Month: April 2006

Pramoedya Ananta Toer passes at 81

Here is one notice.  I regard his The Buru Quartet as, after Orwell, the great political novel of the twentieth century.  At a deeper level it concerns different notions of what a life consists of.  As you read each volume, your understanding of what has come before shifts radically.  Most of it he wrote while in prison.  Of the living writers he was my "no brainer" pick for a Nobel Prize.  Here are other notices of his death.

A request for requests

A very loyal MR reader in New Orleans asks for more space to make requests.  What would you like to read about?

This time I disavow "three times is the charm" as a rule of collective choice.  I do promise, however, that my response to your requests will embody the property of monotonicity, namely that more asks for a topic won’t lower its chance of being covered.  Comments, of course, are open…

Did Gary Becker prove that advertising is informative?

So claims a NYT obituary for John Kenneth GalbraithCrookedTimber and Brad DeLong question whether such models should be called "proofs."  Fair enough, but neither does the obituary correctly represent Becker’s theory of advertising.  As I understand Becker’s work (with Kevin Murphy) on the topic, individuals consume "social images" or "self-images."  Having Nike shoes gives you the "benefits of being cool" if a) you actually have Nikes, and b) the ad links Nikes to a cool image for your relevant peer group.  The standard economic theory of complements then applies for analyzing ads.  Under some conditions, advertising can be a "bad" for consumers, not a "good," and advertisers will pay consumers to watch ads.  Furthermore ads will present images and cultural linkages, rather than substantive information in the traditional sense.  This generates some Galbraithian results, but without requiring that consumers are "tricked" or even "persuaded" into a particular point of view.   This is not a proof; I think of it as an existence theorem that advertising can make corporate sense, and sometimes be socially welfare-improving, yet without being very informative.

Keep in mind that Becker titled his 1998 book Accounting for Tastes, a concession to the Galbraithian way of thinking.

John Kenneth Galbraith passes away

He was 97 years old.  Here are a few blogger reactions.  Here is a lengthy New York Times obituary.  Here is an earlier Brad DeLong review.

His analytic legacy? He much overrated corporate power.  But he kept alive the notion that the exercise of consumer demand and consumer sovereignty do not alone guarantee a good outcome.  The market failures of the past were when consumers did not get what they want.  The market failures of the future will come when consumers do get what they want.  We can expect to see an intensifying arms race: suppliers will attempt to persuade people and grab their attention; the meta-rational parts of consumers will build up preemptive defenses.

How to buy Chinese opera

This stuff is hard to come by, buy it here, pointer from Bryan Caplan.  A few warnings:

1. The old joke about murdered cats is not groundless.  It takes a long time to pick up the patterns.

2. Much of the beauty is in the timbre; even an electrified live performance can mangle this, but these CDs manage OK.

3. You have no business not knowing the high culture music of history’s most dominant culture.

4. Most of all, they are fun.

Don’t trust economic impact studies

These studies usually give economics a bad name:

We should be skeptical of “economic impact” studies that show the importance of the arts to a community. A study of this kind might show that an arts festival or new arts arena brings millions of dollars in economic value. But these studies typically treat arts expenditures as creating value out of nothing. Implicitly it is assumed that if the money had not been spent on the arts, no other economic or social values would have been produced. Again, the relevant comparison is whether an arts arena leads to more value than some alternative. When we look at economic impact studies for one industry at a time, they all appear to show high benefits. But this means that the net benefits of any single project are low, zero, or perhaps even negative on average. By investing in one good idea we are always forsaking another good idea. In essence those studies list gross benefits rather than net benefits. Furthermore, once an economic impact study is being done, the resources are likely no longer undervalued.

That is from my Good and Plenty: The Creative Successes of American Arts Funding.

Why do IPO auctions seem to fail?

Remember when Google (partially) bypassed the investment banks and held its own auction of its shares?  Many people thought this was the trend of the future.  Why let investment banks underprice the issue and take such a big cut?  Well it turns out that when IPO auctions are available they usually end up abandoned:

We document a somewhat surprising regularity: of the many countries
that have used IPO auctions, virtually all have abandoned them. The
common explanations given for the lack of popularity of the auction
method in the U.S., viz., issuer reluctance to try a new experimental
method, and underwriter pressure towards methods that lead to higher
fees, do not fit the evidence. We examine why auctions have failed and
verify, to the extent possible, that they are consistent with what
academic theory predicts. Both uniform price and discriminatory
auctions are plagued by unexpectedly large fluctuations in the number
of participants. The free rider problem and the winner’s curse hamper
price discovery and discourage investors from participating in
auctions. That may explain the inaccurate pricing and poor aftermarket
performance of IPOs using auctions.

Here is the link and paper, by Ravi Jagannathan and Ann Sherman.  Here are free copies of the paper.  The explanation is not complete, because the auctions often provide a superior price.  Nonetheless the risk is greater plus buyers are more likely to abandon the market in subsequent periods.  This article is long and not always fun to read, but it definitely falls into the "I learned something today" category.

Testable predictions about dancing

There will be no society anywhere on Earth where all dancing is done
in secret. Dancing will be a public phenomenon everywhere. Whereas a
man or woman might practice alone, the end product will always involve

There will be no society on Earth where all the dancing done by men is away from the eyes of women.

Women, far more than men, will find the skill with which a potential
mate can dance far more of a factor which influences their choices of
mate. This will be true of all societies.

Women will get the most pleasure from dancing (except perhaps when
taking the contraceptive pill) when they are at the fertile peak of
their menstrual cycle.

There is much more, and thanks to Newmark’s Door for the pointer.

Addendum: Here is a working link.

The Peace Corp.

Private security companies like Blackwater have thrived in Iraq, where
the US military has relied on them for everything from guarding convoys
to securing the Green Zone. But these companies recognize that the
demand for their services in Iraq will eventually diminish, and
Blackwater, for one, is looking for new markets….When Kofi Annan was UN undersecretary general for
peacekeeping, he explored the option of hiring the South African
private military company Executive Outcomes to aid in the Rwandan
refugee crisis. He ultimately decided against the option, declaring
that ”the world is not yet ready to privatize peace." 

The world still appears to be unready-and representatives of
private military companies believe that’s shortsighted. ”When
traditional peacekeepers can’t provide an adequate response because of
their home country obligations, there’s an alternative that should be
openly and frankly discussed. And that’s a private professional group,"
says Chris Taylor, Blackwater’s vice president for strategic

…When the world’s governments and multilateral organizations
have proven as ineffectual as they have in Darfur, should they turn to
the private sector for help? In the absence of a viable alternative, is
the international community’s aversion to what some call ”mercenarism"
stronger than its will to fight genocide?

From the Boston Globe.

No doubt there are some issues to be addressed but this objection from  David Isenberg, senior analyst at the British American Security Information Council, is farcical.

”How do you ensure oversight, compliance with international
humanitarian law, follow the rules of warfare, rules of engagement,
comply with the Geneva Conventions, and the whole bureaucratic panoply
of rules that come into play?"

How indeed.  But after Guantanamo, Abu Ghraib, secret CIA prisons etc. how can anyone claim that this is an argument against privatization?

Thanks to David Theroux for the pointer.

: Matt Yglesias has some sensible and surprisingly positive thoughts on the peace corp question. In the comments LaFollette Prog writes "If Doctors Without Borders decides to hire a regiment of Doctors With Heavy Artillery and starts capping some Janjaweed ass, it might improve their fundraising efforts in rural America…"

What are the ten most harmful government programs?

Human Events offers a list based on a poll of conservatives.  Social Security comes in first, number five is "contraceptive funding."  Foreign policy aside, what should such a list look like?

At the top I will put our aggregate of health care policies, including Medicare, but without pretending that removing any one of them would solve the major problems.  Many smaller decisions, taken together, have painted us into a box where the incentives are for cost-escalation and burden-shifting at the same time. 

It is hard for me to see social security as such a huge villain.  I’m not going to push Ricardian neutrality, but a lot of it is just dollars slushing back and forth.  It would be better as a welfare program but as is I just don’t see how it has wrecked us.

Farm subsidies are terrible but quantitatively they don’t amount to much in the broader scheme of things.  Therefore my second pick is the aggregate burden of many small regulations.  As with health care, we have no single identifiable villain.  Again many small policies, taken together, make entrepreneurship less dynamic and lower long-run economic growth.  "Small steps toward a much worse world," as they say.

My third pick is the public quasi-monopoly on education.

Your ideas?

China fact of the day

"Now the Chinese are second after the Dutch in overnight stays," Mr.
Noll continued, adding that about 100,000 Chinese citizens visited
Trier [Germany] last year, and about 40,000 of them spent at least one night.

"And they come all year," he said, "even in the low season."

Try to guess why, but you will find the answer under the fold…