Month: March 2011

Beware the estate of James Joyce

by  Tyler Cowen in

J. Craig Venter and his fellow scientists managed to replace the genetic code of a bacterium with a synthetic code they made on a computer. Which is how they got sued by the estate of James Joyce.

In order to distinguish their synthetic DNA from that naturally present in the bacterium, Venter’s team coded several famous quotes into their DNA, including one from James Joyce’s A Portrait of the Artist of a Young Man: “To live, to err, to fall, to triumph, to recreate life out of life.”

After announcing their work, Venter explained, his team received a cease and desist letter from Joyce’s estate, saying that he’d used the Irish writer’s work without permission. ”We thought it fell under fair use,” said Venter.

That is from Jessica Crispin.

Why are Canadian banks left unscathed?

by  Tyler Cowen in

Here is one MR reader request, from RW Rogers:

Is it true that Canadian financial institutions have been relatively unscathed by the recent worldwide economic turmoil and that they were relatively unscathed during the Great Depression? If yes, why?

The Great Depression is a straightforward story, here is an excerpt from Paul Kedrosky:

Despite being adjacent geographically and tightly connected economically, banks failed in Canada and the U.S. at very different rates. Specifically, no Canadian banks failed in the period, while more than 8,000 U.S. banks failed.

Why? Among other reasons is the different structure of the systems, with Canadian banks having a branch banking structuring, making them less tied to any specific region or customer. For their part U.S. banks in the period were larger in number but smaller in assets, with far more single-branch banks in the U.S. than in Canada (where there were virtually none). The larger branch network created resilience, not just in terms of assets but in terms of markets.

What about the noughties?  Nick Rowe makes some relevant points: Canada has fewer major banks and they are more tightly regulated, hold more capital, and housing is not encouraged so much by law.  It is harder to walk away from an underwater mortgage.  Here is Megan McArdle on Canada.  Simon Johnson explains why the Canadian model cannot work for the US.  Most significantly, the U.S. banking system is in part the Canadian banking system, not so much for deposits but for high-risk activities.  That makes Canadian banking look safer, but of course Canada as a country bears a lot of risk from when the U.S. banking system goes bad.

How to win a civil war?

by  Tyler Cowen in

Don’t overestimate the military dimension, the law matters too:

In what may be the most significant development of the civil war since the Western airstrikes began, the rebels just declared the formation of a new “Libyan Oil Company,” and “the designation of the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya.”

This is really important. It means that a rebel government, recognized by France, now has an oil company and a central bank.

Here is more.  The next step is to get them targeting nominal gdp.

“Are we seeing the beginning of the end of work?”

by  Tyler Cowen in

That is a request from Hoover.  Catherine Rampell writes:

In February, for example, just 64.2 percent of adults were either in a job or actively looking for one, representing the lowest participation rate in 25 years.

At the same link you will see evidence that the number is likely to decline.  Some women are less eager to work, some men are quitting the search for work, and there is a general aging of the population.  Fewer students work while they are in school.  Here are further links to future projections.

That’s hardly the end of work but one thing dramatic recessions can do is to reveal new pieces of information.  By overturning the table, we (sometimes) see which pieces of the puzzle did not fit in the first place.  One result of this recession is that we will revise downwards our estimate of the labor force participation rate, both current and future.

A few questions are:

1. What is the political economy of a world where so few people work?

2. What kind of low-rent areas will evolve to accommodate some of these people?

3. Will we in fact move to some form of a guaranteed annual income?

Note that the answer to #2 will affect the feasibility of #3.  And our current notion of “protecting all the old people” against major health care catastrophes may someday be seen as an anachronism.  The more progress medicine makes, the harder this will be to achieve and afford.  Feasible future equilibria all seem to involve death panels, which actually may make #3 seem more attractive, relatively speaking, than spending so much money on Medicare.  Rationally or not, once the moral principle is admitted of not giving everyone absolute protection against every extreme health care event, this may encourage a shift toward cash transfers.

Indulge your employees so they don’t mess up

by  Tyler Cowen in

…a new paper “Temptation at work” suggests that forbidding their employees from surfing the net could well be a counter-productive move.

Alessandro Bucciol from the economics departments at the University of Verona and the University of Amsterdam, Daniel Houser, a professor of economics at the George Mason University, Virginia and Marco Piovesan a research fellow at Harvard Business School, set out to discover whether, having been exposed to a forbidden temptation – such as surfing the net for personal use – employees’ productivity on subsequent tasks was reduced in any way.

In a series of experiments they discovered that participants who had been asked to resist temptation made more errors in later tasks. The academics say their findings have significant implications for workplace productivity.

They suggest that if employers ban the internet they should make it unavailable. If this is not possible or impractical then employees should be allowed a certain amount of time on the internet for personal use each day, much like regular coffee breaks.

The full paper, Harvard Business School Research Paper No. 11-090, can be found on the Social Science Research Network.

The full article is here.

Professionalism vs. amateurism

by  Tyler Cowen in

Here was one MR reader request, from Philip W:

Professionalism vs. Amateurism, the merits and demerits of each. And the relationship of these to science, or “science.” How large is the role of “common sense” in your way of thinking about the world? Should we wish that policymakers would have more professionalism, or more common sense?

Amateurism is splendid when amateurs actually can make contributions.  A lot of the Industrial Revolution was driven by the inventions of so-called amateurs.  One of the most revolutionary economic sectors today — social networking — has been led by amateurs.  Maybe it is stretching the concept, but you can interpret Bill Gates and Steve Jobs as amateurs too.

Amateurs are associated with free entry and a lot of experimentation.  Barbecue quality is very often driven by amateurs, and in general amateurs still make contributions to food and cooking.   The difficulty of maintaining productive amateurs is one of the reasons why scientific progress periodically slows down.  Specialization, however necessary it may be, can make big breakthroughs harder at some margin.  (There is a good recent paper on this.)  This is one aspect of the division of labor which Adam Smith did not fully grasp, though he hinted at it.

Through computers, and the internet, the notion of amateurs working together is becoming more important.  This includes astronomical searches and theorem-proving, plus collection and collation of data, and Wikipedia; this is Shirky’s “cognitive surplus.”

On the latter part of the question, what is “common sense”?  Most common sense, if one can call it that, is a highly refined product of a lot of trial and error.  The real question is how to refine one’s common sense.

Policymakers need more of a sheer willingness to do the right thing, even if it means sacrificing reelection.  Selection mechanisms, however, do not much favor that bravery.  For a sane, well-adjusted person, the job is neither fun nor well-paying, so the job attracts people who love being in office and thus who fail to do the right thing.

When specialization proceeds very, very far, the difference between a professional and an amateur is sometimes no longer well-defined.

Lazy Boys Shakedown Chinese Furniture Makers

by  Alex Tabarrok in

James Hagerty at the WSJ has an excellent piece showing how trade policy really works at the ground floor level:

Some U.S. furniture makers and their lawyers have found a reliable way to extract cash from Chinese competitors deemed by U.S. officials to have “dumped” their products in the U.S., selling them at unfairly low prices.

Each year since 2006, they have asked the Commerce Department to review the U.S. duties paid by Chinese manufacturers on imports of wooden bedroom furniture. Many Chinese firms, fearing a steep rise in duties, agreed within months each time to pay cash to their U.S. competitors in return for being removed from the review list.

“Everybody in the industry in the U.S. and China understands that these payments are clever shakedowns,” said William Silverman, a lawyer representing U.S. furniture retailers, big importers of Chinese products, at an October hearing of the U.S. International Trade Commission.

The Chinese firms have paid millions of dollars to Lay-Z-Boy (really, I am not making this up) other US furniture makers and to their bagmen lawyers to avoid having the ITC sicked on them. I suppose one could argue that the payments are an efficient way of redistributing the gains from trade. The question then becomes why are US firms assumed to own the rights to sell to US consumers?

Hat tip to Chuck Sicotte.

Price-elastic terrorists?

by  Tyler Cowen in

When an admitted al-Qaida operative planned his itinerary for a Christmas 2009 airline bombing, he considered launching the strike in the skies above Houston or Chicago, The Associated Press has learned. But tickets were too expensive, so he refocused the mission on a cheaper destination: Detroit.

The full story is here and I thank M.R. for the pointer.  If nothing else, this example plays up how hard it is to understand the motives of terrorists.

Former CEA Chairs Call for Deficit Reduction

by  Alex Tabarrok in

Ten former chairs of the Council of Economic Advisors have written a letter calling for deficit reduction:

As former chairmen and chairwomen of the Council of Economic Advisers, who have served in Republican and Democratic administrations, we urge that the Bowles-Simpson report, “The Moment of Truth,” be the starting point of an active legislative process that involves intense negotiations between both parties.

There are many issues on which we don’t agree. Yet we find ourselves in remarkable unanimity about the long-run federal budget deficit: It is a severe threat that calls for serious and prompt attention….

It is signed by Martin N. Baily, Martin S. Feldstein, R. Glenn Hubbard, Edward P. Lazear, N. Gregory Mankiw, Christina D. Romer, Harvey S. Rosen, Charles L. Schultze, Laura D. Tyson, and Murray L. Weidenbaum.

Markets in everything

by  Tyler Cowen

Muammar Qaddafi of Libya, the king of Bahrain and the emir of Kuwait are offering one-off handouts to stop people demonstrating. These are princely, worth $4,000 per person in Kuwait and $2,500 per family in Bahrain.

The full article, about political pork in the Arabic countries, is here.  For the pointer I thank Maximiliano Levin.

Who predicts well?

by  Tyler Cowen in

…what separated those with modest but significant predictive ability from the utterly hopeless was their style of thinking. Experts who had one big idea they were certain would reveal what was to come were handily beaten by those who used diverse information and analytical models, were comfortable with complexity and uncertainty and kept their confidence in check.

That is from Tetlock and Gardner, here is more.  On that general, theme, here is Dan Gardner’s new book Future Babble: Why Expert Predictions are Next to Worthless, and You Can do Better.