AEA membership rates by voter category.

Correspondence: E. Roy Weintraub remarks on History of Political Economy’s being dropped from the Social Science Citation Index. How can a journal show high SSCI citation productivity when the cluster of journals that cite it are excluded from SSCI?