Month: December 2010

Incentives vs. the TSA

Every spring, private security officers at San Francisco International Airport compete in a workplace "March Madness"-style tournament for cash prizes, some as high as $1,500.

The games: finding illegal items and explosives in carry-on bags; successfully picking locks on difficult-to-open luggage; and spotting a would-be terrorist (in this case Covenant Aviation Security's president, Gerald L. Berry) on security videos.

"The bonuses are pretty handsome," Berry said. "We have to be good – equal or better than the feds. So we work at it, and we incentivize."

Somehow, this I had not known, nor had I known it was possible:

Some of the nation's biggest airports are responding to recent public outrage over security screening by weighing whether they should hire private firms such as Covenant to replace the Transportation Security Administration. Sixteen airports, including San Francisco and Kansas City International Airport, have made the switch since 2002.

The full story is here.

Most Popular Marginal Revolution Posts from 2010

Here are the most popular Marginal Revolution posts from 2010 as measured by landing pages and page views.

1. Book lists were very popular as a category. The highest ranked post in terms of page views was Tyler's Books which have influenced me the most which created a blogosphere avalanche. Links to other people's lists (of influential books) was also very popular. As was Books of the year, 2010 and peculiarly this post on The best-selling book of all time.

2. The number one linked post was What happened to M. Night Shyamalan? a one-liner and one-picturer.  Also very popular in the category of "quickies" were Barbados v. Grenada, the demand for own-goalsDead BirdsFreak-onomics, Nazi-Nudging, and Yuck_markets in Everything.

3. One Game Machine per Child on the failure of a computer voucher program to raise grades (but it did increase gaming).

4. Lost: The Final Episode

5. The Dark Magic of Structured Finance.

6. Gay Sex Statistics.

7. Peter A. Diamond.

8. How the Bill Will Evolve.

9. Economic Misconceptions.

10. Why Did the Soviet Union Fall? (from 2007).

11. The Small Schools Myth.

12. A Theory for Why Latvian Women are Beautiful.

Other substantive posts with high popularity (in the top-50) were my posts Insiders, Outsiders and Unemployment and The Philosophical Cow and Tyler's posts How many children should you have?Is there a case for a vat?Does the Law Professor have cause to complain? and Why is Haiti so Poor?

Two of my posts from previous years were also popular in 2010, from 2008 What is New Trade Theory? on Paul Krugman's Nobel and from 2005 Why Most Published Research Findings are False.

Hope you have enjoyed this years offerings. What have I missed?

What falsehood would you most likely think is true?

Is that the best way to sum up the question?  S.L., a loyal MR reader, asked:

What is the thing that would with highest likelihood be true if you didn't know it was probably not?  This is extremely interesting but also too broad to get a handle on—easier to think about in certain areas. E.g. what is the economic non-fact that satisfies this, or the physical ("god does not play dice" is up there).

I will try "that the universe as we know has not been there forever."  When I was a kid it seemed obvious to me that the sky and stars had always been there, albeit with some recycling of content, much like they changed the TV shows every few years or so.  I was surprised to learn about the Big Bang, at first held out hope for steady state matter theories, and now again see that some form of constancy may survive at the level of the metaverse.

How about in economics?  I am surprised how little power real interest rates have to predict investment.  I am surprised how few investors can consistently violate/beat the weak efficient markets hypothesis (aren't lots of people simply smarter than the marginal investor?).  And I am surprised that the Industrial Revolution ever took place, after not having taken place for so long.

Your picks?

What will happen with real wages?

Put aside the rise of China, and think back to when the three major economies were the United States, Japan, and Germany.

Japan has seen a continuing decline in real wages.  The German data are harder to assess, but we have seen periods of wage declines, a lot of wage stagnation, and arguably real wages have declined relative to education levels in the work force.

If we look at U.S. real wages over the next ten years, what is the chance that they rise?

Drinks are on the House

…in terms of breadth of interest in economic subjects, literature and ephemera, Marginal Revolution is like nipping into a world-class local bar, where the drinks are always perfectly mixed, the atmosphere is relaxed and civilized, while intelligent conversation and serendipity are available on tap. The comments tend to be of unusually high quality too.

From Alen Mattich's writeup of the best economics blogs in the WSJ. Congrats and thanks to all our commentators.

Facts about Brazil

[Rio favela] Complexo do Alemao ranks lower than the African country of Gabon on the United Nations Human Development Index, a world survey of living standards that measures factors like access to education and health care. By comparison, the Development Index scores of upscale Rio neighborhoods like Gavea and Leblon are higher than Norway, the world’s top-ranked country.

Here is more, mostly on the war against the drug gangs.

Free Money

Christopher Beam's piece on libertarianism had some amusing moments:

Say we started from scratch and created a society in which government covered Money1 only the bare essentials of an army, police, and a Money3JPG courts system. I’m a farmer, and I want to sell my crops. In Libertopia, I can sell them in exchange for money. Where does
the money come from? Easy, a private bank. Who prints the money? Well, Money2 for that we’d need a central bank–otherwise you’d have a thousand Money5 banks with a thousand different types of currency.


A monetary system with thousands of banks issuing their own currency! Ho, ho, ho….those wacky libertarians where do they get their crrrrrazy ideas

Canal Images from Nick Szabo, the Minneapolis Fed, the San Francisco Fed, the Philadelphia Fed and Larry Schutts

Addendum: Scott Sumner has other bones to pick.

Joseph Gibson on how to improve Congress

Chug refers me to this new book.  A few of the ideas are:

1. Make Congress a temporary job, a bit more like jury duty or serving in the military.

2. Allow all financial contributions but require full disclosure on the internet.

3. Lower or eliminate the fixed allotment for Congressional staff, to limit the "bubble" which surrounds Congressmen.

4. Do not allow fundraising while Congress is in session, to make sessions more urgent.

5. Require that bills be written in plain English.

6. Allow formal vote-trading, so minority legislators could have some prospect of promoting their better ideas.

7. Make it easier to repeal unnecessary laws.

8. Eliminate the "hold" and make filibusters much harder.

9. Make confirmations quicker and easier.

10. Make the House smaller.

There is more, but that is a start. 

In general I find Congressional reform proposals, including filibuster abolition, difficult to evaluate.  There is no simple model at hand.  Sometimes the median voter model is useful, but in most cases it implies the reforms don't matter, a conclusion which I would not wish to accept so readily.  Multi-dimensional cycling models often imply that either a) it still doesn't matter (the agenda setter remains in charge), or b) it matters some huge amount in a way which is difficult to forecast but the entire political equilibrium can shift and not just locally.

There are many "near median voter models," perhaps too many.

There is also the Becker QJE 1983 model about the bargaining power of different interest groups.  Still, when it comes to outlining exactly how the procedural reforms shift the political bargain, we are again looking at a black box.  The first cut version of the model seems to imply that political procedures don't much matter.

The overall problem is that plausible models generate either no changes or large, non-local changes.  Maybe we should take those results seriously, but then in the former case it doesn't matter and in the then-more-relevant latter case we still can't predict the nature or even the direction of the non-local shift.

The euro: where we are at

Wolfgang Munchau writes:

The EFSF will expire in 2013, at which point a new, tougher crisis regime will kick in. The EU has chosen this particular two-step construction for mainly political reasons, but from a funding perspective it is a nightmare. All existing bondholders will be protected until 2013. All government bonds issued from 2013 onwards will have collective action clauses. This means that if a government cannot service the debt, it can agree a haircut with a majority of investors – with legal force for all investors, including those who disagree with the majority vote. Looking at it from a risk-management perspective, this means that the entire default risk of the eurozone periphery will be concentrated on post-2013 bond issues. No one in their right mind would buy such junk bonds.

The way the new crisis mechanism is constructed ensures that the market for European periphery bonds is going to remain thin. What is now being conceived as a new crisis mechanism may end up as the eurozone’s principal funding agency if no one else will provide the funds. It would issue its own bonds – eurozone bonds – underwritten by the few remaining triple A-rated sovereigns, most importantly Germany and France. It is hard to see how such a construction could be sustainable. Should there ever be a default, Berlin and Paris would have to pay up – or default themselves.

How they are teaching English in South Korea

The robots, which display an avatar face of a Caucasian woman, are controlled remotely by teachers of English in the Philippines — who can see and hear the children via a remote control system.

Cameras detect the Filipino teachers' facial expressions and instantly reflect them on the avatar's face, said Sagong Seong-Dae, a senior scientist at KIST.

"Well-educated, experienced Filipino teachers are far cheaper than their counterparts elsewhere, including South Korea," he told AFP.

Apart from reading books, the robots use pre-programmed software to sing songs and play alphabet games with the children.

"The kids seemed to love it since the robots look, well, cute and interesting. But some adults also expressed interest, saying they may feel less nervous talking to robots than a real person," said Kim Mi-Young, an official at Daegu city education office.

Kim said some may be sent to remote rural areas of South Korea shunned by foreign English teachers.

The full story is here and I thank the ever-excellent Daniel Lippman for the pointer.  There is more here.