Month: May 2007

Memo to self

Visit London every yearBar Shu, 28 Frith St., near Leicester Square, is the best Sichuan food I have had.  The "Exploded Pork Kidneys" are especially fine, as are the green beans.  Also noteworthy is Hot Stuff, 19 Wilcox Rd., a small Pakistani takeaways place which is rapidly gaining global fame.

For the first time in my life, I no longer feel I live in or near the center of the world.

What are the best novels for teaching economics?

Ezra Klein asks me:

What do you think the best fiction books are for understanding economics?  Left and right?  From my perspective on the spectrum, I’d go with Steinbeck’s Grapes of Wrath, but I’d be interested to hear your favorites…

Some will cite Harrison Bergeron, the Vonnegut anti-egalitarian short story.  Others would nominate Ayn Rand, anarcho-capitalist science fiction, and of course there are the fictional-economic creations of Russ Roberts.  But what are the Western classics that — policy polemics aside — teach one how to think like an economist?

My attention is usually drawn to 1660-1775 in British fiction, starting with Defoe and continuing through Swift, Boswell, and just about everyone else.  To my eye they all thought like rational choice economists, albeit strange ones with a focus on approbation, self-deception, and the perverse social consequences of individual action (see my In Praise of Commercial Culture, the chapter on literature, for more detail).  They are the true roots of Smith’s TMS.  Dickens and Balzac are contenders, but I find them a bit too one-note, as is Harriet Martineau.  Nonetheless the eighteenth century works remain ahead of their time and they certainly don’t teach basic economics or help one think much about policy.

What are your picks?

The vocabulary of economists

Key lexical nouns in Economic Journals:

American Economic Review, 1990s: equation, model, equilibrium

Economic Journal (UK), 1990s: pension, unemployment, wages

Journal of Economic Perspectives, 1990s: insurance, liability, health

American Journal of Economics and Sociology, 1990s: land, property, poverty

Here is the cite and a longer discussion.  The paper has many more interesting results.

Do you learn cooperation from your parents?

Some people say no:

This paper studies whether prosocial values are transmitted from parents to their children.  We do so through an economic experiment, in which a group of families play a standard public goods game.  The experimental data presents us with a surprising result. We find no significant correlation between the degree of cooperation of a child and that of his or her parents.  Such lack of cooperation is robust across age groups, sex, family size and different estimation strategies.  This contrasts with the typical assumption made by the theoretical economic literature on the inter-generational transmission of values.  The absence of correlation between parents’ and children’s behavior, however, is consistent with part of the psychological literature, which emphasizes the importance of peer effects in the socialization process.

Here is the paper.  The alternative interpretation, of course, is that social cues learned from parents are specific to particular contexts.  Put people in some new and hitherto unexpected context — the lab games — and you can’t make much out of what goes on.  But if you’re predicting whether a Bedouin will bring water to someone lost in the desert, or whether a Swede will engage in recycling, I expect parental behavior has more predictive power.

Sarkozy sentence of the day

Merkel will not rally to Sarkozy’s agenda on reining in the ECB, fighting tax competition and developing an EU-wide industry policy.

That’s from today’s FT, "Victor given a wary welcome in Europe."  A headline on the same page reads "Sarkozy will put French interests first."  That is perhaps a duh, but the risk is that Sarkozy will find it easier to implement the nationalistic parts of his agenda than the liberal parts.  I’m not going to call Sarkozy the "Thatcher of France" until the first strikes start, and end.  I am, however, amused by his plan to push through key legislation while everyone is on vacation.

Two steps backward

Remember the health care debates of the 1990s?  Defenders of the status quo, or more market-oriented versions thereof, placed their hopes in HMOs and managed care.  Managed care did show promise in lowering costs, but few people liked the idea that mainstream institutions would simply say "no" to patients.

Democrats pushed a plan for national health insurance, based on a Hillary-led modification of the German health care system.  Health insurance would be detached from specific jobs, reorganized into regional cooperatives, and new taxes would finance universal or near-universal coverage.  For all its flaws and complications (and no, I do not support the idea), this idea still makes more sense for the American context than do the single-payer plans.  They put all those smart Democrats in a room way back when, and there is a reason why they came up with this.  It not only had some chance of passing, but compared to the single payer model it was more consistent with America’s decentralized, federalistic, corporate interest-heavy ways of running government. 

Sadly, current debates on health care have yet to reattain their status in the 1990s.  I know full well why both ideas failed and lost popularity.  But still, if we wish to debate health care today, we probably should be taking two steps backward.

Eight more years to go

The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets.  The measured effects can not be explained by observed risk characteristics.  The sophistication of financial choices peaks at about age 53 in our cross-sectional data.  Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.

Here is the paper.

Paul Graham on unions

The early twentieth century was just a fast-growing startup overpaying for infrastructure.  And we in the present are not a fallen people, who have abandoned whatever mysterious high-minded principles produced the high-paying union job.  We simply live in a time when the fast-growing companies overspend on different things.

Here is more, provocative throughout.  Thanks to Craig Fratrik for the pointer.

A Quarter for Your Thoughts?

Earlier this year the US defense department warned of a new threat – Canadian spy coins.  Investigators have now uncovered the shocking truth.  Here’s the gist of the story from January:

In a U.S. government warning high on the creepiness scale, the Defense Department cautioned its
American contractors over what it described as a new espionage threat: Canadian
coins with tiny radio frequency transmitters hidden inside.

government said the mysterious coins were found planted on U.S.
contractors with classified security clearances on at least three
separate occasions between
October 2005 and January 2006 as the contractors traveled through

…The government
insists the incidents happened, and the risk was genuine.

"What’s in
the report is true,” said Martha Deutscher, a spokeswoman for the security
service. "This is indeed a sanitized version, which leaves a lot of

The shocking truth?  The Royal Canadian mint issue 30 million "poppy quarters" in 2004 to commemorate Canada’s war dead.   When contractors found the coins in their coat pockets and in the cup holder of a rental car they issued reports that they were being spied upon with new nanotechnology. 

The worried contractors described the
coins as "anomalous" and "filled with something man-made that looked
like nanotechnology," according to once-classified U.S. government
reports and e-mails obtained by the AP….

The supposed nanotechnology actually was a
conventional protective coating the Royal Canadian Mint applied to
prevent the poppy’s red color from rubbing off.

Thanks to Monique van Hoek for the pointer.

Is the minimum wage coercive?

Over at CatoUnbound, Dan Klein writes:

In 2006 there appeared a “raise the minimum wage” statement signed by 659 economists. I wanted to know why they favored the minimum wage, so I wrote up a questionnaire and sent it to them. But I also used the occasion to get their views on a very important matter: Did they view the minimum wage law as coercive?

Ninety-five graciously completed the survey. Very few of them simply accepted that the minimum wage law is coercive. More than half said the law is not coercive in any significant sense.[1]

But the minimum wage law (and concomitant enforcement) threatens the initiation of physical aggression against employers who pay less than the minimum wage. It threatens physical aggression against people for engaging in certain kinds of voluntary exchange. To me, that is coercion. Just imagine if your neighbor decided that he would impose a minimum wage law on us. Wouldn’t we all agree that he was coercing us? If it is coercion when he does it, why isn’t it coercion when the government does it?

Coercion is not always bad, all things considered, but surely Dan is correct.  Ed Glaeser, Richard Epstein, and others are due to respond.

What’s the optimal number of book reviews?

Virginia Postrel writes:

As an author, I want more book reviews; quantity matters more than
quality when you’re going for sheer exposure.  But as a reader, I only
want more interesting reviews, particularly of books I’m not likely to
learn about otherwise.

Newspaper book reviews, of course, are declining in number.  Here is New York Times coverage of the phenomenon.

I can think of three functions for book reviews:

1. They help people learn about good books.  If this is true, we should expect a market optimum.

2. No one much uses book reviews, but they make newspapers feel like more prestigious products.  In this case book reviews would be an inefficient form of product differentiation by making The New York Times appear more different from The New York Post than readers ideally would like.  There would be too many book reviews.

3. People use book reviews as a substitute for reading the books themselves.  I call this "book reviews as signaling."  Abolish the reviews and either a) people will have to go read the books (an even more wasteful form of signalling), or b) people will forget about literary matters altogether, which lowers signalling costs.

I use book reviews as I would use ads for books and blurbs for books.  I just want the bottom line.  I would be happier if newspapers published many more one-paragraph book reviews, but with very clear and definite evaluations.  Entertainment Weekly does just this, although I find their taste in books unreliable.  Nonetheless I am not alone in my preference, and I believe that few people read long book reviews.  That makes me think there is something to #2.

Poverty and discrimination

Kevin Lang’s Poverty and Discrimination is marketed as a text but it is far more.  Imagine a first-rate labor economist sitting down to tell us what he knows about the topics at hand.  This includes who is poor, does economic growth still eliminate poverty, how much does family structure matter, does changing neighborhoods help a family, what have been the effects of welfare reform, how strong is labor market race discrimination, and many others.  Lang’s discussions are consistently smart and insightful.  While Lang does not offer much of his own ideas and research, only an original researcher such as Lang could produce a survey of this quality and depth.

Why isn’t there a book like this on every topic?

I do have a few quibbles.  For my tastes there is too much talk about identification problems and not enough about data quality.  Some topics are undercovered, such as the link between mental illness and poverty.  I would have added much more on poverty as a behavioral phenomenon of dysfunctional psychology and high time preferences.  The old scolding conservative account of poverty has much truth to it, but you wouldn’t know that from reading this book. 

This book is academic substance, beginning to end, and for that reason it won’t be a fun read to everybody.  But with that caveat, and noting the $60.00 purchase price, it joins my list (Sacred Games, The Savage Detectives, Prophet of Innovation) of must-reads for the year.

Here is the book’s home page.  Here is Arnold Kling on the book.