Month: November 2006

Milton Friedman passes away at 94

Here is the NYT story, still gated.  Here are more articles

I believe Capitalism and Freedom was the second or third book I ever read on economics and it definitely shaped my life.  I knew Milton only a bit but he was always gracious and of course razor sharp and a lover of liberty and prosperity.  He was one of the most important minds of the second half of the twentieth century and his influence remains felt all around the world.  In purely academic terms, he easily could have won two or three Nobel Prizes from the quality and quantity of his work.

Here is Levitt’s brief tribute.  Here is, via Brad DeLong.

Mistakes, or behavioral economics for babies


Young children aged between two and four years believe that you only
have to hide your head to become invisible – if your legs are on view,
it doesn’t matter, you still can’t be seen.

That’s according to Nicola McGuigan
and Martin Doherty who say this is probably because young children
think of ‘seeing’ in terms of mutual engagement between people. It
explains why kids often think they can’t be seen if they cover their

Here is further discussion.

Politically incorrect paper of the month

Many studies have shown that women are under-represented in tenured ranks in the sciences.  We evaluate whether gender differences in the likelihood of obtaining a tenure track job, promotion to tenure, and promotion to full professor explain these facts using the 1973-2001 Survey of Doctorate Recipients.  We find that women are less likely to take tenure track positions in science, but the gender gap is entirely explained by fertility decisions.  We find that in science overall, there is no gender difference in promotion to tenure or full professor after controlling for demographic, family, employer and productivity covariates and that in many cases, there is no gender difference in promotion to tenure or full professor even without controlling for covariates.  However, family characteristics have different impacts on women’s and men’s promotion probabilities.  Single women do better at each stage than single men, although this might be due to selection.  Children make it less likely that women in science will advance up the academic job ladder beyond their early post-doctorate years, while both marriage and children increase men’s likelihood of advancing.

Here is the NBER version, here is a non-gated version.  Alas, I have not had time to read this piece, although I know and respect the work of Shu Kahn, one of the authors.

Addendum: Matt Yglesias comments.

Microfoundations of slow European growth

European industries seem to have higher entry costs, and with them lower turnover rates: 50% of new pharmaceutical products in America come from firms less than ten years old, against only 10% in Europe; 12% of the biggest US firms by market cap at the end of the 1990s were less than 20 years old, against 4% of the biggest European firms.

Here is more.  Here is a more general piece on the latest growth news out of Europe.

The Federalization Fraud

Every time there is a nationally publicized crime some Federal politician stands ready to get tough and pass a law.  In recent years, we have had The Juvenile Crime Control Act,
The Church Arson Prevention Act,
The Sex Crimes against Children Prevention Act and so forth leading the naive to wonder why Church arson wasn’t illegal before the act was passed.

Of course, arson has always been illegal and well prosecuted under state law.  Federal law is not only unnecessary in many cases it is a fraud.  Take the most recent example, the Adam Walsh Child Protection and Safety Act passed this year.  The act dramatically increases the penalties for aggravated sexual abuse (or an unsuccesful attempt at such abuse) to a mandatory 30 year prison sentence with no opportunity for parole.  The penalties are draconian but here’s the kicker.  The penalties only apply to Indians on reservations, citizens of Washington DC and those few offenders who might cross a state line in commission of their offense.   No other citizens face anything like these kinds of penalties.

For more on the Theory of Federalism and an application to crime see my powerpoint discussion given last week to a group of Federal judges.

Scream this from the rooftops

We can’t just bargain down the prices of pharmaceutical drugs without adverse consequences.  It is hard to measure the effects here, but yesterday I came across this piece of serious empirical work:

EU countries closely regulate pharmaceutical prices whereas the U.S. does not.  This paper shows how price constraints affect the profitability, stock returns, and R&D spending of EU and U.S. firms.  Compared to EU firms, U.S. firms are more profitable, earn higher stock returns, and spend more on research and development (R&D).  Some differences have increased over time.  In 1986, EU pharmaceutical R&D exceeded U.S. R&D by about 24 percent, but by 2004, EU R&D trailed U.S. R&D by about 15 percent.  During these 19 years, U.S. R&D spending grew at a real annual compound rate of 8.8 percent, while EU R&D spending grew at a real 5.4 percent rate.  Results show that EU consumers enjoyed much lower pharmaceutical price inflation, however, at a cost of 46 fewer new medicines introduced by EU firms and 1680 fewer EU research jobs.

Here is the paper.  Here is a non-gated copy.  Here is my column on medical R&D.  Here is a previous installment in the series "Scream this from the rooftops."

Department of Oh-Oh, a continuing series

The explanation [of chevron deposits] is obvious to some scientists.  A large asteroid or
comet, the kind that could kill a quarter of the world’s population,
smashed into the Indian Ocean 4,800 years ago, producing a tsunami at
least 600 feet high, about 13 times as big as the one that inundated
Indonesia nearly two years ago.  The wave carried the huge deposits of
sediment to land.

Most astronomers doubt that any large comets
or asteroids have crashed into the Earth in the last 10,000 years.  But
the self-described “band of misfits” that make up the two-year-old
Holocene Impact Working Group say that astronomers simply have not
known how or where to look for evidence of such impacts along the
world’s shorelines and in the deep ocean.

Scientists in the working group say the evidence for such impacts
during the last 10,000 years, known as the Holocene epoch, is strong
enough to overturn current estimates of how often the Earth suffers a
violent impact on the order of a 10-megaton explosion.  Instead of once
in 500,000 to one million years, as astronomers now calculate,
catastrophic impacts could happen every few thousand years.

Here is the full story.  I should add there are reports that a tidal wave (not nearly of this size) may hit Japan today.  Here are our posts on asteroid deflection as a public good.

Has NBA defense become less important?

Matt Yglesias has read Aristotle:

I concede that the new [NBA] rules have made it harder to play defense.  I
fail to see, though, how that makes defense less important.  Two factors
determine who wins a basketball game: how many points your team scores
and how many points the other team scores.  Since you have the ball
roughly half the time and the other team has the ball roughly half the
time, it stands to reason that offense and defense should have exactly
the same importance.  You could even argue that, in an era when it’s
easier to score than to defend, a guy who can stop the other team from
scoring is more valuable than someone who can put the ball in the

Amen, and try putting that last point into a Solow model-like framework.  That all said, I don’t understand why there are so few good centers these days.  Why is there no Bob Lanier?  Is the pay too low?  Surely people are not shorter than thirty years ago.

While we are on the topic, I’ll offer up my yearly predictions and opt for San Antonio.  Their new 30-year-old big lug seems able to play center, they have the game’s best power forward, lots of title experience, and an excellent backcourt.  Plus they can play defense.

Addendum: A reader sends in this excellent commentary.

East Germany, circa 1985

Chris Bertram writes in the comments of MR:

As it happens I spent some time in East Germany in 1984.  As I
recall, it was then claimed that the per capita GDP was comparable to
that of the UK.  It was immediately obvious to me that the standard of
living for most people was far far lower.  But real problem with East
Germany was not its comparative level of economic development or the
level of health care its citizens could receive (rather good,
actually).  It was the fact that it was a police state where people were
denied the basic liberties.

Given them those liberties and I think you’ve achieved most of
what’s morally important.  If they then choose a policy of more leisure
and lower growth or the opposite … that’s up to them.  I don’t think
it matters, morally speaking, that they are poorer than Americans are.

I am genuinely puzzled by this.  I visited East Berlin — supposedly the showcase of the country – in 1985.  Let me try to sound as superficial as possible, in light of the extreme poverty in Africa.

The food was terrible.  The cars were a joke, if you even had one.  There were hardly shops to be found.  I had to spend 40 or so "Ostmarks" and literally could not find a single thing I wanted.  I bought a Stendahl book and left the rest of the money on a bench.  Few people had the means to travel, even if politics had permitted it.  I am skeptical about the health care though I will admit I am not informed.  Had the relatively productive people been free to leave, this all would have been much worse.  It should also be noted that the country was neither donating much to Africa, nor taking in many immigrants, and again that is not just because of the politics. 

Chris and I have a very different notion of what is morally important.  I don’t wish to force anyone to be richer than East Berlin circa 1985, but if you give them liberty, almost everyone will try to exceed that level, and not just by a little bit.

The suburbs are good for your social life

A new study says that people who live in sprawling suburban areas have more friends, better community involvement and more frequent contact with their neighbours than urbanites who are wedged in side-by-side. The results challenge the accepted idea that suburban life is socially alienating a notion that’s inspired everything from the Academy Award-winning American Beauty to Harvard professor Robert Putnam’s book Bowling Alone.

The study, released by the University of California at Irvine, found that for every 10 per cent decrease in population density, the chances of people talking to their neighbours weekly increases by 10 per cent, and the likelihood they belong to hobby-based clubs jumps by 15 per cent.

"We found that interaction goes down as population density goes up. So, turning it around, it says that interaction is higher where densities are lower," says Jan Brueckner, an economics professor at UC Irvine who led the study. "What that means is suburban living promotes more interaction than living in the central city."

Here is the story.  Here is Brueckner’s home page, here is the paper on-line.

How much does economic growth matter anyway?

Chris Bertram writes:

Mill’s idea (endorsed by Rawls btw) that the goal of our policy ought not to be one of continual struggle for growth or for relative advantage once the threshold has been reached where we could all hope to enjoy a satisfactory level of well being seems to be right.

In a forthcoming article, I write:

Just as the present appears remarkable from the vantage point of the past, our future may offer comparable advances in benefits.  Continued progress might bring greater life expectancies, cures for debilitating diseases, and cognitive enhancements.  Millions or billions of people will have much better and longer lives.  Many features of modern life might someday seem as backward as we now regard the large number of women who died in childbirth for lack of proper care.  Most of all, economic growth limits and mitigates tragedies.  It is a simple failure of imagination to believe that human progress has run its course.

If I read Chris correctly, he is saying "so what if Germany is poorer than the United States?" 

It is not my belief that the Germans will be consumed with envy.  I do think that a) the Germans will be missing out on some wonderful gains, b) there is no real standard for "a satisfactory level of well-being," c) a poorer Germany will be much less able to help the truly desperate parts of the world, if only by accepting immigrants, d) this is not a long-run political equilibrium in Germany, and e) at the global level, it is important that Western and European values are prominent, and this does require good or at least a decent growth performance.  Furthermore it is possible to believe a)-e) without seeing status games in relatively healthy Western societies as zero or negative sum.

On growth, keep the following in mind: If we are comparing a two percentage point boost to the growth rate, and starting at real income parity, a time horizon of only 55.5 years is needed to establish a 3:1 ratio of superiority in income.   

I am not not not saying that Chris is a communist or even a socialist, but my reporting would be remiss if I did not point out that defenders of East Germany, in the 1980s, made more or less the same argument as Chris’s bit quoted at the top of this post.

That all said, I am relatively bullish about German recovery, at least compared say to France or Italy.