Month: May 2010
What do the freedom indices measure?
Here is a must-read post from StatsGuy, via James Kwak. I don't agree with everything he says (e.g., Singapore, Wagner's Law) but here is his conclusion:
The Heritage Freedom Index is really a composite of measures that get at two different things: Good Government, and Less Government. Overall, the Good Government factors tend to dominate, and drive a lot of the correlation with good economic and quality of life outcomes. When one splits out the factors, the case for Less/Weaker Government weakens substantially, and the case for Clean/Non-Corrupt/Efficient government strengthens considerably.
Addendum: Here is a related discussion, especially in the comments.
China fact of the day
Of the 22 Chinese corporations listed on the Fortune Global 500, 21 are controlled by China’s central government or state-run banks.
There is more here.
Assorted links and non-links
1. The economics of old vs. new art markets.
2. Many people are recommending Johanna Blakely's TED talk, on "fashion's free culture," but Turkey finds it of questionable moral value and will not let me view it or link to it.
3. Top ten lessons of the global economic meltdown.
4. Why were some countries hit harder than others?
5. The increasing value of academic teamwork (he could have mentioned textbooks too!).
6. Puffincam.
7. Art Linkletter: an American life.
Mick Jagger on the economics of music
…people only made money out of records for a very, very small time. When The Rolling Stones started out, we didn’t make any money out of records because record companies wouldn’t pay you! They didn’t pay anyone!
Then, there was a small period from 1970 to 1997, where people did get paid, and they got paid very handsomely and everyone made money. But now that period has gone.
So if you look at the history of recorded music from 1900 to now, there was a 25 year period where artists did very well, but the rest of the time they didn’t.
Jagger, of course, studied economics at LSE and is known to be a fan of Hayek. Hat tip goes to Jerry Brito.
Speculative thoughts on the credit rating agencies
The sometimes-corrupt agencies rate securities and, in response, markets sometimes ignore these ratings but other times use these ratings to achieve nefarious ends, such as when mortgage-backed securities were overvalued and used to game the financial system.
Reform proposals aim to improve the quality of the agencies and limit their corruption. Imagine honest agencies, overrating securities half the time and underrating them the other half of the time. The underrated occasions still would be ignored while overrated securities still would be used to game the system. The core problem would remain about half of the time.
An alternative proposal would be to remove the legal power of the ratings and require each agency to hire a convicted felon as CEO. Board members would be restricted to men with ten years or more experience as a department store Santa Claus, or eleven-year-old female fans of Hannah Montana. If the agency is wrong some of the time no matter what, and that error has bad consequences, should we not aim to lower the credibility of the agencies rather than restoring it?
The unenlightened economy
SNAKING AROUND the outer wall of the courthouse in Mbaiki, Central African Republic, is a long line of citizens, all in human form and waiting to face judgment. It’s easy to imagine them as the usual mix of drunks, reckless drivers, and check-bouncers in the dock of a small American town. But here most are witches, and they are facing criminal punishment for hexing their enemies or assuming the shape of animals.
By some estimates, about 40 percent of the cases in the Central African court system are witchcraft prosecutions.
…most lawyers I consulted there favored keeping the law intact, although they admitted that it fits uneasily in a modern legal system. “The problem is that in a witchcraft case, there is usually no evidence,” said Bartolomé Goroth, a lawyer in Bangui…
More here. Add this to the evidence for Joel Mokyr's thesis.
Hat tip: The Browser.
Raghuram Rajan on health care in India
Hospitals in the United States could learn more from each other, as well as from hospitals elsewhere, including India, where costs have been brought down by bringing mass-production techniques perfected in manufacturing to health care. Indian hospitals have found that error rate are reduced when their doctors specialize and perform many procedures of a similar kind. The time for operations is also cut down, with no loss of safety. A focus on eliminating unnecessary frills and on utilizing expensive resources like doctor time most effectively also helps even though good surgeons in India earn about as much as surgeons in the United States, the cost of operations is often an order of magnitude lower. Regulations that force hospitals in the United States to be "full-service" hospitals rather than permitting specialization tend to drive up costs. Greater competition between hospitals could also bring down costs; an easy way of encouraging cross-border competition is to authorize Medicare and Medicaid reimbursements for procedures performed by authorized hospitals in other countries, like Mexico and Thailand.
That is from Rajan's Fault Lines: How Hidden Fractures Still Threaten the World Economy. Most of this book is on the financial crisis — and not health care — and it is one of the two or three best books on that topic.
Ramban, a 12th century Jewish Biblical Commentator
Doni Bloomfield sends me this passage:
Set aside a sum of money that you will give away if you allow yourself to be angered. Be sure that the amount you designate is sufficient to force you to think twice before you lose your temper… (Ramban: A letter for the Ages translated by Avrohom Chaim Feuer Reishit Chochmah, Shaar Ha'anavah Chapter 3)
The link to the source is here.
Top Kill
We hope some time today. Live video feed from 5000 feet below.
Assorted links
1. The evolution of income distribution in Canada.
2. How can we tell if financial reform is working?
3. Vending machines in everything.
4. Correction on Leibniz, see also Jacob T. Levy, a great post but I can only wonder what he was at this point expecting, the show hasn't made sense from episode one.
5. Will fiscal austerity sweep Europe (and does anyone now hold the view that these countries need more government spending)?
Bond markets in everything
British high-end chocolate maker and retailer Hotel Chocolat, which currently operates over 40 stores in the UK, the Middle East and the US, wants to expand even further. But rather than turning to banks or big investors for money, they're inviting customer to buy bonds. Bonds that will pay chocolate returns.
Two values of Chocolate Bond will be issued: both with the return paid in monthly Tasting Boxes. Holders of a GBP 2,000 Chocolate Bond will receive six free tasting boxes a year worth GBP 107.70 per year, and those holding a GBP 4,000 bond will receive thirteen boxes, worth GBP 233.35 per year. Which comes down to a 5.38% return. After an initial term of three years, and on every anniversary thereafter, bond holders can redeem their bond for a full return of their investment. If they decide to continue to hold the bond, the monthly boxes will keep on coming.
The link is here and hat tip goes to Eric John Barker.
Serendipity in Istanbul
I am walking along the main shopping street, seeing many Turks but actually thinking it would be nice to read more on Edwin Chadwick, when I stumble across a bookstore with a largish section of Augustus M. Kelley reprints, no Chadwick but they do have the everyone-should-now-reread-it Herbert Feis, Europe the World's Banker, 1870-1914, and I stumble upon the section on Greece and the International Finance Commission of 1898.
A bit of Googling yields the following (JSTOR):
The I.F.C. was set up in 1898 as a result of Greece's disastrous defeat in the 1897 Greco-Turkish War. The powers involved in its creation were Great Britain, France, Germany, Austria, and Italy. The purpose of the commission was to control the collection and employment of the revenues assigned to…[various foreign loans, mostly to the aforementioned powers]…on which the country had defaulted in 1893, as a result of the slump in the currants trade.
The Greeks ended up raising the money through state monopolies on their customs ports, kerosene, salt, matches, playing cards, emery and cigarette paper, plus taxes on tobacco and stamp duties.
At $40, I pass on the book and I will see the story reenacted in any case.
New evidence on the multiplier
Here is an interview with Joshua Coval, of Harvard Business School, about his current research. I would urge caution on interpreting these results, but this is what the data toss back out at us:
Q: One of your findings was that the chairs of powerful congressional committees truly bring home the bacon to their states in the forms of earmark spending. Can you give a sense of how large this effect is?
A: Sure. The average state experiences a 40 to 50 percent increase in earmark spending if its senator becomes chair of one of the top-three committees. In the House, the average is around 20 percent. For broader measures of spending, such as discretionary state-level federal transfers, the increase from being represented by a powerful senator is around 10 percent.
Q: Perhaps the most intriguing finding, at least for me, was the degree and consistency to which federal spending at the state level seemed to be connected with a decrease in corporate spending and employment. Did you suspect this was the case when you started the study?
A: We began by examining how the average firm in a chairman's state was impacted by his ascension. The idea was that this would provide a lower bound on the benefits from being politically connected. It was an enormous surprise, at least to us, to learn that the average firm in the chairman's state did not benefit at all from the increase in spending. Indeed, the firms significantly cut physical and R&D spending, reduce employment, and experience lower sales.
The results show up throughout the past 40 years, in large and small states, in large and small firms, and are most pronounced in geographically concentrated firms and within the industries that are the target of the spending.
For the pointer I thank Alex Prado.
Addendum: Megan McArdle comments on the difficulty of interpretation.
The political slants of the news diets of media figures
Jesse Shapiro and Matt Gentzow start off their short note as follows:
We use data from comScore,Mediamark Research & Intelligence (MRI), and The AtlanticWire “Media Diet” to study the news diets of media figures such as David Brooks and Tyler Cowen.
This is what they find:
Tyler Cowen’s news diet is relatively liberal: 45.7 percent of users of the average news outlet he visits are conservative.
This means that Cowen’s news diet is more conservative than 11 percent of all Internet users, and 8 percent of all media figures interviewed by the Atlantic Wire.
David Brooks’ news diet is relatively conservative: 60.4 percent of users of the average news outlet he visits are conservative. This means that Brooks’ news diet is more conservative than 74 percent of all Internet users and 72 percent of all media figures interviewed by the Atlantic Wire.
pp.3-4 in the paper offer the measurements for other media figures, including Jeff Goldberg, Felix Salmon, Marc Ambinder, and David Frum.
What do you think? Do the more conservative commentators have a more conservative media diet? Which factors determine the political slant of the media diet of a public intellectual? Does it matter, for instance, where you were born? I'll predict that conservatives who grew up in the Northeast are more likely to spend a lot of time with The New York Times than conservatives from the South.
Here is a previous MR post on this line of research by the authors.