Month: January 2011

We are now on Facebook

That is correct, the Cowen-Tabarrok text, Modern Principles.  It is a steady stream of resources for using the text, and learning and teaching economics more generally, updated on a very regular basis, organized using the wonders of Facebook.

Don't forget to click the "Like" button.

Thank you Mark Zuckerberg!  I rooted for you in the movie too.

Why do we care so much about sovereignty?

IVV, a loyal MR reader, asks:

With all the talks about sovereign debt and default, the various EU problems, libertarian rumblings and increasing globalization, I'm mightily curious about one thing:

Why do we care so much about sovereignty?

Why are we trying so hard to declare this patch of land one place or another, and not neither nor both? Why are we trying to identify the people on that land as under one or another jurisdiction? What does being under a jurisdiction mean, and why must that choice be kept out of the hands of individuals? What's the economic value of all this?

We need units which produce public goods and we need people willing to declare their income and pay their taxes and, sometimes, fight and die for those units.  Therefore we need some amount of irrational belief in the idea of sovereignty, nation, and the like.  (Read Benedict Anderson's Imagined Communities.)  Today's distributional pattern of nation-states probably isn't ideal (I would prefer smaller units on the whole), but when it comes to OECD nations it works well enough.  We also don't know of good transition paths to something better, though within an overarching framework such as the EU such paths may be possible. 

Arguably the whole thing is sustained by evolutionary programming.  We cling to small groups, because we once needed to for purposes of survival.  Political entrepreneurs piggyback upon this sentiment to give us a largely illusory attachment to a bigger unit than just a band of hunter-gatherers or however it worked.  The large is made to feel small, through radio, TV, and local organization of political groups, among other methods.

At the margin, policies which "slip out" of sovereignty, without wrecking the entire superstructure of the nation-state, are usually a good idea.  Such as more immigration.  Diverting $1 million from Medicare to a helicopter drop over Haiti is also a good idea, although it cannot be made politically incentive-compatible on a larger scale.  So we have a simple formula for massive gains: subvert sovereignty, at the margin, without subverting belief in sovereignty.

Elsewhere, here is Bryan Caplan on "the stranger":

What fraction of your "fellow citizens" have you actually met?  Virtually zero.  The vast majority of your countrymen are, in fact, utter strangers to you.  When you tell your kid "Don't take rides from strangers," you don't make an exception for anyone who happens to share your citizenship.  Modern government – and most of political philosophy – is just a massive effort to pretend otherwise.

Bryan's right, but he's not facing up to the need for a certain amount of false belief, even though his rhetoric brings him very close to recognizing it.  If we all regard ourselves as nothing more than "strangers," what will happen to "the cement of society"?  The price system does not suffice and in fact the price system itself requires legal and cultural foundations.  Those foundations arise, and are sustained, only when people believe in something, and it can't be just anything they believe in.  Some of those beliefs have to consist of a loyalty to a workable political unit, even to some irrational degree, compared to true cosmopolitanism.

Reihan Salam reviews *The Great Stagnation*


I'm wary of summarizing the book — I really want you to read it for yourself — but the basic idea is very straightforward: Americans have grown accustomed to painless, automatic increases in prosperity. This is true of Americans on the right, who believe that painless tax cuts will deliver prosperity, and Americans on the left, who believe that above-market wages and more public investment funded by painless tax increases on the rich will deliver prosperity. Tyler convincingly argues that we've run out of this "low-hanging fruit."

In 1920, the marginal college student was fully capable of profiting from a rigorous college education. In 2011, the marginal college student is perhaps less capable, due to a confluence of factors. Some believe that credit constraints are the driver of an increase in dropout rates. Others, myself included, believe that traditional college instruction isn't necessarily right for, say, 80 percent of the population, and that the rigidity that defines an education sector that is tightly regulated and fueled by third-party public dollars doesn't lend itself to the kind of specialization that would yield big productivity increases. This is a subject of particular interest to me.

…Many thanks to Tyler for writing a really terrific provocation.

There is much more, including some very good points on commuting.

Uncelebrated biographies

Nathan Labenz asks:

This got me thinking: what are the most compelling and informative biographies that remain uncelebrated?

"Uncelebrated by whom?" is of course the follow-up question.  Nonetheless I will put forward a few names: Jeremy Bentham, Leo Kanner, Norman Borlaug, Brahms and Stravinsky, Antoine Oleyant, a wide variety of 19th century German chemists, engineers, and scientists (who led a second Industrial Revolution), Montaigne, Thomas Bernhard, various French mathematicians, Simon Newcomb, Ramon Llull, Norbert Wiener, Babbage, and I would even say David Hume.

What are we to make of James K. Polk these days?  I am not sure.

Relative to their importance, their lives and exploits don't seem to receive much attention. In general, there are few good books (or movies) about the lives of famous economists.  Both Hayek and Friedman still lack good biographies, same with Samuelson and Arrow.  Smith, Keynes, and Nash are covered, but how many others? Why aren't there more scintillating biographies of engineers and second-tier scientists? It is harder to find important painters, even of the lower tiers, who have not received adequate biographic attention.

“Age and Great Invention”

This is from Benjamin Jones:

Great achievements in knowledge are produced by older innovators today than they were a century ago. Using data on Nobel Prize winners and great inventors, I find that the mean age at which noted innovations are produced has increased by 6 years over the 20th Century. I estimate shifts in life-cycle productivity and show that innovators have become especially unproductive at younger ages. Meanwhile, the later start to the career is not compensated for by increasing productivity beyond early middle age. I further show that the early life-cycle dynamics are closely related to variation in the age at Ph.D. and discuss a theory where accumulations of knowledge across generations lead innovators to seek more education over time. More generally, the results show that individual innnovators are productive over a narrowing span of their life-cycle, a trend that reduces, other things equal, the aggregate output of innovators. This drop in productivity is particularly acute if innovators’ raw ability is greatest when young.

Hat tip goes to Mike Gibson, read his post.

Here is a Gideon Rachmann column from today, on a similar but not exactly the same question.  I agree with his penultimate remark on the division of labor.

Assorted links

1. Symposium on inequality, including Acemoglu and Sumner.

2. China (Afghanistan) photo of the day.

3. Has digital music stopped growing?

4. Ip Man.

5. Critique of Myers-Briggs:"Due to these legitimate criticisms of the MBTI and its unscientific underpinnings, the test is rarely used in clinical psychology. I did a literature search on PubMed and discovered that, interestingly, many of the published studies of its practical utility come from nursing journals. Many of the other publications pertain to relationship counseling and religious counseling. Normally, this is a red flag. When you see a topic that purports to be psychological being used in practically every professional discipline except psychology, you have very good reason to be skeptical of its actual value."

6. The economics of the Davos conference.

7. How we subsidize banks (and see Krugman, to resolve this, one question is how well the expectations theory of the term structure in fact holds).

Kuwaiti Gift Exchange

KUWAIT CITY–Kuwait's ruler is marking several key anniversaries by literally paying tribute – handing out 1,000 dinar ($3,559) grants and free food coupons for every citizen in the Gulf nation.

The state news agency KUNA reports Monday that Sheik Sabah Al Ahmed Al Sabah has ordered the gifts for all the estimated 1 million Kuwaiti citizens.

It even covers newborns until Feb. 1….The food program is expected to offer free staples such as rice, eggs and milk until March 2012.

Hmmm, what could account for this sudden urge to gift?

In praise of picture books

No, I don't mean the pictures, I mean the text.  Picture books are one of the best ways to learn basic information about a topic.  First, by viewing the photos you are more likely to remember some aspects of the material.  It works for kids and maybe it works for you too.  Second, the text is stripped down to essentials.  Third, the authors of picture books are often relatively "agenda-less," since most people don't read the text, the selling point is the pictures, and the book is so expensive that the publisher doesn't want to rule out the broadest possible audience.

I would not use picture books to resolve disputes over details or to find the best conceptual framework.  The text in picture books has some of the same strengths and weaknesses of Wikipedia pages.  It's odd to see a similar blandness in both the lowest cost and highest cost corners of the publishing world.

Lately I have been "reading" Ottoman Architecture, by Dogan Kuban, Toyokuni (oddly I can't find it on Amazon or remember the author's name), Textiles: Collection of the Museum of International Folk Art, by Bobbie Sumberg, and Architectura, by Miles Lewis.  You can walk into any public library and take home more splendid picture books than you will have time for.  How many you can carry is another constraint. 

New issue of Econ Journal Watch

In the new issue: 

Channeling Robert Higgs: Steven Horwitz replies to Gauti Eggertsson on the Great Depression.
Advanced Placement ® Economics: What Kind of Economics Do High Schoolers Get? Tawni Ferrarini, James Gwartney, and John Morton investigate.
Housing Supply Constraints, Natural and Regulatory, by Wendell Cox; with a Reply by Haifang Huang and Yao Tang
Troubling Research on Troubled Assets – Linus Wilson reports.
Growth Accelerations Revisited: With errors corrected and data extended, previous results prove fragile – Guo Xu reports.
The Ideological Profile of Harvard University Press: David Gordon categorizes 494 book published 2000-2010.
The Never to Be Forgotten Hutcheson: Excerpts from W.R Scott (1900)
EJW Audio:Advance Placement ® Economics: Tawni Ferrarini discusses the importance of AP Economics and unsatisfactory aspects of its content.
EJW Audio: The Role of Economists in Ending the Draft. Noble efforts recounted by David R. Henderson.

Greek bond buyback

Paul Krugman's link (and old paper) reminded me I had wanted to cover this idea:

Analysts said on Wednesday that having Greece buy back its own devalued bonds could be an important step toward solving Europe’s sovereign debt crisis.

It's an interesting equilibrium.  Let's say Greek bonds are selling for 60 cents on the dollar.  If the Greek government offers sixty-one cents, arguably the government is signaling a more optimistic prognosis than a 60 cent value or even a 61 cent value for the bond.  Don't sell ("beware of Greeks bearing gifts!").  If everyone is a rational Bayesian, the price of bonds should go up to the point where the Greek government doesn't want to buy the bonds any more or where indifference holds.

If buying back some of the bonds makes the rest of the debt easier to pay back, all the more reason not to sell your bonds at the initial offer price.

The purchase might work if the Greek government can signal they don't have inside information about their own ability or willingness to pay back the money.  That's hard to do, but not impossible.  After all, companies do buy back their own shares and I don't think tax arbitrage is the only motive.  For instance the company also may wish to shift the composition of its creditors and perhaps governments have the same motive.  Then the purchase can be a win-win.

Another equilibrium is if the Greek government offers to buy back the bonds with some probability.  Sellers might then play a mixed strategy in response and maybe then we are getting somewhere, with some probability that is.  These games usually are complicated and if you don't already get the intuition here don't bother with it.

Overall, the schemes are unlikely to work in practice.

Does mismeasured inflation overturn a relative stagnation thesis?

In the comments, Slocum writes:

My skepticism is not that the nominal household income or GDP number are wrong, but that the inflation-adjusted numbers are wildly off because they fail to capture the innovations and transformational improvements in goods and services. Consider music. The music industry, measured in sales, is shrinking. 25 years ago as a college student, I bought a lot LPs and CDs (probably a few hundred $$ a year). Now I spend very little. Am I worse off as a music listener now? Obviously not — I am immensely better off. But judging by the gross dollar volume of the music business, you would reach exactly the wrong conclusion about 'stagnation'.

The fundamental fact is that U.S. real median income has risen at a lower rate since 1973, not that progress has been absent.  One might think that the CPI is skewed and there are reasonable arguments to be made in this direction.  But the CPI will be most skewed to underappreciate progress when truly new goods and services are being introduced into the marketplace or spreading to new regions.  And that is (roughly) the 1870-1950 period, more than any other time.  In other words, if you account for CPI bias, the slowdown in median income growth — the difference — is probably larger than the numbers make it appear, even though in absolute terms both growth rates will be higher than measured. 

When some people hear the relative stagnation thesis, their minds shoot to various bogeymen: Paul Ehrlich, ridiculous 1907 proposals to close the patent office, predictions of mass starvation, and so on.  The simplest version of the point is that technological progress is not uniform, and that is borne out by thousands of years of human history.  This isn't Lake Wobegon, so some periods have to have lower than average growth in living standards than other periods.  One of those periods happens to be now, since 1973, give or take.  And from that flows many propositions of importance, for politics too.

You can buy the eBook here.

Uganda fact of the day

At 71 members strong, Uganda has the third largest cabinet in the world after North Korea and Kenya. This is in circumstances where the global average of ministers is 30. The average for Sub-Saharan Africa is 40. Even by regional standards, apart from Kenya, the average in the East African community is 30 as Tanzania has 34, Rwanda 27 and Burundi 29. Even among Africa’s oil producing countries, Uganda retains the gold medal – only Nigeria comes close with 54 cabinet ministers. The rest of the oil producing countries have ministers in the mid 40s.

Here is more and for the pointer I thank Michael Orthofer.  Is there a literature on when cabinet positions are the most effective ways of distributing political rents?

Have track and field performances peaked?

I don't know much about track and field, but I found this article interesting, excerpt:

Today 64 percent of track and field world records have stood since 1993. One world record, the women’s 1,500 meters, hasn’t been broken since 1980. When Berthelot published his study last year in the online journal PLoS One, he made the simple but bold argument that athletic performance had peaked. On the whole, Berthelot said, the pinnacle of athletic achievement was achieved around 1988. We’ve been watching a virtual stasis ever since.

It seems unlikely to me that we have reached a true peak, rather a temporary plateau with slower-than-average growth, until the next breakthrough in training, technique, genetic manipulation, or whatever.  Does that sound familiar?