Month: November 2009

Ayn Rand

With two new biographies being covered in all the major newspapers, The Daily Show, and elsewhere, Ayn Rand is in the news.  Yet all of the reviews that I have seen have focused on her personal life rather than her ideas.  Nearly five years ago Tyler and I both wrote on Rand’s ideas on the occasion of the 100th anniversary of her birth.  It seems like a good time to reprise.  Here is my post with links.

Here, on the 100th anniversary of her birth, are some thoughts on Ayn Rand.  See also Tyler’s post and Bryan Caplan’s excellent series (links.)

It used to be commonly said that “Until Robinson Crusoe is
joined by Friday there is no need for ethics on a desert island.” Rand replied that it was on a desert island
that ethics was most needed because on a desert island you cannot free ride on
the virtues of others; if you are to survive you must yourself exercise the
virtues of rationality, independence, and productiveness. As her reply indicates, Rand was an exponent
of virtue ethics,
the Greek/Aristotelian idea that ethics is about how one should live. Indeed, although she does not get much
credit, Rand is the most prominent and lucid, contemporary exponent of virtue ethics.

I think Rand’s version of virtue ethics is compelling
because it is explicitly modern – where the recent literature still sometimes seems to focus
on the virtues required of a Greek olive grower, Rand’s virtue ethics is post
industrial-revolution, a virtue ethics for the capitalist world.

If ethics is about the virtuous man then politics is about
the social requirements for the virtuous man to exist (the modern literature
lags behind Rand in connecting ethics and politics). One can understand Rand’s novels as an
extended disquisition on virtue ethics and the political and social requirements
necessary to practice such an ethics. In particular, she argued that rights, a legal concept creating a protected sphere for
independent action, were a necessary condition to live a life of virtue.

One need not buy Rand’s deductive argument that laissez-faire
capitalism is the sine-qua-non of ethical action to appreciate her insights
connecting the good man and good woman with the good society. Relatedly, I do think that Rand was absolutely right to say that capitalism requires a moral
defense.  Moreover, the only plausible defense must involve the virtue of
selfishness. It is all too obvious that
capitalism promotes and rewards self-interest and, Mandeville nothwithstanding, no defense which simply
excuses this fact will succeed.

Rand’s language hasn’t done much to advance her case and
indeed it has obscured areas where her insights are now widely accepted. Today, for example, you can find many books
attacking the evil of altruism. Surprised? Of course, the books
don’t use those terms, instead they call it the problem of codependency (or
some other such). Relatedly, it’s no
accident that Hillary Clinton was once an avid Randian (recall her political
career started with Barry Goldwater) because Rand
is an important feminist
. Rand’s
portrayal of strong, independent, intelligent women is coming to be recognized
as a landmark in fiction but in addition Rand’s attacks on self-sacrifice have
special meaning in a culture that has long used the “caring ethic” to bind
women to the service of others.

Of weaknesses there are many, most of which flow from the combination of Rand as philosopher, novelist and powerful
personality. John Galt, for example, is
but one instantiation of the Randian/Aristotelian virtue ethic, an
instantiation which was created for a particular aesthetic purpose by a
particular person. Too often both Rand and
her detractors have taken the instantiation for the class thereby limiting
the vision.

Yemen fact of the day

…the market price of water has quadrupled in the past four years,
pushing more and more people to drill illegally into rapidly receding

Here is the longer (and fascinating) story.  Basically the country is running out of water.  The article focuses on the fact that half of the Yemeni water supply goes to grow an addictive drug called qat.  Here is more:

…in the late 1960s, motorized drills began to proliferate, allowing
farmers and villagers to pump water from underground aquifers much
faster than it could be replaced through natural processes. The number
of drills has only grown since they were outlawed in 2002.

Despite the destructive effects of qat, the Yemeni government supports
it, through diesel subsidies, loans and customs exemptions, Mr. Eryani
said. It is illegal to import qat, and powerful growers known here as
the “qat mafia” have threatened to shoot down any planes bringing in
cheaper qat from abroad.

If you have never visited Yemen, and would consider such a trip, I urge you to do so.  The option value component of waiting for better times is dwindling rapidly.  I should add that:

1. The country cannot afford much desalination, and

2. The real problem with desalination is often pumping the “clean” water uphill and that is a major issue in mountainous Yemen.

Does being sad, or complaining, make you smarter?

I have yet to read this study but I found the summary intriguing:

Bad moods can actually be good for you, with an Australian study finding that being sad makes people less gullible, improves their ability to judge others and also boosts memory.

The study, authored by psychology professor Joseph Forgas at the University of New South Wales, showed that people in a negative mood were more critical of, and paid more attention to, their surroundings than happier people, who were more likely to believe anything they were told.

"Whereas positive mood seems to promote creativity, flexibility, cooperation, and reliance on mental shortcuts, negative moods trigger more attentive, careful thinking paying greater attention to the external world," Forgas wrote.

"Our research suggests that sadness … promotes information processing strategies best suited to dealing with more demanding situations."


The study also found that sad people were better at stating their case through written arguments, which Forgas said showed that a "mildly negative mood may actually promote a more concrete, accommodative and ultimately more successful communication style."

I thank Claire Hill for the pointer.

So all you sad people can cheer up now.  Or not.

Assorted links

Are stock and bond markets contradicting each other?

Stocks are doing well yet interest rates remain low and flat.  What's up?  John De Palma sends along this very interesting analysis by Paul McCulley.  Excerpt:

Thus, as long as economic recovery appears underway, even if stoked primarily by (1) policy stimulus and (2) a turn in the inventory cycle, there is no urgent reason for investors to run from risk assets. Put differently, investors can be agnostic about (3) the strength of private demand growth until the one-off forces supporting growth exhaust themselves, as long as they don’t have fear of Fed tightening.

In turn, a bull flattening bias of the Treasury curve, with longer-dated rates falling toward the near-zero Fed policy rate, can be viewed as a consensus view that the level of the output/unemployment gap plumbed during the recession is so great that disinflationary forces in goods and services prices, and perhaps even more important, wages, will be in train, even if growth surprises on the upside. Accordingly, Treasury players, like their equity brethren, need not fear the Fed, as there is no economic rationale for an early turn to a tightening process.

Thus, both rich risk markets and the lofty Treasury market can be viewed as rational in their own spheres, even if they are seemingly irrational when compared to each other. The tie that binds them, that allows them to co-exist, need not be a common view regarding the prospective strength of the recovery, but rather a common view as to the Fed’s friendly intent and reaction function.

Is it a good thing when asset markets are so much about the Fed?  There is more to the short essayt, read the whole thing.  Here is his conclusion:

Simply put, big-V’ers should be wary of what they wish for. U’ers, meanwhile, must be mindful of just how bubbly risk asset valuations can get, as long as non-big-V data unfold, keeping the Fed friendly. But that’s no reason, in our view, to chase risk assets from currently lofty valuations. To the contrary, the time has come to begin paring exposure to risk assets, and if their prices continue to rise, paring at an accelerated pace.

Addendum: Arnold Kling comments.

Why are Swedish meatballs so much smaller than their American counterparts?

This topic has been knocking around the blogosphere as of late:

I am a longtime reader of MR and there is a question I have been wondering about for a long time.  I was hoping you could share your thoughts on meatball heterogeneity.  My girlfriend made dinner for me and the entree was Swedish meatballs.  I never knew how small their meatballs are.  It seems inefficient to roll all that meat into such tiny balls.  Wouldn’t it make more sense to roll them into big balls like we do in the US?

First, history + hysteresis play a role.  According to Mathistorisk Uppslagsbok by Jan-Ojvind Swahn, the Swedish concept of meatball first appeared in Cajsa Warg's 1754 cookbook.  Yet as late as the early 20th century, beef was still a luxury in Swedish culture, whereas meat was plentiful in the United States.  America had greater access to game in the more moderate climate and also greater grass resources for supporting cows.  The Swedes were also late in benefiting from the refrigerated transport revolution, which started elsewhere in the 1920s and brought more meat to many households.  (This tardiness was due to the concentration of population in a small number of cities, combined with rail isolation from Europe.)  The end result was smaller meatballs, a tradition which has persisted to this day.

On the plane of pure theory, standing behind the lock-in effect is the Ricardian (or should I say Solowian?  Solow is the modern Ricardian when you think through the underlying asymmetries in his model, which ultimately make "capital" non-productive at some margin) fixed factor explanation.  A Swedish meatball recipe usually involves much more dairy than a non-Swedish meatball recipe.  Constant returns to scale do not in general hold for recipes, much less for loosely packed spherical items involving fluids.

Oddly, the extant literature does not seem to have considered these factors.

From the comments: Lennart writes: "Swedish meatballs, having loads of surface that are fried crispy, are much better than other forms of meatballs for that reason alone. Norwegians and Danish have big meatballs, but that's because they are boiled, so there is no crispy-fried surface to maximize (and hence nowhere near as good)."

Markets in Everything: Media

From a new paper by Di Tella and Franceschelli:

We construct measures of the extent to which the 4 main newspapers in Argentina report government corruption in their front page during the period 1998-2007 and correlate them with the extent to which each newspaper is a recipient of government advertising. The correlation is negative. The size is considerable: a one standard deviation increase in monthly government advertising (0.26 million pesos of 2000) is associated with a reduction in the coverage of the government's corruption scandals by almost half of a front page per month, or 37% of a standard deviation in our measure of coverage. The results control for newspaper, month and individual corruption scandal fixed effects.

In Maharashtra, India a recent report indicates that transactions costs are considerably lower:

The deals were many and varied. A candidate had to pay different rates for ‘profiles,’ interviews, a list of ‘achievements,’ or even a trashing of his rival in some cases. (With the channels, it was “live” coverage, a ‘special focus,’ or even a team tracking you for hours in a day.) Let alone bad-mouthing your rival, this “pay-per” culture also ensures that the paper or channel will not tell its audiences that you have a criminal record. Over 50 per cent of the MLAs just elected in Maharashtra have criminal charges pending against them….

Hat tip to catfish for the second item.

African-American CEOs have baby faces

Media analysts have argued that a major factor in Barack Obama’s
political success is his nonthreatening demeanor, to counteract the
stereotype of the threatening black man. Researchers wondered if there
might be a similar counter-stereotypical pattern for black CEOs, even
on a purely visual level. They asked people to rate pictures of CEOs
for baby-facedness, warmth, and competence. Relative to white CEOs,
black CEOs were rated as more baby-faced – and, consistent with prior
research on baby-faced stereotypes, seen as warmer and less competent.
For blacks, being baby-faced meant earning more money, the study found,
whereas white CEOs earned less money if they were baby-faced. According
to the authors, this confirms that blacks need “disarming mechanisms”
to be successful in corporate America.

Here is the link, which reports some other interesting (and separate) results.  The core source is Livingston, R. & Pearce, N., “The Teddy-Bear Effect: Does
Having a Baby Face Benefit Black Chief Executive Officers?”

Psychological Science (October 2009).  Here are some photos and charts.

Positive feedback in inequality

Here is a very nice summary of some important trends from Arnold Kling.  Arnold buried the lede on this one so a hat tip to Tim Kane at Growthology.

I think that perhaps the most important trend of the past thirty years is the
increased importance of cognitive skills relative to physical labor. Obviously,
this has been going on for more than just the past thirty years, but during the
past thirty years we saw an acceleration. This has had a number of

1. It changed the role of women. Their comparative advantage went from
housework to market work.

2. This in turn, as Wolfers and Stevenson have pointed out, changed the
nature of marriage. Men and women look for complementarity in consumption rather
than in production.

3. This in turn leads to more assortive mating, with achievement-oriented men
looking for interesting mates rather than for good maids.

4. This in turn leads to greater inequality across households. It also
fosters greater inequality among children. The children of two affluent parents
are likely to have much better genetic and environmental endowments than the
children of two (likely unmarried) low-income parents.

5. Inequality is exacerbated by globalization and technological change. If
your comparative advantage is basic physical labor, you have to compete with
machines as well is with workers from the Third World.

The net result is an economy that has improved considerably for people with
high cognitive skills, but which has improved only somewhat for people with
relatively low cognitive skills.

I have a bad feeling about this

Here is the latest on Tysons redevelopment:

Remaking Tysons Corner
into the second city of Washington will take a lot more than a new
Metro line and a downtown of tightly clustered buildings designed for
walking. It will take almost $15 billion in new roads and public

Even in this age of sticker shock, that's a lot of money for a local project.  You'll recall my earlier prediction that Tysons will get the road widenings but not enough of the other changes needed to make it a walkable downtown; the road widenings will on net make things worse. Call me an apologist for suburbia if you wish, but I sooner view myself as an apologist for public choice theory.  Some parts of the redesign will be more popular than others and we will get a very unbalanced mix of reforms.  This is indeed what I predict:

The numbers also have prompted some proponents of dense development in
Tysons to argue that if the county pushes too many costly road
improvements and makes room for more cars, the vision could unravel. 

To simply insist that it "should be different," or to charge that I do not spend enough time criticizing interstate highway subsidies, is to miss the public choice point.  Now that the stimulus is up and running, you can see road widenings all over NoVa and they will be finished.  Who will put up the money for the rest of Tysons reform?

For funding, Fairfax officials say, they will look to the Obama
administration, which is committed to subsidizing growth projects in
urban areas. They hold out little hope from the Virginia Department of
Transportation, which this year slashed the county allocation for
secondary roads to zero. Given the millions of dollars Northern
Virginia has gotten for big projects such as the HOT lanes and new
Woodrow Wilson Bridge, "More state funding is pretty much politically
doomed," said Kathy Ichter, the county's chief of transportation

Stay tuned…