Month: November 2010

Walter Isard: Regional Scientist and Economic Geographer

Walter Isard died late last week.  Isard was the founder of regional science, the economic approach to geography.  His seminal book, Location and Space-Economy, was a hugely ambitious work with the goal of developing a theory of economics and space that would encompass general equilibrium theory and international trade as special cases.  He brought the German contributions of von Thunen and others into the English mainstream, further developed the spatial interpretation of monopolistic competition (following Hoteling) and applied Leontief's input-output model to geography among many other contributions. The New Economic Geography, particularly The Spatial Economy, the key volume by Fujita, Krugman and Venables can be seen as a direct descendant of Isard's research program (Fujita was an Isard student).

Isard was a Quaker and he also applied scientific insights to questions of conflict, establishing the Peace Research Society (now the Peace Science Society) in 1963. His son, Peter Isard, is a distinguished economist with many contributions to international economics.

Which works ought to be read in their original language?

Gabriel Power, a loyal MR reader, asks:

What works really ought to be read in their original language? Does this suggest classes or types that are best read in the original? Does it suggest that some languages are poorly translated into English while others are well translated (indeed, possibly improved upon, e.g. Poe into French)? Why?

I can speak only to German, Spanish, and English.  Borges and Goethe and Juan Rulfo are much, much better in the original and I believe they cannot be well understood or appreciated in translation.  Vargas Llosa is an example of a conceptual, plot-driven Spanish-language author who translates quite well into other languages.  Max Frisch requires German and in general German humor (please don't laugh) does not translate into other languages, less than English-language humor does.  Shakespeare translates relatively well into German, but I wonder about other Shakespeare in other languages.  I have always thought of Chekhov as requiring Russian, but that is speculation.  It is hard for me to imagine James Joyce in any language but English, but most modern American authors can be translated OK, in part because they are not writing "word-rich" material.

Potentially "cheesy" material, such as Poe, often does better in another language.  Raymond Chandler in German was excellent, as it added a layer of cranky mystery to the proceedings.  I think of "word rich" and "subtly humorous" as hard to translate, so genre fiction is often better in another language.

What can you all add to this?

Why don’t we nudge people toward more risk?

Most paternalistic nudges encourage more safety (or at least the appearance of safety), such as when government steers people away from trans fats with a warning label or when the transportation authority structures the contours of a road to induce drivers to slow down.  I can think of a few nudges in the direction of greater risk-taking:

1. QEII and activist monetary policy more generally.  Investment tax credits and upbeat Presidential speeches.

2. Military recruitment campaigns and ads.

3. Social norms that people should pursue the love of their life, propose marriage, have children, and so on.  

What else?

The Hansonian question is why the bias toward safety is neglected for risk-taking in these areas.  Is it a simple utilitarian standard?  Is it that these forms of risk-taking are affiliated with larger social purposes, namely ones whose relative status we are trying to boost?  Are nudges toward risk just as common as nudges toward safety, but we are less willing to describe them as such?

Risk-taking by eating dangerous food has a relatively low social status, perhaps because the gain is mostly private.  Sushi or sampling street food in exotic locales have minority or cult followings, perhaps because they are (sometimes) associated with higher class values.  Many people eat and enjoy trans fats but few people defend or elevate them.

Haiti update: life on the Malthusian frontier

Several of them said, yes, they drank water from a river known to be contaminated with the cholera-causing bacteria. And, no, they don’t always have money to buy bottled water.

“We know there may be cholera in there, but sometimes it is all we have to drink,” said Alienne Cilencrieux, 24. “If we have Clorox, we pour some in and drink it. It tastes bad. Or we dig in the ground until we find water and drink that.”

Here is more.

The deficit commission report

I've read only the summaries (and here), not the report.  Mankiw is happy, Krugman and DeLong are upset.  The home mortgage interest deduction goes and income tax rates are 8, 14, and 23 percent.  No one thinks this is the final deal.  I would say evaluate this as you would a movie trailer: will it get people to take the next step of thinking about a ticket purchase?  The top 23 percent tax rate is like the quickly cut scene with the rolling boulder, the skimpily clad girl, the grinning enemy, and the face of the star.  "The Bowles-Simpson plan has a ratio of roughly $3 in spending reductions for every $1 in revenue increases…"  It won't happen in real life.  As a movie preview I judge this as "good enough."  It basically declares that some major deductions have to be on the table and it gets us to the next step.

Ezra Klein comments.

Loan markets in everything

Women in remote Korawan, 70 km from Allahabad, have come up with a novel bank which exclusively deals with goats – accepting the animal as savings and lending it out as loans.
"Prema and her friends hailing from Afrozi village have establish a bank which deals exclusively in goats," development block coordinator Subedar Singh told PTI.
In tough terrains of Mirzapur district, most of the people are engaged in crushing stone to earn a living.

"Wives of these people help them in crushing stones and breed two-three goats for additional income," Singh said.
"Though the area is best suited for goat breeding, no effort was made to establish it as a full fledged business activity," he said.
 "We provide goats to women having interest in taking up breeding as a full-time activity as loan. When a goat gives birth to kids, generally two to three in numbers, one of them is deposited with the bank again," Prema explained.
Goats in the bank are medically examined every week.
"In case a goat dies, then it is either replaced from the market or from the bank depending upon the availability," Prema said.

The link is here, the point is from Paul Hsieh and Jeffrey Williams should be happy.  The locale is in India.

Don’t flip out over QEII (repeating myself)

I'm not sure it will work, because it won't fix the housing market, may not restore the demands for wealth-elastic goods in a sustainable manner, may not restore the normal flow of credit to small businesses, may not lower subjective estimated risk premia, and may not fix the general disconnect between expectations and reality.  The effects on long-term interest rates are murky.  No one — and I mean no one — has a coherent story about how nominal stickiness of wages lies at the heart of our current dilemma.

Still, QEII may do some good.  Money matters, even if we don't always understand how or why, and excessively tight money has never done market-oriented economics any favors.  Think of QEII as a make-up for some earlier monetary policy mistakes.  Some of the relevant alternatives include a trade war with China or direct government employment of the unemployed and with what endgame?  QEII is not some terrifying burst of potential hyperinflation.  The TIPS market is forecasting in the range of two percent inflation and it's gone up — what — sixty basis points since August?  That's hardly the end of the Republic.  During the Reagan recovery, inflation never fell below four percent.  I've thought through "trigger models" of rapidly escalating inflation, but they don't scare me much.  The Fed simply needs to be ready to unload its heavy balance sheet without delay.

I do take seriously some of the more speculative criticisms, namely that QEII may set off bubbles in some emerging markets, or that it may break the euro (and that the euro would not otherwise break of its own accord).  Still, those hypotheses are far from established and it is difficult to believe that say three percent U.S. price inflation should bring international doom.  These factors also need to be weighed against the international and political economy costs of continued American economic stagnation.

I'm unhappy with claims that "we're not doing enough" and that therefore this is no test of the idea of monetary stimulus.  This is what QEII looks like, filtered through the American system of political checks and balances.  And if it looks small, compared to the size of our problems, well, monetary policy almost always looks small compared to its potential effects.  I'm willing to consider this a dispositive test and I am very curious to see the results.

Brad DeLong’s fiscal plan

You'll find it here and I agree with much of it.  I would phrase the rhetoric differently, but let's put that aside.  And also let's assume — as is likely the case — that Obamacare is here to stay and thus that is taken off the table.  The most important development is simply that Republicans (and Democrats) support the potential for Obamacare to reduce the rate of growth of Medicare expenditures.  That is the #1 issue in fiscal policy today.  And it saddens me how infrequently it comes up, except to be attacked.

I get nervous when I read Brad's phrase "commit immediately," which appears repeatedly in the post and it appears in critical moments.  I favor the specified commitments but I also think they are highly unlikely.  The phrase "commit immediately" is almost an oxymoron, as the call for immediacy highlights that no one to date has made such a commitment or wants to or, in all likelihood, will, until of course an emergency comes, as with the passage of TARP.

This "don't commit, rather do it now" reasoning is easy to understand when the Democrats pushed for a rapid passage of Obamacare, or when we look at the frustration with the stalled repeal of DADT.  Few on the left thought that "precommitment to do" was a viable option in those cases, so the push was "do it now," even if that was not convenient in terms of the election or, in the case of DADT, relations with the Pentagon.  Yet when we return to fiscal policy, the talk is once again of "commitment."  I fear it is a placeholder for the idea of "no commitment."

What's the best fiscal policy when there is no commitment?  I say let the Bush tax cuts expire fairly soon, so that spending feels to the public like it has a cost.  (It's become increasingly clear to me that when it is possible for taxes to fall again that they will do so; I am less worried about high tax rate lock-in than I was fifteen years ago.)  Have prominent Republicans endorse the better parts of Obamacare.  Continue QEII but no second fiscal stimulus and no extension of any Obama tax cuts, which were a mistake in the first place.  Carbon tax if possible but it's not.  Reindex Social Security ASAP.  Cut discretionary spending where you can.

That's my fiscal recipe, for this lovely Wednesday morning, sans commitment.  Like Brad's proposals, it won't happen, but it feels "merely impossible," as opposed to impossible at a more fundamental metaphysical level.  Should that distinction matter?

Oh, and get rid of DADT during the lame duck session of Congress.  Ha. 

Addendum: Interfluidity has brilliant, and related, remarks.  The best post I've read in some time.

Chromosomal clubs?

…a few months earlier, a newly available DNA test revealed that Samantha and Taygen share an identical nick in the short arm of their 16th chromosomes…

Some mutations are so rare that they are known only by their chromosomal address: Samantha and Taygen are two of only six children with the diagnosis “16p11.2.”

It turns out that individuals (and their parents) who share these diagnoses are meeting and exchanging information and forming mini-alliances.  Here is the full story, though I am not entirely comfortable with the tone and selection of the article as a whole — only negatives, for one thing.  Rare copy variations also may be a significant source of human progress and, for that matter, individual contentment.

For the pointer I thank Andrew S.

Assorted links

1. Bryan Caplan, statistical theist?.  I sometimes say that the GMU blogging group is divided into theistic and atheistic thinkers, as we have several of both.

2. Tim Harford is switching to Twitter (don't tell Mario Rizzo).

3. Markets in everything?: pay for red lights to go green.

4. What is the main lesson of this short video?

5. Markets in everything: cell phone storage for high school students, liquidity premium exceeds carrying costs edition.

6. Liebowitz and Margolis on where the lock-in literature went wrong.

7. Walter Russell Mead on Obama.

All the Devils are Here

Lots of excellent material in McLean and Nocera's All the Devils are Here.  In addition to devils there are also a few skeletons: in 1990, for example, Fannie paid Paul Volcker to defend and endorse its low capital standards.

A highlight is the chapter on the GSEs and how tightly they wound themselves into the political process. 

Everything the GSEs did was behind the scenes.  But for Congress, it was the homeowners who mattered, since they were the constituents….Johnson solved this problem by establishing what Fannie Mae called partnership offices.  Officially, these were operations dedicated to finding opportunities to purchase mortgages…unofficially, they were the grassroots of a highly sophisticated political operation.  Fannie's first partnership office was in San Antonio, which just happened to be home to Representative Henry Gonzales, then the chairman of the House banking committee…

There was a certain formula to these offices.  They were staffed by someone close to power–the son of a senator, a governor's assistant, a former congressional staffer.  They held ribbon-cutting ceremonies, always with a politician present, to announce, for instance, that Fannie was going to put millions into a senior citizen center.  There were as many as two thousand ceremonies a year in partnership offices all over the country….

Fannie Mae also funneled money to politicians….Over the years, the foundation became one of the largest sources of charitable donations in the country.  It made heavy donations to, among others, the nonprofit arms of the Congressional Black Caucus and the Congressional Hispanic Caucus.

Fannie hired key insiders to plum jobs..[long list of names,AT]…"It was like the local Tammany Hall operation–a jobs program for ex-pols!" says one closer observer.

Fannie spent a staggering amount of money lobbying: $170 million in the decade ending 2006…

McLean and Nocera go on to document how this power meant reports alterted, investigations dropped and so forth.

We need more of this kind of historical public choice, history written with an eye to how power is wielded in the political sphere and how law is really made.  (For another example see my paper, The Separation of Commericial and Investment Banking: The Morgans vs. The Rockefellers.)

Addendum: Arnold Kling's review.