Month: December 2010
When my turn to talk about American politics came, and I tried to explain the Tea Party movement’s goal of “getting government off our backs,” I was met with blank stares and ironic smiles.
The full article is here, possibly gated (TNR), by Mark Lilla. It concerns the high and rising popularity of Leo Strauss and Carl Schmitt in China. Another excerpt:
Schmitt was by far the most intellectually challenging anti-liberal statist of the twentieth century. His deepest objections to liberalism were anthropological. Classical liberalism assumes the autonomy of self-sufficient individuals and treats conflict as a function of faulty social and institutional arrangements; rearrange those arrangements, and peace, prosperity, learning, and refinement will follow. Schmitt assumed the priority of conflict: Man is a political creature, in the sense that his most defining characteristic is the ability to distinguish friend and adversary. Classical liberalism sees society as having multiple, semi-autonomous spheres; Schmitt asserted the priority of the social whole (his ideal was the medieval Catholic Church) and considered the autonomy of the economy, say, or culture or religion, as a dangerous fiction…Schmitt saw sovereignty as the result of an arbitrary self-founding act by a leader, a party, a class, or a nation that simply declares “thus it shall be.” Classical liberalism had little to say about war and international affairs, leaving the impression that, if only human rights were respected and markets kept free, a morally universal and pacified world order would result. For Schmitt, this was liberalism’s greatest and most revealing intellectual abdication: If you have nothing to say about war, you have nothing to say about politics. There is, he wrote, “absolutely no liberal politics, only a liberal critique of politics.”
Seth Roberts offers a Chinese economics joke.
Not the ones about population, the ones about falling real resource prices.
Here is a simple model: it is easier to transfer technologies of resource extraction than it is to transfer most other technologies. In other words, Nigeria has low TFP but still their oil rigs work pretty well.
If that's true, when the wealthiest economies are opening up a commanding lead in terms of living standards, real resource prices should be falling. Nigeria can supply a lot of oil without demanding very much.
When most of the growth is catch-up growth, the poor countries demand more resources but supply technologies are not racing so quickly ahead. Real resource prices are more likely to rise.
There is a long history of falling real resource prices, but is this simply reflecting the fact that the last three hundred years don't offer many periods of catch-up growth? Now, an era catch-up growth seems to be upon us. So why should we be so confident that Simon's predictions will continue to hold?
1. "Cheap talk with multiple audiences": assorted theories of Mitch McConnell.
6. Preemptive markets in everything: BOA edition.
…in a fierce turf battle rooted in the growing pressures on the medical profession and academia, New York State’s 16 medical schools are attacking their foreign competitors. They have begun an aggressive campaign to persuade the State Board of Regents to make it harder, if not impossible, for foreign schools to use New York hospitals as extensions of their own campuses.
The changes, if approved, could put at least some of the Caribbean schools in jeopardy, their deans said, because their small islands lack the hospitals to provide the hands-on training that a doctor needs to be licensed in the United States.
The story is here.
The author is Sue Fishkoff and the subtitle is Why More and More of America's Food Answers to a Higher Authority. This late arrival is one of my favorite non-fiction books of the year, superb both on its topic and on the history and economics of certification more generally. Here is one excerpt:
"If they want to sell their product in the United States and they are not kosher, no one will buy it," points out Menachem Lubinsky. "Coca-Cola won't buy it, Kellogg's won't buy it. They'll be cut out of the market. If you're in China or Thailand and you want to export, you have absolutely no choice but to seek out kosher certification." Some companies get certification to fill one order from a U.S.-based manufacturer and then drop it when the order is complete, only to reapply when the next order comes in.
I enjoyed this piece by Rebecca Solnit on what she calls the iceberg economy and the power of voluntarism:
Who wouldn’t agree that our society is capitalistic, based on competition and selfishness? As it happens, however, huge areas of our lives are also based on gift economies, barter, mutual aid, and giving without hope of return (principles that have little or nothing to do with competition, selfishness, or scarcity economics). Think of the relations between friends, between family members, the activities of volunteers or those who have chosen their vocation on principle rather than for profit.
…The shadow system provides soup kitchens, food pantries, and giveaways, takes in the unemployed, evicted, and foreclosed upon, defends the indigent, tutors the poorly schooled, comforts the neglected, provides loans, gifts, donations, and a thousand other forms of practical solidarity, as well as emotional support.
With much of this I wholeheartedly agree. But Solnit's piece is marred by an analytical framework that places cooperative charitable activities poles apart and in opposition to unprincipled, selfish capitalism. Charity and trade, however, are both species of voluntarism more closely aligned with one another than with the coercive apparatus of the state. Indeed, it is through markets that human beings achieve the most extensive cooperation. True, capitalist cooperation is not as deep as that of say the family but precisely because it is not as deep it is far wider in scope, encompassing the world. To propose the deep ties of the family as an alternative to capitalist cooperation is to understand neither and when implemented to be inimical to both.
The authors of this volume manifestly include non-profits in the market sector. The inclusion is important because by focusing on for-profit firms proponents of markets may have overstated the case for markets narrowly conceived. Yet by ignoring the role of non-profits, opponents of markets may have understated the case for markets broadly conceived. Alternatively put, what conventional economics refers to as market failure may actually be a limited set of problems associated with for-profit firms and markets. If the term "market" is broadened to include non-profit firms and other voluntary but not for-profit organizations, the scope of such failure may be diminished. Thus, rather than saying that the authors of this volume argue for a larger role for markets, it is more revealing to say that they argue for a larger role for civil society.
One virtue of the term civil society is that it is not wrapped up in the same baggage as the term markets; in particular, to favor civil society is not necessarily to regard self-interest as the sole or even most important motivator of human action. Unfortunately, the market/government debate has often proceeded as if it were a debate between self-interest and other-regardingness. Yet there is growing support for the view that our ancestors learned to forge connections and developed a social nature for the practical reason that such connections enhanced survival, just as did their capacity for self-interest (Ridley 1996; Wright 2000). Humans are neither purely self-interested nor purely other-regarding; humans are individuals who join groups and they possess all the skills appropriate to such a classification. It should come as no surprise then that other-regardingness is not absent from markets and self-interest is not absent from government.
Hat tip to my friends at The Browser.
Addendum: Andrew Gelman comments.
Need batteries at the checkout line? If a stranger is standing nearby, shoppers are more likely to pick the expensive brand, Dr. Argo’s research has shown. Another study from the University of Vienna followed parents shopping with their kids, and found that mom and dad underestimated – by about half – the number of items tossed in the cart because their offspring asked for it. (The study’s authors recommended putting your child in the grocery cart, facing you, so their view of low-level snacks was restricted.)
Dr. Argo has also found that when an attractive salesperson touches a product, shoppers are more likely to buy it. And, another study to be published next year in the Journal of Marketing Research has shown that men who shop with their friends spend more money on products; women tend to spend the same amount as their friends or even less. Shoppers who are more individual, self-focused, says Dr. Argo, “like to bolster themselves in front of the group – it’s a tendency to show off.”
An analysis of this ancient DNA, published on Wednesday in Nature, reveals that the genomes of people from New Guinea contain 4.8 percent Denisovan DNA.
And who are they?
An international team of scientists has identified a previously shadowy human group known as the Denisovans as cousins to Neanderthals who lived in Asia from roughly 400,000 to 50,000 years ago…
Here is the article. It is suggested that the Denisovans are quite distant from both humans and Neanderthals. Here is the first cut take from Gene Expression. Here is more, from John Hawks. And more here. Ongoing updates here.
The Basel committee adopted a 3 percent leverage rule in July, meaning that for every $3 of capital, a bank can borrow no more than $97. While the percentage is tentative and subject to review before it goes into effect, it has since come under attack by banks in Europe and Asia, which say it will restrict their borrowing capacity and inhibit lending.
The EU may exclude the leverage ratio when it converts Basel rules into law next year. Several member nations have advocated dropping the rule, people close to the discussions said last month. A majority of the 27 EU countries oppose adopting the ratio, these people said.
The article offers much more detail on other questions of interest.
9. The hazards of nerd supremacy; some observations on Wikileaks.
This is the conclusion of a new paper published in Biology Letters, a high-powered journal from the UK’s prestigious Royal Society. If its tone seems unusual, that’s because its authors are children from Blackawton Primary School in Devon, England. Aged between 8 and 10, the 25 children have just become the youngest scientists to ever be published in a Royal Society journal.
Their paper, based on fieldwork carried out in a local churchyard, describes how bumblebees can learn which flowers to forage from with more flexibility than anyone had thought. It’s the culmination of a project called ‘i, scientist‘, designed to get students to actually carry out scientific research themselves. The kids received some support from Beau Lotto, a neuroscientist at UCL, and David Strudwick, Blackawton’s head teacher. But the work is all their own.
The class (including Lotto’s son, Misha) came up with their own questions, devised hypotheses, designed experiments, and analysed data. They wrote the paper themselves (except for the abstract), and they drew all the figures with colouring pencils.
One version of the story is here, which offers an excellent account and lots of background detail. The experiment had not been done before. The abstract was the one part of the paper they could not write on their own.
The paper is here. There are no statistics and no references to previous literature. The first paragraph of the introduction is this:
People think that humans are the smartest of animals, and most people do not think about other animals as being smart, or at least think that they are not as smart as humans. Knowing that other animals are as smart as us means we can appreciate them more, which could also help us to help them.
What economics project could you imagine eight-year-olds doing and publishing?
For the pointer I thank numerous sources on Twitter.
What about leverage as a proxy for this unmeasurable risk? As Proshares is showing with the Ultra (2x leverage), UltraPro (3x leverage), and short products, a security can have double or triple leverage behind it, have positive or negative exposure, and still called a 'stock'. Similarly, a bank with 10:1 ratio but plenty of ninja loans had a lot more risk than a bank with 20:1 leverage but all their mortgages had 20% down (the bad old days per Alicia Munnell). Facility risk (eg, loan-to-value) is part of the problem, so too is obligor risk (eg, credit and bureau scores), and so the multiheaded beast grows, with risk hiding from any one metric that can be applied across any large financial institution.
There is more at the link. I agree with him too. Overall, I am not very optimistic about our ability to regulate the financial sector successfully. Leverage regulation is simply the best idea of a bad lot, of what I've seen. It addresses one problem, but only one problem. There is the related question of how off-balance sheet risk rises, to compensate for the restrictions on the balance sheet. Still, the bottom line question is whether you wish for a LLR without any leverage restriction and I believe the answer is no.
Addendum: Arnold Kling comments.
2. Vassily Grossman, Everything Flows. I found this more fluent and compelling than his longer Life and Fate; it's the story of a man who returns home from a concentration camp. Recommended.
3. Richard Overy, 1939: Countdown to War. I didn't think a book so short on this topic could be good. I was wrong. Overy has a strong overall track record as an author.
4. Samuel Moyn, The Last Utopia: Human Rights in History. I don't have any objections to this much-touted book, but I expected to learn more from it than I did. It didn't feel like 352 pp.
5. Nicholas Ostler, The Last Lingua Franca: English Until the Return of Babel. A provocative book on the forthcoming decline of English as a globally dominant language. I'm not (yet?) convinced, but I'm less unconvinced than I thought I would be. One main point is that more and more business will be done without English at all, often through the BRICS countries. It is interesting to see that fewer people in South Africa are learning English.
An initial study involved 80 undergrads spending five minutes thinking about either their fifteenth century ancestors, their great-grandparents or a recent shopping trip. Afterwards, those students in the two ancestor conditions were more confident about their likely performance in future exams, an effect that seemed to be mediated by their feeling more in control of their lives.
Three further studies showed that thinking or writing about their recent or distant ancestors led students to actually perform better on a range of intelligence tests, including verbal and spatial tasks (in one test, students who thought about their distant ancestors scored an average of 14 out of 16, compared with an average of 10 out of 16 among controls). The ancestor benefit was mediated partly by students attempting more answers – what the researchers called having a 'promotion orientation'.
The full account is here. I would like to see this replicated, and subject to more variation, but in the meantime it's an interesting idea.
I agree with this:
It's not practical to micromanage risk-taking in the financial sector, nor is it feasible to eliminate bubbles and bank crises entirely. But I really do believe that we could very substantially reduce the risk of bank crises without affecting the efficiency of legitimate banking operations. The way to do it is with very simple, very blunt leverage restrictions that apply to all financial actors over a certain size: banks, insurance companies, hedge funds, private equity, you name it. If you have assets over, say, $10 billion, then the rules kick in. Strict leverage limits (say, 10:1 or maybe 15:1) based on conservative notions of both assets and capital would be a pretty effective bulwark against excessive risk taking but wouldn't seriously interfere with the basic asset allocation function of the financial industry.
It wouldn't be perfect. Nothing is perfect. But if we got obsessed with leverage the same way that, say, the Fed is obsessed with inflation, we could all sleep a lot easier at night.
I would add, however, that obsessing over leverage is likely to prove an electoral disaster. It means limiting credit growth, money supply growth, raising the cost of consumer borrowing, and putting the housing market at a further disadvantage. It also means staring down financial interest groups.