Month: August 2008

The new flight to the suburbs

But this time it’s the dead people:

Detroit has lost half its population since its heyday of the 1950s,
and every year the city hemorrhages an estimated 5,000 people more.
First it was white flight to the suburbs; then with the city’s
continued spiral into poverty and violence, blacks began to flee to
those same suburbs. And while census figures show that whites are
returning to some of the nation’s largest cities, Detroit is
experiencing a flight of a different kind. As the Imbrunones’ second
funeral demonstrates, Detroit is experiencing the flight of the dead.

…From 2002
through 2007, the remains of about 1,000 people have been disinterred
and moved out of the city, according to permits stored in metal filing
cabinets in the city’s department of health. Looked at in another way,
for about every 30 living human beings who leave Detroit, one dead
human being follows. Moreover, anecdotal evidence compiled by a Detroit
professor suggests the figure may be twice as high, meaning city
records may be incomplete and that thousands upon thousands of deceased
people have been relocated from the city over the past 20 years.

Here is the story, interesting throughout.  In one example the relocation cost about $5,000.  I thank Hugo Lindgren for the pointer.

Bold claims about time asymmetry

…given self-indication we should expect to be in a
finite-probability universe with nearly the max possible number of
observer-moment slots.  Such universes seem large enough to have at
least one inflation origin, which then implies at least one (and
perhaps infinitely many) large regions of time-asymmetry like what we
see around us.  And if, as it seems, most observer-moments in such universes are in
such regions, then we have explained why we see what we see.

That’s from Robin Hanson, one of the least evil people I have met.  I do not have the background to judge this claim but it makes sense to me.  The question is whether you are willing to bite the bullet when you realize the other implications of what Robin is postulating, namely that you start dealing with expected values of infinity, most of all in ethics

By the way, via Andrew Sullivan, here is new evidence for dark energy.

China fact of the day

"Business is worse than at this time last year," said a receptionist at
a 22-room hotel in Beijing’s Chongwen district, where rooms cost $28 a
night. "It’s the season for traveling and last year the hotel was full.
The Olympics should have brought business to Beijing, but the reality
is too far from the expectation."

Many of the events are not very crowded, so:

To remedy the problem, officials are busing in teams of state-trained
"cheer squads" identifiable by their bright yellow T-shirts to help
fill the empty seats and improve the atmosphere.

Here is the story.

The Obama tax plan


Those are the marginal tax rates and how they would change, analyzed here, via Greg Mankiw.  The key point is this: "Reducing a person’s tax credit as his income goes up also reduces his incentive to earn more income."  But before some of you get all upset, I do not intend this presentation as an endorsement of John McCain’s utterances on fiscal policy.

Addendum: I am not saying that Obama is "raising taxes on the poor."  It is about marginal rates and yes marginal rates do matter for incentives.  This is a genuine problem of many indeed most anti-poverty programs, it is not an attempt to mislead anyone.  Don’t treat everything as necessitating a response to right- or left-wing talking points.  You still ought to look at this diagram and think that the "notches" are too discrete and too strong.

Second addendum: Here is an Econ4Obama response.

My favorite things Chile

1. Fiction: I’ve already covered Roberto Bolaño plenty on MR; The Savage Detectives is his masterpiece but it’s all worth reading.  The massive 2666 is due out later this year.  José Donoso’s The Obscene Bird of Night, while hardly read in the U.S., seems to me one of the most gripping novels of the 20th century.  If you read the Amazon reviews you’ll that others who have read it agree.  This is one of the least read first-rate novels I know.  It’s not easy going, however, and it’s taking me a long time to read through a mish-mash of the English and Spanish-language texts.  To top it all off, Isabel Allende has many fun books, most notably The House of the Spirits, which almost everyone will enjoy.  Chile is much stronger in literature than most people think.

2. Popular music: Ricardo Villalobos is the lead figure of Chilean techno, which is now I hear quite a vibrant genre; Taka Taka is quite a good mix album.  What else can you point me to?

3. Poetry: My favorite Neruda is Canto General, his retelling of Whitman’s America but covering the entire hemisphere.  A masterpiece.  Estravagario is excellent and while I haven’t read Residencia de la Tierra, it is considered another one of his classics.  The love poems are very nice though perhaps not his best material.  In any case he is one of the three or four best poets of the twentieth century.  Gabriela Mistral is talented but I cannot say I love her work.

4. Playwright: Ariel Dorfman’s Death and the Maiden is good.

5. Favorite small town: There are so many, but how about Villarica, Punta Arenas, or that small port place next to La Serena whose name I cannot remember?  Chile is one of the world’s best countries for lovely small towns.

6. Movie, set in or made in: Sorry folks, but I can’t think of a single one.  What am I missing?

7. Seafood dish: Curantos.

8. Pianist: It’s hard not to pick Claudio Arrau, but, despite his musical intelligence, I don’t actually enjoy most of his (to me) lugubrious recordings.  I have heard he was much better live in concert.

9. Painter: Roberto Matta is the obvious choice.

The bottom line: Writing, writing, and more writing.  More generally, Chile is one of the very nicest countries on Earth.  The key is to get around to those small towns.

What are the best games?

I loved this post by Bryan Caplan, even if I don’t quite agree with it.  Here’s his bottom line:

The best games are inter-disciplinary, combining economics and
psychology. Games of pure strategic reasoning like chess are dry. Games
of pure social interaction are a little silly. But games that bring
together strategic reasoning and social interaction are a joy for heart
and mind.

I do believe that Bryan’s claim is true for smart people with no managerial or administrative responsibilities but not for those who experience such joys in the course of daily life and thus do not need the game.  Similarly, I believe that people with highly analytical day jobs do not usually go to chess clubs at night, even if they in principle enjoy the game of chess.

A simple one variable theory is that the qualities of the games you play reflect the qualities which are missing in your regular life.

There are a number of obvious exceptions to this theory.  For instance highly social people may play highly social games because their marginal utility for sociable activities does not decline very rapidly if at all.  Or you might play a particular game just because your wife makes you.  Still, my one variable theory is a starting point for understanding which people enjoy which games.

If you’re wondering, I don’t play any games at all.  I’m not saying I’m so wonderfully complete, but overall I prefer stories to games, at least at my current margins in life.

Against Intellectual Monopoly

Against Intellectual Monopoly is a relentless, pounding, take no prisoners attack on patent and copyright law.  It joins Lessig’s Free Culture and Heller’s The Gridlock Economy as an instant classic and a must-read on these issues. 

Many people argue that the patent system has gone wrong in recent years, Boldrin and Levine argue that the patent system was rotten from the start.  James Watt they say was a "scoundrel" who with his politically-connected partner Matthew Boulton used the patent system to crush their innovative opposition and delay the industrial revolution. 

During the period of Watt’s patents, the United Kingdom added about 750 horsepower of steam engines per year.  In the thirty years following Watt’s patents, additional horsepower was added at a rate of more than 4,000 per year.  Moreover, the fuel efficiency of steam engines changed little during the period of Watt’s patent; however between 1810 and 1835 it is estimated to have increased by a factor of five.

Will books be published without copyright?  Boldrin and Levine point out that the 9-11 Commission Report was profitably published by Norton despite being available free for download. Not to mention the fact that most of the great works of literature were published without copyright.  Boldrin and Levine are top-notch theorists but AIM is widely accessible and it succeeds best with its many historical discussions and contemporary anecdotes.

AIM does suffer in places from a lack of a lack of nuance and a surprising ability to ignore trade-offs.  Boldrin and Levine argue, for example, that among the reasons we don’t need patents are a) because ideas aren’t copied immediately, they take time to diffuse, b) first movers have significant advantages and c) trade secrecy is often a more effective "means of appropriating returns" than patents.

Quite right on all three counts but each of these reasons also explains why patents are less costly than one might at first imagine.  After all, what Boldrin and Levine are really saying is that intellectual monopoly would exist even without intellectual property law

A standard model used to explain why patents might be useful implicitly
assumes that ideas are transmitted instantly at zero cost.  Boldrin
and Levine smash the premise of this argument but the premise is sufficient for the conclusion not
necessary.  Indeed, once you acknowledge that the slow diffusion of ideas helps entrepreneurs to appropriate the returns to their innovations it becomes an open question of how slow is best?   When is the appropriability of returns strong and when is it weak?  Doesn’t it differ for different goods?  Shouldn’t intellectual property law recognize these differences?  It’s clear, for example, that ideas are diffusing more quickly than ever before.  On Boldrin and Levine’s argument, faster diffusion of ideas implies lower appropriability and thus a stronger argument for intellectual property law.  Needless to say Boldrin and Levine are too busy using
a "mallet to smash shiny myths" to make this argument.  (To be fair, they are more nuanced in
the conclusion.).

Similarly, Boldrin and Levine argue that the larger the market the less patent protection is needed, hence globalization implies less patent protection.  Again, quite right (see also my paper, Patent Theory versus Patent Law, on this point).  But you won’t see Boldrin and Levine drawing the corollary conclusion that more intellectual property rights are optimal the smaller the market, despite the fact that we have a very successful example where increased patent rights for smaller markets generated considerably more innovation, namely the Orphan Drug Act.

For economists, it’s also surprising how little marginal analysis you find in AIM.  For example, Boldrin and Levine ask, Did Rowling really need a billion dollars to write Harry Potter?  Surely, a few million would have been enough.  But that’s like saying that taxing lottery winnings won’t reduce the number of buyers because the winner will still get a huge return on her dollar of investment.

The bottom line is that that there is a Laffer curve for innovation – more appropriability increases innovation at first but innovation declines when appropriability extends too far. I agree with Boldrin and Levine that rent-seeking has put us on the wrong side of the Laffer curve for innovation.  We need to reduce intellectual monopoly with patent reform, less copyright protection, and a greater use of patent substitutes like prizes.  But unfortunately, when it comes to innovation there is no invisible hand theorem which moves us automatically to the top of the curve. 

As good a time as any

Kathy G writes:

I thought it was as good a time as any to begin a project I’ve been contemplating for a while now: an occasional series of posts about why Wal-Mart is the single institution that, above and beyond all others, represents the despotism, moral depravity, and sheer viciousness of American life in the 21st century.  As surely as the motto of this humble blog is "Écrasez l’infâme!," there is no better synecdoche for the modern infâme than Wal-Mart.

Here is post one in the series.  Here is the next paragraph:

Why Wal-Mart? For one thing, Wal-Mart is huge. It is America’s, and the world’s, biggest company (in terms of revenues), and also America’s, and the world’s, largest private sector employer. Using the figure listed here on Walmart’s 2007 revenues, and the figures for the U.S. GDP in 2007 listed here and here (which all give slightly different estimates for the GDP), I calculate that Wal-Mart’s revenues are equal to approximately 2.7% of the gross domestic product of the United States.

It is argued that Wal-Mart has a negative net effect on U.S. wages.  I would sooner stress that Wal-Mart has boosted Chinese wages and lowered inflation rates (and thus raised living standards) for many poorer Americans.  On the negative side it might be argued that "jobs selling toys" pay less than "jobs making toys."  Even if that is true, perhaps America would not have kept the jobs making toys anyway, thus making Wal-Mart a net increase in the demand for labor.  Alternatively, you might argue that Wal-Mart’s competitive prowess induces other firms to work harder to cut labor costs.  Again, this story works only if you start with a net increase in the demand for labor from the side of Wal-Mart.  Can the induced "get rid of the x-inefficiency of overpaid workers in other firms" effect be so large?  I am still inclined to side with Wal-Mart as providing a net increase in the demand for labor.  Kathy G, it seems, sees the matter differently.

Read the whole thing.

Please solve for the equilibrium

That’s what some environmentalists said they feared when Planktos, a
California-based concern, announced it would embark on a private effort
to fertilize part of the South Atlantic with iron, in hopes of
producing carbon-absorbing plankton blooms that the company could
market as carbon offsets. Countries bound by the London Convention, an
international treaty governing dumping at sea, issued a “statement of
concern” about the work and a United Nations
group called for a moratorium, but it is not clear what would have
happened had Planktos not abandoned the effort for lack of money.

Here is the whole story.

Someone once asked me what I thought of Slavoj Zizek

Here is an excerpt:

Q: What does love feel like? A: Like a great misfortune, a monstrous
parasite, a permanent state of emergency that ruins all small
pleasures. Q: Have you ever said ‘I love you’ and not meant it? A: All
the time. When I really love someone, I can only show it by making
aggressive and bad-taste remarks. Q: Tell us a secret. A: Communism
will win.

Here is the full interview, via Finoculous.  It contains further revelations.  A few months ago I spent some time browsing his latest book in Borders.  He can’t simply admit: "I was a fool to follow Mao and Stalin" but instead he has to push the line "I just need to reinterpret everybody more and I will still find some movement for "egalitarian terror" [those two words are his] to sign on to."  Grow up, I say, yet he is almost sixty years old.

How much is a professor subsidized?

On average, full-time faculty members at the University of New Mexico’s
Gallup campus were being subsidized to the tune of $10,554 apiece.

The word subsidization, in this context, refers to the subsidy from the university and not from government per se.  That’s the difference between the cost of the professor minus the revenue he or she brings in from tuition.  Here is the full article, with further links.  I am not sure how this estimate allocates various fixed costs (does a professor have to "pay for" the lawn care service?), but for the time being does that matter?  The important truth is that while universities think in these terms all the time, they are rarely if ever willing to make their implicit estimates public or see how those estimates might be improved.

Auto buybacks backfire

In my post, Gun Buyback Misfires, I pointed out that a) gun buybacks encourage people to turn in old, low-quality guns that are unlikely to be used in any case and b) gun buybacks can encourage people to buy and hold more guns because the buyback is a form of insurance, if the gun gets old or stops working you can sell it to the police.

In an excellent post Steve Levitt points out that Alan Blinder’s proposal for auto buybacks suffers from exactly the same problems.

…the majority of vehicles that are turned in will not have been driven much, if
at all. Indeed, I suspect one of the most visible responses to this program will
be a new market for mechanics fixing up cars that don’t run at all just enough
so that they can be driven to the government’s lot to collect the cash.

The biggest problem with this policy, however, is the way it distorts long
run incentives. Let’s say the rules of the program say that a car must be at
least fifteen years old to qualify for a big government subsidy to scrap it.
This gives powerful incentives to people with twelve-year-old cars they were
planning on scrapping to keep driving them for three more years to collect the
government bounty. Instead of reducing the number of clunkers on the road, this
program could actually lead to an increase!

CEO compensation: the latest results

Here’s the latest:

We analyze the long-run trends in executive compensation using a new panel dataset of top executives in large publicly-held firms from 1936 to 2005, collected from corporate reports. This historic perspective reveals several surprising new facts that conflict with inferences based only on data from the recent decades. First, the median real value of compensation was remarkably flat from the end of World War II to the mid-1970s, even during times of rapid economic expansion and aggregate firm growth. This finding contrasts sharply with the steep upward trajectory of pay over the past thirty years, which coincided with a period of similarly large increases in aggregate firm size. A second surprising finding is that the sensitivity of an executive’s wealth to firm performance was not inconsequentially small for most of our sample period. Thus, recent years were not the first time when compensation arrangements served to align managerial incentives with those of shareholders. Taken together, the long-run trends in the level and structure of compensation pose a challenge to several common explanations for the widely-debated surge in executive pay of the past several decades, including changes in firms’ size, rent extraction by CEOs, and increases in managerial incentives.

I don’t quite think these results are "surprising" any more, though they would have been three years ago.  In my view the analytically noxious "cultural factors" are looming larger in the explanation than we used to think.  It’s become increasingly hard to deny top producers what they, in economic terms, are worth.