Month: April 2009

The new Facebook design as profit maximization?

Via Finoculous, here is a very interesting post on why you hate Facebook, yet why it will make the company billions.  It is not written for an easy excerpt but the main argument is that finally the company can produce a commercially viable interface between businesses and people.  Here is one part:

When Zuckerberg announced these changes a couple of weeks ago I told
him he was brilliant and that his moves this month would be remembered
for decades. Decades.

Here’s why:

Let’s say you’re walking down University Ave. in Palo Alto,
California in a couple of years (or, really, any street in the world)
and you’re hungry.

You pull out your iPhone or Palm Pre or Android or Blackberry or
Windows Mobile doohickey and click open the Facebook application. Then
you type “sushi near me.”

It answers back “within walking distance are two sushi restaurants that more than 20 of your friends have liked.”

In his view the new Facebook is basically copying Friendfeed, albeit in a more potent way.  If you announce you are having a baby, you will be contacted by product suppliers and you will learn which baby-related services your friends have liked.

I still don't like it. 

A modicum of sanity on choice

I have not had time to read the original study but this rings true to me:

But now Benjamin Scheibehenne and colleagues have waded into the topic with the claim that the "too-much-choice effect" has in fact failed to appear in many experiments, and with the real-life observation that shops that offer more consumer choice tend to be more successful.

In a series of experiments, Scheibehenne's team tested 598 participants who were asked to choose from among restaurants, charities and music downloads. Throughout, they varied factors that they hoped might explain why the too-much-choice effect sometimes occurs and sometimes doesn't.

Examples of these factors included the need to justify one's choice; the perceived variety of choice, as opposed to actual amount of choice; the mean attractiveness of a range of choices; cultural differences (they tested German and US students); and individual differences such as people's tendency to maximise – that is, their consistent desire to find the perfect option.

For most of the experiments, the too-much-choice effect wasn't actually observed and when it did, the only relevant factor which increased the effect was the need to justify one's choice.

"The fact that most of the variables that we tested were not sufficient to elicit choice overload suggests that the too-much-choice effect is less robust than previously thought," the researchers said.

Repeat this fragment after me: "…the real-life observation that shops that offer more consumer choice tend to be more successful."  

Why do I choose that you should repeat that fragment and not some other?  I'm not going to tell you.

Worry less about the subsidy in the Geithner plan

From BronteCapital, via the indispensable Mark Thoma, this was an excellent post, excerpt:

…it is simply illogical to believe that

(a). The banks are largely insolvent,

(b). The right or actual government policy is guarantee big banks (ie no more Lehmans) and
(c). The subsidy to the Geithner Funds is a real problem.

If both (a) and (b) applied the Geithner Fund MUST save the government money – so the subsidy is irrelevant. 

The fiscal economics of Nazi Germany, part II

I am a big fan of the columns of David Leonhardt but I do not quite agree with his latest interpretation of fiscal policy in Nazi Germany.  David writes:

More than any other country, Germany – Nazi Germany – then set out
on a serious stimulus program. The government built up the military,
expanded the autobahn, put up stadiums for the 1936 Berlin Olympics and
built monuments to the Nazi Party across Munich and Berlin.

economic benefits of this vast works program never flowed to most
workers, because fascism doesn’t look kindly on collective bargaining.
But Germany did escape the Great Depression
faster than other countries. Corporate profits boomed, and unemployment
sank (and not because of slave labor, which didn’t become widespread
until later). Harold James, an economic historian, says that the young liberal economists studying under John Maynard Keynes in the 1930s began to debate whether Hitler had solved unemployment.

If I am reading this correctly, the implication is that fiscal policy worked but the German economy had a bad and worsening distribution of wealth.  I would sooner say that fiscal policy did not work and the German economy had a bad and worsening distribution of wealth. 

In 1933 military spending was 2 percent of German national income; by 1940 it was 44 percent, with a steady rise along the way.  The contemporaneous boost in measured gdp was almost completely an illusion in terms of human welfare (breaking the Versailles commitments did help Germany) and that includes corporations and their owners.  It is not that labor could not grab its fair share of the pie but rather that fiscal policy did not increase the size of the true (non-militaristic) pie.  If you want to see gnp figures for that period turn to p.25 of this paper by Albrecht Ritschl (and the discussions starting on p.4 on how to properly measure gnp during this time).  Ritschl offers a pessimistic account of the net contribution of fiscal policy and the abstract of his related paper sums it up well:

paper examines the effects of deficits spending and work-creation on
the Nazi recovery. Although deficits were substantial and full
employment was reached within four years, archival data on public
deficits suggest that their fiscal impulse was too small to account for
the speed of recovery. VAR forecasts of output using fiscal and
monetary policy instruments also suggest only a minor role for active
policy during the recovery. Nazi policies deliberately crowded out
private demand to ensure high rates of rearmament. Military spending
dominated civilian work-creation already in 1934. Investment in
autobahn construction was minimal during the recovery and gained
momentum only in 1936 when full employment was approaching. Continued
fiscal and monetary expansion after that date may have prevented the
economy from sliding back into recession. We find some effects of the
Four Years Plan of late 1936, which boosted government spending further
and tightened public control over the economy.

McDonough indicates that economic growth in the Nazi 1930s was due primarily to arms spending, or again it was not real economic growth at all.  This piece has much useful detail on private German consumption during the era and again the conclusions are pessimistic.  Of course employment rose dramatically but it does not seem that real (non-militaristic) consumption and output did very well.  There was militaristic make-work, based on transfers from one group to another, but with few accompanying economic benefits.

On the corporate side, there is this:

It is interesting to note that German productivity only grew 1.3% per
year from 1929 to 1938, roughly half the growth rate of Britain in the
same period.

Productivity statistics can mean a number of things but again this does not make the German corporate sector sound totally healthy or sustainable. 

It could be argued that the Nazi policies did not work because they
stifled private consumption and in that regard they were not Keynesian in the modern
sense.  Maybe so, but we're still back at the Nazi policies not having worked.  I don't consider this research, in sum, "knock down" evidence, but still my view of Nazi fiscal policy is more negative than in Leonhardt's.

Here is my previous post on the fiscal economics of Nazi Germany.


Another day, a few more headlines:

The Obama administration will play a key role in reshaping General Motors' board of directors over the next six months, potentially giving it even
greater control in the management of the storied American manufacturer.

The president's auto task force plans to consult with the company as it
replaces a majority of its board, a White House official said. The
board today largely consists of the current and former chiefs of major
U.S. corporations such as Coca-Cola, Ernst & Young, Pfizer and Eastman Kodak. It is not known which of the 12 board members will leave.

The president said Monday that "the United States government has no interest in running GM."

Here is the full story.  I am sure that die-hard Republicans will have every chance at equal representation on the new board.  

That this story has attracted so little notice is another sign of how numb we have become.

Levitt and Mankiw to Join Obama Team!

Steve Levitt and Greg Mankiw will join the Obama team.  Here is a key paragraph from the blog that broke this important story:

Colleagues at the University of Chicago economics department are cheering the move. “I could not think of a better choice than Steve Levitt to move to Washington and help the Obama team” says Nobel Laureate James Heckman, adding that he expects the job to occupy Levitt for two full Obama administration terms. “We will miss him, but he has an important job to do.”

The Case Against Breast Feeding

Hanna Rosin's article on breastfeeding in the latest Atlantic is excellent and would make a topical and accessible introduction to causality studies in an econometrics or statistics class. (And lest that sound damning it's also a great read.)

The general point will be familiar to the audience at Marginal Revolution. The studies that show breastfeeding leads to lower weight, fewer ear infections, less allergies, less stomach illnesses and so forth are almost all observational studies.

An ideal study would randomly divide a group of mothers, tell one half to breast-feed and the other not to, and then measure the outcomes. But researchers cannot ethically tell mothers what to feed their babies. Instead they have to settle for “observational” studies. These simply look for differences in two populations, one breast-fed and one not. The problem is, breast-fed infants are typically brought up in very different families from those raised on the bottle. In the U.S., breast-feeding is on the rise–69 percent of mothers initiate the practice at the hospital, and 17 percent nurse exclusively for at least six months. But the numbers are much higher among women who are white, older, and educated; a woman who attended college, for instance, is roughly twice as likely to nurse for six months.

Moreover, the better we control for other factors that might account for differences in child outcomes between mothers who breastfeed and those who do not, the less evidence there is for breastfeeding's benefits.  Even looking at children within the same family (still far from the gold standard of randomization), shows many fewer benefits from breastfeeding than studies that look across families.  Some modest evidence suggests a gain in IQ and better evidence suggests minor improvements in avoiding some diarrhea.  Rosin does not discount these benefits (so the title of her piece is unnecessarily sensationalistic) but she very appropriately does point to opportunity cost.   

The debate about breast-feeding takes place without any reference to its actual context in women’s lives. Breast-feeding exclusively is not like taking a prenatal vitamin. It is a serious time commitment that pretty much guarantees that you will not work in any meaningful way. Let’s say a baby feeds seven times a day and then a couple more times at night. That’s nine times for about a half hour each, which adds up to more than half of a working day, every day, for at least six months. This is why, when people say that breast-feeding is “free,” I want to hit them with a two-by-four. It’s only free if a woman’s time is worth nothing.

One final point, Rosin's article is also usefully read as a study in propaganda and social psychology.

How agreeable are econ bloggers?

Leigh Caldwell offers up some data:

Surprisingly (at least to me), economics bloggers are more
agreeable than not. "Agree" articles (category 3) showed up more than
twice as often as "disagree" (category 4). When measured by titles, the
trend is not so clear, with a majority "agree" articles (category 1)
when measured over the last two months but more "disagree" (category 2)
when taking the last 7 days alone.

So far, so good and indeed Leigh is a smart fellow to see the truth of that.  There is, however, a villain in the piece and dear reader it is you:

However, blog readers are
not so magnanimous. On the content measure, the mean number of comments
on an "is right" article (category 3) is 3.66, while there are an
average of 6 comments on an "is wrong" article (category 4).

the title filter is used, the difference is even greater: there are no
comments at all on the category 1 ("genius") articles, and an average
of 21.6 on category 2 ("idiot")!

Are bloggers simply nicer people than readers?  (Or should I say "all you idiots"?)  How would blog comments change if they were attached to your real name like glue and came up any time someone googled the commentator?  Which of us is the real human, the blog reader or the blog writer?

Ben Casnocha theorizes as to which is the most natural "you."