Month: November 2010

Yuck markets in everything

There is a market in baby foreskins:

Because of this, they’re not tossed out with the rest of the medical waste after a birth. Instead, hospitals sell them to companies and institutions for a wide variety of uses. Companies will pay thousands of dollars for a single foreskin.

Some of the strangest purposes they’re put to:

  • Cosmetics: Foreskins are used to make high-end skin creams. The skin products contain fibroblasts grown on the foreskin and harvested from it. One foreskin can be used for decades to produce fancy face cream like the SkinMedica products hawked on Oprah.
  • Skin grafts: In addition to making products for skin, a baby’s foreskin can be turned into a skin graft for a burn victim. Because the cells are extremely flexible, they’re less likely to be rejected. Currently, this technology can be lifesaving in providing a real skin “band aid” to cover an open wound while a burn victim heals. Researchers at Harvard and Tufts are working on advanced skin replacements that use human foreskins.
  • Cosmetic testing: All those cruelty-free cosmetics you buy? Some of them are tested on foreskins. This yields better results, since they’re human skin. And it saves the lives of the rodents your shampoo would otherwise be tested on.

Does this make the hospital ever-so-slightly more interested in continuing the practice?  For the pointer I thank Andromeda.

The more things change…

Via Veronique deRugy, here is the recently elected Rand Paul on earmarks:

In a bigger shift from his campaign pledge to end earmarks, he tells me that they are a bad “symbol” of easy spending but that he will fight for Kentucky’s share of earmarks and federal pork, as long as it’s doled out transparently at the committee level and not parachuted in in the dead of night. “I will advocate for Kentucky’s interests,” he says.

Ireland facts of the day

The increase in spending, which is part of Ireland’s present problem, is quite recent. From 2000 to 2006, the number of people employed in the Irish health sector increased 20 percent, in education by 27 percent, in the justice sector by 22 percent, and in the civil service by 27 percent.

In the past decade, Irish health spending has doubled, in real terms. In 2000, about 22 million items were prescribed; 10 years later, 52 million items were. People aren’t twice as healthy as a result.

As far as taxes on income are concerned, Irish people now pay about half as much as an equivalent family does on the same income in Germany. There is currently no recurring tax on property, no charge for water supplies, and modest fees for a college education. Welfare payments compare favorably with those in Northern Ireland.

Here is more.  Currently there is talk of a "buyer's strike" in the market for Irish bonds.  When the Irish accept the full extent of the standard of living "reset" implied in all of this, how big a step back will be required?  Ten years?  More?  If you take away pre-war, war, and post-war examples, is there any precedent for such a large reset in the history of wealthy countries?  Apart from contemporary Iceland, that is.

Keynes on prosperity and the Great Depression

For the moment the very rapidity of these changes is hurting us and bringing difficult problems to solve. Those countries are suffering relatively which are not in the vanguard of progress. We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come–namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.

Alexander Field, the economic historian, would one day argue much the same, with numbers behind it.  For Keynes even the Great Depression wasn't just an AD problem.  (Obama worries too.)

From Keynes, here is 7 pp. more, fascinating throughout, although mostly totally wrong and there is a naughty mention at the bottom of p.6.  It is his famous essay "Economic Possibilities for our Grandchildren."  Keynes argued we would one day (soon) have enough material prosperity to abolish scarcity.  Most importantly, from his Bloomsbury perspective, pro-commercial norms could fade away, as they would no longer be needed as an incentive.  Society would be much the better for it; Daniel Bell later turned this argument upside down by fearing the decline of this ethic.

More wealth brings, on average, greater happiness (see Wolfers-Stevenson for the evidence, Kahneman too), but often through indirect and circuitous routes, and without guarantees.  The bottom line is that most of us keep on striving for more.  Furthermore, happiness isn't the only end we desire, and money is a route to power and esteem as well, as distinct from happiness.  Material satisfaction isn't enough in life.  Unlike Keynes (and Bell), I expect that norms to both encourage and regulate avarice will be with us for a very long time to come.

The Luck of the Irish

It's getting worse.  Here is one bit:

The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.

That is from Morgan Kelly — read the whole thing.

Bob Zoellick on monetary reform

If you had asked me to bet in which year the President of the World Bank would recommend that we consider some version of a gold standard, I would have picked the wrong number:

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

Indeed that is 2010 and the full proposal is here.  I feel like I should pay something to somebody, but I am not sure to whom.  Or in which medium of exchange.

Daylight Savings Time and Nominal Shocks

Nick Rowe has an excellent and timely post on DST and monetary policy:

Metrification was a nominal change that had negiligible real effects, as far as I know. Daylight Savings Time is a nominal change that has real effects. Some monetary changes, like currency reforms where we knock a couple of zeroes off the old currency and call it the new currency, are like metrification, where nothing real changes. And maybe all monetary changes are like metrification in the long run. But some monetary changes are like Daylight savings Time, and have real effects, at least in the short run.

If we understood Daylight Savings Time better, and how it works, we might understand monetary policy better.

Indeed, Nick makes some progress (slightly technical) on this question, read the whole thing for more.

Will Ron Paul oversee the Fed?

Politico reports:

Here's a little irony in the House GOP sweep: The next chairman of the monetary policy subcommittee — overseeing the Federal Reserve?

None other than Ron Paul (R-Texas), who'd just as soon abolish the Fed.

Paul is the ranking member of the Subcommittee on Domestic Monetary Policy and Technology on the Financial Services , which oversees the Federal Reserve, the U.S. Mint and American involvement with international development groups like the World Bank. Unless someone bumps him, he's next in line for the subcommittee gavel.

The Republican Conference has to vote on the matter, however.  Paul has long called for the abolition of the Fed and restoration of a gold standard.

France outlaws discount pricing for eBooks

A mobilization by French publishers at last month’s Frankfurt Book Fair has proven successful: Last Tuesday the French Senate voted for a law imposing a fixed price on eBooks for sale within French territory – that is, just as with print books in France, everyone has to sell a given ebook for the same price. No discounting.

Here is more; solve for the equilibrium!  Oddly, in the United States, the market has been moving toward an approximation of this outcome, at least for new books, though not for classics.  Probably both prices need to fall, though perhaps they will in rough tandem.  I believe the equilibrium value of a hardcover or e-version of a bestseller is below $10, given the recent shift out of the supply curve for the written word.

Is there a long-run deflationary trend right now?

Although the cited source says as much, please don't take these remarks as my dismissal of the relevance of AD cyclical macro.  Still, I find this idea intriguing:

Anyone who still thinks falling prices are a cyclical phenomenon isn’t looking closely. It’s secular, and the sudden ubiquity of discount outfits shows how Japanese consumption has become a race to the bottom of the pricing spectrum.

There is more detail here and note the trend is occurring even though Japan does not have declining real per capita income. 

In a wide variety of areas, ranging from ethnic food vs. fine dining to blogs vs. books to the art world (Outsider Art is often more visceral and enduring) to clothing, there is a common realization going on: cheap stuff is often better than the more expensive stuff.  Furthermore, information technology allows you to reframe your consumption, countersignal your personal image, and reaffiliate with others, and their social movements, in ways which increase the status value of the lower priced goods.  It is now quite easy to find the (possibly) small pool of people who will respect you for your cheap hobby or obsession.  You can buy obscure items and even your uninformed friends can Google to find out what they are and why some people think they have value.  In relative terms, a famous, mainstream, and somewhat upper-class "Nordstrom" label is worth less than before.

These developments remove or at least limit the status-based reasons for buying the higher-priced goods.

Mike Munger took us all for pupusas and we loved it; no one was bitching about the absence of seared tuna.