Month: August 2006

Markets in everything, Mexican edition

Here is a nice, relaxing vacation idea for my wife:

The 20 or so people fleeing the Border Patrol aren’t undocumented immigrants – they’re tourists about 700 miles from the border.  Most are well-heeled professionals more likely to travel to the United States in an airplane than on foot.

They’ve each paid 150 pesos – about $15 – for what is perhaps Mexico’s strangest tourist attraction: A night as an illegal immigrant crossing the Rio Grande.

Advertising for the mock journey, which takes place at a nature park in the central state of Hidalgo, tells the pretend immigrants to "Make fun of the Border Patrol!" and to "Cross the Border as an Extreme Sport!"

As craven as the advertising sounds, the organizers say they are trying to build empathy for migrants by putting people in their shoes.

Here is the full story.  Here is an interesting recent article on sympathy.

Big box sets

Usually I resist buying Big Box Sets.  I never did much with my 9-CD box of Stax music, for instance.  The Mar-Keys are good but rarely my first choice in the morning.  Otis Redding I already knew.

But surely nominal values should not matter (…tell that to those guys are arguing whether Pluto should be a "planet," a "pluton," or a mid-sized boulder.)  Why is buying a Big Box Set different from buying a bunch of individual CDs over time?

There is a neuroeconomics critique of Big Box Sets.  So much of the pleasure of a purchase lies in the anticipation of the buy rather than the having.  The anticipatory pleasure of a Big Box Set, no matter how large, is not so much greater than the anticipatory pleasure from a single CD.  Yet once you own a large box it sits around.  You can’t listen to the CDs all at once.  They start to feel "stale," and then you go out and want that anticipatory fix again.  Bryan Caplan aside, the anticipatory pleasure of "listening to the seventh CD in the box" is somehow not the same.  So you buy some more CDs.  The Big Box Set sits dormant.

If it is a really big box, you can’t even look forward to the pleasure of "finishing it off," and consigning it to the basement where probably it belongs. 

I have just bought Miles Davis’s 20-CD box "Live at Montreaux", used I might add.  These CDs override all of the strictures against Big Box Sets.

This is fortunate because in my future lies the eight-CD Miles Davis Live at the Plugged Nickel and the 6-CD Miles Davis and Gil Evans.

The Music of Islam is another worthwhile 20-CD set.  And I would like to buy a 20-CD box of Fela Kuti, if they put one out.

Here is my previous post How Quickly Should I Go Through My Stock of Battlestar Galactica?

The Female Brain

New mothers lose an average of seven hundred hours of sleep in the first year postpartum.

…In one study, mother rats were given the opportunity to press a bar and get a squirt of cocaine or press a bar and get a rat pup to suck their nipples…Those oxytocin squirts in the brain outscored a snort of cocaine every time.

Both are from the new and noteworthy The Female Brain, by Louann Brizendine.  Here is a very brief (and somewhat skewed in the direction of politically correct) summary.  Here is more.  Here is a Deborah Tannen review.

There are way way way too many books on gender differences.  Most of them just string together the usual well-known templates, but I read every page of this one with interest.  The best parts focus on the role of hormones.

Not everyone will appreciate the punchy style — "There’s a new reality brewing in Sylvia’s brain, and it’s a take-no-prisoners view" — but everyone who wants to marry or have kids should read this book.

Pulled from the comments on Alex

The Bartels result may be just showing that in an economy when
average incomes are are rising rapidly, the low income groups benefit
more than the higher income groups.  Since WWII, with the exception of
Eisenhower, no Republican was president when the average income was
rising rapidly.

Here is the link for a relevant graph.  Here is a graph of the Bartels result.  And here is Greg Mankiw on inequality and unions, in case you missed it, perhaps Greg’s best post so far.

The 20 best songs of the 1960s

Here is a list from Pitchfork; the Beach Boys’ "God Only Knows" takes first place.  The selections are excellent (head to iTunes), but I would have opted for the Beatles’ "Rain" and the Byrds’ "Eight Miles High."  You’ll find links to their top 200 picks as well.

Daniel Levitin’s This is Your Brain on Music: The Science of a Human Obsession — is a new book on how music affects our brains.  Here is an introduction to the book.

Addendum: Here is an interview with Levitin.

If you’re not so smart, why are you so rich?

Andrew Samwick asked a very good question last week: if Paul Krugman says that rising wages at the top are due to nasty Republican policies and not due to rising returns to education/skill how does he explain his own high income?  Unfortunately Mark Thoma interpreted Samwick to be saying that Krugman was hypocritical.  That, however, was not the point at all.

The point is that Krugman is a very good example of someone in the top 1% of income – someone whose earnings have increased tremendously in the 1980s and 1990s thus generating much income inequality.  Krugman wants to say that earnings in the top 1% have gone up because of a reduction in the minimum wage or fewer labor unions.  Huh?  Remember, it’s not just inequality that has increased it’s absolute earnings at the top – where are these earnings coming from?

The idea that reductions in the bottom generate big earnings at the top reminds me of the theory, once popular among theorists of development, that the way to get rich is to steal from poor people.  At best what you can get from lower labor earnings at the bottom is a slightly higher return to capital in general – not a big return to a few people at the top.

Krugman says it’s Republican policies that are generating inequality  Or does he?  Let’s go to the tape.  Here’s what Krugman had to say when it was revealed that Enron paid him $50,000 for a speaking engagement.

My critics seem to think that there was something odd about Enron’s
willingness to pay a mere college professor that much money. But such sums
are not unusual for academic economists whose expertise is relevant to
current events…

Remember that this was 1999: Asia was in crisis, the world was a mess.
And justifiably or not, I was regarded as an authority on that mess. I
invented currency crises as an academic field, way back in 1979; anyone
who wants a sense of my academic credentials should look at the Handbook
of International Economics
, vol. 3, and check the index….

And I wasn’t an ivory-tower academic. In 1994 I had published an article… in August 1998 I had advocated temporary
capital controls …in 1998 I had taken on the Japanese
situation, with a series of papers…

I mention all this not as a matter of self-puffery, but to point out
that I was not an unknown college professor. On the contrary, I was a hot
property, very much in demand as a speaker to business audiences: I was
routinely offered as much as $50,000 to speak to investment banks and consulting
firms. They thought I might tell them something useful. For what it’s worth,
Citibank officials said – you can check it out with a Nexis search – that
a heads-up I gave them in 1996 about the risks of an Asian currency crisis
saved them hundreds of millions of dollars.

Now all this is amusing but that’s not my point (really, it’s just a side-benefit.)  My point is that Krugman’s earlier explanation for his high income was all about the rising return to education ("Look at all my papers!")  I would supplement this basic story with a greater winner-take-all market, more economies of scope etc.  (See also Tyler’s comments.)   

I think Krugman’s earlier explanation for his own income is mostly correct.  Where Krugman and I apparently disagree is that I think that the very same explanation Krugman gives for his income also explains why other people in the top 1% are earning more.  Krugman, however, no longer wants to talk about education and skill he wants to talk about nasty Republicans.

So let me rephrase Samwick’s question.  Paul, If you’re not so smart, why are you so rich?

10 Things You Shouldn’t Buy New

A MSN.com article lists the following:

1. Books

2. DVDs and CDs

3. Little kids’ toys

4. Jewelry (TC: Uh-Oh)

5. Sports equipment

6. Cars

7. Software and console games

8. Office furniture

9. Timeshares

10. Handtools

I agree except for numbers four and six, but on four I wish I could agree.  The common feature of the argument seems to be that we can do without "the gloss of the new" by a mere act of will.

But don’t buy helmets, laptops, wet suits, or vacuum cleaners used, they often have hidden damage.  They forgot to list underwear.

Addendum: As long as we are on the topic of "ten," here is Guy Kawasaki’s "Ten Things They Should Teach You in School," recommended.

Assorted

1. On inequality, Krugman responds to critics and Samwick adds further commentary.  I’ll note that the "marginal products" of big changes in government, society, technology, etc. are not always well-defined.

2. Tower Records is bankrupt again, and this time the stores may not survive.

3. In case you missed it, there is now very strong evidence for the existence of "dark matter."

4. The genetic causes of autism — do they lead to early brain inflammation?  Have I mentioned that my mother was instrumental in founding and running a care home for autistic children?  Among other things, I use this blog to send her the latest news on the topic.

5. Seven puzzles: find them here, with solutions, and one of them is explained by GeekPress.

6. Virginia Postrel in Forbes, on why median incomes are not stagnating, here is a summary and a link.

Status competition, rural Indian style

In rural Hindu villages in India…widows are expected
to be perpetual mourners, austere in their habits, appetites and dress;
even so, they often jockey for position, said Richard A. Shweder, an
anthropologist in the department of comparative human development at
the University of Chicago.

“Many
compete for who is most pure,” Dr. Shweder said.  “They say, ‘I don’t
eat fish, I don’t eat eggs, I don’t even walk into someone’s house who
has eaten meat.’  It’s a natural kind of social comparison.”

The article focuses on the psychology of fame-seeking.

Why do libertarians love science fiction?

The ever-so-loyal Jessica Pickett asks:

A few of your posts – taken together with other econobloggers – would seem to suggest a correlation between being a libertarian economist and being a die-hard sci-fi/fantasy geek.  Does your experience support this anecdotal observation, and if so, can you elaborate on the possible causation?

I see the connection, and I can think of a few possible answers:

1. The rude: Because both groups live in a fantasy world.  But even if that is true, many other ideologues live in a fantasy world but fail to have the same attachment to science fiction.

2. The trivial: Both loves are correlated with "young upper middle class nerdy white male," but otherwise the connection has no significance.

3. The proud: Libertarian economists like to imagine how things otherwise might be.  This spills over into a love for science fiction.

4. The Freudian: Libertarians feel an infantile need to rearrange the pieces of the moral universe, due to thwarted childhood desires and ongoing sexual frustrations

5. The sociological: Character development is notoriously weak in science fiction and libertarians are prone to see societies in terms of abstract laws rather than very definite individual human beings.

5. Denial or minimization of the fact: I doubt if the connection holds outside the USA.  Plus bloggers are a very, um… "select" sample.  Is Milton Friedman out there reading The King of Elfland’s Daughter?  Much recommended, by the way.

My question: If you discover that your personality can be explained by a smaller rather than a larger number of dimensions, should this make you happy or sad?  More or less trusting of your intuitions?

Claims I dare not make at home

Mexico…is a dynamic, one trillion dollar economy and along with Canada, our largest trading partner.  Its per capita income is $10,000, which puts it at the upper tier of middle income countries, not far behind Russia’s per capita income of $11,000.  Compared with Russia, however, Mexico has a much better developed infrastructure of highways, ports, railroads, telecommunications, and social services that give it a poverty rate of 18% rather than 40%, as well as a male life expectancy of 73 years rather than 61 years (U.S. figures are 12% and 75 years, respectively).  Unlike Russia, moreover, Mexico is a functioning democracy with open and competitive elections, a separation of powers, and a well-defined party system.

Here is much more, mostly on Mexican immigration, and thanks to Will Wilkinson for the pointer.  I cannot, however, agree with all of the claims and rhetoric in the article.  I would not, for instance, have denied that Mexico is "impoverished."  Even this non-egalitarian feels compelled to point out that Mexico has one of the least equal income distributions in the world…

Politically tragic basketball games

Serbia and Montenegro [sic] 104, Lebanon 57.

That is from the ongoing FIBA World Championship series.  The USA just whupped China and the US team has been running at about 63-70 percent in the betting markets, despite winning only a bronze medal in the Olympics.  This time they are taking international rules seriously, playing defense, and investing in role players, or so we are told.  Spain, Argentina, and Greece are the major rivals.  At least we edged out Puerto Rico, 111-100, which in per capita terms has to count as a loss.

The pedagogy of comparative advantage

What does the theory of comparative advantage (or see the Wikipedia entry) actually predict?

1. Every person will trade with every other person in the world.  This is clearly false, although it would seem to follow from some presentations of the concept.

2. In a world of only two people, they will probably trade with each other.  This is very likely true (especially if they are both "hot"), though not certain at the theoretical level.

3. Everyone will trade with at least someone.  Whoop-dee-doo. 

Worse, #3 is not even true.

The key counterexample is animals.  They have well-defined preferences, downward-sloping demand curves, demand for multiple commodities (if only both food and water, plus of course sex), and differential abilities.  Yet most animals don’t trade with any other animals.

Why not?  There are high fixed costs to trading at all.  Most animals can’t overcome those costs.  They aren’t smart enough.  Lack of opposable thumbs, or lack of extended long-term trust, are other obstacles, not to mention "fear of being eaten."  There is nothing in a Walrasian model to rule out q = 0 no matter what kind of critters are walking around.

In human communities there will be much more trade than we find amongst the eagles.  But the theory of comparative advantage deflects our attention away from the fixed costs of trading.  As a result, many people overestimate the benefits that free trade (which, I might add, I fully favor) will bring to the developing world.  And they underestimate the importance of those fixed costs of trading in holding nations — and people — back from a better future.