# Month: August 2008

## Different Ways to Know the Mind of God

Stephen Hawking famously thought that physics would reveal the mind of God.  In fact, Hawking gave physics a 50:50 shot by the end of the last century.  Guess he lost that one.  But fellow Nobelist Jim Heckman has beat Hawking to the punch using "powerful statistical methods to evaluate the effect of prayer on the attitude of God toward human beings."

Let Y be God’s attitude arrayed on a scale ranging from zero to one. This is an unobserved variable. Let X be the intensity of prayer in the population. It too is scaled between zero and one. The population density of prayer is summarized by a univariate density f(X) which has been estimated by Father Greeley (1972)….

The paper, which goes on like that for a while, is actually quite interesting but if you are looking for the bottom line it comes at the end:

The method presented here is applicable to a number of important problems….For example, one can extend current empirical work in a variety of areas of economics to estimate the effect of income on happiness or the effect of income inequality on democracy.

Thanks to David Glenn and Lee Spector for the link.

## The drink-ice cube ratio

Sorry Europeans, but some drinks taste better with ice cubes.  The key is to get the ratio right.  As a first approximation, there are two main problems.  First, the ratio of drink to ice cubes may be too high.  In that case you start off by doing some drinking merely as an act of investment in the future quality of the drink.  (Ideally I would prefer to pour some drink on the floor, though I am too civilized for that.  Alternatively, this can be reason to dine with a companion, who will sop up your excess.)  Another reason the ratio becomes too high is if the waiter comes by and pours excess drink into your glass, so that he may take away your can or bottle "too soon" for his own not quite legitimate purposes.  This can be avoided by placing your bottle or can in an inconvenient, hard to reach place.

Country restaurants in Thailand sidestep these problems by sending around a staff member to replenish drinks with fresh ice cubes and restore the proper ratio; trust is essential.

Second, the ratio of ice cubes to drink may be too high.  If you order two drinks you rarely find (for whatever reason) that both have too many ice cubes.  You can put excess ice cubes from your water glass in your Coke but not vice versa.  If you order both mineral and plain water two-way transfers are usually possible and thus the tastes of your two drinks end up insufficiently diversified.

## Milton Friedman is Responsible for Scarcity

Should we be surprised that the Milton Friedman Institute at the University of Chicago is opposed by the likes of Marshall Sahlins?  I happily farm it out to Brad DeLong:

Sahlins’s claims that it was "the market-industrial system [which]
institutes scarcity"… seemed to indicate a total,
willful, and culpable ignorance of practically all of the non-market
settled agricultural societies of the past ten thousand years.

By the way, guess where these institutes are located?

## The rule of law, a quick primer from Argentina

I don´t usually link to videos but I loved this one.  Note: I believe the action is staged, not real.  But still, all you Chilean pessimists need to reconsider.  You set the bar for Chile pretty high (which is good, I might add).

I thanks Carlos Scartascini for the pointer.

## Why is lobster getting cheaper?

David Gross writes:

At root, the global forces that are driving up the price of food don’t
significantly affect the vacation lobster business in Maine. Commercial
and consumer demand doesn’t vary much for off-the-boat lobster. Sure,
many lobsters are sold to processing plants. But unlike other seafood
products–think of canned tuna, or clam sauce, or frozen fish
fillets–lobster is not produced or marketed on a mass global scale,
which also means there are no speculators trying to make a killing on
lobster futures. The fact that people are eating more and better in
China and India isn’t much boosting the demand for lobsters from Maine.
Even in the United States, lobster remains to a large degree a regional
product.

Consistent with Gross’s hypothesis, lobster is phenomenally expensive in Chile right now, in either absolute terms or especially in relative terms (compare for instance to Chilean sea bass, which is half the U.S. price or less but Chilean lobster is at least twice the U.S. prices from a sample of n = 2; Chilean sea urchin is cheap too and delicious).

But why is lobster cheaper?  Gross samples prices in Maine and higher gas prices may mean lower demand from tourists.  But I am a little confused by Gross’s additional explanation:

Distributors seeking to maintain their margins are cramming down the
fishermen. And with limited local outlets (even swelled by summer
visitors, the population of coastal Maine is relatively small),
lobstermen can’t hold out for higher prices.

Imagine a multi-product firm which applies mark-ups on different commodities.  (If everything is perfectly competitive there won’t be cross-product effects.)  If the marginal cost of buying salmon goes up, can the mark-up on lobster then go down?  Is it that the retailer, now faced with higher salmon costs, "threatens bankruptcy" to get a better result from the bargaining game with the lobster supplier?

## Fallacies about sovereign wealth funds

Here’s one of them:

One often reads statements that sovereign wealth funds provide unique
benefits to the international financial system because, for example,
they make needed capital injections into western financial
institutions. No one should doubt that the recipients of those capital
injections have benefited from them, and in time the citizens of the
countries with the funds may benefit as well. However, sovereign wealth
funds are not net providers of capital to western financial markets.
For the most part, they are merely recyclers of global financial flows.
In this respect, they do not differ from central banks and other
government-controlled entities or from private sector investors. The
only issues are where they invest, how wisely those investments are
made, and how accountable the investors are for their decisions.

Here is the whole piece, which is generally quite good.  So what is wrong with this passage?  It’s not attaching enough importance to the idea of gains from trade.  If capital has "left" the U.S., it’s because there was some gain from that transaction, such as when we buy oil.  There’s then a subsequent gain if those revenue are invested wisely in the United States.  It’s not just a wash through "recycling."  If you spend some money in stores, and then some people then invest in our company, that’s not a wash either.

## Markets in everything

Mr Caballero’s clothes can withstand shots from 9mm pistols to AK-47s
and clients fearing knives can pay extra for stab-proofing.

The market is South Africa and the inspiration is Colombia.  It’s the stab-proofing that impresses me.  Here is the story and I thank NS for the pointer.

## I, Dirt

Potting mixes often contain sphagnum peat moss from bogs in Canada
or Ireland. Bark fines might come from a sawmill in the Deep South.
Coconut "coir," a peat moss substitute, gets shipped all the way from
Asia.

A common ingredient in potting mixes is perlite, which makes the
soils airier while also retaining moisture. In its final form, small
white pellets, it appears to be something synthesized in a factory. In
fact, it comes from a volcanic sand mined on the Greek island of Milos.
Shipped to the United States, the ore is heated to 1,400 degrees
Fahrenheit, at which point it pops into kernels.

The always-interesting Joel Achenbach writing in the Washington Post.

Stephanie Schmitt-Grohe and Martin Uribe report (ungated here):

In this paper, we perform a structural Bayesian estimation of the
contribution of anticipated shocks to business cycles in the postwar
United States. Our theoretical framework is a real-business-cycle model
augmented with four real rigidities: investment adjustment costs,
variable capacity utilization, habit formation in consumption, and
habit formation in leisure. Business cycles are assumed to be driven by
permanent and stationary neutral productivity shocks, permanent
investment-specific shocks, and government spending shocks. Each of
these shocks is buffeted by four types of structural innovations:
unanticipated innovations and innovations anticipated one, two, and
three quarters in advance. We find that anticipated shocks account for
more than two thirds of predicted aggregate fluctuations. This result
is robust to estimating a variant of the model featuring a parametric
wealth elasticity of labor supply.

Jerry-rigged, yes.  But the principle of Occam’s Razor isn’t as strong as many people think.  If the mechanisms governing real world outcomes actually are that complicated, and if the simpler theories have failed, than jerry-rigging it is.  And, as Christina Romer has pointed out, deflationary money shocks are still bad for output and employment, which means the theory has at least an extra branch.

## The power of competition, or should there by library fines?

"Libraries are facing competition from television, magazines, the
internet, e-books, yet they have this archaic and mad idea of charging
people money for being slightly late," said library consultant Frances
Hendrix – a loud voice in the debate which has been taking place on an
online forum for librarians. "It’s all so negative, unprofessional and
customers." Liz Dubber, director of programmes at reading charity The
Reading Agency, agreed. "My personal view [is that] they’re past their
sell-by date because they do sustain a very old-fashioned image of
libraries which is out of sync with today’s modern library environment
and the image libraries are trying to project – tolerant, responsive,
flexible, stimulating," she said.

Some critics have described the fines as "alienating."  But are there alternatives?:

One librarian suggested adopting the ancient practice of some
monasteries, in which monks who offended in the handling of books were
publicly cursed. Another pointed to Soviet Russia, where they said that
offenders’ names were published in newspapers to shame them into
returning their books. In New Zealand town Palmerston North next week,
library users returning late books are being challenged to beat
librarians on Guitar Hero to have their fines waived.

In any case this economist will suggest higher fines for very new and popular books and also commonly used reference manuals, combined with lower fines for everything else.

## Tipping is hard

And should I also say that writing software is sometimes easy?  Stephen Dubner lists some of the new iPhone applications:

iTip, from palaware
iTip, from Uncouth Software
BigTipper, from PureBlend Software
TipCalc, from BAMsoft
Tipulator, from tap tap tap
Tip Calc, from Charles Ying
Tip, from Carlos Perez
Tips, from Kudit.com
mTip, from Pascal Mermoz
TipBuddy, from Justin Jeffress
Gratuity, from TapeShow
QuickTip, from Spare Change Software
Tippety Split, from Manta Ray Software

Reeling from the highest inflation rate in the world, barred by the
government from using U.S. dollars for purchases, Zimbabweans turned to
a new money source Wednesday: gasoline coupons.

Here is the full story, thanks to Tony McGovern for the pointer; he cites this blog post as well.