Month: May 2007

Danish economists

1. Esther Boserup: A female economist from the 1970s, she revised Malthus and her book argued that population pressures stimulated technological progress in agriculture.  She was a precursor of Julian Simon and also a pioneer of work on economics and gender.

2. Frederik Zeuthen: A mathematician and early game theorist from the early 20th century.  He developed the idea of a bargaining zone, how to incorporate "free" commodities into general equilibrium theory, and refined the theory of monopolistic competition.

3. Carl Iversen: He wrote in the 1930s on international capital movements and was a founding member of Mont Pelerin.  A neglected and underrated figure.

Jesper Jespersen is a reasonably well-known post-Keynesian.  More recently there is Bjorn Lomborg, who am I forgetting?

China fact of the day

Trier is a worthy destination by any standard, having impressive and
important Roman ruins as well as an 11th century cathedral built in the
very place where Emperor Constantine’s mother first built a church in
the fourth century.

But the Chinese clearly come to see the
place where Marx was born in 1818
[my emphasis], and the local authorities try to
take full advantage of it, promoting their city in China itself and
with the travel agencies that serve Chinese tourists.

They even
offer cultural sensitivity training for merchants, restaurateurs and
others in Trier, instructing them in the finer points of dealing with
Chinese customers. The number 250, for example, which is a kind of
slang for "stupid" in Chinese, is to be avoided, and so is wrapping
paper in white, the color of funereal robes, or yellow, by custom
reserved for the emperor. It is also important to hand over visiting
cards rather formally, with two hands, not just one.

Here is the full story.

My favorite things Danish

1. Movie: A strong category for this country.  Babette’s Feast used to be one of my favorite movies, though it now strikes me as sentimental.  I much prefer The Celebration, or the recent After the WeddingThe Best Intentions, with a Bergman screenplay, is directed by Dane Billie August.  Dreyer’s The Passion of Joan of Arc is technically a French movie but the director is Danish, in any case it is one of cinema’s greatest achievements.  Ordet has splendid shots but I can’t bear the ending.  I don’t rate Lars von Trier with these other creators though I did like his recent The Boss of it All, a study in the social construction of leadership.

2. Short story: "The Caryatids, An Unfinished Tale," by Karen Blixen [Isak Dinesen], in Last Tales.  This one shows the influence of the now-sadly-taken-for-granted Hans Christian Andersen; read it.

3. Novel: Smilla’s Sense of Snow, by Peter Hoeg; lovely and mysterious, yet driven by plot.  His History of Danish Dreams I find too baroque.

4. Composer: Poul Ruders, one of the most listenable contemporary composers, writes compelling melodies and offers a broad palate of sound colors.  I most prefer his Variations on a Theme by Paganini, Concerto in Pieces, the guitar music, Tundra, and Gong.  His major influences are Brahms, Berg, Sibelius, and Hindemith.  I’ll buy anything by him, though I’ve never much enjoyed his operas.

5. Popular music: Help!

6. Philosopher: Kierkegaard’s Either/Or is the place to start, and don’t skip over "Diary of a Seducer" or the discussion of Don Giovanni.  There are few philosophers who think more like an economist, or who use more metaphors from economic life.

7. Painting: Danish Impressionism is one of the most underrated fields in art, noting that the subtle textures and colors do not reproduce well on the web.  Try this picture.  Here is a nice landscape, here is a nice door.  This one is lots of fun, too.

Coasian movie reviews

I bet that if the Sandman and Spiderman could have just gotten away
from their positional stances (“I need to take money” and “I need to
catch crooks” respectively), to their underlying interests (“I need to
help my little girl” and “Dude, I’m all about helping the people”),
they could have found some common ground.  There was opportunity there,
and it could have saved a lot of expensive plate glass and I-beams and
cars being thrown about.

I do think the Sandman didn’t open
his mind to lot of options that became available to him when he got
particle-ized.  I understand that you do what you know, and he had
conceptualized himself as a thief and a fugitive.  Maybe those were his
most lucrative options when he was a man, but as Sandman, I don’t think
he had to be an outlaw to make a ton of money.  Considering his
strength and versatility, I bet any construction firm would have hired
him in a flash.

Here is more.  Here is my earlier post, The Macroeconomics of Superman.

Can one add by subtracting?

When a man applies for a permit to go into business as an innkeeper and the application is turned down, this is not comic.  But if it is turned down because there are so few innkeepers, it is comic, because the reason for the application is used as the reason against it.  For example, there is a story about a baker who said to a poor woman, "No, mother, she does not get anything; there was another one recently who didn’t get anything, either.  We can’t give to everybody."  The comic aspect lies in his appearing to arrive at the sum total "everybody" by subtracting.

That is from Kierkegaard’s Concluding Unscientific Postscripts.  I will ponder this question as I fly to Denmark…

No one makes you shop at Wal-Mart

In increasing order of seriousness.

As noted, the heart of the book is a well-written primer on let’s call it new economics.  As such, this book would make a good supplement to an advanced undergraduate class.  But the activism and attacks on MarketThink are occasionally distracting.  Chapter 1, for example, opens with a
denunciation of inequality.  Nothing wrong with that but Slee doesn’t even attempt to show that there is any
connection between rising inequality and the failure of MarketThink theories.  He just lumps things he doesn’t like into one pile. If there were no asymmetric information, no
herding, no coordination problems and so forth I guarantee that there would
still be plenty of inequality.

For the most part, Slee illustrates the new economics with insightful, interesting and often new examples.  But there are clunkers.  I almost threw the book at the wall when he started talking about QWERTY.  Surely, Slee knows that this worn-out example is a joke?  The supposed superiority of the DVORAK keyboard was shown in studies conducted by … Dvorak.  See here.  It’s especially annoying that Slee did not reference, Winners, Losers & Microsoft.

As primer, it’s fine to illustrate with examples and move on but as an attack on markets one expects a balanced consideration of opposing theories.  For example, Slee looks at beer micro-breweries vs. mass brewers arguing that we are currently stuck in the bad mass-equilibrium because micro-breweries rely on word-of-mouth but the institutions which sustain the word-of-mouth equilibrium only work when there are already lots of micro-breweries about which one can talk.  Nice, but here is an alternative theory.  Economies of scale made mass produced beer cheaper and when push came to shove consumers chose the cheaper good product over the more expensive but slightly better product (I don’t eat at 5 star restaurants every night).  New technologies, however, have made micro-brewing more economic and as they have done so we are moving to the mass-customization world that Slee prefers.  Consumers have gotten the best of all worlds – given scarcity – in both time frames.  The beer activists in England that Slee likes moved the process along but in the direction that it was already going.

There is no comparative analysis in the book at all.  No discussion, for example, of how free riding, asymmetric information, herding etc. distorts government choice.  Also, no appreciation that what some of us MarketThink people really advocate is civil society which includes non-profits and voluntary collective action of all kinds.  And, no we are not all corporate shills (p. 106). 

It’s true that outcomes do not always illustrate preferences but often they do.   Maybe people really do not want to walk to school.  It’s subtle but Tom seems all too eager to call in the government to force us into the better equilibrium.  I worry when people start talking about how government can help us to express our true preferences.  Isn’t this what dictators always say?  True freedom is oppression. 

The chapter on power is terrible, I did throw the book against the wall.  Perhaps in order to prepare us to welcome government as the deliverer of our true preferences, Slee wants to diminish the distinction between liberty and coercion.  But a true liberal should never write things like this:

…the formal structure of democracy and free markets is not enough to rule out exploitation and plunder – characteristics usually associated with repressive regimes.

If Tom visits GMU (I happen to know he reads MR) he should watch out because I shall kick him in the shins stating, "I refute you thus."

More seriously, repressive governments around the world threaten, rob, torture and murder with impunity.  Courageous individuals have died trying to escape such regimes while others have died fighting for their rights.  No matter how great are differences in wealth, it is morally wrong to equate what goes on in repressive regimes with capitalist acts between consenting adults.    

Ben Bernanke is not a Credit Snob

Ben Bernanke argues that subprime mortgage lending is a natural and positive outgrowth of financial innovation.  Although some problems have occured they are being self-corrected and do not threaten the financial system.

…subprime mortgage lending began to
expand in earnest in the mid-1990s, the expansion spurred in large part by
innovations that reduced the costs for lenders of assessing and pricing risks.
In particular, technological advances facilitated credit scoring by making it
easier for lenders to collect and disseminate information on the
creditworthiness of prospective borrowers. In addition, lenders developed new
techniques for using this information to determine underwriting standards, set
interest rates, and manage their risks.

The ongoing growth and development of the secondary mortgage market has
reinforced the effect of these innovations. Whereas once most lenders held
mortgages on their books until the loans were repaid, regulatory changes and
other developments have permitted lenders to more easily sell mortgages to
financial intermediaries, who in turn pool mortgages and sell the cash flows as
structured securities. These securities typically offer various risk profiles
and durations to meet the investment strategies of a wide range of investors.
The growth of the secondary market has thus given mortgage lenders greater
access to the capital markets, lowered transaction costs, and spread risk more
broadly, thereby increasing the supply of mortgage credit to all types of

The expansion of subprime mortgage lending has made homeownership possible
for households that in the past might not have qualified for a mortgage and has
thereby contributed to the rise in the homeownership rate since the mid-1990s…

As the problems in the subprime mortgage market have become manifest, we have
seen some signs of self-correction in the market. Investors are scrutinizing
subprime loans more carefully and, in turn, lenders have tightened underwriting
standards. Credit spreads on new subprime securitizations have risen, and the
volume of mortgage-backed securities issued indicates that subprime originations
have slowed. But although the supply of credit to this market has been
reduced–and probably appropriately so–credit has by no means evaporated.

More from Bernanke here.  Previous posts on credit snobs here, here and here.

Random impressions

Yes, I would buy Tanzania Fund. 

The calm and reserved Dar Es Salaam is remarkably safe; I haven’t once felt threatened or even
"watched."  It is the women who stare, not the men, as is common in Islamic countries.  Throughout East Africa the country has a reputation for
politeness and courtesy. 

If a 45-year-old Muslim woman tells you she took out a micro-credit
loan to open a "saloon," she usually means a "salon."  In the interviews the Tanzanians are eager to be helpful, but they do not take over
the conversation, as might happen in West Africa.

Although there are no tourist sites of note, the city is a
pleasant green and backs into the water.  You might see an Indian Dhow
pulling into the harbor.  Every now and then you see an impressive Masai walking down the street.

Food prices are falling and the economy is
booming.  Per capita gdp in Tanzania is about $700 but the city is
prosperous.  Squalor can be found,  but only with effort.  There are plenty
of new buildings, a few real bookshops, and a bunch of OK shopping
malls.  Spiderman 3 is already in the theatres.  Given that
migration is possible, and the city is not crushingly overcrowded, how
bad can the countryside be?  (Don’t answer that one.)

They carry eggs on the bicycles and everything else on the top of
womens’ heads.  SUVs are common.  Crafts are not impressive.  Tanzania,
though large and populous, is far from an African cultural leader.

The Indian and Chinese restaurants are spicy and genuine.  The crab and the vegetables are superb.  Ugali is the native
dish; you get some ground cornmeal, roll it in a ball with your
fingers, and then dip it into a coconut sauce with vegetables.  They
cook "pullau" rice with cloves, cinnamon, black pepper, and coriander.  Goat biryani is also common; it bears only a passing resemblance to the Indian concept of the same name.

Zanzibar, a two hour ferry ride away, has splendid old Arabic and
Indian doors and many Arabic-style buildings.  Children play in the
narrow streets.  Most of the women wear headscarves and a few wear the
full veil.  The beaches appear perfect though I did not have time to
swim.  For nightly street food there is spicy lobster, grilled fish,
large fresh prawns, and french fries.

My guide in Zanzibar explained:

I decide to sell to muzungu [in Swahili this means "white person," plus
some local nuances of expression] for my living.  The Tanzanian custom is go to witch doctors.  The muzungu custom is go to travels.


This 936-page romantic canvas of the Indian underworld, and the adventures of one scoundrel therein, is one of the best bad books I have read.  Try this passage:

It seemed impossible that a modern airport, full of prosperous and purposeful travellers, was only kilometers away from those crushed and cindered dreams.

It is a must for all lovers of Bombay.  Here is information on the author, who was an anarchist, escaped criminal, and heroin dealer before hitting it big.  Most of this tale draws upon his life.  Buy it here; if you think you might like it you will.

How to prepare for your trips, culturally

At this point in life the answer is usually that I do nothing other than call up memories of previous cultural consumption.  If you are not at that point, Wikipedia is an excellent source for fiction and movies from a country.  When it comes to music, consult the various Rough Guides to music; I mean the books, not the mediocre CD collections or the so-so travel guides.  Also try the AllMusic guide, either paper or on-line; when it comes to music neither Amazon nor Wikipedia is to be trusted ("why not?" is an interesting question, is it because too many people feel entitled to have an opinion about music?).  Bring music on cassette, CD, or iPod, as soundtrack for your trip, and ask your driver to put on Radio East Africa.  Finding the best non-fiction books is the hardest category to master.  I still prefer shelf browsing at libraries and book superstores. 

An MR request is another option.  Matt Dreyer asks what I recommend for a trip to Greece and Turkey.  Offhand I’ll say Herodotus, the usual Greek classics, Pamuk’s Snow and Istanbul books, Sarkan (a Turkish singer), Sufi music, Greek traditional music from 1930-1950 (there are some wonderful collections, look for the word rembetika), a study of Turkish and also Greek textiles, a picture book on Cycladic art, a book on Greek sculpture at the National Museum in Athens, Norwich on the Byzantine empire, Michael Grant on the ancient world, Lord Kinross on the Ottoman centuries, a biography of Ataturk and there are a few good recent books which survey contemporary Turkey.

Your tips, either general or specific, are of course welcome.

Education as the critical problem behind current inequality

Here is an excerpt from my New York Times column today:

The return for a college education, in percentage terms, is now
about what it was in America’s Gilded Age in the late 19th century;
this drives the current scramble to get into top colleges and
universities.  In contrast, from 1915 to 1950, the relative return for
education fell, mostly because more new college graduates competed for
a relatively few top jobs, and that kept top wages from rising too

Professors Goldin and Katz portray a kind of race. 
Improvements in technology have raised the gains for those with enough
skills to handle complex jobs.  The resulting inequalities are bid back
down only as more people receive more education and move up the wage

Income distribution thus depends on the balance between
technological progress and access to college and postgraduate study. 
The problem isn’t so much capitalism as it is that American lower
education does not prepare enough people to receive gains from American
higher education.

Bottlenecks currently keep more individuals from improving their education…

Note that education is a fundamental issue behind the kinds of inequality we should worry about most, namely the failure of many poor people to do better over time.  It is not the fundamental problem behind every kind of measured inequality, as the column itself explains.  It does not, for instance, explain rising gains to the top one percent.  Inequality debates too often conflate different phenomena. 

Here is a non-gated version of the very interesting Goldin-Katz paper which I cover.

In a dynamic era does educational access have much of a chance of keeping up with technological improvement?  Even if we had optimal educational policies, which of course we don’t, modern technology goes "whoosh," education often just pokeys along.

Brad DeLong offers related commentary, though I think he is too quick to accuse Becker and Murphy of confusing the Marshallian scissors.  Mark Thoma offers commentary and relevant links.  Concerning Krugman’s claims, in general the data (see David Card’s Econometrica 2001 piece, plus the work of James Heckman) still find relatively high returns to additional education.


On my first trip to adopt in China, I happened to sit at a table
next to another adopting couple from the United States. They were
older, with no prior children, and had been assigned a three- or
four-year-old girl. If memory serves me correctly, the father was a CEO
of a large firm in New Jersey. They seemed like very nice people. The
child that was assigned to them was very headstrong. She did not want
to go with her adoptive parents and proceeded to throw tantrums,
screaming, throwing things and spitting on and punching them for
several days. They decided they couldn’t go through with it, and the
girl was returned to the orphanage. My understanding is that she would
not be eligible for adoption (at least, not internationally) in the

The next day, the couple told me, another three-year-old was brought
over from an orphanage. The first thing she did when she met them was
say, in English, “I love you, Mommy. I love you, Daddy.” The person
who had transported the child from the orphanage had taught her the
words. She had no idea what she was saying, but it didn’t
matter. Needless to say, this little girl went home with them to New

That is from Steve Levitt, in one of his best posts.

Cell phone monies

I heard a report that in northern Tanzania they are using cell phone credits in lieu of traditional money.  If you want to pay for something, just make a call to the provider and transfer cell phone credits to the other trader’s account.  Why should those credits be any less liquid than currency?  They are easier to store and transfer and just about everybody uses them.

Monetary economics in Africa is very, very difficult.  It must start with the presumption that money is the asset with the highest carrying costs, if only because your relatives find it so easy to take away from you.