Month: September 2010

Paul Langley asks about consumer surplus

What non-subsidized common products and services do you think have the highest average consumer surplus? Cell phones? Shampoo? Antibiotics? Just wondering.

Obviously it depends what margin you are at; for many people antibiotics or pharmaceuticals mean the difference for life or death but right now they do not for me.  And surely we cannot answer with "all food" or "all water."  For average value, I'll go with antibiotics, but a separate question is about median value.

I'm not sure cell phones have a positive marginal utility for a lot of people.  I would be happy with an email-only iPhone and I know people — close to us all right now — who don't even own a cell phone.

How about a toothbrush?  Eyeglasses?  The median adult wears them.  Often it's a car, though in the longer run you can adjust by moving to a walkable city.  A properly functioning toilet and waste disposal system?  Television?  Painkillers?

I thank the lunch group for a useful conversation on this topic.

Serial hyperspecializers, and how they think

The highly-regarded-but-still undervalued Elijah Millgram has a paper on this topic, and he seems to be preparing a book.  Here is one good short bit:

So one reasonable strategy for a hyperspecializer will be to divide its energies between activities that don't share standards and methods of assessment, and let's abbreviate that to the fuzzier, problematic, but more familiar word, "values." It will be a normal side effect of pursuing the parallel hyperspecialization strategy that its values are incommensurable. The hedonic signals that guide reallocation of resources between niches do not require that niche-bound desires or goals or standards be comparable across niches. If you are a serial (and so, often a parallel) hyperspecializer, incommensurability in your values turns out not to be a mark of practical irrationality, or even an obstacle to full practical rationality, but rather, the way your evaluative world will look to you, when you are doing your practical deliberation normally and successfully. Evaluative incommensurability is a threat to the sort of rationality suitable for Piltdown Man. Serial hyperspecializers gravitate towards and come equipped for incommensurability.

Here is a good review of Millgram's latest book, which argues, among other things, that truth is messy in nature.

Adam Phillips serves up a Bob Dylan quotation: "I have always admired people who have left behind them an incomprehensible mess."

Does the well-off law professor have cause to complain?

This guy is the blogging topic of the weekend; his family earns $455,000 a year (addendum: this number seems not to be true) and yet he worries about his taxes going up and the resulting diminution of real income.  I think we cannot permanently extend the Bush tax cuts; nonetheless, being a contrarian, I would like to explore the question of when a wealthy person has cause to complain.  I read about this guy and his pitchfork and it genuinely scared me, especially his description of Ben Stein and his intermingling of the political and the aesthetic.

Let's say you live in a country which has some rich people, some people in the lower middle class, and some very very poor people.  Or let's say you are a non-nationalist cosmopolitan.  Or let's say they discovered the indigenous people in Alaska and New Mexico were worse off than we had thought. 

In such societies, do the "lower middle class but not very poor people" have cause to complain?  After all, some large group of others has it much, much tougher.  Doesn't everyone who might suffer a loss have a potential claim to complain?  At what percentile of wealth does your claim to complain go away or diminish?  Even if it's an exponential function, can't Henderson's complaint lie within the shaded area, small though that region may be?  Can't a rich person point out that he has a higher MU of money than a non-rich person might think?  Or must that necessarily offend others?  What kind of genuflections must he package along with that information, so as to avoid being considered offensive?

Do you have more of a right to complain about taxes if you were going to spend the money, bringing about the treasured "stimulus," noting that right now the wealthy are more inclined to spend?  Do spendthrift wealthy people have a stronger right to complain if the multiplier on their potential spending is 1.5 rather than 0.6?  Should wealthy people simply acquiesce to any policy change that leaves them in the top two percent, and keep their mouths shut in the meantime?

If you are wealthy, and complain about a pending loss, must you each time note that some people — many people — are worse off than you are?  If you read a bad complaint, and complain about it, must you note that other people are stuck reading far worse material?  Or is it OK just to complain?  What if some other country's rich people support political tyranny, or perhaps an oppressive caste system, or maybe they don't pay any taxes at all?  Can you still complain about your rich people?  Or must you put in a disclaimer that you don't really have it so bad, given that others, in other countries, are stuck with even worse rich people?

Beware of moral arguments which do not address "At which margin?"  I see a lot of attempts to lower the status of Todd Henderson, but not much real moral engagement.  

A lot of people just like to complain, and that includes complaining about the complaining of others.  

Oddly — or perhaps not – it's the people who feel they deserve their money who are the most likely to give it away.

Assorted links

1. The culture that is Fairfax.

2. Ruth Marcus's intellectual autobiography.

3. Lifelong health insurance?

4. On ADHD, a step in the right direction, though it could be taken further.

5. Five favorite places in Latin America

6. James Hamilton speaks sense on sales and unemployment, I will add that a) statistical significance on the delta is not the same as economic significance for the entire phenomenon, b) we should not throw out information contained in absolute magnitudes, and c) more nominal demand without more real wealth won't bring back a lot of the sectors suffering from poor sales.

A new theory of monopsony, or how to bargain with trapped miners

In an effort to dominate the miners, the team of psychologists led by Mr Iturra has instituted a series of prizes and punishments. When the miners behave well, they are given TV and mood music. Other treats – like images of the outside world are being held in reserve, as either a carrot or a stick should the miners become unduly feisty.

In a show of strength, the miners have at times refused to listen to the psychologists, insisting that they are well. ''When that happens, we have to say, 'OK, you don't want to speak with psychologists? Perfect. That day you get no TV, there is no music – because we administer these things,''' said Dr Diaz. ''And if they want magazines? Well, then they have to speak to us. This is a daily arm wrestle.''

Here is more.  Here is one upshot:

''NASA told us we have to receive the arrows, so that they don't start shooting the arrows at each other,'' said Dr Diaz.

''So we are putting our chests forward – now they can target the doctors and psychologists.''

In other words, don't be too nice to the miners.  For the pointer I thank The Browser.

Why aren’t we using monetary policy to stimulate aggregate demand?

My NYT column today is about why we can't move to a three percent inflation target (which I favor, at least for some number of years) and how we might make the leap.  Excerpt:

…if the Fed announces a commitment to a higher inflation target but fails to establish its credibility, it will have shown impotence. It would be a long time before the Fed was trusted again, and the Fed might even lose its (partial) political independence. All of a sudden, the Fed would end up “owning” the recession.

Part of the credibility problem stems from the political environment, especially in Congress. Imagine the day after the announcement of a plan for 3 percent inflation. Older people, creditors and workers on fixed incomes – all connected to powerful lobbies – would start to complain. Republicans would wonder whether they had found a new issue on which to campaign, namely, opposition to inflation. And Democrats would worry about what position to take. Presidents of some regional Fed banks would probably oppose the policy publicly.

…The Fed lost some of its political independence during the financial crisis. It undertook major rescue operations in conjunction with the Treasury, and these bailouts proved extremely unpopular. Congress has taken a closer look at Fed operating procedures and will engage in a one-time audit of the Fed’s emergency lending. When it comes to inflation, the Fed cannot easily turn to Congress and simply ask to be trusted.

This is the sad side story of our financial crisis: especially when it comes to financial matters, a great deal of trust has been lost. There is the prospect of a free lunch right before us, yet it is unclear that we will be able to grab it.

…In failing to push harder for monetary expansion, is Mr. Bernanke a wise and prudent guardian of the limited discretionary powers of the Fed? Or is he acting like a too-hesitant bureaucrat, afraid to fail and take the blame when he should be gunning for success?

A few points:

1. For reasons of space, I could not note that the so-called "robust Reagan recovery" had price inflation of over four percent a year.  Many conservatives shy away from recognizing this.

2. Three percent inflation also would help the currently impossible state of the real estate market, by lowering the real value of debts.

3. I do not mean to discriminate against Scott Sumner's nominal gdp idea, but it is easier to explain an inflation rate target to a public audience.  Here is my earlier column on Scott.

4. Maybe we are in a new political economy equilibrium where each government agency is given "one shot" at a problem.  Treasury had its one shot with the stimulus plan.  The Fed had its exotic monetary policy operations and deal-making during the crisis.  Maybe in bad times voters aren't happy no matter what, and no one is allowed to try twice.  We have not yet thought through the political economy of this scenario.

5. If the Fed can't make the commitment today, when did it go wrong?  Perhaps at the peak of the crisis, when it was operating with a high degree of discretion, and various radical actions were viewed as justified, it should have announced that, to complete recovery, the three percent price inflation commitment would commence after the dust had settled.  That would have required Magnus Carlsen-like levels of foresight, however.  If nothing else, Bernanke may not have realized that some version of #4 was operating.

6. Contra Mark Thoma, I am not so worried about time consistency problems, provided that Congress supports the Fed.  As long as the economy is weak, it's in the Fed's interest to keep up the three percent inflation.  If people know that in better times we will eventually settle back to two percent inflation, I don't think this undercuts the whole idea.

7. It remains instructive to read Bernanke's 1999 Japan piece, for instance:

BOJ officials have strongly resisted the suggestion of installing an explicit inflation target. Their often-stated concern is that announcing a target that they are not sure they know how to achieve will endanger the Bank’s credibility; and they have expressed skepticism that simple announcements can have any effects on expectations. On the issue of announcement effects, theory and practice suggest that “cheap talk” can in fact sometimes affect expectations, particularly when there is no conflict between what a “player” announces and that player’s incentives. The effect of the announcement of a sustained zero-interest-rate policy on the term structure in Japan is itself a perfect example of the potential power of announcement effects.

With respect to the issue of inflation targets and BOJ credibility, I do not see how credibility can be harmed by straightforward and honest dialogue of policymakers with the public.

Maybe I'm too Straussian or too Freudian here, but I read him as trying to promote the commitment, without being totally sure it is possible; note the "distancing" language at the critical points of the argument.  I believe Bernanke wrote this next part before he completely understood the incentives of bureaucracies to conserve information:

But if BOJ officials feel that, for technical reasons, when and whether they will attain the announced target is uncertain, they could explain those points to the public as well. Better that the public knows that the BOJ is doing all it can to reflate the economy, and that it understands why the Bank is taking the actions it does. The alternative is that the private sector be left to its doubts about the willingness or competence of the BOJ to help the macroeconomic situation.

Negative review of Franzen’s *Freedom*

It is a very good review, as the book has vanished for me.  Here is one excerpt:

…although the narrator of Freedom tells us on the first page, “There had always been something not quite right about the Berglunds,” one need read only that the local school “sucked” and that Patty was “very into” her teenage son, who in turn was “fucking” the girl next door, to know that whatever is wrong with these people does not matter. The language a writer uses to create a world is that world, and Franzen’s strenuously contemporary and therefore juvenile language is a world in which nothing important can happen. Madame Bovary’s marriage sucked, Heathcliff was into Catherine: these words fail the context not just because they are of our own time. There is no import in things that “suck,” no drama in someone’s being “into” someone else. As for the F word, Anthony Burgess once criticized the notion that to use it in matter-of-fact prose is to hark back to “a golden age of Anglo-Saxon candour”; the word was taboo from the start, because it stands for brutal or at best impersonal sex. “A man can fuck a whore but, unless his wife is a whore, he cannot fuck his wife … There is no love in it.” A writer like Franzen, who describes two lovers as “fucking,” trivializes their relationship accordingly. The result is boredom.

Here are three very good sentences:

Too much of it takes place in high school, college, or suburbia; how odd that a kind of fiction allegedly made necessary by America’s unique vitality always returns to the places that change the least. Franzen clearly has little interest in the world of work. (The same applies, incidentally, to whoever edited the novel.)

And this:

Perhaps he can learn a lesson from Freedom: write a long book about mediocrities, and in their language to boot, and they will drag you down to their level.

I thank The Browser for the pointer.

Addendum: Andrew Gelman comments.

Markets in Everything: Afghan Votes

The NYTimes has an excellent piece today on vote-buying in Afghanistan:

How much does it cost to buy an Afghan vote?

Saturday’s parliamentary elections offer a unique opportunity to ascertain that price – and it is in theory a market with many buyers, as 2,500 candidates scramble for only 249 seats….

Nonetheless, prices are low. In northern Kunduz Province, Afghan votes cost $15 each; in eastern Ghazni Province, a vote can be bought for $18. In Kandahar, they sell their rights for as little as $1 a ballot. More commonly, the price seems to hover in the $5 to $6 range, as quoted to New York Times reporters in places like Helmand and Khost Provinces.

You may be surprised to learn that in Afghanistan a woman's vote is regarded as especially valuable:

He wanted to know how many of the cards were for female voters; those are more valuable because, out of respect for cultural sensitivities, women’s registration cards do not bear photographs, so they are easy for anyone to use. 

Here is my favorite bit.  Vote buying is much more common in this election than in the last.  So things have gotten worse, right?  Maybe not:

The feeling, experts say, was that last year’s election was stolen wholesale by supporters of President Hamid Karzai, so there was little need for vote buying.

The markets speak

I read so much blogospheric debate on the future of the Republican Party.  As for the 2012 Republican nominee, at Intrade.com, Romney is still leading the pack in the 31 range, and Palin remains in the 17-18 range.  John Thune is very much underdiscussed, given that his chance of winning the nomination seems to be about as large as Palin's. 

As Robin Hanson would say, politics isn't about policy.  Of course if you think these numbers are wrong, go and improve them.