Month: January 2008

Megan McArdle writes:

As the Boomers age, they will consume fewer of the things that we produce efficiently, and more of the things that we provide relatively inefficiently.

Here is more, and I hereby take Megan to be a robot pessimist. 

It is a revealing question to ask which sectors a person considers technologically stagnant.  Baumol claimed it is the performing arts, but TV and the internet have belied this; it is true that those media are not *live* performance but that is substituting objective aesthetic judgment for what consumers really care about.  People love Dexter, whether or not there is someone actually in the box.  For stagnant sectors, I will nominate:

1. Haircuts, you might as well get them in Mexico

2. Automobiles (given the overall extent of technological progress, are they really so much better than in 1957?), although the $2500 car may change this

3. Spicy food, it seems best in relatively poor countries

I’m not yet sure about teaching.  It seems to be a candidate but people are learning an awful lot from blogs these days; don’t fixate on delivering the old service the way we always have.

Your picks?  Keep in mind that something has to be stagnant in relative terms, to date it sure isn’t computer chips but they raise the bar for the average.  I expect pharmaceuticals and webcams to make it much easier to care for old people, but only on a per year of life basis; the number of years lived and thus total cost will rise too.

From the Wilson Quarterly of this January, here is one excerpt:

For better or worse, microborrowing often entails a kind of ­bait ­and ­switch. The borrower claims that the money is for a business, but uses it for other purposes. In effect, the cash allows a poor entrepreneur to maintain her business without having to sacrifice the life or education of her child. In that sense, the money is for the business, but most of all it is for the child. Such ­life­saving uses for the funds are obviously desirable, but it is also a sad reality that many microcredit loans help borrowers to survive or tread water more than they help them get ahead. This sounds unglamorous and even disappointing, but the ­alternative–­such as no doctor’s visit for a child or no school for a ­year–­is much ­worse.

The piece attempts to redress many myths of micro-credit.  For instance it is often claimed that micro-credit doesn’t involve collateral, but that isn’t quite true.  The borrowing is done in small groups, and if you don’t pay your share the neighbors come and take away your TV set.  In reality micro-credit takes the collateral-seizing function away from the bank and puts it in the hands of our neighbors, thereby increasing loan repayment rates.

My favorite part of the piece is this:

Sometimes microcredit leads to more savings rather than more debt. That sounds paradoxical, but borrowing in one asset can be a path toward (more efficient) saving in other ­assets.

…Westerners typically save in the form of money or ­money-­denominated assets such as stocks and bonds. But in poor communities, money is often an ineffective medium for savings; if you want to know how much net saving is going on, don’t look at money. Banks may be a ­day­long bus ride away or may be plagued, as in Ghana, by fraud. A cash hoard kept at home can be lost, stolen, taken by the taxman, damaged by floods, or even eaten by rats. It creates other kinds of problems as well. Needy friends and relatives knock on the door and ask for aid. In small communities it is often very hard, even impossible, to say no, especially if you have the cash on ­hand.

…Under these kinds of conditions, a cow (or a goat or pig) is a much better medium for saving. It is sturdier than paper money. Friends and relatives can’t ask for small pieces of it. If you own a cow, it yields milk, it can plow the fields, it produces dung that can be used as fuel or fertilizer, and in a pinch it can be slaughtered and turned into saleable ­meat or simply eaten. With a small loan, people in rural areas can buy that cow and use cash that might otherwise be diverted to less useful purposes to pay back the microcredit institution. So even when microcredit looks like indebtedness, savings are going up rather than down.

In other words, read Keynes’s chapter 17, go long on animals (liquidity premium exceeds carrying costs), go short on money (carrying costs exceed liquidity premium, at least in poor countries), and increase your future expected net wealth.

As the economy slows many people from Larry Summers to Martin Feldstein are calling for a fiscal stimulus.  I am not convinced.  Spending and tax decisions can
rarely boost an economy.

First, the money for any new spending or tax cuts has got to come from somewhere, right?  Thus there is usually substantial crowding out of any stimulus.

Second, by the time the new spending or tax cut
gets through the political process the economy has moved on and the
stimulus is no longer relevant except by accident.

Third, there just
isn’t that much discretionary spending to play with and even a large
increase in spending, say tens of billions, is too small to make much of
a difference in a 13 trillion dollar economy.

Fourth, in their desperation to "do
something" politicians will often do something foolish.  If a spending
increase or tax cut isn’t worthwhile on its own merits then it’s highly
unlikely to be worthwhile once we add in the benefits of "stimulus."  Thus, it’s one thing to argue for extending unemployment benefits as a matter of welfare it’s quite another to think that an increase in unemployment benefits will so increase spending as to reduce unemployment!  (The implicit view of Larry Summers.)

Economists may call for "temporary," "conditional," and "targeted" stimulus but they won’t be the ones designing the plan.  Spending
increases and tax cuts are policies with long term
consequences that we need to think about carefully. 

Thus, I do not favor a fiscal "stimulus"
package.

An alarm clock to get you out of bed in the morning:

Connects via WiFi to your online bank account, and donates YOUR real money to an organization you HATE when you decide to snooze!

Hat tips to Kottke and Magnetbox, apparently there is doubt as to whether this is real.  The wise guy also may wonder why you just don’t disable the snooze function on your alarm clock.  But of course that is precisely the sort of non-convexity that markets seek to avoid.  At times you will wish to sleep past your limit, even at your prespecified price, but perhaps you cannot always know in advance.

According to the report, “Using Prediction Markets to Track Information Flows: Evidence From Google,”
which was presented Friday at the American Economic Association meeting
in New Orleans, the strongest correlation in betting was found among
people who sat very close to one another, trumping even friendship or
other close social ties.

This is tangible evidence, the authors
argue, that information is shared most easily and effectively among
office neighbors, even at an Internet company where instant messaging
and e-mail are generally preferred to face-to-face discussion.

It is an argument, the authors say, for giving greater importance to
“microgeography,” or how people interact in the workplace. The finding
that information moved fastest among people who were the closest
together is also an endorsement of the company’s “third rule for
managing knowledge workers: Pack Them In,” the authors say.

And Adam Smith is validated once again:

The other crucial finding of the report was that there was a
detectible “optimism bias” among Google employees. That is, results
that were good for the company tended to be overpriced, particularly
for “subjects under the control of Google employees, such as, would a
project be completed on time or would a particular office be opened.”

This
optimism was most evident among new employees, the report found, and it
was bound to show up on days when Google stock had climbed.

Here is the story.  Of course this is very important work.  Thanks to Chris Masse for the pointer.  Elsewhere in prediction markets land, InTrade has now started conditional prediction markets, which consider oil prices, interest rates, and U.S. troops in Iraq, conditional on who becomes President.