Month: December 2007

The Myth of the Rational Amazon Book Reviewer

Here is one review of Bryan Caplan from the Amazon.co.uk site:

The reality is a book written for the university educated and the class of society who never have to fear unemployment. The university style of writing makes it difficult to understand what he is going on about, since you have to keep looking up a dictionary. It is also rather boring, which makes it difficult to hold your concentration. The basic theme of the book is that economists think that the ordinary voter is irrational when it comes to politics and voting. The economist argues that because the economy keeps getting stronger; they are always right, and the public always wrong. Trade protectionism, mass immigration of cheap labour, downsizing which causes mass unemployment are all supported by the economist and not supported by the voter.

Here are his other reviews, he likes Sidney Bechet but doesn’t say whether or not he votes.  Thanks to Bryan for the pointer.

Argument by omission

Sebastian Mallaby writes:

The political pressure to act reflects concern for homeowners. But as the blogger Tyler Cowen has written, there are better ways to target assistance to the deserving poor than by rescuing subprime borrowers. Given that they hold some responsibility for borrowing too much, subprime borrowers are not society’s most unambiguously deserving group. And many of them are not poor, either.

Equally, the pressure to act comes partly from concern that the subprime mess is scaring investors away from whole classes of debt, with indirect effects on the economy. But if investor confidence is the problem, government meddling can backfire. The leading Democratic presidential candidates have proposed, variously, a moratorium on mortgage foreclosures, a freeze in loan rates and other measures to help homeowners at the expense of investors. This is hardly the best way to rebuild market confidence.

This is correct, although of course you would expect me to agree with myself.  Mallaby does conclude that the government should do something, by the way.

Now read Paul Krugman’s column on the same topic, from the same day.  On a sentence-by-sentence basis, Krugman’s claims hold up (though he probably exaggerates the extent of fraud in order to demonize the lenders).  On policy, he argues that the bankruptcy courts should give borrowers a better deal.  I, too, favor a looser bankruptcy law, but is this the right context for such a change?  The two claims cited by Mallaby are never dealt with:

1. Subprime borrowers are not the most deserving poor, and many are not poor at all

2. Right now is not a good time to penalize credit-constrained banks or rewrite contracts against their interests

Maybe Krugman disagrees with these points, but we never learn why.  The duty of the popular economist is to encourage audiences to move beyond simple good-bad stories and think in terms of opportunity costs and unintended consequences.  As a writer, Krugman is one of the best clarifiers of all economists, of all time, ever.  He has trained himself to specialize in clarification, but on some issues the truth is in fact murky and this psychological tendency to clarify leads him astray.

Clive Crook has a good column on the Paulson plan.  Arnold Kling has very good commentary.  Felix Salmon has a good analysis of Krugman the blogger vs. Krugman the columnist.

Cap and Trade as Futures Market

Daniel Hall at Common Tragedies has an interesting argument for cap and trade over a carbon tax.  Cap and trade with bankable and borrowable allowances can respond much more quickly than Congress to new information.

[I]magine that in 2015 we get some bad news from the scientific community
about climate change: the risk of truly damaging climate change are
higher than previously thought. Although it would likely take Congress
a few years to act on this info and revisit the question of what the
cap should now be, firms would start banking more allowances today in
anticipation of the government intervening to tighten the cap, and thus
prices would rise immediately. Conversely, if new scientific info
suggests the risks from climate change are lower than previously
estimated, firms would start borrowing against future allocations
(assuming borrowing is allowed) and prices could slacken in response to
new info.

How will on-line gaming change the world?

Here is your typical breathless futurism, pulled off Digg.  Let’s assume the guy is right, and there will be purely virtual marriages, replete with virtual you-know-what, and many people will live full (virtual) lives without ever leaving their living rooms, etc. 

In this world virtual nookie and related activities reap high-productivity gains and the price of such activities falls rapidly.  They become a tiny percentage of gdp, much as agriculture has today, even though they are very important for our utility.  The low-productivity activities — most of all face-to-face meetings — take up a big chunk of gdp, much as health care and education do today.  Imagine that meetings for a cup of coffee are highly expensive (in relative terms), they require subsidy, and Robert Samuelson writes Op-Eds about how they will bankrupt us.  Shocks to "the meeting sector" can send the economy into a tailspin. 

In relative terms, transportation costs, broadly construed, will be exorbitantly high.  By comparison, standard legal tariffs won’t much matter and political boundaries will lose most of their influence over the geographic distribution of economic activity.  Immigration will cease to be a major political issue, if only because it is so (in relative terms) costly.  Why cross a border when you must give up many of your virtual lives to buy the bus ticket?  Dialects will proliferate and styles of art, at least those in meatspace, will take divergent paths.

As with education today, people will try to get their (costly) meetings over with early in life.  Again, in opportunity cost terms, it’s not worth it for most people to give up so much virtual life just to go see Cleveland.  Maybe meetings will become the new middle class entitlement, and subsidies to Amtrak will replace Social Security or Medicare as the largest item in the federal budget.  Some columnists will claim that the government can supply meetings more cheaply.  Conservatives will insist that people have to pay for their own meetings, and that certain social classes are taking advantage of the meetings privilege.

The price of land in cities will be very low, since people will have been able to spread out and conduct most of their lives from a distance.  So meetings are inefficient, but when they do occur they will never be cramped.  People will talk with their hands much more, because there will be no danger of hitting the people at the next table.  Umbrellas will be large and bulky, and you won’t need to get that flu shot.  Restaurants will have room for expansive smoking sections.

The Alchian and Allen theorem will imply that only high-quality meetings will take place.  Why incur a high meeting/transport cost for a mere piffle of a kiss on the cheek, or for the exchange of a small piece of gossip?  Meetings will be highly intense, extremely memorable, and involve well thought out sexual extravaganzas.

Dr. Joel Selanikio also advances economics

EpiSurveyor is free, open-source software used to collect
data–primarily medical survey data right now, although there’s no
reason other types of data couldn’t be gathered–in areas where medical
data is often out-of-date or incomplete, when it’s even collected at
all.

Because EpiSurveyor is aimed primarily at developing economies, it’s
designed to run on PDAs and mobile phones…and to transmit
collected data back to a central repository via SMS.

In other words, you can put people out into the field and get (almost) real time data on the evolution of a village economy.  The data are converted into useful forms right away, and gathering the data is easier in the first place, so the assistants are less likely to shirk.  Here is more, here is the associated non-profit, here is a YouTube video.  Data gathering is one of the most backward features of the social sciences, so development economists, take note.  But should businessmen care as well?

I asked Selanikio what EpiSurveyor could use most right now–besides money, which is always welcome.

"We really need people who could help us develop a sustainable
business model for EpiSurveyor. Ad-supported? Subscription fees? Two
tiers of features? That sort of advice, from people who are truly
qualified to give it, would be very helpful."

My answer

The criticism personally offends him and he cannot tolerate it.  Surely you have known people like this in conversation [and department politics?], and they didn’t even have any guns or nuclear weapons or polonium behind them.

That’s with help from Natasha.  Here was Bryan’s question:

Putin is popular…what’s the point of persecuting the opposition?…if he’s really so popular, why risk looking like a paranoid despot?

Benjamin Friedman

Right or wrong, or perhaps somewhere in between, Clark’s is about as
stimulating an account of world economic history as one is likely to
find. Let’s hope that the human traits to which he attributes economic
progress are acquired, not genetic, and that the countries that grow in
population over the next 50 years turn out to be good at imparting
them. Alternatively, we can simply hope he’s wrong.

Here is the full review.

Addendum: Here is today’s NYT essay, arguing for the genetic unity of mankind, here is a previous Slate piece.  Here is a good NYT excerpt:

During World War II, both black and white American soldiers fathered
children with German women. Thus some of these children had 100 percent
European heritage and some had substantial African heritage. Tested in
later childhood, the German children of the white fathers were found to
have an average I.Q. of 97, and those of the black fathers had an
average of 96.5, a trivial difference.

Second addendum: Here is Deirdre McCloskey’s review of Clark.

Illegality means illiquidity

Guns:

There are few suppliers. While covering a certain neighborhood of
Chicago, Sudhir Venkatesh (SV), the group’s undercover man, only found
six suppliers or wholesalers at any given time. The gun brokers are
almost all over 30, and have lived in the area for their entire lives
providing them with solid networks and neighborhood trust, that help
keep them in business. Many suppliers are discouraged to enter the
market due to the difficulty in finding business and low profit
margins. In the neighborhood area, the authors estimated only 1,400 gun
sales in a year, compared to the 200,000-500,000 cocaine sales. Guns
are a durable good, so customers usually don’t need to return
frequently. Additionally, 30%-50% of attempted transactions go
unfulfilled due to all sorts of logistic problems like agreement on the
transaction location. Of the brokers that do conduct business, most
charge between $30-$50 per transaction and charge an extreme markup on
guns, possibly between a 3-5 multiple of the legal retail price. To
make the transactions monetarily worth it for themselves, suppliers and
retailers have to markup their prices in this way.

Here is much more of interest.  Here is The Economist write-up of the story.  One implication is that if a government has limited resources to enforce bans, it will do better by targeting durable goods, with less liquid markets, rather than frequently traded non-durables.

Tyrone on rent control

Johan Almenberg, a loyal MR reader, asked me to ask Tyrone why rent control is a good idea.  I walked over to Tyrone’s crawl space, knocked, and posed the query.  He ridiculed me and told me the question was really not worth his while:

You Troglodyte, surely you know the happiness literature shows that better or larger living quarters don’t make people much happier.  It’s one of the pleasures we most quickly get accustomed to.  So if rent control pushes everyone into a lower price, lower quality equilibrium for residences, that’s for the better.  If you want high cost living, go to Monaco or Aspen; low rents were what made New York City great.  The greatest American city, during the highest cultural peak of its existence, had lots of binding rent control.

Rent control also encourages new or refitted buildings to have a greater number of smaller units.  In other words, it brings more population to the city and we all understand the external benefits from having more people around.  Furthermore the external social benefits of cities are highest for the elderly poor, who can’t afford cars and would require external aid, and bagel-seeking young’uns, high in human capital, low in liquid wealth, and able to do great things for the world if only they are removed from the suburbs.  That’s exactly who rent control puts into your city.

Johan himself offers an interesting argument:

…if rent control makes it
harder to live in a particular city temporarily, this encourages long-term
commitments. This, in turn, could increase the repeated-game character of that
city, which in turn could be good for cooperation. These sort of arguments –
admittedly vague – tend not to get mentioned.

Did I mention that Tyrone is biased, because he lives under rent control himself?  That’s right, he lives upstairs in the crawlspace.  It is the strongest force in the world that won’t let me charge him a price any higher than zero.  And the resulting arrangement seems to work out just fine.

Karlheinz Stockhausen has died at 79

Here is one balanced appreciation.  The Wikipedia page is patchy but offers lots.  If you’re only going to buy one or two, I say start with Mantra and then move on to Stimmung.  The hard cores should seek out SpiralGesang der Jünglinge is perhaps the most influential and seminal work, or perhaps Hymnen, order them here.  The junk includes the Helicopter Quartet, Tierkreis, anything with an American Indian theme, and most of material from the operas.  Gruppen you probably had to hear live.  Momente has compelling parts but it makes me giggle.  The piano music was good, although for me never a highlight.  It’s easy to take potshots at his pretentiousness and stupid politics, but he created more memorable and distinct sound worlds than any other twentieth century composer, except possibly John Cage.  It’s hard to imagine music without him.  Miles Davis and the Beatles would agree, and they were pretty smart guys.

Addendum: Here is a YouTube of Kontakte.  Here’s a bit of Gruppen.  Here is a bit of Hymnen.  But without real sound or live performance it mostly just sounds stupid.

A Gut Feeling

The title, Campylobacter jejuni infection increases anxiety-like behavior
in the holeboard: Possible anatomical substrates for viscerosensory
modulation of exploratory behavior
, is unpromising but the paper is fascinating.  The authors show that infection with certain bacteria can cause more anxious or cautious like behavior in mice, perhaps causing the infected agent to avoid predators.

The presence of certain bacteria in the gastrointestinal tract
influences behavior and brain function. For example, challenge with
live Campylobacter jejuni (C. jejuni), a common
food-born pathogen, reduces exploration of open arms of the plus maze,
consistent with anxiety-like behavior, and activates brain regions
associated with autonomic function, likely via a vagal pathway.

Could bacteria also influence our emotional state?  If verified in humans this could offer insights into conditions like Crohn’s disease, irritable bowel syndrome and perhaps into fears such as agoraphobia.  Long time readers will know that this study is not alone in suggesting that parasites can influence our emotions.  Ever wonder why you like cats?

Hat tip to Monique van Hoek and Faculty of 1000.

When does self-deception do the most good?

[email protected]: In your chapter, "The Dangerous and Necessary Art of Self-Deception," you write that some degree of optimistic self-deception is critical for success, and that "depressive realists," with their more accurate view of the world, fall behind. What advice would you give to a board choosing a CEO? Is it better to have an optimistic self-deceiver or a depressive realist?

Cowen: For a CEO, I’d tend to go for the realist, because at the leadership level, the costs of hubris are very high. The problem with realists is they can get depressed and feel they are not going anywhere, but this is less likely to happen to CEOs, because they are in charge.

In the lower rungs of the company, however, I would favor overly optimistic people, those who are motivated by the idea that they always have a chance of being promoted or earning more money. The higher up you are, the more I would prefer realism. A president who won’t listen can be pretty disastrous. But a senator who doesn’t listen — maybe it’s not ideal, but there are checks and balances, and if the optimism gets the senator to work harder, then that is the compensation.

Here is the full interview with me.  By the way here is a recent Indian review of Inner Economist, from Mint.