Month: June 2007

Markets in everything — roundup edition

1. $1 million for prostitutes who will out their Congressional customers 

2. Getting you through phone links to a real human being

3. Or rent a new credit score

4. Blockbuster movies backed by bonds

5. Insurance against losing your Michelin star

What a day.  Hail Gerard Debreu!  Hail the MR readers who sent these in!  I didn’t even have to pay them…

Free books

Chris Anderson…talk[s] about the possibility of giving away online his next book – which he fittingly intends to title “Free” – to readers who were willing to read it with advertisements interspersed throughout its pages.  (He still intends to sell the book traditionally to readers who’d rather get their text without the ads.)

Here is the longer story.  I love free books.  I would find it easy to skip the ads (if you are good at skipping text, you can be good at skipping ads), though perhaps I am naively unaware of the publisher’s counterstrategies in this war.  In another direction, I recall hearing of free long distance service, at least provided you are willing to have your call interrupted periodically with advertisements.  If we are willing to pay people to hear or watch ads, why stop there?  How about "free life"?  Corporations subsidize or create extra babies, under the proviso that the guardians agree to have their little ones doused with particular ads.  What if you could addict your kid to Coca-Cola, or some other product, before birth, what sort of market would arise?  What if you could stamp a permanent tattoo on Jimmy’s forehead?

The Chicago School

The basic characteristics of this Chicago Tradition are: a strong work ethic, an unshakable belief in economics as a true science, academic excellence as the sole criterion for advancement, an intense debating culture focused on sharpening the critical mind, and the University of Chicago’s two-dimensional isolation.  Much of the credit for the creation of this Chicago Tradition has to go to the University’s first president, William Rainey Harper.

That is from Johan van Overtveldt’s The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business.  I enjoyed this book very much.  Instead of stopping at Friedman, Coase and Director, it also offers a comprehensive treatment of such neglected figures as Herbert Davenport, Laurence Laughlin, H. Gregg Lewis, Albert Rees, Theodore Yntema, and Jim Lorie, in each case noting their roles in the broader story.

There is a separate chapter on each the business school and the law school.  And yes Friedman (among many others) really didn’t want Hayek in the economics department.  I wish this book had more analysis of how Chicago succeeded in changing the policy world, but it is a landmark in the history of economic thought.  I can’t recommend it to non-specialists, or for that matter anyone who doesn’t intrinsically care about Theodore Yntema, but for some of you this book is a must.  Here is one review.

Flaxseed oil

Every night I take two tablespoons, inspired by Seth Roberts, who is up to four and within my sights.  This is not good for my weight but it is very good for my heart, my brain, and my gums.  For most people the value of the dose should be strongly positive.  The Omega-3 ingredient has a scientific consensus in its favor, with no evidence for negative side effects.  Here are Seth’s posts on the topic.

By the way, Seth’s The Shangri-La Diet is now out in paperback.

The market speaks

Yesterday, Bush headlined a fundraiser for the New Jersey state GOP,
where donors could pay $5,000 to pose for a photo with the Commander in
Chief.  Expensive photo op, right?  Well, that’s actually cheaper that
what donors paid just a year ago for a grip and grin with Bush.  Last
summer, GOP officials around the country charged at least $10,000 a pop
for presidential photo op, a bargain compared to the $25,000-a-flash
Bush commanded during some Republican National Committee fund-raisers
back in 2000 and 2004.

Here is the link.  The pointer is from Leslie Katz.

Harry Potter must die

Bookies are certain Harry’s a goner. William Hill Plc, a London-based bookmaker, is so sure of Harry’s demise that it stopped accepting wagers and shifted betting to the possible killers.  Lord Voldemort, who murdered Potter’s parents, is the most likely villain, at 2-1 odds, followed by Professor Snape, one of his teachers, at 5-2.  "Every penny was on Harry dying, and it became untenable,” said Rupert Adams, a William Hill spokesman.  "People are obsessed about this book.”

Here is the full story.  The pointer is from John De Palma.

Norway thoughts

Oslo first struck me as more like Scotland than Sweden, most of all the craggy, weather-beaten faces and the wandering derelicts.  I mean Inverness and Aberdeen, not Edinburgh.  How could such a wealthy and well-organized country have such an ugly capital city?  Only the surrounding waters and greenery were pretty.  And why were so many people so poorly dressed?  Then we went to Bergen — a "Hansa-Stadt" — which felt like familiar emotional territory.  People were stylish and the faces were happier and everything seemed more intellectual.  The visual synthesis of land, water, industry, and homes was first-rate, and yes sardine factories in the right setting are stunning.  Usually I end up liking the uglier city more.  Which city is the real Norway, or must I now see Trondheim?  How can this country be the best place in the world to hear jazz?  It is the young who listen, not the old; the players are sincere and convincing, imagine a blond guy named Thor Gustavsen riffing around a flattened third.  We went almost every night, taking one break to hear Varese’s Ameriques, by the Oslo Symphony Orchestra.  Yana loved it.  The fjords bored me.  They are as good as scenery comes, but they felt like a repetition of southern Chile and New Zealand.  I admired the homes which had outlets only to the water.  I wished I had brought an iPod full of heavy metal for that boat trip.

I asked for Voss water on several occasions, but no one had it.  Not even in the train station in Voss.  Some Norwegian servers had never heard of it.

I kept on toying with the theory that the country moved quickly from folk paganism to postwar secularism, with only a short Christian interlude in between.

We were never willing to spend on splendid food and the less than splendid food never came cheap.  In Bergen I had one of the best fish and chips servings of my life, I told the happy cook he was a genius, equaled only by the fish and chips geniuses of New Zealand.  I like to eat fish and chips at least once in every country I visit.  Somehow that was my favorite moment of my travels.  He gave us a free piece of fish and chips.

Does it make sense to wonder in which countries people are "the most normal" or "the least normal"?  I’m fine with the exercise being about the wonderer, not the subjects.  On the Continent the French seem the most normal to me.  In the North the Swedes seem the most normal.

The joke ends with the exchange: "A: Does it always rain here in Bergen?  B: I don’t know, I’m only fourteen years old."

Near Death Experiences and State-Space Consistency

Tyler (and Ryan) ask, Should near death experiences change your life?  The answer is no.  The reason, however, may surprise you.  It’s not because NDEs are unimportant it’s because they are very important.

Recall that a rational choice-plan is time-consistent, you should not plan today to make choices for tomorrow when you know today that you will renege upon those choices tomorrow.  Eating cake today because you will diet tomorrow is not a rational choice if you will not in fact diet tomorrow.  Time-consistency does not require that you always follow through on today’s plans – new information arrives which may cause you to rationally change your plans – but it does require that you expect to follow through on today’s plans which means that if no new information arrives then you should follow through.

The same idea explains why if you are rational you should not change your life if you experience an NDE.  NDEs are not new information.  You know that you are mortal, right?  You know that you could die today.  You know that experiences like Ryan’s are not uncommon.  Thus, if you are rational you should not change your life if you experience an NDE.

Do I advise, therefore, that Ryan get on with his life as before?  No, not at all.  My advice is not for Ryan, it’s for everyone else; Choosing rationally requires that you choose today so that if you have an NDE you will not change your life. 

The fact that many people who have an NDE do change their lives is evidence that most people do not choose rationally.  Thus the ways in which people who have had NDEs change their lives is important information for the rest of us who want to choose rationally.

Do you recall the secret to happiness offered by Gilbert, the one you almost certainly will not accept?  It is to accept that your own anticipations of what you will do and feel if certain things occur is not as good a guide to what you will actually do and feel as are the actions and feelings of other people who actually have experienced those events.  Thus, if near death experiences tend to make people more giving, caring and less fearful of change then this is how you should act today.

Long-time readers will know that I take the idea of reflective equilibrium quite seriously.

Post Keynesian economics

Read Brad’s whole post.  My broadly similar take sees the post Keynesians as having promoted several important ideas:

1. Price and/or wage stability can be destabilizing; Keynes (sometimes) presented stickiness as a policy recommendation rather than a necessary fact.

2. Financial fragility, a’la Hyman Minsky.

3. Noise traders matter for macroeconomics.

4. Moving Keynesian economics away from the consumption function and IS-LM.

5. Behavioral and psychological imperfections are relevant for macroeconomics.

6. They resurrected interest in the idea of an endogenous money supply.

I’m not entirely on board but overall that is a strong list.  These ideas have now been incorporated into the mainstream, but only recently, typically in the 1990s and sometimes by Brad himself. 

The post Keynesians went wrong, however, in several ways:

1. Too many of them obsessed over incomes policies.  On "public choice" more generally they were naive.

2. Too many viewed Thatcherism, the war against inflation, and other developments as instruments of class warfare, designed to redistribute income from poor to rich.

3. They held too many debates over "what Keynes really meant" and cared too much about distinguishing themselves from mainstream Keynesians, whom they often treated as their worst enemy.

4. They ascribed too much power to the liquidity premium on money, and thought it was easy for an economy to end up in a corner where no one wants to produce new investment assets.

5. They failed to model the complexities of system-wide wage and price stickiness, and the differences between real and nominal stickiness, a’la Romer (ReStud 1990) or Caplin and Spulber.  For this reason at some point they stopped coming up with insights on stickiness and fell far behind the rest of the profession.

6. They failed to develop an empirically progressive research program that kept pace with mainstream macro.

7. They failed to realize that the future of Keynesian economics lies in the elements of Milton Friedman — nominal stickiness is real and the action is with monetary policy — that were most Keynesian.

Overall post Keynesianism has been a far more useful heterodox thread than Sraffa and neo-Ricardianism.

The value of heterodox economics

Might I blog this topic all week?

The very existence of heterodox economics brings benefits.  A personal anecdote will suffice.  My first two publications were both in heterodox journals: the Journal of Post Keynesian Economics and the (institutionalist) Review of Social Economy.  These articles lifted me into a top graduate school and financial aid (can you imagine how confused the admissions committees were to see a GMU undergrad with an apparently leftie publication record?).  I would not have had comparable success at Econometrica.

This tale relates to the value of diversity more generally.  We will miss much of the value of diversity by simply listing a bunch of diverse elements and evaluating them one-by-one.  Diversity brings broader benefits by allowing people to use niches as ladders to further steps, frequently into the mainstream, or in my case into another niche.  Diversity is also a form of insurance, and of course it doesn’t always pay off.  Finally many excellent mainstream or sometimes even right-wing economists started with an intense interest in social justice, often gleaned from heterodox writings.  Vernon Smith was once a socialist, and George Stigler was early on a trust-basher.

Yes the profession is getting better but we also are losing too much diversity in terms of schools of thought.  The diminution of the Austrian School, as an organized and intellectually alive phenomenon seems to me a shame, even though I don’t believe in a unique Austrian method.  Heterodoxies encourage the mainstream to be more philosophical and more self-reflective.

Sometimes intellectual inefficiency is efficient, and my remarks about heterodox economics should be taken in this light.

Can this be true?

The Economist says so:

But one feature–whether a language uses pitch as well as vowels and
consonants to convey word meanings–stood apart.  Those, such as Chinese,
that encipher meaning in pitch are called “tonal languages”.  Those that
do not, like English, are “non-tonal”.  And it was versions of Dr
Dediu’s and Dr Ladd’s two microcephaly-related genes that matched the
49 populations along tonal and non-tonal lines.

Language Log (one of the best blogs) has excellent commentary.

Knocked Up

This humorous and philosophical film — strongly recommended — also offers an implicit market failure argument: raising children is the main thing that goes on in a marriage, yet few of us choose life partners on that basis.  The film suggests that a random allocation might be better than selecting a partner on the grounds of smarts, common interests, attractiveness, how good he or she makes us feel, and so on.

I can think of a few hypotheses:

1. Common interests in life are correlated with common philosophies of child-rearing, so all is well in the marriage market.

2. High-status men and attractive women are also best at raising children, so seek those sorts of partners in any case.

3. Forget what your utility function seems to be telling you, seek a partner who is willing to do all the dirty work when it comes to kids.  Seek submission.  This is worth way more than you at first think.

4. Common interests hinder effective child-rearing, since it means the partners have more to lose when children take over their lives.  Opt for a low expectations marriage.

5. We should require prospective marriage partners to play sophisticated computer games, mimicking the familial struggles they will later face.  In the limiting case, dating should be replaced by joint kid-raising sessions, using small and unruly robots if necessary (the film in fact portrays this).

6. Judith Harris was right, genes matter but not how you raise your kids.  Marry whomever you want, following nature’s dictates, and neglect the little buggers that result, it doesn’t matter.

None of these hypotheses, in my view, replace the default option of simple market failure.  And yes this is one of the biggest institutional failures in the entire world.

Should near death experiences change your life?

Ryan, a loyal MR reader, asks for good reason:

Three days ago I rolled my car three times on a back country road at least 40 minutes away from the nearest ambulance.  The car was crushed to a considerable degree except for the part I occupied, but I walked away without a scratch.  My question is, what implications should this have for my life?  People around me expect me to act differently, and I do feel more reflective.  But aside from needing a new car, and knowing to drive more carefully on gravel roads in the future, nothing else has actually changed.  Is it reasonable for me to begin introspection, or should I hold to my previous plans and priorities absent new information?

I have no real data and only a few intuitions.  I say use the experience to rationalize a change you wanted to make anyway.  Most people have less than perfect courage or willpower, but a near-death experience can provide a pro-change focal point in a multiple-selves game.  Alternatively the trauma of the tragedy can disrupt the previous mindset and thus weaken the hold of status quo bias.  Or the vividness of a shorter time horizon moves the multiple selves to a "trembling hand" solution concept, in which life pursuits are more robust to the probability of an early death.

This account, based on interviews with survivors, suggests that near-death experiences are "beautiful" and make people unafraid of death and more giving and more caring.  Don’t forget the tunnel and the bright white light, etc. 

In part these people are responding to social expectations; would hunter-gatherers offer the same reports?  In part these people may have been fooled by the endorphins which accompany many near-death experiences.   

I suspect a very small minority of people use near-death experiences to become more selfish, backed of course by self-deception.  (Can we measure charitable contributions before and after?)  In these cases the talk about the beautiful white light is in reality a claim that the victim is beautiful (by affiliation?) and thus deserves to be treated better.  The reported change seems hard for others to criticize or deflect ("life is beautiful and hey, I almost DIED!"), but the actual demand is for more of the social surplus.  The victim need only report that the new selfish changes are part of one large intertwined bundle of life reevaluation…

The bottom line?: In predictive terms, I would expect that near-death experiences make good people better and bad people worse.

Addendum: See Ryan’s remarks in the comments.