Month: February 2010

Alcohol Poisoning

by  Alex Tabarrok in

Deborah Blum writes about the Federal program to poison alcohol during prohibition:

Frustrated that people continued to consume so much alcohol even after it was banned, federal officials had decided to try a different kind of enforcement. They ordered the poisoning of industrial alcohols manufactured in the United States, products regularly stolen by bootleggers and resold as drinkable spirits. The idea was to scare people into giving up illicit drinking. Instead, by the time Prohibition ended in 1933, the federal poisoning program, by some estimates, had killed at least 10,000 people.

What Blum fails to mention is that the Federal program to poison alcohol continues to this day.  Drinking-alcohol is heavily taxed but ethanol is heavily subsidized so poisoning or denaturing is used to prevent arbitrage.  Even today some people occasionally go blind or die when they try to drink some form of denatured ethanol but this is rare since safe, drinking alcohol is readily available, even if expensive.

(FYI, Tyler and I mention this unusual method of preventing arbitrage in our chapter on price discrimination in Modern Principles.)

Latino immigrants and crime

by  Tyler Cowen in

The connection between Latino immigration and criminal behavior is much overstated.  Here is an excellent article, full of good information.  Excerpt:

The overall age-adjusted national imprisonment rates are shown in Chart 1. Hispanic incarceration rates are now between 13 and 31 percent above the white average, depending upon which age range we choose for normalization purposes.

And this:

Another important point to emphasize is the wide disparity in white incarceration rates throughout the country, even when adjusted relative to the number of whites in high-crime age ranges. For example, age-adjusted imprisonment rates for whites in large Southern states such as Florida, Texas, and Georgia may be 200 percent or even 300 percent higher than those for whites in large Northeastern or Midwestern states such as New York, New Jersey, or Illinois, as shown in Chart 5. Although it is impossible to disentangle completely how much of this gap may be due to higher criminality and how much due to harsher judicial systems, it seems likely that both play important roles. So even if the age-adjusted Hispanic incarceration rate is somewhat above the white rate–perhaps 15 percent higher on average–it still falls close to the center of the overall white distribution.

Don't forget this:

Nearly all of the most heavily Latino cities have low or even extremely low crime rates, and virtually none have rates much above the national average. Eighty percent Latino El Paso has the lowest homicide and robbery rates of any major city in the continental United States. This is not what we would expect to find if Hispanics had crime rates far higher than whites. Individual cities may certainly have anomalously low crime rates for a variety of reasons, but the overall trend of crime rates compared to ethnicity seems unmistakable.

And this:

…if we restrict our analysis to major cities of half a million people or more and compare the average crime rates for the five most heavily Hispanic cities–Albuquerque, Dallas, Los Angeles, San Antonio, and El Paso–to the those of the five whitest–Oklahoma City, Columbus, Indianapolis, Seattle, and Portland. This time, the more Hispanic cities are the ones with the lower crime rates–10 percent below the white cities in homicide and 15 percent lower in violent crime. A particularly remarkable result is that gigantic Los Angeles–50 percent Hispanic and frequently perceived as a dangerous urban hellhole–has violent crime rates close to those of Portland, Oregon, the whitest major city in the nation at 74 percent.

And finally:

Los Angeles today ranks as America’s least white European large city. Half of the population is Hispanic, and many of these are impoverished illegal immigrants and their families. Yet all crime rates have been falling steadily over the last two decades, with homicide dropping a further 18 percent just last year. As Chart 14 illustrates, most major crime categories are now back down to where they were in the early 1960s, when the population really did look very much like the actors appearing in “Dragnet” and “Leave It to Beaver.” And indeed, violent crime is now roughly the same as for Portland, Oregon, America’s whitest major city.

There is a lot more which I did not pass along, so read the whole thing.  I thank The Browser and Ezra Klein for the pointers.

Haiti vignette markets in everything The Ricardo Effect

by  Tyler Cowen in

Haiti, a nation of 10 million, does not have a single sewage treatment plant. Trucks often simply take the waste to the Troutier trash dump near the slums of Cité Soleil on this city’s edge.

The trucks empty into pits filled with medical waste like intravenous bags and garbage. Smoke billows from burning piles of trash. One truck from a private company, Sanco, with its motto “Fighting for a Clean Environment” emblazoned on its side, did not bother to go to a pit, dumping its cargo of human waste on the open ground.

A squatter community of a dozen families, including some new arrivals whose homes were destroyed in the earthquake, tries to eke out its survival by scavenging in this setting.

…The human waste problem was daunting even before the earthquake. Lacking a municipal sewage system, many families here employ a socially scorned class of nocturnal latrine cleaners known in Creole as the “bayakou.” They descend into latrines to clean excrement with their hands, before transporting it in carts to improvised disposal sites.

The story is here.

Revisiting Simon-Ehrlich

by  Alex Tabarrok in

Paul Kedrosky revisits the famous Simon-Ehrlich bet:

Without getting into it too deeply, here are some things worth knowing. Given
the above graph of the five commodities’ prices in inflation-adjusted terms, it
will surprise no-one that the bet’s payoff was highly dependent on its start
date. Simon famously offered to bet comers on any timeline longer than a year,
and on any commodity, but the bet itself was over a decade, from 1980-1990. If
you started the bet any year during the 1980s Simon won eight of the ten decadal
start years. During the 1990s things changed, however, with Simon the decadal
winners in four start years and Ehrlich winning six – 60% of the time. And if we
extend the bet into the current decade, taking Simon at his word that he was
happy to bet on any period from a year on up (we don’t have enough data to do a
full 21st century decade), then Ehrlich won every start-year bet in the 2000s.
He looks like he’ll be a perfect Simon/Ehrlich ten-for-ten.

ehrlich-table-2

So, what does all this mean? A few things. First, and most importantly, it
means Simon was right but fairly lucky. There is nothing wrong with being lucky,
of course, but compulsive Simon/Ehrlich-citers need to be reminded that it is no
law of nature (let alone of rickety old economics) that commodity prices
(inflation-adjusted or otherwise) trend inexorably downward, even over a
decade.

If the conclusion is that prices go up as well as down, even over a 10 year period, then there isn't much to complain about in Paul's analysis.  But I think he misses the key point.  The bet was never fundamentally about prices, the bet was about scarcity, living standards and whether we were running out of natural resources–remember that at the time Ehrlich was predicting hundreds of millions would die of starvation and even that England would not exist in the year 2000!  Prices were just a convenient but imperfect way to mark the bet to market.

The reason prices have risen in the 1990s is not that things are getting worse but that things are getting better–especially in China and India where things have been getting much better.  As China and India have become richer demand has increased tremendously in these countries putting upward pressure on prices.  In other words, prices have risen because the value of resources has risen.  That's quite different–indeed the opposite–of what Ehrlich was predicting.

To see this concretely take a good which is really fixed in supply, Picasso paintings.  Now consider two worlds – in one world the price of a typical Picasso is $50,000; in the other, it's $5 million.  Which world would you guess has a higher standard of living? 

Alan Stockman passes away at 58

by  Tyler Cowen in

A talented teacher, inspiring mentor, and respected scholar, Professor Stockman made major contributions to the fields of international finance and macroeconomics, publishing seminal papers on exchange rates and international business cycles. He is remembered by colleagues as a man whose infectious enthusiasm for economics was characteristic of his general approach to life.

There is more here.  I met Stockman once and was very impressed with him and his ability to think like an economist.  He was a prominent economist but I think he was nonetheless an underrated economist.

Are wage and price controls a solution for Greece?

by  Tyler Cowen in

Larry Kotlikoff has an idea:

The government can implement wage and price controls for, say, the next three months, with these controls covering not just the growth in wages and prices over the next three months, but also their initial levels. Specifically, the Greek government would decree that all firms must lower their nominal wages and prices by 30 per cent, effective immediately, and not change them for three months. After three months, everyone would be free to put prices and wages back up.

I say it won't work, because the underlying problems of the Greek economy are real and structural and not just nominal.  (They do have a nominal problem, but they have a nominal problem in part because they have a structural problem.)  But if you think the inability to devalue is the overriding problem, it seems a (fairly) simple solution is at hand.  The fact that such "solutions" don't gain much political traction is one reason to think that pushing on aggregate demand is not the answer to all or even most macroeconomic problems.

That said, I still favor the Scott Sumner recipe over price deflation.

Publish Referee Reports?

by  Alex Tabarrok in

A number of prominent scientists working on stem-cell research have written a letter calling for peer-reviews to be made publicly available:

We suggest a simple step that would greatly improve transparency, fairness and accountability; when a paper is published, the reviews, response to reviews and associated editorial correspondence could be provided as Supplementary Information, while preserving anonymity of the referees.

In cutting edge fields such as stem-cell research it's very common for scientists to be working on exactly the same problem with the first to publish receiving the bulk of the plaudits.  As a result, peer-sabotage can be a problem.  Sabotage is not such a problem in economics because researchers rarely work on exactly the same problem but laziness and low-quality reviews are real concerns.  (Note that my experiences with journal editors and reviewers has been more good than bad so I don't speak with sour grapes).

But would publishing anonymous referee reports really increase quality?  Blog comments are public and anonymous and they can be stupid, rude, and ill-informed (not this blog of course).  Indeed, the trend in blogs has been to remove anonymity as a way of increasing accountability and quality.  In science, however, anonymity is essential because the opportunities for repeat play and thus collusion are too common.

The primary effect of published referee reports would be on editors who would have their work put under greater scrutiny.  That is not necessarily a bad thing although editors are professionally under-rewarded in my view so more work is not necessarily going to lead to a better selection.

Note also that regardless of any change in quality, the value of the referee comments themselves should not be overlooked.  Referees may also appreciate the opportunity to have their work published in some form. Early results from the EMBO Journal which recently switched to publishing referee reports online appear to be satisfactory. Thus, I favor experiments along these lines. 

Here are previous MR articles on the peer-review process.

Addendum: Seth Roberts comments. See also Barkley Rosser in the comments.

New Zealand and the VAT and the critics

by  Tyler Cowen in

Here's another response to my post on the VAT.  It misrepresents my position and ignores how changing demographics will make it harder — much harder — to restrain spending than it was during the Clinton years.  It is hard for me to see how such a simple point could be missed.

Here is a post by Dan Mitchell on the topic.  He offers up some words which I find enlightening:

The bad guys do not want to control the size of government and the good guys do not want to raise taxes…Tyler’s approach, while not unreasonable, is about how to lose gracefully. Even if his strategy works perfectly, the result is bigger government. I’d much rather fight.

That's an example of using "us vs. them" thinking to avoid the problem-solving mode.  There aren't many "guys" — good or bad — who actually favor cutting spending and thus the problem arises.  (And the one "cutting spending" advocate cited by Mitchell — Paul Ryan — also happens to favor a VAT.)  Impugn it as you wish, but "losing gracefully" isn't so bad when you have only a few million people on your side!  There are worse ways to lose and another financial crisis — much bigger next time because it's Uncle Sam himself – is one of them.  We still need to see a comparison of the relative probabilities and Mitchell is reluctant to serve that up, instead retreating into moralizing about "which side are you on?" and a call for toughness. 

In economics, be suspicious when you read discussions of "whether" rather than "how much" or "with what probability."  I am sure I would not wish to institute a VAT today, as on top of other considerations we are still in a recession.  But let's say the years progress and we don't see spending cuts or even declines in the rate of increase.  After how many years of this path would you consider a VAT? 

What if government default were a week away and there wasn't enough short-term spending to cut?  Would you consider a VAT then?  I hope so.  How far back toward the present will you go in considering a VAT?  Once you're willing to confront the hard questions most of us are on a spectrum, however much the tax cutters might wish to posture.  The way to get closer to the truth is to start with the conditions under which you're wrong, not to list all the reasons you think you are right.

In the meantime I'll still call for spending cuts but I don't see a lot of good answers to my initial query about whether we might have to end up supporting a VAT.  What I do see is conservative and libertarian commentators who don't know what to do next — either practically or intellectually — if spending restraint doesn't pan out.  Right now, to me, the chance of that looks pretty high.

Good opening paragraphs

by  Tyler Cowen in

I’m sort of inured to pain by this point. Anesthetic is illegal for people like me, so we learn to live without it; I’ve made scalpel incisions in my hands, pushed five-millimeter diameter needles through my skin, and once used a vegetable knife to carve a cavity into the tip of my index finger. I’m an idiot, but I’m an idiot working in the name of progress: I’m Lepht Anonym, scrapheap transhumanist. I work with what I can get.

Here is more.  I thank David Cassel for the pointer.

Where are the good Scandinavian figure skaters?

by  Tyler Cowen in

John-Charles Bradbury asks:

Scandinavian countries tend to be quite good at most winter sports, which is no surprise given their climate; however, no Scandinavian athlete has won a figure skating medal since 1936.

There's some data at the link.  The natural microeconomic hypothesis is to cite David Friedman's work on warm houses in cold climates, and vice versa.  Sweden has ice lots of the year, so it's (maybe) less valuable to build ice arenas.  That would mean you can skate for only part of the year.  Warmer nations build more arenas — otherwise their citizens can't skate at all — but then their skaters have year-round access.  Perhaps the 1936 shift point comes because, if you go back far enough, no country is building ice arenas.

Since it's harder to build ski facilities in a warm climate, this effect is concentrated on skating.

I don't have any evidence for this mechanism, it is simply the economic argument which comes to mind.  Do you have better ideas or relevant evidence on this question?  From which states do the U.S. gold medal skaters come from?  How ice-bound are those states?  How involved were the fathers in the education and training of the female gold medalists?

Addendum: Scott Beaulier chimes in and John-Charles replies.