Month: February 2007

Purchasing power parity

by  Tyler Cowen in

Purchasing power parity is:

1. A tautology.

2. An equilibrium condition, satisfied by any good theory of exchange rates.

3. Itself a theory of exchange rates.

4. An outer bound which good theories of exchange rates may not violate.

5. Holds only for individual goods of homogeneous nature.

6. Holds only for price indices of tradeables.

7. Totally false.

8. All of the above.

Esoceicy!  Correct answers will be given a free dining room set.

Tree Owners are Tree Huggers

by  Alex Tabarrok in

The big story in Niger is not uranium but trees.  According to an interesting article in the NYTimes:

Recent studies of vegetation patterns, based on detailed satellite
images and on-the-ground inventories of trees, have found that Niger, a
place of persistent hunger and deprivation, has recently added millions
of new trees and is now far greener than it was 30 years ago.

These
gains, moreover, have come at a time when the population of Niger has
exploded, confounding the conventional wisdom that population growth
leads to the loss of trees and accelerates land degradation, scientists
studying Niger say.

And the key to this growth?   Property rights.

Another change was the way trees were regarded by law. From colonial
times, all trees in Niger had been regarded as the property of the
state, which gave farmers little incentive to protect them. Trees were
chopped for firewood or construction without regard to the
environmental costs. Government foresters were supposed to make sure
the trees were properly managed, but there were not enough of them to
police a country nearly twice the size of Texas.

But over time,
farmers began to regard the trees in their fields as their property,
and in recent years the government has recognized the benefits of that
outlook by allowing individuals to own trees. Farmers make money from
the trees by selling branches, pods, fruit and bark. Because those
sales are more lucrative over time than simply chopping down the tree
for firewood, the farmers preserve them.

People who are weirder than I am

by  Tyler Cowen in

No, I am not referring to other bloggers, I mean Allen Shawn (son of William, by the way, former editor of The New Yorker, and brother of actor Wallace).  He is deeply phobic, about many things, and his new Wish I Could Be There: Notes from a Phobic Life outlines the phenomenology of his fears.  I learned:

1. The greatest thing he has to fear is fear itself.

2. The imprinting of painful memories, such as knowing to avoid a lit fire, can backfire and create persistent phobias.  His phobias are remarkably specific.

3. There is a deep and poorly understood connection between phobias and the more general phenomenon of neurodiversity.

4. Self-awareness ain’t no guarantee of nuthin’.

5. He claims that people placed in concentration camps (Theresienstadt) became depressed, but that their phobias usually disappeared.

6. The author has a deep interest in atonal music, which supports my hypothesis that it is mostly the neurodiverse who enjoy this art form.  Other people simply can’t hear the patterns, and furthermore the music gets on their nerves.

Half of the discussion is deadly dull, but it is still one of the more interesting books so far this year.

Is it a good idea to have such a cute President?

by  Tyler Cowen in

Royal

Was it Megan Non-McArdle who said that women are judged by their looks from day one to the grave?  Royal would make a good character on Lost, so I see a few possible political effects:

1. French men will swoon, roll over, and play dead while she passes further protectionist measures.

2. Other women will never trust her.

3. Men, at the meta-level, know that beautiful women trick them all the time, so they will never trust their trust in her.

4. She needs to prove she is tough, and that implies hawkish, nationalistic behavior.  She will be especially constrained.

5. She provides a national and global public good, but the Modigliani-Miller theorem holds and each part of her persona is evaluated separately, and accurately.

6. She will be an especially effective diplomat on the world stage.

7. No one cares, or is influenced by looks.

8. If the median voter model were true, the President would be so beautiful every election.  Some other model must hold.

We haven’t had many beautiful top female leaders, so most of the data is for attractive male leaders; I doubt if the two cases are symmetric.  Overall I opt for #8, with a dose of #4 and a bit of #3 and #2.

Wikipedia notes: "For the recent campaign for the Presidential nomination she changed
from wearing dull clothing to stylish suits and reportedly had work
done on her teeth."

Kremer’s Prize

by  Alex Tabarrok in

The Advance Market Commitment for vaccines launched on friday.  Under the commitment a group of developed nations (Canada, Italy, Norway, Russia, the United Kingdom) and Bill Gates! (The Bill & Melinda Gates Foundation) promises to pay for a pneumococcal vaccine suitable in price and effectiveness for the developing world.  The idea, the brain child of economist Michael Kremer, could save millions of lives over the next several decades.  Kremer deserves a Prize for his Prize – in Peace or Economics.

Owen, who played a part in the project, has more background and musings.

Threshold

by  Tyler Cowen in

No, it is not Firefly or Battlestar Galactica.  But maybe you, like I, are starved for good science fiction, yet feel that almost everything out there is rot, whether written or on the screen.  For eleven episodes — until cancellation of course — you can pretend that the rest of the world is more like you than it really is.  The premise is that aliens have sent a pulsating fractal signal which is transforming human DNA and turning some of us into evil replicators.  Only a crackerjack team of beautiful women, nerds, bald black career bureaucrats, and midgets can stop them.  The philosophical content is to query whether evolution isn’t repugnant by its very nature, and why we think we are so special.  Don’t expect the sky, but if you are at all tempted, try it, more info here.

Further thoughts on The Gay NBA

by  Tyler Cowen in

I never knew you all had such a pent-up demand to discuss matters gay.  Having read through 110 plus comments, I am now more inclined to see genetic correlations — rooted in the human mind rather than the body — with athletic achievement (NB: I don’t agree with all the "genetic" claims in the thread, by any means).

Most of all, I am struck by how few former male athletes have come out of the closet.  That would seem to adjust for "the locker room effect" and "the endorsement effect," as explained in my original post.  Once an athlete is retired, those factors shouldn’t matter much.

I also noticed that Amaechi signed a book contract about being gay in the NBA.  He was a pretty feeble player, and quite nerdy, more here.  How large was his book advance?  50K or 100K is not a bad guess.  I’ve known plenty of gay guys who would self-identify for much less; the fact that so few former male athletes have done so is striking.

Prizes and Open Source Software

by  Alex Tabarrok in

Richard Branson and Al Gore announced today a $25 million prize for the best way to remove significant amounts of carbon dioxide from the atmosphere.

Prizes can draw on dispersed knowledge to produce solutions that were unlikely to have been foreseen in advance.  Open source software has a similar advantage –  with enough eyes all bugs are shallow. 

I think prizes are becoming more common not because people have suddenly learned of their advantages but because the internet has magnified their advantages.  A prize today can at low-cost attract and draw from a much larger pool of contestants than in the past.  The rise of open source software and the rise of prizes are thus similar responses to the same improvement in communications technology.   

Thanks to Lance at A Second Hand Conjecture for the pointer.

John Edwards on health care, part II

by  Tyler Cowen in

Paul Krugman writes:

Mr. Edwards goes two steps further.  People who don’t get insurance from their employers would… purchase insurance through “Health Markets”: government-run bodies negotiating with insurance companies on the public’s behalf. …

Why is this such a good idea? …[M]arketing and underwriting – … screening out high-risk clients – are responsible for two-thirds of insurance companies’ overhead.  With insurers selling to government-run Health Markets, not directly to individuals, most of these expenses should go away, making insurance considerably cheaper.

If I understand correctly, when it comes to the health markets, private companies would process the payments but government is the residual claimant, bears the financial burden of high-risk customers, and calls the final shots.

This passage by Krugman is an object lesson in why many economists disagree.  I read this and think:

"My god, once government covers insurance company losses, incentives for cost control will vanish."

I’m willing to add: "Cost control doesn’t work very well today, I admit," without changing my net assessment:  "Yes, things can always get worse, furthermore implicit rationing might be the result.  A reformed private option can work better than the American status quo.  Let’s not lock ourselves out of those potential gains."

Many economists to the left of me are more worried about saving on the overhead costs.

No one serious believes in central planning any more, but the intellectual roots of this disagreement are to be found in those debates.

Addendum, from the comments: "Huh? Wouldn’t the screening expenses be replaced by the expense of insuring high-risk people who could no longer be excluded from the pool? And isn’t it safe to assume that the latter expense exceeds the former, for otherwise insurers would keep the high-risk people in the pool rather than pay for the trouble of screening them out?"

The economic freedom fund

by  Tyler Cowen in

Thanks to some exciting new research done by Stefan Spath and John Kirkscey, co-founders of Liberty Investment Group, we now have an "investable" index of economic freedom and a corresponding allocation methodology for investment purposes.  They licensed First Trust, a major Chicago-based trust company, to create the first product based on this concept.

And just this month, First Trust announced the creation of the Index of Economic Freedom Portfolio.

Here is more, invest at your peril.  I’m all for economic freedom, but these days too many people read The Economist for those countries to have grossly underpriced equity markets.  The free countries are also the trendy countries, and what about regression toward the mean?  Not every free country became especially free for long-term fundamental reasons.

I can imagine that the equity premium implies the existence of supra-normal returns, at least in the economically health markets.  But investing in a U.S. index fund, plus a minimum cost basket of foreign stocks, is probably the best way to yield diversified high returns.

The fund, however, raises an interesting question.  If you think you understand economic policy better than other people — no matter in what direction — should you not be able to beat the market?  Alternatively, right now I feel I have zero special insight into global equity markets, what should I infer backwards about my understanding of economics?

Thanks to Steve, a loyal MR reader, for the pointer.