Month: April 2009

Why it’s hard to limit executive pay

Matt, Ezra, and Bob Frank, among others, have been talking about this topic.  Say we taxed rich bankers at 95 percent above a certain income level.  Salary income would be converted into capital gains.  We don't want to tax capital gains at 95 percent or even 50 percent.  Plus taxing unrealized capital gains — if you desire that the earners cough up the money now — involves other problems.

Of course some firms and sectors cannot equitize pay in this fashion.  A big implicit tax is then placed on such sectors.

You could work very hard to develop a tax code that will cover exactly the people you wish, at the margins you wish.  You could work very hard and still fail.

Looking for "longer-term incentives" is a sounder approach than trying to force "much smaller incentives."

Why was Michael Jordan’s shot so flat?

File this one under: "Questions I still wonder about."  I can think of a few options:

1. Michael Jordan wasn't a very good shooter.  (True at first, but it is hard to maintain this hypothesis over the course of his career.)

2. Jordan was weak on one dimension of shooting ability, but he compensated along other dimensions.  He could have been a better shot, if only he had learned proper arc from Mark (and Brent) Price.

3. Jordan's flat shot was part and parcel of an efficient combination of talents.  Perhaps the flat shot gave him a quicker release or different angles at the basket or a greater ability to shoot while moving or all of those.  Check out "The Shot" at 2:20 here

Maybe his flat shot, when combined with his other talents, gave him an advantage. Since few other players have had the complementary talents as Jordan did, they haven't had an incentive to develop or stick with flat jump shots.

Jordan had a good three-point shot under pressure but when he was open his long-range shooting was unreliable.  That combination is consistent with this hypothesis.  Here is a short Yahoo discussion.

In my heart of hearts, I believe #3 is the answer.

Questions: Can any feature of the U.S. economy be said to be akin to Jordan's flat jumper?  Any feature of your personal cognitive profile?

The Ricardian case against YouTube

I love being reminded of the history of economic thought:

It seems safe to assume that YouTube’s traffic will continue to grow,
with no clear ceiling in sight. Since the majority of Google’s costs
for the service are pure variable costs of bandwidth and storage, and
since they’ve already reached the point at which no greater economies
of scale remain, the costs of the business will continue to grow on a
linear basis. Unfortunately, far more user-generated content than
professional content makes its way onto the site, which means that
while costs grow linearly, non-monetizable content is growing
geometrically as compared against the monetizable content that YouTube
really wants and needs to survive. This means less and less of
YouTube’s library will be revenue-contributing, while the costs of
delivering that library will continue to grow.

The article is interesting through and the hat tip goes to Andrew Sullivan.


Erika Eiffel and Eija-Riitta Eklöf Berliner-Mauer; not my thing personally but I say "why not?"  Compare it to the many people who have no love in their lives at all.  Video here.

If you are tempted to snicker, first think long and hard about all the money, time and effort you put into listening to music.

Respecting the elephant

I would not go so far as some who would insist that a Hindu is not the person to ask about Hinduism, as Harvard professor Roman Jakobson notoriously objected to Nabokov's bid for chairmanship of the Russian literature department: "I do respect very much the elephant, but would you give him the chair of zoology?"

That is from Wendy Doniger's new and noteworthy The Hindus: An Alternative History.  Here is a favorable Michael Dirda review of the book.  Read the Wikipedia section on "Criticism" of Wendy Doniger, some of it from fundamentalist Hindus.  Here is a defense of Doniger.

Sentences to scare you

“This is an opportunity to forge an alliance between Main Street, Wall
Street and K Street,” said Steven A. Baffico, an executive at
BlackRock, referring to the Washington address of many lobbying firms.

That's about the new plan to possibly allow small investors to participate in buying up "legacy assets" through mutual funds.  My fear, of course, is that the government ends up committed to particular outcomes for those "little guys."  There are more than those three streets! 

Testosterone and economic behavior: some new results

The story starts off with this:

Women given testosterone for a month were no more likely than women not receiving the hormone to engage in risky financial decisions, according to researchers in Sweden. The findings could suggest that women are a safer pair of hands on the stock-market trading floor than men – or throw into doubt earlier findings about the effect of the hormone on men.

A spate of recent studies have found correlations between testosterone levels and risky behaviour in men, including one that found that male securities traders with more testosterone in their saliva made riskier financial decisions.

But now a team led by Magnus Johannesson, an economist at the Stockholm School of Economics, has found no such effects in a group of 200 post-menopausal women. The women were administered testosterone, oestrogen or a placebo for four weeks and asked to play a series of economic games that measure the player's propensity to take risks, their trust and their willingness to share resources.

One researcher notes:

"I'm relatively pessimistic of finding an effect in men," Johannesson says. He writes in the paper that it is possible that previously published links between testosterone and risk-taking are "spurious". Studies that do not find a correlation between sex hormone levels and economic behaviour may simply have a harder time getting published. "Negative correlation results don't get published," he says.

The original research is here.  I would simply urge caution in interpreting results from this area.  We're not yet in a "safe zone" of knowing what replicable results look like.

Peter Orszag’s tip for discipline

Orszag has employed this knowledge while training for a marathon.

I didn't achieve what I wanted to, a very large contribution would
automatically come out of my credit card and go to a charity that I
very much didn't support," Orszag says of his training strategy. "So
that was a very strong motivation, as I was running through mile 15 or
16 or whatever it was, to remind myself that I really didn't want to
give the satisfaction to that charity for the contribution."

He declines to name the charity.

The source is here.

eBooks help the romance novel

At Fictionwise, the e-book seller recently acquired by Barnes &
Noble, about 50 percent of sales are romance books, said Steve
Pendergrast, chief technology officer. “Romance readers tend to be
voracious readers,” Mr. Pendergrast said. “The ability to instantly
download and start reading is potentially more important to that
audience than any other audience.”

…Many readers are still buying. “I would give up something else if money
was tight,” said Annmarie Anderson, a district manager in Atlanta for a
national retail chain, who said she still spent about $100 on romance
novels each month. “I would give up my manicure and pedicure. I have my
priority list, and books are pretty high on my priority list.”

The story is interesting throughout.  Is it because eBooks are impulse, I-want-it-right-now buys?  Or does the eBook-owning demographic have a special attachment to romance?  Are romance books somehow better in the eBook format?

What groups talk about

Groups talk about what they already know:

A new meta-analysis (pdf) of 72 studies, involving 4,795 groups and over 17,000 individuals has shown that groups tend to spend most of their time discussing the information shared by members,
which is therefore redundant, rather than discussing information known
only to one or a minority of members. This is important because those
groups that do share unique information tend to make better decisions.

Another important factor is how much group members talk to each other. Ironically, Jessica Mesmer-Magnus and Leslie DeChurch found that groups that talked more tended to share less unique information.

Hey, Alex, demand curves slope downwards!  Hey Robin, people signal!  Hey, Bryan, etc.

Rand vs. Marx on Google Search

Eric Crampton informs me of this article:

So, in lots of the developing world, we're seeing lots of searches on
Marx and very little on Rand. Rand only registers in the Philippines.
In the US, Rand beats Marx by a small margin; same in India. In Canada,
Marx beats Rand; same in Norway and New Zealand and … pretty much
every country that makes the top ten in searches on Ayn Rand. The green
bars show searches for "Atlas Shrugged". Only in the US and India do
searches on Rand beat searches on Marx.

In other words, we are not currently at a "Rand moment," at least not globally.  There is much more information at the link.

A Bayesian approach to legal gay marriage

Ezra had this good bit:

Due to D.C.'s strange system of governance, the District's laws are
subject to approval by Congress. If D.C. passes a gay marriage
ordinance, the House Committee on Oversight and Government Reform and
the subcommittee that handles District matters will have to either
reject D.C.'s decision or accept it. If they reject it, the outrage
from gay donors and activist groups will be overwhelming. If they
approve it, even on federalist grounds, the Right will argue that
Congress has literally approved gay marriage.

The interesting question is why there is so much opposition to legal gay marriage (which I favor).  You can cite various evil opponents and their evil motives, but there are many good people who aren't all that enthusiastic about the idea.

Jennifer Roback Morse offers the argument that gay marriage requires ongoing statist intervention (as does the notion of a corporation) and will drive the Mennonites from Quebec.

I have a simple hypothesis about the cross-sectional econometrics.  If you take the heterosexual couples who engage in the practice which is sometimes "associated" with male gay marriage, I predict those couples will favor legal gay marriage to an astonishingly high degree.  Their marriage is already "affiliated" with that practice, and so the notion of legally married gay men (and the practices which go along with that) does not constitute an extra and unwanted affiliation for their marriage ideal.

Now, if you are a rational heterosexual Bayesian and neither engage in that associated practice nor favor legal gay marriage, and then you learn about these cross-sectional econometrics, what should you infer about the correctness of your point of view?

If you're still not sure, reread Gulliver's Travels and get back to me.

Addendum: Comment 51 is apparently from Roissy.