Month: February 2006

Randian Valentine’s day rhetoric

"You treat me like property."

…If I
treated her as if she were my property, after all, it means that I
would take care of her, protect her, and treat her well above all
things not in my possession.

Suddenly, I realized the look on her face did not reflect the combusting happiness within me.

Then, I
realized my error. We are all self owners, she as much as I. But let’s
say I were treating her like property. That raises the extremely
important issue:

"Do you mean public or private property?"

Why are markets in exercise discipline imperfect?

Exercise is statistically correlated with better health, but weight is not.  That suggests you should exercise more.  Furthermore some exercise is much better than no exercise at all, so you can be happy with a modest achievement. 

Why don’t we rely more on markets to force ourselves to exercise?

Post a bond with your friend, your spouse, your exercise partner, or someone you won’t (or can’t) lie to.  You lose the money if you don’t exercise according to a pre-arranged plan with well-defined quantitative goals.  If need be, I will serve in this role and cash your check when it comes in the mail (hey, would you lie to your blogger?).   

Or why not have the gym collect a bigger upfront fee, and they pay you each time you show up and complete an exercise program under their supervision?

What are the problems with these arrangements?

1. The roles of friend or spouse do not mix with that of "Enforcer."  That being said, I bet your spouse is willing to enforce her requirements on you.  And surely she wants you to live longer, so why not extend the scope of her enforcement just a wee bit?

2. The payment, if you lose, is not a real transfer.  You share funds with your spouse and your friend will treat is as a gift to be returned.  Fair enough, but then find a real bastard, a corporation, or an amiable but distant blogger.

3. You enjoy exercise, but not if you feel obliged to do it.  Introducing too many external incentives takes away the possibility of developing internal motivation.  (Similarly, if you pay your kid to do the dishes, she will no longer feel obliged and the total quantity of labor may fall.)  If the exercise arena becomes a regular sphere of money loss and humiliation, you will avoid the exercise idea altogether.  After a while you will stop making these contracts.

4. You don’t really want to exercise more in the first place.

I put most of my money on #3.

We hear all this superficial blather about "life being a process."  This is true, but it is less well-recognized that this is a source of institutional failure.  Most good things you do — and I include charity on this list — you do not for the ends themselves, but because you have somehow managed to enjoy the process of regular engagement and self-discipline.  You then deceive yourself into thinking you value the end more than you do.  This creates social order, but it also makes those same commitments fragile.  Whether you are meta-rational or not, you are unlikely to seek brutal market discipline (or advice columnists, for that matter) to enforce your good behavior.  You prefer to play the happy fool, even though you will die earlier and refuse to break up with the creep you are currently dating, no matter how many of your friends tell you he is ultimately a loser.

The alternative methods?: Fantasize about the relationship between exercise and more and better sex, whether or not it is there at the margins you face.  Build fantasy upon fantasy to make the area a source of fun.  Or try self-prophecy.

Addendum: Economist Art DeVany has intricate theories about exercise, based on his understanding of evolutionary biology.  Run sprints, not marathons.  Art reports on his blog how devastated he is from the recent death of his wife; do read this moving tale.

“Ikea” in India

Although Ikea stores have yet to arrive in India, its catalogs are sold by
street hawkers and bookstores in many major cities….

When Arundhati Ray redecorates her home, she picks up an Ikea catalog to
search for that perfect piece of furniture….she clips a photo of the desired item, which typically includes measurements,
and then takes it to a local carpenter.

The welfare economics of Ikea knockoffs in India, like those of pharmaceutical knockoffs, are not clear-cut.  On the surface, Ikea appears to be losing out to design theft but India’s emerging middle class generates media attention far in excess of its numbers.  India is still a very poor country that probably could not currently support the low-price, high volume Ikea model.  Thus, knockoffs allow a few Indian consumers to take advantage of good design and Ikea loses little to nothing.

Thanks to Carl Close for the pointer.

These caught my eye

Dan Akst on how best to spend a dollar to help the world.  He suggests micro-finance as the most potent means of charity.

James Hamilton and Mark Thoma and Martin Feldstein on why higher oil prices have not created a recession.

Fatalities from sharks may be falling because people are fighting back and punching the sharks.

Here is a new book on how to fight back if the robots rebel.  Hint: go for its "eyes" (cameras), punching is not the key.  Don’t give them the security codes to your defense computers.

Why email communication is so problematic, and how we overrate how much others understand us in that medium.

Markets in everything, magazine edition, courtesy of Cynical-C blog.

Forbes magazine, short essays on money and happiness.

What are good pick-up lines?

Chat-up lines, and other openings used to initiate a relationship with a woman, can be viewed as male displays. How well does their effectiveness accord with predictions from evolutionary psychology? 205 undergraduates (142 female, 63 male) rated 40 vignettes; in each vignette, a man approached a woman and the raters judged whether she would continue the conversation. Openings involving jokes, empty compliments and sexual references received poor ratings. Those revealing, e.g., helpfulness, generosity, athleticism, ‘culture’ and wealth, were highly rated. Although the length of the vignette–confounded here with item content–affected the rating, differences remained after the effects of length were eliminated. The success of openings which demonstrated culture was predicted from Miller’s (2000) ‘mating mind’ hypothesis; the success of others could be predicted from patterns of parental investment.

Here is the paper, and further discussion, including an audio recording of the author.  Here are some examples of the pick-up lines used.  My personal view is that demeanor and dress matter more than what you say or more than looks for that matter.  I also suspect that respondents are trying to look good in the eyes of the surveyors, and that "non-cultured" (my polite term) pick-up lines work only with personal delivery and in direct life context, not on paper.  So all you nerds out there, don’t waste your time talking about the Steinway.

Polar bears are taking over the south Pacific

These days I am up for another TV show, so I tried Lost.  The plane crashes between LA and Sydney, and before episode one is over they have encountered a polar bear (sound familiar?).  So far I like it.  Real rates of return appear to be negative, a virtual prerequisite for good tragedy.  Next on my list is 24, but it will take a few months for me to get there.

In the meantime, suggest another topic for blogging.  Three separate mentions are required for the topic, and again I rule out the libelous, the obscene, and the physically impossible.  Mulch I already have covered.  I will return to the topic of "advice" (thank you for the kind words), so no need to mention that either.  Comments, of course, are open.

Addendum: Here are more Cheney jokes, do follow the link to the WSJ page.

Second addendum: Ladies and gentleman, "exercise" is the winner but I will take ideas from further suggestions in the comments, so keep on adding topics if you wish.

Should Wal-Mart be Allowed to Enter Commercial Banking?

"I don’t know if Wal-Mart would be good or bad for banking in the long run. But I’ll bet ATM fees would come down pretty quick."

Here is more detail.  Wal-Mart has applied for deposit insurance protection in the state of Utah, so it can open an industrial loan corporation.  Surprise, surprise, American banks don’t like the idea.

My take: Since the New Deal the United States has upheld a legal separation between banking and commerce.  The banking sector receives deposit insurance and access to the Fed as lender of last resort, but is placed under special supervision and must meet capital requirements.  You — especially my libertarian readers — may not like this deal but in the short-run, medium-run and perhaps the long-run as well, it is a fact.

As a first-cut approximation, this deal is for banks a tax in good times but a subsidy in bad times.

So what happens if you let banking and commerce blend too much?  One danger is that you extend Fed subsidies to the commercial sector.  Should we have to bail out banks because their commercial arms have gone under?  (Don’t expect too much of Chinese walls in a crisis.)  What if GM had a bank and the whole concern went under next year?  Widespread chicanery with pension funds is not reassuring in this regard.

A quite different danger is that the less-regulated commercial firms can outcompete  banks.  I suspect Wal-Mart is run much better than most banking firms, which don’t seem to care much about customer service.  But if enough deposits shift to the commercial sector, banks-as-we-know-them might drop like rotten apples.  Creative destruction is all well and fine, but here the taxpayer is holding the bag.  And if traditional banks approach extinction, they might take excess risk as their capitalization falls, as happened with many S&Ls in the 1980s.

How far can we let commerce and banking mix?  The lending arms of automobile companies so far have worked fine.  The old "non-bank banks" — most prominently Sears Roebuck — did not create major troubles for the Fed, although banks hated the lesser regulated competition.  But somewhere along the line, enough stones add up to form a pile.

View one: Wal-Mart is a big enough stone to constitute a pile.  Don’t let it happen.  Greenspan himself was skeptical of the ILC exemption.

View two: Wal-Mart in Utah is just one stone.  This reform will make customers better off, while keeping us on the safe side of the line.

View three: Letting Wal-Mart into banking will force other beneficial banking reforms, such as pricing deposit insurance for risk, or greater reliance on private insurance.

View four: All the worries are hogwash, full steam ahead.

Right now your risk-averse blogger is hovering between views one and two.  Stay tuned…

More familiar walks seem longer

Andrew Crompton at Manchester University, UK, wanted to see how good we are at judging distances in the real world.

asked 140 architecture students in their first, second and third years
of study to estimate the distance from the university’s student-union
building to familiar destinations along a straight road, so the length
of journeys that they would have strolled (or staggered) many times.

more times students had walked the route, the further they estimated
the journey to be. First year students, for example, estimated a
mile-long path to be around 1.24 miles on average, while third year
students stretched it to 1.45 miles. Crompton publishes his results in Environment and Behavior1.

results match those from other studies in which, for example, people
moving through a virtual world tend to overestimate how far they have

The finding backs the idea that
distances elongate in our minds because, over time, we begin to notice
more and more minutiae about a route, an idea called the
feature-accumulation theory. "As detail accumulates, the distance seems
to get bigger," Crompton says.

Here is the full story.  Remember the earlier result that if you are going and returning only once, the ride back seems shorter.  Furthermore life speeds up as you get older.  There is no contradiction across these results, if you hold all ceteris paribus, but my subjective time clock will admit to being confused.  Thanks to the still-excellent for the pointer.

Caught my eye

A U.S. firm is implanting silicon chips in some employees, to prevent them from entering secure areas.

Spotsylvania police have been consummating their dealings with prostitutes before arresting them.  Furthermore this sounds like official policy.  One officer left a $350 tip [TC: still looking for humorous comment to make here], and only unmarried detectives are assigned to such cases.

There is a long waiting list to adopt children with Down syndrome. focuses on obituaries of the famous and not-so-famous.  When I go away on trips, this is the one piece of news it is hard to catch up on.

Buy Bruce Bartlett’s new book, available here, and thank academic freedom on the way out the door.

The Three Burials of Melquiades Estrada is the first transcendentally great movie of the year.  Imagine a rural Mexican sensibility applied to Weekend at Bernie’s, and you have some idea where this one is coming from.

Dan Drezner has a sense of humor about Dick Cheney.  Revere at EffectMeasure has a different take.

This web site is basically for videos.

A model of international economic optimism

Ricardo Caballero & Co. put it so:

Three of the most important recent facts in global macroeconomics — the sustained rise in the US current account deficit, the stubborn decline in long run real estate, and the rise in the share of US assets in global portfolio — appear as anomalies from the perspective of conventional wisdom and models. Instead, in this paper we provide a model that rationalizes these facts as an equilibrium outcome of two observed forces: a) potential growth differentials among different regions of the world and, b) heterogeneity in these regions’ capacity to generate financial assets from real investments. In extensions of the basic model, we also generate exchange rate and FDI excess returns which are broadly consistent with the recent trends in these variables. Unlike the conventional wisdom, in the absence of a large change in (a) or (b), our model does not augur any catastrophic event. More generally, the framework is flexible enough to shed light on a range of scenarios in a global equilibrium environment.

Here is the paper.  Of course this model is jury-rigged, but the whole point is that it can be jury-rigged to yield something other than imminent economic destruction and the United States as the next Argentina. 

Dear Tyler (Prudie)

Question: After several years of searching for Mr. Right, I have met someone who holds great promise for a long-term relationship. He is a soft-spoken man who treats me with great respect. He’s been a widower for many years, raising his children alone and doing a marvelous job. He’s a hard worker, honest, and seems very smitten with me. We have a great deal in common including our profession, which has been a real challenge for me since I have a nontraditional job in agriculture. The problem is, he’s an awful kisser, something I find pretty important when it comes to intimacy. How do you tell someone that the way they kiss is a real turnoff and not hurt their feelings? It’s not like we’re kids, we’re in our 50s.

Tyler: This is a signal that you don’t adore him as much as you think.  Some basic technique is required, but kissing is ninety percent psychology and connection.  Cut through the self-deception and ask yourself the honest questions.  Why didn’t you write "I love him"?  Your second, fourth, and fifth sentences make him sound like a dullard whom you will grow to despise.

The economist can be brutal, no?  Let us try another one:

I been involved with a lady for two months. We have much in common, and in many ways it’s a very satisfying relationship. Recently she dropped a bomb. In the middle of conversation she announced that she was going to kill herself when she was 75. Did not want to go through the usual body/mind deterioration. She made this choice at 18, after watching Harold and Maude. I watched the movie but could see little that would cause one to make such a brutal decision and stick with it. She’s 51 now. We are on a month’s sabbatical from the relationship. I’m just coming out of deep mourning and feel it’s my role now to try to convince her of the wrongness of her decision. I’ve decided it’s the most selfish, arrogant act imaginable. She wants family and friends there to cheer, "What a wonderful life. What a glorious death." Out of love, I must try to dissuade her from this wasteful end. Any advice? Why did she have to tell me this late?

Tyler: Have you heard of "cheap talk equilibria"?  It is unlikely she means to carry out her plan.  Probably when she was eighteen she thought she would kill herself at age 51.  That being said, read my advice to the first question above.  You probably don’t want her anyway, and you are writing Prudie [Tyler] to put off facing this unpleasant truth about yourself.  You are still not out of your mourning, and that will wreck this relationship whether you want it to or not.

Let’s skip the question about non-intersecting offer curves and move to the next:

I am engaged and we are in the process of planning our wedding. There is a huge debate over what is OK to put in the invitations and what is not. My fiance and I have been living together for a little over a year and we aren’t planning on registering because we already have so much. So, monetary gifts would be great for us! Now, how do you put this in your invitation? A few suggestions have come up but we don’t want to seem rude or crass. Please help!

Oh, what a softball.  We have already blogged on the deadweight loss of gift-giving, here and here.  So my major advice is simply to read MarginalRevolution on a regular basis.  I can add only that if you are going to ask for money, set up a college fund.  Your kids-to-be are not yet experiencing the impatience of waiting for the money, which implies an arbitrage opportunity with g > r, or the growth rate of the funds greater than the rate of time discount.  Nor do I think that the mechanisms of Ricardian Equivalence will fully offset this transfer.  Got that?

Negative real rates of return

Systematically negative real rates of return are rare but possible.  This differs from unexpected negative real rates on debt instruments, due to earlier underestimations of inflation.  True negative real rates of return imply the economy cannot put resources to productive use.  Decay and deterioration rule.  Of course there must be storage costs for goods.  Otherwise people could hold those goods and receive a zero rate of return.  There must be price inflation, otherwise people could hold currency and receive a zero rate of return.

For examples, look to spoilage-vulnerable agricultural economies during times of war and siege.  I also believe they have negative real rates of return in Battlestar Galactica.  That is one reason why neither discretionary monetary nor fiscal policy will improve their lot.

Negative nominal rates of interest on money are harder to come by, but deteriorating paper or risk of theft could in principle do it.  You must prefer to lend out your money at negative return than to hold it at an even more negative return.  I have yet to see an example of this, not even on TV.

Do future generations pay for deficits?.

Assume that government spends some money today on consumption.  That money could have been spent on a durable bridge, but it wasn’t.  Some current people benefit from the consumption and future generations get nothing.

Above and beyond that effect, do future generations bear the burden of deficit spending?  That it, are they worse off if we finance the consumption with government bonds rather than higher taxes?

Under one scenario, future generations bear no additional burden.  Assume the government bonds are paid off fifty years from now.  Future generations pay the taxes.  But they also inherit the bonds.  Might that be a wash? 

Wealth effects complicate the story.  The old people, who are holding bonds, may spend more in the meantime (spend more relative to a tax increase, that is) and this may pull away some resources from future generations.  If old people just sit on their bonds and make no other expenditure changes, the burden on the future is nil.

If old people spend more today, and John is born thirty years later, how much worse off is John from this extra spending?  And would having saved that same money necessarily have directed resources toward John, as opposed to directing resources toward the later consumption of the elderly?  What if the extra spending doesn’t occasion much in the way of a supply response?  Then it is just a sloshing around of some paper.  To ask an Austrian question, what is the net injection effect here from the bonds?

I don’t know.

Often deficit critics focus on the moral issues.  On average future generations are better off than their parents, at least in a growing economy.  They are less well off if their parents spend more rather than less.  Is this immoral on the part of the parents?

Alternatively, let’s say we pay off the debt in fifteen years’ time.  Furthermore assume that the future elderly (who are now middle-aged) have stopped paying taxes, but they are not yet dead.  They are still holding the government bonds.  Then we must tax the young, who currently are described by the phrase "future generation."  Then, through a different mechanism, future generations will bear a chunk of the tax burden. 

Even then the burden will not be full.  By letting the elderly off the hook, we increase the sizes of their eventual bequests (what is their marginal propensity to bequeath?).  Furthermore a VAT tax, or means-testing of benefits, will keep the elderly paying taxes and diminish the potential burden on future people.

Offsetting bequests, a’ la Robert Barro, makes deficits less relevant rather than more.  If people know their children will pay higher taxes, maybe bequests will go up a bit to make up for that burden.

There is also tax smoothing.  Nominal tax rates can only be so high in each period before a taxation system breaks down.  By postponing tax boosts, we make it harder for future generations to engineer other tax increases for other reasons.  This could make them either worse off or better off, depending on your point of view.

You can put these scenarios together in different combinations and achieve many differing results.

The bottom line: We are running large deficits.  The case for boosting taxes today rather than tomorrow lies in the fear that financial markets will get spooked, rather than in intergenerational considerations.  Some time ago I put this spooking at p = 0.2; I have revised that estimate upwards only slightly.