Month: January 2010

*The Cleanest Race*

This is a very interesting book about the ideologies behind North Korea.  The author is B.R. Myers and the subtitle is How North Koreans See Themselves — and Why it Matters.  Excerpt:

One searches these early works in vain for a sense of fraternity with the world proletariat.  The North Koreans saw no contradiction between regarding the USSR as developmentally superior on the one hand and morally inferior on the other.  (The parallel to how South Koreans have always viewed the United States is obvious.)  Efforts to keep this contempt a secret were undermined by over-confidence in the impenetrability of the Korean language and the inability of all nationalists to put themselves in a foreigner's shoes.  The Workers' Party was taken by surprise, for example, when Red Army authorities objected to a story about a thuggish Soviet soldier who mends his ways after encountering a saintly Korean street urchin — another child character symbolizing the purity of the race.

I  liked this bit as well:

The lack of conflict makes North Korean narratives seem dull even in comparison to Soviet fiction.  Rather than try to stimulate curiosity about what will happen next, directors and writers try to make one wonder what has already happened.  Films introduce characters in a certain situation (getting a medal, say), then go back and forth in time to explain how they got there.  Nowhere in the world do writers make such heavy use of the flashback.  But we should beware of assuing that people in the DPRK find these narratives as dull as we do.  The Korean aesthetic has traditionally been very tolerant of convention and formula.  (South Korean broadcasters rework the same few soap-opera plots every year).  According to refugee testimony, however, most North Koreans prefer stories set either in the "Yankee colony" or in pre-revolutionary times, with real villains and conflict.

I also recommend the new book Nothing to Envy: Ordinary Lives in North Korea, by Barbara Demick.  Excerpt:

North Koreans have multiple words for prison in much the same way that the Inuit do for snow.

From the WSJ, here is a joint review of the two books.

Daniel Gross, Me, and the Efficient Market Hypothesis

Daniel Gross is at Davos and writes:

I noticed a piece of gray paper on the floor. It looked like it might
be currency of some sort–certainly not a dollar, but perhaps Swiss
francs or something else. I started to bend over to pick it up, but
then I caught myself. This is the World Economic Forum. It is populated
by hundreds of economists and by thousands of business people schooled
in the tenets of economics. This is possibly the most rational,
profit-maximizing concentration of human capital in the world. These
are the actors who make up an efficient market. And of course adherents
to the efficient market hypothesis famously don't believe in the
concept of found money….

But I'm a
connoisseur of economic irrationality. And so I bent down and picked up
the paper. On one side, the grim visage of Queen Elizabeth. On the
other, Charles Darwin. It was a 10 pound note, worth about $16.25. Just
lying on the floor, unmolested by Nobel Prize-winning economists, CEOs
of Fortune 500 companies, and financial journalists.

Gross concludes the efficient markets hypothesis must be false.

The same thing happened to me once except I wasn't at Davos, I was walking in New York near Wall Street and I saw a green folded up note that looked to be money.  I too paused and thought of the old joke that if it was money someone would have picked it up already, but I picked it up anyway and took a closer look…..alas, it was a cleverly folded piece of paper designed to look like money when dropped on the sidewalk, although it was actually an advertisement.  Kudos to Eugene Fama, I thought on that day.

Perhaps our different experiences account for some of our differing economics views.

Hat tip to Ezra Klein.

*The Enlightened Economy*

The subtitle is An Economic History of Britain, 1700-1850 and the author is Joel Mokyr.  This is now the most comprehensive and indeed the currently definitive history of the British Industrial Revolution.  Here is a short excerpt:

Despite the protestations of some scholars who call it "a misnomer," the idea of the Industrial Revolution will remain an essential concept in the economic history of Britain and the world.  It was, in a narrow sense, neither exclusively industrial nor much of a revolution.  But it remains in many ways the opening act of the still-developing drama of modern economic growth coupled to far-reaching change in society.

The main thesis (apart from the comprehensive coverage) is that ideas were of the central importance for the British take-off.  Here is the book's website.  Here is a blog review.  I would not describe the book as "fun" but it is clearly written and does not require the knowledge of a specialist.

There is another new book on the Industrial Revolution, namely Robert C. Allen's The British Industrial Revolution in Global Perspective.  It's all about how the British had high wages and cheap energy, a kind of Heckscher-Ohlin approach to why we're not eating mud cakes.  It's good enough on its own terms, but it's a) question-begging in parts, and b) startling what a small role ideas play in the basic story.  Indirectly, this book is proof that Mokyr's contribution is an important one.

The subsistence wage

Until the broken Haitian government can figure out how to distribute paychecks, the national police have been working for food. That's one meal a day, given to them by the foreigners, that "we have to beg for," said the chief of police.

The article is interesting throughout, as it focuses mostly on how corruption among the Haitian police has plummeted since the earthquake.

Sentences to ponder

The dirty secret of the Billboard classical charts is that album sales figures are so low, the charts are almost meaningless. Sales of 200 or 300 units are enough to land an album in the top 10. [Hilary] Hahn's No. 1 recording, after the sales spike resulting from her appearance on Conan, bolstered by blogs and press, sold 1,000 copies.

The full story is here.  And:

In early October, pianist Murray Perahia's much-praised album of Bach partitas was in its sixth week on the list, holding strong at No. 10. It sold 189 copies. No. 25, the debut of the young violinist Caroline Goulding, in its third week, sold 75 copies.

I buy a lot of classical CDs, but it's rare that I end up listening to such chart-toppers, instead preferring more obscure performers.

How Haiti could turn things around

I'm not suggesting that the future gains will, in moral terms, outweigh the massive loss of life and destruction, but still the future Haiti might have a higher growth rate and a higher level of gdp per capita.  Here's how.

In the previous Haitian political equilibrium, the major interest groups were five or six wealthy families and also the drug trade, plus of course the government officials themselves.  None had much to gain from market-oriented, competitive economic development.  The wealthy families would have lost their quasi-monopolies and the drug runners would have been pushed out or lost some rents.  The wealthy families are not that wealthy and their economic projects are relatively small, at least by the standards of the outside world.

Enter the rebuilding of Haiti.  Contract money will be everywhere.  From the World Bank, from the U.S., from the IADB, even from the DR.  That contract money will be significant, relative to the financial influence of either the main families or the drug trade.

There exists (ha!) a new equilibrium.  The government is still corrupt, but it is ruled by the desire to take a cut on the contracts.  Ten or twenty percent on all those contracts will be more money than either the families or the drug runners can muster.  The new government will want to bring in as many of these contracts as possible and it will (maybe) bypass the old interest groups.  Alternatively, the old interest groups will capture the rents on these contracts but will be bought off to allow further growth and openness.

Arguably the new regime in Haiti will operate much like the federal states in Mexico.  Corrupt and a mess, but oriented toward a certain kind of progress, if only to increase the returns from corruption.

You will see this in how the port of Port-Au-Prince is treated.  Previously the rate of corruption was so high that the port was hardly used.  If the port becomes a true open gateway into Haiti (if only to maximize contracts and returns from corruption), that means this scenario is coming true.

The surviving Haitians, in time, might be much better off.  Virginia Postrel lays out some theory.

Snow Job

Economists Jonathan Zinman and Eric Zitzewitz, skiers who took offense to a fluffed-up claim, studied snow reports from 2004 to 2008 and compared them to area government weather stations. They found that ski resorts across the U.S. and Canada reported more fresh snow – 23 percent more, on average – on skier-coveted weekends than during the week. Resorts with more business to gain were the ones most likely to boast of deeper snowfalls, their study said.

Quoted here.  Paper here.

Do note that the snow angle might get the headlines but what is really going on is a test of deceptive advertising.  Interestingly, Zinman and Zitzewitz find that the deception declined dramatically after an iPhone app was introduced that crowd-sourced true snow levels.  

Hat tip to Daniel Lippman.

Banerjee and Duflo defend RCT

The abstract is this:

Randomized experiments have become a popular tool in development economics research, and have been the subject of a number of criticisms. This paper reviews the recent literature, and discusses the strengths and limitations of this approach in theory and in practice. We argue that the main virtue of randomized experiments is that, due to the close collaboration between researchers and implementers, they allow the estimation of parameters that it would not otherwise be possible to evaluate. We discuss the concerns that have been raised regarding experiments, and generally conclude that while they are real, they are often not specific to experiments. We conclude by discussing the relationship between theory and experiments.

There are 39 additional pages, which I have yet to read.  The paper is here and hat tip goes to the essential Rachel Strohm.

Assorted links

1. The forthcoming bailout of Greece.

2. Via Chris F. Masse, thoughts on the iPad.

3. Leonardo da Vinci's resume: a study in personal marketing.

4. Virginia Postrel, presenting material on the Chinese freshwater pearl industry.

5. Which country showed the most spending restraint during the financial meltdown?

6. Interview with the still-underrated Laura Miller.

7. Via Rachel Strohm, good advice for rebuilding Haiti.

Do Animals have Animal Spirits?

It's quite easy to see how a "real business cycle" could occur in the natural world.  Imagine a pond teeming with life.  One year a parasite infects the lily pads.  Without the lily pads the frogs can't catch flies, the flies swarm, but the frogs go hungry and the pike have less to eat.  If we measured the gross pond biota (gpb) we could see natural cycles.  Indeed, if we measured different pond sectors (the frog sector, the fly sector etc.) we could trace out a whole sequence of events as each sector of the pond responds to the initial shock and to changes in every other sector (ala a vector auto regression). 

Can there be a Keynesian business cycle in the pond?  i.e. Could animal spirits drive a natural business cycle?  It's harder for me to see exactly how this would work.  We would need "money" or something similar to generate a rush to liquidity and a decline in investment.  We could perhaps get a coordination type business cycle (ala Roger Farmer) with herd behavior.  Interestingly, the trend in biology–as I read it at least–has been to think of herd behavior as optimal for the herd but this is not necessarily the case.  We know that slime molds self-organize and aggregate during times of stress could this process be set off with no or little exogenous shock?  Could a natural system provide a model for business cycle behavior?  It would be odd if only people had animal spirits. Biology and economics have much to offer one another.

Who are the friendliest people on earth?

Chug points me to this latest survey, and here is the list:

1. Bahrain

2. Canada

3. Australia

4. Thailand

5. Malaysia

6. South Africa

7. Hong Kong

8. Singapore

9. Spain

10. United States

That means friendly to expats, not friendly to each other.  You’ll notice that English-speaking or English-fluent countries are overrepresented, plus Thailand (ahem).

Here is a critique of the survey and mostly I concur with the criticisms (sorry Omar).  More generally, unless it is a woman seeking marriage, I view “friendliness to expats” as a social strategy, often intended for internal consumption, not necessarily insincere but not reflecting true temperament either.  It’s not driven by actual friendliness.  By the way, how did Spain ever make it to number nine?

Are the Japanese the most or the least friendly people on earth?  “Helpful” isn’t the same as “friendly.”  In what country are you most likely to make real friends?  Marry a native?  Aren’t those two variables inversely related?

“Friendly” is one of the words most likely to arouse my deconstructive suspicions.

Favorite tweets

Sorry for not following anyone. I'm still trying to lear how to use this tool. JH

Yes, that JH is Jürgen Habermas.  From the world of print, here are excerpts from Habermas.  Here is a summary of Habermas on the "ideal speech situation":

In the earlier philosophy of Jürgen Habermas it is argued that an ideal speech situation is found within communication between individuals when their speech is governed by basic, but required and implied, rules. These rules of speech, Habermas suggested, are generally and tacitly accepted by both of the communicating parties, but even if they are not–perhaps in the case of one party telling a lie–the ideal speech situation nevertheless remains a more broadly required principle…Everyone is allowed to introduce any assertion whatever into the discourse.

Unless you don't know how to follow other people.  Habermas is, however, meta-rational in this regard.