Month: March 2006

The bottom line on the new Judith Harris book

If you think my theory is unnecessarily complex, just wait till you see what the theories will be like fifty years from now.

An excellent line but also a sign of trouble.  The final sentence is:

Making a virtue of necessity, I will leave it to other people to test my theory [TC: in fairness to Harris, she may be referring to her medical problems].

Nonetheless I like virtually everything she says.  The key point is that when it comes to environmental influences on our behavior, we are highly malleable avatars.  Tests which don’t recognize this will be misleading.  For instance if you are testing "birth rank" theories, submission within the family does not imply submissive behavior toward the outside world.  Of course the theory immediately gains an additional degree of freedom, both its blessing and curse.

The book is full of fascinating facts and interludes:

…people who are married to one of a pair of twins feel, on average, only so-so about the other twin; only 13 percent of the men and 7 percent of the women feel they could have fallen for their spouse’s twin.

Dead Ringers anyone?  Here is my previous post on the book.

The bottom line: All those young, anti-theocratic, and sometimes pro-democratic Iranian hotheads, for all their rebellious behavior against their parents, when push comes to shove will embrace nuclear weapons and a maximal sphere of regional influence.

M1 and Me

Michael Kinsley helps Alan Greenspan with his memoirs.

Although developments in human biology are always–and, in the view
of many experts, perhaps not un-including myself, quite
properly–subject to a variety of interpretations, the evidence does
tend to suggest, with only a limited amount of ambiguity, that I was
born…

Cultural recovery bleg

I am looking for cases when a culturally flourishing city met a great tragedy, saw some population dispersion, and then recovered its creative energies.  Vienna is an example where this is not true.  Paris has wonderful museums and concerts but it is no longer a global cultural leader as it was before World War II.  I am not aware that Atlanta was culturally important after the wreckage of the Civil War.  Rome faded after (before?) the barbarian invasions.  So are there any good examples?  Comments are open…

DVDs and Movie Theaters

A lot of people have argued that DVDs, home theater, and the shrinking time from big screen to DVD sales are spelling doom for the movie theater business.  Michael Campbell, CEO of Regal, the nation’s largest chain of theaters, has some smart things to say in response.  I particularly like his first response which shows a keen appreciation of market inter-dependencies, "general equilibrium" in econ-speak.

I think DVD’s have been the savior of not only the studio model but
have been beneficial to theater owners, too, because it funnels more
money back into the studios, which in turn fuels higher production
budgets, greater numbers of films, and so on.

We have seen the
window shrink from an average of about six months between theatrical to
video 10 years ago to about four and a half months today. Some
compression of that window over time is justified, or has been
justified at least in the past, because we generate our piece of the
pie at the box office much quicker today than we did a decade ago.

People
who run the studios are smart people, and I think they realize the
tremendous value of having that theatrical launch pad. And I don’t
think that’s going to change. They make films to be released on the big
screen.

Does Mexican immigration reduce crime?

Robert Sampson writes in today’s NYT Op-Ed page:

…evidence points to increased immigration as a major factor associated with the lower crime rate of the 1990’s (and its recent leveling off).

Hispanic Americans do better on a range of various social indicators — including propensity to violence — than one would expect given their socioeconomic disadvantages.  My colleagues and I have completed a study in which we examined 8,000 Chicago residents who were asked about the characteristics of their neighborhoods.

Surprisingly, we found a significantly lower rate of violence among Mexican-Americans than among blacks and whites…Indeed, the first-generation immigrants (those born outside the United States) in our study were 45 percent less likely to commit violence than were third-generation Americans, adjusting for family and neighborhood background. [TC: But don’t absolute probabilities play the key role here?  And should we compare Mexicans to "blacks and whites" or to each group in isolation?]  Second-generation immigrants were 22 percent less likely to commit violence than the third generation.

Our study further showed that living in a neighborhood of concentrated immigrants is directly associated with lower violence (again, after taking into account a host of factors…)

Alas, there is no permalink these days.  Here is the relevant project which generated the data.  No one of Sampson’s pieces on his web page seems to cover this result, though many are relevant more broadly.  Also see this summary of his criticism of "broken window" and "tipping point" theories of crime.

Here is another piece which seems to support the basic result that Mexican immigration lowers crime.  Here is a survey article on the topic.  This piece (see p.113) suggests that crime is lower in border cities than comparable non-border cities, and that Mexican immigration cannot be identified as a cause of a higher U.S. crime rate.

Yes comments are open, but purely anecdotal accounts of how you were once mugged by a Mexican, or how your neighborhood just isn’t "the same anymore" are discouraged.  I’m posting a version of this over at Volokh Conspiracy as well, look for the differing comments.

Addendum: Read Alex on this topic.

Pedicab crackdown

There are fewer taxicabs in New York City today than in 1937.  Entry restrictions have meant too few taxis, too many private cars, and gridlock so bad that in downtown midtown Manhattan, pedicabs, basically tricycle-rickshaws, are faster than cars.  Is it any wonder, therefore, that the city is considering a crackdown?    

Thanks to Roger Congleton for the pointer.

Facts about the Mexican middle class

1. The ranks of the middle class — defined as $7,200 to $50,000 a year — have risen to about ten million families.

2. That is almost 40 percent of all Mexican households.

3. The country is in the middle of a housing boom.  560,000 new homes were built last year — a record — and 750,000 are expected for 2006.

4. Annual inflation is down to about three percent and over the last two years interest rates on 20-year mortgages have fallen from 18 to 8 percent.

5. Sales of home appliances have tripled in the last ten years.

Those facts are from Business Week, 13 March edition.  Each time I visit Mexico, the more I am convinced that country has turned the corner.  Here is an earlier post on undervalued nations.  See here also.

Opposite Day: Tyrone on the minimum wage

"Minimum wage, bah humbug.  It is easy to defend.  Tyrone snorts at you.

First let us clear out some garbage.  The minimum wage should not be $50 an hour, and simply citing this possibility does not serve as an effective reductio.  And yes racist South African labor unions supported minimum wages, but wouldn’t you expect them, vile as they may have been, to support higher wages in any case?

We know the empirical evidence on minimum wages is mixed.  I am familiar with the Card-Krueger smackdowns but at the end of the day you have to work hard to get a big effect on employment.  Most importantly, all of these studies miss the longer-run effects that make a legally binding minimum wage such a good idea.

Don’t obsess over static neoclassical economics, where you start with a firm, a competitive market, and a set of marginal products already in place.  Think dynamic and look at the longer-run.  If you ban jobs beneath some hourly wage, you will end up with more jobs above that wage.  Ex ante, companies can set up their production to mesh with high-wage rather than low-wage jobs.  Surely we should prefer an economy with higher marginal products, higher wages, and higher median income.  Yes this redistributes a bit of wealth from capital but what an efficient way to do so.  And we all know that long-run dynamic gains tend to swamp one-time static losses.

Don’t expect to pick up these effects in any study with a short time horizon.

Furthermore there is more slack in the system than many economic models would indicate.  As a young’un, I worked in a supermarket.  When they raised the legal minimum wage, they raised my wage as well.  I was happy.  No one fired me.

Minimum wages probably lower the net amount of government intervention in an economy.  Lower minimum wages would mean higher welfare payments to make up the difference.  Ever heard of EITC?  In reality, minimum wages and EITC work together to keep the poor at decent standards of living.  More importantly, they keep poor workers in the private sector rather than letting them become wards of the state.  Try living on the minimum wage (much less beneath it), and without the safety net of your parents, if you don’t get my point.

Perhaps you think the minimum wage is an excessively blunt policy instrument, given that many near-minimum jobs are held by upper middle class teenagers.  Fair enough, but this also means that the minimum wage doesn’t put many of those people out of work.  We can go back to focusing on the net effects on the poor.

Tyler, what is really your problem with the minimum wage?  Free market economists love to bash it because they can posture as friends of the poor.  They can pretend that basic economics has great relevance.  They can claim to know something useful, rather than facing the fact that opposition to big government really means opposition to massive income transfers.  Since the American public is not willing to go this route, free market economists have to focus their yapping on the minimum wage and the (actually quite small) benefits of free trade.

Tyler, don’t you agree?  Tyrone signs off."

There he goes again.  As a child, he would never even sit straight at the dinner table.  Readers, if you now wish to refresh yourself, try this, or perhaps even this.  And maybe someone over at CrookedTimber is up for Opposite Day, but on some other topic…?

GDP-Linked Securities

Referring to my post on drought insurance and the coming new financial order, Daniel Strauss Vasques alerts me to the fact that Argentina has recently issued some GDP-linked securities.

The payout to the Argentinian securities is complex it occurs only if Actual GDP exceeds "Base-Case GDP" and the growth rate of Actual GDP exceeds the growth rate of Base Case GDP.  Base-Case GDP is just a particular projection of GDP which is fixed in advance.  If these conditions are met then 5% of the difference between Actual and Base-Case GDP, called Excess GDP, is paid to the security holders in proportion to their holdings.  Total payments are also subject to a cap.  (Here is a very long PDF prospectus if you want further information).

The Argentinian securities are a good beginning but they are unnecessarily complex.  It would be much better to establish a market in which anyone could buy or sell a simple security based on GDP, e.g. every unit of a US GDP Share would pay out 1 trillionth of US GDP. 

Aside from allowing greater national and international risk-bearing, GDP Shares defined in this simple way would be very useful for decision markets.  If GDP Shares started to decline as the prospects for a Democrat/Republican victory increased, for example, we would have ample grounds for rethinking our decision.  Ultimately, we might use these markets to replace politics.

Comments are open.

Lunch with Tyrone

I have had lunch with Tyrone many times.  He is never invited.  Tyrone is devious, untrustworthy and worst of all, brilliant.  It often take days to sort out the fallacies, sophistries, and half-truths that invade my mind after lunch with Tyrone.  Sometimes it takes much longer.   He makes my head hurt.  Even when Tyrone is not at lunch, I worry.  Tyrone does not always announce himself.  Maybe he really was at lunch…I told you he was devious.

Please do not encourage Tyrone.   He is a bad, bad, man.