Month: April 2011

Words of wisdom

From Ross Douthat (1/20):

The only counter-argument here is the claim that the cost-cutting powers the White House wants to grant to IPAB (Medicare’s Independent Payment Advisory Board, that is) actually represents a courageous attempt to dramatically cut spending via the sustained rationing of care…The problem is that this isn’t how the President has sold the board to the public: Instead, he’s promised that it will only reduce “unnecessary spending,” which is basically the equivalent of a Republican promising to keep the entitlement system solvent by reducing Medicare fraud. (There is unnecessary spending in Medicare, certainly, but asking a 15-person board to distinguish the necessary from the unnecessary is a lot harder than many liberals seem to think.) There’s no Congressional Budget Office projection in which IPAB seriously closes the deficit, and no detail, from the White House or anyone, on what a successfully-IPABified Medicare would mean for seniors’ out-of-pocket costs. 

Chopin’s piano sonata #2, a continuing series

…plans at the University of Denver to permanently move four-fifths of the Penrose Library’s holdings to an off-campus storage facility and renovate the building into an “Academic Commons,” with more seating, group space, and technological capacity, could make the university a flashpoint in the debate about whether the traditional function of storing books needs to happen on campus.

Here is more.

Should NFL players become like economics professors?

With the lockout ending today, free agency would seem to be in place:

In the union lawyers’ world, every player would enter the league as an unrestricted free agent, an independent contractor free to sell his services to any team. Every player would again become an unrestricted free agent each time his contract expired. And each team would be free to spend as much or as little as it wanted on player payroll or on an individual player’s compensation.

The NFL Commissioner presents multiple reasons why this is a bad idea, most of which are obviously hypocritical (some players might get paid less!, and yet the players mostly favor the new system).  The serious argument I can see is that of competitive balance, but a) do fans really enjoy competitive balance or do they prefer national stage mega-rivalries of titans?, and b) there are ways to restore competitive balance other than using monopsonistic collusion in the labor market.  Here is a serious economic analysis by John Vrooman (pdf), and it suggests persuasively that sharing venue revenue can remedy the revenue imbalance problem and restore balance to the extent that is required.

Here is James Surowiecki on this topic, he is not pro-owner.  I’ve yet to see any good reason to object to the new status quo, namely universal free agency in the NFL.

I have not, however, followed this issue closely.  Working on the Modern Principles text with Alex has, among other things, taken away from my consumption of sports.

Motivation and IQ, incentives matter

There is an excellent new paper by Angela Lee Duckworth,, and here is the punchline:

…material incentives in random-assignment studies increased IQ scores by an average of 0.64 SD, suggesting that test motivation can deviate substantially from maximal under low-stakes research conditions.  The effect of incentives was moderated by IQ score: Incentives increased IQ scores by 0.96 SD among individuals with below-average IQs at baseline and by only 0.26 SD among individuals with above-average IQs at baseline.

Here is one popular summary of the results.  I interpret the finding to suggest some mix of a) conscientiousness is more important than we think (when we think we are measuring the importance of IQ), and b) there are some smart people, smarter than we often think they are, and they pick and choose their spots.

For the pointer I thank Michelle Dawson.

The Great Stagnation, in agriculture

Overall, it is neglected knowledge just how much the “Green Revolution” has slowed down since the 1990s.  In Africa, measured heights have stagnated or declined in recent times.  Robert Paarlberg’s Starved for Science: How Biotechnology is Being Kept Out of Africa is an excellent book on its title topic and more generally on falling TFP in global agriculture.

On other commodities, there are further charts and graphs (on both sides of the debate) here.  The article is overwrought but worth the read, as it shows how far we are currently from the world of Julian Simon.

The Price Elasticity of the Demand for Oil

Kevin Drum, Megan McArdle, Jim Manzi and Stuart Staniford are all worried by an IMF report that has very low price elasticities of oil such that “a 10 percent permanent increase in oil prices reduces oil demand by about 0.7 percent after 20 years.” Three quick notes.

First, do note that the IMF estimates are below others in the literature which estimate an elasticity of 0.2 to 0.3, meaning that a 10% increase in price would reduce demand by 2 to 3 percent, still small but three times the IMF estimates. Moreover, the US estimates tend to be higher still in the range of 0.4-0.5. All of the estimates are certainly low so we are not going to solve the climate change problem overnight with a tax on oil.  I’m not sure where the surprise is, however. Oil is necessary for civilization–given today’s technology–so people aren’t going to give it up easily.

Second, as Ryan Avent notes, a smaller elasticity makes a better case for taxing oil and reducing labor taxes. Moreover why the focus on oil?  What matters for climate change is total carbon and there are likely to be many carbon users with high elasticities relative to oil, which has special properties.

Third, this all depends on substitute technologies. In the past, there were few good substitutes for oil. If there are more good substitutes in the future then the elasticities will get larger. We do know that as the price of oil increases so does energy innovation (as measured by the number of energy patents).

Royal wedding markets in everything

Here is the full story, with numerous other examples: “…”the British Cheese Board has put together a William and Kate themed cheese board”. No, really; it says that. They then go on to enumerate five British cheeses and their agonisingly tenuous connection to the principal players; “Wensleydale with cranberry is a fruity blended cheese hailing from Yorkshire, just like Miss Middleton’s father””

*Compassion, by the Pound*

That is the new book by F. Bailey Norwood and Jayson L. Lusk, and the subtitle is The Economics of Farm Animal Welfare.  A few facts:

1. From survey evidence, “Food prices” get an “importance score” of %5.06, while “Well-being of farm animals” gets an importance score of %4.15 (p.192).  That’s almost on a par.

2. Fifty-five percent of Americans believe that housing chickens in cages is not humane (p.344).

3. The market share of cage-free eggs has never exceeded two percent (p.261).

I am delighted to see this book out.  This is one of the most shamefully neglected topics in all of economics.  Let’s hope it receives the attention it deserves.

Banerjee and Duflo on poverty and food

It is an excellent piece, excerpt:

The poor often resist the wonderful plans we think up for them because they do not share our faith that those plans work, or work as well as we claim. We shouldn’t forget, too, that other things may be more important in their lives than food. Poor people in the developing world spend large amounts on weddings, dowries, and christenings. Part of the reason is probably that they don’t want to lose face, when the social custom is to spend a lot on those occasions. In South Africa, poor families often spend so lavishly on funerals that they skimp on food for months afterward.

And don’t underestimate the power of factors like boredom. Life can be quite dull in a village…

We often see the world of the poor as a land of missed opportunities and wonder why they don’t invest in what would really make their lives better. But the poor may well be more skeptical about supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible and celebrating when occasion demands it.

Hat tip goes to half of the people I follow on Twitter.

(Less) High Speed Rail

The Chinese government has reduced speed on its high speed rail line over concerns about safety, the rail ministry is in debt to the tune of $271 billion dollars, its charismatic leader, Liu Zhijun, was fired for embezzlement, and cheaper buses are turning out to be more appealing to typical travelers. Charles Lane at the Washington Post has the story.

Liu exploited the communist leadership’s fascination with bigness and national prestige….

In 2004, the State Council signed off on Liu’s plan to build the world’s largest high-speed-rail network by 2020. The first leg, a 72-mile stretch between Beijing and Tianjin, would open in time for the 2008 Olympics.

Word went forth that state-owned banks and local governments were to give Liu all the money, land and labor he required. When Chinese journalists found that Liu’s ministry was using cheap, low-quality concrete, creating a safety hazard, the Communist Party’s propaganda department quashed the reports, according to a January piece in the South China Morning Post.

Students and other humble citizens greeted the first fast trains with complaints about high ticket prices. They crowded aboard buses instead.

Oh well, at least the train didn’t go to Ordos.

By simple virtue of its size, China’s government can spend huge amounts on marvels monuments but monuments don’t pay the bills. Communism set China back so far relative to its capabilities that catch-up growth can still drive it forward, even with a poor allocation of capital, but a cutting-edge economy requires more efficient (even if imperfect!), capitalist allocation.

Is Bitcoin a bubble?

Last post on this topic!  Jerry Brito reports:

The arrow notes the date my column on the virtual currency was published in The day after that piece was published, the Bitcoin exchange rate reached an all time high at $1.19. Yesterday, just over a week later, it was pushing $2.

Via Chris F. Masse, Reuben Grinberg (in a useful paper) reports:

In late April, 2011, one bitcoin is approximately at parity with the US Dollar — a 2000% percent appreciation against the Dollar in less than a year.

Of course, that’s the appreciation you might expect from a highly successful private asset!  Or you can take that as a sign of the dependence of the Bitcoin upon expectations, and a sign of its bubbly nature.  Just think how hard it is for a major country to establish crediblity for its currency, and then ask how much of the Bitcoin value is expectations-dependent and multiple-equilibria dependent.  What will be the rate of Bitcoin appreciation five years from now?  I guess it will be falling.

If you are thinking about holding Bitcoin, here is a Fischer Black paper worth reading.

“Consumer-driven” health care

…the US isn’t even close to being the leader in consumer-driven medicine, if by that you mean cost-sharing and purchasing decisions; in the rich world, that would almost certainly be Switzerland, where consumers patients not only pay heavily out of pocket, but purchase their own insurance, as both Kaiser and Cato will tell you.

That’s from Megan McArdle, with a good chart at the link.  Krugman decries the “patient as consumer” model, but oddly he once wrote a whole column praising the Swiss health care system:

…a Swiss-style system of universal coverage would be a vast improvement on what we have now [pre-ACA, at the time]. And we already know that such systems work.

Niklas Blanchard had an excellent post, “Sometimes Patients are Consumers…”  And Will Wilkinson comments.

Even in a system such as the French, actual health care decisions are very often driven by choosing individuals, even if government ends up paying the bill.

Bryan Caplan defends pacifism

In the real-world, however, pacifism is a sound guide to action.

And that includes an unwillingness to kill innocent civilians as collateral damage while acting in defense of one’s country. The original post is here, the defense against critics is here

There is not enough consideration of specific times and place.  Had England been pacifist in 1914, that might have yielded a better outcome.  Had England been pacifist in 1939, likely not.  Switzerland has done better for itself, and likely for the world, by being ready to fight back.  Pacifism today could quite possibly doom Taiwan, Israel, large parts of India (from both Pakistan and internal dissent), any government threatened by civil war (who would end up ruling Saudi Arabia and how quickly?), and I predict we would see a larger-scale African tyrant arise, gobbling up non-resisting pacifist neighbors.  Would China request the vassalage of any countries, besides Taiwan that is?  Would Russia “request” Georgia and the Baltics?  Would West Germany have survived? 

And this is the best we can do?  It’s much worse than the status quo, which is hardly delightful enlightenment.  I don’t see these examples mentioned in Bryan’s post.  There is also a Lucas critique issue of how the bad guys start behaving once they figure out that the good guys are pacifist, and I don’t see him discussing that either. 

It would be a mistake to add up all the wars and say pacifism is still better overall, because we do not face an all-or-nothing choice.  Many selective instances of non-pacifism are still a good idea, with benefits substantially in excess of their costs.  Bryan, however, has to embrace pacifism, otherwise his moral theory becomes too tangled up in the empirics of the daily newspaper

Which is exactly where I am urging him to go.