Month: March 2008

The culture that is German, a continuing series

Economic protectionism, linguistic protectionism, status protectionism, or all three?:

Americans with PhDs beware: Telling people in Germany that you’re a doctor could land you in jail.  At least seven U.S. citizens working as researchers in Germany have faced criminal probes in recent months for using the title "Dr." on their business cards, Web sites and resumes. They all hold doctoral degrees from elite universities back home…Violators can face a year behind bars.

Here is the full story.  And get this: "A male faculty member with two PhDs can fully expect to be called "Herr Professor Dr. Dr. Schmidt," for example."

Update: They just changed the law.  I guess I should have titled this post "The earthquake that is Germany," etc.  Sadly there is no medium for telling The Washington Post that their front page story this morning is wrong but of course we have a very keen reader willing to leave comments.

Good books on trade policies

Jason, a loyal MR reader, asks me in an email:

What is a good economic history of commerce and trade?  I’m looking for a book, preferably recent, with lots of historical examples of what trade policies can do.  It would be a bonus if it integrated theory in with the examples, but that isn’t necessary.  I’d also prefer a book written by an economist rather than a historian, since historians tend to get their theory wrong.  Rosenberg’s How the West Grew Rich comes to mind, but I wonder about other examples.

I say "Ask and ye shall receive."  You could try William J. Bernstein’s new A Splendid Exchange: How Trade Shaped the World.  Readers, do you have other suggestions?

Markets in everything

The Philosopher’s Hotel features a series of rooms that are perhaps less overtly amazing but equally compelling for the right clientele: each room revolves around the life, work and philosophy of a particular philosopher. The above rooms, for example, respectively play off Georges Bataille’s concepts of sexuality and eroticism, Ludwig Wittgenstein’s philosophies of language, ethics and mysticism and Henry David Thoreau’s obsession with time, age and nature. Other rooms revolve around famous thinkers such as Nihilist Friedrich Nietzsche…

I hear that in the Parmenides room the mini-bar does not open and the Heraclitus room has a water bed.  The hotel is in the Netherlands, so where is the Bernard Mandeville room ("Private Vices, Publick Benefits")?  Here are many more unusual hotel rooms, both the texts and photos are interesting.  And here are (supposedly) the smallest hotels and hotel rooms in the world.

Legalization of prostitution

Nicholas Kristof writes:

I changed my mind [on legalization] after looking at the experiences of other countries. The Netherlands formally adopted the legalization model in 2000, and there were modest public health benefits for the licensed prostitutes. But legalization nurtured a large sex industry and criminal gangs that trafficked underage girls, and so trafficking, violence and child prostitution flourished rather than dying out.

As a result, the Netherlands is now backtracking on its legalization model by closing some brothels, and other countries, like Bulgaria, are backing away from that approach.

A few points in response: first, "backtracking" could and should have been written as "still maintained as mostly legal throughout the country."  Second, Germany offers perhaps the best model for legalized prostitution; by the way, here is one odd description of the German practice in Cologne.  It’s not so offputting to make me favor a ban.  Third, we should institute drastically higher penalties and enforcement for traffickers in children and their customers.  Don’t blame adult transactions for that problem or think that is the best resource investment to stop it.  Fourth, legalized prostitution may not be "popular" because it doesn’t appeal to the median voter, least of all to the median female voter.  So the mere popularity of Swedish policy doesn’t make it a success; there is less consensual sex going on! 

We all debate the topic without bringing up the delicate question of the benefits (or lack thereof?) to the customers.  No one wants to say "I think guys should be able to [fill in the blank] more often and more easily," but that’s what at least half the story boils down to.  (The other half is the possibility of female empowerment, etc.)  Such a framing maybe sounds bad to you, but that’s a feeling we need to come to terms with and indeed question. 

I see the costs and benefits of legalization as murky.  Should government attempt to steer women away from the psychological tendencies implanted in them by child abuse?  Indeed, should such steering stop at their choices to become prostitutes?  When doing our cost-benefit analysis, should we count the preferences of the man sitting quietly at home or the preferences of the man as he approaches the end of the act?  How should we count the preferences — if at all — of the bluenoses who don’t like the whole idea of legalization?  After all, there are lots of them and they just don’t want legal prostitution.  These are difficult questions.

When push comes to shove it is fundamentally a moral question and that for me means legalization or at least decriminalization.  Ultimately you are threatening to jail or even shoot someone (should he or she try to leave the jail) because of a particular interpretation you have placed on their consensual sexual acts.  I have to say "no way" to that one.  Is barter a problem too?  Andrew Sullivan pointed out that it is legal to pay two people to have sex and film them and sell the film; it just isn’t legal to pay two people to have sex and simply watch them.  That’s what I call absurd.

Cooked books

If I had to guess whether
Wikipedia or the median refereed journal article on economics was more likely
to be true, after a not so long think I would opt for Wikipedia. This
comparison should give us pause.

That’s me, writing for The New Republic.  But what does this all mean?  ("Sadly, the final lessons here are brutal.")  I consider the recent spate of fake biographies and memoirs and arrive at some conservative and traditionalist answers.


If Governor Spitzer wanted to have sex with a younger woman then instead of hiring a prostitute he could have gotten a divorce and remarried, just like so many other rich and powerful men.  Or he could have had an affair.  Of these options hiring a prostitute is the least threatening to marriage but it’s the only option which is illegal.  In contrast, getting a divorce and remarrying a younger woman is so common it doesn’t even stop a man from running for President.

Trade-offs are everywhere, whether we choose to acknowledge them or not.

In closely related news, Eric Zitzewitz says that although Spitzer may have hired a prostitute he was not himself for sale.  Justin Wolfers reflects and like me thinks our moral compass is off kilter.

Markets in Everything: Adam Smith’s House

The house where Adam Smith lived for many years with his mother and which more recently was used as a home for troubled youth has been put up for sale by the Edinburgh Council for £700,000.  Sir Alan Peacock says "It’s a disgrace that the council has
agreed to dispose of a building as significant as this. It should be
saved for the nation."

I think it would be a disgrace if the house went to anyone but the highest bidder.

*Public Choice*, on the web

The journal that is, and for free.  Really.  Until April.  Here.  The pointer is from Henry Farrell, who notes that the January 2008 issue contains a symposium on blogging which he co-edited with Dan Drezner.

Here is a paper on the economics of open access publishing.  Here is Daniel Akst on the same.  For Cowen and Tabarrok on the same, well…you are here already.

Henry also asks what it would take to make researchers switch to a free access system.  I don’t envision the free access system as the status quo but free.  Papers would be ranked directly in terms of status and popularity rather than ranked through the journals they are published in.  Ultimately there wouldn’t be journals and this would make a big difference as journals are the current carrier of selective incentives and status rewards.  It would be easy to refuse to referee, since you wouldn’t fear being shut out of publication of that journal; I suspect refereeing might die.  And if status were attached to the individual paper rather than the journal, who would bother to become an editor?  It would be a very different world and in some ways more like (academic) blogging than its proponents may wish to think.

In other words, the partial monopolization of for-fee journals makes it possible to produce status returns to motivate both editors and referees.  Returning to the free setting, refereeing will survive insofar as writing detailed referee comments on other people’s work helps with your own research; it is interesting to ponder in which fields this might hold.

John McCain fact of the day

Brendan Nyhan notes that if you use the Keith-Poole methodology for congressional ideology you get the conclusion that John McCain has the most inconsistent record of anyone in the Senate. They write in Congress and Ideology that their model has the least predictive power when it comes to McCain…

Here is the link, here is the Brendan Nyhan post, and here is Virginia Postrel on McCain.

Why is revaluing the degree of liquidity so tough?

Take a simple model of liquidity.  I can sell at a good price only if I think you — you in the broad aggregate and collective sense — won’t.  (Remember: "Liquidity is only there when you don’t need it")  In other words, my motive in selling has to be idiosyncratic.

Now say some common knowledge comes to this market.  No one can sell in response to this common knowledge.  Everyone has it, by definition, so it’s not idiosyncratic.  Transparency, by the way, is simply more common knowledge and that is, with respect to liquidity, the problem in the first place.

Let’s say the new common knowledge is "this asset class isn’t as liquid as we used to think."  Ideally price should fall but how much?  If selling is only scattered the market never learns the shape or exact location of the new demand curve.  Furthermore the selling you observe only tells you "how good is the market at responding to this knowledge shock" and not "what was the initial liquidity downgrading in the first place."  Convergence, today, appears to be problematic.

Does herd behavior, combined with agency problems, make things worse?

Is it the standard story that everyone is afraid of the other trader’s knowledge?  Or can liquidity crises become more acute in a hyper-informed world?  We like to think: "market — trade — liquidity — good, etc.", forgetting the Glosten-Milgrom point that liquidity often rests upon the presence of fools.  Informing the fools eliminates one business cycle problem but creates another.

Addendum: Felix Salmon adds excellent commentary.

Help Indian prostitutes save

Here is another innovative way to help the poor:

Sangini Women’s Co-operative Bank
aims to help these women break that cycle by providing savings accounts
to the sex workers that can then be passed down to their children. As
one sex worker laments:

“But earlier there was no way to save money. Even if you
gave it for safekeeping to a shopkeeper or brothel manager, they would
never return it.”

One of the interesting outgrowths of this newfound ability to save
is that it provides the women a means to say no to clients that are
unwilling to use or do not have condoms. Accordingly, these savings accounts give the opportunity to the women to protect themselves from HIV.

Here is the link and more.  Note that when it comes to insuring against consumption risk, even zero interest savings can be more efficient than paying a high interest rate on micro-credit.