Month: August 2007

Tim Harford excerpt of the day

Economics usually assumes rational behaviour, and so the very idea of a
self-help book or a problem page such as “Dear Economist” is subversive
to economic orthodoxy.  Rational economic agents don’t need self-help
books, and they don’t write to problem pages either.  If we admit that
people need advice, we chip away at the foundations of most economic
thought.  That is strangely reassuring.

Here is Tim’s FT review of Discover Your Inner Economist.

The Kissing Game

The Kissing Game

A and B play the intention of kissing each other passionately on the mouth.  If you know that you’re not actually going to kiss, then you can commit yourself to that intention completely.

The game is to play the approach to the kiss, and at the last moment, to subtly change your mind; not to retreat, as you would if you wre playing a reversal, but to continue in the same direction as before, and instead of recoiling you let your lips just slide past your partner’s lips, as close as possible, without touching.

That is from the quite interesting Why is That So Funny?: A Practical Exploration of Physical Comedy, by John Wright.  The book discusses how improv comedy "models" human behavior, and where else will you find a discussion of how the "Principles of Simple Clown" differ from the "Principles of Pathetic Clown"?

Ron Paul is Correct

The central fact is that overwhelmingly suicide-terrorist attacks are not driven
by religion as much as they are by a clear strategic objective: to compel modern
democracies to withdraw military forces from the territory that the terrorists
view as their homeland. From Lebanon to Sri Lanka to Chechnya to Kashmir to the
West Bank, every major suicide-terrorist campaign–over 95 percent of all the
incidents–has had as its central objective to compel a democratic state to

That’s Robert Pape, author of Dying to Win: The Logic of Suicide Terrorism, an in interview from several years ago.  Steve Levitt points to the interview in one of his best posts.  Here’s one bit from Levitt.  Read the whole thing.

For most government officials, there is much more pressure to look like you
are trying to stop terrorism than there is to actually stop it. The head of the
TSA can’t be blamed if a plane gets shot down by a shoulder-launched missile, but he is in serious trouble if a tube of
explosive toothpaste takes down a plane. Consequently, we put much more effort
into the toothpaste even though it is probably a much less important threat.

Dani Rodrik has painted himself into a corner

Dani Rodrik responds here to my pointed remarks on his argument for industrial policy.  Rodrik’s response, however, is along the same lines of his earlier – "I’m sophisticated, you’re simplistic" – post on why economists disagree.  In this case, it’s ‘libertarians are ideologues who are immune to evidence.’

Rodrik, however, has painted himself into a corner because he cannot at the same time say that the "systematic empirical evidence" for market imperfections in education, health, social insurance and Keynesian stabilization policy is "sketchy, to say the least"  (also "difficult to pin down" and ‘unsystematic’) and also claim that libertarians are ideologues who are immune to evidence. 

Say rather that libertarian economists are immune to sketchy, unsystematic, difficult to pin down evidence.  Rodrik is thus right that he is "not as unconventional as I sometimes think I am. The real revolutionaries here are the libertarians."  The libertarian economists are revolutionaries, however, not because they are immune to evidence but because they respect evidence so much that they are unwilling to accept "conventional wisdom" simply because it is conventional.   

I will have more to say on this at a later date but that is enough for now.

IM chat with Reason magazine and Nick Gillespie

Here is the link.  The chat covered how economists should think about incentives, the proper scope of libertarianism, my book as "economics for the emotional," whether I have ever visited a prostitute, Natasha’s biggest self-deception about me, underrated and overrated economists, and why New Jersey has produced so many libertarians.

Here is one excerpt:

reason (8:40:58 AM): …what’s the inner economist’s most important message to congress (briefly)?

Cowen (8:42:17 AM): Humility would be a good start. Cut spending is another. Worry about nuclear proliferation. Institute greater accountability.

Interest rate fact of the day

As of yesterday, lenders were charging an average of 7.34 percent
for prime, 30-year, fixed-rate jumbo loans, according to financial
publisher HSH Associates.  That was up from an average of 7.09 percent
last week.

It was also 0.75 percentage points more than the 6.59
percent they were charging for conforming loans.  In mid-July, the
difference between the two types of loans was 0.20 percentage points.

If you think this is only a liquidity event, there is of course a profit opportunity.  Note that the 10-year T-Bond rate has been falling.  I am more inclined to think we are returning to a more reasonable spread between mortgages and Treasuries; let’s hope the transition is a relatively smooth one.  If trading volume is low, traders may fear the other trader knows something he doesn’t ("no-trade" theorems are one source of Robin Hanson’s theorems on disagreement between persons), and we’re not yet in a new regime where such concerns are shrugged off or attributed to mere churning.  Since regular trading is part of what brings expectations to such a new regime, the adjustment doesn’t generally occur right away (even when prices are flexible) and the ride can be a rocky one indeed. 

Here is the cited article.

Advice for a private school

A loyal MR reader asks me on Facebook:

…if you were giving advice to someone setting up a private school, what
would you want them to consider, or read?  If you could start your own
school from the ground up — what do you think it would be most
important to do?

I would say be realistic about how much parents will buy into your vision, and realize you need their support to make your school a good one.  Readers, what do you think?

Is TV good for Indian women?

Here’s from Robert Jensen and Emily Oster:

Cable and satellite television have grown rapidly throughout the
developing world. The availability of cable and satellite television
exposes viewers to new information about the outside world, which may
affect individual attitudes and behaviors. This paper explores the
effect of the introduction of cable television on gender attitudes in
rural India. Using a three-year individual-level panel dataset, we find
that the introduction of cable television is associated with
improvements in women’s status. We find significant increases in
reported autonomy, decreases in the reported acceptability of beating
and decreases in reported son preference. We also find increases in
female school enrollment and decreases in fertility (primarily via
increased birth spacing). The effects are large, equivalent in some
cases to about five years of education in the cross section, and move
gender attitudes of individuals in rural areas much closer to those in
urban areas. We argue that the results are not driven by pre-existing
differential trends. These results have important policy implications,
as India and other countries attempt to decrease bias against women.

Here is the paper, here is a non-gated version.  The pointer is from David Zetland.

The economics of street charity

Freakonomics/NYT holds a symposium, including me, Nassim Taleb, Barbara Ehrenreich, Arthur Brooks, and Mark Cuban, with guest comments from Roland Fryer and Stephen Dubner.  My first sentence:

I’m not keen on giving money to the beggar.

Here is another bit of mine:

Oddly, the case for giving to the beggar may be stronger if he is an alcoholic.  Alcoholism increases the chance that he is asking for the money randomly, rather than pursuing some well-calculated strategy of wastefully investing resources into begging.  But in that case, I expect the gift will be squandered on booze, so I still don’t want to give him the money.

No right to save your life

A Federal court overturned last year’s shocking decision from the DC Circuit Court of Appeals saying that dying patients have
a due process right to access drugs once they have been through
FDA approved safety trials.  In January I wrote:

Unfortunately, I do not think that the Abigail Alliance can win the
case; recognizing the rights that the DC Circuit of Appeals recognized
would be too big a blow to our nanny state.

Thus I am a little disappointed but not surprised.  I am pleased that the brief prepared by Jack Calfee, Dan Klein, Sam Peltzman, Benjamin Zycher and myself was cited in the dissent.  The majority also avoided the sweeping policy generalizations that we wrote the brief to
discourage, thus I think we won a rear-guard victory and can keep up the battle on other fronts.

Thanks to Ted Frank for the pointer and his work behind the scenes.

Merit-based gifts

Last week I gave Bryan Caplan a gift.  Not being much of an egalitarian, I explained the gift on the grounds that he is extremely meritorious.

What if we generally gave gifts on the basis of sheer personal merit?

Most gifts are for "occasions," such as birthdays and Christmas.  The value of the gift may be correlated with how the giver perceives the merit of the recipient, but rarely is merit the pretext for the gift.  Perhaps a general practice of explicit merit-based gift-giving would create too many perceived slights.  In contrast, when a holiday is the pretext and the value of the gift is (possibly) linked to merit, we can self-deceive and believe that a small-valued gift simply represents a cheap gift-giver, or a friendship of uncertain strength, rather than our own lack of merit.

But every now and then it is important to stand up to social convention and do what is right.  Please give a merit-based gift — to someone who deserves it — sometime this month. 

Will Hollywood displace Bollywood?

Here is a recent piece on the attempt of Paramount and others to take on Bollywood on Indian turf.  Here is the longer version of what I wrote to the reporter:

I would be surprised if
the Hollywood effort were to succeed.  After all, *Bride and Prejudice*
was not beloved by most Indians.  Conscious efforts to mimic other
genres and styles usually fall flat; how many composers today try to
write in the style of Mozart, much less succeed?  The Hollywood giants
are very effective in making expensive, celebrity-laden movies and most
of all marketing them well.  I don’t expect this model to capture the
appealing idiosyncrasies of Bollywood production.  The Bollywood (and
other Indian regional) styles have sprung from what are by Hollywood
standards highly informal ventures, sometimes even with ties to the
Mafia, and deeply rooted in Indian cultural fantasies.  The power of those fantasies won’t survive further corporatization.

sure the Hollywood movies will attract a lot of attention at first,
especially in major Indian cities?  Who isn’t curious to see one’s
portrait painted by outsiders?  But will these films ever win over the
heart of the Indian countryside?  My best guess is "no."

not so unusual for American or globalized culture to bend to local
taste.  McDonald’s in India serves lamb burger and curry, not the
American Big Mac.  Indian pop music and Indian classical music remain
robust.  What is unusual is for Hollywood, or some other outside force,
to try to copy the native style so exactly.  And that is unusual for a
reason — it usually doesn’t work.  Cultural creativity is a delicate
force, requiring a very definite balance of elements.  Hollywood
probably cannot succeed where Bollywood already has gone.  By the time
Hollywood has a good copy, Bollywood will have moved on to something
just a bit different, and a bit more in touch with the Indian
population.  Who after all knows the Indian population better than

Assorted links

1. Contrary to popular wisdom, Oscar winners do not live longer; hint: "Write a computer simulation showing why "breaking your hip increases your life expectancy", based on the simplest probability model you can come up with."

2. How race and welfare became connected in the American mind

3. Many thanks, none of you sold me down the river

4. How I would change the rules of the NBA

5. Freakonomics is now a New York Times blog

Worst Argument Ever?

Dani Rodrik points out that government interventions in areas such as "education, health, social insurance, and macroeconomic
stabilization" are

"targeted on a loosely-defined set of market imperfections that are rarely
observed directly, implemented by bureaucrats who have little capacity to
identify where the imperfections are or how large they may be, and overseen by
politicians who are prone to corruption and rent-seeking by powerful groups and

Absolutely correct.   The obvious conclusion?  Industrial policy is a good idea.  I kid you not.