Month: November 2010

*Marketplace of the Gods*

The author is Larry Witham and the subtitle is How Economics Explains Religion.  It's a good book, and my favorite passage was this:

[Larry] Iannaccone was born in Buffalo into a family of Italian immigrants.  Earlier in the century, the family had broken from Catholicism to join a dissenting branch of the Jehovah's Witnesses, which itself had splintered off from the early Adventists.  It was rich American church history, and young Iannaccone had a front-row seat on the sectarian religious experience for eighteen years of his life.  Still, his father had a Columbia University Ph.D. in education.  He was a "wandering academic," who went to jail as a conscientious objector, set up summer church camps, and taught at several universities.  The family ended up at the University of California, Santa Barbara, and Laurence went off to Stanford to study mathematics.  Then in 1977 he headed for Chicago, considering pure mathematics but not exactly enthused.  Looking for alternatives, he had an interview with James Coleman, the noted sociologist.  Coleman said that sociology was in utter disarray: "You should think in terms of economics," he advised. "Rational-choice economics."

How to encourage innovation?

Here is a new research paper:

We explore the relationship between attractiveness and risk taking in chess. We use a large international panel dataset on chess competitions which includes a control for the players’ skill in chess. This data is combined with results from a survey on an online labor market where participants were asked to rate the photos of 626 expert chess players according to attractiveness. Our results suggest that male chess players choose significantly riskier strategies when playing against an attractive female opponent, even though this does not improve their performance. Women’s strategies are not affected by the attractiveness of the opponent.

For the pointer I thank Bruce Bartlett.

Jordan markets in everything

A bookstore for banned books:

At Sami Abu Hossein's cramped bookstore, the hundred or so book titles listed on a wall aren't bestsellers. They're banned.

And the cheery Abu Hossein can you get you any of them, sometimes in the few minutes it takes to sit down and drink a cup of thick-brewed Turkish coffee.

"There are three no-nos," the owner of Al Taliya Books explains with a big smile. "Sex, politics and religion. Unfortunately, that's all anyone ever wants to read about."

Hat tip goes to Steve Silberman.

Does the UK have the best health care institutions in the world?

Not in the present day time slice sense ("did he write "best," didn't he mean "worst"?"), but think of it over time.  There is a big lock-in effect.  The United States, for instance, cannot easily switch into another way of organizing its health care system.  Obamacare is built upon current institutions and, for better or worse, does more to lock them in than to modify them.

Let's say you think an optimal mix is government-run clinics for the poor and reliance on the market for wealthier individuals, with people in the middle using some mix of the two.  The government clinics enact redistribution at relatively low cost and this means you don't have to overly regulate the private market.  People can take their chances with the market, or fall back on the cheaper but possibly inferior government service.  Think of it as a public option at the level of provision rather than insurance.

Now that is not exactly the current regime in the United Kingdom.  For one thing, the public sector is too large and the private alternatives are both too small and not free enough.  But could you not imagine their institutions evolving into some version of this, mostly through growth of a less-regulated market sector?

Can you imagine the same evolution for the American system?  

Addendum: Ezra discusses how the American system might evolve.  And Austin Frakt comments.

Headlines to ponder

UK maintains growth momentum

German business confidence soars

Those are two of the countries which have done the most to commit to subsequent decreases in government spending.  It would be wrong, wrong, wrong to causally attribute their growth to those spending decreases.  Still, fairly firm expectations of spending decreases don't exactly seem to be driving them under, and we do know that AD stimulation is all about credible expectations, not just the current flow of spending…

Beware some markets in everything

Whenever you see an "investigator" charge patients to undergo an experimental protocol, be very very wary. Be very, very afraid. In general, with very few exceptions, reputable medical researchers do not charge patients to undergo experimental protocols; their studies are funded with grants from the government, private foundations, or pharmaceutical companies.

That is Orac on Luc Montagnier, Nobel Laureate; hat tip goes to Steve Silberman on Twitter.  Steve also links to this article about a recent Randian educational scam.

Local news or rumor?

Washington Post columnist Steven Pearlstein is joining the faculty at George Mason University and will cut back his twice-weekly column to once a week.

Pearlstein, a Pulitzer Prize-winner, wouldn't confirm the newsroom buzz about his new dual role when The Cutline reached him Tuesday morning. "I'm going to write about that in my column tomorrow," Pearlstein said, adding that he's "not going to scoop myself."

Here is more, from Yahoo.  Only his hairdresser knows for sure.

Arnold Kling on the political spectrum

Here in the United States, one thing that strikes me about my most liberal friends is how conservative their thinking is at a personal level. For their own children, and in talking about specific other people [TC: especially in the blogosphere!], they passionately stress individual responsibility. It is only when discussing public policy that they favor collectivism. The tension between their personal views and their political opinions is fascinating to observe. I would not be surprised to find that my friends' attachment to liberal politics is tenuous, and that some major event could cause a rapid, widespread shift toward a more conservative position.

Here is more.  I would make the related point that, in the economics profession, academic liberals are especially likely to believe in statistical discrimination: "Does he have a Ph.d. from Harvard or MIT?"  On the right, Chicago's previous reputation as an outsider school blunts this tendency, plus there have been Arizona, VPI, and other off-beat centers of market-oriented thought.

Podcast with Tyler Cowen and Jerry Brito

Some time ago I asked MR readers to request podcast questions.  The 30-minute podcast consists of Jerry Brito picking out some questions from that list and interviewing me.  You can find it here.  Jerry sums it up:

Cowen discusses why people will be appalled that we ever questioned intrusive searches by TSA, what should have been done to minimize unemployment and other harm from the financial crisis, how the “famous American formula” for good government is broken, what might force us to sit around opening cans of dog food with our teeth, and which global sites should be connected by Stargate portals to create the most value. He also asks, “Why read books?”, speculates about the value of his blog, addresses price discrimination of chicken McNuggets, talks about a modern day Athens in Asia with good food, suggests that internet comments are a relatively harmless form of stupidity, and opines about the best thing that government does.

Assorted links

1. Very good post on Ireland.

2. Economists working at hi-tech firms.

3. Tuataras routinely live to 100, or longer.

4. Markets in everything: dealing with your health insurance paperwork.

5. A dispute over Peter Diamond's district.

6. The world's most powerful economist.

7. Via Ireland, a good argument for a King.

8. Chalmers Johnson has passed away.

9. David Nolan, founder of the Libertarian Party, has passed away; more here.

Why Timur Kuran is one of our most important thinkers

Timur is well-known as an economist, but his true importance remains neglected.  What follows is my view of "what he achieves," not "what he intends." 

Timur grew up in Ankara and Istanbul and he brings economics, rational choice, public choice theory, law and economics, and a strong knowledge of history to bear on the history and current dilemma of the Middle East.

I view Timur as our most important apologist for the history of Islam, and I mean that word apologist in the classical sense, not cynically.  I am not claiming he is a Muslim (I have no idea), but rather that he has insight into Islam.  He is telling us: "this stuff isn't as screwed up as it might seem to some of you.  It is more like you than you probably think."  Yet, like so many good apologists, you get mostly biting criticism of what he is apologizing for; he is seeking to reform the world he cherishes.

His first book Private Truth, Public Lies: The Social Consequences of Preference Falsification (one of the best economics books of the last twenty years) is about how societies can stick with screwed up beliefs and defend them publicly, yet without everyone being evil or stupid, even if they sometimes sound as such.  It has major implications for the theory of revolution, and sudden flips of opinion, yet I read it as a defense of [fill in the blank] society.  His work with Sunstein on availability cascades extends the basic point of how falsehoods spread in otherwise normal environments; it applies directly to U.S. regulation also global religion.

Timur has written a great deal on how "Islamic economics," as the formal movement is known, has not done Islamic economies any great favors.  It is precisely when he seems most critical of Islamic doctrines that he is doing the most repair work, by indicating another path forward.  

He now has a new book out — The Long Divergence: How Islamic Law Held Back the Middle East.  The book explains a large part of why the Middle East and Turkey fell behind the West and law and economics has a lot to do with it.  Various laws in Islamic societies were not conducive to large-scale economic structures, at precisely the time when such structures were becoming profitable and indeed essential as drivers of economic growth.  This is not a book of handwaving but rather he nails the detail, whether it is on inheritance law, contracts, forming corporations, or any number of other topics.

Timur writes clearly but his understated prose doesn't hop off the page at you, no matter how good the content.  He sometimes sounds small when he is in fact writing on a very large canvas.  Yet the relevant unit of labor here is his career's work, not any single article or even book.  I wonder if the economics profession forces on him too specialized a voice or an ill-fitting conception of what Wertfreiheit means.

Here is the final paragraph of the new book and it is one place where the larger vision peeps through more explicitly:

The good news is that the region borrowed the key economic institutions of modern capitalism sufficiently long ago to make them seem un-foreign, and thus culturally acceptable, even to a self-consciously anti-modern Islamist.  These institutions can be improved, recombined, and applied to new domains creatively without opposing Islam as a religion, or even dealing with it.  They can be debated essentially in isolation from public controversies over what Islam represents and its relevance to the present.  Furthermore, Islamic economic history offers abundant precedents for promoting free enterprise and limiting the government's economic role.  In no period has private enterprise been lacking.  Widely admired empires had shallow governments that left to waqfs the provision of social welfare, education, and urban amenities.  A predominantly Muslim society is not inherently incompatible, then, with an economy based on free competition, openness to borrowing, and innovation, and a government eager to support, rather than stifle, private enterprise.

[Segue to Stockholm dialogue:

T: James Buchanan is fundamentally a regional thinker.  I toy with the view that most social science thinkers are, fundamentally, regional thinkers.

B: Is that good or bad?

T: It depends on the region.]

Here is Timur's home page.  You can buy the new book — which I strongly recommend – here.  Here is the book's home page.  Here is a related podcast.  Here is a video of Timur.  Here is a picture of Turkey:


Richard Thaler’s question

I am doing research for a new book and would like to hope to elicit informed responses to the following question:

The flat earth and geocentric world are examples of wrong scientific beliefs that were held for long periods. Can you name your favorite example and for extra credit why it was believed to be true?

Please note that I am interested in things we once thought were true and took forever to unlearn. I am looking for wrong scientific beliefs that we've already learned were wrong, rather than those the respondent is predicting will be wrong which makes it different from the usual Edge prediction sort of question.

There are many answers here (scroll down).  Hat tip goes to Edge on Twitter.

Second thoughts on Ireland

Irish political economy seems to be falling apart in front of our eyes and the bond market isn't so happy, even after Ireland accepted the EU/IMF bailout.  That would appear to be political risk.  Maybe there won't be a happy ending even in the short run.

Here is Thomas Friedman, a number of years back, touting the wonders of the Irish model.  Cato and Heritage made similar claims.  What are we to make of this broader span of Irish history?  I see a few candidate views, not necessarily mutually exclusive:

1. The Irish had some excellent economic policies, but they needed to regulate their banks more.  They were simply too optimistic and too sloppy.

2. Irish troubles could have been contained, at some point over the last two years, had Ireland not been on the euro.  They would have devalued, defaulted, and had a rapid bounce back up, within the next three years.

3. Ireland never should have guaranteed the liabilities of its banking sector.  Indeed, Ireland (as New Zealand did long ago) should have encouraged larger, more diversified foreign banks to dominate its financial sector.

4. Irish troubles are intimately connected with low corporate tax rates.  Revenue starvation induced the Irish government to court and tolerate a real estate bubble.  One claim is that Ireland relied too much on property taxes.

5. The good and bad policies are a bundle of sorts, and Ireland needed the mix to rise from squalor and the dominance of anti-commercial interest groups, no matter how painful the present day may seem.  I recall vividly, growing up, that Ireland was thought of as not much more than a Third World country.

6. We are overreacting to the Irish failure.  It is one of the first European dominoes to fall, but over time many different policy models will look like mistakes.

What other candidate views are there?