Month: December 2008

Markets in everything, Xmas edition

Company offers to wrap your Christmas purchases just as badly as you could do it yourself

So says Kat, my source on this story.  It’s called "Crapwrap": is paying 20 of its male forklift truck drivers and
warehouse assistants to wrap presents as quickly as possible, using
ugly brown duct tape and very little care.

And the $9 service, cheekily called CrapWrap, has attracted more than 500 customers since it launched last week.

This way she’ll think you did it. 

…Parcels can even be dispatched in brown paper with a shoddily-tied pink ribbon.

Kevin Smith, 29, is proud to be the worst wrapper at the company’s London warehouse.

He said: "I am rubbish. We’re not given any instructions. I’m just
asked to make a hash of it using lots of brown tape and making sure
there are rips and untidy folds.

"It’s nice to get away from the normal work: cleaning, packing and moving stuff around. Wrapping is a good distraction."

What is the best kind of fiscal policy shock?

Hot off the presses from the NBER, from Andrew Mountford and Harald Uhlig, the evidence is mounting:

We propose and apply a new approach for analyzing the effects of fiscal
policy using vector autoregressions. Specifically, we use sign
restrictions to identify a government revenue shock as well as a
government spending shock, while controlling for a generic business
cycle shock and a monetary policy shock. We explicitly allow for the
possibility of announcement effects, i.e., that a current fiscal policy
shock changes fiscal policy variables in the future, but not at
present. We construct the impulse responses to three linear
combinations of these fiscal shocks, corresponding to the three
scenarios of deficit-spending, deficit-financed tax cuts and a balanced
budget spending expansion. We apply the method to US quarterly data
from 1955-2000. We find that deficit-financed tax cuts work best among
these three scenarios to improve GDP
, with a maximal present value
multiplier of five dollars of total additional GDP per each dollar of
the total cut in government revenue five years after the shock.

The emphasis is mine.  I’m not saying you have to believe this paper in all its details (I don’t), but over the next year you will continue to hear talk about the wonders of government spending as fiscal policy.  The science isn’t there.  Here are ungated versions of the paper.

Keynes’s General Theory, chapter six

Keynes does all this huffing and puffing about terms and finally he stumbles into his mention of Hayek.  Hayek had written some now-obscure articles about net investment and measures of the capital stock, reprinted in Profits, Interest, and Investment.  (Here is an excellent Lawrence H. White essay on this part of Hayek’s thought.)  Keynes wants to show he doesn’t have to worry about these debates.  Keynes is also trying to liberate himself from his previous (1930) two-volume Treatise on Money, a disappointing work.  At the end of section (i) you get the clincher: "For this reason, and also because I no longer require my former terms to express my ideas accurately, I have decided to discard them — with much regret for the confusion which they have caused."

Again, in part ii the bombshell comes, unannounced.  Keynes decides that he will declare savings to be a "mere residual."  Consumption and investment alone will determine income and savings is defined as whatever is left over to make the national income equations balance.

At the time this was considered by many to be an enormous sleight of hand. The Austrian and Swedish traditions focused on the question of whether planned savings was going to equal planned investment and what happens if not.  Keynes has just banished such questions to the woodshed and he has done so by a terminological maneuver.

Whether or not you think that the Austrian and Swedish traditions lead anywhere fruitful, Keynes is on shaky ground here.  He is using definitions to favor one causal account of macro over another.  That’s not right.  You can still make a plausible argument that Keynes is right on empirical grounds that planned savings is not an important force for understanding business cycles.  But so far no such empirical argument has been clinched.

In the second to last paragraph Keynes realizes that in his system savings does not and cannot constrain investment.  He notes that if animal spirits were wild enough, the price of output could fluctuate between zero and infinity.  Neither interest rates nor savings plans perform any of their traditional constraining or equilibrating functions.  At least Keynes realized how far out on a limb he was going.

Due to popular request, we’ll resume with the Keynes symposium in January but take a break for the close of the semester.

Discover your Inner Economist, Italian edition

Here is one place to buy it and here.  Here are other relevant purchase sites.  I believe it is available in both hardcover and paperback, although don’t hold me to that claim.

The mid-title — Scopri l’economista che è in te — still resembles "Discover Your Inner Economist."  But now the book has a new lead title : "No Crac" ["No Nonsense"?] and a new subtitle, something like "How to survive the great depression and be happy," or so I am told by Maria Pia Paganelli.

The best sentence I read yesterday

Yes, I am skeptical of most medicine because on average it seems folks who get more medicine aren’t healthier.  But I’ll heartily endorse one medical procedure: cryonics, i.e., freezing folks in liquid nitrogen when the rest of medicine gives up on them.

Here is the full post and of course that is Robin Hanson.  The post has another very good sentence:

It seems far more people read this blog daily than have ever signed up for cryonics.

Here is Robin’s excellent post on why cryonics is unpopular.  Here is Bryan Caplan’s.  My current view is this: one’s attention is extremely scarce and limited, as are one’s affiliations.  Insofar as you have the luxury of thinking "bigger thoughts," those thoughts should be directed at helping others, not at helping oneself.  The real opportunity cost of cryonics is not just the money but whatever else you would have done with that intellectual energy. 

Furthermore the universe (or multiverse) may be infinite, so in expected value terms it seems my copies and near-copies are already enjoying a kind of collective immortality

There is an anthropic effect insofar that only people who are not regularly tortured have the luxury of thinking about cryonics.  But not all worlds have to be so peaceful.  What probability of future torture would cause us to wish to die forever rather than be resurrected?  And should I therefore be scared by the idea of an infinite universe?  Do Darwinian selection pressures — defined in the broadest possible way — suggest it is worth spending energy on making entities happy?  Or do most entities end up as suffering slaves?

Addendum: Robin responds.

Keynes’s General Theory, chapter five

Part i shows that Keynes had digested the Austrians, and especially the Swedes, far more than he let on.  He goes through considerable machinations to show that his main argument is consistent with the Swedish long vs. short-run, ex ante vs. ex post analysis that ruled Stockholm at the time, as found in Myrdal, Lindahl, Ohlin and others.  For all of Keynes’s periodic dismissiveness of his precursors, I read him as actually quite intimidated by them.  In this section he’s "looking for their approval," if only in his own mind.

In Part ii Keynes presents two bombshells, more or less from out of nowhere:

a) For the short-run, the common default expectation is that "recently realized results will continue"; this precludes entrepreneurial creativity and creation as a way out of a bad situation.  You’ll note the influence of Cambridge epistemology here, namely that we do not recreate our entire basic picture of the world de novo every day.  G.L.S. Shackle is mostly a Keynesian but on this issue his emphasis on the creative imagination of the individual is a significant revision of Keynes.

b) Long-term expectations do not adjust smoothly but rather become more bullish or bearish in volatile leaps.

Furthermore a) and b) are held together, which implies at some margin a sharp disjunction between the short-run and long-run.  I do not regard Keynes’s two assumptions as absurd, but they are hardly a "general theory."  Note that you need a) to choke off various processes of recovery and you need b) to get investment demand to be so volatile in the first place.  Let’s say you think b) is reasonable, then in my view you should also believe in possible "cascade" effects which can pull you out of a downturn in the short run.  But for Keynes, no.

Here is a comment on last week’s session.  Chapter six will be going up this afternoon.  On short vs. long-term expectation, Felix Salmon has some good points.

Why is the New Springsteen Album Coming out in January?

Why is the new Springsteen album, Working on a Dream, coming out on January 27?  Christmas is the big selling season.  Wouldn’t lots of people want to buy this album for the holidays?  Moreover, albums that debut early in the year are less likely to make the end of the year "best of the year" lists since they are soon forgotten.

True, there is surely a mixed strategy equilibrium in which some albums debut in January.  After all, since most albums, like movies, will aim for a holiday release this gives the ones that come out after the holidays more shelf space and radio time all to themselves.  Thus, it can’t be an equilibrium for all albums to debut at Christmas.  But which ones should?  Knowing that the Springsteen album is coming in January does that give us a signal of quality?  Can you work out the equilibrium?   

“Profitable until deemed illegal”

Dutch books and Venus fly traps abound:

I was fascinated to discover the auction hybrid site (previously known as It’s a strange combination of eBay, woot, and slot machine. Here’s how it works:

  • You purchase bids in pre-packaged blocks of at least 30. Each bid costs you 75 cents, with no volume discount.
  • Each bid raises the purchase price by 15 cents and increases the auction time by 15 seconds.
  • Once the auction ends, you pay the final price.

I just watched an 8GB Apple iPod Touch sell on swoopo for $187.65. The final price means a total of 1,251 bids were placed for this item, costing bidders a grand total of $938.25.

So that $229 item ultimately sold for $1,125.90.

If traders are overconfident, as much as the finance literature alleges, there ought to be a way to exploit that tendency.  And so there is.  If you read the article you will see it is even worse than it sounds.  Jeff Atwood concludes:

In short, swoopo is about as close to pure, distilled evil in a business plan as I’ve ever seen.

Or are the overconfident people sharing in the evil as well?  For the pointer I thank Ambrose Wong, Kevin Markham, and Travis Allison.

The countercyclical asset, a continuing series

A study last year may lend some credence to the legend. In “Praying for
Recession: The Business Cycle and Protestant Religiosity in the United
States,” David Beckworth, an assistant professor of economics at Texas
State University, looked at long-established trend lines showing the
growth of evangelical congregations and the decline of mainline
churches and found a more telling detail: During each recession cycle
between 1968 and 2004, the rate of growth in evangelical churches
jumped by 50 percent. By comparison, mainline Protestant churches
continued their decline during recessions, though a bit more slowly.

Here is the full story.  Here is the paper.  Here is earlier discussion from Mark Thoma’s.  Here is David Beckworth’s blog.

Markets in hardly anything any more?

The remaining 3 “major” labels – Universal, Sony and
EMI – will be out of the classical business within 2 years. They will
create no more than a handful of additional classical CDs. With the
possible exception of a few “crossover” artists the labels will drop
all of their classical artists. The majors will focus on trying to
salvage their pop business and will abandon classical because it is
more trouble than it is worth. The 20th century recording industry and
business model is obsolete. It will soon be gone.

remaining viable classical label will be Naxos. Their costs are
dramatically lower and their business model allows them to operate
profitably in a smaller industry and with much lower sales numbers. A
primary contributor to Naxos’ lower costs is the fact that they don’t
pay any residuals to the performers. There is no income potential for performers in the Naxos model! They will profitably produce CDs for several years longer than the majors.

will be a small number of “vanity” labels left but their volume will be
microscopic and they will operate on the same financial model as Naxos.
They will ultimately disappear as well.

the entire recorded history of classical music will vanish from the
world. None of the pre-2000 material had digital rights cleared when it
was recorded and the cost of clearing these rights now dwarfs any
income that could result. There is no commercially viable model for
reviving this material.

Here is more, interesting throughout and the comments are excellent.  The author does suggest that live concerts still will be broadcast over the web and in some other ways marketed.  An alternative is that governments assign the digital rights unilaterally or the whole model goes grey/illegal as people dump their CD content onto web sites.  Furthermore I don’t think recorded classical music will disappear, as the independent labels continue to issue releases, the demise of recording has been forecast for a long time, and my copy of Fanfare (classic music reviews) is much thicker now than two years ago. 

Tips for scoring with the opposite sex

Yes, reading:

"The men polled said they would be most impressed by women who read
news websites, Shakespeare or song lyrics. Women said men should have
read Nelson Mandela’s biography or Shakespeare."

Here is the link.  46% of the surveyed men lie about what they have read — to impress partners — and 33% of the surveyed women admit to lying about their reading habits.  In fact it’s the second most likely form of lying (or so people say) for purposes of sexual conquest, with lying about one’s own sexual past as the most likely form of lying.

And for teenagers? (presumably British):

Top of the list to impress a teenage boy are Facebook and MySpace
followed by text messages, Harry Potter and song lyrics. Magazines like
Zoo and Nuts are number seven. To impress a teenage girl, it is the
same top two, followed by song lyrics, cookery books and Harry Potter.
Reassuringly, Jane Austen is number seven.

Here are the actual lists but of course I believe people are lying about those too.