Month: March 2010

*Slapped by the Invisible Hand*

That's the new Gary Gorton book and the subtitle is The Panic of 2007.  It brings together Gorton's writings on the crisis in one convenient place but it serves up a fascinating afterword in which he asks how people will view this crisis one hundred years from now.

We've already covered Gorton's writings here.  As I've already mentioned, for anyone interested in the crisis, or in banking and finance more generally, this is absolutely essential reading.  I also take his analysis to suggest (here this is my gloss, not his words) that there is no way to avoid crises since "bank run-like phenomena" can pop up in many different ways in any economy with significant liquidity transformation.

Books which have influenced me most

Chris, a loyal MR reader, asks:

I'd like to see you list the top 10 books which have influenced your view of the world.

I'll go with the "gut list," rather than the "I've thought about this for a long time list."  I'll also stress that books are by no means the only source of influence.  The books are in no intended order, although the list came out in a broadly chronological stream:

1. Plato, Dialogues.  I read these very early in life and they taught me about trying to think philosophically and also about meta-rationality.

2. The Incredible Bread Machine, by Susan Love Brown, et.al.  This was the first book I ever read on economics and it got me excited about the topic.

3. Capitalism: The Unknown Ideal, by Ayn Rand.  This got me excited about the idea that production is what matters and that producers must have the freedom and incentives to operate.

4. Friedrich A. Hayek, Individualism and Economic Order.  The market as a discovery procedure and why socialist calculation will not succeed.  (By the way, I'll toss a chiding tsk-tsk the way of Wolfers and Thoma.)

5. John Maynard Keynes: The General Theory of Employment, Interest, and Money.  Keynes is one of the greatest thinkers of economics and there are new ideas on virtually every page.

6. John Stuart Mill, Autobiography.  This got me thinking about how one's ideas change, and should change, over the course of a lifetime.  Plus Mill is a brilliant thinker and writer more generally.

7. Willard van Orman Quine, Word and Object.  This is actually a book about how to arrive at a deeper understanding than the one you already have, although I suspect few people read it that way.

8. Reasons and Persons, by Derek Parfit.  This convinced me that a strictly individualistic approach to ethics will not in general succeed and introduced me to new ways of reasoning and new ways to plumb for depth.

9. Camille Paglia, Sexual Personae.  I don't think the ideas in this book have influenced me very much, but reading it was, for whatever reason, the impetus to start writing about the economics of culture and also to give a broader focus to what I write.  Alex, by the way, was the one who recommended it to me.

10. Marcel Proust, Remembrance of Things Past.  This is still the best book on interiority.

I'd also like to mention the two books by Fischer Black, although a) I cannot easily elevate one over the other, and b) I capped the list at ten.  La Rochefoucauld's Maxims also deserves honorary mention, on self-deception and related issues.  Plus there is Shakespeare — also for thinking with depth – although I cannot point to a single book above the others.  Harold Bloom's The Western Canon comes to mind as well.

I would encourage other bloggers to offer similar lists.

Assorted Links

1. More on Israel's new "no-give, no-take" organ donation system.

…Robby Berman, founder and director of the Halachic Organ Donor Society,
a Jewish organization based in New York, said ultra-Orthodox Jews can't
have it both ways…. "Every Jew has a right to be against an organ donation, but then you can't come and say 'give me an organ.''

2. Are birds shrinking due to climate change?  At last, the climate change and evolution deniers can unite.

3. Not from the Onion: Apple: Free iPad With Every Replacement Battery.

4. Chinese airports at nowhere:

"…when the $57-million airport opened in late 2007. Local officials were
so confident that tourists would flock to this beautiful, mountainous
county in southwestern China that they made the terminal big enough to
accommodate 220,000 passengers annually…A grand total of 151 people flew in and out of Libo last year."

Addendums

5. Inhalable chocolate and coffee.

6.  Matt Ygelsias, world's most underpayed blogger?

Hat tips to Daniel Lippman and Dave Undis.

One of the best ways to help Haiti: modify FCPA

Pass a law stating that the Foreign Corrupt Practices Act does not apply to dealings in Haiti.

As it stands right now, U.S. businesses are unwilling to take on this legal risk and the result is similar to an embargo.  You can't do business in Haiti without paying bribes.

Along these lines, I found this article of interest.  Excerpt:

An American entrepreneur who does business in the Caribbean recently explained the Haitian landscape to me this way: "We did not bother with Haiti as the Foreign Corrupt Practices Act precludes legitimate U.S. entities from entering the Haitian market. Haiti is pure pay to play. The benefit of competitive submarine cables would be transformative for the Haitians. Instead, they were stuck with Clinton cronies taxing the poor."

Where should you wish to visit in a hurry?

Here is the reader request:

A friend remarked that on his trip to Cuba, the inclusion of modern buses imported from China had started to erode the charm of the vintage car culture we associate with the island. This is one factor, among many (including the possibility of the embargo being stopped), that made her travel to the island before it changed too much.

What other countries (or cities) are undergoing signficant change and will be presumably very different in a few years from now? Which ones would you travel to if you had the chance now before they underwent that change?

Here is my list of places to visit in a hurry:

1. Cuba

2. Bali, Laos, and Cambodia, which are all losing traditional culture.

3. Any wildlife or game reserve.

4. Yemen (maybe too late already?)

5. Tibet and possibly Bhutan

I can't bring myself to put North Korea on that list.

Here is my list of places which will only get better to visit:

1. China (air pollution will diminish, reading MR might become easier)

2. India (pollution will diminish, sanitation will improve)

3. Greece (someday will be cheaper)

4. Canada, New Zealand, and Australia: they don't have much old stuff anyway and what they do have will be preserved.  The U.S., in contrast, was interesting in the 1950s (or the 1920s) in a way these places were not and many aspects of that period are being lost. 

What suggestions do you have?  Iraq definitely belongs to one list or the other, we just don't know which.

What I’ve been reading

1. Baba Yaga Laid an Egg, by Dubravka Ugresic.  These interrelated stories, which concern the aging of women, are so far my favorite fiction of the year.  This was from a Bookslut recommendation; here is one review.

2. Ender's Shadow, by Orson Scott Card.  Not as good as Ender's Game and the trilogy, but still worth reading if you have an interest in the series.

3. Stieg Larsson, The Girl with the Dragon Tattoo.  Some parts of this story are very good, but overall I felt manipulated by the author and I was glad when it was over.  I prefer Henning Mankell.

4. Mikhail Lermontov, A Hero of Our Time.  This new translation is a big improvement on the old and thus a chance to rediscover a classic of Russian literature.

5. The Genius in All of Us: Why Everything You've Been Told About Genetics, Talent, and IQ is Wrong, by David Shenk.  There's nothing new in here, plus not everybody can be a genius.

The strangest sentence John de Palma read yesterday

"(…)Tourists at the Koorana Saltwater Crocodile Farm in Coowonga, Queensland, Australia, including 62 males and 41 females, aged 18–66 (M = 34.2, SD = 13.3), were randomly assigned to play a laptop-simulated Electronic Gaming Machine (EGM) either: (1) prior to entry, or (2) after having held a 1-m saltwater-crocodile(…)"

The link and explanation, if you could call it that, is here.

A daylight savings time confession

Had the idea of a government plan to shift the clocks back and forth twice and year been proposed today I am reasonably certain that I would have been against it.  I probably would have argued that it would be chaotic, inefficient and unnecessary (private firms could agree with their employees to change working hours at any time, right?).  Central planning of time!  Washington bureaucracy messing with the clocks!  Get your government hands off my time!  

And yet, it works and I like it.  It is good to be reminded of this twice a year.

The economics of managed care

Here is my latest NYT column and these are some relevant excerpts:

Conceived in its broadest form, managed care can be run by the government, as in Britain, or left in the hands of a regulated private sector. Because the United States already has substantial private-sector capacity, and because many Americans are suspicious of government controls, the private route is the most likely option. Individuals would choose among competing providers – and those providers would try to offer the most appealing bundles of services, relative to cost.

The current tax exemption for health insurance benefits could be modified to encourage more cost-effective delivery systems, including forms of managed care that meet quality standards. For the elderly, the current Medicare fee-for-service method could be transformed into voucher programs for managed care treatment. Of course, people could go outside their network for additional services, if they were willing to pay.

It’s not well advertised, but the Obama plan would move in this direction. Many people receiving new health insurance coverage would be enrolled in Medicaid, which already relies on managed care for about half of its patients.

On a national scale, effective managed care will require the right mix of reputation and regulation to enforce provider commitments, and will need some reframing and renaming to make it palatable. It could accurately be called “competitive, choice-based single-payer coverage.”

…On the other hand, for reasons of perceived fairness, some people may be more willing to accept a “no” answer on health care from a government agency than from a private company. If so, we run the risk of limiting our care choices just because we’re more squeamish about one kind of “no” than another.

You'll note that this is a proposal to come after the Obama plan (or whatever else we do), not in lieu of it.  It's not a competing idea but rather a recognition that rationing is coming in one form or another, even if some of the cost control proposals work.

There was not nearly enough space to deal with numerous points, including the following:

1. What are the pluses and minuses of competitive managed care offers vs. government-run single-payer systems?  Or compare voucher-based competitive managed care — for seniors — to a much stronger Medicare advisory board.  Under the former scenario, individuals choose, upfront, which services won't be reimbursed.  Under the latter scenario, "experts" make that choice for everyone, subject to the constraints of politics.  Which will lead to better outcomes?

2. I suspect the biggest problem with the voucher-based idea is when patients need to switch providers, say if they dissatisfied or if they are moving geographically.  To what extent would the required regulations here mimic some of what the Obama plan does to insurance companies?  Or could we just transfer how Medicaid handles managed care right now?

3. If people do not trust their managed care providers, can we expect a mutual, cooperative, or non-profit form in those markets?  If so, how many of the advantages of markets over governments do we lose?

4. What are the ethics of converting fee-for-service Medicare into vouchers for managed care?  In theory the role of government is to provide public goods, not private goods.  Which health care treatments for the elderly can be considered public goods and which not?  Is there an argument that paying more and more and more falls under this category of public goods?  I am skeptical on this point.  I think  we have been pioneering a revolution in government, namely by assigning most expenditures to private goods.  In the long run that is simply not sustainable.

Few people would think that a ne'er do well brother would be justified into taking $50,000 from you to prolong his life (with p = 0.17) for another three months.  (Bryan Caplan has made a similar point.)  So why do we approve of comparable transfers through the public sector?

5. I am struck by how many people, over the last year, claim we don't know how to make cost control work.  There is plenty of evidence that managed care lowers the rate of cost growth, we just don't want to do it.

I also should note that the ideas of Arnold Kling were an influence on this column.

Addendum: Arnold Kling comments.

The Economics of Sainthood

Barro, McCleary and McQuoid have a new paper, The Economics of Sainthood (a preliminary investigation)

Saint-making has been a major activity of the Catholic Church for centuries. The pace of
sanctifications has picked up noticeably in the last several decades under the last two popes, John
Paul II and Benedict XVI. Our goal is to apply social-science reasoning to understand the
Church’s choices on numbers and characteristics of saints, gauged by location and socioeconomic
attributes of the persons designated as blessed.

I couldn't help laughing at sentences such as these:

Another result is the significantly negative coefficient on pope’s tenure, given by the
coefficient -0.0229 (s.e.=0.0095) in Table 3, column 1. This result implies that a one-standard deviation
increase in tenure (8.5 years in Table 2) reduces the canonization rate by 0.2 per year.
Thus, there is a little evidence that popes experience saint-making fatigue as their tenure in office
lengthens.

Saint-making fatigue; who knew?

Markets in everything

Jonathan Keats — a San Francisco-based experimental philosopher who has, over the years, sold real estate in the extra dimensions of space-time proposed by string theory (he sold a hundred and seventy-two extra-dimensional lots in the Bay Area in a single day) made an attempt to genetically engineer God.

That's from the March 15 New Yorker, p.23.  You;ll find some confirmations of that claim here.  His recent projects include pornography for plants and television for plants.