Month: July 2006


1. How to make "The Long Tail" work.

2. The economics of orchestras.

3. The dispute over the North Korean missile launch, and more here.

4. Another interview with Milton Friedman.

5. Betting markets in everything.

6. Farm subsidies and Africa; counter the conventional wisdom, by DSquared.

7. Interview with Charles Murray.  Btw, I don’t think human achievement has declined.

8. Review of the new Adam Phillips book, his kissing and tickling book is wonderful.

Currency *is* disappearing, finally…

Monopoly board game players can now pay for properties with debit
cards. Game makers Parker have phased out the standard multi-coloured
cash in a new version. Players will instead use a Visa mock debit card
to keep track of how much they win or lose. It is inserted into an
electronic machine where the banker taps in cardholders’ earnings and
payments. Parker said replacing of cash with plastic showed the game
was moving with the times.

Here is the link, with echoes of Fischer Black and Neil Wallace.  Here is another account.

Dollars for Dialing

Guess how much would it cost a farmer to get telephone service in a small rural county far from a major city?  Let’s say $800 for satellite service.

Now guess how much the government subsidizes rural phone carriers to provide this service.  The answer?  As much as $13,000 per line per year.

That litte gem is from an excellent report by my new colleague, Tom Hazlett, on where all the money from those little telephone taxes ends up going.   

Michael Schaub of Bookslut failed economics

There’s something really irritating about discovering that books you
love are out of print. Even though used bookstores, and sites like Abebooks, Alibris and Powell’s
have made it pretty easy to find them, it sucks that the publishing
industry has given up on some great work from some great authors, while
books like M is for Murder and N is for No, Seriously, Murder and O is for Oh My God Someone Just Got Murdered
are readily available at every chain bookstore in the land. You might
say that there’s a good economic reason for this, to which I respond: I failed economics, bitches. So take that!

Here is the link.

My favorite things Netherlandish

This has long been one of my favorite countries, but these choices are not so tough.  For most of the categories I have clear first picks.

1. Painter: We’re talking favorite here.  Best goes to Rembrandt, but Mondrian changed my life.  For single painting, I opt for Vermeer’s The Art of Painting.  The map in the background (do you get the implicit political and indeed pre-Westphalian Catholic message?) blows me away.  There is also van Gogh, his best works are the drawings.  de Kooning deserves mention, my favorite picture by him is Excavation, which hangs in Chicago.

2. Movie and Director: Paul Verhoeven is the go-to guy, how about The Fourth Man?  But all of his are worth seeing, at least up until Hollow ManStarship Troopers remains one of the most underrated movies; most people didn’t get that it was a critique of militarism and consumer society, all rolled into one.  But you can’t make much money attacking your viewers, at least not in Hollywood.  Verhoeven aside, The Vanishing is a strong entry.  The guy who directed Speed is Dutch as well, I believe.

3. Novel: Harry Mulisch, The Discovery of Heaven.  An underrated Continental novel of ideas, full of metaphysical speculation.  But for such a literate people, this category is surprisingly thin. 

4. Classical Music: Here is a list, take your pick from an undistinguished lot.  It seems they left out Sweelinck, my default choice.  There is more choice if you count the Flems, such as Josquin.

5. Popular music song: "Venus," by The Shocking Blue.  Yes they were Dutch, and yes this is better than the later (non-Dutch) remake.

6. Conductor – Willem Mengelberg or Ton Koopman or Bernard Haitink.  More generally, the Netherlands has been vital to the Early Music movement.

7. Philosophical odds and ends: Erasmus (an important theorist of self-deception), Grotius (better on property than Locke), and Spinoza (sheer genius) remain worth reading.

8. Female spy: Mata Hari.

Here is a Dutch Celebrities Quiz, see how you do!  Hee.

It’s not every day I get to try a new cuisine…

Surinamese.  As far as I can tell, it is a mix of Indonesian, Chinese, Creole, and Indian ideas.  Tasty and cheap, but don’t expect to be startled.  Although I could have been fooled, my "Nasi Goreng met Saty" would have tasted worse, had I thought it was Indonesian.  In Amsterdam, by the outdoor bazaar, there is a street with at least fifteen Surinamese restaurants…

How to Unemploy Immigrants

In a shocking op-ed in the NYTimes two well known liberals, Michael Dukakis and Daniel Mitchell (a former price-control Czar), acknowledge that the minimum wage creates unemployment.  Nevertheless, they are in favor of raising the minimum wage.  Why?  Because it will create even more unemployment among immigrants than among natives.

The mean-spirited, Machiavellian nature of their op-ed is chilling but I will give Dukakis and Mitchell this, their logic is impeccable.  The minimum wage creates unemployment among the low-skilled.  As a result, the minimum wage tends to create disproportionate unemployment among teenagers and young African Americans.

Similarly, since many immigrants have lower-skills than natives, Dukakis and Mitchell are correct that a well-enforced minimum wage will put immigrants out of work reducing the pull of the American economy to workers in foreign countries.

I wonder if the NYTimes would have printed an op-ed that advocated minimum wages as a way of creating unemployment among
African Americans and raising white wages?

(Long-time readers will know that the original proponents of the minimum wage had in mind exactly that so Dukakis and Mitchell are true progressives.)

Why is the UK so expensive?

A loyal MR reader, Erik Alberts, writes:

I’ve made several
trips to the UK in the past few months in preparation and it amazes me
how much more things cost there (in London) then here in California.
What I’m trying to understand is why.  I realize that some things like
gasoline cost more in the UK due to taxes.  But for other things, it
appears that prices in the UK are 40 to 50% higher.  How would you
explain this?

Here are a few examples:
1.  Apple iTunes –
costs $0.99 per download in the US, costs $1.47 (0.79 pounds at 1.8594
pounds/$) in the UK.  Why should downloading a song in the UK cost 48%
more when on the internet you can just download them off the US site?
I realize that higher
taxes and higher labor costs may be factors (although at my company UK
labor is cheaper than it is in California), but I find it difficult to
believe that this would explain a 50% difference.  Could this be a sign
of currency imbalance like the big mac index, a supply and demand
issue, or are UK consumers simply used to paying more?

I have wondered the same about Switzerland.  The standard explanation is that expensive countries are extremely productive with their tradables (North Sea oil and London finance?).  That appreciates their exchange rates and renders non-tradables quite dear.  This is the flip side of cheap barbers and prostitutes in Thailand.  But are the Brits really so productive?  If so, why can’t they get both hot and cold water coming out of the same tap?  And aren’t some of the expensive goods tradables rather than non-tradables?

One factor for sure is that American retailing is the most efficient and most productive in the world.  Perhaps the Brits are especially inept in this regard.

A further factor may be that foreigners, even those who are considering moving, sample British prices in biased fashion.  We see lots of hotel rooms, cab rides, and restaurants.  Fish and chips is still pretty cheap outside of London.  As for Marmite I could not say, but that is exactly the point.  Your preferred consumption basket will always look expensive in another country; just try getting Ocean Spray grapefruit juice in Western Samoa.

Your thoughts? 

Got subsidies?

Name a white powder that is consumed by millions, generates huge profits, and is smuggled in and out of the United States.  Nope.  It’s milk.  Here’s another classic story of how our farm program wastes billions.

For years, the government has periodically purchased powdered milk
— as well as butter and cheese, the other byproducts of raw milk — as
part of a congressionally mandated price-support program for milk
producers. By 2003, the Agriculture Department had accumulated a record
1.4 billion pounds of powdered milk in warehouses and in a huge
limestone cave in the Kansas City area.

The bulging stores
coincided with a drought that left livestock pastures burned in about a
dozen states. Some livestock owners were faced with selling their
herds, Farrish said. Giving them the powdered milk as an emergency
source of feed seemed like a good way to help out….

In 2003,
the government released 390 million pounds of powdered milk for the
ranchers, giving it to the states for $1 a truckload.

The true value of the milk was somewhere on the order of 3 thousand dollars a truck load (the article is a little unclear) so you can imagine that the milk did not long stay with the ranchers.

Thanks to Ramin Seddig for the pointer.

Poverty traps and demands for loyalty

The new Roland Fryer paper looks promising:

This paper develops a model of social interactions and endogenous
poverty traps. The key idea is captured in a framework in which the
likelihood of future social interactions with members of one’s group is
partly determined by group-specific investments made by individuals. I
prove three main results. First, some individuals expected to make
group-specific capital investments are worse off because their observed
decision is used as a litmus test of group loyalty – creating a
tradeoff between human capital and cooperation among the group. Second,
there exist equilibria which exhibit bi-polar human capital investment
behavior by individuals of similar ability. Third, as social mobility
increases this bi-polarization increases. The models predictions are
consistent with the bifurcation of distinctively black names in the
mid-1960s, the erosion of black neighborhoods in the 1970s, accusations
of ‘acting white,’ and the efficacy of certain programs designed to
encourage human capital acquisition.

I have observed similar behavior among small ideological groups.  The more some members from that group succeed, the stronger the litmus/loyalty test required from remaining members.  Polarization accelerates.  Those who are left behind are often worse off than if a pooling equilibrium — everyone together in the same boot — had held.

Nerdy questions I’ve taken to asking new people I meet

Every now and then people come out to have lunch with us.  I feel there is no free lunch so to speak, so they should be put on the spot.  I have started asking some combination of the following:

1. What do you maximize?

2. Can you offer a simple model of yourself, using one a few equations or a paragraph or less?

3. What is it you hate?  (NB: My colleague Bryan C. suggests there are fine but important distinctions between hating, despising, mocking, and scorning.  I might add that I am not much of a hater.  More generally, many people’s hates are only "pretend hates," and what they hate is perhaps the fact that they don’t really hate their stated hates at all.  But I will settle for a "pretend hate" answer to this question.)

4. What is your most absurd view?

Many people find these questions difficult or disconcerting.  Especially the third one.  I’ll even say "Can’t you just make something up?"  Or "I’ll settle for a lie!"