Month: November 2006

I’d like to try this idea in Elizabeth, New Jersey

How about cities without any traffic signs or lights?:

European traffic planners are dreaming of streets free of rules and
directives.  They want drivers and pedestrians to interact in a free and
humane way, as brethren — by means of friendly gestures, nods of the
head and eye contact, without the harassment of prohibitions,
restrictions and warning signs…Ejby, in Denmark, is participating in the experiment, as are Ipswich in England and the Belgian town of Ostende.

The logic?

It may sound like chaos, but it’s only the lesson drawn from one of the
insights of traffic psychology:  Drivers will force the accelerator down
ruthlessly only in situations where everything has been fully
regulated.  Where the situation is unclear, they’re forced to drive more
carefully and cautiously.

Some towns are even looking to abolish the distinction between roads and sidewalks.  Here is the full story, can any of you report on these experiments?  And if you are looking for your "Germany fact of the day," the country has 648 different and valid traffic signs.

Thanks to John Durant for the pointer.  And here is Dan Klein on skating rinks.

The Economist on Organ Transplants

The Economist has cogent things to say on setting up a market for organs including the fact that organ sales are legal in, of all places, Iran and the shortage in that country has been eliminated.  Here’s another interesting point:

America already lets people buy babies from surrogate mothers, and the
risk of dying from renting out your womb is six times higher than from
selling your kidney.

Hat tip to Harold Kyriazi.

The Origins of Friedman and Schwartz, *A Monetary History*

This paper explores some of the scholarship that influenced Milton
Friedman and Anna J. Schwartz’s "A Monetary History".  It shows that the
ideas of several Chicago economists — Henry Schultz, Henry Simons,
Lloyd Mints, and Jacob Viner — left clear marks.  It argues, however,
that the most important influence may have been Wesley Clair Mitchell
and his classic book "Business Cycles" (1913).  Mitchell, and the NBER,
provided the methodology for "A Monetary History", in particular the
emphasis on compiling long time series of monthly data and analyzing
the effects of specific variables on the business cycle.  A common
methodology and the stability of monetary relationships produced
similar conclusions about money.  Friedman and Schwartz deemphasized
Mitchell’s "bank-centric" view of the monetary transmission process,
but they reinforced Mitchell’s conclusion that money had an
independent, predictable, and important influence on the business cycle.

Here is the link, here is a non-gated version.

Why do people live in cities?

Someone I was talking to — no I can’t tell you who — claims that the answer is to enjoy casual or anonymous sex.

Now this is not my field of expertise.  The claim was that picking people up in the suburbs, and driving to one of the homes for sex, is difficult.  MapQuest is not immediately handy for good directions, there are two cars in play, at least one of the persons may be drunk, and there is a trust issue of being trapped in some weird suburban cul-de-sac, surrounded only by sleeping, catatonic soccer moms with no one to hear you scream for help, etc.

In a city, on the other hand, there is walking and the metro or subway.  An emergency exit is easier, and cars need not come into play at all.

I have never lived in an American city, only Freiburg, Germany and Wellington, New Zealand.

Noble readers, is this true?  Do be analytical, facts are fine but I am not interested in risque comments per se.

What I’ve been reading

1. Permissions, A Survival Guide: Blunt Talk About Art as Intellectual Property, by Susan Bielstein.  Yet another treatment of how copyright has gone too far, this book is full of both information and good humor. 

2. Jonathan Tokeley, Rescuing the Past: The Cultural Heritage Crusade.  A pro-property rights, pro-market (but with regulation) approach to the antiquities trade.  A breath of fresh air in an otherwise poorly framed debate.

3. Adam Tooze, The Wages of Destruction: The Making and Breaking of the Nazi Economy; I blogged this before, but now I am reading it, this book is a major achievement.  Here is an interview with Tooze.  Here is more, and here.

4. The Crying of Lot 49, by Thomas Pynchon.  This is also for my Law and Literature class next spring; from Pynchon, I enjoy this book and the first half of Gravity’s Rainbow.  You don’t have to love 1960s left-wing semiotics for this one, although it doesn’t hurt.  Over Christmas I might try Pynchon’s V., and for that matter Civilization IV.

5. Lots of opinions about intro economics, from CrookedTimber.

Milton Friedman, a father of financial futures

Leo Melamed writes:

I asked him [Friedman] whether he would endorse–when Bretton Woods collapsed–the concept of futures contracts in foreign exchange.  Without hesitation, Dr. Milton Friedman embraced the concept and authored a study in December 1971 which became the intellectual foundation for the birth of currency futures.  It was not a major treatise, hundreds of pages long with footnotes and a bibliography.  The world-renowned economist stated all he needed to say in just 11 pages.  His paper, entitled "The Need for Futures Markets in Currencies," provided us with academic authenticity of the highest magnitude to prove that our theory was a viable necessity.  As I often stated, "Professor Friedman gave my idea the credibility without which the concept might never have become a reality."  For with Dr. Friedman’s paper in hand, I was able to convince government officials, bank presidents and the CME brokerage community that the idea had merit.

This is an excellent illustration of Alex’s point that Milton was an entrepreneurial economist.  Here is more

Milton had been right all along that flexible exchange rates were entirely workable.  He was wrong in underestimating their volatility through periodic, and possibly inexplicable, "long swings" in the levels.  Oddly, his mistake on this point probably enabled currency futures and options to be even more successful than he had expected.

Addendum: Here is Greg Mankiw on Milton, here is Arnold Kling.  Here is a link fest at PrestoPundit.  Here is a misleading piece on Milton as friend of big government; just ask Roger Douglass, Vaclav Havel, or many others.

The Methodology of Positive Economics

I’ve never read Milton as a naive positivist, although some of the quotations from his article sound that way.  Milton was more of a methodological pluralist and a Marshallian.  Do what works. 
Bring a variety of kinds of evidence to bear on a problem (it is sad
how neglected this principle is in modern economics), be pragmatic, and
don’t reject a model just because it doesn’t meet one of your
prejudices.  I think that is what he meant by not judging a model by
its assumptions.  Falsifiability is a chimera, but did Friedman really
seek or advocate that as a standard?  Most of all he wanted propositions with empirical content.  He understood that no single fact can refute a theory, and that many tests are of frameworks, not single propositions.  Data should and indeed must be viewed through the lens of theory, and our goal should be to solve problems.

Was Milton closer to Quine than to Carnap?  Here is his classic essay.

My favorite things Indiana

A brief trip it will be, but here goes:

1. Music: Michael Jackson is from Gary, and his most underrated song is "She’s Out of My Life."  There is also Cole Porter (overrated in my view, compared to Jerome Kern) and Ned Rorem.  Wes Montgomery has a few good albums, usually they are live; it is a shame he wasted his immense talent on muzak.

2. Literature: Sorry, but I find Kurt Vonnegut unreadable, and don’t tell me about Harrison Oberon.  Dreiser?  I’ve never read Newton Tarkington, who wrote The Magnificent Ambersons.  I’ll go with Philip Jose Farmer and his Riverworld series.

3. Painter: I am only slightly fond of Robert Indiana (yes he is from the state), or for that matter William Merritt Chase; here is my favorite Chase painting.

4. Favorite small town: Alex recommends Columbus, Indiana, for wonderful architecture.  I defer to him.

5. Movie, set in: Hoosiers and Breaking Away do not sit well with me, so help me out if you can.

6. Blogger and libertarian crusader for civil liberties: Radley Balko.

The bottom line: I don’t even like James Dean.  Radley is great, but my favorite thing Indiana is in fact Liberty Fund.

Milton Friedman: Entrepreneurial Economist

Great economist by day and crusading public intellectual by night, Milton Friedman was my hero.  Friedman’s contributions to economics are profound, the permanent income hypothesis, the resurrection of the quantity theory of money, and his magnum opus with Anna Schwartz, A Monetary History of the United States, 1867-1960, all stand as great achievements.

But Friedman did not restrict his genius to the academy, he used economics to forcefully argue for a better world.  Friedman was a key player in ending the draft, he championed school choice and drug legalization.  He not only wrote about floating exchange rates he helped to bring them into being.  The end of welfare as we know it?  Friedman’s negative income tax was an inspiration.

Milton Friedman loved liberty.  Even today, chills run down my spine whenever I read the slashing opening to Capitalism and Freedom

President Kennedy said, "Ask not what your country can do for you – ask what you can do for your country."… Neither half of that statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society.

Damn right.

On a personal note, Friedman inspired my book, Entrepreneurial Economics: Bright Ideas from the Dismal Science, in which I said Milton Friedman was the greatest entrepreneurial economist of the twentieth century.  It was thus a real thrill for me and a bringing around of the circle when I sent him a draft and he wrote back praising the book (see the back cover!).

He will be missed.

When I think of Milton Friedman

When I think of Milton Friedman, I often think first of — oddly enough — his essay on a commodity reserve currency.  This not-quite-famous piece of 1951 does not bear on current policy debates, and it did not much influence the world.  The idea of backing a money with a commodity bundle wasn’t going to happen anyway.

But it shows one of the sides of Milton I most admire, namely his razor-sharp logic and his ability to get to the core of an idea and pick it apart.  It is a model of understanding and argumentation.  I read this piece and quake with fear that I might someday disagree with Milton and be disassembled in a quick debate, if the word debate could even be said to apply.

Milton’s critics sometimes portray him as a monetary dogmatist, but this was never the case.  The early Milton favored one hundred percent reserve banking, in part as a reaction against the bank failures and excesses of the Great Depression.  I read the commodity basket piece as breaking his ties to the commodity money idea, an old (and perhaps outdated?) piece of classical liberal thought.

The mid-period Milton favored a fixed rate of monetary growth.  The Milton Friedman of 1969 considered the idea of deflation — an "optimum quantity of money" — although it is not clear he ever endorsed that proposal.  The Milton Friedman of 1986 Friedman and Schwartz toyed with ideas of free banking.  The very late period Milton Friedman was moving toward the notion of an inflation rule, as monetary targeting had not worked.

Milton was always on a quest toward a greater truth.  If an argument ran against him — and usually it didn’t — he would submit and pick up the pieces in a purely forward-looking manner.

I think often of Milton’s essay on commodity reserve currency.