Month: February 2006

Is a novel a model?

Here is my paper on novels and models, forthcoming in a University of Michigan Press book.  Here is the abstract:

I defend the relevance of fiction for social science investigation. Novels can be useful for making some economic approaches — such as behavioral economics or signaling theory — more plausible. Novels are more like models than is commonly believed. Some novels present verbal models of reality. I interpret other novels as a kind of simulation, akin to how simulations are used in economics. Economics can, and has, profited from the insights contained in novels. Nonetheless, while novels and models lie along a common spectrum, they differ in many particulars. I attempt a partial account of why we sometimes look to models for understanding, and other times look to novels.

Comments of course are welcome, either by email or on the blog.  The paper was stimulated by a) Liberty Fund conferences, and b) David Levy’s query as to how a painting differed from a model.  None of us had thought to ask about cartoons…

Should all web pages be blogs?

I’ve been thinking of turning my Ethnic Dining Guide into a blog.  It would be searchable by category and would allow for comments.  It would be updated regularly rather than every six months.  Can you give me any software advice?  Is Typepad the best choice?  I need a large number of categories and the ability to update posts without spending huge amounts of time searching.  And could readers print the whole thing out without it running into hundreds of pages?  Comments are open…

What about the budget?

Megan McArdle (what do you call her when Jane links to Megan?  And can they have an infinite regress?) and Brad DeLong seem to agree that the Bush tax cuts should not be made permanent.  My take is the following: Taxes already were raised when the government spending occurred.  In that sense the "tax cuts" never were permanent.  But when do we wish to admit this?  We could raise (nominal) tax rates sooner rather than later, and hope that the subsequent "financial calming" effect will improve the chances for better policy in the future.  Alternatively, we could play "chicken" with the marginal tax rates, and hope that holding them lower, for longer, will increase the chance of the appropriate entitlement reforms.  I don’t have any strong views as to which is the best way to proceed, at least assuming we cannot raise the gas tax instead.

But I do suspect that Megan favors a lower rate of government spending than does Brad.  So does this mean she sees the first scenario, and he sees the second, and that they agree on the big question only because they disagree on the little one?

The Great Mutiny

It started with a fire in Calcutta, circa 1857, here is one summary.  Excerpt:

The insurrection was sparked by the introduction of cartridges rumored to have been greased with pig or cow fat, which was offensive to the religious beliefs of Muslim and Hindu sepoys (soldiers). In a wider sense, the insurrection was a reaction by the indigenous population to rapid changes in the social order engineered by the British over the preceding century and an abortive attempt by the Muslims to resurrect a dying political order.

Here is a BBC summaryWikipedia has considerable detail.

Here is how the Arabs get all those Danish flags, thanks to several readers for the pointer.  The current price is $11 a piece.

How much is the Internet worth?

For some goods, the main cost of buying the product is not the price but rather the time it takes to use them. Only about 0.2% of consumer spending in the U.S., for example, went for Internet access in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going online….we calculate that consumer surplus from the Internet may be around 2% of full-income, or several thousand dollars per user. This is an order of magnitude larger than what one obtains from a back-of-the-envelope calculation using data from expenditures.

Here is the paper.  I call it a good start, but let us not forget the Internet also brings price closer to marginal cost in many markets.  Your on-line searching has external benefits for others.  Or how about another paper: "What is the iPod worth?"  TiVo?  The more we are changing the use of our time, the less we can trust real income statistics.


PDUFA, the Prescription Drug User Fee Act, is a shining example of a Pareto optimal policy innovation.  First passed in 1992 the act was essentially a deal between the drug manufacturers and the FDA that said we, the manufacturers, are willing to pay an extra tax for submitting new drug applications to the FDA so long as the tax is earmarked for hiring more FDA staff to accelerate new drug review. 

Critics of PDUFA claim that it has reduced safety and made the FDA a "servant of industry."  It’s true that to avoid conflicts of interest it might have been better had Congress funded the FDA at optimal levels but when has Congress ever done anything optimally?  Prior to PDUFA millions of dollars in pharmaceutical
investment was regularly being held in limbo for want of a much cheaper FDA reviewer. 

A new working paper from Tomas Philipson and co-authors presents the most sophisticated cost-benefit analysis of PDUFA.  They find that PDUFA did increase manufacturer profits and reduce FDA review times.  Moreover, they find no evidence that safety declined under PDUFA.  Most importantly faster review times meant big gains for consumers which they evaluate as equivalent to savings of 180 to 310 thousand life-years.

Ugly Criminals

Mahalanobis points us to Ugly Criminals:

Using data from three waves of
Add Health we find that being very attractive reduces a young adult’s (ages
18-26) propensity for criminal activity and being unattractive increases it for
a number of crimes, ranging from burglary to selling drugs. A variety of tests
demonstrate that this result is not because beauty is acting as a proxy for
socio-economic status. Being very attractive is also positively associated with adult
vocabulary test scores, which suggests the possibility that beauty may have an
impact on human capital formation. We demonstrate that, especially for females,
holding constant current beauty, high school beauty (pre-labor market beauty)
has a separate impact on crime, and that high school beauty is correlated with
variables that gauge various aspects of high school experience, such as GPA,
suspension or having being expelled from school, and problems with teachers.
These results suggest two handicaps faced by unattractive individuals. First, a
labor market penalty provides a direct incentive for unattractive individuals
toward criminal activity. Second, the level of beauty in high school has an
effect on criminal propensity 7-8 years later, which seems to be due to the
impact of the level of beauty in high school on human capital formation,
although this second avenue seems to be effective for females only.

Why is gastronomy better than pornography?

I posed this question (off-site, not during a session) to the bloggers (and John Nye) at the Liberty Fund conference on luxury I attended last week.  Both areas involve repetition, basic animal instincts, the quest for endless variations on something slightly but not very new, pleasures of the senses, and both fields attract a not-so-small number of obsessives.  Gastronomy has a more exalted social status, but perhaps that is just phoney-baloney.  Can you guess what the best answer to the query was?

Comments are not open; go start your own blog.

An even better sentence

"It makes no sense to tax ethanol coming in from friendly countries like Brazil when we do not tax oil imported from countries like Saudi Arabia…"

Or how about:

…Brazil’s experience shows that to successfully copy its example, the U.S. may have to make political choices that U.S. politicians have ducked in the past, including raising gasoline taxes, ending government support for crucial agricultural products such as sugar and corn, and opening protected agricultural markets.

Both are from "How Brazil Broke its Oil Habit," The Wall Street Journal, 6 February 2006, p.A9.

The best sentence I read today (so far)

While sales are down, more music is being produced and heard than ever before in history.

Here is the full story, which focuses on retailer bankruptcy.  Maybe I shouldn’t be sad that Aron’s in Los Angeles is shutting down.  Keep in mind that when consumers do not much like most of what they buy, standard metrics for measuring output do not track welfare very well.

Against brainstorming

Time and again research has shown that people think of more new ideas on their own than they do in a group. The false belief that people are more creative in groups has been dubbed by psychologists the ‘illusion of group of productivity”. But why does this illusion persist?

Bernard Nijstad and colleagues at the University of Amsterdam argue it’s because when we’re in a group, other people are talking, the pressure isn’t always on us and so we’re less aware of all the times that we fail to think of a new idea. By contrast, when we’re working alone and we can’t think of anything, there’s no avoiding the fact that we’re failing…

The researchers said “We suggest that working in a group may lead to a sense of continuous activity. This may provide group members with the idea that they are productive, because they feel that the group as a whole is making progress, even if they themselves are not contributing”.

Other possible reasons for why people think they work better in groups include ‘memory confusion’, the idea that after working in groups people subsequently mistake other people’s ideas for the own, and ‘social comparison’, the idea that in groups people are able to see how difficult everyone else has found it to come up with ideas too.

Here is more, including a link to the paper.  Deep in my bones I know this to be true.  Unless, of course, brainstorming helps you self-acculturate into a group…

Interview with Milton Friedman

Here it is.  Excerpt:

Germany’s problem, in part, is that it went into the euro at the
wrong exchange rate that overvalued the deutsche mark. So you have a
situation in the eurozone where Ireland has inflation and rapid
expansion while Germany and France have stalled and had the
difficulties of adjusting.

The euro is going to be a
big source of problems, not a source of help. The euro has no
precedent. To the best of my knowledge, there has never been a monetary
union, putting out a fiat currency, composed of independent states.      

Thanks to for the pointer.

Addendum: Here is an interview with Gary Becker, who talks about Friedman, John Nash, Dostoyevsky, and Brokeback Mountain.  Thanks to Freakonomics blog for the pointer.

Lord of War

I was an equal opportunity merchant of death.

That’s arms dealer

Yuri Orlov played by Nicolas Cage in Lord of War, an ironic portrait of the arms trade in the late twentieth century.  More history, politics and economics than I expected, this is not an action/adventure movie.  Recommended.  Not surprisingly there are some violent scenes.