Month: April 2009

Does the U.S. need an auto industry?

by  Tyler Cowen in

Here is the symposium, I was in a Bryan Caplan and Don Boudreaux sort of mood when I emailed in my answer:

I’m an economist not a business forecaster, so I don’t have any particular predictions about Chrysler and G.M. We do know that Ford is likely to survive.

More important, there are some very efficient Toyota plants in the United States. That too is part of our domestic automobile industry and those plants employ a large number of American workers.

You might think that Toyota is different because it is a Japanese company rather than an American one. But in fact Toyota is a publicly traded company, as are most of the other major automobile makers. That means any American can, any time he or she wants, buy some Toyota shares and make Toyota more of an “American company” and less of a “Japanese company.”

Have you gone out and bought those shares? Maybe not. Maybe that means you don’t really care about whether Toyota is a Japanese or an American company. If you have bought Toyota shares, maybe it is simply because you thought that the company was a good investment. That’s O.K., there is nothing wrong with those attitudes. In fact those attitudes are a sign of your rationality.

Our automobile industry could be much more “American” if we really cared to make it so. But we don’t. Our behavior as investors and consumers is usually more rational than the claims we offer up in politics and in public discourse.

The Twitter barrage

by  Tyler Cowen in

In the last forty-eight hours I have acquired many hundreds of new Twitter followers for my Twitter posts, yet for no apparent reason.  I've probably doubled my number of followers over the last two days and that includes a concentrated swarm of followers with Russian or Ukrainian names (what about Belarus?).  Today I can click on my email every few minutes and have a bunch of new followers.

Yet I have done nothing notable over that same time period nor have I received significant media coverage.  What accounts for this equilibrium?  What is the underlying model of social contagion?  One model is simply that these followers have been queued for weeks by Twitter and the notices are being released only now; does that accord with your experience as a Twitter user?

Flu fact of the day

by  Tyler Cowen in

Here is Revere at Effect Measure:

We currently have fewer staffed hospital beds per capita than we did in the last pandemic, 1968 (the "Hong Kong flu").

He offers further wise words and note that this hypothetical projection is one of the better case, mutation-free scenarios:

Now take a bad flu season and double it. To each individual it's the
same disease but now everybody is getting it at once, in every
community and all over the world. In terms of virulence, it's a mild
pandemic. It's not a lethal virus like 1918. But in terms of social
disruption it could be very bad. If twice as many people get sick, the
number of deaths could be 80,000 in the US instead of 40,000. Gurneys
would line the hallways of hospitals and clinics. And absenteeism
amongst health care workers would compound the problem. Infrastructure
would probably survive intact. No need to have your own water supply or
electricity generator. But it would be a very rough ride.

All of this could plausibly happen from this virus without it causing anything more than the usual case of influenza.

Old people love Kindle

by  Tyler Cowen in

Citing this Amazon forum, Publishers Lunch Deluxe reports:

We extracted about 75 percent of the responses on age (representing about
700 responses, taking equally from the earliest and most recent postings,
which show very similar age distributions). Per John Makinson's quip at an
LBF panel, over half of reporting Kindle owners are 50 or older, and 70
percent are 40 or older. Here is the full age bracket distribution:

0 – 19: 5%
20 – 29: 10%
30 – 39: 15%
40 – 49: 19.5%
50 – 59: 23%
60 – 69: 19.5%
70 – 79: 6%
80+: 2%

The comments themselves are as illuminating as the numbers. So many users
said they like Kindle because they suffer from some form of arthritis that
multiple posters indicate that they do or do not have arthritis as a matter
of course. A variety of other impairments, from weakening eyes and carpal-tunnel-like
syndromes to more exotic disabilities dominate the purchase rationales of
these posters. Which in turn explains Amazon's pseudo-statistical case that
e-book purchases are incremental/additive, rather than cannibalistic of
their print sales. Countless people report being able to read much more
with Kindle because it overcomes physical obstacles or limitations that had
made reading difficult for them previously.

I thank S. for the pointer.

Keynes’s *General Theory*, chapter 12

by  Tyler Cowen in

In practice we have tacitly agreed, as a rule, to fall back on what is, in truth, a convention. The
essence of this convention — though it does not, of course, work out
quite so simply — lies in assuming that the existing state of affairs
will continue indefinitely, except in so far as we have specific
reasons to expect a change. This does not mean that we really believe
that the existing state of affairs will continue indefinitely. We know
from extensive experience that this is most unlikely. The actual
results of an investment over a long term of years very seldom agree
with the initial expectation. Nor can we rationalise our behaviour by
arguing that to a man in a state of ignorance errors in either
direction are equally probable, so that there remains a mean actuarial
expectation based on equi-probabilities. For it can easily be shown
that the assumption of arithmetically equal probabilities based on a
state of ignorance leads to absurdities. We are assuming, in effect,
that the existing market valuation, however arrived at, is uniquely correct in
relation to our existing knowledge of the facts which will influence
the yield of the investment, and that it will only change in proportion
to changes in this knowledge; though, philosophically speaking it
cannot be uniquely correct, since our existing knowledge does not
provide a sufficient basis for a calculated mathematical expectation.
In point of fact, all sorts of considerations enter into the market
valuation which are in no way relevant to the prospective yield.

Nevertheless the above conventional method of calculation will be
compatible with a considerable measure of continuity and stability in
our affairs, so long as we can rely on the maintenance of the convention.

For if there exist organised investment markets and if we can rely
on the maintenance of the convention, an investor can legitimately
encourage himself with the idea that the only risk he runs is that of a
genuine change in the news over the near future, as to the
likelihood of which he can attempt to form his own judgment, and which
is unlikely to be very large. For, assuming that the convention holds
good, it is only these changes which can affect the value of his
investment, and he need not lose his sleep merely because he has not
any notion what his investment will be worth ten years hence. Thus
investment becomes reasonably “safe” for the individual investor over
short periods, and hence over a succession of short periods however
many, if he can fairly rely on there being no breakdown in the
convention and on his therefore having an opportunity to revise his
judgment and change his investment, before there has been time for much
to happen. Investments which are “fixed” for the community are thus
made “liquid” for the individual.

It has been, I am sure, on the basis of some such procedure as this
that our leading investment markets have been developed. But it is not
surprising that a convention, in an absolute view of things so
arbitrary, should have its weak points. It is its precariousness which
creates no small part of our contemporary problem of securing
sufficient investment.

The insights here have yet to be fully mined.

Spent: Sex, Evolution, and Consumer Behavior

by  Tyler Cowen in

That's the new book by Geoffrey Miller, of The Mating Mind fame.  The exposition is a bit of a sprawling mess but the best pages of content are fascinating.  I recommend it and I am glad that I started reading it the moment I got my hands on it.

The core thesis is the Veblenesque point that marketing plays upon our weaknesses as evolved, biological creatures, obsessed with signaling:

From my perspective as an evolutionary psychologist, this is how consumerist capitalism really works: it makes us forget our natural adaptations for showing off desirable fitness-related traits.  It deludes us into thinking that artificial products work much better than they really do for showing off these traits.  It confuses us about the traits we are trying to display by harping on vague terms at the wrong levels of description (wealth, status, taste), and by obfuscating the most stable, heritable, and predictive traits discovered by individual differences research.  It hints coyly at the possible status and sexual payoffs for buying and displaying premium products, but refuses to make such claims explicit, lest consumer watchdogs find those claims empirically false, and lest significant others get upset by the personal motives they reveal.  The net result could be called the fundamental consumerist delusion — that other people care more about the artificial products you display through consumerist spending than about the natural traits you display through normal conversation, cooperation, and cuddling.

I very much agree.  Miller also tells us that we can do better and offers us some (non-regulatory) proposals for lowering the cost of our signaling.  (Don't buy a luxury car!)  Would it be cheaper and more effective to wear credible, verifiable tattoos of our personality types from the six-factor model?

I'll be considering more from this book soon.

Is it wrong to buy sex?

by  Tyler Cowen in

The Intelligence Squared debate is now on YouTube.  If you will recall, Lionel Tiger and the Mayflower Madam were on my side, against Wendy Shalit, Catherine Mackinnon, and Melissa Farley.  They won and you will find Alex's interpretation here.  A few observations:

1. Catherine Mackinnon's closer was I thought the single best speech in the debate.

2. I was very pleased to have met and chatted with Wendy Shalit, as we hit it off very well; you'll find her books here.

3. I believed throughout that it would hurt my side of the debate to suggest that men would enjoy the experience of buying sex; the sociology of that fact is itself interesting.

4. During Q&A I was asked whether a woman raped at a very young age can later be said to have exercised autonomous choice in her decision to become a prostitute.  The premise of the question was "obviously not" but is it so simple?  Does everyone who was once a helpless victim, in a terrible way, lose autonomy?  The implications of that world view frighten me.

5. Legalization advocates still could use a better account of why this market, even when it is legal or quasi-legal, seems so prone to abuse.

The game theory of Arlen Specter

by  Tyler Cowen in

Will writes:

My quick take is that this sucks, because the more choke points in the policymaking process the better. That said, it probably doesn’t change all that much unless Senate Dems can muster reliable intraparty unanimity. A few things that wouldn’t have passed will, and those could be an important few things, but most final votes won’t be different. The one way this hurts the Dems is that it makes a narrative of GOP obstruction less plausible, and if various things go south by the mid-terms, the Republicans can more plausibly say that all of it’s the other guy’s fault.

If the guy is willing to switch parties, he was already in the first place willing to switch policies (if indeed he needed to change his mind at all).  He's suddenly lost of a lot of bargaining power (he had to hold off Pat Toomey, who presumably would have beaten him in the primary) and some of that power has been redistributed to the most conservative Democrats in the coalition.  That could be an improvement.

Note also that Democratic Senators may find it harder to oppose Obama once a policy initiative is announced, so they may work harder behind the scenes, and well in advance, to shape legislation in their preferred directions or simply just kill it off.  In contrast, a Republican veto-voice will be more reactive ex post.

On the marketing side, maybe now the Republicans, being denied the filibuster, will have to come up with some ideas that are actually appealing to voters outside their core constituencies. 

Addendum: Here is Matt's analysis.  And here is the academic evidence that voting behavior changes, following a party switch.

The brighter side, sort of

by  Tyler Cowen in

Why is the death rate higher in Mexico?  Maybe it isn't:

Of the 110 million people in Mexico, 1,600 cases have been reported, with about 100 deaths–suggesting a mortality rate of 6 percent. This is almost certainly bad math, as the total case count almost certainly ignores thousands or tens of thousands of other cases that have taken milder courses like those in the United States. It's perfectly conceivable Mexico has actually had 10,000 or 100,000 cases–or even 1 million cases. If so, then the kill rate would be not 6 percent but 0.1 percent (given 10,000 cases) or 0.01 percent (given 100,000 cases). If it's 1 million cases (quite possible if this thing really spreads easily) then the mortality rate is just 1 in 10,000. Meanwhile, because the United States is on high alert–and can take special note of people with recent travel to Mexico–it is probably picking up a fairly high percentage of its cases, including milder instances that would have gone unnoticed in Mexico a few weeks ago.

…For one thing, it's also possible that Mexico is missing, undercounting, or badly underreporting deaths. But if this virus really does spread rapidly, its kill rate is fairly low; and if its kill rate is anywhere near as high as the 100-out-of-1,600 suggests, then it doesn't spread very easily.

Here is the full article.

Addendum: Have the first U.S. deaths arrived?