Month: September 2007

Politically Incorrect Paper, a continuing series

by  Alex Tabarrok

Several years ago Bill Cosby chided poor blacks for spending their limited incomes on high-priced shoes and other items of conspicuous consumption instead of investing in education.  Cosby was widely criticized but I went to the numbers, specifically Table 2100 of the Consumer Expenditure Survey and found the following for 2003:

Average income of whites and other races: $53,292.
Average income of blacks: $34,485.

Expenditures on footwear by whites and other races: $274
Expenditures on footwear by blacks: $440.

As I noted then "to do a proper comparison we
would have to correct for income and other demographic variables."  The correction has now been done by three researchers in an NBER working paper (non-gated version).  The results didn’t surprise me.  How about you?

Using nationally representative data on consumption, we show that
Blacks and Hispanics devote larger shares of their expenditure bundles
to visible goods (clothing, jewelry, and cars) than do comparable
Whites.  We demonstrate that these differences exist among virtually all
sub-populations, that they are relatively constant over time, and that
they are economically large.

To give the authors credit where credit is due they also show that the differences in conspicuous consumption are large and important.  The differences in spending on clothing, jewelry, and cars, for example, can explain half of the differences in wealth between the races (conditional on permanent income) and a significant share of the differences in education and health spending.

Why do these differences exist?  Aside from simple differences in preferences, signaling is one possible explanation.   Suppose that high income confers status.  Other people judge your income based on your conspicuous consumption and your group’s income.  Under plausible conditions, the authors show that if your group’s income is already high conspicuous consumption has a low marginal product.  Put differently a black man who wears a very expensive suit gets a bigger increase in status than a white man who wears the same expensive suit because the baseline income prediction is lower for the former. 

The theory is plausible but I wonder if other groups haven’t converged on more efficient methods of signaling.  Some groups, for example, use education as a signal.  Other groups like to show how clever they are by writing pithy summaries of new economics research.

Prediction Markets on the Surge

by  Alex Tabarrok in

Mark Thoma points us to a new paper by Michael Greenstone that tries to evaluate the effect of the surge.  The news is not good.

This paper shows how data
from world financial markets can be used to shed light on the central question
of whether the Surge has increased or diminished the prospect of today’s Iraq
surviving into the future. In particular, I examine the price of Iraqi state
bonds, which the Iraqi government is currently servicing, on world financial
markets. After the Surge, there is a sharp decline in the price of those bonds,
relative to alternative bonds. The decline signaled a 40% increase in the
market’s expectation that Iraq will default. This finding suggests that to date
the Surge is failing to pave the way toward a stable Iraq and may in fact be
undermining it.

It’s amazing how far we have come since 2003 when Robin Hanson’s DARPA-funded Policy Analysis Market was ridiculed and canceled.

Assorted Links

by  Alex Tabarrok in

Checkers has been solved.  It’s a draw.  At least starting out in the usual configuration.

Google has put up $30 million to fund a Lunar X Prize.  "A $20 million grand prize will be awarded to the first team to soft
land its spacecraft on the moon, rove on its surface for at least 500
meters, and transmit specified images and video to earth."

The Twenty Most Bizarre Experiments of all Time.  Amazing.  Many I would not have thought possible.

What is Intelligence?: Beyond the Flynn Effect

by  Tyler Cowen in

That is the new book by James R. Flynn.  He suggests the following:

Today we have no difficulty freeing logic from concrete referents and reasoning about purely hypothetical situations.  People were not always thus.

In other words, people in earlier times really were stupider when it came to abstract thought, but this was primarily for environmental reasons.  These people also had more daily, practical skills, again for reasons of practice.  We in contrast receive daily workouts with hypotheticals, rapidly moving images, and spatial reasoning.  So Flynn is suggesting that IQ isn’t more multi-dimensional than it may seem.  The Flynn Effect gains are in fact concentrated in the most spatial and abstract versions of IQ tests.

Flynn summarizes the "Dickens-Flynn" model, through which environment and IQ interact in multiplicative fashion.  Smart people seek out environments which make them even smarter, and this helps reconcile the cross-sectional IQ data (adoption doesn’t change IQ so much) with the time series of increasingly higher IQ scores (environments are changing for everybody).  This reconciliation was fuzzy to me, but I took Flynn to be claiming that separated identical twins will reimpose common environmental forces on themselves, thus keeping their IQs in relatively close long-run synch.  I still don’t understand what kind of test (might it contrast permanent vs. temporary environmental shocks?) might falsify the Dickens-Flynn model.

Flynn also argues that the Chinese in America attained high levels of achievement before
above-average IQs.

This book doesn’t tie up all the loose ends, and it could have been written in a more organized fashion.  Still it is one of the more interesting volumes of the year.

Addendum: I have long thought that the Germanic "Hausmusik" tradition was responsible for producing so many great composers in one relatively short period of time.  Flynn’s book offers (unintended) hints about why it is so hard to reproduce the cultural blossomings of times past, and also why future creations will seem baffling to the old fogies.

The Stuff of Thought

by  Tyler Cowen in

The idea that shapes can be cognitively melted down into schematic blobs skewered on axes originally came from a theory of shape recognition by the computational neuroscientist David Marr.  Marr noted how easily people recognize stick figures and animals made from pipe cleaners or twisted balloons, despite their dissimilarity from real objects in their arrangement of pixels.  He proposed that we actually represent shapes in the mind in blog-and-axis models rather than in raw images, because such a model is stable as the object moves relative to the viewer.

Yes indeed, Steven Pinker has a new book out.

Hobbies in everything

by  Tyler Cowen in

Is this a Mengerian spontaneous order story, or not?:

Kisa, 28, a student and translator in Toronto, decided to create her
own language, something simple that would help clarify her thinking. 
She called it Toki Pona — "good language" — and gave it just 120
words.

"Ale li pona," she told herself. "Everything will be OK."

Kisa eventually sorted through her thoughts and, to her great surprise,
her little language took off, with more than 100 speakers today,
singing Toki Pona songs, writing Toki Pona poems and chatting with Toki
Pona words.

It’s all part of a weirdly Babel-esque boom of new languages.  Once the
private arena of J.R.R. Tolkien, Esperanto speakers and grunting
Klingon fanatics, invented languages have flourished on the Internet
and begun creeping into the public domain.

The website Langmaker.com lists more than 1,000 language inventors and 1,902 made-up languages, from `Ayvárith to Zyem.

The language inventors have, of course, created a word to describe what they do — "conlang," short for constructed languages.

Here is the full story.  Here is a word list for Toki Pona.  Here are general resources.  The language has only a few dozen proverbs but one of them is nasin mami li ike, or "capitalism is negative."  There are by far more words about sex than anything else ("Kisa created Toki Pona as an exercise in minimalism, looking for the core vocabulary that is necessary to communicate"), and here is how the countries have been renamed.

Sadly: "Some want to express complicated thoughts in Toki Pona, running counter to its design."

Suicide help lines

by  Tyler Cowen in

In 723 of 1,431 calls, for example, the helper never got around to asking whether the caller was feeling suicidal.  And
when suicidal thoughts were identified, the helpers asked about
available means less than half the time.  There were more egregious
lapses, too: in 72 cases a caller was actually put on hold until he or
she hung up.  Seventy-six times the helper screamed at, or was rude to,
the caller.  Four were told they might as well kill themselves.

There were 33 evident on-line suicide attempts, yet only six rescue
efforts, sometimes because the caller ended the communication.  In one
case, a caller who’d overdosed passed out, yet the helper hung up.

Here is the full story, by Christopher Shea.  I am curious how much of this problem is due to the non-profit structure of the institutions running the lines and how much is due to the behavioral quirks of human beings faced with the suicidal tendencies of others…

From the comments: "Also, how would a for-profit suicide hotline work? Call a 900 number if
you’re having suicidal thoughts? I find it hard to imagine that a
for-profit suicide hotline system would generate *more* suicide
prevention, though maybe I’m wrong."

Economics majors are rising

by  Tyler Cowen

I had not known the trend was so pronounced:

The number of smart kids studying computer science
peaked a few years ago and has dropped dramatically since. The number
of new computer science majors today has fallen by half since 2000,
according to the Higher Education Research Institute at UCLA. Merrilea
Mayo, director of the Government-University-Industry Research
Roundtable at the National Academies, says the drop-off was
particularly pronounced among women.

Meanwhile, elite schools are reporting
that the number of economics majors is exploding. For the 2003–2004
academic year, the number of economics degrees granted by U.S. colleges
and universities increased 40 percent from five years previously.
Economics is seen by bright undergraduates as the path to a high-paying
job on Wall Street or at a major corporation.

Here is the full story.

Farewell to Alms, final session

by  Tyler Cowen in

The final section of Greg’s book has many fascinating bits, but I would rather conclude by summing up why the book is important.

The Industrial Revolution, or whatever it was that happened, is the
big question in Western history.  Yet most economists do not work on it
and I believe that most have never read a book on it or taken a course
on it.  Greg’s work puts this historical development back on center
stage where it belongs.  Furthermore he helps reconceptualize what the
Industrial Revolution really was and wasn’t; without that step further
progress is not possible.

But that’s not all.  When it comes to what happened, Greg brings two
new interrelated but distinct hypotheses to the table, namely labor
quality and downward mobility.  That’s two new hypotheses, and
he makes a good case for each of them.  That achievement holds up even if you are unconvinced by his
dismissal of institutions, or by his embrace of the Malthusian model.

As I read Greg, he wants to replace extant explanations with his story.  In my creative "rereading" of Greg, I want to add
his two factors to extant explanations.  Greg wants an explanation with
a Malthusian or a Ricardian rigor and logic.  I believe our
explanations will be more like those of history than of economics. 
That means lots of variables, lots of messiness in the causal chains,
unclear predictive power, and the accretion of knowledge bringing less
rather than more simplicity.

In short, Greg is more of an economist than I am.

Most of all, I’d like to thank Greg for his participation in this BookForum.  Here are links to previous MR posts on his book.

In sum, what did you all think?

Why did the Industrial Revolution come to England?

by  Tyler Cowen in

Michael H. Hart’s Understanding Human History is an objectionable book in a variety of regards, but it is another attempt to explain the broad sweep of human history using the concept of IQ.  Let’s see what Hart says (pp.365-6) about why the Industrial Revolution came to England:

1. England had a high average IQ

2. England had a relatively high population (compared say to the Nordic countries)

3. England did not have slavery

4. England had intellectual ferment

5. Colonies added to the intellectual ferment of England

6. Unlike Germany or Italy, England was not politically fragmented

7. England had abundant iron ore and coal

8. England had relatively secure property rights

Hart stresses that in Europe only England had all these factors operating in its favor.  For our purposes, Hart’s more pluralistic explanation is testament to how large a role the Malthusian model plays in Greg Clark’s book.